Analysis of the Risk Management Third-Party Logistics Provider - Research Proposal Example

ANALYSIS OF THE RISK MANAGEMENT 3PL (THIRD-PARTY LOGISTICS PROVIDER) By Insert Presented to Institution Name, Location Date Due Contents PROBLEM STATEMENT 3 Situating 3 Grounding 3 Solving 4 LITERATURE REVIEW 6 Definition of risk 6 3PL risks 7 Cause factors of 3PL risks 7 3PL risk management 9 Conceptual framework 10 RESEARCH METHODOLOGY 10 EXPECTED CONTRIBUTION AND LIMITATIONS 10 PROBLEM STATEMENT Situating With the increased global expansion and operations in the market place focus is laid how to streamline the supply chain management in businesses (Bolumole 2001). It is notable that most companies tend to outsource their logistic operations to third parties. This comes along as companies intensify their efforts to achieve operational efficiencies in their supply chains. Robert J. Trent, L. R. (2010) in their studies shows that 3PL is the process in which companies outsource transport and logistic services and activities to outside companies who are not consigners or consignees (Trent 2010). 3PL risks are the uncontrolled uncertainties which result into sub-contract risks. These risks need to be managed therefore good risk management ensures that appropriate decisions are made in order to avoid potential loss in regard to these subcontracts (Waters 2011). Grounding The IDC (2005) report on European Union logistics markets shows that this market over the last years has grown by 3.3% annually ( United Nations. Economic and Social Commission for Asia and the Pacific 2005). The study provides that in the year 2005 the logistics market subcontracting was 53.9 billion US dollars. By the year 2007 the global logistics subcontracting services market had increased to 276.5 billion US dollars. From this study it is notable that due to the rapid increase most companies are seeking logistics services from 3PL service providers. 3PL has been emphasized in most countries to promote economic equality. With this trend ground 3PL risk has become common aspect and has significantly increased in the past years (Trent 2010). Diagnosing According to Bolumole (2001) 3PL adoption has not been proven to if it allows businesses to concentrate on other core business activities (Bolumole2001). Many scholars have failed to determine whether third party logistics are able to manage the supply chain functions effectively than the companies themselves. In addition if it allows businesses to concentrate on other core business activities (Gattorna 2008). Hubbard (2009) research shows that the current corporate world is characterized with the formation of various specialized management theories and the win-win relationship substituting competitive relationship along the supply chain management (Waters 2011). According to Pietro Evangelista, A. M. (2011) Risks associated with the subcontracting comes into place more emphasis are put in analysing the extent of such risks and ways to prevent them (Hubbard2009). The research gap of this research proposal is to determine the kind of risks related to third-party logistic sub-contracting and ways of controlling and preventing them. The following are the research questions of the proposal. Solving Research Objectives The research objectives of this paper mainly include. 1) To understand risks, 3PL risks in general as well as 3PL risk management 2) To identify various risks that is associated to 3PL service providers. 3) To have a general overview of 3PL development in the corporate world. 4) To identify effective and efficient methods and approaches of managing 3PL risks. Research Questions 1) What are risk and the management of third-party logistic risk? 2) What are the various underlying risks associated with third-party logistic? 3) What are the importances of managing third-party logistic risks? 4) What are the root causes and the various risks existing in third-party logistic? 5) What are the efficient and effective methods of risk management? References Bolumole, Y, 2001, The Supply Chain Role of Third-Party Logistics Providers, International Journal of Logistics Management, Vol. 12 No. 2, pp. 87-102. United Nations. Economic and Social Commission for Asia and the Pacific. (2005). Commercial Development Of Regional Ports As Logistics Centres. London: United Nations Publications. Gattorna, J. (2008). Strategic Supply Chain Alignment: Best Practice in Supply Chain Management. Chicago: Gower Publishing, Ltd. Hubbard, D. W., 2009,The Failure of Risk Management: Why it’s broken and how to fix it, New York: John Wiley and Sons. Pietro Evangelista, A. M. (2011). Supply Chain Innovation for Competing in Highly Dynamic Markets: Challenges and Solutions. New York: Idea Group Inc (IGI). Robert J. Trent, L. R. (2010). Managing Global Supply and Risk: Best Practices, Concepts, and Strategies. Boston: J. Ross Publishing. Waters, D. (2011). Supply Chain Risk Management: Vulnerability and Resilience in Logistics. London: Kogan Page Publishers. LITERATURE