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CONVERGENCE OF LOGISTICS PLANNING, EXECUTION AND MEASUREMENT ON OUTSOURCING

by

A. A. DAMATO, S. KGOEDI and G. SWANEPOEL

MINOR DISSERTATION

Based on a multidisciplinary research project,

submitted in partial fulfilment of the requirement for the degree

MAGISTER COMMERCII

in

BUSINESS MANAGEMENT

in the

FACULTY OF MANAGEMENT

at the

UNIVERSITY OF JOHANNESBURG

SUPERVISOR: PROF J WALTERS

CO-SUPERVISOR: DR A DROTSKIE CO-SUPERVISOR: MR P KILBOURN

JANUARY 2013

http://upload.wikimedia.org/wikipedia/en/4/43/UJ_logo.png

i

ORIENTATION

The achievement of an M Com Business Management requires that 90 of the

180 credits, registered at Level 9 of the Higher Education Qualification

Framework, be dedicated towards a research project. In complying with this

requirement, the M Com programme employs action-based learning. This

approach enables the Faculty of Management to turn theory and analysis into

valuable action through the integration of management disciplines taught in

the M Com programme (Financial Management, International Management,

Risk Management, Human Resource Management, Marketing Management,

Logistics and Supply Chain Management, Knowledge and Information

Management, Business Information Technology Management). In essence,

the research project contributes to the Facultys postgraduate learning

strategy where research projects are structured and supervised by academe

and guided by practitioners in closing the knowing-doing gap.

This minor dissertation, titled Convergence of logistics planning, execution

and measurement on outsourcing, represents such a multidisciplinary

research project, submitted in partial fulfilment of the requirements for the

degree M Com Business Management. The case examined in this minor

dissertation is based on the company IMPERIAL Logistics, one of three

divisions of the IMPERIAL Group a global logistics and supply chain leader

that delivers excellence in end-to-end logistics and supply chain

management.

Three M Com students (in alphabetical order), A. A. DAmato, S. Kgoedi and

G. Swanepoel, collaborated as a multidisciplinary team in finding solutions to

a research problem challenging IMPERIAL Logistics. In order to examine the

impact of business management variables on the effectiveness and efficiency

of outsourcing, the University of Johannesburgs Senate Higher Degree

Committee approved three research topics:

ii

i) A. A. DAmato

Performance measurement as part of logistics outsourcing

ii) S. Kgoedi

Logistics planning as part of outsourcing

iii) G. Swanepoel

Logistics execution as part of outsourcing

The respective final marks of students participating in a multidisciplinary

research project are calculated as the sum of three weighted assessments:

i) Sixty per cent of the final mark is accounted for by external assessors

average mark awarded to the minor dissertation;

ii) Thirty per cent of the final mark is accounted for by the mark awarded

for each students discipline-based presentation. This mark is the

average awarded by a panel of experts representing the Faculty of

Managements postgraduate supervisors and IMPERIAL Logistics

project leaders;

iii) Ten per cent of the final mark will be determined through a peer-

evaluation of the team dynamic by the student collaborators.

iii

ACKNOWLEDGEMENTS

The researchers would like to thank the following people:

Ms. Anne-Marie van Wyk and Mr. Cobus Roussouw from IMPERIAL

Logistics for the opportunity to conduct the research using IMPERIAL

clients and for the necessary support and resources received.

Prof Jacobus Walters, Dr Adri Drotskie, Mr Peter Kilbourn for the

support and direction provided to the researchers. Without their support

this dissertation would not have been possible.

The families and workplaces of the researchers involved for their

understanding and patience during the long hours that were needed to

complete this project.

iv

ABSTRACT

Logistics Service Providers are becoming increasingly involved within their

clients businesses. Beyond just providing vehicles and buildings, logistics

service providers are now also becoming involved with the knowledge-type

work that is connected to the traditional services provided. LSPs are also

becoming better integrators of supply chain functions and are offering an

increasingly vast basket of services to clients that can be configured in a way

that adds value to the client.

The research presented in this paper looks at the theoretical impact that

converged planning and execution functions have on business success as

well as a view of how selected IMPERIAL Logistics client organisations

perceive the impact of increased integration of IMPERIAL Logistics within

their businesses.

The research viewed the integration of planning and execution in two ways:

The impact of a supply chain partner integrating their business

functions with that of the client organisation.

The integration of the tasks of planning and execution under a single

arrangement.

The impact of integrated planning and execution functions for the client

organisation was found to be improved long term commitment and alignment

in terms of business operations and relationships, better communication,

more integrated planning and decision making, better usage of systems to

streamline the process as well as a focus on core business whilst supply

chain experts handle their core business, which is planning and executing

supply chain functions.

v

TABLE OF CONTENTS

Orientation ....................................................................................................... i

Acknowledgements ...................................................................................... iii

Abstract ......................................................................................................... iv

List of Figures ............................................................................................. viii

List of Tables ................................................................................................. ix

List of Abbreviations ..................................................................................... x

Chapter 1: Introduction ................................................................................. 1

1.1 Background to the study .............................................................................................. 1

1.2 Research Problem....................................................................................................... 4

1.3 Research Objectives ................................................................................................... 5

1.4 Research Questions .................................................................................................... 5

1.5 Literature Review ........................................................................................................ 6

1.5.1 Reasons for favouring the outsourcing option...................................................... 7

1.5.2 Outsourcing from a strategic perspective ............................................................ 9

1.5.3 Effects of organisational culture on outsourcing and supply chain partners .......... 9

1.5.4 Strategic Alliances ............................................................................................ 10

1.5.5 Supply chain relationships ................................................................................ 10

1.5.6 Best practice in planning and execution ............................................................ 12

1.5.7 The value of converging planning and execution ............................................... 13

1.5.8 Performance Management................................................................................ 13

1.5.9 Mechanisms for measuring planning and execution .......................................... 15 1.5.9.1 Balanced scorecard................................................................................ 15 1.5.9.2 Benchmarking ........................................................................................ 15

1.6 Research Methodology.............................................................................................. 16

1.7 Conceptual Framework ............................................................................................. 17

1.8 Limitations of the study .............................................................................................. 17

1.9 Chapter Outline ......................................................................................................... 18

1.10 Conclusion .............................................................................................................. 19

Chapter 2: Literature Review ...................................................................... 20

2.1 Introduction ............................................................................................................... 20

2.2 Logistics outsourcing ................................................................................................. 21

2.3 The Changing role of the Logistics Service Provider .................................................. 23

2.3.1 The replace-ability of 3PLs .............................................................................. 23

2.3.2 The emergence of Lead Logistics Providers (LLPs) .......................................... 24

2.3.3 Concept of logistics integration ......................................................................... 28

2.3.4 A futuristic perspective to supply chain relationships ......................................... 32

2.4 Cultural factors to consider within the context of converging planning, execution and measurement ............................................................................................................. 34

2.4.1 The effects of organisational culture on supply chain partners ........................... 34

2.5 Strategic influences to consider within the context of converging planning, execution and measurement ...................................................................................................... 41

2.5.1 Strategic alignment between supply chain partners ........................................... 41

vi

2.5.2 Strategic alignment within an organisation ........................................................ 42

2.5.3 Selecting a strategic partner ............................................................................. 44

2.6 Relationship influences to consider within the context of converging planning, execution and measurement ...................................................................................................... 45

2.6.1 Relationship influences ..................................................................................... 45

2.6.2 Strategic alliances ............................................................................................ 46

