Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
TRUSTED RELATIONSHIP: A KEY FACTOR TO
SUCCESSFUL FUTURE 3PL
Patricija Bajec, D.Sc.
Marina Zanne, M.Sc.
University of Ljubljana
Faculty of Maritime Studies and Transportation
Pot pomorščakov 4, SI - 6320 Portorož, Slovenia
[email protected], [email protected]
ABSTRACT
This report focuses on collaborative relationship between shipper and 3PL provider and its importance on
3PL success. The study is based on a systematic review of the literature and existing international and domestic
survey. Given the interest of collaborative relationships, we decided to explore this question: how international
and Slovenian firms engage in collaborative relationships and their importance for successful 3PL outsourcing.
The report includes a brief description of collaborative relationship, its key elements and role in 3PL sucess and
presents and analyses results of international and Slovenian survey. The paper is structured as follows. First part
of section »Collaborative relationship« describes and defines strategic outsourcing relationship, as a key factor of
successful 3PL relationship. Its key elements, drivers and benefits are specified in second part. The research
methodology is elucidated in section three. Section »Findings« reports the anaysis of surveys. Conclusions are
presented in last section.
1
INTRODUCTION
Today's business success depends to a great extent on logistics and supply chain
performance. The role of supply chain has never been as critical as it is today [18]. Supply
chain serves as a source of competitive advantage [15]. With increased importance of the
supply chain, there is also constant impact and change affecting outsourcing strategies. As
confirmed by the survey made by Georgie Institute of Technology, Capgemini, DHL Global
Customer Solutions and SAP Americas, Inc in 2006 (figure 1) respondents continue rating the
price of 3PL services as a key criterion (87 %) when selecting 3PL providers. However, this
criteria is closely followed by the quality of tactical, operational logistics service (85 %), the
range of available value-added services (63 %), strategic logistics services (41 %) and
knowledge and advice on supply chain innovations and improvements (49 %). This
realisation requires working more closely with a shared vision and trust.
Successful outsourcing should no longer be a transactional relationship between buyer
and supplier but one that requires integration, cooperation and collaboration [3] as a
productive way to deliver higher value beyond simple cost savings [6]. Both service provider
and receiver face an increasing pressure to exhibit the value of outsourcing. Investment in
win-win processes and shift from the more traditional business models to collaborative, long
term, sustainable supply chain business models are the best way to meet this challenge. To
gain the full benefits of collaboration companies might need to develope a collaborative
culture beyond their current organizational boundaries and be willing to invest in technology,
integrate business processes, share information, accept accountabilities and, at the same time,
give control to stakehoulders [6].
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
100
90
80
70
60
(%) 50
40
30
20
10
0
87
85
63
60
49
41
Price of 3PL
services
Quality of
tactical
logistics
services
Range of
available
value-added
services
Global
Knowledge Availability of
capabilities and advice on
strategic
supply chain
logistics
innovations
services
and
improvements
Figure 1: Criteria for selecting 3PL provider; Source: Langley et al., 2009
2
COLLABORATIVE RELATIONSHIP
Supply chain collaboration between a 3PL and a customer occurs when both
organizations work toward a common set of goals and objectives, and when there is a
meaningful exchange of information relating to planning, management, execution and
performance measurement. To be meaningful and effective, collaboration must go well
beyond vague expressions of partnership and aligned interests [8]. Collaboration should
involve both aligning the economic goals and aims of the network and the development of the
social dimensions – in particular, mutual trust and commitment [14].
2.1
The key elements of successful collaborative relationship
The ability to forge, manage, and sustain strategic outsourcing relationship is
increasingly critical to competitive success. Understanding the success factors is crucial for
getting the best out of the collaboration and for avoiding the possible difficulties. The
relationship success key elements are:
 people,
 process,
 technology [8].
An organization should have a process for building successful relationship. A company
must have the organizational ability to use this process; in other words, the managers
responsible for implementing a new outsourcing relationship must understand the key factors
for successful alliance. Managers should look for people who have experience in managing
outsourcing relationships, especially those who understand the spectrum of relationship that is
possible and the best practices for implementing a strong strategic outsourcing relationship.
An collaborative outsourcing relationship shouldn't begin without support from the top too.
