CH-12 Aligning Supply Chain – Supply Chain Management: A Logistics Perspective : Book Guide

CHAPTER 12 ALIGNING SUPPLY CHAIN LEARNING OBJECTIVES After reading this chapter, you should be able to do the following: • Understand the concept of alignment and its importance to supply chain management • Understand the types of supply chain relationships and their importance. • Introduce a process model that will facilitate the development and implementation of successful supply chain relationships to help achieve alignment. • Recognize the importance of collaboration and collaborative supply chain relationships. • Appreciate the potential importance of outsourced logistics services to supply chain management, and the types of value that may be created through the use of third-party logistics (3PL) providers and 4PLTM providers. • Examine the extent to which various outsourced supply chain services are used by client/customer firms and the types of benefits that are experienced. • Discuss the role and relevance of information technology-based services to 3PLs and their clients/customers. • 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. CHAPTER OVERVIEW Introduction A distinguishing characteristic of successful supply chains is the ability to achieve “alignment” between people, processes, and technologies that are essential to the planning and operational aspects of supply chains. Essentially, alignment refers to a commonality of functionality and purpose that reinforces accomplishment of supply chain goals and objectives. Three example types of alignment are highly relevant to supply chain management. • Supply chain and organizational strategies. Organizational success requires that the strategies, plans, and functioning of the supply chain are aligned with those of the overall organization. • Supply and demand. Principally within an individual organization, alignment between supply and demand will help to maximize the extent to which products and services are available to customers when and where they are needed, and to minimize waste and inefficiency of resources throughout the supply chain. • Supply chain and trading partners. Going beyond the boundaries of an individual organization, there are significant benefits to making sure that the organization, its suppliers, and customers are aligned. As indicated throughout this book, many organizations have directed significant attention toward working more closely with supply chain partners, including not only customers and suppliers but also various types of logistics suppliers. Considering that one of the fundamental objectives of effective supply chain management is to achieve coordination and integration among participating organizations, the development of more meaningful “relationships” throughout the supply chain has become a high priority. Intensity of Involvement As suggested by Figure 12.1, the range of relationship types extends from that of a vendor to that of a strategic alliance. In the context of the more traditional “vertical” context, a vendor is represented simply by a seller or provider of a product or service, such that there is little or no integration or collaboration with the buyer or purchaser. In essence, the relationship with a vendor is “transactional,” and parties to a this type of relationship are said to be at “arm’s length” (i.e., at a significant distance). The analogy of such a relationship to that experienced by one who uses a vending machine is not inappropriate. While this form of relationship suggests a relatively low or nonexistent level of involvement between the parties, there are certain types of transactions for which this option may be desirable. Alternatively, the relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objec¬tives and practices to help achieve long-term goals and objectives. Regardless of form, relationships may differ in numerous ways. A partial list of these differences follows: • Duration • Obligations • Expectations • Interaction/Communication • Cooperation • Planning • Goals • Performance analysis • Benefits and burdens Most companies feel that there is significant room for improvement in terms of the relationships they have developed with their supply chain partners. Model for Developing and Implementing Successful Supply Chain Relationships Step 1: Perform Strategic Assessment. This first stage involves the process by which the manufacturer becomes fully aware of its logistics and supply chain needs and the overall strategies that will guide its operations. Step 2: Decision to Form Relationship. Depending on the type of relationship be¬ing considered by the manufacturing firm under consideration, this step may take on a slightly different decision context. This decision comprises several drivers, e.g. asset/cost efficiency, customer service, marketing advantage, profit stability/growth, and facilitators, e.g. corporate compatibility, management philosophy and techniques, mutuality of commitment to relationship formation, size and financial symmetry. Step 3: Evaluate Alternatives. Using a methodology by which the appar¬ent levels of drivers and facilitators may suggest the most appropriate type of relationship to consider. If neither the drivers nor the facilitators seem to be present, then the recommendation would be for the relationship to be more transactional, or “arm’s length” in nature. Step 4: Select Partner(s). While this stage is of critical concern to the customer, the selection of a logistics or supply chain partner should be made only following very close consideration of the credentials of the most likely candidates. Step 5: Structure Operating Model. The structure of the relationship refers to the activities, processes, and priorities that will be used to build and sustain the relationship. Step 6: Implementation and Continuous Improvement. Once the