REVIEW Definition of risk It s notable that there is no standard definition of risk hence define by various scholars in different perspectives. According to Virine and Trumper (2007) they provide that risk is the indeterminacy of loss asserting to be indeterminacy of a future loss brought by uncertainty. Subjective theory under this provides that it is indeterminacy of occurrences of something, time and situation. On the other hand is the objective theory which is based on statistics and mathematics where risks are measured by objective items. Kendrick (2003) defined risk as possible outcome of something providing that it is a possible outcome which varies under specific suppositions. Lambert et al. (2008) adopting a systematic study of risks concludes that risk is just but a reflection of uncertainty of non occurring incident. Selviaridis (2007) in his study taking into consideration the various perspectives shows that risk are uncertainties facing economic factors affecting economic activities that cannot be analyzed accurately. He further asserts that it characterizes various unforeseen factors which depends the uncertainty size as well as the income function. Summary In general risk has its originality from indeterminacy which is likely to cause loss. It is also uncertainty influenced by purposeful behavior and the future possibility attributed to various factors resulting into future loss. In the context of this research proposal risks in 3PL and its causal factors are analyzed in detail. 3PL risks Champy and Hammer (2005) provides that risks exist in every activity because of the dynamism in supply chain management there exist 3PL risks. For the sub-contracting process 3PL providers have no control beyond uncertainty resulting into sub-contract risk. Most of the third party logistics providers and subcontractors do not meet their set expectations which bring the possibility of a loss. This study provides that 3PL risks are objective which implies the risk existence and do not depend on the will of the persons or awareness because in some situations risk must occur. Fowler (2004) provides the categories of risks in third party logistics and in the study he puts forward the following categories. Political risks, collaborative risks, capacity risks and financial risks. His study further asserts that there exists a nature of symmetry between profits and 3PL risks where 3PL risks are always on equal footing with its underlying benefits. For 3PL logistic providers to meet certain expectations they must accommodate the corresponding risks. Summary 3PL risks are very much changeable and dynamic and because of the different circumstances these risks are expected to change. Therefore as 3PL service providers engage in different environments these risks changes in the various outlined above categories. The benefits of the in any 3PL subcontract is directly proportional to the price of certain degree of risk. Cause factors of 3PL risks In the study of Browersox et al. (2004) it is notable that activities involving 3PL, how they are conducted the whole process of outsourcing have significant managerial implications. The study identifies the following factors being the possible causes of 3PL risks. Ineffective management Ineffective management of the logistics outsourced services causes 3PL risks. 3PL service providers are likely to perform shanty operations compared to the client company attributed to ineffective management capability (Browersox 2004). Most of 3PL service providers are not sensitive and do not understand clients organization therefore non scrutinized subcontracting might be risk and cost more. Lack of cost control The major focus of 3PL logistics is to save costs but according to the studies of Larsen, et. al. (2007) there is potential risks attributed to poor control of costs. This situation is majorly caused by inappropriate incentive in the contract which prompts 3PL service providers perform poor quality work equivalent to fewer costs (Larsen 2007). Poor clarity Future 3PL risks are caused by the poor clarity of the underlying responsibilities and obligations. Future conflicts can be prevented by clear and clarified agreement in the contracts (Dhaene 2006). Loss of control External 3PL providers approach in outsourcing logistics process can cause loss of control. Potential risks occur due to over dependency and inadequate involvement and client companies might lose important information for managerial purposes (Dhaene 2006). Lack of trust Trust is essential in fostering cooperation between the two parties and lack of it risks failure of the whole process (Larsen 2007). Therefore trust is important as it influence behavior of the contracting parties. Lack of trust undermines cooperation, causes delivery delays leading to failure of the whole cooperation. 