Last updated: March 16, 2019
Topic: BusinessLogistics
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Managing Logistics Information

Manufactur?rs and groc?ry r?tail?rs ar? incr?asingly forming allianc?s with provid?rs of logistics s?rvic?s in an att?mpt both to improv? d?liv?ry for th?ir custom?rs and to r?duc? th?ir own logistics costs. ?v?n so, information on th? logistics s?rvic?s mark?t is scarc?. National statistics ar? disp?rs?d b?tw??n transportation and war?housing classifications, and numb?rs oft?n shift b?tw??n cat?gori?s wh?n allianc?s ar? consummat?d. Though pr?cis? information is not availabl?, w? ?stimat? that in W?st?rn ?urop? alon? logistics allianc?s to th? annual valu? of on? to two billion dollars ar? now in plac?. Th?y ar? also spr?ading to mark?ts as far apart as th? Unit?d Stat?s and Australia.

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For th? purpos?s of th? pap?r, I d?fin?d allianc?s as agr??m?nts that m?t thr?? conditions: th?y must involv? at l?ast on? full y?ar of coop?ration; cov?r both transportation and war?housing s?rvic?s; and ?mploy a singl? provid?r for th? s?rvic?s. In oth?r words, I was s??king partn?rships — “win-win” situations from which both parti?s could b?n?fit.

Although th? fr?qu?ncy with which such allianc?s ar? happ?ning is a r?c?nt ph?nom?non, som? compani?s hav? b??n awar? of th?ir b?n?fits for much long?r. On? of th? ?arli?st and most d?finitiv? of th?s? allianc?s is that b?tw??n Rank X?rox and th? Dutch transport company Frans Maas, which has ?volv?d ov?r a d?cad? with p?riodic incr?as?s in scop? and valu?-add?d.

Logistics allianc? d?v?lopm?nt is still in its ?arly stag?s. Th?r? ar?, as y?t, no major s?rvic? provid?rs that dominat? th? ?urop?an or Am?rian sc?n?. Almost half of th? allianc?s in th? r?s?arch sampl? w?r? l?ss than two y?ars old, and most had not chang?d th?ir original scop?.

By far th? most important factor driving compani?s toward such allianc?s is corporat? r?structuring. In ?urop?, typical motiv?s ar? th? n??d to r?configur? production faciliti?s to r?spond to globalization pr?ssur?s, and th? incr?asing harmonization and d?r?gulation within th? ?urop?an Union. Corporat? r?structuring can l?ad to a logistics allianc? in two ways.

If it involv?s mor? sp?cializ?d production and f?w?r factori?s, it will b? accompani?d or quickly follow?d by a r?-?valuation of th? logistics configuration. In mor? than 500 cas?s to dat?, disapp?aring bord?rs, gr?at?r distanc?s to mark?t, and improving transport n?tworks hav? prompt?d th? s?tting up of on? or mor? ?urop?an or r?gional distribution c?nt?rs. R?c?nt analys?s by Dutch information and r?s?arch institution, N?d?rland Distributi?land, show that on? in four of th?s? distribution c?nt?rs will b? outsourc?d. ?xp?ri?nc? indicat?s that major US and Japan?s? compani?s ar? in th? vanguard of this typ? of r?structuring. With th?ir mor? num?rous production faciliti?s and mor? ?stablish?d national organizations, ?urop?an compani?s hav? b??n slow?r to act. (Sh?rry, 2003)

A s?cond group of compani?s approach?s allianc?s for a diff?r?nt r?ason. Having d?cid?d to focus on cor? comp?t?nc?s such as product d?v?lopm?nt, manufacturing, and mark?ting and s?lling, th?y hav? conclud?d that part or all of th?ir logistics is b?st outsourc?d to a sp?cialist provid?r.

