Evaluation of Third Party Logistics Providers And Their services in Sweden

(1)

J

Ö N K Ö P I N G

I

N T E R N A T I O N A L

B

U S I N E S S

S

C H O O L

JÖNKÖPI NG UNIVER SITY

T o p i c : E v a l u a t i o n o f T h i r d p a r t y l o g i s t i c s p r o v i d e r s

A n d t h e i r s e r v i c e s i n S w e d e n

Master Thesis

Author: Godspower Oduose Tutor: Leif Magnus

(2)

ABSTRACT

This thesis focuses on third party logistics providers in Sweden and their service offerings. The author examines, evaluate and discuss the range of third party logistics services provided by third party logistics companies in Sweden. Furthermore, the author categorized the third party logistics providers using some of proposed frameworks and theories for differentiating third party logistics providers from previous researchers. This was done to determine the relevant categories that the third party logistics providers in Sweden belongs to. Moreover, the author made a comparison of the competence of third party logistics providers in terms of the number of services they offer in Sweden.

The author used the qualitative research approach as the thesis is more exploratory in nature. Basically, exploratory research is conducted to obtain greater understanding of a concept or to help clarify ambiguous problem. The author interview four (4) third party logistics providers in Sweden and other information such as the provider’s website information and annual reports was used in the analysis. It is interesting to note that, relationship between third party logistics providers and their customer is a major factor when classifying providers into different category. Some of the theories proposed by previous researcher on the classification of third party logistics provider have become obsolete due to the fact that the relationship between the third party logistics providers and their customers has evolve over the years from formal cooperation to strategic alliance and joint ownership.

Some of the companies are less competent than others in terms of the services they offer in each of the third party logistics service categories. This does not necessarily make them weaker because the services they offer in each of the categories are being driven by the company’s business strategy to stay competitive in the third party logistics industry. Furthermore, although size and global status give some competitive advantages, adopting different strategies such as creating a niche market in a particular service or a particular industry will provide major competitive advantages to third party logistics providers.

(3)

List of Figures

Figure 1: TPL firms classified according to abilities of general problem solving and customer adaptation

Figure 2: Categorization of logistics functions Figure 3: Scope of activities

Figure 4: Aditro Logistics Retail logistics services illustration Figure 5: Aditro Logistics Consumer Logistics illustration Figure 6: Aditro Logistics Industrial Logistics illustration

Figure 7: Classification of Swedish TPL providers according to abilities of general problem solving and customer adaptation

List of Tables

Table 1: The most frequently used 3PL services, 2003 and previous years. Table 2: Summary of third party logistics services

Table 3: Comparative function of 3PL providers.

Table 4 Summary of TPL services provided by the Four (4) TPL companies Table 5: Comparison of third party logistics services between providers

(5)

1

1.0.

Introduction

1.1. Background

The idea of adopting third party logistics services has grown in different industries around the world during the past several years and it involves outsourcing logistics activities that were traditionally performed in-house. According to Lieb and Randall (1996), the functions performed by third party logistics providers comprise of the entire logistics process or more commonly selected activities with the process. Additionally, factors such as globalization, customer orientation, lead time reduction, cost reduction and outsourcing are some of the major driving force for this interest in advanced logistics (Hertz & Alfredsson, 2002). Moreover, concepts such as reengineering and supply chain management have made many companies to consider adopting the use of third party logistics services (Lieb & Randall, 1996).

Furthermore, Murphy, Dalenburg & Daley (1991), states that most large multinational firms use third party logistics providers to some level and find ways to consolidate their supplier bases by using single-source suppliers. This has led to third party logistics providers looking for ways to provide a broad range of logistics services to meet their client’s requirement.

According to Lieb and Bentz (2004), some of the third party logistics services includes freight payment, shipment consolidation, direct transportation services, customs brokerage, warehouse management, order fulfilment, re-labelling and repackaging, just to name a few.

Different authors have written about the benefits and risks of using third party logistics services and the use of third party logistics services by large American firms. Little has been discussed about the third party logistics providers and the services they offer in Sweden.

1.2. Problem statement

According to Gooley (1997), Europe is widely regarded to be the founders of third party logistics but over the years the industry evolved and third party logistics has now become a common phenomenon. Most researchers has written about the reason and benefits of third party logistics (Langley & Sink, 1997, Bhatnagar, Sohal & Millen, 1999), classification of different third party providers (Hertz and Alfredsson, 2002, Virum, 1993, Virum & Bagchi, 1998), the use of third party logistics by firms in American and Australia (Lieb and Randall, 1996, Sohal, Millen & Moss, 2002 respectively), development of third party logistics in Europe (Laarhoven, Berglund & Peters, 2000). Little has been

(6)

2

written about the third party logistics providers and services in Scandinavia and more specifically there is very little research done on third party logistics providers and their services in Sweden.

From previous researches and with the political changes including the establishment of the European Union and subsequent spread of the privatization and deregulations seems to indicate that there is a likeness that third party logistics faces different challenges and offer different services because of their geographical location.

Marketline (1998) predicted that the share of logistics expenditure outsourced in Europe will increase from 18% in 1998 to 22% in 2002. Mckinno and Forster (2005) Delphi survey were in agreement with Marketline (1998) prediction and also added that this upward trend of logistics expenditure will continue over the next five years, however, IT systems, product customization and reverse logistics are the three activities reckoned to experience the most rapid rates of outsourcing, with external expenditure on increasing by 31%, 28%, and 28% by 2005.

With this prediction in mind and the political changes mentioned earlier, what are the third party logistics services being offered in Sweden? What category does the third party logistics providers belong? And how are the services being offered in Sweden by third party logistics provider compared to each other? These are some of the questions that the author will address.

1.3. Purpose

The purpose of this thesis is to examine, evaluate and discuss the range of third party logistics services provided by third party logistics companies in Sweden. Furthermore, the author will categorize the third party logistics providers using some of the previously proposed framework for differentiating third party logistics providers. Moreover, there will a comparison of the competence of third party logistics providers in terms of the number of services they offer in Sweden.

1.4. Research Question

1.) What relevant categories does the third party logistics providers in Sweden belong to?

2.) How do the third party logistics provider’s competence compare to each other in terms of the number of services they offer?

