Differences between Outputs and Outcomes of 3Pls and 4Pls: A Survey on Iranian Logistic Service Providers

Transcription

1 ISSN: ; RESEARCH ARTICLE Open Access Citation: Hosseini, S. M. S., Tabatabaei, S. M., Nateghinia, S. (2016). Differences between Outputs and Outcomes of 3Pls and 4Pls: A Survey on Iranian Logistic Service Providers. International Journal of Life Sciences 10(2): e56-e65. Received: November 17, 2016 Accepted: November 20, 2016 Published: November 30, 2016 Copyright: 2016 International Journal of Life Sciences. Differences between Outputs and Outcomes of 3Pls and 4Pls: A Survey on Iranian Logistic Service Providers Seyed Mohammad Seyed Hosseini¹, * Seyed Majid Tabatabaei², Ahmad Alibabaei³, Saeedeh Nateghinia² 1 Iran University of Sciences and Technology, Department of Industrial Engineering, Tehran, Iran 2 Tehran Science and Research Branch, Islamic Azad University, Tehran, Iran 3 School of Health, Safety & Environment, Shahid Beheshti University of Medical Sciences, Tehran, Iran *Corresponding Author: Seyed Majid Tabatabaei, PhD Student of Industrial Management, Tehran Science and Research Branch, Islamic Azad University, Tehran, Iran majid.tabatabaei@yahoo.com Abstract Purpose: The purpose of this paper is to the recognize differences between outputs and outcomes of 3PLs and 4PLs in 32 logistic service providers in Iranian petrochemical supply chain. Design/methodology/approach: For this purpose, outputs and outcomes of logistic service providers is been extracted from different studies. Then a list of outputs and outcomes prepared and was sent to 135 Iranian clients. They were asked to check the services and outcomes they expect from 32 Iranian logistic service providers. A questionnaire also transmitted to 32 logistic providers to specify the outputs and outcomes of their services. Then a gap analysis were used to understand the differences between outputs and outcomes of 3PLs and 4PLs in Iran. Findings: Findings illustrated a gap between outputs (consulting, value adding and carrier selection) and outcomes ( exibility and market expansion) of 3PLs and 4PLs companies. Lack of 4PLs companies in Iranian petrochemical supply chain is the reason of recognized gaps. Original/value: The paper study Iranian 3PLs and 4PLs companies. This examination in Iranian logistic providers is new and a gap analyzed between outputs and outcomes of 3PLs and 4PLs. Keywords: Logistic Providing; Third Party Logistics; Fourth Party Logistics; Iranian Petrochemical Supply Chain; Outputs and Outcomes of Services; Outsourcing

2 Introduction Turbulences in business world from one hand and omitting the political and geographical boarders called Globalization on the other hand, caused an extremely challenging condition for companies. Old ways of running the business is not suitable anymore. Operations and service enterprises have to cooperate more to prepare an adequate situation for competition. The main idea of supply chain management is constituted based on this cooperation. Therefore, SCM is becoming one of the most signi cant strategies for companies. Without focusing on SCM, promoting the performance of companies is impossible. Companies have to improve their internal core competencies from one side and improve their relationships with their suppliers from the other side (Hugos, 2010). 4PL is one of the approaches that achieves a quali ed SC. 3PLs also have this potentiality to turn to 4PLs. Companies outsourced their logistic issues to 4PLs. 4PLs are asset-free companies that seek to add values in supply chain. Andersen consulting company, in 1990, was the rst 4PL that emerged with new brand of Accenture. Andersen believed that 4PL could integrate different resources, abilities, and technologies of different companies to design, create and apply an appropriate supply chain (Rushton and Steve, 2007). 3PLs are a simple sample of logistic provider companies that are focusing on warehousing and transportation management. 3PLs and 4PLs have some speci c services and these provided services would end in different outcomes. In this paper, outputs and outcomes of 3PL and 4PL companies have been studies. For this purpose, main outputs and outcomes of 3PL and 4PL companies are studied from the related literature. Then a questionnaire has been sent to 32 Iranian logistic providers and to 135 Iranian logistic service clients. Literature Review Importance of Logistic Providers Organizations can decrease their logistic costs by improving their supply chain. Transportation and warehousing costs and customs tariff, increase the manufacturing cost and it will affect their market share in current competitive world. However, many companies are transferring their manufacturing plants to low cost countries (like China, India and Indonesia) to focus on order management, local and global transportation and customs tariff (Rushton and Steve, 2007). Foster and Armstrong (2006) estimated incomes of outsourcing to logistic providers about 333 billion US dollars in In recent 10 years, many logistic providers were turning to 3PLs. From this 333 billion USD, about 270 billion USD is gained by 3PLs. Using 3PL services is increasing because of globalization. Most of the times, suppliers, manufacturers and clients are placed in different countries and they do not have enough information about each other. Due to these diversities, they facing with many problems in communication and connection. But they cannot underestimate their clients because of competition between companies. They have to sell their materials and products and 3PLs are the best choice for them. 3PLs have many connections and relations in local and global levels. Competition between 3PL companies is very severe and chance of gaining pro t is as same as lost. Some of main 3PLs are becoming bigger and bigger and some other small 3PLs die down. According to Armstrong, top 100 3PLs are gaining more than 1/3 of all 3pls' income in the world (Rushton and Steve, 2007). Page 58

