Ch11_Logistics Relationships and Third-Party Logistics

8/12/2019 Ch11_Logistics Relationships and Third-Party Logistics

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Chapter 11 Management of Business Logistics, 7th Ed. 2

Learning Objectives - After reading this

chapter, you should be able to do the following:

Understand the importance of logisticsrelationships and the types of relationships

that may be formed. Be knowledgeable of a process model that

will facilitate the development andimplementation of successful supply chain

relationships. Define what is meant by third-party logistics

(3PL), and know what types of firms provide3PL services.




Learning Objectives Know what types of 3PL services are used by

client/customer firms, and know what types

of 3PL providers are used. Appreciate the role and relevance of

information technology-based services to3PLs and their client/customers.

Realize the ways in which 3PLs are involvedin global supply chain issues.




Learning Objectives Know the extent to which customers are

satisfied with 3PL services, and understand

where improvement may be needed. Recognize the importance of “collaborative”

relationships in the context of supply chainmanagement.




Logistics Profile:

UPS Logistics Group UPS Logistics Group signed a five-year $150

million deal to manage National

Semiconductor’s global supply chaindistribution center in Singapore.

The DC uses radio frequency, bar-codescanning, and web-based technology.

Fills >450K orders per year; receives 12 millioninbound chips daily; and ships four billion products per year on sales of $2.1 billion.




Logistics Relationships and Third-

Party Logistics: Introduction With more firms interested in working more

closely with their supply chain partners, high

priorities are: Developing and implementing successful

supply chain relationships;

The need for collaboration to achievesupply chain objectives; and,

Value created by third-party logistics.




Logistics Relationships:

Types of Relationships Vertical

Refer to the traditional links between

supply chain members such as retailers,distributors, manufacturers and suppliers.

Horizontal

Firms that have parallel or cooperating

positions in the supply chain such as atransportation firm and a warehousing firmserving the same customer.





Intensity of Involvement Vendor relationship shows little or no

integration or collaboration.

Strategic alliance shows full integration andcollaboration.

Partnership shows a customized relationshipthat results in better outcomes than could bereached separately.

Examine Figure 11-1 on the next slide.




Figure 11-1

Relationship Perspectives





Intensity of Involvement Regardless of form,

there are numerous

ways that therelationships maydiffer:

Duration

Obligations

Expectations

Interaction andCommunication

Cooperation Planning Goals

Performance

analysis Benefits and

burdens




Figure 11-2 Effectiveness of

Supply Chain Relationships

7% 8%

22% 21%

48%42%

20%23%

2% 4%

0%

10%

20%

30%

40%

50%

Poor Fair Average Good Exceptional

Suppliers Customers

P e r c e n t a g e




Logistics Relationships:Model for Developing and Implementing

Successful Supply Chain Relationships Six step process for forming and sustaining

supply chain relationships:

Step One – Perform strategic assessment Step Two – Decision to form relationship

Step Three – Evaluate alternatives

Step Four – Select partners

Step Five – Structure operating model

Step Six – Implementation and continuousimprovement




Logistics Relationships:Model for Developing and ImplementingSuccessful Supply Chain Relationships

Step Three – Evaluate alternatives

Measure and weigh drivers and facilitators.

Decide on type of relationship.

Match manufacturer’s needs withcapabilities of each potential partner.

Involve other functional managers in theoverall selection process.




Logistics Relationships:Model for Developing and ImplementingSuccessful Supply Chain Relationships

Step Four – Select partners

Made only after close consideration of the

credentials of the most likely candidates. Interact with and get to know the final

candidates on a professionally intimatebasis.

Attempt consensus to maximize “buy-in”.




Third-Party Logistics:Industry Overview

Firms have directed considerable attention todeveloping supply chain relationships.

Many companies have been in the process ofextending their logistics organizations intothose of other supply chain participants andfacilitators.

One way of accomplishing this extension isthrough the use of a supplier of third-party orcontract logistics services.5




Figure 11-5 Implementation andContinuous Improvement




Third-Party Logistics (3PL):Definitions

3PLs are external suppliers that perform all orpart of a company’s logistics functions,including:

Transportation

Warehousing

Distribution

Financial services Terms contract logistics and outsourcing are

sometimes used in place of 3PL.