3PL risk management Third party logistics risk management involves management of third-party logistics providers’ internal operational risks to prevent disposal risks. Control risks need to be identified and be addressed as soon as possible to ensure that businesses are not exposed to risks. According to McIvor, R. (2005) studies shows that management of 3PL providers and organization client is important. These include identification of potential loss and accidents, analysis and measurements using rational and economic approach to achieve maximum security and safety (McIvor 2005). The common scientific management approach in risk management involves: identification of risk, risk prediction, decision making and risk management measures and the implementation of the impact assement of means and choice. Summary Most of the risk management approaches are based on carefully selecting and developtment of appropriate pre-qualification procedures to 3PL service providers (Grant 2006). This regards effectiveness, efficiency and the capability to perform their duties in accordance to the contractual agreements. Conceptual framework Loss by indeterminancy impacted by various factors constitutes risks and that risk sharing and contract management are effective approaches of risk management. 3PL risks in practical operation are objective and that the risk management procedures include risk awareness, risk testing, risk assement and control and the evaluation oof managerial impact (Rushton 2000).The theoretical framework of this research is based on the above literature review. RESEARCH METHODOLOGY Research methodology provides procedures and guidelines on how the theory of research and philosophy is going to be carried out (Fowler 2004. The basis of the research and the impacts of the adopted methodology are also outlined. The application of an efficient research methodology is important in the collection of information, figures and date in regard to 3PL as the research entails the analyzing third party logistics risk sub-contracting (McIvor 2005). Surveys and relevant interviews are conducted in the collection of data for the research. In addition library research and other relevant secondary sources are used for the purpose of collecting useful and correct information (Fowler 2004). EXPECTED CONTRIBUTION AND LIMITATIONS Development and third party popularization most enterprises opt for third party regarding logistics solutions. They subcontract their self-operated business logistics to third party logistic service providers. This research contributes greatly in the identification, prevention and control of 3PL risks (Knight 2009). It analyses the different stages in the subcontracting operations and the potential risks that exist. It further provides strategies and approaches on how companies and enterprises can be able to manage such risk from the perspective of environment, personnel, sub-contracting business schemes and information. In the end of the research the following limitations are identified. Risks in other sections of the supply chain have not been identified (Knight 2009). Focus is laid much on the logistic subcontracting in the supply chain leaving other sections such as management, manufacturing and purchasing. Therefore the research lacks a comprehensive analysis of supply chain risks as a whole. REFERENCE Browersox, D. J. & Close, D. J, 2004, Logistical management: the inter-grated supply chain process, New York: The McGraw-Hill Companies. Christopher, M, 2004, Logistics and supply chain management: strategies for reducing costs and improving services, London: Pitman publishing. Christopher, M. & Peck, H, 2003, Marketing logistics, Boston: Butter-worth-Heinemann. Dhaene, J., Vanduffel, S., Goovaerts, M. J., Kaas, R., Tang, Q. & Vyneke, D, 2006, Risk measures and comonotomicity: a review, New York: Taylor & Francis. Fowler, F. J, 2004, Survey research methods. New York: SAGE. Grant, D.B., Lambert, D.M., Stock, J.R. & Ellram, L.M., 2006, Fundamentals of logistics management, New York: McGraw-Hill. Hammer, M. & Champy, J, 2005,A Manifesto for Business Revolution, New York: Harper Business. Kendrick, T, 2003, Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project. Chicago: American Management Association. Knight, F.H, 2009, Risk, Uncertainty and Profit, Boston: Mifflin Company. Lambert, D.M., Stock, J.R. & Ellram, L.M, 2008, Supply chain management: processes, partnerships, performance. New York: Supply Chain Management Inst. McIvor, R, 2005, The Outsourcing Process: Strategies for Evaluation and Management, New York: Cambridge University Press. Rushton, A., Oxley, J. & Croucher, P, 2000, The handbook of logistics and distribution management, London: Kogan Page. Selviaridis, K. & Spring, M, 2007, Third party logistics: a literature re-view and research agenda, The International Journal of Logistics Management, vol.18 (1), 125-150. Skjott-Larsen, T., Philip B. Schary & Mikkola, J. H, 2007, Managing the global supply chain, Copenhagen: Copenhagen Business School Press. Virine, L. & Trumper, M, 2007, Project Decisions: The Art and Science, management concept, Boston: Wiley and Sons. Read More