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Chapter 11:

Chapter 11: . Logistics Relationships and Third-Party Logistics. 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.

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Chapter 11:

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  1. Chapter 11: Logistics Relationships and Third-Party Logistics

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

  3. 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. Management of Business Logistics, 7th Ed.

  4. Logistics Relationships: • Two main types of relationships • Intensity of involvement • Modeling • Third party logistics Management of Business Logistics, 7th Ed.

  5. 1. Types of Relationships A. Vertical • Refer to the traditional links between supply chain members such as retailers, distributors, manufacturers and suppliers. B. 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. Management of Business Logistics, 7th Ed.

  6. 2. 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. Management of Business Logistics, 7th Ed.

  7. Figure 11-1 Relationship Perspectives Management of Business Logistics, 7th Ed.

  8. 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 2. Intensity of Involvement Management of Business Logistics, 7th Ed.

  9. Figure 11-2 Effectiveness of Supply Chain Relationships Percentage Management of Business Logistics, 7th Ed.

  10. 3. 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 (see next slide for their relationships) Management of Business Logistics, 7th Ed.

  11. Figure 11-3 Process Model for Forming Logistics Relationships Management of Business Logistics, 7th Ed.

  12. 3. 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. Management of Business Logistics, 7th Ed.

  13. 3. 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. Management of Business Logistics, 7th Ed.

  14. Figure 11-4 What Does It Take to Have an Area of Core Competency? Management of Business Logistics, 7th Ed.

  15. 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. 3. Model for Developing and Implementing Successful Supply Chain Relationships Management of Business Logistics, 7th Ed.

  16. 3. 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. Management of Business Logistics, 7th Ed.

  17. 3. 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.

  18. 3. 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 Management of Business Logistics, 7th Ed.

  19. 3. 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.

  20. 4. 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 Management of Business Logistics, 7th Ed.

  21. Figure 11-5 Implementation and Continuous Improvement Management of Business Logistics, 7th Ed.

  22. 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. Management of Business Logistics, 7th Ed.

  23. Third-Party Logistics (3PL): Types of 3PL Providers • Transportation-Based • Warehouse/Distribution-Based • Forwarder-Based • Financial-Based • Information-Based Management of Business Logistics, 7th Ed.

  24. Third-Party Logistics (3PL): Types of 3PL Providers 1. Transportation-Based • Services extend beyond transportation to offer a comprehensive set of logistics offerings. • Leveraged 3PLs use assets of other firms. • Nonleveraged3PLs use assets belonging solely to the parent firm. • Ryder, Schneider Logistics, FedEx Logistics, and UPS Logistics are examples of 3PLs. Management of Business Logistics, 7th Ed.

  25. Third-Party Logistics (3PL): Types of 3PL Providers 2. 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. Management of Business Logistics, 7th Ed.

  26. Third-Party Logistics (3PL): Types of 3PL Providers 3. 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. Management of Business Logistics, 7th Ed.

  27. Third-Party Logistics (3PL): Types of 3PL Providers 4. 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. Management of Business Logistics, 7th Ed.

  28. Third-Party Logistics (3PL): Types of 3PL Providers 5. 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. Management of Business Logistics, 7th Ed.

  29. 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. Management of Business Logistics, 7th Ed.

  30. 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). Management of Business Logistics, 7th Ed.

  31. 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%) Management of Business Logistics, 7th Ed.

  32. Figure 11-6 3PL User/Nonuser Experience, 1996-2001 Management of Business Logistics, 7th Ed.

  33. Table 11-1 Shippers Using More than Five 3PLs Management of Business Logistics, 7th Ed.

  34. Table 11-2 Third-Party Revenues Estimated at $56.4 Billion in 2000 Management of Business Logistics, 7th Ed.

  35. Table 11-3 Top Six Outsourcing Logistics Services: 2001 Management of Business Logistics, 7th Ed.

  36. Figure 11-7 Nonuser Respondents: Rationale for Not Using 3PL Services Management of Business Logistics, 7th Ed.

  37. Table 11-4 Information Technology-Based Services: Current Percent versus Future Percent Management of Business Logistics, 7th Ed.

  38. Figure 11-8 Sources of Information Technology Management of Business Logistics, 7th Ed.

  39. Figure 11-9 3PL Customer Use of Industry Vertical Procurement Markets Management of Business Logistics, 7th Ed.

  40. Figure 11-10 3PL Customer Use of Transportation/Logistics Electronic Markets Management of Business Logistics, 7th Ed.

  41. Figure 11-11 3PL Involvement in Outsourcing: Who Is Responsible for Implementation? Management of Business Logistics, 7th Ed.

  42. Figure 11-12 3PL Customer Evaluation of Outsourcing (Yearly Comparisons) Management of Business Logistics, 7th Ed.

  43. Figure 11-13 3PL Factors for Selecting and Evaluating 3PLs Management of Business Logistics, 7th Ed.

  44. 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. Management of Business Logistics, 7th Ed.

  45. 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. Management of Business Logistics, 7th Ed.

  46. Figure 11-14 How Respondents View Providers of Third-Party Logistics Services Management of Business Logistics, 7th Ed.

  47. 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. Management of Business Logistics, 7th Ed.

  48. Figure 11-15 Fourth-Party Logistics (Registered Trademark of Accenture, Inc.) Management of Business Logistics, 7th Ed.

  49. 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. Management of Business Logistics, 7th Ed.

  50. Table 11-5 Seven Laws of Collaborative Logistics Management of Business Logistics, 7th Ed.

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