decision to form a relationship has been made and the structural elements of the relationship identified, it is important to recognize that the most challenging step in the relationship process has just begun. Depending on the complexity of the new relationship, the overall implementation process may be relatively short, or it may be extended over a longer period of time. Finally, the future success of the relationship will be a direct function of the ability of the involved organizations to achieve both continuous and breakthrough improve¬ment. Imperative for Collaborative Relationships Collaboration may be thought for the benefit of all of as a “business practice that encourages individual organizations to share information and resources.” Collaboration allows com¬panies to “leverage each other on an operational basis so that together they perform better than they did separately.” While this approach creates a synergistic business environment in which the sum of the parts is greater than the whole, it is not one that comes naturally to most organiza¬tions, particularly those offering similar or competing products or services. Collaboration requires the following: • Well-understood goals and objectives of the participating organizations and the collaboration • Trust and commitment • Organizational compatibility and communication • Equitable sharing of gains and losses • Benefits greater than going it alone • Dedication to continuous improvement • Strategic plan to provide direction to the collaboration Three important types of collaboration: vertical, horizontal, and full. Descriptions of these are as follows: • Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. • Horizontal collaboration refers to relationships that may be buyer to buyer and/or seller to seller, and in some cases even between competitors (including providers of logistics services). Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. • Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Only with full collaboration do dramatic efficiency gains begin to occur. In practice, successful collaboration requires overcoming a number of barriers. Typical among these are: resistance to change; conflicting business objectives; inconsistent goals and key performance indicators; lack of trust; unwillingness to share information; lack of managerial support; and turf protection. One way of extending the logistics organization beyond the boundaries of the company is through the use of a supplier of third-party or contract logistics services. Third-Party Logistics—Industry Overview Although there are important distinctions in terminology, the term “third party logistics,” or “3PL,” generally refers to a broad range of instances where commercial organizations provide and/or manage logistics services on behalf of clients and customers. Firms have directed considerable attention toward working more closely with other supply chain participants, including customers, suppliers, and various providers of logistics services. One way of extending the logistics organization beyond the boundaries of the com¬pany is through the use of a supplier of third-party or contract logistics services. Definition of Third-Party Logistics A third-party-logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions. Depending on the firm and its positioning in the industry, the terms contract logis¬tics and outsourcing are sometimes used in place of third-party logistics. While some industry executives take care to distinguish among terms such as these, each of these terms refers to the use of external suppliers of logistics services. Although the term 3PL is in everyday use, there are a number of participants who are involved in the buying and selling of outsourced logistics services. As indicated below, these may range from 1PL’s to 5PL’s. • 1PL – Shippers or receivers of product moved through supply chain. • 2PL – Asset-based logistics providers that physically move product through the supply chain • 3PL – Firms that manage and/or provide logistics services on behalf of their clients and customers. • 4PL – Firms that provide broader scope of services to help manage elements of the supply chain. • 5PL – Companies that aggregate demands of 3PLs into bulk volumes to negotiate better rates with logistics service providers. Figure 12.6 illustrates the range of alternatives available to shippers and receivers of product moved through the supply chain. The alternatives begin with the possibility of “insourcing,” where the needed logistics services may be provided on a proprietary basis by the shippers and/or receivers in need of these services. Then, in order of increasing strategic involvement, are alternatives relating to 3PLs, 4PLs, and “spinning off” or selling elements of the supply chain. A few more details on each of these may be helpful: • 3PL – Defined to include commercial providers or managers of logistics/supply chain services, 3PLs typically provider services relating to transportation, warehousing and distribution center management, customs brokerage and clearance, contract logistics, freight forwarding, etc. • 4PL – These providers not only provide a broader scope of services to their clients and customers, but typically may be more strategically involved than 3PLs would be. Essentially a supply chain integrator, a 4PL may be thought of as 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. • “Spin-Off” Elements of Supply Chain – This is a more recent innovation that would occur when a firm divests itself of, or “sells” elements of its supply chain to another organization for reasons typically relating to core competency. Example Service of 3PL Providers These providers include are transportation-based, warehouse/distribution-based, forwarder-based, shipper/management-based, financial-based, and information-based firms. • Transportation: