Report Writing
“Why Strategic Alliances and Partnership of Logistics is important in modern business. What are some of the analytical measuring tools and techniques a company can apply to better manage the success of Alliances and Partnerships.”
Table Of Contents:
1: Introduction – Definition, Conception and Beneficial.
2 : The Business Trend – Evolution and Globalization.
3: The Competition of the Logistics Industry
4: Manage the Outsource by Outsourcing-3PL versus 4PL 5: Analytical measurement tools & techniques.
(i) Determining strategic partnering of logistics objectives.
(ii) Establish a realistic analytical measurement tools/ techniques that meet your objectives.
(iii) Understanding the benefits and risk brought to alliances
.
6: Case Study
7: Conclusion
8: References
Introduction.
Strategic alliances are defined as “the pooling of specific resources and skills by the cooperating organizations in order to achieve common goals, as well as goals specific to the individual partners” (1995). For small and medium sized businesses, strategic alliances can be used to build innovative capability and technological competence. Through a strategic alliance, small or medium sized firms have a greater opportunity to overcome weaknesses such as a poor financial position or low levels of expertise in production, marketing, and management
Strategic partnerships and alliances are integral to business strategy. The objective of these relationships is to share knowledge and core capabilities in order to increase competitiveness and the value of services offer to clients. Additionally, these strategic partnerships and alliances bring together complementary industry relationships and further broaden the range of potential business opportunities for all parties.
The success of these relationships is reflected in the long-term relationships that have established with clients and impressive contract retention rates. Partnership/alliance approach creates an ideal environment in which to explore synergies, bring about close alignment of goals and increase performance.
Alliances of many different types: agreements between transportation companies to share equipment and terminals and to extend each participant’s reach; alliances between logistics providers in different countries to create a more global service; partnerships between software companies to offer a broader set of solutions; alliances between manufacturers and suppliers to speed the development and production of goods, and between manufactures and retailers to more accurately forecast demand; and a mélange of less obvious alliances that are designed in some way to provide a complementary match of corporate strengths.
“Creating value, a bigger pie, is fundamentally a cooperative activity involving customers and suppliers that a company can’t accomplish alone”
Strategic alliances and partnerships between logistics companies will enhance its industry’s comprehensive integrated technology-enabled management systems and services. The combination of the Logistics’ advanced technology infrastructure, provides state-of-the-art tracking for product shipments and instant Internet visibility to document imaging for expedited delivery receipt and claim management while integrating over-the-road and interposal transportation alternatives. The new alliance enables a combined team of dynamic, experienced professionals to provide customers the flexibility to ship more time-sensitive and customer-direct business via the best, most efficient and cost-effective route
The benefits of Strategic Alliances are
· Reduce costs
· Increase access to new technology
· Increase ROI
· Inhibit competitors
· Enter new markets
· Reduce cycle time
· Improve quality
THE BUSINESS TREND
Economies are continually evolving and globalization is one among several other continuing trends. One such trend is that as industrial economies mature, they are becoming more service-oriented to meet the changing demands of their population. Another trend is the shift toward more highly skilled jobs. But all the evidence is that these changes would be taking place—not necessarily at the same pace—with or without globalization. In fact, globalization is actually making this process easier and less costly to the economy as a whole by bringing the benefits of capital flows, technological innovations, and lower import prices. Economic growth, employment and living standards are all higher than they would be in a closed economy.
But the gains are typically distributed unevenly among groups within countries, and some groups may lose out. For instance, workers in declining older industries may not be able to make an easy transition to new industries. ( May 2000. )
Trend Continues
The world moved the industrial economy to the networked and digital economy. In this new century, with the advance of information technology and the expansion of Globalization, you will see the world economics environment coming out with a new and different nature. The economics world has shifted from being a small group of national economy to a Global and interdependent marketplace. This is the era of full and entire Globalization of economic activities.
Business and markets are no longer confined to geographical borders, but they are links to a complex worldwide network.
The new economy is Global, because its aspects, from financial to productions, are organized on a Global scale, directly through multinational corporations or directly through networks of association. What differential the new Global economy from the economy of the previous ages is “ it is an economy with the capacity to work as a unit in real time on a planetary scale.
