Chapter 11:
Logistics Relationships and
Third-Party Logistics

Logistics Relationships and Third-
Party Logistics:
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With more firms interested in working more closely with their supply chain partners, high priorities are:
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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, 7 th Ed.
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Logistics Relationships:
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Vertical
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Refer to the traditional links between supply chain members such as retailers, distributors, manufacturers and suppliers.
Horizontal
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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, 7 th Ed.
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Logistics Relationships:
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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, 7 th Ed.
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Figure 11-1
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
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Regardless of form, there are numerous ways that the relationships may differ:
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Duration
Obligations
Expectations
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Interaction and
Communication
Cooperation
Planning Goals
Performance analysis
Benefits and burdens
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Six step process for forming and sustaining supply chain relationships:
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Step One – Perform strategic assessment
Step Two – Decision to form relationship
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Step Three – Evaluate alternatives
Step Four – Select partners
Step Five – Structure operating model
Step Six – Implementation and continuous improvement
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(Refer: Fig. 11-3, Appendix)
Chapter 11 Management of Business Logistics, 7 th Ed.
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Figure 11-3
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships

Step One – Perform strategic assessment
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Manufacturer becomes fully aware of its logistics and supply chain needs and overall strategies that will guide its operations.
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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, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Step Two – Decision to form relationship
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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.
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(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.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Drivers might include:
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Asset/Cost efficiency
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Customer service
Marketing advantage
Profit stability/growth
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Facilitators might include:
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Corporate compatibility
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Management philosophy and techniques
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Mutuality of commitment
Symmetry on key factors such as relative size, financial strength, etc.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Step Three – Evaluate alternatives
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Measure and weigh drivers and facilitators.
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Decide on type of relationship.
Match manufacturer’s needs with capabilities of each potential partner.
Involve other functional managers in the overall selection process.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Step Four – Select partners
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Made only after close consideration of the credentials of the most likely candidates.
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Interact with and get to know the final candidates on a professionally intimate basis.
Attempt consensus to maximize “buy-in”.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Step Five – Structure operating model
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Planning
Joint operating controls
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Communication
Risk/Reward sharing
Trust and commitment
Contract style
Scope of the relationship
Financial investment
Chapter 11 Management of Business Logistics, 7 th Ed.
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Logistics Relationships:
Model for Developing and Implementing
Successful Supply Chain Relationships
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Step Six – Implementation and continuous improvement (Fig. 11-5, Appendix)
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Depending upon the complexity of the relationship, the implementation period may vary in length.
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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, 7 th Ed.
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Third-Party Logistics:
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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
Chapter 11 Management of Business Logistics, 7 th Ed.
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Figure 11-5
Chapter 11 Management of Business Logistics, 7 th Ed.
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Third-Party Logistics (3PL):
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3PLs are external suppliers that perform all or part of a company’s logistics functions, including:
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Transportation
Warehousing
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Distribution
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Financial services
Terms contract logistics and outsourcing sometimes used in place of 3PL.
are
Chapter 11 Management of Business Logistics, 7 th Ed.
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Third-Party Logistics (3PL):
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Transportation-Based
Warehouse/Distribution-Based
Forwarder-Based
Financial-Based
Information-Based
Chapter 11 Management of Business Logistics, 7 th Ed.
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Third-Party Logistics (3PL):
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Transportation-Based
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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, 7 th Ed.
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Third-Party Logistics (3PL):
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Warehouse/Distribution-Based
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Many, but not all, have former warehouse and/or distribution experience.
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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, 7 th Ed.
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Third-Party Logistics (3PL):
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Forwarder-Based
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Essentially very independent middlemen extending forwarder roles.
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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, 7 th Ed.
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Third-Party Logistics (3PL):
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Financial-Based
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Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory.
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Cass Information Systems, CTC, GE
Information Services, and FleetBoston are examples of financial-based 3PLs.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Third-Party Logistics (3PL):
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Information-Based
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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, 7 th Ed.
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A Note on Fourth-Party Logistics
(4PL):
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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. 11-15, Appendix)
4PLs manage and direct the activities of multiple 3PLs, serving as an integrator.
Chapter 11 Management of Business Logistics, 7 th Ed.
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Figure 11-15
Fourth-Party Logistics (Registered Trademark of
Accenture, Inc.)
Chapter 11 Management of Business Logistics, 7 th Ed.
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Need for Collaborative
Relationships 13
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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, 7 th Ed.
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Table 11-5
Seven Laws of Collaborative Logistics
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