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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.
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Chapter 11 Management of Business Logistics, 7th Ed. 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 to3PLs and their client/customers.
Realize the ways in which 3PLs are involvedin global supply chain issues.
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Chapter 11 Management of Business Logistics, 7th Ed. 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 chainmanagement.
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Chapter 11 Management of Business Logistics, 7th Ed. 5
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 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 achievesupply chain objectives; and,
Value created by third-party logistics.
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Chapter 11 Management of Business Logistics, 7th Ed. 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 atransportation firm and a warehousing firmserving the same customer.
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Chapter 11 Management of Business Logistics, 7th Ed. 8
Logistics Relationships:
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 9
Figure 11-1
Relationship Perspectives
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Chapter 11 Management of Business Logistics, 7th Ed. 10
Logistics Relationships:
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
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Chapter 11 Management of Business Logistics, 7th Ed. 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 Exceptional
Suppliers Customers
P e r c e n t a g e
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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 continuousimprovement
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Chapter 11 Management of Business Logistics, 7th Ed. 18
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 19
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”.
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Chapter 11 Management of Business Logistics, 7th Ed. 22
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
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Chapter 11 Management of Business Logistics, 7th Ed. 23
Figure 11-5 Implementation andContinuous Improvement
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Chapter 11 Management of Business Logistics, 7th Ed. 24
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 25
Third-Party Logistics (3PL):Types of 3PL Providers
Transportation-Based
Warehouse/Distribution-Based
Forwarder-Based Financial-Based
Information-Based
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Chapter 11 Management of Business Logistics, 7th Ed. 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 transportationbased providers.
DSC Logistics, USCO, Exel, CaterpillarLogistics, and IBM are examples ofwarehouse/distribution-based 3PLs.
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Chapter 11 Management of Business Logistics, 7th Ed. 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 areexamples of forwarder-based 3PLs.
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Chapter 11 Management of Business Logistics, 7th Ed. 29
Third-Party Logistics (3PL):Types of 3PL Providers
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 31
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 32
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).
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Chapter 11 Management of Business Logistics, 7th Ed. 34
Figure 11-6 3PL User/NonuserExperience, 1996-2001
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Chapter 11 Management of Business Logistics, 7th Ed. 35
Table 11-1Shippers Using More than Five 3PLs
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Chapter 11 Management of Business Logistics, 7th Ed. 36
Table 11-2 Third-Party RevenuesEstimated at $56.4 Billion in 2000
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Chapter 11 Management of Business Logistics, 7th Ed. 37
Table 11-3 Top Six OutsourcingLogistics Services: 2001
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Chapter 11 Management of Business Logistics, 7th Ed. 38
Figure 11-7 Nonuser Respondents:Rationale for Not Using 3PL Services
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Chapter 11 Management of Business Logistics, 7th Ed. 39
Table 11-4 Information Technology-BasedServices: Current Percent versus Future Percent
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Chapter 11 Management of Business Logistics, 7th Ed. 40
Figure 11-8Sources of Information Technology
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Chapter 11 Management of Business Logistics, 7th Ed. 41
Figure 11-9 3PL Customer Use of IndustryVertical Procurement Markets
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Chapter 11 Management of Business Logistics, 7th Ed. 42
Figure 11-10 3PL Customer Use ofTransportation/Logistics Electronic Markets
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Chapter 11 Management of Business Logistics, 7th Ed. 43
Figure 11-11 3PL Involvement in Outsourcing:Who Is Responsible for Implementation?
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Chapter 11 Management of Business Logistics, 7th Ed. 44
Figure 11-12 3PL Customer Evaluation ofOutsourcing (Yearly Comparisons)
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Chapter 11 Management of Business Logistics, 7th Ed. 45
Figure 11-133PL Factors for Selecting and Evaluating 3PLs
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Chapter 11 Management of Business Logistics, 7th Ed. 47
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 48
Figure 11-14How Respondents View Providers of Third-PartyLogistics Services
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Chapter 11 Management of Business Logistics, 7th Ed. 49
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 50
Figure 11-15Fourth-Party Logistics (Registered Trademark of
Accenture, Inc.)
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Chapter 11 Management of Business Logistics, 7th Ed. 51
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.
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Chapter 11 Management of Business Logistics, 7th Ed. 52
Table 11-5Seven Laws of Collaborative Logistics
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Chapter 11:Summary and Review Questions
Students should review their knowledge of thechapter by checking out the Summary and Study
Questions for Chapter 11.
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End of Chapter 11 Slides
Logistics Relationships and
Third-Party Logistics