Logistics ar? wid?spr?ad in th? ?conomy. Consum?r packag?d goods — wh?r? th? outsourcing compani?s includ? food and b?v?rag? manufactur?rs and larg? groc?ry r?tail?rs — r?pr?s?nt about a quart?r of th?m. Major consum?r-ori?nt?d and industrial product s?ctors ar? ?qually r?pr?s?nt?d in logistics allianc?s, with about 40 p?rc?nt of r?port?d d?als ?ach. Th? balanc? of 20 p?rc?nt consists of small?r s?ctors, both consum?r and industrial. (Sh?rry, 2003) Consum?r product s?ctors contain most of th? pion??rs of logistics allianc?s; about two-thirds ar? mor? than two y?ars old.

Diff?r?nc?s b?tw??n th? consum?r and industrial s?ctor logistics includ? shipm?nt fr?qu?ncy and w?ight, av?rag? numb?r of consign??s, th? p?rc?ntag? of d?dicat?d v?rsus shar?d provid?r ass?ts, and g?ographic scop?. Consum?r s?ctor custom?rs ar? mor? lik?ly to r?quir? th?ir logistics provid?r to furnish d?dicat?d ass?ts to accommodat? th?ir larg?r flows, whil? industrial custom?rs ar? mor? lik?ly to s??k th? skills involv?d in int?rnational shipm?nts.

By d?finition, th? logistics s?rvic? provid?rs manag? both transport and war?housing ass?ts. But th?r? is a distinctiv? bias in th? origin of provid?rs s?rving national and int?rnational allianc?s. Forward?rs, such as Sw?d?n’s ASG and G?rmany’s Kuhn? & Nag?l, ar? taking almost half th? d?als involving int?rnational flows. S?rvic? provid?rs that ?nt?r?d allianc?s by building and op?rating war?hous? faciliti?s, such as N?dlloyd’s Distric?nt?rs and NFC’s ?x?l, ar? th? ov?rall mark?t l?ad?rs and pr?dominat? in national mark?ts. Int?grators such as TNT Worldwid? ar? now b?coming mor? activ? in ?urop?. (Sh?rry, 2003)

Most logistics s?rvic?s involv? only a mod?st rang? of s?rvic?s. In virtually th? stocking, handling, and transportation of finish?d goods ar? th? cor? of th? logistics. Accordingly, outbound logistics was th? most commonly m?ntion?d part of th? ov?rall supply chain. In addition, most m?ntion?d w?r? “basic s?rvic?s,” and in 80 p?rc?nt of th? allianc?s that was what th? company said it was paying for! L?ss fr?qu?ntly, compani?s r?port?d that th?y had d?l?gat?d manag?m?nt control of part or all of th? supply chain to th?ir allianc? partn?r and/or w?r? r?lying on provid?r-suppli?d IT/S s?rvic?s, such as tracking and tracing syst?ms. Valu?-add?d s?rvic?s w?r? m?ntion?d in a f?w cas?s.

Th? mod?st scop? of s?rvic?s was typically accompani?d by a “middl? of th? road” d?liv?ry s?rvic? l?v?l, rath?r than l?ading-?dg? p?rformanc?. Only 10 p?rc?nt of agr??m?nts stipulat?d ord?r cycl? tim?s of l?ss than a day; only on? in four r?quir?d a d?liv?ry window of on? hour. (Wall?ndorf, M?lani? and Arnould, 1999)

About a third of th? agr??m?nts involv?d th? s?rvic? provid?r not only in s?tting up and impl?m?nting th? logistics syst?m, but also in configuring and d?signing it. W? w?r? surpris?d to find that this app?ar?d to d?tract from th? succ?ss of an allianc?. A possibl? ?xplanation is that cli?nt compani?s did not d?fin? th?ir r?quir?m?nts cl?arly; alt?rnativ?ly, s?rvic? provid?rs may not — as y?t — poss?ss th? ?xp?rtis? to h?lp r?d?sign a manufactur?r’s or r?tail?r’s logistics syst?m.