Included among the 3PL providers who were founded as a subsidiary or major division of a large transportation firm. • Contract Logistics: Generally referring to services relating to warehousing and distribution and provide a broad range of supply chain solutions. Experience has indicated that these facility-based operators have found the transition to integrated logistics services to be less complex than have the transportation providers. • Freight Forwarding: This logistics activity is essential to the daily flow of global commerce and involves a wide range of organizations that purchase shipping capacity form asset-based providers and then re-sell to supply chain customers. • Financial Based: Included are firms providing services such as freight payment and auditing, cost accounting and control, tools for managing shipment visibility, information, and tracking, and consulting and advisory services. • Information-Related – In recent years, growth and development of Internet-based, business-to-business, electronic markets for transportation and logistics services have been significant. Since these resources effectively represent alternative sources for those in need of purchasing transportation and logistics services, they may be thought of as a newer, innovative type of third-party provider. • Corporate Subsidiaries – Principal examples of 3PL organizations that initially were divisions or subsidiaries of manufacturing or distributor organizations include Neovia, Inc. (formerly Caterpillar Logistics), IBM Global Business Services, and Odyssey Logistics (founded through merger of Rely Software, Inc. and the former logistics department of Union Carbide Corporation). While the idea that a 3PL firm may emerge from a corporate logistics organization is an interesting one, not all of these conversions have been as successful commercially as the ones listed here. Global 3PL Market Size and Scope Global markets and global trade needs continue to evolve, and this translates directly into demand for logistics and supply chain services. Table 12.1 provides global 3PL revenues by region for 2013 and 2014 from Armstrong & Associates, plus a summary of percentage changes in these revenues reported for 2013 to 2014 and the two previous years, and compounded annual growth rates (CAGR) by region for 2006 to 2014. While the CAGR figures for Asia-Pacific and South America are around or near 10%, results for North America are 4.3%, and those for Europe are slightly in the positive. Looking at the percentage changes in global 3PL revenues by region from 2013 to 2014, and particularly in comparison with the percentages changes reported in the two previous years, positive growth rates were evidenced in North America, Europe and Asia-Pacific, whereas a decline of 6.7% was reported for South America. Third-Party Logistics Research Study – Industry Details One significant, ongoing research study, Third-Party Logistics: The State of Logistics Outsourcing, is conducted annually by Dr. C. John Langley Jr. of Penn State University and Capgemini Consulting. The 2016 Twentieth Annual Third-Party Logistics Study provides a comprehensive look at the third-party logistics industry from the perspectives of users and providers of 3PL services on a global basis. The annual studies provide a continuing source of information on the state of the 3PL industry, and they also address timely, special topics that are relevant to both users and providers of 3PL services. Profile of Logistics Outsourcing Activities A recent study showed that the logistics services most frequently outsourced are those that are more operational, transactional, and repetitive in nature. Looking at the results over all of the regions studied, the most frequently outsourced services include domestic transportation (80%), warehousing (66%), international transportation (60%), freight forwarding (48%), and customs brokerage (45%). Strategic Role of Information Technology Overall, the most-frequently cited technologies as being needed by 3PLs are those that have more execution and transactional-based capabilities. Examples include warehouse/distribution center management (WMS), transportation management planning and scheduling (TMS), visibility, EDI, and the use of web portals for updates and relevant shipment information. Management and Relationship Issues The need for competency as it relates to the formation and continuation of successful relationships has become critical in today’s 3PL industry. Although both providers and users of 3PL services have been improving in their ability to create more productive, effective, and satisfying business relationships, the media is replete with examples of failed relationships. An interesting finding from one of the earlier year’s studies was that the chief executive in the logistics area is the person who clearly is most aware of the need for 3PL services. While available evidence supported the fact that the president or CEO and the finance executive are many times involved with the identification of the need for such services, executives from other areas such as manufacturing, human resources, marketing, and information systems are also aware of such needs but to a lesser degree. An insightful topic is that of the “selection” factors that are important to customers as they choose 3PLs with which they want to work. Results of recent Annual 3PL Studies indicate that the most prevalent selection factors are price of 3PL services and quality of tactical, operational logistics services. Looking beyond these two selection criterial others of notable importance include geographic presence in required regions, expected capability to improve service levels, range of available value-added logistics services, and capable information technologies. Customer Value Framework Based on views from 3PL users, however, there are a