Senior managers must set a clear strategic direction and they must provide a supportive
atmosphere that encourages collaboration and allays fears about trying new approaches [11].
When shippers outsource logistics functions to a 3PL, technology is an essential part of
the relationship. The most commonly used technologies are visibility tools, web-enabled
communications, transportation management systems, warehouse management systems etc.
Customer Relationship Management, Supply Chain Planning and Yard Management are
rarely used technologies [6].
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
Other factors affecting the success of relationships are:
 trust
The general agreement is that, to be successful, the whole relationship has to
based on trust. Trust is the decision to rely on a partner with the expectation that
the partner will act according to a common agreement [15]. It develops gradually
over time, but it also has to be earned [9, 13]. The degree of trust will determine
the extent to which organizations are willing and able to interact [16].
 commitment
Commitment is one of the factors that are often used to describe a good partnering
relationship [12]. Commitment means that both of the parties have been
committed to the relationship, its needs and requirements, and are ready to do
their best to fulfill them [13]. It involves pledges, credible commitments,
idiosyncratic investments, and the dedicated allocation of resources. Commitment
is demonstrated in three ways: idiosyncratic or customized effort, attitude and the
long-term intention of the parties to remain in the partnership.
 openness
Openness between the parties helps in many situations. Resolving conflicts and
discussing difficult situations openly is good sign that the relationship is working
well. Sharing information about company vision and plans for the future is also
important [13].
 shared risk and rewards
Successful collaborations require that 3PLs and shippers develop mechanisms to
share gains, losses and investments. This involves both parties knowing the
benefits that result from the sharing (financial and non-financial) and the belief
that the sharing has been »equitable«.
 communication
Regular communication and sharing of information is central to an effective
collaborative relationship [6]. Frequent and accurate communication, sharing of
information willingly all help in preventing possible future conflicts. It includes
internal and external communication between partners, as well as the ongoing
measurement and communication of the results [17].
 well-understood goals and objectives.
Both partners need to understand each other's individual organizational objectives
and be willing to share them openly. Both partners will then find it easier to
discuss the objectives of their relationship and how they can create value for each
other and partners involved in the supply chain [6].
The most successful relationships are based on immaterial factors listed above, rather
than material, such as good contract or good personnel, even though those are, of course,
substantial as well [13].
2.2
Collaboration's role in 3PL success
The advantages of working closely within 3PL are:
 Direct access to the outsourcing provider's extended capabilities, including
research, development and consulting as well as the provider's own experience,
best practices and know-how [10, 2].
 Larger innovation opportunities.
 Higher service level al lower cost [2].
 Improved new product introduction and management of new SKUs.
 Reduced inventory and stockouts as a result of collaborative forecasting activities.
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
 Balanced cost reduction strategy for both 3PL and customer.
 Incentives for innoavation.
The survey made by Georgie Institute of Technology, Capgemini Nederland B.V.,
Oracle Corporation and DHL Global Customer Solutions in 2008 [7] shows (table 1) that
three-quarters of survey respondents from North America, Europe, Asia Pacific and Latin
America list greater ease of managing outsourced logistics services, such as having one point
of contact, as a benefit. Other popular reasons include reduced management time (69 %) and
the ability of the company to focus on core business (67 %). The importance of cost and
services are also clearly on the minds of 3PL users; more than half state that efficiency of
overall logistics/lower costs and overall logistics effectiveness and improved level of service
are important benefits. Other benefits, mentioned by focus interview experts are enhanced
shipment visibility, quicker response, extended global reach, customer-build solutions,
capability to work on more complex solutions, risk-sharing with integrated logistics service
provider etc.
Table 1: Benefits experienced from the use of 3PL – customer collaboration
Benefits
Greater ease of managing outsourced logistics services
All regions
(%)
75
Reduced management time and effort
69
Enabled our company to focus more on our core business
67
Overall logistics efficiency/lower cost
56
Overall logistics effectiveness/improved services
56
Reduction in the number of logistics services providers
51
Enhanced shipment visibility
39
Quicker response
37
Optimized capacity utilization
34
Extended global reach (network)
31
Custom-built solutions
24
Capability to work on more complex solutions
24
Risk-sharing with integrated logistics service provider
23
Inventory reduction
22
Early problem detection
22
Proactive IT approach
18
Source: Langley et al., 2008
3
RESEARCH METHODOLOGY
Data for this study were obtained from international field survey of 3PLs and shippers
and from our own survey on the Slovenian 3PLs perspective.