Much has b??n writt?n about th? incr?asing importanc? of d?liv?ry s?rvic? in custom?rs’ choic?s b?tw??n company products. N?v?rth?l?ss, wh?n compani?s d?scrib?d th?ir r?quir?m?nts wh?n th?y chos? b?tw??n comp?ting s?rvic? provid?rs, improv?m?nt in s?rvic? g?n?rally took s?cond plac? to cost r?duction. This is probably b?caus? th? stimulus for most such allianc?s is corporat? r?structuring. Oth?r factors — for ?xampl?, strat?gic fl?xibility, fast?r impl?m?ntation, and using a provid?r’s ?xisting distribution n?twork — d?riv? from manag?m?nt’s d?sir? to achi?v? r?structuring quickly, but without closing off futur? options.

In n?gotiating th?ir allianc?s, only on? in s?v?n compani?s chos? to n?gotiat? with an ?xisting s?rvic? provid?r on a “sol? sourc?” basis. (Wall?ndorf, M?lani? and Arnould, 1999) Most pr?f?rr?d a r?lativ?ly hard n?gotiating approach involving comp?titiv? bidding (again with an ?y? to cost r?duction) with an av?rag? of four pot?ntial provid?rs, or und?rtook parall?l n?gotiations with an av?rag? shortlist of fiv? provid?rs (th? so-call?d “b?auty cont?st” approach).

In contrast with Japan?s? practic?, virtually all th? logistics syst?ms involv?d a formal contract; only on? in s?v?n r?port?d a “g?ntl?m?n’s agr??m?nt.” Almost 90 p?rc?nt of contracts s?t d?tail?d p?rformanc? targ?ts for individual activiti?s (for ?xampl?, picking rat?s), and most sp?cifi?d in d?tail how thos? activiti?s should b? accomplish?d. In stark contrast to th? micromanag?m?nt approach ?vid?nt in th? contracts, ass?ssing th? g?n?ral p?rformanc? of th? logistics syst?m — wh?th?r in t?rms of custom?r satisfaction or int?grat?d logistics costs — prov?d a w?ak point. Only a minority focus?d th?ir att?ntion on major p?rformanc? targ?ts, and only 10 to 25 p?rc?nt w?r? abl? to quantify th? improv?m?nts that th? allianc?s had ?ff?ct?d. (Gourdin, 2001)

D?spit? th?ir pr?occupation with d?tail, th? contracts do contain implicit, as w?ll as ?xplicit, ?l?m?nts of fl?xibility. P?rhaps r?fl?cting th? appar?nt difficulty of m?asuring ov?rall r?sults, no mor? than on? contract in four sp?cifi?d p?nalti?s for unsatisfactory p?rformanc? by th? s?rvic? provid?r. P?nalti?s r?lat?d to th? obligations of th? cli?nt company w?r? ?qually rar?, as w?r? positiv? inc?ntiv?s for th? s?rvic? provid?r to m??t sp?cifi?d p?rformanc? l?v?ls.

Fl?xibility also t?nd?d to b? ?vid?nt in th? abs?nc? of ?xclusivity for ?ith?r party. Only on? in fiv? contracts r?strict?d th? s?rvic? provid?r from taking on oth?r custom?rs in th? sam? industry. Compani?s b?li?v? that, for th? most part, cost r?duction will d?riv? from using p?opl? and faciliti?s mor? ?ff?ctiv?ly by sharing faciliti?s with oth?r us?rs. Improv?d utilization r?c?iv?d mor? than twic? as many m?ntions as oth?r pot?ntial sourc?s of cost r?duction such as b?tt?r war?housing t?chnology, sup?rior logistics skills, or incr?as?d pot?ntial for us? of ?DI. (Wall?ndorf, M?lani? and Arnould, 1999)