number of areas in which they encourage 3PLs to pursue opportunities for improvement. Several of these are listed below. • Meeting service-level commitments • Realizing cost reductions • Avoiding “cost-creep” and price increases once the relationship has commenced • Effective “onboarding” by 3PLs of new customer relationships • Ability to form meaningful and trusting relationships • Information technology capabilities • Global capabilities • Strategic management capabilities and consultative/knowledge-based skills Overall, these opportunities suggests a need to meet service-level and cost objectives and to avoid unnecessary increases in price to the customer once the relationship has commenced. Also, it appears that some 3PLs need to improve in the areas of strategic management, technology, and knowledge-based skills. A Strategic View of Logistics and the Role of 3PLs One major accomplishment of the past 10 to 15 years has been establishing the validity of the logistics outsourcing model and specifically of the 3PL provider. As we look to the future, we already see increasing acceptance of the 4PL model, likely growth in expenditures by current users of 3PL services, and a growing sophistication in the outsourced business approaches that respond to a dynamic set of customer logistics and supply chain needs. SUMMARY • There are various types of alignment that are relevant and critical to the success of supply chain management. • 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 steps are critical to the formation and success of supply chain relationships. • Collaborative relationships, both vertical and horizontal, have been identified as highly useful to the achievement of long-term supply chain objectives. An example of a vertical relationship is one between buyers and sellers, whereas an example of a horizontal relationship may be between individual suppliers of complementary products to a common customer. • Third-party logistics providers may be thought of as an “external suppliers that perform 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. • There is a growing need for 4PL relationships that provide a wide range of integrative supply chain services. • Categorically, 3PLs may be thought of as transportation-based, warehouse/distribution-based, forwarder-based, financial-based, and information-based. • User experience suggests a broad range of 3PL services utilized; 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. • 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. ANSWERS TO STUDY QUESTIONS 1. How would you distinguish between the following terms: alignment; relationships; and collaboration A distinguishing characteristic of successful supply chains is the ability to achieve “alignment” between people, processes, and technologies that are essential to the planning and operational aspects of supply chains. Essentially, alignment refers to a commonality of functionality and purpose that reinforces accomplishment of supply chain goals and objectives. Three example types of alignment are highly relevant to supply chain management. •Supply chain and organizational strategies. Organizational success requires that the strategies, plans, and functioning of the supply chain are aligned with those of the overall organization. •Supply and demand. Principally within an individual organization, alignment between supply and demand will help to maximize the extent to which products and services are available to customers when and where they are needed, and to minimize waste and inefficiency of resources throughout the supply chain. •Supply chain and trading partners. Going beyond the boundaries of an individual organization, there are significant benefits to making sure that the organization, its suppliers, and customers are aligned. Many organizations have directed significant attention toward working more closely with supply chain partners, including not only customers and suppliers but also various types of logistics suppliers. Considering that one of the fundamental objectives of effective supply chain management is to achieve coordination and integration among participating organizations, the development of more meaningful “relationships” throughout the supply chain has become a high priority. Also, “collaboration” is viewed as a principal strategy to achieve alignment, and is closely related to the pursuit of effective relationships. As suggested by the late Robert V. Delaney in his Eleventh Annual State of Logistics Report, relationships are what will carry the logistics industry into the future. In commenting on the current rise of interest in e-commerce and the development of electronic markets and exchanges, he states, “We recognize and appreciate the power of the new technology and the power it will deliver, but, in the frantic search for space, it is still about relationships.” This message not only captures the importance of developing logistics relationships but also suggests that the ability to form relationships is a prerequisite to future success. Also, the essence of this priority is captured in a quote from noted management guru Rosabeth Moss Kanter who stated that “being a good partner has become a key corporate asset; in the global economy, a well-developed ability to create and sustain fruitful collaborations gives companies a significant leg up.” 2. What are the basic types of supply chain relationships, and how do they differ? Generally, there are two types of logistics relationships. The first is what may be termed vertical relationships; these refer to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. These firms relate to one another in the ways that buyers and sellers do in all industries, and significant attention is directed toward making sure that these relation-ships help to achieve individual firm and supply chain objectives. Logistics