Supply Chain Operations

lecture number

semester

1034

WS 2014/15

Case 4:
DCH Logistics

Date: 12/28/20145

Handed in by:
Miriam ENZI

(0931375)

Sabine ROTH

(0825402)

Carolin CZAJA

(1451139)

Christoph RUHNKE

(1451094)

Johannes RDER

(0966097)

Ivan BOZOV

(0853290)

Handed in for:
Dipl.-Vw.Dr. Hans-Joachim Schramm

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Case 4: DCH

Logistics

Enzi | Roth | Czaja | Ruhnke | Rder |Bozov

Contents
1. What are the differences between the services provided by 3PL and 4PL service providers?
Which are other more traditional organizations helping companies to master the problems in
global supply chain management ? Please explain their specific role therein! .......................... 3
2. What are the advantages of having a bonded warehouse, and how can it help doing
international business? ............................................................................................................... 4
3. What benefits can La Cafetire get from DCH Logistics? ..................................................... 5
4. What should DCH Logistics do to further develop its business? ........................................... 6

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1. What are the differences between the services provided by 3PL and 4PL service
providers? Which are other more traditional organizations helping companies to master
the problems in global supply chain management? Please explain their specific role
therein!
(Lieb, 1993) Defines third-party logistics (3PL) as the use of external companies to perform
logistics functions which have traditionally been performed within an organization. The
functions performed by the third-party firm can encompass the logistics process or selective
activities within that process". Nevertheless, (Skjoett-Larsen, 2000) argues that there are no
clear definitions of 3PL. Fourth-party logistics (4PL) in contrast combines advantages of both
outsourcing and insourcing by building the single interface between its client and supply
chain members and by combining the management of all aspects of the clients supply chain
(Gattorna, 1998). This includes for example carriers, storage operators, subcontractors,
packaging companies (Fulconis, 2006) and others. The concept of 4PL was introduced by
Andersen Consulting (Accenture) and covers entire supply chain solutions linking resources,
capabilities and technology for the client (Stefansson, 2006).
(Langley, 2005) Draws a main difference of 3PL and 4PL by their general relationship
structure. For 4PL the structure is rather strategic, thus, based on broad supply chain expertise
and continuous improvement whereas for 3PL it is tactical, thus focused on operations.
Further differences can be classified in asset basis, the accountability, the role, business
impact and performance or success management (Win, 2008). While 3PL are rather asset
based, 4PL are non-asset based except for their information systems. 3PL can only partly be
held responsible whereas 4PL act as an internal entity and are therefore entirely responsible
for the operations. A sole focus on logistics is put on 3PL but 4PL encompass further
activities such as supply and demand chain integration. The time and place utilities are
influenced by both 3PL and 4PL, however, 4PL also influences the form and possession
utilities. In conclusion, 3PL are mainly focused on delivering at the lowest cost possible while
4PL thrive value creation within the entire organization of their clients.
Moreover, 4PL have a high focus on information technology as they can help to integrate and
run a suitable software (Fulconis, 2006).

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2. What are the advantages of having a bonded warehouse, and how can it help doing
international business?
Bonded warehouses are present across the whole world and nowadays play a vital part in
global supply chains. Oftentimes being situated near the (sea-)ports, they are either provided
by governmental agencies or run by private enterprises. Bonded warehouses are buildings or
otherwise secured areas in which the importer stores, manipulates, (re-)packs or undergoes
manufacturing operations while being exempted from the payment of import taxes and duties.
However, the activities performed on the goods stored must not amount to manufacturing
activities in order to be still exempted from paying import charges. The warehouse
proprietor/importer enters into an agreement with customs authorities under which the
warehouse proprietor is liable for the safe storing of goods under a bond, hence the name
bonded warehouse. The importers liability is cancelled when the goods are exported,
destroyed under customs supervision or withdrawn for domestic consumption after payment
of duty.
Generally, there are two main advantages of storing goods in a bonded warehouse:
Substantial savings by deferring payment of taxes and duties
No duty payment need be paid on imported goods which are re-exported
As customs duties at import only need to be paid when the goods are actually imported into
free circulation (Jeff, Xiande, & Lam, 2011) the deferred payment can be of great advantage
for global companies. The postponement of payment is the prominent advantage of bonded
warehouses as import charges such as customs duties and import tax will only be levied on
removal of goods, thus interest rate gains are achieved through the delay of import charges.
This has a positive effect on the companies cash flows and leaves them with more current
cash on hand. While payment of duty is deferred, the title deeds, or warrants, are transferable
by endorsement.
Another major advantage of bonded warehouses is that the concept facilitates re-export of
goods without much financial expenditure. Goods that are imported, stored and then reexported are not charged with customs duties and import charges. Hence, if the final
destination of the goods is not yet certain, bonded warehouses offer a means to achieve great
flexibility in global supply chains. This is especially true since goods can be stored at bonded
warehouses for an unlimited period of time, giving companies the flexibility to store them
there until the final destination is known without having to pay customs charges twice.
Furthermore, as bonded warehouses allow for smaller activities such as repacking, labelling,
barcoding, printing etc. companies can profit from that in order to make the goods fit for their
respective markets and postpone the last customization of their products. Additionally, cargo
consolidation can be done as a value-added service at bonded warehouses and thus lowering
the costs of multiple sourcing.