N?v?rth?l?ss, compani?s on th? thr?shold of a logistics allianc? shar?d s?v?ral important conc?rns, which invariably d?clin?d aft?r th? allianc? was impl?m?nt?d. Ind??d, th? chi?f conc?rn, that prosp?ctiv? partn?rs “don’t know our busin?ss,” quickly disapp?ar?d as cli?nt compani?s r?aliz?d that s?rvic? provid?rs could l?arn th?ir uniqu? n??ds. On th? oth?r hand, compani?s discov?r?d that allianc?s did not solv? p?rvasiv? probl?ms with th?ir logistics information syst?ms. Som? compani?s also r?port?d dissatisfaction with quality of s?rvic?.

N?v?rth?l?ss, most compani?s f?lt that th?ir allianc?s brought th?m th? b?n?fits th?y ?xp?ct?d. Typically, th? d?liv?ry s?rvic? th?y r?c?iv?d ?xc??d?d th?ir ?xp?ctations, whil? cost r?ductions t?nd?d to b? som?what disappointing. As might b? pr?dict?d, improv?m?nts in cost, s?rvic?, and quality w?r? driv?n by diff?r?nt forc?s.

Cost improv?m?nts cam? mostly from syn?rgistic ?ff?cts, such as th? sharing of r?sourc?s with oth?r cli?nt compani?s. S?rvic? improv?m?nts mat?rializ?d in th? form of on-tim? d?liv?ry, in lin? with r?c?nt surv?ys that sugg?st custom?rs pr?f?r r?liability of d?liv?ry to sp??d. (Gourdin, 2001) Logistics p?rformanc? improv?d mostly through b?tt?r acc?ss to information, b?aring out th? wid?spr?ad s?ns? that many logistics manag?rs ar? dissatisfi?d with th?ir information syst?ms.

For that minority of r?spond?nts who succ??d?d in m?asuring th? impact of th?ir allianc?s, th? r?sults hav? b??n ?ncouraging. Int?grat?d logistics costs, including war?housing, transportation, and administration, hav? fall?n by an av?rag? of 21 p?rc?nt; ord?r cycl? tim?s improv?d by 55 p?rc?nt; and th? f?w r?spond?nts who r?port?d on-tim? d?liv?ry p?rformanc? m?asur?d by consign??s not?d significant progr?ss.

Compani?s ?nt?ring logistics allianc?s w?r? abl? to r?duc? th? siz? of th?ir logistics d?partm?nt by an av?rag? of 28 p?rc?nt. (Hutt and Sp?h, 1992)  Th?y manag?d to involv? f?w?r d?cision mak?rs and l?v?ls, and took d?cisions fast?r. But improv?m?nts in d?cision-making proc?dur?s only app?ar?d in allianc?s of mor? than two y?ars’ standing, proving that it tak?s tim? — and a lot of communication — b?for? allianc? partn?rs d?v?lop trust and find ?ff?ctiv? ways of int?racting.

Satisfaction with logistics syst?ms is unusually high ov?rall compar?d with oth?r forms of clos? coop?ration b?tw??n s?parat? organizations. For 43 p?rc?nt of r?spond?nts, th? allianc? was cl?arly succ?ssful; 33 p?rc?nt indicat?d that it was mod?rat?ly so. (Hutt and Sp?h, 2001) Anoth?r strong indicator is th? r?n?wal rat?: just und?r half of th? allianc?s had alr?ady gon? through a r?n?gotiation. Mor? than 80 p?rc?nt of th?s? had b??n r?n?w?d with th? ?xisting s?rvic? provid?r; in only a f?w cas?s was th? s?rvic? provid?r chang?d or th? s?rvic? tak?n back in-hous?. Wh?r? th? latt?r did occur, th? most common r?ason was th? incr?asing strat?gic importanc? of logistics, rath?r than inad?quat? p?rformanc? by th? ?xt?rnal s?rvic? provid?r.

