2. Learning Objectives - After reading this
chapter, you should be able to do the following:
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.
3. 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 to
3PLs and their client/customers.
Realize the ways in which 3PLs are involved
in global supply chain issues.
4. 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 chain
management.
5. Logistics Profile:
UPS Logistics Group
UPS Logistics Group signed a five-year $150
million deal to manage National
Semiconductor’s global supply chain
distribution center in Singapore.
The DC uses radio frequency, bar-code
scanning, and web-based technology.
Fills >450K orders per year; receives 12 million
inbound chips daily; and ships four billion
products per year on sales of $2.1 billion.
6. 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 achieve
supply chain objectives; and,
Value created by third-party logistics.
7. 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 a
transportation firm and a warehousing firm
serving the same customer.
8. 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.
10. 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
11. 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 Except ional
Suppliers Customers
Percentag
e
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
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,
and will be covered in Chapter 14.
Time spent at the outset is well spent.
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.
16. Figure 11-4 What Does It Take to
Have an Area of Core Competency?
17. 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.
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.
19. 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”.
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
21. 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.
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
24. 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.
26. 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.
27. 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.
28. 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.
29. 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.
30. 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.
31. On the Line:
Trade Team
Excel, the largest provider of brewery
distribution services in Great Britain, and Bass,
the industry’s low-cost producer, formed Trade
Team, the UK’s leading independent logistics
provider to the beverage industry.
Annual sales of $200 million; 280 million gallons
of beer and other beverages to over 27,000
retail customers; 40-50% market share.
Has capability to move other products.
32. Third-Party Logistics Research
Study: Industry Details
Of 93 responding executives, 71 percent
indicate a current or possible use of 3PLs.
Overall percentage of companies using 3PLs
is steady, but the computer and peripheral
and consumer products industries tend to
exhibit higher use (90 and 85 percent,
respectively).
Less use in automotive, chemical and retail
(50 to 60 percent usage range).
46. 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.
47. 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.
49. 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.
51. 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.
53. Chapter 11:
Summary and Review Questions
Students should review their knowledge of the chapter
by checking out the Summary and Study Questions
for Chapter 11.
54. End of Chapter 11 Slides
Logistics Relationships and
Third-Party Logistics