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Case 4: DCH

Logistics

Enzi | Roth | Czaja | Ruhnke | Rder |Bozov

3. What benefits can La Cafetire get from DCH Logistics?

DCH Logistics is a third-party logistics service provider that designs and provides valueadded supply chain and logistics solutions to international clients. There are several
possibilities for La Cafetiere, a UK-based company specialized in coffee and tea making
products, to benefit from a potential strategic cooperation with DCH Logistics.
La Cafetiere doesnt manufacture its products in plants owned by the company, but uses the
services of OEM manufacturers in China, India, and Africa instead. However, the main part
of the production process takes place in various Chinese cities such as Yangjiang, Zhongshan
and Zhuhai. The finished products have then to be individually transported to the Yantian Port
in Shenzhen for custom clearance before they can be shipped to the UK.
Instead of transporting
the products to the port
individually they could
be transferred to the
Xinhui logistics center
that is operated by
DCH Logistics. The
3PL service provider
offers bonded cargo
consolidation as one of its main value-added services. Therefore, the manufacturers do not
have to carry the finished goods all the way to the port in Shenzhen. The cargo consolidation
could considerably reduce the costs of moving smaller volumes of goods by moving them
together. As a result, La Cafetiere would enjoy lower total shipment costs. From the Xinhui
distribution center the products can be transported either to the Yantian Port again or to the
second in throughput volume port (Tianma Port), since the DCH logistics center in Xinhui is
strategically located right next to it.
Furthermore, DCH Logistics manages import and export bounded warehouses and offers the
complete range of services needed for processing all import and export formalities, which
enables the logistics company to provide customs clearance. This represents another benefit
for La Cafetiere, due to the fact that the service offered by DCH reduces the complexity of the
customs clearance procedure.
The location of the Xinhui logistics center has advantages not only when international
transportation is concerned. It provides excellent connection to the national logistics network
and could be used to dispatch products from Xinhui to other centers in China for regional
distribution. Thus, La Cafetiere would significantly improve the rate of on-time deliveries in
China, which would reduce the number of customer complaints.
The quality control of the manufactured goods takes place in the UK. In the event that a
product is defective it has to be returned back to China, which results in additional transport
costs and customs clearance procedures. Moreover, the low number of employees in the
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companys distribution center in Chester and the high number of tasks they are responsible for
lead to late deliveries and decreasing customer satisfaction. La Cafetiere could outsource
some of the activities that take place in UK to DCH Logistics. The logistics company has
already successfully provided some of its customers with quality control services. DCH also
lists the product packaging as one of its core competencies and performs additional tasks such
as barcoding, printing, and labeling. The outsourcing of these tasks would not only reduce the
complexity in La Cafetieres distribution center, but also decrease the expenses due to the
lower labor costs in China.
Currently minimum quantities are produced in order to minimize the shipping costs. The
operations senior vice president of La Cafetiere is aware that mass production and bulk
shipment from the manufacturers in China would reduce the average costs per unit. However,
the distribution center in UK does not have the capacity to store large quantities. In order to
solve this problem La Cafetiere could again use the services of DCH Logistics. The logistics
center in Xinhui is capable of storing a higher amount of products. Moreover, the company
can benefit from the excellent IT system that DCH provides. La Cafetiere would be able to
manage its inventory and enquire about storage and shipment information via Internet at any
time. Additionally, it would take advantage of the considerably lower warehouse costs
compared to Europe, which would lead to substantial savings for the company.
In conclusion, the partnership between La Cafetiere and DCH Logistics would help the UKbased company to reduce the complexity of its supply chain and decrease the total costs.
Furthermore, the lead times would be greatly improved because of the DCH Logistics broad
access to global and domestic distribution networks. Last but not least, these positive changes
would result in increased customer satisfaction.