(7)

3

1.5. Delimitation

The thesis relied on more of secondary data and small pool of interviews of different third party logistics providers in Sweden.

(8)

4

2.0.

Frame of Reference

2.1. What is Third party logistics?

According to Langley and Sink (1997), there seems to be no definition of third party logistics definition that will satisfy all industry observers and views third party logistics as using the services of an external supplier to perform some or all of a firm’s logistics. In support of Langley and Sink (1997), Bhatnagar et al (1999) also refer to third party logistics as the use of external companies to perform logistics activities either in part or full. Furthermore, Laarhoven et al (2000) defines third party logistics as activities performed by a logistics service provider on behalf of a shipper and consisting of at least management and execution of transportation and warehousing. Other activities such as inventory management, information related activities, value added activities are also included.

Moreover, according to Hertz and Alfredsson (2002) third party logistics is “an external provider who manages, controls, and delivers logistics activities on behalf of a shipper” and their relationship can be formal or informal. Bachi and Virum (1996) referred to third party logistics as a logistics alliance that shows a close and long term relationship between a customer and a provider in connection with the delivery of a wide range of logistics needs.

In summary, all these definitions of third party logistics all point to the fact that third party logistics is the use of external logistics service providers or companies to perform some part or full integrated logistics activities.

2.2. Third party logistics provider classification

Over the years, the relationship between third party logistics providers and their customers has evolved from a focus on contract to partnership and agreement; it is more or less a mutual beneficial and continuous relationship between both parties (Virum, 1993 and Bagchi & Virum 1998)

According to Anderson (1995a), Strategic alliance plays a pivotal role between third party logistics providers and their customers because it helps to guarantee the quality of performance. Furthermore, third party logistics providers can be classified based on the type of alliances they formed with their customers such as scope of partnership, design and management, degree of customization and dedication, knowledge level of shippers and providers and material flow characteristics (Hertz & Alfredsson, 2002).

Virum (1993) further states that third party logistics providers may be grouped into three classes based on the degree of integration and interdependency between the providers and the shippers. The classes are:

Formal co-operation venture, logistics joint venture and joint ownership

.

(9)

5

Class 1 (known as Formal co-operation venture): This is a contractual agreement between the providers and the shippers where the providers are responsible to carry out some specified logistics services for the shipper for a given time period (typical time period will be from a number of months up to one year). Laarhoven et al (2000) has different view that states a contractual agreement between third party logistics provider and their customers should contain some management, analytical or design activities and the length of the cooperation between both parties should be at least one year time period in order to “distinguish third party logistics from traditional arm’s length sourcing of transportation and/or warehousing”.

Class 2 (Known as Logistics joint venture): In this class, there is a higher degree of integration and interdependency between third party logistics provider and their customer. The alliance between both parties may include a larger number of logistics services and the resource requirement for the provider is higher. Also there is a deeper insight into the sharing of information such as business strategies, plans and operations between both parties and the contract period is normally in the range of three to four years.

Class 3 (known as Joint Ownership): This class represents the highest degree of integration and interdependency between the parties of the alliance. The resources that are jointly owned maybe warehouses, equipment for materials handling, data systems and specialized means of transport.

Moreover, Berglund (1997) is of the view that the extent third party logistics providers are geographically based and to what extent themselves are outsourcing the logistics can be used to differentiate between third party logistics providers.

From a different viewpoint, Hertz and Alfredsson (2002), states that third party logistics providers can be divided into four quadrants namely: standard TPL provider, service developer, customer adapter and customer developer. (See Figure 1)

(10)

6

Figure 1: TPL firms classified according to abilities of general problem solving and customer adaptation. Source: Hertz and Alfredsson (2002)

The third party logistics providers that belong to the first quadrant (service developer) usually provide advanced value-added services that could involve differentiated services such as packaging, cross-docking, track and trace, special security systems to different customers. The advanced services packages provided by the first quadrant TPL providers usually involves several sets of more standardized activities turned into modules that could be combined based on customer request or demands and the focus of this quadrant is more on creating economies of scale and scope (Hertz & Alfredsson, 2002).

The third party logistics providers that belong to the second quadrant (customer developer) are more advanced compared to the other three quadrants. It involves high integration with the customer which entails taking full control of the logistics operations of the customer (Hertz & Alfredsson, 2002). Anderson (1995b) refers to this quadrant as 4PL and according to Moore (1987) the TPL providers in this quadrant shares the risk and rewards of the logistics management with their customers.

The third party logistics providers that belong to the third quadrant (standard TPL provider) usually provide standardized third party logistics services such as warehousing, distribution, pick and pack, just

(11)

7

to name a few and they provide these services at the side of their normal business (Hertz & Alfredsson, 2002)

The third party logistics providers that belong to the fourth quadrant (customer adapter) usually provide services that will improve the efficiency in the handling of customers’ existing activities and not making much development of services (Hertz & Alfredsson, 2002).

In summary, the classification or segmentation of third party logistics providers above will impact the type of services being provided.

2.3. Third party logistics services

Generally, the scope of services offered by third party providers may range from a relatively limited set of services to a comprehensive, fully integrated set of logistics activities (Langley & Sink, 1997).

Langley and Sink (1997), and Rabinovichl, (1999) identified the following as third party logistics services:

• Transportation • Warehousing

• Freight consolidation and distribution • Product marking, labelling, and packaging • Inventory management

• Traffic management and fleet operations • Freight payments and auditing

• Cross docking • Product returns • Order management • Packaging • Carrier selection • Rate negotiation

• Logistics information systems

Moreover, Lieb and Bentz (2004) identified twenty-six (26) third party logistics services used in 2003 and the previous three years. (See table 1)

(12)

8

Table 1: The most frequently used 3PL services, 2003 and previous years. Source: Lieb & Bentz, (2003)

As can be seen from Table 1, over the years there has been an increase in third party logistics services such as track and trace, operation of IT systems, and purchase of materials (starting from 2001), reverse logistics, measurement of carrier performance, after sales service, and product testing (2003). In continuation, Vaidyanathan (2005) divided these third party logistics services or functions into four categories namely: Inventory and logistics management, customer service, warehousing, and transportation as shown in Figure 2 below.