The increasing Global Trading is changing the nature of firms, and they have shifted from national firms to international and global corporations. The complexity of business environment has forced companies to form collaborative agreements with their suppliers, buyers, competitors and allies. With such arrangement the firm create a network of complex business relationships, and these organizational relationships have become an integral of part of globalization. Mergers of companies, joint ventures, collaborative agreements and short and long term alliances between firms have characterized the business world of today.
GLOBALIZATION
Economic “globalization” is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization that are not covered here.
At its most basic, there is nothing mysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions—both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity—village markets, urban industries, or financial centers.
Markets promote efficiency through competition and the division of labor—the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. ( May 2000 )
GLOBALIZATION is a current business trend which even involved the SMEs ,which are gradually become significant participants. Nonetheless, the SME segment has not been able to match with the speed and scale of the larger organisations, they are able to do so with the private equity investor’s influences and even more aggressively.
ADVANTAGES
SUPPLY CHAIN – eventually a tremendous proportion of the financial transaction will be seamlessly integrated into the sale of goods and services.
VALUES RECOGNITION – global valuation and the ability to have initial public offers in the best context.
MERGERS & ACQUISITION – consolidations to survive , and ability to issue shares when making acquisition as the newly issued shares will be the currency of the new economy.
There’s Always an Alternative
“Alliances and partnerships may offer a lower cost and potentially faster and less risky alternative to globalization. They use the capital, competencies and existing business bases of allies to bolster capability.” They can also reduce or spread the risk. [1]
The Competitive Logistics Industry
The Global Logistics and Freight Forwarding market has undergone significant change and widespread consolidation. This has dramatically impacted on the dynamics of the market as well as the competitive capabilities of many players. Most customers now recognize that their global supply chain activity is a key potential source of competitive advantage. The impacts of globalize competition and the increasingly global capability of larger providers has led to effectiveness, efficiency, quality service and customer focused solutions becoming the key measures for providers and their customers in both the Logistics and Freight Forwarding arenas.
We can see companies are getting more and more aggressive in ways of doing businesses. Spending tons of money just buying another company for the sake of killing the market shares. “ The commercial world is always a battle field ” to all of us . The stronger will stays and the weaker will falls. A beautiful world which created by God has turned ugly because of too heavy competitions . Let see what will get worst from now….
Alliances and partnerships is important in business consolidation. They enable in the strengthening of vital elements in the logistical chain of an organization. This leads to an overall improvement in organizational efficiency. Strategic Alliance (SA) is one such partnership which enables the allying firms to pursue specific market opportunities by collaborating their resources.
The compulsions of today’s global economy have given rise to the practice of strategic alliances and partnerships. This enables a firm to develop long term relationships with like-minded firms and the synergy, thus developed, drives all the participating firms forward. Trust is the underlying factor in any partnership. It is the key to success of a partnership.
Global technology connectivity is ubiquitous today, creating more opportunities to shrink supply chain problems to manageable sizes and farm them out to specialized providers. Globalization enables this hyper-specialization.
It also demonstrates how business, like water, always seeks its own level. We licked the problems of connectivity, of delivering data to users without the need for intermediaries, and of providing real-time data.
So what now? We have a plethora of small, specialized chunks of information that can be offshore or outsourced. Globalization plays a significant role in solving these problems because it allows us to leverage the knowledge of people in different parts of the world even though they are not physically there.
Also, because of technologies that grant visibility into different transportation systems, companies have become agnostic in terms of where they source. This is crucial because it keeps production going.
Businesses today maintain a lot of goods and services in the pipeline, which is fine as long as the line is flowing and they have inventory outputs and inputs. If the pipeline gets blocked and production is stopped, however, the cascade effect can be devastating.
Leading companies can be toppled quickly if they lose capital, market share, customers, suppliers, and their reputation. In this global age, the difference between leadership and bankruptcy is actually very small.
So logistics companies must be nimble and quick to change as processes and conditions change.