2.6.3 Importance of converging strategy and execution.............................................. 48

2.7 The concept of convergence of logistics planning and execution activities ................. 50

2.7.1 Relationship Management ................................................................................ 50

2.7.2 Maintaining planning as an in-house function vs. outsource planning ................ 52

2.8 Current best practices in converging planning and execution ..................................... 54

2.9 Performance Management ........................................................................................ 55

2.9.1 Contracts and SLAs .......................................................................................... 55

2.9.2 Integrated supply chain processes .................................................................... 57

2.9.3 Formal Management......................................................................................... 58

2.9.4 Sharing Success............................................................................................... 59

2.9.5 Performance management of the supply chain partners .................................... 59

2.9.6 Collaborative Performance Systems ................................................................. 64

2.9.7 Incentive alignment ........................................................................................... 66

2.9.8 Balanced Scorecard ......................................................................................... 67

2.9.9 Benchmarking .................................................................................................. 71

2.10 The value at stake in converging planning and execution ......................................... 72

2.11 Conclusion .............................................................................................................. 72

Chapter 3: Research Methodology ............................................................. 75

3.1 Introduction ............................................................................................................... 75

3.2 Methodology ............................................................................................................. 76

3.2.1 Approach .......................................................................................................... 76

3.2.2 Paradigm .......................................................................................................... 77

3.2.3 Assumptions ..................................................................................................... 77

3.2.4 Ethical issues ................................................................................................... 78

3.3 Sample design and sampling procedure .................................................................... 79

3.4 Data collection .......................................................................................................... 85

3.5 Data Analysis ............................................................................................................ 90

3.6 Data Validity .............................................................................................................. 92

3.7 Conclusion ................................................................................................................ 94

Chapter 4: Survey Results .......................................................................... 95

4.1 Introduction ............................................................................................................... 95

4.2 Factors influencing acceptance of LSP services ........................................................ 96

4.3 Contextual factors ..................................................................................................... 96

4.3.1 Respondent work role and function ................................................................... 96

4.3.2 Geographical and industry view ........................................................................ 98

4.3.3 Company size ................................................................................................. 101

4.4 Relational factors .................................................................................................... 103

4.4.1 The outsourcing relationship ........................................................................... 103

4.4.2 Continuous improvement initiatives with LSPs ................................................ 112

vii

4.5 Strategic Factors ..................................................................................................... 117

4.6 Outsourcing Practises ............................................................................................. 120

4.7 Convergence of Planning and Execution ................................................................. 128

4.7.1 Tools used to align planning and execution ..................................................... 128

4.7.2 Tools to measure planning and execution ....................................................... 132

4.8 Value at stake ......................................................................................................... 134

4.8.1 How much value? ........................................................................................... 134

4.8.2 What is the Value? ......................................................................................... 135

4.9 Future Scenario....................................................................................................... 141

4.10 Conclusion ............................................................................................................ 141

Chapter 5: Summary, Conclusions and Recommendations .................. 143

5.1 Background ............................................................................................................. 143

5.2 Objective of the study .............................................................................................. 143

5.3 Research methodology............................................................................................ 144

5.4 Topics covered in the study ..................................................................................... 144

5.5 Research Findings .................................................................................................. 144

5.5.1 Objective 1: Establishment of the current status of IMPERIAL Logistics business relationships with client organisations in terms of outsourcing ......... 150

5.5.2 Objective 2: Evaluating the impact of integrated planning and execution ......... 153

5.5.3 Objective 3: Identification of Best Practices and Continuous Improvement mechanisms and methodologies in converging planning and execution ......... 154

5.5.4 Objective 4: Recommendations for business sustainability and strategic alignment between IMPERIAL Logistics and strategic partnering organisations160

5.6 Recommendations for IMPERIAL Logistics .............................................................. 167

5.7 Suggested Further Research ................................................................................... 168

5.8 Main Objective and conclusion: Understanding the impact of the convergence of logistics planning, execution and measurement on outsourcing ................................ 169

References ................................................................................................. 172

Appendix A: IMPERIAL Logistics Organogram ....................................... 180

Appendix B: Letter to client organisations for participation in survey . 181

Appendix C: Letter of informed consent ................................................. 182

Appendix D: Online Questionnaire ........................................................... 184

Appendix E: Survey Population ................................................................ 193

Appendix F: 16th Annual Third Party Logistics Study Outsourcing Table ..................................................................................................... 194

Appendix G: Link to 16th Annual Third Party Logistics Study Outsourcing (2012) .............................................................................. 195

viii

LIST OF FIGURES Figure 1.1: Conceptual framework ....................................................................................... 17

Figure 2.1: Conceptual framework for approach to research study ....................................... 20

Figure 2.2: Traditional 3PL model infrastructure ................................................................... 24

Figure 2.3: LLP model infrastructure .................................................................................... 25

Figure 2.4: Strategic Supply Chain Relationship Organisational Culture and Performance Model (SCOCAP) ........................................................................................................ 37

Figure 2.5: The Eight Components of the Strategy and Execution Process .......................... 48

Figure 2.6: Respondents logistics functions outsourced ...................................................... 51

Figure 3.1: Research Methodology Framework .................................................................... 76

Figure 3.2: Sampling procedure ........................................................................................... 84

Figure 4.1: Survey Results Overview ................................................................................... 95

Figure 4.2: Main Job Function of Respondents .................................................................... 97

Figure 4.3: Main Job Role of Respondents .......................................................................... 98

Figure 4.4 Location of client organisation activity ................................................................. 99

Figure 4.5: Primary industry of respondent company ......................................................... 100

Figure 4.6: Company size in terms of number of employees .............................................. 101

Figure 4.7: Company size in terms of annual revenue ........................................................ 102

Figure 4.8: Outsourcing relationship responsibility ............................................................. 104

Figure 4.9: Frequency of relationship review ...................................................................... 105

Figure 4.10a: Closeness of outsourcing relationship .......................................................... 108

Figure 4.10b: Relationship closeness as an indicator of expected benefits for LSP providing both planning and execution activities ......................................................... 109

Figure 4.11: Communication regarding daily Operations .................................................... 110

Figure 4.12: Measurement Responsibility .......................................................................... 111

Table 4.2: Respondents who foresee a moderate benefit vs CI used ................................. 113

Figure 4.13a: Existence of a supply chain strategy at the client organisation ...................... 117

Figure 4.13b: Strategy development inclusion of LSP ..................................................... 118

Figure 4.14: Comparison of strategy vs frequency of relationship evaluation ...................... 119

Figure 4.15: Core competencies identified ......................................................................... 120

Figure 4.16: IMPERIAL Logistics involvement in outsourced function ................................. 123

Figure 4.17: Outsourced supply chain competencies ......................................................... 125

Figure 4.18: Current benefits experienced from outsourced relationships ........................... 128

Figure 4.19: Attitude towards LSP providing Planning and Execution Functions ................. 134

Figure 4.20: Current Importance of Supply Chain Functions to Business Success ............. 139

Figure 4.21: Future Importance of Supply Chain Functions to Business Success ............... 140

ix

LIST OF TABLES

Table 2.1: Services Provided by LSPs ................................................................................. 26

Table 2.2: Services used by clients of LSPs......................................................................... 27

Table 3.1: Overall Response Rate of Survey ....................................................................... 91

Table 3.2: Survey Activity .................................................................................................... 91

