| Introduction | | | | quoting less price when compared to the competitors |
| In this fast changing world Logistics and the broader | | | | Although strategic alliances are becoming more |
| area of Supply Chain Management are becoming | | | | prevalent in all areas of business there are three |
| increasingly important. Virtually every critical business | | | | which are particularly significant in supply chain |
| activity is a component of logistics, meaning that | | | | management. These are third party logistics, retailer |
| logistics is a part of nearly every type of organization | | | | supplier partnerships, distributor integration. |
| throughout the world. From merchandising firms, to | | | | Outsource - To utilize a third-party provider to |
| government agencies, to transportation companies, | | | | provide services previously performed in-house. |
| to consulting firms, to third party logistics firms and | | | | Third Party Logistics(3PL)- It refers to transportation, |
| to service institutions deal with logistics. | | | | warehousing and other logistics related services |
| Supply Chain - The physical, financial, and information | | | | provided by companies employed to assume tasks |
| networks that involve the movement of materials, | | | | that were previously performed in-house by the |
| funds, and related information through the full logistics | | | | client. |
| process, from the acquisition of raw materials to | | | | Third party logistics allows companies to rapidly |
| delivery of finished products to the end user. The | | | | create an optimized, customer-centric distribution |
| supply chain includes all vendors, service providers, | | | | network. 3PL's experience has resulted in |
| customers, and intermediaries. | | | | technologies designed for the real world, incorporating |
| Logistics | | | | practical realities to drive benefit. In addition, their |
| "Logistics is that part of the supply chain process | | | | advanced techniques provide organisations a |
| that plans, implements, and controls the efficient, | | | | long-term vision for even greater order promising and |
| effective flow and storage of goods, services, and | | | | tighter delivery schedules. |
| related information from the point of origin to the | | | | Areas to consider when implementing a third party |
| point of consumption in order to meet customers' | | | | logistics |
| requirements." Council of Logistics Management | | | | Adding value to products- must add value to the |
| Logistics involves ‘those activities that focus on | | | | products of both companies. |
| getting the right amount of the right products to the | | | | Improving market access- due to strategic alliance, |
| right place at the right time at the lowest possible | | | | companies may reach their customers easily. |
| cost’. | | | | Strengthening operations- the improvement of |
| Increasing competitive environment has necessitated | | | | operations can be produced by reducing system |
| organisations to strive for efficiency within the supply | | | | costs and cycle times. |
| chain. Decisions concerning the selection of channel | | | | Adding technological strength- a partnership which |
| intermediaries, and then subsequently working with | | | | allows technology to be shared can benefit both |
| them, is effectively forming a strategic partnership. | | | | partners. |
| In strategic partnerships or alliances the emphasis is | | | | Enhancing organisational skills- the organisations learn |
| on cooperation and partnership between the parties, | | | | from each other and are forced to learn about |
| not competition and conflict, as the basis upon which | | | | themselves. |
| a joint competitive advantage is developed. This | | | | Building financial strength- these include administrative |
| approach stresses the development of trust, the | | | | cost and transportation cost. |
| sharing of information and the common interest | | | | Advantages of third party logistics |
| between channel members ( Dowling and Robinson, | | | | The 3PLP is likely to have access to the sophisticated |
| 1990 ). | | | | technology required in modern logistics management. |
| Though an organisation have the capacity to manage | | | | This includes sophisticated Information Technology |
| the changes in order to achieve efficiency within their | | | | which regularly requires updating. |
| supply chain, there are other organisations which | | | | The 3PLP is more likely to have this technology and |
| could complete the task more effectively and | | | | the capacity to maintain it at the appropriate |
| efficiently. This might be due to position in the supply | | | | standard than a non specialist organisation. |
| chain, holding expertise in the subject. | | | | The 3PLP is more likely to have the necessary |
| Supply Chain Management (SCM) - The management | | | | equipment such as transport and storage facilities. |
| and control of all materials, funds, and related | | | | The 3PLP is probably better equipped to meet the |
| information in the logistics process from the | | | | delivery and Information Technology demands of a |
| acquisition of raw materials to the delivery of finished | | | | number of customers. |
| products to the end user. | | | | This often allows the LOO to deal with customers it |
| There are various forms of collaboration. | | | | would not normally be practical and cost effective to |
| Acquisition: | | | | deal with. |
| A company could acquire another organisation with | | | | The 3PLP often provides greater flexibility in areas |
| the necessary expertise and equipment.but, they | | | | such as geographic location. |
| may face some problems with the acquired company. | | | | The availability of regional warehousing for example |
| Culture of the acquired company may clash with the | | | | can allow rapid replenishment of stock. |
| acquiring company, acquiring a successful company is | | | | It would not necessarily be practical for the LOO to |
| usually difficult and also expensive. therefore, | | | | invest in such facilities. |
| acquisition might not be appropriate. | | | | Greater flexibility in services can often be provided |
| Arms - length transactions: | | | | by the 3PLP which allow the LOO to deal with |
| This is the traditional approach and most commonly | | | | customers which would otherwise not be accessible |
| used business transaction. They tend to be short | | | | as they require certain services. |
| term agreements. They fulfil a specific requirement | | | | The provision of such services by the LOO could be |
| and hence cannot be included in the long term | | | | prohibitively expensive. However this might not be |
| strategies of the company. | | | | the case for the 3PLP. |
| Strategic alliances: | | | | Disadvantages of third party logistics |
| In today's rapid growing business world, strategic | | | | There are possible drawbacks of third party logistics. |
| alliances tend to be versatile and comprehensive | | | | If not managed proper, may give deleterious effect |
| partnerships. This method overcomes the problem of | | | | on the firm's competitive position. Recent research |
| acquisition and the arms- length transactions. It is | | | | has shown that communication problems between |
| usually between two companies which share the | | | | buyers and suppliers are a major cause of under |
| risks, is included in their company strategies. If | | | | performance. There is also the risk of supplier failure |
| implemented and controlled correctly they can lead to | | | | causing interruption to supply. The core objective of |
| long term strategic benefits for both partners in the | | | | one company may not coincide with the core |
| agreement. | | | | objectives of the other company in the strategic |
| Typically, organisations enter into a partnership in | | | | alliance between companies. |
| order to:achieve strategic objectivesdevelop joint | | | | The outsourcing company looses some control when |
| strategiesreduced risk while increasing rewardimprove | | | | activities are outsourced. |
| returns on scarce resourcesto meet competition by | | | | |