3 Since 1996 to 2002, the number of clients that used 3PL services was about 68 to 73% of all world companies, but from 2002 to 2005 in North America it was more than 80% of companies. In Europe clients are 77%, in Asia it was more than 83%, in the Latin America it was about 72% and in Africa it was around 74% (Power et al., 2007). Logistic services are provided mostly in North America and Europe. Also many comprehensive researches are done due to studying different aspects of logistic services. Same researches are done in Bulgaria, North Africa, Australia, North Korea, Middle Asia and Indonesia but unfortunately it is ignored in Iran. Although logistic providing is very important in Iran but a few independent researches were done (Sahay and Mohan, 2006). According to the researches on 2006T about 72% of companies, used 3PL services in their rst six years of outsourcing. Annual growth rate for 3PLs is approximately about 20%. Primary studies emphasized on transportation and warehousing as 3PLs main tasks, but now their function is expanded to many other activities as customs clearance certi cates, customs fees, freight forwarding, cross ducking management, combined shipping, order and distribution ful llment. Moreover, 3PLs have to expand their coverage in order to satisfy their clients (Rushton and Steve, 2007). But 4PL not only is looking for decreasing costs but also is trying to increase their clients' income. 4PLs are accelerating products manufacturing by supply chain integration management and penetrating to new markets (Rushton and Steve, 2007). Logistic providers in Iran are playing an important role in supply chain. They have to be studied for some reasons: First, there are an increasing number of companies in Iran that want to outsource their logistic functions. This outsourcing is not only an alternative method for them, but also an entrance to new markets by logistic providers. Second reason is hundred billion dollars which is cost annually for outsourcing in the world. Iranian companies have to restructure themselves in form of international companies. Third reason is diversi cation of logistic services in 3PLs and 4PLs. Some years ago transportation was the only service provided by Iranian logistic providers but nowadays there are a different set of services that are provided by logistic providers (Colby, 2008). What are 3PLs and 4PLs? 3PLs Third party logistic service providers are companies who provide a range of logistic activities for their clients. These companies are independent of buyers and sellers but relate these parties to each other by taking over some of their logistics functions. According to Levi (2000), 3PL is simply the use of an outside company to perform all or part of the rm's material management and product distribution function. Terms of contract logistics and outsourcing are sometimes used in place of 3PL (Selviaridis and Spring, 2007). According to Gattorna (2004), 3PLs are asset based, management based or integrated providers that their logistic functions are including; transportation, warehouse and distribution, forwarding, nancial services and information services (Gattorna et al., 2004). 4PLs Forth party logistics manage and direct the activities of multiple 3PLs and provide services as an integrator. Activities of 4PLs includes some cultural, political aspects that integrates with communication and commercial skills and these functions follow a continuous way for solving Meta problems in supply chain. Various services and complicated distributions are main competencies of 4PLs (Gattorna et al., 2004). Page 58

4 Table 1. List of 3PLs and 4PLs services Page 59

5 4PL was known as a trade market for Accenture Company. Integration and management of different parts of supply chain and coordinating the 3PLs for better services is serving by 4PLs (Kutlu, 2007). 4PLs are recommended as an ideal future of outsourcing in supply chain. Non-asset value adding is the main idea of 4PLs (Rushton and Steve, 2007). There are some differences between 3PLs and 4PLs. 4PLs are looking for doing something more than an ordinary service. It has to be mentioned that 4PLs are emphasizing on strength point and core competencies of different 3PLs and service providers. It means that 4PLs provide best services based on best competencies of their service providers. It is focusing on value creation, cost and time reduction in supply chain (Rushton and Steve, 2007). Outputs and Outcomes of 3PLs and 4PLs Outputs Outputs are all services and activities that are outsourced by customers and served by logistic providers. Some services are very critical for customers and some of them are less important in comparison with others. In this research different services of 3PLs and 4PLs are gathered from previous researches. These outputs are categorized based on the functions. Outcomes Outcomes are de ned by some nal long term results that gained from an output or service. Mostly, outcomes of a service is evaluated by cost and customer reaction. Cost includes operation cost and holding cost. Customer reaction contains delivery time, the shortage possibility, and the storing rate. There are some performance indicator for measuring the supply chain performance. Some of these indicators are qualitative and evaluation of companies in SC is difficult. Customer satisfaction, information ow, risk management and supplier performance are some of these qualitative indicators. Table 2. List of 3PL and 4PL outcomes Page 60