Table 3.3: Response Rate by Industry ................................................................................. 92

Table 3.4: Comparison of services outsourced as suggested by the 16th Annual Third

Party Logistics Study versus the services suggested to be outsourced as per the research study ............................................................................................................. 93

Table 3.5: Rank comparison between researchers rank and the 16th Annual Third Party

Logistics Study rank ..................................................................................................... 94

Table 4.1: Respondents who foresee a huge benefit vs CI used ........................................ 113

Table 4.2: Respondents who foresee a moderate benefit vs CI used ................................. 113

Table 4.3: Respondents who foresee a slight benefit vs CI used ........................................ 114

Table 4.4: Respondents who foresee a benefit but do not know the degree of it vs CI used 114

Table 4.5: Respondents who foresee no benefit vs CI used ............................................... 115

Table 4.6: Choice Rank of Core competency by industry ................................................... 122

Table 4.7: Categorisation of Supply Chain function as planning or execution ..................... 125

Table 4.8: Respondents who foresee a huge benefit vs alignment tools used .................... 129

Table 4.9: Respondents who foresee a moderate benefit vs alignment tools used ............. 130

Table 4.10: Respondents who foresee a slight benefit vs alignment tools used .................. 130

Table 4.11: Respondents who foresee a benefit but do not know the degree vs alignment tools used .................................................................................................................. 131

Table 4.12: Respondents who do not foresee a benefit vs alignment tools used................. 132

Table 4.13: Respondents who foresee a huge benefit vs measurement tools used ............ 132

Table 4.14: Respondents who foresee a moderate benefit vs measurement tools used ..... 132

Table 4.15: Respondents who foresee a slight benefit vs measurement tools used ............ 133

Table 4.16: Respondents who foresee a benefit but do not know the degree yet vs measurement tools used ............................................................................................ 133

Table 4.17: Respondents who foresee no benefit vs measurement tools used ................... 134

Table 4.18: Respondents who foresee a huge benefit vs benefits expected ....................... 136

Table 4.19: Respondents who foresee a moderate benefit vs benefits expected ................ 136

Table 4.20: Respondents who foresee a slight benefit vs benefits expected ....................... 137

Table 4.21: Respondents who believe there is a benefit but do not know to what degree yet vs benefits expected............................................................................................. 137

Table 5.1 Summary of Key finding related to main objective .............................................. 145

Table 5.2 Summary of Key finding related to Objective 1 ................................................... 146

Table 5.3 Summary of Key finding related to Objective 2 ................................................... 147

Table 5.4 Summary of Key finding related to Objective 3 ................................................... 148

Table 5.5 Summary of Key finding related to Objective 4 ................................................... 149

x

LIST OF ABBREVIATIONS

3PLs Third party logistics providers

4PL Fourth Party Logistics Provider

BPO Business Process Optimisation

CFP Continuous-replenishment planning

CI Continuous Improvement

CPFR Collaborative planning, forecasting and replenishment

CSMP Council of Supply Chain Management Professionals

DCs Distribution Centres

ECR Efficient consumer response

EDI Electronic data interchange

FCL Full Container Load

FMCG Fast Moving Consumer Goods

ILRS IMPERIAL Logistics Refrigerated Services

IRB Institutional Review Boards

IT Information Technology

JIT Just-in-time

KSF Key Success Factors

LCL Less-than-Container Load

LIC Logistics Integration Centre

LLP Lead Logistics Provider

LSP Logistics Service Provider

S&OP Sales and Operations Planning

SCOCAP Strategic Supply Chain Relationship Organisational Culture and

Performance Model

SCOR Supply Chain Operations Reference Model

SLA Service Level Agreement

SOPs Standard Operating procedures

Statcon Statistical Consultation Service of the University of Johannesburg

VMI Vendor-managed inventory

WWSC Woolworths Supply Chain

1

CHAPTER 1: INTRODUCTION

1.1 Background to the study

Outsourcing is a viable business strategy because turning non-core functions

over to external suppliers enables companies to leverage their resources,

spread risks and concentrate on issues critical to survival and future growth.

One way of extending the logistics organisation beyond the boundaries of the

company is through the use of a third party service provider or contract

logistics services. Services commonly offered by Third party logistics

providers (3PLs) in the logistics industry include transportation and

warehousing. 3PLs offer expertise and/or assets for the benefit of distributors

and shippers. It is becoming common to see 3PLs take over an entire supply

chain function on behalf of their clients.

Increasingly, logistics companies are offering opportunities for businesses to

outsource a range of supply chain functions and responsibilities traditionally

performed in-house. Business Process Optimisation (BPO) involves the

subcontracting of operations and responsibilities of specific business functions

or processes to a specialised service provider. BPO service offerings include

supply chain planning, procurement, international logistics and supply chain

engineering. Typical in-house activities such as forecasting, inventory

planning and demand planning are now offered by 3PLs. The inclusion of

these additional services has been in response to the need to gain greater

efficiency across the end-to-end supply chain, thus reducing overall costs.

The term Lead Logistics Provider (LLP) is frequently used in the logistics

industry. At its most basic level, an LLP is a non-asset based 3PL but there is

an emerging field of logistics providers who oversee and manage a portfolio of

warehousing and transportation providers from a higher level. In South Africa,

a few major players in the Logistics Service Provider (LSP) industry, a term

wider than LLP, are starting to structure themselves in order to add more

value to their clients by increasing their service offerings. One of these

2

companies is IMPERIAL Logistics which is a multi-faceted business that is

split into the following key divisions (http://www.imperial.co.za/):

Transport IMPERIAL Logistics provides transport services in

accordance with clients requirements. Modes of transportation include:

o Air transport services are provided by chartering aircraft for goods

such as hazardous cargo, pharmaceuticals, high tech electronics

and general cargo;

o Sea/waterways IMPERIAL Logistics offers Full Container Load

(FCL) and Less-than-Container Load (LCL) shipments by sea. The

network extends from Europe to India, the USA and the Far East;

o Rail IMPERIAL Logistics offers rail services management from

loading to offloading points, facilitation of access to rail networks,

system solutions for infrastructure and asset optimisation, loading

and offloading supervision, comprehensive daily tracking reports,

and forward planning;

o Road IMPERIAL Logistics provides a comprehensive service

offering including primary and secondary transport of bulk, break

bulk and general cargo, refrigerated transport, tanker transport of

hazardous, non-hazardous and specialised products, container

transport, tipper transport, local courier and truck rental services.

Warehousing With a warehousing capacity in excess of 750 000m in

southern Africa and a total international storage capacity in excess of

2 240 000m, IMPERIAL Logistics provides clients with customised and

cost effective warehousing and distribution solutions in southern Africa

and Europe. The company has dedicated or shared warehousing

services that include bondage, terminal management, container

handling, enterprise web enablement and pallet management.

International Logistics IMPERIAL Logistics provides widespread

freight forwarding, customs clearance and custom brokerage services

3

and has offices and agent representatives in key centres of southern

Africa as well as global associations.

Supply chain management IMPERIAL Logistics provides a variety of

supply chain management services such as:

o Business Process Outsourcing which is an outsourcing method of

contracting operations and responsibilities of processes or specific

business functions such as supply chain planning, procurement,

international logistics and engineering supply chain to a specialised

service provider;

o Consulting and advisory services that are aimed at supply chain

strategy formulation and facilitation, operations improvement,

technology integration and people alignment;

o Advanced IT solutions which combine engineering expertise with

information technology and systems capabilities to assist clients to rid

their supply chains of excess inventory and endeavour to reduce the

cost of supply and to improve service levels by coordinating supply,

production and distribution to exactly match output with demand.