(13)

9

Furthermore, with the continuous and growing demand of customers, the survival of third party logistics providers is dependent on their ability to provide these four (4) generalized services globally (Vaidyanathan, 2005). They are

global warehousing, global inventory and logistics management,

transportation, and customer service

.

Global warehousing: Over the years, there is growing customer demand of just-in-time (JIT) delivery of materials and warehousing. Companies need an efficient end to end supply chain and a single point of failure in warehousing will lead to big problem in order fulfilment. This continuous change in demands has made third party logistics providers to invest heavily in fulfilment equipment and advanced technologies and also add other value-added services such as packaging, product making, and labelling, receiving, sort and direct put away, directed put-away, wave management, merge and pack-out, manifest documents, bar code printing, pick and pack activities to the warehousing functionality. (Vaidyanathan 2005)

According to Laarhoven et al (2000), third party logistics partnerships five years ago were mainly limited to basic transportation and warehousing functions. Although these third party services are still dominant component in TPL partnership, an additionally information based and value-added activities such as track and trace activities and order picking activities has be introduced as part of warehousing activities. This information based and value-added activities are on the increase as shown on Figure 3 below.

(14)

10

Figure 3: Scope of activities. Source: Laarhoven et al (2000)

Global inventory management and logistics: According to Fisher and Cachon (2000), orders were the only information exchange in the traditional supply chain inventory management but over the years information technology has revolutionized the traditional supply chain inventory management and now allows companies to share demand and inventory data quickly and inexpensively.

Furthermore, information technology has enabled and widens the activities of inventory management to include functions such as global inventory visibility, back-order capability and fulfilment, order-entry management, forecasting, cycle count and auditing, shipment management and customs documentation e.t.c. This global inventory management system has the capability to optimize inventory based on service contracts and required response times including the placement of warehouses and automated replenishment of parts. Vaidyanathan (2005)

Global Transportation: According to Lancioni, Smith and Oliva (2000), global transportation is one of the dominant component or activity in third party logistics processes. It also has a major impact in providing efficient customer services in relation to on time delivery, accuracy and the ability to offer tracking information (Swenseth and Godfrey, 2002).

Furthermore, Crainic and Laporte (1997) states that the process of freight transportation is complex because of the variety of players involved and each having its own peculiar characteristics and

(15)

11

requirement. The role of traditional transportation of just moving goods from point of origin to destination through different multi-modal transportation has increased to include services such as fleet management, cross-docking, merge in transit and product return just to name a few (Lieb & Bentz 2004, Perego, Perotti & Mangiaracina 2011).

Global customer services: Third party logistics providers are providing different range of customer services such as warranty parts recovery, financial services, automating letters of credit (LOC), auditing, order management, fulfilment, carrier selection, rate negotiation, international trade management and help desk activities, custom brokerage, selection of software, consulting services, after sale services, operation of IT systems (Lieb & Bentz 2004, Vaidyanathan 2005).

According to Khazanchi, Lewis and Boyer (2007), innovation plays a key role in providing global customer services and can be a source of additional revenues from new services and help to save costs or improve the quality of existing process. Moreover, McGrath and Ming-Hone (1996) states that innovation in customers services can offer potential competitive advantages to TPL providers.

Table 2: Summary of third party logistics services Inventory and logistics

Management

Customer service Warehouse

Management

Transportation

Freight Consolidation Freight Distribution Shipment planning &

Management Traffic Management Inventory Management Carrier Selection Order entry/Management Back-order capability & fulfillment Forecasting Cycle count and

auditing Freight Payments Auditing Order Management Fulfillment Help Desk Carrier selection Rate Negotiation Warranty parts recovery Custom brokerage Selection of software Consulting services After sale services Operation of IT systems Reverse logistics Packaging Product Making Labeling/re-labeling Warehousing Receiving Sort and direct

put away Merge and pack-out Manifest documents Bar code printing Pick and pack Product testing Assembly & Installation Fleet Management & operations Cross docking Product return Merge in Transit

(16)

12

2.4. Comparison of third party logistics services between providers

According to Langley and Sink (1997), in order to evaluate a prospective third party logistics provider, a set of criteria must be defined. He further states that quality, cost, capacity, delivery capability and financial stability are the typical evaluation. In addition, Vaidyanathan (2005) also include cultural compatibility, customer references, financial strength, operating and pricing flexibility, and IT capabilities play a predominant role in evaluating third party logistics providers. Furthermore, Menon et al (1998) states that performance metrics that must be part of the evaluation criteria must include responsiveness to unexpected events, error rates, and lead.

Vaidyanathan (2005) later developed a framework taking into account all the criteria above and evaluate third party logistics providers using the general third party logistics services (Global inventory management and logistics, Global customer services, Global warehousing, Global transportation, and Global IT services)

(See Table 3 below)

Table 3: Comparative function of 3PL providers. Source: Vaidyanathan (2005)

The author will attempt to use this framework to compare the third party logistics services offered by providers in Sweden.

(17)

13

3.0.

Methodology

This section covers the methodology that was used in collecting data in order to answer the research question. This chapter is composed with the following sections; research design, research approach, research strategy and data collection, sample collection and the methods used to increase the validity and reliability of this thesis.

According to Frankel, Naslund and Bolumole (2005), the choice of research methodology is made based on the research problems and objectives.

3.1. Research Design

According to Easterby-Smith, Thorpe and Lowe, (1991, p.21), research design is the “overall configuration of a piece of research”. In addition to that, Mile and Huberman (1994, p.16) states that research design provides the opportunity for “building, revising and choreographing the overall research study”. To put it in other words, it means a research design defines the study’s purpose (Frankel et al, 2005).

3.2. Research approach

According to Frankel et al (2005), research methodologies range from two extremes of objective, scientific research styles which is referred to as quantitative to the subjective, interpretative, and more constructive research styles which is referred to as qualitative. The author used the qualitative research style as the thesis is more exploratory in nature. According to Wiley (n.d), exploratory research is conducted to obtain greater understanding of a concept or to help clarify ambiguous problem. Furthermore, exploratory research method may include literature search, experience survey, focus group and analysis of selected cases (MBA Knowledge Base, 2011).