6 Many companies in different manufacturing scopes stated that their performance increased after using outsourcing. Transportation costs, return goods cost, lost sales are some of costs that decreased because of outsourcing. Storing services and common facilities of 3PLs and 4PLs can help companies to save their money. There are even some logistic service providers that can promote distribution systems and utilize some ways and vehicles to provide a green distribution. These technologies are not available for all companies or so expensive that is not worthwhile for a company to buy it. Material availability, holding cost and stock reduction, decrease of complaint and increase of quality requirements are some of outsourcing outcomes. A list of outcomes gained from 3PLs and 4PLs companies is presented in table 2. Methodology For investigation of service and outcomes of provided services by 3PLs and 4PLs in Iranian petrochemical industry. A questionnaire was sent to 135 companies that are outsourcing their logistic functions in petrochemical industry. They were asked to determine what services and outcomes they expect from 3PLs and 4PLs? Then a questionnaire was sent to 32 3PL and 4PL companies. They also were asked to determine the services and outcomes of services they are providing. In table 3.1 and 3.2 the data gathered from clients and providers are shown. Also in gure 3.1 and 3.2 the gap analysis is shown. Table 3. Expected services from 3PL and 4PL based on customers' declaration The gap between expectations of clients and services provided by providers is analyzed and shown in gure 1. The analyzed gap between expectations of clients and statements of providers from outcomes of services provided by 3PLs and 4PLs is shown in gure 2. Page 61

7 Figure 1. The gap analysis between expectations of clients and services provided by providers Figure 2. The gap analysis between expectations of clients and statements of providers from outcomes Table 4. Expected outcomes from 3PL and 4PL based on customers' declaration Page 62

8 Discussion Results from analysis in gure 1 and 2 is showing a gap between expectations of clients and what logistic companies are providing. Results are very interesting. Gap analysis in outputs: In gure 1 there is a considerable gap in these services: Consulting: It seems that clients need more consultative services but providers are not so careful about it. Only 34% of logistic providers are serving consultative services. Product assembly: about half of clients expect their logistic providers to manage product assembling for them but only 15% are providing this service. Financing: nancing is important and it is expected by 88% of customers. Value adding: One of the most signi cant gaps is hidden in value adding. Customers expect logistic providers to provide services that add product value in supply chain. It is of course very hard and is one of 4PLs duties. But most of Iranian logistic providers are 3PLs and cannot provide such services. Due to this reason, only 12% of companies provide value adding services. Carrier selection: about 77% customers expect a wide range of carriers but only half of providers can prepare a range of carriers for clients. Packaging: most of customers are packaging their products themselves and only 28% expect their logistic providers to provide packaging services to them but about half of companies provide packaging services that is not demanded by clients. Procurement: 86% of clients expect procurement services in supply chain but only 65% of companies provide procurement and it seems they are mostly active in transportation and distribution. Gap analysis in outcomes: According to the results illustrated by outcomes: gure 2, there is a considerable gap in these Flexibility: exibility in the turbulent unsteady supply chain is very valuable and is expected by clients. 77% of clients are willing to cooperate with a exible provider. But only 46% of companies are proving exible services. Market expansion: the most signi cant gap is emerged here. Market expansion is impressively desired by clients. 70% of customers expect market expansion but only 9% of logistic providers can cover it. The reasonable reason is the differences between 3PLs and 4PLs. Market expansion is one of 4PLs functions. Most of Iranian provider companies are 3PLs and cannot afford such services. Employees' participation: is the process whereby employees are involved in process of decision making rather than simply acting on orders. Employees' participation is not expected in long term as an outcome by clients but 46% of companies are providing such outcome in long term. System performance: 43% of clients focus on performance of system of logistic in supply chain. It seems they are not believing that system performance can affect their performance, too. Page 63

9 Conclusion In this paper we tried to study the differences between outputs (services) and outcomes of services provided by 3PLs and 4PLs companies. Results from gap analysis is showing differences between expectations of clients and provided services. Some of main gaps are recognized in lack of 4PLs companies in Iran. For instance consulting, value adding and carrier selection is almost one of 4PLs function. It is highly expected by customers but are not provided by logistic providers. The reason is that most of companies are 3PLs and it is not affordable by them. A glance to output is also con rm that lack of 4PLs companies are feeling in Iranian petrochemical supply chain. Flexibility and market expansion is highly desired by clients. 77% and 70% of clients expect exibility and market expansion but only 46% and only 9% of them can afford it. 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