Supply Chains

and Logistics Services

Key Themes

• What role do service businesses play in global supply chains?

• Supply chain management
• Logistics
• Radio frequency identifcation (RFID) and supply chain
management
• IT and logistics
• Value chains
• Just-in-time and lean
Development of Logistics Services

• The development of the industrial revolution is associated with innovations in agriculture,

manufacturing production systems, finance and logistics. Logistics played a critical role in
facilitating trade and travel. During the nineteenth century, the United Kingdom’s ‘market
economy become more sophisticated and complex, and more and more resources had to be
invested in those activities that reduced transaction costs in the economy’ (Mokyr 2009)

There are three key innovations that need to be highlighted

1. There was an increase in the knowledge or the expertise intensity of firms.

2. Communications played a central role in capitalism’s on-going evolution.
3. Moving ideas, people, materials, completed goods and delivering services required major
innovations and investment in communications and transportation networks.
Supply Chain Management and Logistics:

• Processes that involve the flow of goods and materials within production value chains are
called supply chain (Hugos 2011).
• Logistics is the process of handling and managing supply chains, including designing supply
chains, ensuring that the flow of parts within a supply chain is efficient, reducing costs,
increasing the perceived customer quality of the supply chain handling process, procuring,
storing and transporting goods and raw materials. Effective and efficient logistics enhances the
efficiency of production processes.
• Logistics refers to all processes involved in storing, moving and transporting a good or
delivering a service to end-users or to the transfer of the upstream components of a supply
chain to a service firm.
• According to the Council of Logistics Management (1998), logistics is defined as: the
process of planning, implementing, and controlling the efficient, effective flow and storage of
goods, services, and related information from point of origin to point of consumption for the
purpose of conforming to customer requirements.
Radio Frequency Identifcation, Logistics and the Management of Supply Chains

• Manufacturers and retailers have introduced radio frequency identification (RFID) to track components
and goods as they move through a supply chain. A RFID tag uses electromagnetic fields to automatically
track and identify objects. The tags contain stored information.

Passive tag Active tag

• collects energy from an adjacent RFID • contains a local power source.
reader’s radio waves. • may be located much further away.
• must be located close to a RFID reader
Functions and Logistics Services
1. Supply Chain Management

• Supply chain management incorporates several functions including managing supply and
demand, logistics, purchasing, the service design interface, selling/sales system interface and
defining business boundaries and relationships (Simchi-Levi et al. 2008; Hugos 2011).

• A supply chain is often known as a value chain (Porter 1998; Sundbo 2011). The term value
chain is predominantly used within service research as the term links customers with value
creation the service aspects of a value chain that is emphasized in service theory (Lusch 2011,
see also Chap. 2). The term supply chain is more associated with the management of logistics
related to the movement of goods between producers and consumers (Tortorella et al. 2017). In
this chapter, the two terms are used synonymously.
2. Food: A Critical Supply Chain

• Everyday living involves purchasing and consuming food and drink. These decisions link
every consumer to a complex and evolving network of supply chains. Provision of food is an
example of a supply chain that may seem simple from a traditional point of view, but which
has developed into a set of extremely complex processes linking consumers with farmers.

• A traditional food supply chain can be exemplified by the production of pork. This involves
several distinct stages based around rearing animals and their incorporation into a production
process that has within it a supply chain.
Types of Logistics

1. Inbound Logistics
• Inbound logistics, or backward linkages in a supply chain, involves procuring inputs that
are incorporated into production and service processes. These are intermediate inputs into
production systems. frequently involves the movement of larger quantities of inputs or of a
continual stream of inputs in supply chains that have been developed around a just-intime
approach.

2. Outbound Logistics
• Outbound logistics, or forward linkages in a supply chain, are tasks involving the delivery
of goods and services to customers. This usually includes items that possess more value,
following the conversion of inputs, in line with the actual or anticipated needs of customers or
clients. For some services this involves the assembly of inputs to produce service experiences.
Shipment sizes, modes of transport to be used, or delivery time expectations will differ from
those related to inbound logistics. Outbound logistics involves the delivery of low volumes to a
single customer.
3. Reverse Logistics

• involves the return of goods to a producer including goods for reuse or recycling and for repair
or repurposing. Any logistics process that occurs after a good or service has been delivered to a
customer involves reverse logistics. The increase in e-commerce is associated with customers
increasingly returning goods. They have the legal rights to do so and logistics services must
deal with this situation effectively.

• also required in circumstances where providers, seeking to maintain or expand market share,
make claims about a service or a good over a period that are not fulfilled.

• the logistics for managing these arrangements are designed not only to be efficient but also as
cost effective as possible.
4. Third-Party Logistics (3PL)

Businesses that offer one or an array of logisticsrelated services to other firms are often described as third-
party logistics (3PL) providers (SkjøttLarsen 2000). They enable businesses to outsource some or all their
logistics needs. These are specialist providers of outsourced logistics services.

Hertz and Alfredsson (2003) group 3PL providers into four categories:

Standard 3PL providers:

• The most basic form performing activities such as pick and pack, warehousing and distribution
(business). This is often not the primary activity of these firms.

