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

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

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

4. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

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

6. 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.

7. 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
(Refer: Fig. 11-3, Appendix)
Chapter 11
Management of Business Logistics, 7th Ed.

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

9. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

10. 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.
(Core Competency: What does it take:
1. Expertise, 2. Strategic Fit, 3. Ability to Invest)
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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Management of Business Logistics, 7th Ed.
Logistics Relationships: Model for Developing and Implementing Successful Supply Chain Relationships
Step Six – Implementation and continuous improvement (Fig. 11-5, Appendix)
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.

16. 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.

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

18. 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.

19. 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.

20. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

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

22. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

23. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

24. 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.
Chapter 11
Management of Business Logistics, 7th Ed.

25. 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 (Fig , Appendix)
4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.
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Management of Business Logistics, 7th Ed.

26. 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.

27. 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.

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