Many of the operating companies within the group execute logistics functions

for their clients (such as warehousing and transportation), whilst many clients

instruct their 3PLs on the Sales and Operations Planning (S&OP) plans that

they have developed internally (i.e., they have not conducted joint planning

with the LSP). In response to the opportunity to increase integration between

the LSP and the client, IMPERIAL Logistics has recently acquired or

expanded the capabilities within its companies in order to increase service

offerings in areas such as freight forwarding and clearing, business process

outsourcing, pragmatic consulting, advanced information technology and

special services.

As a result of these new capabilities, IMPERIAL Logistics is conducting

exclusive planning services for various clients, for example, Pick n Pay utilise

BROCO (a division of IMPERIAL Logistics offering logistics solutions within

the fast-moving consumer goods industry) for exclusive planning and

4

IMPERIAL Logistics Refrigerated Services (ILRS) offers exclusive execution

of transportation for Woolworths (Pty) Ltd.

1.2 Research Problem

In order to obtain a better understanding of the benefits, risks, costs and value

of the changing role of the LSP, shifting focus from a company providing

transport or warehousing services only to a company that utilises information

to conduct planning and execution for its clients, IMPERIAL Logistics and the

University of Johannesburg are collaborating, via this research project, to

improve their understanding of such opportunities that exist in the logistics

industry.

Traditionally, outsourcing of the logistics function has been mainly for the

distribution of goods. However, critical inputs to the successful execution of

the outsourced function such as forecasting, planning and performance

measurements are controlled by clients and are not openly shared with the

LSP. This has often led to the misalignment of execution of operations

between the client and the service provider. The LSP therefore, in duplication,

performs the same functions as the client for example both the client and LSP

perform planning functions.

The misalignment is also exacerbated by a lack of shared vision, a lack of

shared strategy and fragmented measurements of performance. Companies

are striving to reduce outsourcing costs and require world-class service but

are failing to share critical information with their service providers. Alignment

of business operations between the client and the LSP will enhance

information sharing, assist in uncovering synergies between the partners and

ensure that concerted efforts of both partners are aimed at the objectives of

the strategic relationship.

The research problem therefore is determining the value and impact of the

convergence of logistics planning, execution and measurement on

outsourcing.

5

1.3 Research Objectives

The primary objective of the research study is:

to understand the impact of the convergence of logistics planning,

execution and measurement on outsourcing.

The secondary objectives of the research study will be focused around the

following dimensions:

Objective 1: The establishment of the current status of IMPERIAL

Logistics business relationships with client organisations in terms of

outsourcing;

Objective 2: Evaluating the impact of integrated planning and

execution;

Objective 3: Identification of best practices and continuous

improvement mechanisms and methodologies in converging planning

and execution;

Objective 4: Recommendations for business sustainability and strategic

alignment between IMPERIAL Logistics and strategic partnering

organisations.

1.4 Research Questions

With the refinement of the research objectives, the main research question

posed is:

What is the impact of the convergence of logistics planning, execution

and measurement on outsourcing?

The following sub-questions will be addressed:

What are the current industry best practices in terms of specific

continuous improvement initiatives that can be implemented between

supply chain partners?

6

What is the importance of strategic alignment within the context of

outsourcing partnerships?

What is the importance of strategic alignment within the context of the

business and supply chain strategy?

Which mechanisms can be implemented in realising effectiveness in

converging planning and execution?

Which mechanisms can be implemented in measuring planning and

execution?

What are the recommendations for business sustainability and

strategic alignment between partnering organisations?

1.5 Literature Review

The multidimensional nature of the main research question requires a

literature review that provides an understanding of the base concepts of

logistics outsourcing, planning, execution, and the changing role of the LSP.

This includes cultural factors, strategic influences, relationship influences,

performance management and the ultimate convergence of these aspects.

In a study conducted by Cranfield University (2010), it was found that a supply

chains impact on the overall business performance has become a focus area

in terms of costs and value creation (low cost or differentiation competitive

strategy). It is evident that in the majority of industries, supply chains, as

opposed to organisations, compete for a distinct competitive advantage

(Wilding, Waller, Rossi, Geldard, Mayhew & Cigolini, 2010; Zikmund & Babin,

2007; Metcalfe, 2010). Identifying inefficiencies in the business units, such as

transport and distribution centres (DCs) , assists in driving the continuous

improvement approach and the selected competitive strategy. Tan (2000)

indicates that the goal of focusing on continuous improvement is the

achievement of a distinct competitive advantage in the retail and supply chain

environment as well as healthy financial results. Organisations, therefore,

strive to streamline in-house processes and outsource functions that 3PLs

can perform cost-effectively.

7

1.5.1 Reasons for favouring the outsourcing option

Organisations often choose to outsource logistics functions due to the

organisations core competency not being logistics. An important factor in

deciding to outsource is based on the interest in reducing asset investment to

improve asset productivity (Langley, Coyle, Gibson, Novack & Bardi, 2009:

606).

The third-party logistics organisation is defined as an external supplier that

performs all or part of a companys logistics functions (Langley et al, 2009:

119). 3PLs include suppliers of warehousing, distribution, financial services

and transportation. These services benefit large organisations that require a

formal contract or Service Level Agreement (SLA) defining the terms and

conditions of the agreement with the 3PL.

Successful execution of the outsourced distribution function is dependent on

the following factors, as indicated by Razzaque and Sheng (1998: 100):

Top management who must be driving the decision to outsource;

Communication between clients and the logistics service provider;

Internal communication between affected departments; and

Mutual trust and respect between the partners.

Knemeyer and Murphy (2005) state that the benefits of outsourcing are

customer retention, customer referrals, the ability to recover from unexpected

operational disruptions and operational performance improvements. These

benefits will be further examined in chapter 2.

Organisations focus their efforts on providing service offerings that meet the

needs of a dynamic and demanding client base. 3PL outsourcing involves the

use of external companies to perform some or all of the firms logistics

activities (Li, Li, Jin, Wang, Wang & Yang, 2012: 1799). A pertinent factor in

deciding to outsource relates to the interest in reducing asset investment to

improve asset productivity (Langley et al, 2009: 606). There are two types of

logistics outsourcing which form the basis of the research study, namely,

8

planning and execution. The research in chapter 2 expands on the

convergence of planning and execution into an integrated service offering.

Because logistics planning is normally deemed to be an in-house function,

organisations often identify it as a critical internal function and wish to retain

control over it. Organisations consider LSPs to be experts only in logistics and

supply chain management and perceive them to be unfamiliar with the core

business activities of their client organisations.

There are, however, advantages to involving LSPs in the logistics planning

function of an organisation. Long term partnerships are created whereby

communication, risks and rewards are openly shared between supply chain

partners. Organisations that include 3PLs in logistics planning capitalise on

opportunities for creating sustainable competitive advantages which can

improve organisational performance. Fabbe-Costes, Jahre and Roussat

(2009) explain that the reason LSPs assist in improving performance of a

clients supply chain is due to their ability to collaborate vertically with supply

chain partners and horizontally with other LSPs. In addition, LSPs are experts

in logistics and supply chain management and are able to assist in supply

chain integration.

