SUPPLY CHAIN RELATIONSHIPS

1. SUPPLY CHAIN RELATIONSHIPS

2. 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.

3. Learning Objectives, continued • 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.

4. Logistics Relationships • 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

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.

6. Figure 4.1Relationship Perspectives Source: C. John Langley Jr., Ph.D. Used with permission

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

8. Figure 4.2Process for Forming Relationships Source: C. John Langley Jr., Ph.D. Used with permission

9. Figure 4.3Required for a Core Competency Area Source: C. John Langley Jr., Ph.D. Used with permission

10. 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

11. Figure 4.4Implementation & Continuous Improvement Source: Ray A. Mundy C. John Langley Jr., and Brian J. Gibson Used with permission

12. Need for Collaborative Relationships • 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.

13. Figure 4.5Types of Collaboration Source: C. John Langley Jr., Ph.D. Used with permission

14. Table 4.17 Laws of Collaborative Logistics • Collaborative Logistics Networks Must Support: • Real and recognized benefits to all members • Dynamic creation, measurement, and evolution of collaborative partnerships • Co-buyer and co-supplier relationships • Flexibility and security • Collaboration across all stages of business process integration • Open integration with other sources • Collaboration around essential logistics flows Source: C. John Langley Jr., Ph.D. Used with permission

15. Third-Party Logistics – Industry Overview • 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.

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

17. Table 4.3Global 3PL Market Revenue Estimate

18. Figure 4.63PL Revenue Growth – U.S. Market Source: Predictions and major trends for third part logistics 2011, Armstrong & Assoc., Inc. Used with permission

19. Table 4.2Top Buyers of 3PL Services

20. Third-Party Logistics Research Study – Industry Details • 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.

21. Figure 4.7Outsourced Logistics Services Source: Fifteenth Annual 3PL Study, C. John Langley Jr. Ph.D. . Used with permission

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)

23. Figure 4.9Customer’s Perspectives on 3PL Relationships Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission

24. Figure 4.10Evolution of 3PL / LLP / 4PL Services Source: C. John Langley Jr., Ph.D. Used with permission

25. Figure 4.11Next Generation Logistics Outsourcing Models Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC. Used with permission

26. 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.

27. Summary, continued • 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.

28. 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.

29. 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.