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ThirdPartyLogistics:AnAnalysisoftheFeasibilityandContextsofStrategicRelationshipsByMadhuRanjanB.Tech.MechanicalEngineeringRegionalEngineeringCollege,Kurukshetra,India,1994RichardTonuiB.S.InternationalBusinessAdministrationUnitedStatesInternationalUniversity-Africa,Nairobi,Kenya,1997M.S.ComputerInformationSystemsGeorgiaStateUniversity,Atlanta,Georgia,U.S.A,2003SubmittedtotheEngineeringSystemsDivisionInPartialFulfillmentoftheRequirementsfortheDegreeofMASTEROFENGINEERINGINLOGISTICSAttheMASSACHUSETTSINSTITUTEOFTECHNOLOGYJune2004©MadhuRanjanandRichardTonui.Allrightsreserved.TheauthorsherebygranttoMITpermissiontoreproduceandtodistributepubliclypaperandelectroniccopiesofthisthesisdocumentinwholeorinpart.SignatureofAuthors.......................................-................................7wEi'ineesjgSystemsDivisionMay12,2004Certifiedby.............................................................ChristopherCapliceExecutiveDirector-MasterofEngineeringinL9jisticsProgram1.rWsisSupervisorAcceptedby.................·.A6Lj/~YossiSheffiProfessor,EngineeringSystemsDivisionPrnficznrCivilnnclFPnvirnnmantnlFnoinarinonlT}nrtmPntiV-Director,MITCenterforTransportationandLogisticsDirector,MITCenterforTransportationandLogisticsLIBRARIESMASSACHUSETTSINSTITUTEOFTECHNOLOGYJUL272004ARCHIVESAcknowledgementsIwouldliketoacknowledgethegeneroussupportandencouragementIhavereceivedfromthemanyfriends,colleaguesandmentorswhohavemadethisworkpossible.Iamgratefultoourthesisadvisor,Dr.ChristopherCaplice,forhisadvice,motivationandsupportthroughouttheprogram.Myclassmateshavealsobeenasteadysourceofknowledge,wisdom,energyandpleasantry.IwouldespeciallyliketothankMadhuRanjan,mythesispartnerandasourceofvaluabledebateandfeedback,andRobertSweeneyofYantrawhoprovidedimportantinputontheresearchtopic.IamalsogratefultomysiblingsHenry,PatrickandPeter-aconstantsourceofsupportandencouragement-andtoBernardNgeny,PaulKihiuandtheirparentsandsiblingsfortheircontinuedsupportandfriendshipovermanyyears.MyfianceeWairimuWanjauhassupportedmethroughtherecenttwistsandturnsandIamindebtedtoheraswell.TheroadtothisdegreehasbeenlongandIwouldalsoliketorecognizeandacknowledgethosewhoinearlyandrecentdaysplayedimportantrolesinpreparingmeforandhelpingmetogainthisexceptionallearningopportunity.Mr.Odhiambo,Mrs.OnyuraandotherteachersatKerichoPrimarySchoolacceptednothinglessthanmybest,gavemeaworld-classbeginning,andsetmeonthelongroadtoaneducation.IamalsoverygratefultoRobKocerhaandDianeClarkwhosementorship,supportandencouragementhelpedmakethisdreampossible.Lastlyandmostimportantly,Ioweaneternaldebtofgratitudetomyparentswhoencouragedandenabledmetoalwaysreachhigher.Youarethewindbeneathmywings.Richard2AcknowledgmentsIwouldliketothankouradvisorDr.ChristopherCapliceforhisguidanceandencouragementwhichkeptusontherightpathduringthelongjourneyofourresearch.IwouldalsoliketoextendmysincerethankstoMr.RobertSweeneyofYantra,whoprovideduswithinsightfulideasduringourdiscussionsontheresearchwork.IspeciallyenjoyedandlearnedagreatdealinlongdiscussionswithRichardTonui,whoismyco-authorinthisthesis.FinallyIwouldliketothankDr.S.C.SharmaforhissupportandaffectionthroughoutmystayatMIT.IamalsoindebtedtoHarpreetSinghforhisencouragementandmoralsupportextendedtomeallalong.IdedicatemyworktomyparentsShakuntlaSharmaandHarishChanderSharma.MadhuRanjan3ThirdPartyLogistics:AnAnalysisoftheFeasibilityandContextsofStrategicRelationshipsByMadhuRanjan&RichardTonuiSubmittedtotheEngineeringSystemsDivisiononMay7,2004inpartialfulfillmentoftherequirementsforthedegreeofMasterofEngineeringinLogisticsABSTRACTAnimportanttopicintheThirdPartyLogistics(3PL)industryistheextenttowhichcustomersview3PLservicesaspure-commoditiestobere-bid.Thetrendtowardscommoditizationhasbeenoneofthecausesforcurrentpricingpressuresonthe3PLs.The3PLsgearingtowardsstrategicpartnershipsandtheadditionofValue-AddedServicestotheirportfoliocoulddeceleratethetrendtowardscommoditizationandcouldalsootherwisedifferentiatethemfromtheircompetitors.Thisstudyinvestigatesthecategoriesofrelationshipsthat3PLshaveandspecificallythepresenceofstrategicrelationshipsinthe3PLindustry.Thestudyalsoexaminesthecontextsinwhichtheyexistandhighlightsthefactorsthathavecontributedtotheformationofthestrategicrelationships.Thestudyconcludesbyproposingstepsthat3PLscantaketobetterpositionthemselvesascandidatesforstrategicrelationships.ThesisSupervisor:ChristopherCapliceTitle:ExecutiveDirector,MasterofEngineeringinLogisticsProgram,MIT4TableofContentsTableofContents................................................................................5ListofFigures.....................................................................................................................6ListofTables......................................................................................................................71.Introduction.................................................................................................................81.1.TheThirdPartyLogistics(3PL)Industry....................................