3.3. Research strategy and Data collection

The primary focus of qualitative methods is to create meaning and explanations to research phenomena and the research strategy in data collection method is typically associated with but not limited to observation, interviews and questionnaires, diary methods, documents and texts, case studies, the researcher’s impressions and reactions to the observed phenomena (Frankel et al 2005). Since this research is more exploratory in nature, a pilot studies research strategy was adopted. A pilot studies are “surveys using a limited number of respondents and often employing less rigorous sampling techniques than are employed in a large quantitative studies” (Wiley n.d, p.44)

(18)

14

Data collection was based on primary data (interview) and secondary data such as annual reports of different third party logistics companies in Sweden, and website information.

3.4. Selecting the Sample and Interview Method

The author requested for interviews from twenty (20) third party logistics companies in Sweden. This twenty (20) third party logistics companies was chosen from the list of third party logistics providers in Sweden publish on intelligent logistic (2007) journal (see appendix A) and well known third party logistics provider in Sweden such as Aditro Logistics.

The author sent out a semi- structure interview questions to the twenty companies and none of the companies replied. The author sent an email reminded to all twenty companies and still no response. The author called several times and almost all of the twenty companies were not interested citing different reasons such as too busy with project in hand.

The author changes the approach and study the services advertised on the company’s website and called each of the company to confirm if they actually offer those services in Sweden. Out of the twenty (20) companies only four (4) responded to the enquiry questions. Subsequently, the author asked follow up questions based on the response of the interviewee. As a result of this, the questions for the interview where slightly different for each of the companies but enough data were collected that can help answer the research questions. All the four (4) companies where interviewed via telephone and two (2) of the interviewee wants to be anonymous.

List of companies’ interviewed

Aditro Logistics -: Mr. Tomas Axelsson (Sales Manager, Jönköping)

GreenCarrier Scandinavia AB -: Mr. Atle Mustorp (Sales Manager, Virtual warehouse) Kuehne + Nagel Sweden -: Anonymous

(19)

15

3.4. Data analysis

Yin (2003) states that in order to address the initial propositions of the study, researchers need to examine, tabulates tests, categorizes, or combines the evidence and this was referred to as data analysis study. Furthermore, Miles and Huberman (1994) categorise data analysis into three simultaneously different activities as follows:

• Data reduction: This involves the focusing, selecting, abstraction, simplified and transformation of data. The principal objective of data reduction is to arrange the data in a way that conclusions can be verified and drawn accordingly.

• Data display: In data display, the data is concentrated and organized so as to make it simpler for the basis of drawing a relevant conclusion.

• Conclusion drawing and verification: This includes the researcher comments and clarification of issues on the research. This is achieved by noting regulations, patterns, explanations, configurations, casual flow, and propositions.

These three activities were adopted by the author in the data analysis process. The author data analysis process was based on adopting relevant concepts that relate to the thesis and make comparison between the theories and empirical data obtained. In order to simplify things, the process of linking the theories to the empirical data and draw relevant conclusion was carried out by matching different theories and empirical data and then categorized them.

3.5. Validity and reliability

According to Mentzer and Flint (1997), validity in research is a hierarchy of procedures to ensure that what the researcher concludes from a research study can be stated with some confidence (that is, the conclusion is valid). In addition to this, Yin (1994) states that validity determines how and what to measure by the researcher in a research study. Furthermore, validity is composed of four components namely (Mentzer and Flint, 1997):

Statistical conclusion validity

: This measures the statistical relationship between two phenomena.

Internal validity:

This measures if the relationship is plausibly causal

Construct validity:

Given causal probability, it measures the exact constructs in the relationship. This is a complex concepts and it addresses concerns at the entire study level as well as the detailed measurement level. It addresses questions such as how can the author be certain the theoretical phenomena have been correctly defined and measured in the study?

(20)

16

External validity:

Given causal probability between these specific constructs, it measures how generalizable is it across persons, settings and times.

Moreover, according to Mentzer and Flint (1997), validity does not mean much without reliability and defined reliability as how consistently the measures yield the same results through multiple applications. Yin (1994) states that, validity and reliability are two measurement instruments measuring the level of trustworthiness and credibility of a research study.

In order to validate the thesis, the author made use of peer reviewed literatures from experts in the field of third party logistics and empirical data that was collected from third party logistics providers and information from their website was confirmed by them.

(21)

17

4.0

Empirical Studies

4.1. Aditro Logistics Sweden

4.1.1. Company Background

Aditro Logistics is a carrier- independent contract logistics Provider Company within the Aditro Group and it is owned by Nordic Capital which is a Nordic private equity investment. Aditro group has about 2000 employees and around 210 million Euro turnovers (Aditro Logistics About, 2011). Aditro Logistics is a provider of IT-driven outsourcing solutions, business process consulting and IT solutions for business process improvement. Its acclaimed core competence is third party logistics services and also in areas like improving business processes within financial management, human resource management and document management (Aditro Logistics About, 2011).

Furthermore, Aditro logistics provides logistics operations such as handling of logistics solutions for many companies and management for retail trade and industry and owned about 140,000 square meters of warehouse space (Aditro Logistics About, 2011).

According to Mr. Tomas Axelsson (sales manager, Jönköping), Aditro logistics is continuously expanding its operation and its goal is to become a leader in the Nordic logistics market.

In 2008, they bought another operational unit in Borås and added a second terminal of 45,000 square meters in Jönköping. With the inclusion of the new terminal, it has increased their total capacity in Jönköping to 85,000 square meters.

Furthermore, in an effort of achieving their strategic plan of dominating the Nordic marketplace, Aditro Logistics acquires Maersk logistics warehousing capacity in Borås although Maersk will continue to offer international transportation services from their facility in Borås under a different brand name known as Damco. The staff of Maersk, forklifts trucks, warehouse and some customers are part of the acquisition agreement; this has help to increase Aditro Logistics customer base here in Sweden and Denmark and also increase the Borås storage facilities to about 42,000 square meters (Aditro Logistics News, 2011).

Beside this expansion in Sweden, Aditro Logistics has also expanded their operations in Norway by the completion of their brand new terminal in June 2010. Moreover, as part of the plan of Aditro Logistics aggressive growth strategy in the Nordic marketplace, they have double their Norwegian warehousing

(22)

18

capacity by building new logistics terminal Kopstad, which is located about 75km south of Oslo. This new logistics terminal in Kopstad will replace the old warehouse in Stokke and two other external warehouses Aditro has rented from other suppliers (Aditro Logistics News, 2011).