MANAGE THE OUTSOURCE BY OUTSOURCING
- 3PL VERSUS 4PL
Outsourcing is a viable option for companies. Businesses outsource for many and varied reasons-increase shareholder value, reduce costs, business transformation, improve operations, overcome lack of internal capabilities, keep up with competitors, gain competitive advantage, improve capabilities, increase sales, improve service, reduce inventory, increase inventory velocity and turns, mitigate capital investment, improve cash flow, turn fixed costs into variable costs and other benefits, both tangible and intangible. To the maximum, and if done correctly, outsourcing and business process outsourcing can be used to create a viable virtual corporation.
Third Party Logistics (3PL)
A third-party logistics (3PL) firm is an external supplier that performs all or part of the company’s logistics functions. The definition encompasses providers of services such as transportation, warehousing, distribution, financial services and so on.
The use of third party logistics providers has grown dramatically over the last several years and has increasingly become an effective way to reduce costs and spread risks for traditional, vertically integrated firms.
The economic advantages of using 3PL suppliers are:
Elimination of infrastructure investments
Access to world-class processes, products, services or technologies
Improved ability to react quickly to changes in business environments
Risk sharing
Better cash-flow
Reduction of operating costs
Exchange of fixed costs with variable costs
Access to resources not available in one’s own organization
As customers grow accustomed to using the services of a 3-PL provider for certain activities such as transportation and warehousing, they become better candidates for a broader range of service offerings, or value-added services. Examples of value-added services provided by 3PL providers are:
Pick and pack
Marking, tagging, and labeling
Product returns and reverse distribution
Packaging and repackaging
Salvage and scrap disposal
Telemarketing
3PL is an extension of trucking, warehousing, and distribution. It is the provision of these products under one roof, with the aim of taking over some of the associated functions such as stock keeping and documentation. 3PL services also include basic functions comprising physical activities such as transportation, warehousing, line haul and the rental of material handling equipment.
However, the task of providing a full outsource solution comprising different services from one service provider is difficult. It is, therefore, not surprising that opportunities are created for 4PL service providers to assist companies in coordinating all the different 3PL activities, which are provided by different service providers.
4PL Service Providers
4PLs represent the next stage of development in logistics service providers. Consequently, while the traditional activities of warehousing, inventory management and transportation may be given out to one 3PL, other processes like HRD, security and product development are done by other 3PLs. In effect, the activities done by a set of internal departments are now being carried out by a set of 3PLs. As a result the companies now have to deal with a whole set of 3PLs and each needs to be coordinated with and linked via personnel and IT. The number of transactions and the costs reduced are thus offset to a great extent by the cost and time of transacting with all these 3PLs.
Today more and more business processes are being outsourced. In the West, processes like bill payment, credit tracking, invoice generation, HRD, transport and warehousing are all being outsourced. Outsourcing of these activities may indeed add considerable value to the product, but on the flip side, even in a developed economy like the US, there are no 3PLs that offer every process with equal competence or reach.
The 4PL is an integrator that assembles the capital, technology and resources of its own organization and other organizations to design, build and run
supply chains. The typical 4PL would eliminate complexity, share benefits of scale and capital and can drive innovation due to its overall view. In other words, a 4PL manages other 3PLs.
The primary role of the 4PL is the management of complexity and time. Two key distinctions make the concept of 4PL unique and set it apart from other supply chain outsourcing options available in the market today:
A 4PL delivers a comprehensive supply chain solution
A 4PL delivers value through the ability to have an impact on the entire supply chain.
In both these concepts, 4PLs have evolved because of constraints faced by the 3PLs. In other words, 4PL is the evolution of supply chain outsourcing. The convergence of technology and the rapid acceleration of e-capabilities have heightened the need for an over-arching integrator for supply of chain spanning activities. 4PL is a non-asset based logistics operator which has chosen to become an outsourcing specialist – assessing the entire supply chain and contracting those best able to provide the required services, all in order to reduce the customer’s investment in inventory.
4PL operators handle the client’s entire logistics function for optimum results. It is not just about reducing costs of warehousing and transport, but rather about managing the logistics functions and achieving optimization. 4PL consultants are being used to analyze certain areas and recommend solutions where processes can be optimized.
It follows naturally that 4PL service providers must become long-term partners, as they are directly involved in the business processes and strategies.
The 4PL service provider manages and coordinates the relationship between all the different activities of the consumer. It must be able to strategize and manage all the different assets that are dedicated to a customer and, where possible, coordinate break-bulk distribution by co-loading different customers’ products on the same vehicle. This can be done when a 3PL service provider has a great number of customers, thus providing the critical mass to allow break-bulk distribution.