3.1
The International survey
The University of Tennesse's Center for Logistics Research, Exel, Cap Gemini, Erns't &
Young, FedEx and some other companies have conducted a comprehensive study of the use
of third-party logistics services in North America, Western Europa, Latin America and Asia-
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
Pacific since the 1996. An important goal of annual 3PL study is to improve upon the
previous year's studies. The general objectives of the studies are as follow:
 Measure the development and growth of the 3PL industry across several diverse
regions of the world.
 Identify customer needs and how well 3PL providers responding to those needs.
 Summarize the current use of 3PL services.
 Investigate leading topics, including 3PL service offerings anf technology, how to
structure and manage effective 3PL relationships, and how customer view success
and value from 3PL relationships.
 Provide a strategic assessment of the future of the 3PL industry [1, 4].
The principal gear for gathering customer perspectives was a survey sent to the chief
logistics executive at prominent companies in the following industries: automotive, chemical,
computers, peripherals, consumer products, medical supplies and devices and retail. These
industries were selected because they view logistics as strategically important and are making
purposeful moves toward integrated supply chain management. The total number of surveys
sent to companies in these industries varied from 572 in 1996 to more than 1000 in later
research projects [1, 4].
3.2
The Slovenian survey
Based on the previous literature the questionnaire was first developed. It contains
questions about factors of successful 3PL, level of collaborative partnership in 3PL, reasons
for low level of collaboration and company's basic information. Except the company's basic
information, the other items were measured using the five-point Likert scales anchored by
»strongly disagree« and »strongly agree«. A survey questionnaire was then pre-tested among
three individuals from logistics and commercial industry, who have significant expertise in
the field of outsourcing. Some modifications to improve clarity were made.
Data for this study were obtained from series of personel interviews in order to get a
higher response rate and more authentic sample. Interviews with senior logistics managers in
26 large and medium sized logistics service providers presented on Slovenian logistics field
have been carried out from February to August in 2010. Only 4 large logistics service
providers have refused inteview. Large and medium sized logistics service providers were a
particularly interesting sample for two reasons. First, only they provide advanced form of
logistics outsourcing (3PL and 4PL). Second, other standard forms of logistics outsourcing
(2PL) are based on transactional and not collaborative relationship.
4
FINDINGS
This section presents some results and statistics on the current state of collaborative
relationship in 3PL from the service provider's and shippers perspective, measured through
international and Slovenian surveys.
Figure 2, based on international data, details the factors that contribute to successful
shipper experience with 3PLs.
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
3PLs
Shippers
Willingness to share risk
The capability to provide valuable ideas/innovations
25
30
57
35
Achieving improvements in service level
71
54
58
54
Achieving target costs
Effective partnering and collaboration
72
61
Personal relationships
72
65
77
74
Openness, Transparency, Good communication
(%)
Figure 2: A number of factors contribute to successful shipper experience with 3PLs;
Source: Langley et al., 2009
Survey findings suggest that opennes, transparency, good communication, personal
relationships and effective partnership and collaboration are percieved as an important
ingredient of success. 74 % of shipper respondents and 77 % of 3PL respondents identify
opennes, transparency and good communication as contributing to successful shipper
experiences with 3PLs. 65 % of shipper respondents and 72 % of 3PL respondents suggests
that 3PL-shipper relationships are best served when members of both organizations develop
personal relationships to enhance the people, process, and technology attributes needed for
successful collaboration. Effective partnering and collaboration (64 % shippers and 65 % of
3PL respondent identify this factor) is of greater significance as well.
The value of a more strategic relationship is clear. As visible in Figure 3, a substantial
three-quarters of respondents feel a more strategic relationship with 3PL would reduce total
landed and distribution costs, nearly 60 % of respondents indicate increase of operational
flexibility and more demand driven supply chain, as well as reduce of capital costs.
Reduce capital costs, head count and
operational expenses
58
Increase operational flexibility and become
more demand driven
58
75
Reduce total landed and distribution costs
(%)
Figure 3: The value of a more strategic 3PL relationship to shippers; Source: Langley et al., 2009
Both international shippers and 3PLs view their relationships as successful (figure 4).
