Logistics is an important component of food industry and third party logistics (3PL) has become a common practice in food industry because there are many advantages associated with the use of third party logistics providers in food industry like the services of third party logistics benefited the companies through economies of scale (merits from large truck fleets, warehouses, etc. ) and economies of scope, which encourage firms to increase net value by reducing costs.
The dissertation is focused on analyzing the method of outsourcing third party logistics in food industry, the related problems and the competitive advantages that 3PL can provide the food industry. Moreover the dissertation highlights the significance of outsourcing third party logistics for the food industry, specifically in reference with the UK food industry. The objective of the dissertation is to study the major problems that have been faced by the people related to the food industry in employing 3PL provider for the logistics of their products.
In this regard the dissertation looks at the criteria and method that should be adopted by the manufactures or producers to select the 3PL provider. There are some specific qualities and attributes that should necessarily be present in a 3PL provider like meeting the expectations and requirement of the company by providing them efficient transportation, suitable warehouse arrangements, fright management and other logistics services for which the company has hired the services of 3PL.
In terms the company must be benefited in form of cost reduction and getting time to focus on product development or business acquisition or anything other than distribution and logistics. The 3Pl provider synchronizes the operations of the company allowing it to meet customer demand efficiently and at a lower cost. Moreover the 3Pl also offer the freight management services that controls the transportation costs of the public and private carrier services and assists the companies in keeping their Freight transportation costs at lower level.
There are some other logistics services also offered by the 3Pl providers and it depend upon the decisions of the company that which services they will outsource like fleet evaluation service, warehouse management and transportation etc. The dissertation presents the information about the capabilities of the 3PL and also informs that how a firm can achieve competitive advantages by choosing a right 3PL for their products.
In order to achieve all these objectives of the dissertation, a case study of UK food industry is presented that covers different aspects of UK food industry including its history, emerging trend and current scenario of outsourcing 3PL providers in the industry. The case study is conducted by focusing on two companies operating in the UK food industry; these are Sunny Delight Beverages Co and J Sainsbury Plc. The objectives set by these organizations for selecting 3PL and the services they expect and get from the 3PL providers they contracted, is discussed to get an idea of the real practice of outsourcing 3PL in UK food industry.
Moreover with the help of information gathered from different research reports, articles, journals and other material the study strives to find out the main problems surrounding the issue including the advantages and disadvantages of 3PL and the most effective and recommendable method of selecting 3pl provider. And then attempts to present solution to these problems by identifying a proper method of outsourcing 3PL provider in the industry. In short the study aim to study the following issues through the review of the related literature • Advantages of 3PL.
• Disadvantages and Limitations of outsourcing logistics • Effective Method of selection 3PL • Problem in outsourcing 3PL Chapter 1 Introduction 1. 1 Background The food industry is considered as one of the most demanding sector for logistics and United Kingdom has appeared as an outstanding food logistics industry for its leading edge performance across the world (IGD Fact sheets, 2007). The food industry is an important part of UK economy. A large proportion of consumer expenditures spend on food and a large number of workforces is also employed at the food industry.
According to the UK Food Industry Report, in 2005, consumer spending on food and drink was nearly ? 153. 8bn that was 20% of total UK consumer expenditure. Moreover this expenditure is increasing year on year across all sectors. Consumers appear to spend most on fruit and vegetables and meat and meat products (Anon, Statistical Framework Division, 2006). In other countries the consumer expenditure are bit lower as compared with UK for example in Finland there is 15% of household expenditures are spend on food, In France this ratio is 18.
7 % and In Hong Kong also 15% of the household expenditure went on food (Peter Gardner, 2006).. The UK food industry is developing steadily and there are different sectors of the industry that are developing along with the time and contributing towards high profitability of the industry. The efficient functioning of the food industry is much dependent on effective logistics function however the food industry often faced problems in developing an effective system of logistics for the products.
In this situation the concept of third party logistics was welcomed by the industry people because 3PL providers offer them lot of competitive advantages in term of economy of scope and economy of scale and save time and money for them because 3PL have specialized warehouse and transportation arrangement specifically for the logistics purpose and they perform logistics operation for the companies according to the contract and the company has to pay relatively low cost to the 3PL as compared with the cost they have to spend on setting up special transport, warehouse arrangement and other logistics activities.
The competitive advantages of 3pl are to getting the opportunity to focus of the core competencies, freeing up resources and taking benefits of the knowledge and experience of the 3PL provider, many of that are operating at international levels. The 3Pl provider synchronizes the operations of the company allowing it to meet customer demand efficiently and at a lower cost. Moreover the 3Pl also offer the freight management services that controls the transportation costs of the public and private carrier services and assists the companies in keeping their Freight transportation costs at lower level.
There are some other logistics services also offered by the 3Pl providers and it depend upon the decisions of the company that which services they will outsource like fleet evaluation service, warehouse management and transportation etc. This system is also not free from problems and setbacks and the related firms also faced some problems in outsourcing the third party logistics provider for their products. The dissertation is aimed at identifying the core problems associated with outsourcing third party logistics provider in food industry.