Due to the increasing demands on organisations to remain competitive, the

use of outsourcing is likely to increase in the future as 3PLs provide improved

efficiencies through service integration and incorporation of information

technology (Rahman, 2011). Because organisations operate in a competitive

environment, they have adopted a strategic viewpoint to outsourcing while

3PLs have begun to focus on a strategic outlook to service differentiation and

innovation (Large, Kramer & Hartmann, 2011). Fabbe-Costes et al (2008)

state that organisations do not only outsource the traditional supply chain

functions but have also opted to outsource logistics management functions

which include planning functions.

If the planning and execution functions are outsourced to two different 3PLs,

the client must act as an integrator between these two organisations. This

9

may result in negative consequences, namely, duplicated planning which

must be carried out by both 3LPs. Because of this, the overall utilisation of

LSPs has increased and the type of relationship between the client

organisation and the 3PL has evolved (Bask, 2001).

1.5.2 Outsourcing from a strategic perspective

In order to take full advantage of 3PLs, mutually beneficial projects must be

created which invite collaboration between supply chain partners. A distinct

competitive advantage for supply chain partners can be created by

maintaining a constant watch for future challenges and opportunities and the

construction of collaborative plans to exploit these opportunities.

Lukassen and Wallenburg (2010) indicate that strategic partnerships and

outsourcing have increased in scope and complexity. An obstacle to their

success remains the construction of SLAs that encapsulate performance

expectations and continuous improvement requirements. Contracts must, in

addition to supervising the relationship between supply chain partners, include

specific performance measurement criteria and associated incentives. In this

way, the SLA can act as an effective enabler of strategy realisation.

1.5.3 Effects of organisational culture on outsourcing and supply chain partners

Organisational culture plays a paramount role in ensuring the effectiveness of

strategic relationships. Cadden, Humphreys and McHugh (2010) state that an

incompatible organisational culture between partners in a strategic

relationship may act as a major obstacle in the achievement of performance

standards. Misalignment in terms of organisational values and principles

between supply chain partners can result in adverse outcomes which are

detrimental to the strategic relationship. In order to obtain cultural fit, Cadden

et al (2010: 43) refer to shared values, beliefs and behaviour patterns which

permeate within and between each supply chain partner organisation resulting

in mutually desired performance outcomes. Cultural fit between supply chain

10

partners can therefore assist in the success of partnering organisations

strategies.

1.5.4 Strategic Alliances

Xungping, Guanghua and Yong (2011) indicates that in the 21st century,

organisations began to focus on strategic and collaborative partnerships

between supply chain members. These relationships were based on mutually

beneficial win-win relationships characterised by the sharing of rewards and

risks. Strategic alignment and strategic fit between partners is imperative in

strategic alliances between supply chain partners. There are eight

components in executing strategy that will be discussed in depth in chapter 2.

These components include resources, policies and procedures, best

practices, information and operating systems, rewards and incentives,

corporate culture, competencies, capabilities and leadership.

1.5.5 Supply chain relationships

There are various benefits identified in the creation of supply chain

relationships. Lambert, Emmelhainz and Gardner (1996) indicate that

executives are developing supply chain partnerships in an attempt to reduce

costs, improve service and gain competitive advantage. Golicic and Mentzer

(2006) state that organisations have identified the value in building long term

relationships with supply chain partners because the gains of longer term

relationships far exceed those of shorter term relationships.

There is a shift from the financial benefits of a relationship to an additional

focus being placed on relational factors in terms of strategic relationships.

There is an increasing acknowledgement that organisations need to build and

manage closer, longer-term relationships with suppliers and clients (Golicic &

Mentzer, 2006). In line with the elements that constitute the convergence of

planning and execution, Gardner, Cooper and Noordewier (1994) suggest that

the relationship between the client and the 3PL or LSP has the following five

behavioural dimensions:

11

Extendedness: Referring to frequency of information exchange

between client and service provider;

Operational information exchange: In line with the discussion around

performance measurement, this is a dimension that allows for

meaningful performance information to be shared between the parties,

so that improvements can be made to the service continually;

Mutual operating controls: This means that the relationship between

service provider and client is more than merely transactional, it

becomes a long term partnership. Also, business processes do not

remain within the boundaries of just one company and the movement

from the planning phase of logistics operations to execution becomes

seamless;

Shared benefits and burdens: The entities in the relationship share

risks and rewards;

Planning: According to Gardner et al (1994), planning integrated the

operations of two organisations. In 2012, eighteen years after this

statement was made, the researchers have seen planning activities for

both organisations being conducted by one organisation entirely. In

some cases, the organisation has outsourced both the planning and

the execution functions to different organisations, in which case the

client acts as an integrator between the two. Nevertheless, planning is

still an important relational element for a logistics service provider and

its client.

Mutually beneficial and long-term collaborative relationships result in

organisations performing better together than separately. The outcome is that

both organisations benefit from the partnership with no compromise on

aspects regarded important to either organisation (Jones & George, 2009).

Organisations worldwide select supply chain partners based on experience

and a comprehensive knowledge of the context in which the prospective

partners operate (The Week, 2008). Partnering organisations function as a

whole with the similar objective of providing excellent service to the final

client. The future success of the strategic relationship is associated with the

12

ability of the partnering organisations to collectively discover continuous and

breakthrough improvement opportunities in the marketplace (Langley et al,

2009: 115).

1.5.6 Best practice in planning and execution

Various tools will be further discussed in chapter 2 that assist with integration

of supply chain activities. Collaboration is a best practice in support of supply

chain integration. Simatupang and Sridharan (2008) define supply chain

collaboration as a collaborative commitment by two chain members to

maintain alignment of their businesses through strategic objectives. Barratt

and Oliveira (2001: 266) further state that supply chain collaboration occurs

when two or more companies share the responsibility of exchanging common

planning, management, execution, and performance measurement

information. The attainment of a synchronised supply chain is achieved when

supply chain partners involved in a strategic supply relationship collaborate in

terms of planning and execution. Traditional strategies of supply chain

collaboration focused on bargaining power to reduce prices and increase

profits but this has shifted to integrated solutions that focus on serving the

end-customer with higher customer service levels whilst realising higher

profits.

For organisations to develop and maintain successful supply chain

collaborations, Simatupang and Sridharan (2008) suggest the sharing of the

following key elements:

There must be a well-defined collaborative performance system that

clearly articulates performance measures and targets to be achieved

by the supply chain partners;

Information sharing which plays a significant role in collaborative

planning, processes, control and performance;

Decision synchronisation that empowers supply chain partners with

authority to recommend and make appropriate decisions that impact

positively on the direction and performance of the supply chain;

13

Incentive alignment that influences a positive behaviour and high

performance culture;

Innovative supply chain processes that facilitate the non-destructive

and efficient flow of goods, services and information.

It is clear that the sharing of various aspects between supply chain partners is

mandatory for effective collaboration in obtaining successful convergence in

planning and execution.

1.5.7 The value of converging planning and execution

LSPs must constantly adapt service and product offerings to the needs of

partnering organisations. Product and service offerings of 3PLs must

continuously be improved and extended in order to provide comprehensive

client solutions. To compete successfully and gain market share, LSPs must

include offerings that outperform those of their competitors. In this case,

partnering client organisations may outsource additional supply chain

functions to the LSP with the most comprehensive service range.