service providers are involved on a day-to-day basis as they serve their customers in this traditional, vertical form of relationship. The second type of logistics relationship is horizontal in nature and includes those business agreements between firms that have “parallel” or cooperating positions in the logistics process. To be precise, a horizontal relationship may be thought of as a service agreement between two or more independent logistics provider firms based on trust, cooperation, shared risk, and investments, and following mutually agreeable goals. Each firm is expected to contribute to the specific logistics services in which it specializes, and each exercises control of those tasks while striving to integrate its services with those of the other logistics providers. Thus, these parties have parallel or equal relationships in the logistics process and likely need to work together in appropriate and useful ways to see that the customer’s logistics objectives are met. 3. How would you distinguish between a vendor, a partner, and a strategic alliance? What conditions would favor the use of each? The range of relationship types extends from that of a ven¬dor to that of a strategic alliance. In the context of the more traditional “vertical” context, a vendor is represented simply by a seller or provider of a product or service, such that there is little or no integration or collaboration with the buyer or purchaser. In es¬sence, the relationship with a vendor is “transactional,” and parties to a vendor rela¬tionship are said to be at “arm’s length” (i.e., at a significant distance). While this form of relationship suggests a relatively low or nonexistent level of involvement between the parties, there are certain types of transactions for which this option is desirable, such as one-time or even multiple purchases of standard products and/or services. Alternatively, the relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objec¬tives and practices to help achieve long-term goals and objectives. The strategic alli¬ance by definition is more strategic in nature and is highly relational in terms of the firms involved. This form of relationship typically benefits the involved parties by re¬ducing uncertainty and improving communication, increasing loyalty and establishing a common vision, and helping to enhance global performance. Alternatively, the chal¬lenges with this form of relationship include the fact that it implies heavy resource commitments by the participating organizations, significant opportunity costs, and high switching costs. Leaning more toward the strategic alliance end of the scale, a partnership represents a customized business relationship that produces results for all parties that are more acceptable than would be achieved individually. Partnerships are frequently described as being “collaborative.” 4. What does it take to have an area of “core competency”? Provide an example. When the decision relates to using an external provider of logistics services (e.g., trucking firm, express logistics provider, third-party logistics provider), the first question is whether or not the provider’s services will be needed. A suggested approach to making this decision is to make a careful assessment of the areas in which the manufacturing firm appears to have core competency. For a firm to have core competency in any given area, it is necessary to have expertise, strategic fit, and ability to invest. The absence of any one or more of these may suggest that the services of an external provider are appropriate. If the relationship decision involves a channel partner such as a supplier or customer, the focus is not so much on whether or not to have a relationship but on what type of relationship will work best. In either case, the question as to what type of relationship is most appropriate is one that is very important to answer. 5. Describe the steps in the process model for forming and implementing successful supply chain relationships. What step(s) do you feel is (are) most critical? Figure 12.2 outlines the steps in a process model for forming and sustaining supply chain relationships. For purposes of illustration, let us assume that the model is being applied from the perspective of a manufacturing firm, as it considers the possibility of forming a relationship with a supplier of logistics services (e.g., transport firm, warehouseman, etc.). Step 1: Perform Strategic Assessment. This first stage involves the process by which the manufacturer becomes fully aware of its logistics and supply chain needs and the overall strategies that will guide its operations. Step 2: Decision to Form Relationship. Depending on the type of relationship be¬ing considered by the manufacturing firm under consideration, this step may take on a slightly different decision context. Step 3: Evaluate Alternatives. Using a methodology by which the appar¬ent levels of drivers and facilitators may suggest the most appropriate type of relationship to consider. If neither the drivers nor the facilitators seem to be present, then the recommendation would be for the relationship to be more transactional, or “arm’s length” in nature. Step 4: Select Partners. While this stage is of critical concern to the customer, the selection of a logistics or supply chain partner should be made only following very close consideration of the credentials of the most likely candidates. Step 5: Structure Operating Model. The structure of the relationship refers to the activities, processes, and priorities that will be used to build and sustain the relationship. Step 6: Implementation and Continuous Improvement. Once the decision to form a relationship has been made and the structural elements of the relationship identified, it is important to recognize that the most challenging step in the relationship process has just begun. Depending on the complexity of the new relationship, the overall implementation process may be relatively short, or it may be extended over a longer period of time. Finally, the future success of the relationship will be a direct function of the ability of the involved organizations to achieve both continuous and breakthrough improvement. As indicated in Figure 12.4, a number of steps should be considered in the continuous improvement process. In addition, efforts should be directed to creating the breakthrough, or “paradigm-shifting,” type of improvement that is essential to enhance the functioning of the relationship and the market positioning of the organizations involved. 