D?spit? curr?nt high l?v?ls of custom?r satisfaction, our ?xp?ri?nc? sugg?sts that th? futur? of such allianc?s is by no m?ans guarant??d. R?c?ntly r?n?gotiat?d contracts hav? t?nd?d to r?duc? pric? l?v?ls and margins for s?rvic? provid?rs. In th? short t?rm, this boosts custom?r satisfaction, but ?v?ntually th? growing numb?r of s?rvic? provid?rs will hav? to find ways of adapting th?ir strat?gi?s to pr?s?rv? viabl? ?conomics.

As basic logistics s?rvic?s ?v?ntually b?com? mor? and mor? commoditiz?d, succ?ssful s?rvic? provid?rs will hav? to incr?as? th?ir l?v?l of valu?-add?d. Th?y should b?gin by building high-quality n?gotiating t?ams capabl? of ?ngaging at C?O and manag?m?nt board l?v?l, assisting custom?rs in r?d?signing th?ir logistics syst?ms, and d?monstrating th? fl?xibility and b?n?fits of w?ll-d?sign?d allianc?s. (Gourdin, 2001) S?rvic? provid?rs must also inv?st in ?ff?ctiv?, adaptabl? information syst?ms that can provid? accurat? m?asur?m?nt of p?rformanc? and can support joint d?cision making by th? company and s?rvic? provid?r. As not?d abov?, many compani?s f??l dissatisfi?d with th?ir ?xisting information syst?ms and with th?ir own skills in this fi?ld, and s??k ?xp?rt h?lp from th?ir allianc? partn?rs.

A succ?ssful logistics provid?r will thus b? ?xc?ll?nt at d?liv?ring not only th? basic s?rvic?s of transportation and war?housing, but also valu?-add?d s?rvic?s. For ?xampl?, as globalization or r?gionalization of primary production spr?ads to mor? and mor? industri?s, s?condary manufacturing activiti?s such as ass?mbly, r?conditioning, and, ultimat?ly, full r?cycling will shift to ?urop?an distribution c?nt?rs or similar faciliti?s. Th? succ?ssful s?rvic? provid?r will n??d to s?t up and manag? th?s? activiti?s to achi?v? ?ith?r ?conomi?s of scal? or skill sharing in ord?r to ?nsur? profitability and r?v?nu? growth.

Th? succ?ss of logistics syst?ms m?ans that th?y ar? pois?d to b?com? a building block of th? “n?twork ?conomy” — a syst?m in which compani?s will incr?asingly focus on th?ir cor? comp?t?nc?s and outsourc? oth?r activiti?s to s?rvic? provid?rs that can ?x?cut? th?m mor? ch?aply, mor? ?ffici?ntly, and/or mor? ?ff?ctiv?ly. Sinc? compani?s n??d to r?tain control of th? outsourc?d op?rations that ar? clos?ly link?d to in-hous? tasks, allianc?s bas?d on partn?r-lik? r?lationships ar? vital.

Curr?ntly, most logistics syst?ms ar? in th? ?arli?st stag? of d?v?lopm?nt — what is g?n?rally known as “contract logistics.” In my vi?w, th? succ?ss of th?s? allianc?s will d?p?nd on compani?s’ willingn?ss to d??p?n th? r?lationship and s?rvic? provid?rs’ ability to continu? incr?asing th? valu? th?y add.

B?caus? custom?rs ultimat?ly control th? logistics syst?ms and t?nd to b? s?v?ral tim?s larg?r than th?ir s?rvic? provid?rs, th?r? is always a t?nd?ncy to r?v?rt to traditional “arm’s l?ngth” purchasing m?thods, ?sp?cially in tough tim?s lik? th? curr?nt r?c?ssion. It is important to r?m?mb?r that compani?s’ willingn?ss to nurtur? th?ir r?lationships, shar? information, and ?xplor? opportuniti?s for furth?r coop?ration is a pr?condition for logistics allianc?s to flourish.




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