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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

Learning Objectives, continued ● 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

Logistics Relationships ● Types of Relationships • Vertical 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. ● Intensity of Involvement • Ranges from transactional vendor to strategic alliance © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Logistics Relationships, continued ● Intensity of Involvement • Transactional ○ Both parties in a vendor relationship are said to be at “arm’s length” • Collaborative ○ 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 ○ represents an alternative that may imply even greater involvement than the partnership or strategic alliance. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

Figure 4. 1 Relationship Perspectives Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Logistics Relationships, continued ● Relationships may differ in numerous ways. A partial list includes: • • • Duration Obligations Expectations Interaction/Communication Cooperation Planning Goals Performance analysis Benefits and burdens © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

Figure 4. 2 Process for Forming Relationships Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 3 Required for a Core Competency Area Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Model for Developing and Implementing Successful Supply Chain Relationships ● Step 1: Perform strategic assessment ● Step 2: Decision to form relationship ● Step 3: Evaluate alternatives ● Step 4: Select partners ● Step 5: Structure operating model © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 4 Implementation & Continuous Improvement Source: Ray A. Mundy C. John Langley Jr. , and Brian J. Gibson Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Need for Collaborative Relationships ● Vertical collaboration refers to the relationship between buyer and supplier in the supply chain. ● Horizontal collaboration refers to buyer or seller-seller relationships. ● Full collaboration is the dynamic combination of both vertical and horizontal collaboration. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 5 Types of Collaboration Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Table 4. 1 7 Laws of Collaborative Logistics ● Collaborative Logistics Networks Must Support: 1. Real and recognized benefits to all members 2. Dynamic creation, measurement, and evolution of 3. 4. 5. 6. 7. collaborative partnerships Co-buyer and co-supplier relationships Flexibility and security Collaboration across all stages of business process integration Open integration with other sources Collaboration around essential logistics flows Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Third-Party Logistics – Industry Overview ● 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Third-Party Logistics – Industry Overview, continued ● Types of 3 PL providers • • • Transportation-based (e. g. , UPS, DHL, Ryder) Warehouse/distribution-based Forwarder-based (middleman) Financial-based Information-based firms ● 3 PL market size and scope • Total revenue • North America: $143. 3 billion • Global: $539. 1 billion © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

Table 4. 3 Global 3 PL Market Revenue Estimate © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 6 3 PL Revenue Growth – U. S. Market Source: Predictions and major trends for third part logistics 2011, Armstrong & Assoc. , Inc. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Table 4. 2 Top Buyers of 3 PL Services © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Third-Party Logistics Research Study – Industry Details ● Profile of logistics outsourcing • Operational, transactional, and repetitive services were the most likely to be outsourced. • Domestic, international transportation and warehousing. ● Strategic role of information technology • Most frequently used services were transportation and warehouse management systems. ● Management and relationship issues • Must establish appropriate roles for 3 PL and clients • All outsourcing or hybrid • Trust and core competency issues. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 7 Outsourced Logistics Services Source: Fifteenth Annual 3 PL Study, C. John Langley Jr. Ph. D. . Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Third-Party Logistics Research Study– Industry Details , continued ● Customer Value Framework • 3 PL’s enable reduced costs, fewer assets, less working capital, and improved order performance. ● A Strategic View of Logistics and the Role of 3 PL’s • Fourth-party logistics (4 PL): • A supply chain integrator who deliver a comprehensive supply chain solution • It can manage 3 PLs. • Logistics outsourcing model for the future ○ Entirely outsourced logistics service, imbedded with proprietary provision of logistics services from the bottoms (in -sourcing), basic services (transportation and warehousing), and up through the stages (Figure 4. 11) © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

Figure 4. 9 Customer’s Perspectives on 3 PL Relationships Source: 2005 Tenth Annual 3 PL Study, C. John Langley Jr. Ph. D. and Cap Gemini LLC. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 10 Evolution of 3 PL / LLP / 4 PL Services Source: C. John Langley Jr. , Ph. D. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4. 11 Next Generation Logistics Outsourcing Models Source: 2005 Tenth Annual 3 PL Study, C. John Langley Jr. Ph. D. and Cap Gemini LLC. Used with permission © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Summary ● The two most basic types of supply chain relationships are “vertical” (e. g. , buyer-seller) and “horizontal” (e. g. , parallel or cooperating). ● In terms of intensity of involvement, inter-firm relationships may span from transactional to relational and may take the form of vendor, partner, and strategic alliances. ● 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26

Summary, continued ● 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. ● Third-party logistics providers may be thought of as an “external supplier that per-forms 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. ● The several types of 3 PLs are transportation-based, warehouse/distribution-based, forwarder-based, financial -based, and information-based suppliers. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27

Summary, continued ● 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 use 3 PL services, to some extent. ● User experience suggests a broad range of 3 PL services utilized; and the most prevalent are transportation, warehousing, customs clearance and brokerage, and forwarding. ● 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. ● 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28

Summary, continued ● Approximately two-thirds of the customers suggest 3 PL involvement in their global supply chain activities. ● Although most customers indicate satisfaction with existing 3 PL services, there is no shortage of suggestions for improvement. ● Customers generally have high aspirations for their strategic use of 3 PLs and consider their 3 PLs as keys to their supply chain success. ● There is a growing need for fourth-party logistics relationships that provide a wide range of integrative supply chain services. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29