Furthermore, according to Mr. Tomas Axelsson, the new terminal has a capacity of 28,000 loading pallets, and it is strategically located close to the motorway E18 which is the most important motorway in Norway in terms of its nearness to the harbour where they can receive goods for their customers from all over the world. In a statement, Mr.Rune Edvåg (Managing Director, Aditro logistics Norway) states that this new warehouse has increase their efficiency since their entire operation is now centralized and this will enable them to be more competitive (Aditro Logistics News, 2011).

All this new expansion in Aditro Logistics has yielded some good result. For example, Aurora Group has outsourced all its logistics activities to Aditro Logistics. Aurora Group is now centralising all its warehouse operations and distribution in Aditro Logistics Nordic central warehouse in Jönköping and closing all its existing warehouses in Denmark, Norway, and Finland (Aditro Logistics News, 2011). 4.1.2. Third party logistics services provided by Aditro Logistics

According to Mr. Tomas Axelsson, Aditro Logistics provides third party logistics services that cover the entire supply chain (from warehousing and distribution to fully integrated logistics solutions). Aditro third party logistics services are categorized into three (3) main focuses namely: 1.)

Retail

logistics

(for manufacturers and suppliers to the retail trade). 2.)

Consumer logistics

(for e-commerce and mail order). 3.)

Industrial logistics

(for industrial manufacturing and spare parts management) (Aditro Logistics services, 2011).

Retail Logistics

According to Mr. Tomas Axelsson, Aditro Logistics provides third party logistics services such as warehouse management that consist of freight management, inbound logistics, stock management, value added services (pick and pack, re-labelling, e.t.c) order fulfilment and distribution to manufacturers firm, sales companies, wholesalers Nordic distribution for specialised and retail trade.

(23)

19

Figure 4: Aditro Logistics Retail logistics services illustration. Source: Aditro Logistics Retail, 2011

Aditro Logistics provides specialised services such as handling of hazardous goods of different sizes ranging from individual packs to full container load and specific request for cleanliness and climate control. They operate several different distribution channels for cross-docking and collective shipping of several suppliers’ products (Aditro Logistics retail, 2011).

As a carrier-independent provider, Aditro Logistics production equipment is designed to meet their customer need for flexibility and scalability such as the ability to handle seasonal and campaign-generated variations in volume.

According to Mr. Tomas Axelsson, Aditro Logistics maintain a close and long term relationship with their customers and with the help of information technology, Aditro Logistics is integrated with their customer system which is referred to as shop computer systems. This system helps to provide customer control and traceability throughout the logistics flow.

Over the years, Aditro Logistics has developed customised services to meet the specific requirements within several subsidiary sectors. The customised services offered are: (Source: Aditro Logistics Retail, 2011)

• Consumer products, such as foodstuffs and other convenience goods, hygiene products, health foods, drinks and tobacco, ready-made clothing and accessories

• Media products, e.g. books, CDs and DVDs

• Capital goods and IT products

(24)

20

Some of the Value-adding services provided include quality control, management of return flows, repackaging, re-labelling, price marking, sales promotion and display material on behalf of sales teams and marketing departments.

Figure 4 above illustrate the Aditro Logistics retail logistics services.

Consumer Logistics

Aditro Logistics also offers third party logistics services to internet-based retailers. The service ranges from order capture via online interface to payment and returns handling.

Figure 5: Aditro Logistics Consumer Logistics illustration. Source: Aditro Logistics Consumer, 2011

Aditro Logistics has formed a strategic alliance with their internet-based retailer customer to provide the fastest to a large consumer market by delivering services in accordance with their client’s promise to the consumer (Figure 5 illustrate Aditro Logistics consumer logistics). With the help of their integrated e-commerce solution, Aditro Logistics offers an integral platform for services such as order capture (online shop & customer service), order management, distribution and handling of payments. some of the value added services under their consumer logistics includes handling of packaging and campaign material, handling of complaints and return flows, invoice printing and customised solutions such as volume distribution for e-retailers and distance sellers, distribution of printed material, distribution of marketing material and profiled products (Aditro Logistics Consumer, 2011).

(25)

21

Industrial Logistics

Aditro Logistics apart from providing flows to trade and end customer services, also offer just-in-time deliveries components and pre-assembled parts to production lines, aftermarket solutions for handling of spare parts and accessories for manufacturers and suppliers of both industrial and consumer products (Aditro Logistics Industrial, 2011). (See Figure 6 below for illustration)

Figure 6: Aditro Logistics Industrial Logistics illustration. Source: Aditro Logistics Industrial, 2011

Aditro Logistics has its own IT expertise at local and central units to develop, operate and monitor both systems and logistics flows. (Aditro website Industrial, 2011)

According to Mr. Tomas Axelsson, Aditro Logistics also provide global transportation by forming a strategic partnership with leading transportation companies in the Nordic region and the three (3) groups of Aditro Logistics third party logistics services discuss above are offered as integrated services. Moreover, according to Mr. Tomas Axelsson, Aditro Logistics has a close and long term relationship with their customers and the contract agreements with their customers are mostly more than one (1) year period

(26)

22

4.2.0. GreenCarrier Scandinavia AB

4.2.1. Company Background

GreenCarrier was founded in Gothenburg, Sweden, in 1994. Their first office outside Sweden was opened in Oslo, Norway, in 2001. Between 2006 and 2011, GreenCarrier has expanded into Finland, Denmark, Estonia, Latvia, Lithuania, Ukraine, UK and China and today they have about 350 employees working in 27 offices in 10 countries (GreenCarrier About us, 2011).

In Sweden, GreenCarrier has 150 employees working in 10 offices in Göteborg (Sweden and international headquarter), Helsingborg, Jönköping, Karlstad, Luleå, Norrköping, Skellefteå, Stockholm, Sundsvall and Trelleborg. Their main market focus is the Nordic region, Baltic region and china (GreenCarrier About us, 2011).

