Unit 7 Strategic Outsourcing And Strategic Alliances, Third Party And Fourth Party Logistics.

Strategic Outsourcing

Outsourcing is the act of transferring some of an organizations recurring internal activities and decision rights to outside providers, as set forth in a contract. The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs. The use by one company of another business to do particular tasks because it can do them more effectively or cheaply. Companies can increase profits through strategic outsourcing.

Reasons and Benefits

Organizationally - focus, flexible, transformation, customer service Improvement - performance, manage & control, risk manage, new ideas, image Financially - reduce investment, generate cash Revenue - gain market access, expand Cost - reduce cost, from fixed to variable cost Employee incentive, motivate. Adding value to products/services Improving market access Strengthening operations Adding technological strength Enhancing strategic growth Building financial strength

Levels of Outsourcing

Individual moving specific positions out of the organization. Functional having specialized knowledge and responsibilities. Process how products or services actually flow through the organization.

7 Steps to Successful Outsourcing

1.

2.
3. 4. 5. 6. 7.

Planning initiatives Exploring strategic implications Analyzing costs/performance Selecting providers Negotiating terms Transitioning resources Managing relationships

Four Basic Ways to Ensure Tasks Are Completed

Internal activities Activities that are core strengths may be the best way to perform the activity. Acquisitions Gives the acquiring firm full control over the way the particular business function is performed Can be difficult and expensive. (Culture/Competitors) Arms-length transactions Most business transactions are of this type. Short-term arrangement that fulfills a particular business need but doesnt lead to long-term strategic advantages. Strategic alliances Multifaceted, goal-oriented, long-term partnerships between two companies Both risks and rewards are shared. Typically lead to long-term strategic benefits for both partners.

Strategic Alliance

In a strategic alliance both parties contribute to their joint venture their respective resources and capability Aim is to add greater value to their respective positions By doing so, to Increase their financial return To access the capability of their partner which they themselves lack To acquire skills that they themselves may lack

Benefits of strategic alliance

1. 2.

3.

4.

5.

6.

Upside financial payments Increased financial resources Cash Transfer assets Equity Loans Skills Transfer Technical Management IP Acquisition Platforms Research Tools IP Creation In field of collaboration Outside field of collaboration Co-marketing Manufacturing Selling

Types of Alliance

Third-party logistics (3PL) Fourth-party logistics (4PL) Retailer-supplier partnerships (RSP) Distributor integration (DI)

Third Party Logistics

3PLs are external suppliers that perform all or part of a companys logistics functions, including: Transportation Warehousing Distribution Financial services Terms contract logistics and outsourcing are sometimes used in place of 3PL. Use of an outside company to perform all or part of the forms materials management and product distribution function

Relationship vs. transactional based

Single-function vs. multi-function Long-term vs. short-term commitments

3PL

Advantages of 3PL Focus on core strengths Provides technological flexibility Provides flexibility in geography workforce size additional services resource flexibility Disadvantages Loss of control 3PL employees may interact with customers Sharing of confidential info

4PL
It refers to the evolution in logistics from suppliers focused on warehousing and transportation (third-party logistics providers) to suppliers offering a more integrated solution. Among other services, fourth-party logistics providers include supply chain management and solutions, change management capabilities, and value added services in their offering.

4PL

The term was coined as a result of an extensive survey carried out by the organization on customer satisfaction, which indicated that the customer expectations regarding costs by using 3PL service providers were not up to the mark. According to the Accenture Consulting the 4PL defines as: An integrator that assembles the capabilities, technology and resources of its own organization and other organizations to design, build and run comprehensive supply chain solutions

INFRASTRUCTURE REQUIRED FOR 3PL

The following type of infrastructure is a prerequisite for a good 3PL: i. Warehouse ii. Fleet of vehicles iii. Quality Hardware and software to take care of information required by the system. iv. Advanced material Handling capabilities v. Competent consultants with good team of spirits vi. Trained Manpower vii. Reach in terms of Geography.

MEASURING & EVALUATING 3PL PERFORMANCE:

The following are the metrics of 3PL 1. Transportation
a.

b.
c.
2.

On-time shipment On-time Delivery Transportation cost per mile

Warehousing
a. b. c. d. e. f. g.

Percentage of order ships in each consignment Unit cost of warehousing Pricing accuracy in warehouse Order fulfillment Item fulfillment Inventory accuracy Loss and damage

3.

Cost:
a. b.

Service costs Cost Reduction

4.

Quality
a. b.

Reports Process Improvement

5.

Availability:
a. b.

Customer Satisfaction Handling routine

FACTORS TO BE CONSIDERED IN EVALUATING A 3PL

A.

B.
C. D. E.

General Company Considerations Capabilities Quality Client Relationship Labor Relations