6. What are some of the more common “drivers” and “facilitators” of successful supply chain relationships? The partnership model discussed in the text incorporates the identification of “drivers” and “facilitators” of a relationship. It indicates that for a relationship to have a high likelihood of success, the right drivers and facilitators should be present. Drivers are defined as “compelling reasons to partner.” For a relationship to be successful, the theory of the model is that all parties “must believe that they will receive significant benefits in one or more areas and that these benefits would not be possible without a partnership.” Drivers are strategic factors that may result in a competitive advantage and may help to determine the appropriate type of business relationship. Although other factors may certainly be considered, the primary drivers include the following: • Asset/Cost efficiency • Customer service • Marketing advantage • Profit stability/Growth Facilitators are defined as “supportive corporate environmental factors that enhance partnership growth and development.” As such, they are the factors that, if present, can help to ensure the success of the relationship. Included among the main types of facilitators are the following: • Corporate compatibility • Management philosophy and techniques • Mutuality of commitment to relationship formation • Symmetry on key factors such as relative size, financial strength, and so on 7. What is meant by “collaboration” between supply chain organizations? What are the different types of collaboration? Whether the relationship may or may not be with a provider of logistics services, today’s supply chain relationships are most effective when collaboration occurs among the participants who are involved. Collaboration may be thought of as a “business practice that encourages individual organizations to share information and resources for the benefit of all.” According to Dr. Michael Hammer, collaboration allows companies to “leverage each other on an operational basis so that together they perform better than they did separately.” He continues by suggesting that collaboration becomes a reality when the power of the Internet facilitates the ability of supply chain participants to readily transact with each other and to access each other’s information. While this approach creates a synergistic business environment in which the sum of the parts is greater than the whole, it is not one that comes naturally to most organizations, particularly those offering similar or competing products or services. In terms of a logistics example, consider that consumer products manufacturers sometimes go to great lengths to make sure that their products are not transported from plants to customers’ distribution centers with products of competing firms. While this practice does have certain logic, a willingness of the involved parties to collaborate and share resources can create significant logistical efficiencies. Also, it makes sense, considering that retailers routinely commingle competing products as they are transported from distribution centers to retail stores. When organizations refuse to collaborate, real losses may easily outweigh perceived gains. The contemporary topic of importance is “collaboration.” Most simply, collaboration occurs when companies work together for mutual benefit. Since it is difficult to imagine very many logistics or supply chain improvements that involve only one firm, the need for effective relationships is obvious. Collaboration goes well beyond vague expressions of partnership and aligned interests. It means that companies leverage each other on an operational basis so that together they perform better than they did separately. It creates a synergistic business environment in which the sum of the parts is greater than the whole. Types of collaboration include: •Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. Transactions between buyers and sellers can be automated, and efficiencies can be significantly improved. Companies can share plans and provide mutual visibility that causes them to change behavior. A contemporary example of vertical collaboration is collaborative planning, forecasting, and replenishment (CPFRÒ), an approach that helps buyers and sellers to better align supply and demand by directly sharing critical information such as sales forecasts. •Horizontal collaboration refers to a relationship that is buyer to buyer and/or seller to seller, and in some cases even between competitors. Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. Horizontal collaboration can help find and eliminate hidden costs in the supply chain that everyone pays for by allowing joint product design, sourcing, manufacturing, and logistics. Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Only with full collaboration do dramatic efficiency gains begin to occur. With full collaboration, it is intended that benefits accrue to all members of the collaboration. The development of agreed-upon methods for sharing gains and losses is essential to the success of the collaboration. 