Logistics Alliances and Structural Change (1995)

The overall purpose of this study is to contribute to a better understanding of why and in what way shippers outsource operations into partnerships with service providers. These relationships are called alliances in logistics (OALs). Furthermore the effects of the OALs have been studied from a shipper's point of view.In previous research the focus has been on analysing the shippers' attitudes towards outsourcing of logistics. In this study, I have tried to go one step further and document and analyse results of actual OALs. The focus is on the materials flow from the shipper via a service provider to the customer.The service provider could be a transport operator, forwarder, public warehousing company etc .. A quarter of the shippers were from the consumer package goods sector and the rest of the companies were distributed over various industry sectors.The research methodology used in this study is an integration of a quantitati ve anda qualitative approach, based on a combination of a European survey of 47 shippers in five countries and a multiple case studies of four Swedish companies. The survey gave answers to quantifiable questions like what, and how much etc .. The case studies were used to explain some of the results from the survey, e.g. the interrelationship between structural changes and operational alliances in logistics.The study identifies three major groups of driving forces for the set-up of an operational alliance in logistics, from the shipper's point of view:reduction of costs/investments and improvement of serviceimproved strategic flexibilityneed for structural changeAccording to this study cost as a driving force has not the dorninating role as indicated by previous studies. All case companies were involved in structural changes, and the OAL was considered to be a tool to change distribution structures and change them fast, as well as reduce investment needs.According to the survey most of the barriers to an OAL are related to the service provider, e.g. inadequate knowledge by the provider of the shipper's business particulars, inadequate IT systems and the risk of having eggs in one basket.In the case studies the shippers did not indicate the same barriers, and those indicated were primarily connected to intemal problems, e.g. loss of employment, acceptance by management and employees In previous research, the barrier loss of has often been indicated as the mo st important. However, in this study there was no indication that this barrier was of any importance. Instead, the results show that an OAL leads to improved control of cost and performance.According to the survey the activities within an operational alliance in are usually restricted to basic services, such as warehousing and transport. However the shippers investigated in the casestudies, do not quite fit into this description. In all four cases the providers take care of all of the materials flow from the producer to the customer. In one case all activities have been outsourced. In addition to transport and warehousing services, activities such as daily contacts with suppliers, inventory control and order processing are included.This study supports previous research that claims that a good shipperprovider relationship is essential for an operational alliance in logistics. In order to achieve a successful alliance there must also be good communications and exchange of information. In the companies studied the most frequent information exchange and visits take place at the operational management level. But there are also regular contacts at both management level and top management level.OALs are almost always based on a written contract, which in general is quite flexible even though detailed specifications and performance targets are included.The identified effects of the OALs have been divided into four areas:Cost: long term reductions but sometimes short term increasesService performance: long term increase but sometimes short term decreaseStructural change: changed or new distribution structuresControl: improved control of cost and perf ormanceThe shippers assess the relative importance of the actual economic benefits expressed in reduced costs and improved service perf ormance as equal. The main reason for the cost advantages is believed to be economies of scale and scope, and the main reason for the service advantage is believed to be on-time delivery. However, in some cases the costs increased and service performance decreased during the start-up period.OALs improve service performance and reduce costs. At the same time OALs facilitate structural changes and this indirectly improves the overall performance of the shippers This important link between operational alliances and structural change, which is also reflected in the driving forces, is something that has largely been neglected by previous research. The total effects of an OAL should lead to improved competitiveness and even to an improved ability to handle increased globalisation.