Chapter 4 Supply Chain Relationships Learning Objectives After
Chapter 4 Supply Chain Relationships Learning Objectives After reading this chapter, you should be able to do the following: ¨ Understand the types of supply chain relationships and their importance. ¨ Describe a process model that will facilitate the development and implementation of successful supply chain relationships. ¨ Recognize the importance of “collaborative” supply chain relationships. ¨ Define what is meant by third-party logistics (3 PL) and know what types of firms provide 3 PL services.
Learning Objectives After reading this chapter, you should be able to do the following: ¨ Know what types of 3 PL services are used by client/customer firms and what types of 3 PL providers are used. ¨ Discuss the role and relevance of information technology-based services to 3 PLs and their clients/customers. ¨ Know the extent to which customers are satisfied with 3 PL services and identify where improvement may be needed. ¨ Understand some of the likely future directions for outsourced logistics services.
Logistics Relationships ¨ Types n vertical relationships: ¨ n of Relationships these refer to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers horizontal relationships: ¨ includes those business agreements between firms that have “parallel” or cooperating positions in the logistics process.
n Range of relationship types ¨ Transactional: n Both parties in a vendor relationship are said to be at “arm’s length” ¨ Collaborative: n the relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives ¨ Strategic: n represents an alternative that may imply even greater involvement than the partnership or strategic alliance.
Figure 4 -1 Relationship Perspectives Relational Transactional Vendor Partner Strategic Alliance
Regardless of form, relationships may differ in numerous ways. A partial list of these differences follows: ¨ ¨ ¨ ¨ ¨ Duration Obligations Expectations Interaction/Communication Cooperation Planning Goals Performance analysis Benefits and burdens
Source: Copyright 2001, C. John Langley Ph. D Used with permission
Figure 4 -3 What Does It Take to Have an Area of Core Competency?
Drivers defined as “compelling reasons to partner”; all parties “must believe that they will receive significant benefits in one or more areas and that these benefits would not be possible without a partnership” Facilitators are defined as “supportive corporate environmental factors that enhance partnership growth and development”; As such, they are the factors that, if present, can help to ensure the success of the relationship
Figure 4 -4 Implementation and Continuous Improvement Ray A. Mundy, C. John Langley Jr. , and Brian J. Gibson, Continuous Improvement in Third Party Logistics, (2001).
Collaboration: ¨ Collaboration occurs when companies work together for mutual benefit. ¨ Collaboration goes well beyond vague expressions of partnership and aligned interests. ¨ Companies leverage each other on an operational basis and creates a synergistic business environment in which the sum of the parts is greater than the whole.
Seven Immutable Laws of Collaborative Logistics n Collaborative Logistics Networks Must Support: ¨ ¨ ¨ ¨ Real and recognized benefits to all members Dynamic creation, measurement, and evolution of collaborative partnerships Co-buyer and co-seller relationships Flexibility and security Collaboration across all stages of business process integration Open integration with other services Collaboration around essential logistics flows
Definition of Third-Party Logistics ¨ Essentially, a third-party-logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions. ¨ Among these, multiple logistics activities are included, those that are included are “integrated” or managed together, and they provide “solutions” to logistics/supply chain problems.
Types of 3 PL Providers ¨ transportation-based ¨ warehouse/distribution-based ¨ forwarder-based ¨ shipper/management-based ¨ financial-based ¨ information-based firms
Figure 4 -6 3 PL Logistics Market Turnover Growth (US $Billion) $100 $80 $60 $40 $20 $0 1996 1997 1998 1999 2001 2002 2003 2004 2005 2000
Source: 2005 Tenth Annual 3 PL Study, Georgia Tech and Cap Gemini LLC. Used with permission
Source: 2005 Tenth Annual 3 PL Study, Georgia Tech and Cap Gemini LLC. Used with permission
Figure 4 -11 Fourth-Party. TM TM Logistics* + Greater Functional Integration + Broader Operational Autonomy Source: Accenture, Inc. Used with permission. *TM Registered trademark of Accenture, Inc.
Figure 4 -12 Current vs. Projected Logistics Expenditures Directed to Outsourcing
Table 4 -9 Future 3 PL Industry Trends n Continued expansion, acquisition and consolidation of 3 PL industry n Expansion of global markets and needed services n n Continued broadening of service offerings across supply chain and broad-based business process outsourcing Two-tiered relationship models (strategic and tactical) n Growing range of “strategic” services offered by 3 PLs and 4 PLs n IT Capabilities to become an even greater differentiator n Increased efforts to update, enhance, and improve 3 PL provider-user relationships n Emphasis on relationship reinvention, mechanisms for continual improvement, and solution innovation
Summary n The two most basic types of supply chain relationships are “vertical” (e. g. , buyer-seller) and “horizontal” (e. g. , parallel or cooperating). n In terms of intensity of involvement, interfirm relationships may span from transactional to relational and may take the form of vendor, partner, and strategic alliances. n There are six steps in the development and implementation of successful relationships. These six steps are critical to the formation and success of supply chain relationships. n Collaborative relationships, both vertical and horizontal, have been identified as highly useful to the achievement of long-term supply chain objectives. The “Seven Immutable Laws of Collaborative Logistics” provide a framework for the development of effective supply chain relationships.
Summary (cont. ) n Third-party logistics providers may be thought of as an “external supplier that performs all or part of a company’s logistics functions. ” It is desirable that these suppliers provide multiple services, and that these services are integrated in the way they are managed and delivered. n The several types of 3 PLs are transportation-based, warehouse/distributionbased, forwarder-based, financial-based, and information-based suppliers. n Based on the results of a comprehensive study of users of 3 PL services in the United States, over 70 percent of the firms studied are, to some extent, users of 3 PL services. n User experience suggests a broad range of 3 PL services utilized; the most prevalent are warehousing, outbound transportation, and freight bill payment and auditing.
Summary (cont. ) n While nonusers of 3 PL services have their reasons to justify their decision, these same reasons are sometimes cited by users as justification for using a 3 PL. n Customers have significant IT-based requirements of their 3 PL providers, and they feel that the 3 PLs are attaching a priority to respond to these requirements. n Approximately two-thirds of the customers suggest 3 PL involvement in their global supply chain activities. n Although most customers indicate satisfaction with existing 3 PL services, there is no shortage of suggestions for improvement.
Summary (cont. ) n Customers generally have high aspirations for their strategic use of 3 PLs and consider their 3 PLs as keys to their supply chain success. n There is a growing need for fourth-party logistics relationships that provide a wide range of integrative supply chain services.
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