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

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

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

4. Management of Business Logistics, 7th Ed.
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.
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 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.
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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 achieve supply chain objectives; and,
Value created by third-party logistics.
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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 a transportation firm and a warehousing firm serving the same customer.
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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 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.
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Management of Business Logistics, 7th Ed.

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

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
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Management of Business Logistics, 7th Ed.

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

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

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

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

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

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

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

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

19. Management of Business Logistics, 7th Ed.
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”.
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Management of Business Logistics, 7th Ed.

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

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

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

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.
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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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Management of Business Logistics, 7th Ed.

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.
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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 transportation based providers.
DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs.
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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 are examples of forwarder-based 3PLs.
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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 for monitoring, booking, tracking, tracing, and managing inventory.
Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs.
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Management of Business Logistics, 7th Ed.

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

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).
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Management of Business Logistics, 7th Ed.

33. 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%)
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Management of Business Logistics, 7th Ed.

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

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

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

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

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

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

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

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

42. Management of Business Logistics, 7th Ed.
Figure PL Customer Use of Transportation/Logistics Electronic Markets
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Management of Business Logistics, 7th Ed.

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

44. Management of Business Logistics, 7th Ed.
Figure PL Customer Evaluation of Outsourcing (Yearly Comparisons)
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Management of Business Logistics, 7th Ed.

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

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.
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Management of Business Logistics, 7th Ed.

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.
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Management of Business Logistics, 7th Ed.

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

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.
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Management of Business Logistics, 7th Ed.

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

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

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

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. Logistics Relationships and Third-Party Logistics
End of Chapter 11 Slides
Logistics Relationships and
Third-Party Logistics