THIRD PARTY LOGISTICS IN GLOBAL OPERATIONS: The Strategic Benefits of A Logistics Alliance

WHY IS LOGISTICS GROWING IN IMPORTANCE IN GLOBAL OPERATIONS? FOUR MAIN REASONS & THE FOUR D’s INSTANT GRATIFICATION OF DEMAND –Customers want the Product Now DECENTRALIZATION –Big companies become more agile by breaking into smaller pieces DISTANCE –Complexity increases with the square of the distance involved DIVERSITY –Explosion of product variety

EXAMPLE Emery (subsidiary of Consolidated Freightways) and GM –$100 M/year deal of door-to-door movement of air cargo between suppliers and manufacturing plants and inter-plant movement in US, Canada and Mexico

SUPPORTING FORCES OF LOGISTICS ALLIANCE POLITICAL-LEGAL FACTORS –Deregulation of transportation and communications –relaxed antitrust enforcement INFORMATION TECHNOLOGY HELPS INTEGRATE –EDI, computer networks, satellite communication, cellular phones, laser-based bar codes EMPHASIS ON LEANER & BETTER FOCUSED ORGANIZATION COMPETITION IN GLOBAL ENVIRONMENT –high distribution costs –differing legal and cultural factors in foreign countries

JOINT VENTURES IN GLOBAL OPERATIONS

THE STRATEGIC ROLE OF JOINT VENTURES “Synergy” RESOURCE MOBILIZATION –Capital sharing –Access to local financing –Sharing of managerial resources –Sharing of technology and operating environment knowledge –Access to raw material and markets –Preferential government treatment

THE STRATEGIC ROLE OF JOINT VENTURES, continued POLITICAL INSURANCE CULTURAL GUIDE –Trust relationship of an equity venture COMPETITIVE TOOL –Create barriers to entry –Preferential market access –Accelerate expansion –Reduce competitor’s local advantages

DRAWBACKS OF JOINT VENTURES CONFLICTING PRIORITIES –Profitability of global system vs. profitability of JV –Supplier selection –Transfer pricing –Disposition of profits LOSS OF CONTROL –Loss of control in decision making –Important for firms with high quality products and strong brand names

DRAWBACKS OF JOINT VENTURES, continued INTERACTION COSTS –Communication across organizations –Reconciliation of management styles administrative systems cultural norms languages

MANAGING THE RELATIONSHIP CAREFULLY ASSESS COMPLEMENTARITY KNOW YOUR PARTNER ACHIEVE GOAL AND STRATEGY CONGRUENCY IDENTIFY CONFLICT POINTS MAKE CLEAR RULES MAKE TRANSACTIONS TRANSPARENT COMMUNICATE CLEARLY AND OFTEN

MANAGING THE RELATIONSHIP, continued CONTROL CREATIVELY SHARE EQUITABLY BE FLEXIBLE REVIEW AND REVISE KNOW WHEN TO EXIT