Service developers:

• Offer clients advanced value-added services such as tracking and tracing, cross-docking, specialist
packaging or a bespoke security system. These providers are IT oriented and are most suited to clients
exploring approaches to better incorporate IT into their logistics processes.
Customer adapters:
• The provider is invited to take complete control of clients’ logistics activities (Grawe et al. 2012). The
objective is to improve efficiency and cost-effectiveness of existing services rather than the provision
of new services.

Customer developers:
• The provider not only controls the existing logistics operations of clients but will also embed itself to
identify and implement new customers and ways of developing and introducing supporting logistics
(Soinio et al. 2012). In this case, the customer developer plays an increasingly strategic role in
customers’ activities and in identifying new ways of applying logistics solutions to capture additional
value for customers.
5. Fourth-Party Logistics (4PL)

• is a new concept in supply chain outsourcing. It reflects on-going rapid advances in

technology over the last 20 years and is therefore a further refinement of the 3PL approach.

Outsourcing to 4PL Service Companies

• The advantages of outsourcing logistics to a specialized 4PL service company is seen in the
case of Corus (now part of Tata Steel) in the UK. Their logistics operations were organized
locally with no coordination resulting in ineffciencies and problems with supply chain
coordination. Corus outsourced all inbound and outbound logistics to the Transport
Development Group (TDG), a 4PL provider. This increased the delivery-on-time and reduced
transport costs (Potter and Mason 2015).
1. Outsourcing Logistics
• Businesses can develop an internal solution to logistics supply and delivery, or they can
outsource this function to specialized logistics service providers (see Chap. 8 on outsourcing).

Some of the advantages of applying a 4PL solution include:

1. Access to state-of-the-art technology and software.

2. Application of technology to the best possible effect.
3. Facilities and space appropriate to the tasks that are outsourced.
4. Access to resources and levels of flexibility to fulfil client requirements at different times and
at different locations.
5. Capability to manage the expectations of several clients simultaneously
2. Investment
• Supply chain management involves decisions regarding capital investment in logistics
operations, compared to investments in a company’s core operational activities. This type of
investment decision includes the opportunity costs between investing in production operations
compared to investing in logistics. Outsourcing is one solution, but the decision must reflect
the needs of each business. But there are also disadvantages in outsourcing logistics and supply
chain management. These include:

1. Loss of control over logistics operations, especially in relation to quality control or the nuances
of trading with customers of the service business that have well-understood, but variable,
expectations.
2. Failure by 3PL providers to meet expectations perhaps resulting in reputational damage for
service and manufacturing businesses.
3. Operational problems arising from poor communications between the parties.
4. 3PL failure.
5. Conflicts between the strategic objectives of the service or manufacturing business and those of
the 3PL provider.
6. Use of a 3PL provider with limited or no knowledge of the services or goods provided by the
client.
7. Reduced ability to gather and analyze data about customers that will help with targeted
marketing, continuous improvement programmes, or cost optimization.
Value Chain Analyses

• A value chain is a chain of value-added activities; products/goods pass through the activities in
a chain, gaining value at each stage (Sundbo 2011).
• Value chain analysis provides strategic focus in understanding a company’s operations and
strategy. Adding value to products/goods as they pass through a chain of activities has been
emphasized by Michael Porter (1998).
• Value chain analysis was introduced to analyse market situations and to create marketing
strategies, but it also involves exploring the organization and management of a company’s
supply chains (Huemer 2012).
A value chain analysis involves exploring a supply chain’s operational activities. These include:

• Incoming supplies, materials, incoming shipping

• Storing and handling
• Outgoing shipping and logistics
• Customer service—includes tracking, coordinating, scheduling and reverse logistics
• Marketing, sales and customer satisfaction

The analysis should also include exploring related business activities including:

• Accounting and finance

• IT and systems support
• Legal issues including documentation related to exports and imports
• Environmental and climate issues and safety
• Personnel
• Innovation
• Corporate social responsibility
Supply Chain Challenges Facing Logistics Businesses
• Businesses encounter several challenges that must be taken into consideration when analysing
and planning a supply or value chain. These include:

1. Continued Growth of e-Commerce

• E-commerce continues to grow, and new e-commerce business models emerge based on new
approaches to logistics.

2. Technology Matters
• Information technology (IT), including sensors, operational systems and GPS tracking, are
playing an increasing role in logistics management and have become core elements in
transportation, sorting, storing and tracking technologies.
3. Understanding the Capabilities of Suppliers and Service Partners
• Business partners’ capabilities are important because logistics service companies are dependent
on inter-firm relationships.

4. ‘Customers as King/Queen’
• Service marketing, and management research, has highlighted that customer satisfaction is
critical for service businesses and for the quality of the service experience. Logistics and supply
chain management must not impact on the quality of the customer’s service experience.
Just-in-Time and Lean Production
• Supply chains and logistics are central to the effcient management and delivery of service experiences
and of goods.
• Just-in-time approaches to the management of supply chains transformed manufacturing-based value
chains. This system is based on the principle that goods or components should not be produced and
shipped before demand and need is manifested.

Just-in-time raises several important questions for logistics and supply chain management including:

1. How much capability and capacity should a logistics service frm have, at what time and at what
locations?
2. What happens if the logistics service frm cannot fulfl the demands of the customer (the goods sender)?
3. Who is responsible for the supply—the sender, the receiver or the logistics service company?