1.5.8 Performance Management

In converging planning and execution, performance measurement must be

incorporated. SLAs and contracts form an integral part of performance

management. Included in the SLA may be terms and conditions with

associated performance requirements and deliverables. Brown and George

(2012) suggest a formal relationship management plan between strategic

partners to assist with the management of processes and business

interactions. The successful measurement and management of strategic

relationships is crucial to the success of future supply chains.

In attempts to continuously improve, it is mandatory that business activities

are measured. Measuring performance is certainly not a recent event (Coyle,

Bardi & Langley, 2003). Physical distribution and logistics concepts have been

based on the systems theory with a focus on total cost analysis (Coyle et al,

2003). In analysing third-party partnering firms, client organisations must

14

consider the total cost concept. Costs associated with outsourcing must be

analysed in terms of the impact on the total supply chain. Costs must be

determined in terms of elements such as transportation, procurement,

inventory and service levels. The partnership between organisations should

result in the lowest total cost and hence contribute to a sustainable

competitive advantage.

Measuring and standardising organisational performance is a complex

process as organisations vary in the ways that they take measurements which

makes the evaluation process extensive (Jayne, 2004). Robust performance

management techniques are required in measuring supply chain performance

(Blanchard, 2009). These measures must facilitate in increasing holistic

visibility in terms of performance of supply chain activities within the supply

chain and identifying key success factors for the partnership. The

measurement process must also incorporate factors paramount to continued

competitive advantage in a highly competitive business environment, hence

the term measure what youre managing (Blanchard, 2009: 44).

Coyle et al (2003) state that individual metrics and the performance standard

must be amended as the environment changes. This is particularly

appropriate for the competitive and fast changing retail environment.

Performance metrics may be amended due to the improvement of metrics that

measure the role of relationships in the supply chain environment (Coyle et al,

2003) ensuring that focus is placed on continuous improvement.

Regarding strategic partnering and performance management, the most

important guideline to measuring performance is that the metrics must be

consistent with overall business strategy (Coyle et al, 2003: 487). Key

Success Factors (KSF) can be measured within a business scorecard. Within

the transport environment, these KSFs are metrics that will contribute to the

achievement of the overall organisational strategy. Within the SLA, client

requirements are taken into consideration and each individual metric

contributes to the meeting or exceeding of client demands.

15

A performance metric must focus on measuring the process and not one

specific function in supply chain management. The objective is to ensure

process improvement in business operations. With the intent to improve

business operations, IMPERIAL Logistics has commenced auditing various

business operations with strategic partners. The initial stage of the audits

includes the description of the organisational strategic focus. Requirements in

terms of operational excellence for IMPERIAL Refrigerated Logistics Services

(ILRS) are, for instance, defined in the Woolworths Supply Chain (WWSC)

audit requirements. ILRS is therefore viewed as a strategic partner, key

service provider and entity of WWSC.

Measures are focused on proactive management, synergy, business

continuity, growth and sustainability of partnering organisations. This is

analogous to the concept partnershipping (Stock & Lambert, 2001: 366), a

philosophy that is integrated throughout both WWSC and ILRS and is

entrenched in all daily functions.

1.5.9 Mechanisms for measuring planning and execution

1.5.9.1 Balanced scorecard

The balanced scorecard presents an innovative approach to organisational

performance management when considering strategic alignment. The

balanced scorecard can assist organisations and strategic partners in

monitoring and managing performance in achieving strategy. Concerns about

the implementation of the balanced scorecard lie in the lack of accountability.

This will be discussed further in chapter 2.

1.5.9.2 Benchmarking

Benchmarking can be utilised for measuring planning and execution.

Benchmarking can prove to be highly effective when measures utilised are

standard across a specific industry. Organisations are therefore able to

compare their performances with the performances of industry leaders.

Performance gaps can then be identified and action plans implemented to

improve performance. The drawback is that the organisation which is

16

benchmarked against will constantly be the leader and the organisation

conducting the benchmarking exercise will always be the follower.

The mechanisms utilised by organisations in measuring the convergence of

planning and execution will be further discussed in chapter 2. It is however

evident that significant benefits can be realised in the event that supply chain

partners converge logistics planning, execution and measurement of supply

chain functions.

1.6 Research Methodology

The research will be undertaken from a multidisciplinary approach because

the researchers of this study have experience in strategy and various areas

within supply chain management.

According to Zikmund and Babin (2007), research design is a master plan that

specifies the methods and procedures for collecting and analysing the

necessary information. For this minor dissertation, an empirical focus will be

adopted using first-hand data collected by means of surveys administered to

selected clients within the IMPERIAL Logistics group of companies. In

addition, relevant examples will be drawn upon to understand best practise

and actual real life implications. These will represent the starting point from

which relevant questions can be drafted and applied to survey IMPERIAL

Logistics companies and their clients.

The surveys that will be conducted in the research study represent one of the

most common types of research. In survey research, the researcher selects a

sample of respondents from a population and administers a standardised

questionnaire to them (Barribeau, Butler, Corney, Doney, Gault, Gordon,

Fetzer, Klein, Ackerson Rogers, Stein, Steiner, Urschel, Waggoner &

Palmquist, 2005). By providing the respondents with standardised

questionnaires, the measuring of results will allow for accurate comparisons

between survey groups.

17

Surveys will be disseminated electronically, following which the data will be

collected, scrutinised and interpreted and conclusions drawn in chapter 5 of

this research paper.

A detailed discussion on the research methodology is included in chapter 3.

1.7 Conceptual Framework

Figure 1.1: Conceptual framework Source: Researchers own

1.8 Limitations of the study

Limitations of this research study may be revealed if IMPERIAL Logistics

clients supply responses that they believe are deemed preferable and

favourable to the company but are not necessarily the raw truth. Survey

responses are also mainly dependent on the experience of IMPERIAL

Logistics clients and may not be applicable to the entire industry.

The sample size of seventy-six companies taking part in the research study

may be seen as a limitation in drawing general conclusions about the industry.

However, as indicated by Huang, Jianwei and Feng (2009), in the broader

field of study, inferences can be drawn from a smaller sample size in expert

and specialised areas.

It is recognised that a link exists in terms of one of the researchers being

employed by a client of IMPERIAL Logistics and therefore electronic

questionnaires will be utilised to eliminate potential contamination of survey

results.

18

From an ethical stance, letters of consent will be handed to all respondents

and participants taking part in the research. Aspects incorporated in the letter

include:

The purpose of the research;

Written consent obtained from all individuals;

Confidentiality of information;

Voluntary participation in the research study.

In addition, a letter of consent will be required from IMPERIAL Logistics to

permit information regarding the organisation to be published.

1.9 Chapter Outline

Chapter 1

Chapter 1 provides an overview of the dissertation. It provides a background

to the study, the problem statement, the objectives of the study, the

description of the literature review, the research methodology to be adopted

and the limitations of the study.

Chapter 2

In this chapter, a detailed literature review is provided. The literature review

focuses on business strategy and the alignment of strategies. Organisational

culture and its impact on outsourcing is highlighted. The effects of change

management is discussed. Converging planning and execution is discussed in

detail followed by performance measurement. The chapter ends with a

discussion on mechanisms for measuring planning and execution.

Chapter 3

Chapter 3 provides details on the research methodology selected and

information on the sampling procedure that was followed, data collection, data

analysis and data validity.

19

Chapter 4

This chapter focuses on analysing and interpreting the data collected.

Attention is given to how the results address the research questions, it

assesses how the research questions were answered and provides a

comparison of the results with the literature analysis.

Chapter 5

The research findings, the conclusion and a list of recommendations are

documented in this chapter.

