Summary OBS 210 - Study Notes (Chapters 11, 13 and 14)
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Course
OBS 210 (OBS210)
Institution
University Of Pretoria (UP)
Book
Strategic Logistics Management
This document includes all the work covered during the lectures, in lecture slides as well as the 3rd edition Strategic Logistics Management textbook. It also includes the class activities with full memos and explanations
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Chapter 11: Contract Logistics
What is Contract Logistics?
Different forms of logistics outsourcing should be considered, viz.;
1. Transaction Logistics
Once-off or independent transaction that usually aimed at
specific operational activities.
These transactions include:
Seeking resources from outside the organisaiton in the event of inadequate
logistics capacity that may impede the success of the specific logistics
operation.
2. Contract Logistics
Takes over all or part of the organisation’s logistics activities
for a period of time by using outsider organisations based on
a formal agreement or contractual basis.
💡 Contract logistics is synonymous with outsourcing of logistics services.
Chapter 11: Contract Logistics 1
, What is Outsourcing?
Outsourcing is a management strategy and is defined as an
organisation is using an external supplier to take responsibility
for non-core business, and providing skills and resources to
yield the best possible results and benefits for cluent
organisation.
💡 Outsourcing of logistics or organisations providing logistics services
are usally referred to as 3PL services. (See Chapter 1)
Third-Party Logistics’ aim to take over the responsibility of either primary or
secondary logistics acitvities on behalf of their client’s supply chain. These
activities are performed for a profit while satisfying all or most of their client’s
logistics needs.
Logistics Activities
Most common logistics activities include:
Warehousing and warehouse management
Distribution, inbound and outbound transportation
Management of in-process Inventories and finished goods
Order management
Order processing and fulfilment
Freight forwarding
Shipment consolidation
Information technology services
Supply chain consultant work
Vendor management.
Organisations may decide to either keep their logistics activities in-house by
taking the responsibility upon themselves to execute and manage logistics
activities or functions.
Chapter 11: Contract Logistics 2
, Alternatively, organisations can decide to adopt an outsourcing strategy and
outsource all or partial areas of their logistics activities to 3PL service providers.
Reasons for Contract Logistics
1. Research-Based Theory
Organisations have limited resources and capacities for execution and
management of logistics activities in-house and therefore need to use 3PLs
who have excess resources and capacities to meet certain demands.
An efficient flow between the correct type of resources that are bundled
together enabled organisations to improve their operational performance.
The objective is that organisations available resources effectively towards
the execution and management of their core logistics activities, and
outsource non-core logistics activities to 3PL service providers who possess
adequate resources and capabilities.
When organisations outsource non-core logistics activities and focus on core
competency logistics activities, the buying organisation's core business
enjoys priority, which results in an increase in overall competitiveness and
value for customers while also reducing operational costs.
2. Buying Organisation’s Core Competencies
Many organisations, especially manufacturing organisations, find that
logistics activities are not a core competency.
However, managers know that it remains an important area since logistics
activities have the power to provide a competitive advantage. To sustain this
competitive advantage, organisations would rather find suitable 3PL service
providers who are capable and competent to relieve the organisations'
responsibilities towards their non-core logistics activities.
Organisations are now more able to focus their core activities and are
therefore able to simplify and streamline supply chain processes when using
contract logistics.
Advantages and Disadvantages of Logistics Insourcing and
Outsourcing
Insourcing
Advantages Disadvantages
Chapter 11: Contract Logistics 3
, Advantages Disadvantages
Requires high-capacity volumes High
More control over inputs Increased
investment and capital needs Limited
process visibility Increased economies of
use of dedicated equipment Possible
scale
supply chain integration pitfalls
Outsourcing
Advantages Disadvantages
Improved flexibility Enhanced cash flow
Decreased investment and capital risk
Lower labour costs Lower logistics and
transportation costs Enhanced customer
service and satisfaction Increased Potential for choosing the wrong supplier
competitiveness in the market Sustained Losing control over process and logistics
organisational development Increased activities Increased lead times because
overall organisational performance of late shipments Possible higher
Improved flexibility Better utilisation of outsourcing costs Reputational loss
existing resources Access to knowledge Increased insurance costs when
and expertise Increased opportunities to transporting high value and low weight
reach new markets Ability to reach shipments
customers in geographically dispersed
areas 3PLs act as a bridge between time
zones, different cultures and languages
Shorter order life cycles
Porter’s Value Chain in Enhancing Competitive Advantage
through Contract Logistics
It is useful to apply Porter's value interpret how competitive advantage could be
obtained by using contract logistics.
To understand an organisation's competitive advantage, one should not look at the
organisation as a whole but rather at the individual value-added activities performed
by the organsisation to manufacture a product or deliver a service, namely the
value chain.
The value chain comprises primary and secondary activities. Ultimately the value
system entails several value chains, including the value chain of suppliers and
customers. Through the understanding of an organisation's value chain and value
system, an organisation's competitive advantage could be recognised.
It is useful to determine how cost reduction and differentiation strategies can be used
to analyse the value-adding activities' linkages and the sources which enhance an
Chapter 11: Contract Logistics 4
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