Chapter 4

SUPPLY CHAIN
RELATIONSHIPS
 Learning Objectives
After reading this chapter, you should be able to do the following:

● 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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part.
 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.

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part.
 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

©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.
 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.

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part.
 Figure 4.1
Relationship Perspectives

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

©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.
 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
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in 7
part.
 Figure 4.2
Process for Forming Relationships

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

©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.
 Figure 4.3
Required for a Core Competency Area

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

©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.
 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

©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.
 Figure 4.4
Implementation & Continuous Improvement

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

©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.
 Figure 4.5
Types of Collaboration

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

©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.
 Table 4.1
7 Laws of Collaborative Logistics
● Collaborative Logistics Networks Must
Support:
1. Real and recognized benefits to all members
2. Dynamic creation, measurement, and evolution of
collaborative partnerships
3. Co-buyer and co-supplier relationships
4. Flexibility and security
5. Collaboration across all stages of business process
integration
6. Open integration with other sources
7. Collaboration around essential logistics flows

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

©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.
 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.

©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.
 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

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in 16
part.
 Table 4.3
Global 3PL Market Revenue Estimate

©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.
 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
©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.
 Table 4.2
Top Buyers of 3PL Services

©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.
 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.

©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.
 Figure 4.7
Outsourced Logistics Services

Source: Fifteenth Annual 3PL Study, C. John Langley Jr. Ph.D. . Used with permission
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part.
 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)
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part.
 Figure 4.9
Customer’s Perspectives on 3PL Relationships

Source: 2005 Tenth Annual 3PL Study, C. John Langley Jr. Ph.D. and Cap Gemini LLC.
Used with permission
©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.
 Figure 4.10
Evolution of 3PL / LLP / 4PL Services

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

©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.
 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
©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.
 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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part.
 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.
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part.
 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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part.
 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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