1.10 Conclusion

This chapter commenced with a background to the study and to IMPERIAL

Logistics, the company which provides the focus of the study. The primary

and secondary research objectives were discussed and will be the core focus

of the research study. A brief introduction was given to the literature around

the impact of converging logistics planning, execution and measurement on

outsourcing. Points of discussion in this section included outsourcing,

organisational culture, strategic alliances, supply chain relationships, and

performance management.

Chapter 2 presents the literature review for the research study.

20

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

This chapter provides insight into contemporary logistics planning and

execution, and their convergence. The researchers found this to be a

relatively recent concept which has a wide variety of variations offered by

LSPs. The majority of the literature that exists on the subject is international

and has been applied to the South African context in this study which focuses

on companies that generally do business within the borders of South Africa or

in the rest of Africa.

The following figure illustrates the approach that has been taken for the

literature research:

Figure 2.1: Conceptual framework for approach to research study Source: Researchers own

To provide a general context to this study, a brief overview of logistics

outsourcing as a concept will be discussed with a focus on specific points that

are directly related to planning and execution activities rather than the very

general and wide field of logistics outsourcing. This will include the internal

changes of LSPs as well as the three elements contributing to the evolution of

21

the LSP from a simple 3PL into a dynamic all-encompassing logistics service

provider.

There are two types of logistics outsourcing that form the basis of this study,

planning and execution. These will be defined and the merits of outsourcing

these specific functions will be discussed. Then, the literature that describes

the current status of the convergence of these two elements into a single,

integrated service offering, the current applications and the potential value of

convergence are presented.

2.2 Logistics outsourcing

In search of increased efficiency, organisations explore various options to

outsource. 3PL outsourcing involves the use of external companies to

perform some or all of the firms logistics activities (Li et al, 2012: 1799). In

efforts to meet the needs of a global and demanding customer base,

organisations are focusing on core competencies and outsourcing non-core

business. Logistics has a major impact on costs and service within a supply

chain. Logistics outsourcing has been developing rapidly since the 1990s and

currently there are many variations and adaptations (Li et al, 2012).

Organisations often choose to outsource logistics functions due to the

organisations core competency not being a logistics function. An important

factor in deciding to outsource is based on the interest in reducing asset

investment to improve asset productivity (Langley et al, 2009: 606).

As indicated in chapter 1, Razzaque and Sheng (1998) have determined that

the successful execution of the outsourced distribution function is dependent

on the following factors:

Top management support

Effective internal and external communication

Shared trust and respect between the partners

Knemeyer and Murphy (2005) stated the benefits of outsourcing as:

22

Retention this is attained by achieving customers needs beyond their

expectations

Referrals this is where the customer campaigns by recommending

the service provider to others which results in additional business for

the service provider

Service recovery this refers to the ability of the service provider to

recover from unexpected operational disruptions

Operational performance improvements this refers to the value that

the outsourcing function has provided in terms of process efficiencies.

Rahman (2011) indicates that the reasons to outsource include cost

reduction, reduction in capital investment, enhanced operational flexibility,

access to new technology, access to up-to-date techniques and expertise,

access to new markets and the opportunity to focus on core business.

Overall, the benefits of outsourcing can lead to reduced costs or increased

revenue.

In a study conducted by Cranfield University (2010), it was found that a supply

chains impact on the business performance has received additional focus in

attaining a competitive advantage. Outsourcing of functions represents a

means in creating this competitive advantage.

By focusing on continuous improvement throughout the holistic and extended

supply chain, opportunities exist for increasing efficiency and reducing

distribution costs. If continuous improvement is to be entrenched throughout

both partnering organisations, strategic partnerships and leadership

capabilities are required (Keller, 2009).

Outsourcing is likely to increase as 3PLs provide improved efficiencies

through service integration and the incorporation of information technology

(Rahman, 2011) which can enable 3PLs to develop customised customer-

centric solutions, the reduction of logistics costs and the acquiring of

operational support. The greatest benefits of outsourcing are to allow the

outsourcing company to concentrate on core competencies, increasing

23

efficiency, improving performance, reduction of transport costs and

restructuring supply chains (Li, et al, 2012). The motivation for outsourcing

logistics includes cost savings, the need to focus on core business operations

and improved services, gaining access to sophisticated technology, flexibility

of operations and risk reductions (Rahman, 2011).

In summary, IMPERIAL Logistics, acting as an external supplier conducting

logistics functions on behalf of its clients, can provide benefits of outsourcing

non-core business activities that will result in improved asset productivity and

a reduction in costs.

The following sections will focus on outsourcing of execution and planning

activities.

2.3 The Changing role of the Logistics Service Provider

2.3.1 The replace-ability of 3PLs

3PLs suffer a high degree of replace-ability as services are generally

simplistic and not customised to market requirements. In order to be

competitive, 3PLs need to focus on a strategic outlook to service

differentiation and innovation (Large et al, 2011). This means that service

offerings must be adapted constantly to be relevant to a continually changing

market.

Because 3PLs are replace-able, it is important for LSPs to move toward a

service offering that allows them to be the expert in their field and not simply a

provider of a service that anyone can do. McCue (2012) says that the most

value is realised when a 3PL is viewed as a partner, when needs are clearly

identified, and when open channels of communication are established.

In determining the current status of outsourcing relationships and suggesting

recommendations for strategic alignment between IMPERIAL Logistics and its

strategic partnering organisations, 3PLs must adopt a strategic focus to

outsourcing and differentiate service offerings in building strategic

partnerships with clients.

24

2.3.2 The emergence of Lead Logistics Providers (LLPs)

The discussion regarding the changing roles within planning and execution in

supply chains would be incomplete without a discussion of the concept of

LLPs. Barrows (2009) defines LLPs as service providers that manage the full

scope of logistics services for a company, combining and coordinating the

services of multiple logistics service providers. The LLP serves as the single

point of contact between its client and the logistics providers that execute the

client's supply chain. Barrows (2009) also mentions that the LLP usually has

full responsibility for the performance of service providers under contract. This

relates to the concept of a Logistics Integration Centre (LIC) that IMPERIAL

Logistics is currently marketing to a number of its clients.

The following two figures represent the changing role of the logistics service

provider:

Figure 2.2: Traditional 3PL model infrastructure Source: Researchers own

Figure 2.2 shows the compartmentalisation of the traditional 3PL. This model

is still common, where a logistics company only provides a specific service to

its client, but does not go beyond this to provide knowledge, or an integrated

service.

25

Figure 2.3: LLP model infrastructure Source: Researchers own

Figure 2.3 shows the integration function that LLPs typically perform. The LLP

acts as the mediator between different functions to ensure that these

functions operate in harmony with each other, so that the system as a whole

produces better value than the individual functions operating in isolation would

produce. The concept of integrating functions is also applicable in the case

where there is a supplementary function needed to support the primary task.

Such an example could be the execution of outbound road transportation, and

the planning and scheduling of the vehicles and resources needed to fulfil this

task.

Currently, LSPs provide a vast array of services, as can be seen below in

Table 2.1. Knowledge functions such as transportation planning and

management are starting to appear as 63% of LSPs offer this as a service.

The integration of more than one of these functions by one service provider

begins to move an LSP into the realm of the LLP, and into a more

customised, client-specific service.