Greencarrier acquired the UK logistics company PTS UK, which focuses on road traffic to and from Scandinavia. It also offers a variety of added-value services including facilities for sorting, order picking, re-marking, shrink wrapping and labelling of goods (GreenCarrier News Archive, 2011). 4.2.2. Third party logistics services provided GreenCarrier Scandinavia AB

GreenCarrier Scandinavian AB offers the basic third party logistics services such as warehouse management, and all forms of transportation. Their industry focuses are the textile, beverages, industrial and retail (GreenCarrier About us, 2011).

According to Mr. Atle Mustorp (Sales Manager, Virtual warehouse), GreenCarrier offer all forms of transportation worldwide and they only owned the road transportation vehicle that covers the traffic between Sweden and the UK with the acquisition of a UK transport company known as PTS. Moreover, GreenCarrier has a strategic partnership with different transportation in order to provide different form of transportation in accordance to their customer demands and requirement.

Mr. Atle Mustorp also pointed out that although GreenCarrier offer all forms of transportation, warehouse management is their core competence and their warehouse management solution is called virtual warehouse management

They defined virtual warehouse as a warehouse and transport agent-neutral warehouse solution that lets company store goods for which import duty and VAT is suspended in a private or public warehouse of their choice (GreenCarrier Solutions, 2011).

(27)

23

So with the virtual warehouse management solution, clients of GreenCarrier do not have to declare goods before it has been counted for, pay duty and VAT on goods before sale, pay duty and VAT on re-exported goods and finally GreenCarrier clients do not have to pay VAT for goods sold to other EU countries.

No physical changes in terms of location of the goods or separate handling of goods for which import duty and VAT is suspended are necessary. Under this virtual warehouse management solution, GreenCarrier handles all customs and permit documents and declarations in line with Swedish customs directives (GreenCarrier Solutions, 2011).

GreenCarrier divides the virtual warehouse management solution into two versions:

Virtual warehouse EDI module:

This is integrated with into their client’s business systems, thereby streamlining the entire customs process.

Virtual warehouse web module:

In this module, data are entered and accessed using the web interface.

According to Mr. Atle Mustorp, customers has the option to choose which of the module best fits their business strategy but GreenCarrier has linked its virtual warehouse EDI module to most of their customer business systems in Sweden and either of the solutions will enhance clients liquidity and quick return on investment.

GreenCarrier has a close and long term relationship with their customer. They chose virtual warehouse management as their core competence or expertise in order to create a niche market and be competitive in the growing third party logistics market. Their main customers are the outdoor clothing manufacturing and the textile industry; some of the reason for using GreenCarrier virtual warehouse management is to enhance their liquidity since most of them sells seasonal goods and have to place a base order early in the season.

(28)

24

4.3.0. Kuehne + Nagel

4.3.1 Company background

Kuehne + Nagel was founded in 1890 in Bremen, Germany by August Kuehne and Friedrich Nagel. Kuehne + Nagel is a global logistics provider company and have over 60,000 employees in more than 900 offices in over 100 countries (Kuehne + Nagel About us, 2011).

Kuehne + Nagel offer several logistics services ranging from air freight, sea freight, road and rail transportation, contract logistics (third party logistics) and lead logistics (Kuehne + Nagel About us, 2011).

Kuehne + Nagel offer several third party logistics that covers the entire supply chain to different industries such as the automotive, aerospace, beverage and food, High tech, oil and gas, and health sector etc (Kuehne + Nagel About us, 2011).

4.3.2. Third party logistics services provided

Kuehne + Nagel logistics in Sweden offers third party logistics services that include transportation, warehousing, freight consolidation and distribution, product marking, labelling, and packaging, inventory management, traffic management and fleet operations, freight payments and auditing, cross docking, product returns, order management, packaging, carrier selection, rate negotiation, and logistics information systems (Kuehne + Nagel Contract logistics, 2011).

They categorised their third party logistics services in different group in accordance to the requirement of the industry they are serving. The main group of services they offer are: 1.) Inbound logistics, 2.) In-house logistics, 3.) Outbound logistics, and 4.) After sales logistics.

1.) Inbound logistics

services cover all the required activities to transfer goods from a sourcing location to a warehouse, value-added storage facility or production plant (Kuehne + Nagel Inbound logistics, 2011).

The inbound logistics services include (Kuehne + Nagel Inbound logistics, 2011):

Supplier management: They manage the supplier inbound shipment activities on behalf of their clients. Supplier management services may be combined with other inbound logistics services to provide vendor-managed inventory services.

Order management: They order management involves order-release management services to customers who require inbound shipment of goods to be controlled based on actual consumption of products or

(29)

25

production schedules. The order-release management services include call-off services, demand management and replenishment services and other similar services in which timed shipments of goods are required.

Vendor-managed inventory system: Kuehne + Nagel work with their clients and client’s suppliers to automate forecast management process using web-based software. This automated forecast management systems helps to provide visibility by comparing actual demand against inventory held in storage and in transit. Furthermore, the Vendor managed inventory system also alerts the clients and their suppliers once the inventory falls below pre-determined levels. it also provide advanced shipping notices (ASN) which gives detail information on in-transit inventory from suppliers that will allow confident commitment to orders based on this inbound flow.

Transportation and transport management: Kuehne + Nagel’s inbound transport management services include the arrangement of shipping, air or land-based transport to move their clients’ goods from remote destinations to local warehouses or operating facilities. Kuehne + Nagel’s inbound transport services include most forwarding and “in-country” freight movements.

Customs clearance: Kuehne + Nagel provide their clients with all required services such as customs document preparation and delivery, management of the actual clearance process and import document preparation to move their goods across international borders.

Warehousing: Kuehne + Nagel offer two types of warehousing solution namely: 1.) Multi-client warehouse solution (client share warehouse space and equipments with other clients) and 2.) Dedicated warehouse solution (the warehouse is designed to tailor with the clients unique needs with facilities and equipments).

Kuehne + Nagel production system (KNPS): Focus on waste elimination in all aspects of the service delivery process, worker empowerment, management through visual controls and dedication to total quality control.

Collective services: This service deals with returnable Transit Packaging (RTP) that enables the efficient processing of collection and return of goods for refurbishment. Each RTP is tracked from supplier to retailer, from retailer to Kuehne + Nagel, and back to the supplier. All data is analysed through a Web-based control system to identify slow-moving units or units in short supply. All operations can include automation and recycled packaging.

