Chapter 4 SUPPLY CHAIN RELATIONSHIPS

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After reading this chapter, you should be able to do the following: Learning Objectives ● Understand the types of supply chain relationships and their importance. ● Describe a process model that will facilitate the development and implementation of successful supply chain relationships. ● Recognize the importance of “collaborative” supply chain relationships. 2

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Know the extent to which customers are satisfied with 3PL services and identify where improvement may be needed. ● Understand some of the likely future directions for outsourced logistics services. 3 Learning Objectives, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Types of Relationships Vertical relationships ○ these refer to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. Horizontal relationships ○ includes those business agreements between firms that have “parallel” or cooperating positions in the logistics process. ● Intensity of Involvement Ranges from transactional vendor to strategic alliance Logistics Relationships

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 Logistics Relationships, continued ● Intensity of Involvement Transactional ○ Both parties in a vendor relationship are said to be at “arm’s length” Collaborative ○ the relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives Strategic ○ represents an alternative that may imply even greater involvement than the partnership or strategic alliance.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.1 Relationship Perspectives Source: C. John Langley Jr., Ph.D. Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Logistics Relationships, continued ● Relationships may differ in numerous ways. A partial list includes: Duration Obligations Expectations Interaction/Communication Cooperation Planning Goals Performance analysis Benefits and burdens

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.2 Process for Forming Relationships Source: C. John Langley Jr., Ph.D. Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.3 Required for a Core Competency Area Source: C. John Langley Jr., Ph.D. Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Model for Developing and Implementing Successful Supply Chain Relationships ● Step 1: Perform strategic assessment ● Step 2: Decision to form relationship ● Step 3: Evaluate alternatives ● Step 4: Select partners ● Step 5: Structure operating model

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.4 Implementation & Continuous Improvement Source: Ray A. Mundy C. John Langley Jr., and Brian J. Gibson Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Vertical collaboration refers to the relationship between buyer and supplier in the supply chain. ● Horizontal collaboration refers to buyer- buyer or seller-seller relationships. ● Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Need for Collaborative Relationships

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Source: C. John Langley Jr., Ph.D. Used with permission Figure 4.5 Types of Collaboration

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table Laws of Collaborative Logistics Source: C. John Langley Jr., Ph.D. Used with permission ● Collaborative Logistics Networks Must Support: 1. Real and recognized benefits to all members 2. Dynamic creation, measurement, and evolution of collaborative partnerships 3. Co-buyer and co-supplier relationships 4. Flexibility and security 5. Collaboration across all stages of business process integration 6. Open integration with other sources 7. Collaboration around essential logistics flows

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Definition of Third-Party logistics Essentially, a third-party-logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions. Among these, multiple logistics activities are included, those that are included are “integrated” or managed together, and they provide “solutions” to logistics/supply chain problems. Third-Party Logistics – Industry Overview

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16 Third-Party Logistics – Industry Overview, continued ● Types of 3PL providers Transportation-based (e.g., UPS, DHL, Ryder) Warehouse/distribution-based Forwarder-based (middleman) Financial-based Information-based firms ● 3PL market size and scope Total revenue North America: $143.3 billion Global: $539.1 billion

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 4.3 Global 3PL Market Revenue Estimate

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.6 3PL Revenue Growth – U.S. Market Source: Predictions and major trends for third part logistics 2011, Armstrong & Assoc., Inc. Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 4.2 Top Buyers of 3PL Services

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Profile of logistics outsourcing Operational, transactional, and repetitive services were the most likely to be outsourced. Domestic, international transportation and warehousing. ● Strategic role of information technology Most frequently used services were transportation and warehouse management systems. ● Management and relationship issues Must establish appropriate roles for 3PL and clients All outsourcing or hybrid Trust and core competency issues. Third-Party Logistics Research Study – Industry Details

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Source: Fifteenth Annual 3PL Study, C. John Langley Jr. Ph.D.. Used with permission Figure 4.7 Outsourced Logistics Services

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 Third-Party Logistics Research Study– Industry Details, continued ● Customer Value Framework 3PL’s enable reduced costs, fewer assets, less working capital, and improved order performance. ● A Strategic View of Logistics and the Role of 3PL’s Fourth-party logistics (4PL): A supply chain integrator who deliver a comprehensive supply chain solution It can manage 3PLs. Logistics outsourcing model for the future ○ Entirely outsourced logistics service, imbedded with proprietary provision of logistics services from the bottoms (in-sourcing), basic services (transportation and warehousing), and up through the stages (Figure 4.11)

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission Figure 4.9 Customer’s Perspectives on 3PL Relationships

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4.10 Evolution of 3PL / LLP / 4PL Services Source: C. John Langley Jr., Ph.D. Used with permission

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission Figure 4.11 Next Generation Logistics Outsourcing Models

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary ● The two most basic types of supply chain relationships are “vertical” (e.g., buyer-seller) and “horizontal” (e.g., parallel or cooperating). ● In terms of intensity of involvement, inter-firm relationships may span from transactional to relational and may take the form of vendor, partner, and strategic alliances. ● There are six steps in the development and implementation of successful relationships. These six steps are critical to the formation and success of supply chain relationships. 26

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Collaborative relationships, both vertical and horizontal, have been identified as highly useful to the achievement of long-term supply chain objectives. The “Seven Immutable Laws of Collaborative Logistics” provide a framework for the development of effective supply chain relationships. ● Third-party logistics providers may be thought of as an “external supplier that per-forms all or part of a company’s logistics functions.” It is desirable that these suppliers provide multiple services, and that these services are integrated in the way they are managed and delivered. ● The several types of 3PLs are transportation-based, warehouse/distribution-based, forwarder-based, financial-based, and information-based suppliers. 27 Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Based on the results of a comprehensive study of users of 3PL services in the United States, over 70 percent of the firms studied use 3PL services, to some extent. ● User experience suggests a broad range of 3PL services utilized; and the most prevalent are transportation, warehousing, customs clearance and brokerage, and forwarding. ● While nonusers of 3PL services have their reasons to justify their decision, these same reasons are sometimes cited by users as justification for using a 3PL. ● Customers have significant IT-based requirements of their 3PL providers, and they feel that the 3PLs are attaching a priority to respond to these requirements. 28 Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ● Approximately two-thirds of the customers suggest 3PL involvement in their global supply chain activities. ● Although most customers indicate satisfaction with existing 3PL services, there is no shortage of suggestions for improvement. ● Customers generally have high aspirations for their strategic use of 3PLs and consider their 3PLs as keys to their supply chain success. ● There is a growing need for fourth-party logistics relationships that provide a wide range of integrative supply chain services. 29 Summary, continued