SCM373 Exam 3

• Outsourcing

  The contracting out of a business process to another party
• Outsourcing is common for activities such as manufacturing, accounting, marketing, customer service, HR, IT, and logistics
• Outsourcing vs procurement

  Rather than buying a service, you are having another party managing and controlling the process for your firm
• Outsourcing

  • Often a bigger scope, larger scale, and/or longer contract
• Reasons firms outsource


  • Cut costs
  • Access to more skilled employees or applied information systems
  • Focus on core competencies
  • Operate more flexibly
• Third party logistics (3PL)

  An external service provider that manages all or part of a company's logistics functions
• Transportation management is the most commonly outsourced function to 3PLs followed by warehousing
• More and more, 3PLs manage multiple functions for their customers
• As 3PLs continue to expand service offerings, there seems to be a relabeling of 3PLs to "supply chain solutions" companies
• Reasons to utilize 3PL

  • Opportunity to reduce costs
  • Opportunity to improve customer service
  • Focus on core competency
  • Access to emerging technology
  • Expansion to new or unfamiliar markets (geographic areas or new services)
  • Ability to free capital for other areas
• Reasons to utilize in-house logistics

  • Lack of opportunity to reduce costs
  • Lack of opportunity to improve customer service
  • Logistics is a core competency of the firm
  • 3PL capabilities do not match the firm's needs
  • Diminished control
  • High security requirements
• Asset-based 3PLs


  3PLs with tangible equipment and facilities, own assets and hire labor force needed to run logistics activities
• Non asset-based 3PLs


  3PLs that leverage resources of other companies, contract/broker with other firms to provide services rather than owning required assets
• Asset-based 3PLs


  • Potential advantages: readily available capacity, permanent employees, and direct control of the customers' freight

  Potential disadvantages: potential for bias toward 3PL owned resources in developing solutions for customers
• Non asset-based 3PLs


  • Potential advantages: less biased in decision making (no preference toward internal option)

  Potential disadvantages: lack of internal capacity to provide service, require strong technology support and high visibility
• Transportation-based 3PL


  Business focus on the transportation of freight or people (travel or relocation services), can be asset-based or non-asset based, might focus on a mode of transportation or be mode-neutral
• Transportation-based 3PL services


  • Transportation management

  Transportation documentation
• Warehouse/Distribution-based 3PL


  Business focus on public or contract warehousing and distribution services
• Warehouse/Distribution-based 3PL services


  • Inventory management

  Warehousing

  Order fulfillment

  May also provide transportation services
• Financial-based 3PL


  Business focus on the monetary issues and financial flows in the supply chain
• Financial-based 3PL services


  • Rating and bill auditing

  Payment processing

  Insurance claims
• Information-based 3PL


  Business focus on Digitized activities that were previously performed manually or required the use of licensed software, sell the software platform more than the service
• Information-based 3PL services


  • TMS-transportation management software

  WMS-warehouse management software

  Tracking

  Performance management tools
• Logistics Network Design


  The process of planning and configuring the network of parties and facilities involved in the physical distribution of a product
• Logistics Network Design


  • Network design decisions can center around internal distribution network and/or external supply chain partners
• External Network Design Decisions

  • Where? Who do you buy from / sell to, and where are they located?
  • How many? Supply base concentration and customer base concentration
• Logistics network design is the process of planning and configuring the network of parties and facilities involved in the physical distribution of a product
• Network design decisions can center around internal distribution network and/or external supply chain partners
• • What drives logistics network (re)design?
  • Cost pressures
  • Changes in global trade patterns, policies, and risk
  • Shifts in customer and/or supply market locations
  • Changes to business strategy and competitive capabilities
  • Changes in corporate ownership/merger and acquisition activity
  • Changes in customer service requirements: e.g., the emergence of omni-channel supply chains
• External Logistics Network: Where?


  • Who do you buy from / sell to, and where are they located?
  • Firm has more visibility and control over 1st-tier suppliers and customers vs. more distant supply chain partners, but large firms sometimes try to influence who and where decisions for more distant supply chain partners
  • Decisions can be based on costs, regulation & taxes, distance and access, risk, security
• External Logistics Network: How Many?


  • Supply Chain Concentration - The extent at which purchases or sales are concentrated among fewer suppliers or customers
  • Supply base concentration is higher when you allocate a larger volume of purchases from fewer suppliers
  • Customer base concentration is higher when you allocate a greater portion of sales to fewer customers
• Advantages of Supply Chain Concentration

  • Leverage purchase dollars to increase negotiating power
  • Increased ability to interact frequently and monitor supply chain partners
  • Ensure supplier compliance
  • Better follow and adapt to customer needs
  • Opportunity to build trust, commitment, and joint solutions with partners
• Disadvantages of Supply Chain Concentration

  • Encourage supplier/customer competition; can potentially lower procurement prices or increase sales prices
  • Increased supply disruption risk
  • Alternative sources for inputs if a supplier has a disruption
  • Other sales in case a customer suddenly drops
  • Greater reliance on one or a few major customers
• Internal Logistics Network Structure

  • Involves decisions about facilities owned, leased, or operated by the firm
  • Examples: Warehouses/DCs/FCs, Manufacturing sites, Corporate or support offices
• Internal Logistics Network: Where?

  • The facility location decision is one of the most common decisions in logistics network design
  • For facilities that handle goods, facility location is often based on balancing the distance and access to supply (upstream) and demand (downstream)
  • Facility location often balances multiple sources of supply and demand and the distances from these sources affects not only transportation costs/risks, but also that of warehousing, inventory management, customer service planning, & coordination costs
  • Hoover's Tapered Transportation Rates: Total transportation cost tends to be minimized if a facility is located near either the supply source or the demand market
• Facility Location Determinants


  • Global/National/Regional Determinants: Proximity to markets and customers, Proximity to suppliers, Labor climate, Transportation infrastructure, Taxes and incentives, Land costs, Risks
  • Site-Specific Determinants: Transportation access, Inside/outside metropolitan area, Facility and land costs, Congestion
• Tradeoffs in Logistics


  • Inventory holding cost and transportation cost
  • Cost of lost sales (customer service) and transportation cost
  • Cost of lost sales (customer service) and inventory cost
  • Warehousing costs and transportation costs
• Increasing the speed or frequency of shipments increases transportation costs but reduces the amount of inventory that must be held because lead time is shorter
• Increasing the speed of shipments reduces the cost of lost sales because customers need not wait as long for products
• Increased inventory levels (safety stocks) increase inventory holding costs but reduce the cost of lost sales because stockouts and backorders become less frequent