Third-Party Logisitcs: A Case Study: Third Party Logistics

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Literature Survey
Third Party Logisitcs
Logistics ,though looks simple at first look, is a complex operation and requires detailed planning, it has many facets which during cursory look get ignored. Logistics for an organization consists of inbound logistics and outbound logistics which then gets bifurcated as following:
• Procurement Logistics
• Distribution Logistics
• After Sales Logistics
• Disposal Logistics
• Production Logistics
Diving further into the facets of logistics, following figure shows how logistics is seen by various stakeholders of the process: Figure 1 Faces of Logistics
This facets of logistics help to understand how different stakeholders view Logistics in terms of their operations or working. Based on their views on …show more content…

Level 5: Companies have production network with integrated sourcing, planning, production, and distribution.
The companies which operate on level 3 through 5 of this logistic Chain, go for third-party logistics. The rationale of the companies behind going for the third party logistics can be explained by interpretation of definition given as follows:
“ Third-party logistics involves the use of external companies to perform logistics functions that have traditionally been performed within an organization. The functions performed by the third party can encompass the entire logistics process or selected activities within that process.” (Skjoett-Larsen, 2000)
Logistics for any organization has become a non-core activity. With the promotion of Theory of Core Competency by ( Prahalad & Hamel, 1990), companies have started to remove all the noncore activities from their operations to increase their efficiencies. This also meant that the companies which focused on logistics as their core business rose. With rise in both the events, it lead to the cooperation of both organization and third party logistics providers at various levels to fulfill their demands. All the different levels of cooperation formed strategic alliance between the companies which is defined as following by (Bagchi & Virum, …show more content…

These relationships have been further categorized by (Skjoett-Larsen, 2000) into three different categories:
1. Partnerships: Here the participating organizations try to maintain independence while collaborating to form efficient systems and procedures.
2. Third Party Agreements: Here there will be a formal agreement between participating organizations. The cooperations exist based on mutual trust and free information interchange.
3. Integrated service agreements: here the service provider takes part or whole logistics process of the host. There will be partial integration of information system to achieve cooperation.
Third party logistics are not merely a means to cost efficiency, but also as a strategic tool for creating competitive advantage through increased service and flexibility. This is illustrated by the type of relationship the organizations enter into. Further (Skjoett-Larsen, 2000) talks about when to go for the third party logistics by analyzing costs of transactions through Transaction Cost

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