Third-Party Logistics (3PL):Types of 3PL Providers

Transportation-Based

Warehouse/Distribution-Based

Forwarder-Based Financial-Based

Information-Based





Warehouse/Distribution-Based

Many, but not all, have former warehouse

and/or distribution experience. Transition to integrated logistics has been

less complex than for the transportationbased providers.

DSC Logistics, USCO, Exel, CaterpillarLogistics, and IBM are examples ofwarehouse/distribution-based 3PLs.





Forwarder-Based

Essentially very independent middlemen

extending forwarder roles. Non-asset owners that capably provide a

wide range of logistics services.

AEI, Kuehne & Nagle, Fritz, Circle, C. H.Robinson, and the Hub Group areexamples of forwarder-based 3PLs.





Financial-Based

Provide freight payment and auditing, cost

accounting and control, and tools formonitoring, booking, tracking, tracing, andmanaging inventory.

Cass Information Systems, CTC, GEInformation Services, and FleetBoston areexamples of financial-based 3PLs.




On the Line:Trade Team

Excel, the largest provider of brewerydistribution services in Great Britain, and Bass,

the industry’s low-cost producer, formed TradeTeam, the UK’s leading independent logisticsprovider to the beverage industry.

Annual sales of $200 million; 280 million gallons

of beer and other beverages to over 27,000retail customers; 40-50% market share.

Has capability to move other products.




Third-Party Logistics ResearchStudy: Industry Details

Of 93 responding executives, 71 percentindicate a current or possible use of 3PLs.

Overall percentage of companies using 3PLsis steady, but the computer and peripheraland consumer products industries tend toexhibit higher use (90 and 85 percent,

respectively). Less use in automotive, chemical and retail

(50 to 60 percent usage range).




Figure 11-6 3PL User/NonuserExperience, 1996-2001




Table 11-1Shippers Using More than Five 3PLs




Table 11-2 Third-Party RevenuesEstimated at $56.4 Billion in 2000




Table 11-3 Top Six OutsourcingLogistics Services: 2001




Figure 11-7 Nonuser Respondents:Rationale for Not Using 3PL Services




Table 11-4 Information Technology-BasedServices: Current Percent versus Future Percent




Figure 11-8Sources of Information Technology




Figure 11-9 3PL Customer Use of IndustryVertical Procurement Markets




Figure 11-10 3PL Customer Use ofTransportation/Logistics Electronic Markets




Figure 11-11 3PL Involvement in Outsourcing:Who Is Responsible for Implementation?




Figure 11-12 3PL Customer Evaluation ofOutsourcing (Yearly Comparisons)




Figure 11-133PL Factors for Selecting and Evaluating 3PLs




Third-Party Logistics ResearchStudy: Industry Details

Reported problem areas: Service level commitments not realized.

Strategic management skills lacking.

Cost reduction goals not realized.

Cost “creep” and price increases occurring.

Improvements and achievements lacking.

Control of outsourced functions diminished.

Consultative, knowledge-based skills lacking.

Technology capabilities not being delivered.

Time and effort spent on logistics not reduced.




Figure 11-14How Respondents View Providers of Third-PartyLogistics Services




A Note on Fourth-Party Logistics(4PL): The Next Evolution?

Thought of as supply chainintegrator, a firm that

“assembles and manages

the resources, capabilities,and technology of its own organization withthose of complementary service providers todeliver a comprehensive supply chain

solution.” 12

4PLs manage and direct the activities ofmultiple 3PLs, serving as an integrator.




Figure 11-15Fourth-Party Logistics (Registered Trademark of

Accenture, Inc.)




Need for CollaborativeRelationships13

Supply chain relationships are most effectivewhen collaboration occurs.

Collaboration is facilitated by the ability of thesupply chain partners to readily access andexchange information over the Internet.

Table 11-5 lists the “Seven Laws of

Collaborative Logistics” and is a guide toestablishing and maintaining collaborativelogistics networks.




Table 11-5Seven Laws of Collaborative Logistics



Chapter 11:Summary and Review Questions

Students should review their knowledge of thechapter by checking out the Summary and Study

Questions for Chapter 11.



End of Chapter 11 Slides

Logistics Relationships and

Third-Party Logistics

Ch11_Logistics Relationships and Third-Party Logistics

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