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
3PLs
80
70
60
50
40
30
20
10
0
Shippers
64
51
45
25
3
Extremely
successful
Somewhat
successful
9
Neither successful
nor unsuccessful
(%)
1
1
Somewhat
unsuccessful
0
1
Extremely
unsuccessful
Figure 4: Evaluations of the success of 3PLs and shippers relationships
Source: Langley et al., 2009
89% of shipper respondents rate their relationships as extremely or somewhat
successful, while the parallel figure for the 3PL respondents is 96%. Consistent with the other
ratings, far more 3PL respondents termed the relationships extremely successful (45%) than
did shipper respondents (25%). Success ratings reported by shipper respondents tend to be
highest for Asia Pacific (94%) and lowest for Latin America (81%), with North America
(84%) and Europe (85%) in-between [8].
Using statistics from Slovenian survey based on 3PL perspective, figure 5 presents key
factors of successful outsourcing. The charts indicate that the most significant factors are the
importance of mutual relationships (96,2 % strongly agree), high level of trust (96,2 %
strongly agree) and high level of communication (96,2 % strongly agree). The areas of lowest
impact are high level of commitment (61,5 strongly agree) and sharing risks and success (65,4
% strongly agree).
100,0
90,0
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
,0
(%)
Mutual
relationship
High level of High level of High level of
trust
communication transparency
strongly agree
partly agree
High level of
commitment
Sharing risks
and success
strongly disagree
Figure 5: Key factors of successful outsourcing; Source: Authors
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
100%
80%
60%
40%
20%
0%
mutual trust
collaboration
very low
communication
2
3
4
transparency
commitment
very high
Figure 6: Level of trust, collaboration, communication, transparency and commitment between Slovenian
3PL and shippers; Source: Authors
As seen in Figure 6 just over half of 3PL respondents have very high level of
collaboration and half of them have very good communication with their client. While all
other data indicate low level of trust (38,5 %), transparency (26,9 %) and commitment (23,1
%).
5
DISCUSSION AND CONCLUSION
Changing market dynamics is influencing supply chain design. Shippers want
responsive supply chains, capable of reacting more quickly to rapidly changing customer
demands. They also want to create more sustainable, environmentally conscious supply
chains. They search custom-built solutions within supply chain, which will improve their
effectiveness. In order to be successful, supply chain processes and activities – both system
and services – must be integrated. Historically, the needed integration of the systems and
services was accomplished by companies themselves as they purchased individual logistics
service. Today, many 3PLs are capable of providing this system and services integration for
their customers. Entrusting the integration of logistics services to a 3PL requires trust,
commitment, openness, shared risks and rewards, communication and preparation on both
sides of the deal.
This paper investigated significance and level of trusted collaborative relationship of
international and Slovenian 3PL market. International and Slovenian survey allows us to draw
following three conclusions: one on the relevance of effective partnering for international
shippers and 3PLs and Slovenian 3PLs; a second on the current level or success of
relationship on international and Slovenian 3PL market; the third concerns the differences
between international and Slovenian 3PL market. The first conclusion is that both
international shippers and 3PLs are aware that effective partnering and collaboration
contribute to successful outsourcing and what is more important, brings not just the reduction
of capital, landed and distribution costs, but also increases operational flexibility and allows
shipper to become more demand driven. Slovenian survey, based on 3PL's point of view
emphasis the significance of mutual relationships, high level of trust, communication,
commitment and sharing risks and success too. A second conclusion is that both international
shippers and 3PLs view their relationships as successful, while for Slovenian market currently
this is not the case. Just over half of 3PL respondents have very high level of collaboration
and half of them have very good communication with their clients. All other responses
indicate low level of trust, transparency and commitment. The third conclusion is that there
are some significant differences ragardin level of collaborative relationships between
international and Slovenian market, which is solely due to the fact that Slovenian logistics
market has not achieved superior level of 3PL (dedicated 3PL outsourcing) yet. The other
reason are shippers, who are not yet aware of the possible positive impacts of outsourcing to
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Patricija Bajec, Marina Zanne
TRUSTED RELATIONSHIP: A KEY FACTOR TO SUCCESSFUL FUTURE 3PL
their business, low trust on logistics service providers and incapability of establishing trusted
relationship.
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