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Logistics Relationships and
Third-Party Logistics
Objectives
Understand the importance of logistics relationships and the types of relationships that may be formed.
Be knowledgeable of a process model that will facilitate the development and implementation of successful supply chain relationships.
Define what is meant by third-party logistics (3PL), and know what types of firms provide 3PL services.
Logistics Relationships: Intensity of Involvement
Vendor relationship shows little or no integration or collaboration.
Strategic alliance shows full integration and collaboration.
Partnership shows a customized relationship that results in better outcomes than could be reached separately.
Examine Figure 11-1 on the next slide.
Figure 11-1 Relationship Perspectives
Logistics Relationships: Intensity of Involvement
Regardless of form, there are numerous ways that the relationships may differ: Duration Obligations Expectations
Interaction and Communication
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
Percentag
e
Chapter 11 Management of Business Logistics, 7th Ed.
12
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 continuous
improvement
Figure 11-3 Process Model for Forming Logistics Relationships
Chapter 11 Management of Business Logistics, 7th Ed.
14
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step One – Perform strategic assessment Manufacturer becomes fully aware of its
logistics and supply chain needs and overall strategies that will guide its operations.
This step is referred to as a Logistics Audit,.
Time spent at the outset is well spent.
Management of Business Logistics, 7th Ed.
15
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step Two – Decision to form relationship When using an external supplier, will the
firm’s services be needed. If the firm has core competencies in the
area that external supplier provides, then the firm can provide its own services.
Using channel partners depends on whether there are compelling drivers and facilitators for partnerships are present.
Figure 11-4 What Does It Take to Have an Area of Core Competency?
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Drivers might include: Asset/Cost efficiency Customer service Marketing advantage Profit stability/growth
Facilitators might include: Corporate compatibility Management philosophy
and techniques Mutuality of commitment Symmetry on key factors
such as relative size, financial strength, etc.
Management of Business Logistics, 7th Ed.
18
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step Three – Evaluate alternatives Measure and weigh drivers and facilitators. Decide on type of relationship. Match manufacturer’s needs with
capabilities of each potential partner. Involve other functional managers in the
overall selection process.
Logistics Relationships: Model for Developing and Implementing Successful 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 intimate basis.
Attempt consensus to maximize “buy-in”.
Management of Business Logistics, 7th Ed.
20
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step Five – Structure operating model Planning Joint operating controls Communication Risk/Reward sharing Trust and commitment Contract style Scope of the relationship Financial investment
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step Six – Implementation and continuous improvement Depending upon the complexity of the
relationship, the implementation period may vary in length.
Future successes will be a direct function of the ability of the partners to achieve both breakthrough and continuous improvement.
Management of Business Logistics, 7th Ed.
22
Third-Party Logistics: Industry Overview
Firms have directed considerable attention to developing supply chain relationships.
Many companies have been in the process of extending their logistics organizations into those of other supply chain participants and facilitators.
One way of accomplishing this extension is through the use of a supplier of third-party or contract logistics services.5
Figure 11-5 Implementation and Continuous Improvement
Third-Party Logistics (3PL): Definitions
3PLs are external suppliers that perform all or part 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
Third-Party Logistics (3PL): Types of 3PL Providers
Transportation-Based Services extend beyond transportation to
offer a comprehensive set of logistics offerings.
Leveraged 3PLs use assets of other firms. Nonleveraged 3PLs use assets belonging
solely to the parent firm. Ryder, Schneider Logistics, FedEx
Logistics, and UPS Logistics are examples of 3PLs.
Third-Party Logistics (3PL): Types of 3PL Providers
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 transportation based providers.
DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.
Third-Party Logistics (3PL): Types of 3PL Providers
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 are examples of forwarder-based 3PLs.
Third-Party Logistics (3PL): Types of 3PL Providers
Financial-Based Provide freight payment and auditing, cost
accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.
Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.
Third-Party Logistics (3PL): Types of 3PL Providers
Information-Based Significant growth and development in this
alternative category of Internet-based, business-to-business, electronic markets for transportation and logistics services.
Transplace and Nistevo are examples of information-based 3PLs.
Third-Party Logistics Research Study: Industry Details
Outsourced logistics services include: Warehousing (73.7%) Outbound transportation (68.4%) Freight bill auditing/payment (61.4%) Inbound transportation (56.1%) Freight consolidation/distribution (40.4%) Cross docking (38.6%)
Figure 11-7 Nonuser Respondents: Rationale for Not Using 3PL Services
Figure 11-11 3PL Involvement in Outsourcing: Who Is Responsible for Implementation?
Figure 11-13 3PL Factors for Selecting and Evaluating 3PLs
Third-Party Logistics Research Study: Industry Details
Quantifiable measures of 3PL success: Logistics costs reduced by 8.2 percent. Logistics assets reduced by 15.6 percent. Average order cycle length changed from
10.7 to 8.4 days. Overall inventories reduced by 5.3 percent.
Third-Party Logistics Research Study: 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 11-14 How Respondents View Providers of Third-Party Logistics Services
A Note on Fourth-Party Logistics (4PL): The Next Evolution?
Thought of as supply chain integrator, a firm that “assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.”12
4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.
Figure 11-15 Fourth-Party Logistics (Registered Trademark of Accenture, Inc.)
Need for Collaborative Relationships13
Supply chain relationships are most effective when collaboration occurs.
Collaboration is facilitated by the ability of the supply chain partners to readily access and exchange information over the Internet.
Table 11-5 lists the “Seven Laws of Collaborative Logistics” and is a guide to establishing and maintaining collaborative logistics networks.
Table 11-5 Seven Laws of Collaborative Logistics