8. What are the basic types of 3PL firms, and which are in most prevalent use? Although most 3PL firms promote themselves as providers of a comprehensive range of logistics services, it is useful to categorize them in one of several ways. Included are transportation-based, warehouse/distribution-based, forwarder-based, shipper/management-based, financial-based, and information-based firms. Transportation-based 3PLs are the most widely used 3PLs. 9. What are some example types of services that may be available from a 4PL provider? 4PL providers not only provide a broader scope of services to their clients and customers, but typically may be more strategically involved than 3PLs would be. Essentially a supply chain integrator, a 4PL may be thought of as 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. As indicated in Figure 12.6, some of the value-adding services offered by 4PLs include: managing multiple providers of 3PL services (i.e., LLP or lead logistics provider); taking on more risk than 3PLs (e.g., taking an equity involvement in inventory ownership); providing advanced IT services; strategic consulting; and “control tower” services that provide comprehensive visibility throughout the supply chain. 10. What are some of the more frequently outsourced logistics activities? Less fre¬quently outsourced? Table 12.2 summarizes the use of specific logistics services that were reported as being outsourced by respondents on a global basis in the 2016 Annual 3PL Study. Based on this information, the logistics services most frequently outsourced are those that are more operational, transactional, and repetitive in nature. Looking at the results over all of the regions studied, the most frequently outsourced services include domestic transportation (80%), warehousing (66%), international transportation (60%), freight forwarding (48%), and customs brokerage (45%). Responses to this question support the idea that the less frequently outsourced logistics services tend to be customer-related, involve the use of information technology, and are more strategic in nature. 11. Why do some firms choose not to use the services of 3PL firms? Based on these figures, the most important reason that organizations have elected not to outsource logistics services is the belief that logistics is a “core competency” at those organizations. Other reasons include the belief and/or expectations that cost reductions would not be realized, control over outsourced function(s) would diminish, service level commitments would not be realized, and they have more logistics expertise than the 3PL providers. 12. In what ways are clients/customers counting on 3PLs for involvement with infor¬mation technology-based services? Overall, the most-frequently cited technologies as being needed by 3PLs are those that have more execution and transactional-based capabilities. Examples include warehouse/distribution center management (WMS), transportation management planning and scheduling (TMS), visibility, EDI, and the use of web portals for updates and relevant shipment information. Essentially, these types of technologies tend to parallel the types of logistics services that were profiled in the preceding section of this chapter. Table 12.3 summarizes some of these more highly-rated IT capabilities. Figure 12.8 focuses attention on the “IT gap,” which is the difference measured each year between the percentage of 3PL users indicating that “IT capabilities are a necessary element of 3PL expertise,” and the percentage reporting that they are “satisfied with 3PL IT capabilities.” Although the IT gap has narrowed significantly over the time frame indicated, findings from recent years suggest modest decreases in the size of the gap, but it is apparent that most shippers do not come close to using the full range of IT capabilities that may be obtained through their relationships with 3PLs. In attempting to analyze the causes of this IT gap, one factor that is significant is the complexity of IT-needs of the shipper organizations, and the extent to which their IT capabilities themselves need to be improved. Also of potential relevance is the relationship internal to the customer organization between the supply chain and IT process areas. The dynamics of this relationship can easily impact and influence dealings between 3PLs and customers regarding the topic of IT capabilities. 13. To what extent are clients/customers satisfied with 3PL services? What is the rela¬tive importance of cost, performance, and value creation as determining factors for evaluating and selecting 3PLs? Generally, 3PL users across the global regions studied characterized their outsourcing efforts as having been successful. In fact, the percentages of users rating their relationships with 3PLs as being either “extremely” or “somewhat” successful typically falls in the range of mid-high 80 percent to low-mid 90 percent figures. Based on views from 3PL users, however, there are a number of areas in which they encourage 3PLs to pursue opportunities for improvement. Several of these are listed below. •Meeting service-level commitments •Realizing cost reductions •Avoiding “cost-creep” and price increases once the relationship has commenced •Effective “onboarding” by 3PLs of new customer relationships •Ability to form meaningful and trusting relationships •Information technology capabilities •Global capabilities •Strategic management capabilities and consultative/knowledge-based skills Overall, these opportunities suggests a need to meet service-level and cost objectives and to avoid unnecessary increases in price to the customer once the relationship has commenced. Also, it appears that some 3PLs need to improve in the areas of strategic management, technology, and knowledge-based skills. These suggest expectations by the customers that currently are not being met. 14. To what extent do clients/customers think of their 3PL