In addition to this, the dissertation is also committed to suggest an effective process that can be successfully used for outsourcing third party logistics provider in food industry will be developed. In this way the dissertation provides solution to the problems raised in the industry regarding outsourcing third party logistics provider. The dissertation is based on developing a case study that informs about all the aspects of the UK food industry and present a detailed review of the situation related to the outsourcing of third party logistics provider in the industry.
the case study is also focused on identifying the problems faced by the firms and it also presents solution to these problems with the help of a selection process that can be adopted to choose a right third party logistics provider for the logistics of food products. 1. 2 Research Objectives The main purpose of the study is to analyze the method of outsourcing third party logistics in food industry and to identify an effective method of outsourcing 3PL provider in the industry. Hence the main objectives of the study are:
• To understand the background and emerging logistics trends of the UK food industry • To develop a case study based on outsourcing of 3PL provider in two food companies (Sunny Delight and Sainsbury) • To study the significance of outsourcing third party logistics provider for the food industry • To find the solutions of the identified problem by developing an effective methodology for outsourcing 3PL in food industry 1. 3 Significance of Study The study is focused on the analysis of outsourcing 3PL provider in food industry.
The food industry is an important component of the society and the study of the issues related to this industry always possess significance because there are lots of people who are associated with this industry and a large portion of the public spending also went on food. In this situation it is very necessary to develop awareness about different problems prevailing in the industry and to find out the solution to these problems. This study is aimed at supporting the food industry by identifying the challenges faced by the related firms and sorting out the ways through which these challenges could be overcome.
The study is significant for the people associated with the food industry specially those who remain at the manufacturing side of the food products and look towards effective service for the logistics of their products. In this study they can find out that how they can utilize the services of 3PL providers and what benefits they can enjoy by outsourcing 3PL providers for their products. They can also recognize the reasons behind the rise of the problems in outsourcing the 3PL and also get the solution to their problems.
At the same time the study is significant for the people related with the business of logistics as they can have idea about the perfect functioning of logistics services from this report and they can well inform their selves about the expectation of the firms regarding their services. The 3PL firms can also align their strategies according to the demands and expectations of the related firm because the dissertation also explains that what are the expectations of a company from a 3PL and the 3PL can have better understanding of their required services and thus they can perform well to meet the requirements of the hiring companies.
The study is also useful for those individuals and organizations that are planning to start their working in food or logistics industry because they can clearly understand the connection between effective logistics and food industry and in this way they can design their strategies keeping in view the selection process of 3PL presented in the study. 1. 4 Research Methodology 1. 4. 1 Research Questions The research is aimed at analyze the issues surrounding the third party logistics provider outsourcing in food industry.
In this regard it is very crucial to highlight the significance if third party logistics provider for food industry and to identify the method of selecting a 3PL provider. Moreover there are some important issues that are to be discussed in this study like the risks in the logistics outsourcing and the role of information system in managing the functions and outsourcing of a 3PL provider. Hence the research questions are as follow: • What kind of methodology the organization can use to select the third-party logistics provider?
• Why a manufacturing organization should consider using a third-party logistics provider? • What kind of services does the organization offering from third party logistics provider? • What is the role of Information technology in assisting the companies to manage the outsourcing of the logistics function? 1. 4. 2 Research Type The study is a qualitative research that is aimed to unfold various issues related to outsourcing 3PL in food industry. The study is going to be conducted through developing a “Case Study” of the UK food industry with regard to logistics outsourcing.
Case study is defined as “an empirical study that aims at investigating any contemporary phenomenon in its real life style context” (Yin, 1984, p. 23). For conducting the case study two companies operating in the UK food industry were chosen, Sunny Delight Beverages and J. Sainsbury Plc. 1. 4. 3. Significance of Case Studies Case study is proved to be a significant research study tool and it is often used by the researchers in a situation where it is required to analyze any contemporary real life situation.
Robert Yin (1994) pointed out that case study is an effective and significant way through which better understanding could be developed about a complex issue or object. In this way the case study conducted for this research is basically directed by the objective of exploring the problem issues related to outsourcing 3PL provider in food industry and then with the help of information gathered in case study, the dissertation tends to develop a conceptual model of selecting 3PL that could be presented as a solution to the problems rising in the industry.
Hence all these objectives could be achieved through a case study, as Yin (1984) described that a case study could be used to perform the following functions in a research study. These functions or objectives of case study identified by Yin are: • “To explain complex causal links in real-life interventions • To describe the real-life context in which the intervention has occurred • To describe the intervention itself • To explore those situations in which the intervention being evaluated has no clear set of outcomes.
” (Yin,1994) While conducting a case study an important issue is to select that weather the case study is going to be single case study or a multiple case study. In this situation the food industry is going to be studied and there are two companies selected for studying the practice of 3PL outsourcing, hence the dissertation is based on a “multiple case study” because there are two companies studied that are Sunny Delight Beverages and J.
Sainsbury Plc. It was decided to present a case study to attain the objectives of the dissertation because the case study is the most relevant and significant method of research for this case as compared with any other research methodology like poll, interviews, secondary analysis of data etc, because the case studies allows to have better understanding of a function or activities being performed by an organization.