The 4PL planning in such a scenario plays a great role in reducing costs. In essence, the 4PL logistics provider is a supply chain integrator and assembles and manages the resources, capabilities and technology of its own organization with those of complimentary service providers to deliver a comprehensive supply chain solution.
The development of 4PL solutions leverages the capabilities of 3PL providers, technology service providers and business process managers to deliver a comprehensive supply chain solution through a centralized point of contact. The 4PL will integrate the client’s supply chain activities and supporting technologies across these “best of breed” service providers with the capabilities of its own organization.
Analytical Measurement Tools & Techniques.
To compete in this changing environment and be positioned as the partner of choice with key strategic player, management should review their companies’ approaches to mapping out, establishing, and managing alliances. Becoming the industry leader and maximizing the value obtained from alliances and partnership of logistics involves three key steps.
Step 1: Determining strategic partnering of logistics objectives.
Step 2: Establish a realistic analytical measurement tools/ techniques.
Step 3: Understanding the benefits and risk brought to alliances.
Step 1: Determining strategic partnering of logistics objectives.
· Benchmark or target value for logistics costs and key performance measurements.
· Increasing logistics skill requirements.
· More advance on logistics information system/ Technology.
· Focus resources and concentration core business area.
· More adequately meet end-user customer requirement.
· Attain a competitive position.
After determining the objectives, the next step is to establish a realistic measurement tools or techniques. In this report we will list out four types of tools / techniques which enable companies to better manage their alliances and partnership. They are Logistics Outsourcing, Engage Third Party Logistics Provider, Joint Venture and lastly using Key Performance Indicator to measure your logistics performance and process. [2]
Step 2: Establish a realistic analytical measurement tools/ techniques that meet your objectives.
· Logistics Outsourcing.
· Engage a Third Party Logistics (3PL).
· Joint Venture Partnership.
· Key Performance Indicator measuring performance and process.
Outsourcing refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation. Logistics Outsourcing is one of the analytical tools/ techniques that shifts the organization logistics activities and process to a third party provider who can better manage it, the third party logistics provider (3PL). [3]
As we have mentioned earlier, Third Party Logistics is supply chain where one or more logistics functions of a firm are outsourced to a 3PL provider. Typically, they are specialize in warehousing, distribution and value added services or products that can be scaled and customized to customer’s needs based on market conditions and the demands or delivery service requirements for their products and materials. Outsourcing logistics to 3PL had prove to solves the problems caused by suppliers and carriers who fail to coordinate shipments and deliveries, and late shipments that result in the loss of money and customers.[4]
A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. Joint ventures enable the companies to share their company resources, manpower, information, knowledge and technologies in order to gain a better awareness of their logistics process best practices. The results help to minimize their logistics operation cost, better customer services and attain a competitive position in their logistics business. [5]
Maximizing value from alliance-based strategies requires a continuous cycle of performance measurement. Those performance measurements are referred as Key Performance Indicators (KPIs) which will assist your company in determining what is important to measure, how you will measure it, and how you will use that information to run a more successful logistics business. Key logistics performance indicators normally measure for the customer response, Inventory management, supplies, transportation, and warehousing. Indicators are captured in the areas of financial performance, productivity performance, quality performance, and cycle time performance.[6]
Step 3: Understanding the benefits and risk brought to alliances.
Manage the success of alliance and partnership mean how to make your analytical tool/ technique work therefore understanding what the key benefits and risk factors would bought to alliances are important.
Key Benefits.
· More Focus on core competencies.
· Enjoy world class technology/system.
· Benchmark against competitive logistics practice.