providers in a strategic sense? What evidence suggests that this may change in the future, and what kind of change may be expected? One major accomplishment of the past 10 to 15 years has been establishing the validity of the logistics outsourcing model and specifically of the 3PL provider. As we look to the future, we already see increasing acceptance of the 4PL model, likely growth in expenditures by current users of 3PL services, and a growing sophistication in the outsourced business approaches that respond to a dynamic set of customer logistics and supply chain needs. To conclude the discussion of outsourced logistics services as a key element of supply chain relationships, Table 12.5 identifies a number of trends that seem to characterize the future direction of the 3PL sector. Regardless of how quickly these trends become apparent, the topic of logistics outsourcing is likely to be central and critical to the future successes of logistics and supply chain management. Case Study CHAPTER CASE 12.1 Quick Chips, Inc. 1. Describe the elements of the value proposition for the member-manufacturers of Quik Chips (QC). What would be the elements of the value proposition for the mobile technology manufacturers that are served directly by QC? Essentially, Quik Chips serves its member-manufacturers as a 4PL by providing a wide array of services such as “system-to-system transactions with distributors, website hosting, warehousing, light assembly, shipping, freight auditing, and import-export operations.” The overall value proposition for QC lies in the full-range of e-Commerce and fulfillment services that are focused on facilitating faster delivery times to customers of their manufacturer-members. This is particularly relevant, considering the very high cost associated with the alternative of carrying excess inventory. Also, QC does not own, plan, release, or insure any inventory, and does not sell directly to the manufacturers of mobile devices – only its member-manufacturers do. 2. Identify some of the major sources of savings for member-manufacturers of Quik Chips? Major sources of savings are derived from QC’s ability to consolidate orders and deliveries for its various member-manufacturers. Considering the volumes of shipments handled by QC, attractive rates and service levels should be expected. Also, all member-manufacturers should share in the savings associated with reduced overhead expenses, sharing of distribution center capacity and services, common areas, support staff and communications technologies. 3. To facilitate the success of this joint-venture, what are some of the way in which the mobile technology manufacturers should collaborate with QC and its members? Although the member-manufacturers obviously need to the benefit of legal counsel to make sure they comply with anti-trust requirements, it is important that QC provide regular reports to validate that operational efficiencies and service levels are consistent with those needed by the mobile technology manufacturers. On a general level, QC should provide its members with desired levels of transparency, fairness, and continuous development of a trust-based culture. Last, member-manufacturers should be sure that the strategic directions of QC are well-aligned with current and future industry directions. Examples include making sure that future distribution centers are located strategically, e-Commerce capabilities are maintained and refreshed as needed, and that QC regularly reviews its own core competencies to determine opportunities for improving its own business. CHAPTER CASE 12.2 HQ Depot 1. What rationale is offered by HQ Depot in support of the idea of using a 3PL? Do you agree with the reasons cited for the interest in a 3PL? Overall, HQ Depot’s interest in using a 3PL is to design and operate a system to better manage the transportation of products from DC’s to locations of company stores and e-Commerce customers. Although the capabilities of 3PLs are continually-improving, there are a number of objectives and characteristics of HQ’s supply chain that support the idea of seriously considering use of a 3PL. Among these are seasonal demand for HQ products, current variability in transit times and service reliability, need for uniformity of control in fulfillment operations, and improvements in services to outlying locations. Also, and given the increasing involvement by HQ Depot in e-Commerce and omni-channel activities, it may be advantageous to consider the capabilities of 3PLs that may specialize in these areas. 2. Based on your understanding of HQ Depot and its business needs, what type of 3PL firm do you feel might be of greatest potential value in terms of a relationship? Based on the case description, it would seem that some areas of needed 3PL expertise would include transportation, order processing, and omni-channel fulfillment capabilities. 3. What steps would you suggest be considered by HQ Depot as it begins to analyze the feasibility of forming a relationship with individual 3PL providers? Suggestion here is that the structure and content of Figure 12.2, “Process Model for Forming Logistics Relationships,” should be used in the students’ responses here. 4. Once the selection process is complete, what kind of relationship do you feel would be most appropriate: vendor, partner, strategic alliance, or some other option? Considering that the 3PL’s operations would be situated between HQ Depot distribution centers and its customers/consumers, this would favor a more structured and meaningful relationship between the 3PL and HQ Depot. So, at a minimum the relationship should be that of a partnership, but most likely will be some form of strategic alliance. Solution Manual for Supply Chain Management: A Logistics Perspective John J. Coyle, John C. Langley, Robert A. Novack, Brian J. Gibson 9781305859975