4. What should DCH Logistics do to further develop its business?

DCH Logistics is a well-established Hong Kong based third-party logistics service provider.
DCH provides services to clients in several business sectors. The companys core activities
are warehousing and transportation/distribution, further they provide some additional
supporting services. The company is one of its best in its field; nevertheless some new
implementation or expansion ideas will be discussed quickly.
To begin with, the company could expand its core business activities, as now they focus on
warehousing and distribution/transportation, and offering other services just as some
beneficial additional service. DCH could invest in bonded cargo consolidation know-how, or
packaging technology as those are described as key value-added services. On the other hand,
the company could expand its offered range of additional services. For example La Cafetiere
had several problems regarding the quality control. DCH could, for example, offer quality
control services to avoid unnecessary shipping forth and back, which would reduce the
clients lead times and costs considerably, as at La Cafetieres situation they had to ship their
products between Asia and Europe, which could be avoided by having a thorough quality
control already in Asia. Moreover, the idea of the one Logistics Centre could be spread and
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implemented at other locations at different ports. The technology and system from this one
can be applied to other, probably new, sites, to distribute the focus on export/import activities
to several locations, spread risk and process more orders.
Furthermore, another approach would be to lead the company towards a fourth party logistics
service provider. Even though the company may not have many incentives to do so, as they
are one of the best in their field at the moment, thinking in a long term, they would be welladvised to do so, or at least find some solution in between a 3PL and 4PL. Now, DCH mainly
helps clients entering into the local market as they know the environment, regulations etc.
But, being integrated in the supply chain as a strategic partner would be mutually beneficial
for sure. As already discussed earlier the main difference between a 3PL and a 4PL is its
general relationship structure. DCH already developed strong partnerships to big well-known
companies, as Heineken or 7-Eleven. Moreover, they maintain a good relationship to the
parent company which enables them to have access to a global distribution network.
Considering this, DCH is already on a good way to build up strategic partnerships. In the
future, they should enhance those relationships but also develop new long term partnerships
with some other companies and make the most out of the relationship to the parent company.
DCH already works with high tech IT solutions and different programs.
However, it should be mentioned at this point that investing in new technology as warehouse
management, integrated solutions, optimizing current ones, etc. should be enforced. As
mentioned at the beginning of the paper, 3PL are usually asset based whereas 4PL are not. In
our case, moving towards a 4PL does not mean that they should give up all their current assets
and consequently also give up their main business activities, but invest in new ones
(especially information systems) and combine those with each other. Hence, they are not
advised to fully give up the core business activities, as warehousing and transportation, but to
expand it with some new knowledge.
To conclude, DCH should focus on strategic partners, information technology, advising,
integrating into the clients supply chain but also execute/operate logistics activities up to a
certain point.

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References
Fulconis, F. L. (2006). Exploring new competences in the logistics industry: the
intermediation role of 4PL. Supply Chain Forum: An International Journal. Vol. 7.
No. 2, pp. 68-77. KEDGE Business School.
Gattorna, J. (1998). Strategic supply chain alignment: best practice in supply chain
management. Gower Publishing, Ltd.
Jeff, Y., Xiande, Z., & Lam, K. (2011). DCH Logistics - Planning for La Cafetire.
Operations Management Education Review.
Langley, C. J. (2005). 2005 Third Party Logistics, Results and findings of the 10th annual
study.
Lieb, R. C. (1993). Third party logistics services: a comparison of experienced American and
European manufacturers. International Journal of Physical Distribution & Logistics
Management(23.6), pp. 35-44.
Skjoett-Larsen, T. (2000). Third party logisticsfrom an interorganizational point of view.
International Journal of Physical Distribution & Logistics Management(30.2), pp.
112-127.
Stefansson, G. (2006). Collaborative logistics management and the role of third-party service
providers.

International

Journal

of

Physical

Distribution

&

Logistics

Management(36.2), pp. 76-92.

Win, A. (2008). The value a 4PL provider can. International Journal of Physical(Vol. 38 No.
9), pp. 674-684.

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