(30)

26

Customer service management: This includes all on-site help desk services, customer care centre operations, and field service support activities.

2.) In-house Logistics

Kuehne + Nagel provide sequencing and Just-in-Time (JIT) solutions that allow manufacturers to synchronise with suppliers in support of production line demand. This process can also be used for retailers, restaurants, and convenience stores, ensuring fast-moving items are replenished as required (Kuehne + Nagel In-house logistics, 2011).

Furthermore, they also provide value-added services in their multi-client and dedicated warehouse that include unloading, buffering, repacking, labelling/ticketing, testing, sequencing and re-sequencing, kitting (kitting services involves integrating various parts into a kit or package for further processing or shipment), sub-assembly, expediting, line feeding, empty load unit handling (Kuehne + Nagel Production logistics, 2011).

3.) Outbound Logistics

Kuehne + Nagel outbound logistics services includes some of the earlier discussed services of the inbound logistics such as Vendor management inventory, warehousing, transportation and transportation management, Kuehne + Nagel production system (KNPS), customs clearance and customer service management.

Other outbound logistics services include (Kuehne + Nagel Outbound logistics, 2011):

Order Kitting: Order kitting services include simple placement of multiple parts in a container, simple assembly of items, packaging of items, etc. along with the administrative functions that go with these types of activities.

Proof of delivery (PoD) management services: Kuehne + Nagel provide PoD to their customers to ensure that products are delivered to the correct destinations. Proof of delivery management services include the collection of signatures at time of delivery, reporting of delivery, scanning of delivery documents, managing carrier delivery performance, etc.

(31)

27

4.) After sales Logistics

Kuehne + Nagel offer the following after-sales logistics services (Kuehne + Nagel After sales logistics, 2011):

Order Management: Under the order management service of the after sales logistics, services include the handling of customer requests, the investigation of customer requests, the authorisation of a return (those services that authorise a customer to return an item for specified reasons), the issuing of a return authorisation number and the tracking of the returned material.

Warehouse / Pick up/Drop off (PUDO) / Depot Management: services include stock management, local pick up and drop off, and depots that handle forward-deployed customer inventory.

Screening / Repair / Refurbishment: The screening services analyse the status of returned products to determine the next processing step (scrap or repair, for instance). Kuehne + Nagel can provide refurbishment and repair services as well as the management of repair vendors where the work is to be carried out by external parties.

Transportation Management: Kuehne + Nagel offers all transportation services required to replenish national warehouses, depots, PUDOs and rendezvous points.

Customer Service Management: covers all on-site support desk and customer response activities.

According to the anonymous source at Kuehne + Nagel Sweden, Kuehne + Nagel Sweden have a close and long term relationship with their customer. In an effort to have high integration with the customers, Kuehne + Nagel Sweden made some investment in their key client firms by way of buying firms shares. This strategy investment will help create high integration and commitment between both parties and most of the contract period is more than one (1) year.

(32)

28

4.4.0. Volvo Logistics Sweden

4.4.1. Company background

Volvo Logistics is a part of the Volvo Group and has about 1000 employees around the world. Volvo Group was founded in 1927 and Volvo has grown to become one of the world’s leading manufacturers of heavy commercial vehicles and diesel engines. (Volvo Logistics About us, 2007)

Volvo Logistics serve the global automotive industry with a range of specially developed logistics services across the entire supply chain. (Volvo Logistics Solutions, 2007)

4.4.2. Third party logistics services provided

Apart from providing all form of transportation and warehousing, Volvo Logistics is focused on three core areas namely 1.) Emballage, 2.) Inbound, and 3.) Outbound (Volvo Logistics Solutions, 2007).

1.) Emballage: The Emballage services consist of packaging development and packaging management (Volvo Logistics Emballage, 2007).

Volvo Logistics packaging development include packaging design of special packaging flow, concept development, test and verification of prototypes, production drawings, purchasing of packages, quality control, packaging instructions and administration.

Volvo Logistics packaging management is made up of three types of services namely: Standard packing (this is a simple and standardised packaging owned and managed by Volvo Logistics), special packaging system (this is customer-tailored packaging that is owned by the customer but managed by Volvo Logistics) and packaging add-on services (includes cleaning and maintenance, sorting, marking, bundling and return of empty packaging.

2.) Inbound: The inbound service consists of inbound transportation, logistics centres, and customs services.

Inbound transportation: According to anonymous source from Volvo logistics, Volvo Logistics are asset-free and this allow them to freely choose the transport modes that can best suit their customer needs in terms of quality, cost and lead time.

The inbound transportation is divided into structural transport, premium network, and inbound add-on services (Volvo Logistics Inbound transport, 2007):

(33)

29

Structured transport: This include full trailer load (FTL) and less than truck load (LTL) of products flows directly from supplier to the manufacturing site serving many supplier and for pickup of products on demand respectively.

Premium network: This includes transports outside the ordinary schedule such as express delivery of certain components, temporary flows to catch up production peaks etc.

Inbound add-on services: include temporary warehousing, trailer yard management, transport follow-up, budget evaluation etc.

Logistics centres: Volvo Logistics has set-up a number of regional and national logistics centres in Europe, Asia and USA specially designed for suppliers and manufacturers within the automotive industry. This helps to facilitates demands fulfilment on shorter lead times and increased punctuality without the need for making any additional investments (Volvo Logistics Centres, 2007).

Moreover, Volvo Logistics centres in Sweden are designed to meet the specific requirements for the individual supply chain. They handle the entire process from analysis of flows and locations to set-up, implementation and operation of the new logistics centre (Volvo Logistics Centres, 2007).

Customs services: Volvo Logistics provides their customers with customs services that include the daily handling of all or parts of customs issues such as customs clearance, declarations and drawback, updating and determining of origin for production material and spare parts, intrastate reporting and customs code classification, import duties and bonded warehouse (Volvo Logistics Customs, 2007).

3.) Outbound: The outbound logistics service of Volvo Logistics includes outbound distribution, Yard management and pre-delivery services, and special and secrecy deliveries (Volvo Logistics Outbound, 2007).

Outbound distribution: Volvo Logistics has a distribution management system known as A4D which is specially designed to support built-to-order vehicle production and provides full control and transparency of the distribution flow for all parties involved (Volvo Logistics Outbound distribution, 2007).