· Spreading costs and risks
Vertical alliances are relationships between organizations in different industries. This is a type of alliance most commonly found in the service sector where collaboration of expertise can be coordinated to offer complete solutions to clients. Outsourcing your logistics to 3PL is good example of vertical alliance. This allows company to only focus on their core business area by getting rid a lot of time and money on the non-core sophisticate logistics operation to a third party provider. The significant benefits are to enjoy the efficient use of worldwide Labour, technology and resources which provided by a 3PL while still maintain your logistics operation at lower rates and high customer satisfaction level. [7]
Horizontal Alliance included firms from the same industry. Alliances are usually used to achieve scale, to adjust for seasonal changes or handle niche areas of expertise. Joint venture is an example of horizontal alliance when two or more company from the same industry decided to conduct a business together. The strategy helps companies to combine and share their resources, manpower, technology and knowledge together in order to achieve their common goals. In return both or all parties will be able to minimize costs/risk and maximize return in investment. [7]
Performance Measurement has become an important measuring tool for any kind of alliances. Companies use key performance indicators (KPI) not only to measure their own performance, but also the performance of their business partners. The benefit of applying this strategy is to have more visibly on your partner performance in order to benchmark against competitive logistics best practice.[6]
Risk In Logistics Outsourcing
Hidden Cost – many firms underestimate the costs related
to selecting a third party logistics provider, and negotiating and drafting a logistics outsourcing contract. Estimating of transition cost can be very difficult. Most firm do not realize how much they have spend until the transition is complete. Managing the effort probably represents the largest category of hidden costs because it covers three areas :- 1. Monitoring to see logistics providers fulfilling their contractual obligations, 2. bargaining with them, and 3. negotiating any needed contract changes. Management often does not consider these costs because they only become visible when overall outsourcing costs have noticeably escalated ( 2001 ).
Dependence on 3PL provider – A firm that outsourcing its logistics activities to an third party logistics runs the risk of becoming dependent on that provider over a long period of time, the firm may find itself in an increasingly vulnerable position and even lose control of part of its logistics activities.
Loss of Logistics Innovative Capacity – A third party logistics provider does not guarantee a firm to maintain long term comprehensive ,competitive, competencies and to have new ways of providing customized logistics services.
The Possibility of Inefficient Management – It is difficult for a firm to manage logistics outsourcing . In some cases , there will be a need for a more professional and highly trained purchasing and contract management group.
Case Study
One successful business alliance of partnership happened in Sony is the Sony Vaio notebook door-to door distribution in Pan Asia. Sony Japan decided to set up Vaio hub in Asia. To facilitate the distribution in Pan Asia region, Sony Japan selected Sony Supply Chain Singapore as hub for the distribution of VAIO notebook business. VAIO business is very different as compared to the AV products of SONY, which no or minimal inventory is kept at Sony dealers shop fronts. All stocks are auto replenishment once the set was sold at dealer shop fronts. To meet this short lead-time we need a forwarder who is able to fulfill the shipment and delivery to end customer within the next day. After much consideration, Sony Supply Chain Singapore decided to establish a business alliance partnership with FedEx who are able to provide a door-to-door service worldwide.
Sony Supply Chain being the sister company of Sony Japan has the advantages as compared to the 3PL companies. Following are the advantages:
a) Know Sony business culture well
b) Close contact with Sony sales company worldwide
c) Familiar with trade regulation, documents and documents legalization (example: C/O application and embassy documents legalization…)
d) Strong team of logistics personnel. (e.g.: packing, picking, storage…)
e) As for the Singapore market distribution , Sony Supply Chain has their owned fleet of trucks to carter for the island wide distribution
f) For documents support, they have a team of staffs to prepare the necessary documents for example: CO application, permit application, SASO application and document legalization)
As for FedEx, they are strong in their door-to door service worldwide. On tap of this, they have the tracking system which can help Sony Japan to track the cargo movement. As compared to other air freight forwarder, FedEx has the advantage of express clearance at the custom check-point.
This is a very successful business alliance of partnership because both Sony and FedEx as they are able to tap on each other strong point and neutralize their weakness.
Conclusion.
Strategic partnerships and alliances are integral to business strategy. It is important in the modern business world as their combination and relationships will to share knowledge and core capabilities in-order for increase in competitiveness and the value added of services which can offer to customers is great.
To compete in this changing environment and be positioned as the partner of choice with key strategic player, management should review their companies’ approaches to mapping out, establishing, and managing alliances with the help of analytical tools.
Globalization is today business trend. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets.
Sometimes we ask ourselves , what will be the trend of tomorrow … will it benefit the peoples or just for the commercial world…
Strategic
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