26

Table 2.1: Services Provided by LSPs

Source: 16th Annual Third-Party Logistics Study (2012)

Outsourced Logistics Service offered by

LSP

Provider

Percentages (Percentage that offer

the service)

Domestic Transportation 83%

Warehousing 81%

International Transportation 70%

Inventory Management 66%

Order Management and Fulfilment 65%

Customer Service 64%

Transportation Planning and Management 63%

Cross-docking 62%

Product Labeling, Packaging, Assembly,

Kitting

62%

Freight Forwarding 58%

Customs Brokerage 50%

Reverse Logistics 56%

IT Services 51%

Supply Chain Consulting 51%

LLP Services 42%

Service Parts Logistics 38%

Freight bill auditing and Payment 34%

Green Logistics Services 31%

Fleet Management 26%

27

Table 2.2: Services used by clients of LSPs

Source: 16th Annual Third-Party Logistics Study (2012)

According to Langley and Capgemini (2012), LLPs do not rank highly as a

service that is used by shippers (clients) to enhance their supply chains (only

9% of respondents use LLPs). The emergence, however, of transportation

planning and management (used by 23% of shippers worldwide and provided

by 63% of LSPs) could ultimately lead to shippers making use of LLPs as their

supply chains mature.

Gardner et al (1994) describe the use of planning as a logistics outsourcing

function to enable the integration of operations between the client and its LSP.

As mentioned in chapter 1, in some cases, the client has outsourced both the

planning and the execution functions to different firms, in which case, the

client acts as an integrator between the two. This often results in adverse side

effects such as duplicated planning performed by each firm and misaligned

Outsourced Logistics Service used

by Shippers (client organisations)

All

Regions

North

AmericaEurope

Asia

Pacific

Latin

America

International Transportation 78% 66% 91% 77% 84%

Domestic Transportation 71% 65% 77% 74% 69%

Warehousing 62% 65% 61% 65% 63%

Freight Forwarding 57% 52% 54% 64% 65%

Customs Brokerage 48% 49% 43% 56% 45%

Reverse Logistics 27% 25% 28% 33% 22%

Cross-docking 26% 29% 28% 25% 22%

Product Labeling, Packaging,

Assembly, Kitting24% 19% 28% 24% 26%

Transportation Planning and

Management

23% 24% 27% 21% 16%

Inventory Management 21% 20% 16% 27% 25%

Freight bill auditing and Payment 17% 35% 12% 11% 8%

IT Services 15% 15% 14% 13% 16%

Order Management and Fulfilment 14% 19% 10% 15% 14%

Service Parts Logistics 14% 10% 14% 19% 10%

Customer Service 11% 9% 7% 14% 16%

Supply Chain Consulting 11% 15% 7% 13% 9%

Fleet Management 10% 8% 9% 14% 9%

LLP Services 9% 7% 10% 13% 4%

Green Logistics Services 4% 3% 3% 6% 4%

User Percentages (Percentage that use the service)

28

performance measurement. The statement by Gardener et al (1994) is

essentially a precursor to the current LLP concept, and proves that its value

was considered even as early as 1994.

In summary, in understanding the impact of integrated planning and

execution, LLPs need to extend their services to encompass an integrated,

comprehensive and knowledgeable service offering to clients. There are

currently a vast number of services offered by LSPs however, by outsourcing

planning and execution to the same LSP, duplication of activities is

decreased. As a supply chain matures, the use of LLPs becomes more

prevalent.

2.3.3 Concept of logistics integration

Outsourcing is a phenomenon that is increasingly common in businesses all

over the world. The trend has been increasing since the 1980s, resulting in

the greater usage of LSPs (Van Laarhoven, Berglund & Peters, 2000) while

the type of relationship between customer and service provider has also

evolved over time (Bask, 2001).

Bechtel and Jayaram (1997) consider the integration of supply chains to not

only be important from an operational point of view, but also important as a

strategic imperative. It is therefore a key business requirement and should be

viewed as such.

Fabbe-Costes et al (2008) found that companies do not only outsource the

traditional supply chain functions such as warehousing and transportation, but

also the logistics management functions related to the flow of goods and

production activities. Fabbe-Costes et al (2008) also confirm that LSPs have

begun to broaden their service offerings and are, in fact, providing clients with

a more holistic basket of services that are customised to the specific customer

needs.

The effect of increased outsourcing of a broader range of supply chain

functions has led to more and more of a companys supply chain being

29

located outside the borders of the company. In fact, Fulconis, Saglietto and

Pach (2006) argue that LSPs with a Fourth Party Logistics Provider (4PL)

capability could replace the role that the client currently plays in the design

and management aspect of their supply chains. This is a similar concept to

that of the LLPs that were referred to earlier.

Fabbe-Costes et al (2008: 2) state that

with a trend of supply chain integration on the one hand and more use

of LSPs on the other hand, one would expect literature to be

concerned with the role of LSPs as well as the LSPs being concerned

with the role they might play in the integration of their clients supply

chains.

However, Fabbe-Costes et al (2008: 2) go on to state that initial results

emerging from a large review of supply chain integration performance papers

reveal that LSPs seem to be the forgotten actors of supply chain integration.

These contradicting findings are what led Fabbe-Costes et al (2008) to study

how LSPs support integration and performance of their clients supply chains.

Fabbe-Costes et al (2008) considered a number of academic articles for their

research to determine the frequency of certain key phrases and concepts

appearing in the literature. The research shows that, in some cases, LSPs are

integrated members of a customers supply chain, and, in other cases, the

LSP is seen simply as a tool that is used by the customer to achieve supply

chain integration. In a few cases, LSPs are seen as potential and proactive

supply chain integration campaigners who believe that the following three

major viewpoints exist for their customers:

LSPs are important members of the supply chain but must fit into the

clients structure

LSPs are simply tools/enablers to assist supply chain integration efforts

LSPs are a key part of the clients business and are actively involved in

improving it and can influence direction.

30

The research undertaken by Fabbe-Costes et al (2008) on academic literature

produced the following results:

89% consider explicitly or implicitly that LSPs are members of supply

chains

82% consider explicitly or implicitly that LSPs must integrate with other

actors (other supply chain members)

37% consider explicitly or implicitly that LSPs are tools used to

integrate supply chains and/or improve performance

22% consider explicitly or implicitly that LSPs are actors able to

improve supply chain integration

56% explicitly or implicitly view LSPs as contributing to performance

improvements

56% explicitly consider that LSPs are members of the clients supply

chains and that they must be integrated. However, very few papers

indicate how LSPs are integrated.

Fabbe-Costes et al (2008) deduce that the reason that LSPs are able to

improve performance of a clients supply chain is because they can

collaborate both vertically with supply chain partners and horizontally with

other LSPs. The expertise and knowledge of the LSP in its particular field

allows it to be used as a tool or as an actor of supply chain integration.

Fabbe-Costes et al (2008) recognise that LSPs can improve quality, speed,

service levels, costs, performance and contribute to savings and benefits, but

mention that very few of the articles they used in their research actually give

insight into exactly how the LSP contributes to improved performance.

This is confirmed by Stank, Keller and Daugherty (2001) who could not find a

statistical link between supplier integration and logistics performance in their

research. The long term relationship between many clients and their service

providers means that they do not act as a major differentiator. However, it

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was generally found that clients with an existing integrated structure tend to

have better performance than their competitors.

Hakansson and Persson (2004) found that one of the LSPs in their study offer

a service to a customer that is an integrated logistics solution, meaning that

the company is responsible for the design, implementation and operations of

a supply chain. Be