(34)

30

Volvo Logistics also work with their clients at the development stage to ensure the final product can be transported safely without incurring any extra cost or making any special arrangements (Volvo Logistics Outbound distribution, 2007).

Yard management and pre-delivery services: Volvo Logistics yard management service involves stock keeping of client’s vehicles and providing high security in accordance with the customer demands. Furthermore, Volvo Logistics pre-delivery services include a wide range of options customised to the specific needs of their customer. They services include pre-delivery inspection (washing, de-waxing, product inspections and repair), vehicle enhancement (fitting of customer-specific equipment and accessories), and Maintenance (regular maintenance to keep vehicle in good shape for delivery in the cases where they are stored for a longer time period) (Volvo Logistics yard management, 2007).

Special and Secrecy deliveries: Volvo Logistics special and secrecy deliveries involve the transportation of customer’s prototypes, test vehicles, exhibition material and other secrets. The service covers the entire process including customs and temporary license plates etc. Prototypes, test vehicles, vehicles for exhibitions and photography are transported in a specially developed security trailers and containers. They are equipped with coded safe locks and cannot be opened until the transport arrives at the receiver. The design allows a complete vehicle to be loaded, thus eliminating the need for retrofitting at arrival (Volvo Logistics special & secrecy deliveries, 2007).

According to the anonymous source from Volvo Logistics, Volvo Logistics works closely with their customers and have long term relationship with their customers ranging from one (1) year and up to ten (10) years.

(35)

31

Table 4 Summary of TPL services provided by the Four (4) TPL companies

Aditro Logistics GreenCarrier

Scandinavia AB Kuehne + Nagel Sweden Volvo Logistics Retail Logistics • Freight Management • inbound logistics • stock management

• pick and pack

• Re-labelling

• order fulfilment & distribution • Handling of hazardous goods • cross-docking • quality control • management of return flows • repackaging • price marking • sales promotion Consumer Logistics • order capture • order management • handling of payments • product return management • invoice printing • volume distribution • Transportation • sorting • order picking • re-marking • shrink wrapping • labelling/re-labelling • virtual warehouse EDI module • virtual warehouse web module Inbound logistics • supplier management • order management • vendor-managed inventory system • transportation & transport management • customs clearance • warehousing • KN production system • collective services • customer service management In-house Logistics • Multi-client warehouse • dedicated warehouse • unloading • buffering Emballage • packaging development • packaging management Inbound • inbound transportation • logistics centres • customs services Outbound • outbound distribution • yard management • pre-delivery services • special & secrecy deliveries

(36)

32 for e-retailers Industrial Logistics • deliveries of components/pre-assembled parts to production lines

• after sales services

• repacking

• labelling/ticketing

testing

• sequencing and

re-sequencing • kitting Outbound Logistics • Order kitting • proof of delivery management/servic es

After Sales Logistics

• order management

• pick up & drop off

• deport management

• screening/repair/ref

urbishment

(37)

33

5.0.

Analysis

As stated earlier, third party logistics has several definition but in summary, all these definitions of third party logistics is the use of external logistics service providers or companies to perform some or full integrated logistics activities. Based on this definition, it is safe to say that Aditro Logistics, GreenCarrier Scandinavia AB, Kuehne + Nagel Sverige, and Volvo Logistics are third party logistics providers because they all offer some of integrated logistics activities to their clients.

5.1. Classification of Third party logistics providers

Virum (1993) state that third party logistics providers may be grouped into three classes (formal co-operation venture, logistics joint venture, and joint ownership) based on the degree of integration and interdependency between the providers and the shippers.

Using this theory by Virum (1993), Aditro Logistics, GreenCarrier Scandinavia AB, and Volvo Logistics belong to class 2 known as logistics joint venture. This is because Aditro Logistics, GreenCarrier Scandinavia AB, and Volvo Logistics have a higher degree of integration and interdependency with their customer. The alliance between them and their customers include a large number of logistics services and both parties share a deep insight into the sharing of information such as business strategies, plans and operations and the contract period is normally in the range of one to four years.

Kuehne + Nagel is the only third party logistics provider among the four (4) companies interviewed that belong to class 2 & 3 (joint ownership). They have a higher degree of integration and interdependency with their clients. It is part of Kuehne + Nagel business strategic to purchase companies shares from most of their key customer; this will improve the commitment and loyalty between both parties. Kuehne + Nagel global size and their dominance in the third party logistics industries are some of the reason they belong class 3 known as joint ownership.

Furthermore, it is interesting to note that none of the companies belong to class 1 (formal co-operation) of Virum (1993) theory. This shows that the relationship between third party logistics providers and their customers has evolved from formal co-operation to more of strategic alliance or joint venture and both parties now work more closely together and are more committed in the process. it also prove that Laarhoven et al (2000) view that states a contractual agreement between third party logistics provider and their customers should contain some management, analytical or design activities and the length of the cooperation between both parties should be at least one year time period was correct.

(38)

34

Hertz and Alfredsson (2002) classification or differentiation of third party logistics provider framework is more advanced and complex. As stated earlier, Hertz and Alfredsson (2002), divided third party logistics providers into four quadrants namely: standard TPL provider, service developer, customer adapter and customer developer.

Figure 7: Classification of Swedish TPL providers according to abilities of general problem solving and customer adaptation. Adapted from Hertz and Alfredsson (2002)

Figure 8 is used to illustrate the classification of Swedish third party logistics providers. As can be seen from figure 8, Volvo Logistics belong to the standard third party provider. Currently, Volvo Logistics Sweden provide a standardized third party logistics services such as distribution (inbound and outbound), warehousing, and packaging (Emballage). Vehicle manufacturing is the core business of Volvo Group and Volvo Logistics is just a part business of Volvo Group and they only offer their third party logistics services to the automobile industry. According to the anonymous source from Volvo Logistics, they plan to expand their services offerings to other industries and also increase their third party logistics services offerings in the coming years and when their plans are implement, they might migrate to service developer as their services offering will be more of problem solving general ability.

Furthermore, Aditro Logistics and GreenCarrier Scandinavia AB belong to the service developer quadrant. They both provide advanced value-added services that involve differentiated services such as