supply chain relationships

Chapter 4

SUPPLY CHAIN RELATIONSHIPS

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.

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●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.

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Learning Objectives, continued


●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.


Figure 4.1

Relationship Perspectives

Source: C. John Langley Jr., Ph.D. Used with permission


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


Figure 4.2

Process for Forming Relationships



Figure 4.3

Required for a Core Competency Area



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


Figure 4.4

Implementation & Continuous Improvement

Source: Ray A. Mundy C. John Langley Jr., and Brian J. Gibson Used with permission


●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



Figure 4.5

Types of Collaboration


Table 4.1

7 Laws of Collaborative Logistics


●Collaborative Logistics Networks Must Support:1. Real and recognized benefits to all members2. Dynamic creation, measurement, and evolution of

collaborative partnerships3. Co-buyer and co-supplier relationships4. Flexibility and security5. Collaboration across all stages of business process

integration6. Open integration with other sources7. Collaboration around essential logistics flows


●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


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


Table 4.3

Global 3PL Market Revenue Estimate


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


Table 4.2

Top Buyers of 3PL Services


●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


Source: Fifteenth Annual 3PL Study, C. John Langley Jr. Ph.D. . Used with permission

Figure 4.7

Outsourced Logistics Services


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)


Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission

Figure 4.9Customer’s Perspectives on 3PL Relationships


Figure 4.10

Evolution of 3PL / LLP / 4PL Services



Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission

Figure 4.11Next Generation Logistics Outsourcing Models


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.

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● 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.

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Summary, continued


● 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.

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Summary, continued


● 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.

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Summary, continued

supply chain relationships

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