1

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 vendor to strategic alliance

OUTSOURCED LOGISTICS SERVICES : 2001

Percent Outsource
Warehousing
Outbound transportation
Freight bill auditing/payment
Inbound transportation
Freight consolidation/distribution
Cross-docking
Product marking /labeling/packaging
Selected manufacturing activities
Product returns and repair
Inventory management
Traffic management/fleet operations
Information technology
Product assembly/installation
Order fulfillment
Order entry/order processing
Customer service

73.7%
68.4
61.4
56.1
40.4
38.6
33.3
29.8
22.8
21.0
19.3
17.5
17.5
15.8
5.3
3.5

Note: Figures refer to percentages of users indicating use of specific 3PL services
Source: C.John Langley Jr., Gary R. Allen, and Gene R.Tyndall, Third-Party-Logistics Services:
Views from the Customers (Atlanta, Ga: Georgia Institute of Technology , Cap Gemini Ernst
& Young and Ryder System, Inc. 2001)
3

RELATIONSHIPS-TYPES

TYPES OF RELATIONSHIPS

Partnerships

Adversarial

Arms
Length

Emphasis
on price

Co-operative

Coordinated

Emphasis
on
relationshi
ps

Integration

Joint
Ventures

Emphasis on
sharing risk and
rewards through a
legal entity

Vertical
Integrati
on

Supply chain
Owned and
controlled by a
single
organization
5

Logistics Relationships, continued

Intensity of Involvement
Transactional
Both parties in a vendor relationship are said to be at arms
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
8

Figure 4.2

Process for Forming Relationships

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

Figure 4.3

Required 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 4.4

Implementation & 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 4.5

Types of Collaboration

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

14

Table 4.1

7 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
companys logistics functions. Among these, multiple
logistics activities are included, those that are included
are integrated or managed together, and they pro-vide
solutions to logistics/supply chain problems.

16

Third-Party Logistics Industry Overview, continued

Types of 3PL providers

Transportation-based
Warehouse/distribution-based
Forwarder-based
Financial-based
Information-based firms

3PL market size and scope

Total NA revenue $143.3 billion
Global revenue $539.1 billion

17

Table 4.2

Top Buyers of 3PL Services

18

Table 4.3

Global 3PL Market Revenue Estimate

19

Figure 4.6

3PL Market U.S. Turnover Growth

Source: Predictions and major trends for third part logistics 2011,
Armstrong & Assoc., Inc. Used with permission

20

Third-Party Logistics Research Study

Industry Details
Profile of logistics outsourcing
Operational, transactional, and repetitive services were
the most likely to be outsourced.
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

21

Third-Party Logistics Research Study Industry Details , continued

Customer Value Framework

3PLs enable reduced costs, fewer assets, less
working capital, and improved order performance.

A Strategic View of Logistics and the Role

of 3PLs
Fourth-party relationships
Logistics outsourcing model for the future
Proprietary provision evolving through stages to
lead logistics provider

22

Figure 4.7

Outsourced Logistics Services

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

23

Figure 4.9

Customers 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 4.10

Evolution of 3PL / LLP / 4PL Services

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

25

TYPES OF SUPPLY CHIAN OUTSOURCERS

26

DRIVERS OF 3PL PROVIDER SUCCESS

27

LOCAL, REGIONAL AND GLOBAL SUPPLY CHAIN PLAYS

28

EIGHT IS THAT CREATE SUCCESSFUL WES

Individual
excellence

Both partners must have something of value to contribute to the relationship. Both
partners are strong. Motives for the relationship are positive and focus on opportunities.
Reasons for entering the partnership should not be negative to mask a weakness or to
escape from a difficult situation.

Importance

The relationship must fit-in with each partners strategic objectives and they must make it
work. Each partner must have long-term goals in which relationships play a key role

Interdependence

Each partner needs the other. They have complementary assets and skills. Neither can
accomplish alone what both can together

Investment

Partners invest in each other (e.g. through equity swaps, cross-ownership or mutual board
service) to demonstrate their respective stakes in the relationship with each other. They
show tangible signs of long-term commitment by devoting financial and other resources
to the relationship

Information

Communication is reasonable open. Partners share information to make relationships

work. This includes: objectives, goals, technical data, knowledge conflicts, trouble spots
or changing situations

Integration

Partners develop linkages and shared ways of operating so that they can work together
smoothly. They build connections between many people at many organizational levels.
Partners become teachers and learners

Institutionalizatio
n

Relationships are given formal status ,with clear responsibilities and decision processes.
It extends beyond the people who formed it, and cannot be broken on a whim

Integrity

Partners behave honorably to each other, which enhances mutual trust. They do not
abuse information gained from working together to undermine each other
29

Figure 4.11

Next Generation Logistics Outsourcing Models

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

30

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.

31

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 companys
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, financialbased, and information-based suppliers.
32

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 are, to some extent, users of 3PL services.
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.
33

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.

34