Factors affecting the decision between direct and indirect physical flows in a 4PL environment

Abstract: When deciding upon the usage of direct deliveries as opposed to central inventories, efficiency and strategic effects need to be considered. Operations management literature on efficiency effects is not hard to find but literature describing what other factors can affect the decision is more scarce. Even less literature can be found on the theme of deciding between direct or indirect physical flows in a fourth party logistics environment. This presents the opportunity to fill the fourth party logistics research gap in literature by conducting a study that investigates the factors affecting the decision on what type of flow to use and how these factors can support in guiding the decision. A company facing the problem of deciding between sending goods directly or through a central distribution center is Bring SCM AB. They are a fourth party logistics provider based outside of Helsingborg, southern Sweden focusing on food logistics. They provide logistics solutions to their customers by managing parts of, or their entire supply chains. This is done without them having their own physical assets such as trucks or warehouses. The study has been conducted with a balanced approach; combining deductive and inductive approaches to research. It is a single case study where the methods of gathering data consist of four structured interviews, three semi-structured interviews and a survey; all conducted at different levels of the case company Bring SCM AB. A comprehensive literature review was conducted, going through peer reviewed research from scholarly and research journals to gather knowledge on concepts of supply chain design and how it can be derived through segmentation. The need to use hybrid supply chains where agile and lean thinking is combined and adapted to every situation was identified. Adaption should be based on supply chain factor segmentation considering product factors, market factors, sourcing factors and the geographic and commercial environment. This resulted in a theoretic framework with factors affecting the decision between direct and indirect flows, lean and agile flows, and a holistic cost model to verify the choice. The theoretic framework with its factors were further investigated in a fourth party logistics environment by researching Bring’s supply chain needs and driving forces. Data and information gathering together with analysis resulted in that some factors could be excluded due to them not being relevant in the fourth party logistics environment and a final set of factors deemed relevant for the decision between direct and indirect flows in said environment could be identified. To further increase the applicability of the results, a decision model was created to support operational personnel in deciding between direct and indirect flows. The model highlights the importance of considering a higher number of factors when making the decision than what is considered today. It does not present a definite answer to what type of flow to use, but an indication that must be verified through a cost calculation. A holistic cost framework for calculating costs of the two types of flows in a fourth party logistics environment was included. The study’s results are somewhat specific to Bring SCM AB, however the author have made an effort to make them as generalizable as possible for fourth party logistics environments. Further research is needed to validate the generalizability and to statistically support the model.