International Journal of
ISSN 0960-0035
Physical Distribution & Logistics Management
Volume 32 Number 8 2002
Strategic alliances and partnerships in logistics Guest Editor Clifford F. Lynch Paper format The International Journal of Physical Distribution & Logistics Management includes ten issues in traditional paper format. The contents of this issue are detailed below.
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Access to International Journal of Physical Distribution & Logistics Management online ________ 623 Editorial advisory board ___________________________ 624 Abstracts and keywords ___________________________ 625 French abstracts___________________________________ 627 Spanish abstracts __________________________________ 629 Japanese abstracts_________________________________ 631 Acknowledgements ________________________________ 634 Guest editorial ____________________________________ 635 Understanding buyer information acquisition for the purchase of logistics services Carol C. Bienstock_______________________________________________
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Internal relationship marketing: a key to enhanced supply chain relationships Scott B. Keller __________________________________________________
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Shipper-carrier partnership issues, rankings and satisfaction Brian J. Gibson, Stephen M. Rutner and Scott B. Keller ________________
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CONTENTS
CONTENTS continued
Effective logistics outsourcing in New Zealand: an inductive empirical investigation Jay Sankaran, David Mun and Zane Charman________________________
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The electronic supply chain: its impact on the current and future structure of strategic alliances, partnerships and logistics leadership Lisa R. Williams, Terry L. Esper and John Ozment ____________________
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International Journal of Physical Distribution & Logistics Management online
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EDITORIAL ADVISORY BOARD Dr Prabir Bagchi Professor of Logistics & Management, George Washington University, USA Dr Ronald H. Ballou Professor of Operations, Case Western Reserve University, USA Rick D. Blasgen Vice President Supply Chain, Nabisco Inc., USA Dr Joseph L. Cavinato Senior Vice President, National Association of Purchasing Management, USA Dr Garland Chow Associate Professor of Logistics, University of British Columbia, Canada Dr Martin Christopher Professor of Marketing and Logistics, Cranfield School of Management, UK Dr David J. Closs Professor of Marketing and Logistics, Michigan State University, USA Dr Jacques Colin Institut Universitaire Technologie, France Dr Rajiv P. Dant Associate Professor of Marketing, Boston University, USA Dr Patricia Daugherty Siegfried Professor of Marketing, Division of Marketing, University of Oklahoma, USA David A. Durtsche TranzAct Technologies, Inc., USA Dr Margaret A. Emmelhainz Associate Professor of Marketing, University of Georgia, USA Graham A. Ewer Chief Executive, Institute of Logistics, UK Patrick Forsyth Oklahoma State University-Tulsa, USA Frances Fowler Miami University, Ohio, USA Thomas L. Freese Principal, Freese & Associates, Inc., USA Dr Jerry Goolsby Associate Professor of Marketing, University of South Florida, USA Dr Bernard J. Hale Logistics Consultant, USA Dr Anthony F. Han Professor of Transportation Management, National Chiao Tung University, Taiwan, Republic of China Dr Alan Harrison Professor of Operations and Logistics, Cranfield School of Management, UK Dr James L. Heskett UPS Foundation Professor of Business Logistics, Harvard University, USA Herbert Hodus Consultant, IFM Logistics, USA Dr Daniel E. Innis Associate Dean, Ohio University, USA Dr Zahir Irani Senior Lecturer of Information Systems, Brunel University, UK Olof Johansson University of Umea, Sweden Dr Andrew Kerr Managing Director, Griffin Corporate Services, NSW, Australia Dr Bernard J. La Londe Professor Emeritus, Ohio State University, USA Dr Douglas M. Lambert Raymond E. Mason Professor of Transportation & Logistics, Ohio State University, USA
Dr Richard A. Lancioni Professor of Marketing & Logistics, Temple University, USA Dr C. John Langley Jr Professor of Supply Chain Management, Georgia Institute of Technology, USA Dr Michael Levy Charles Clarke Reynolds Professor of Marketing, Babson College, USA Dr Arvinder P.S. Loomba Associate Professor of Organization and Management, San Jose State University, USA Clifford F. Lynch President, C.F. Lynch & Associates, USA John McCormick University of New South Wales, Australia Professor Alan McKinnon Logistics Research Centre, Heriot-Watt University, Edinburgh, UK Norman E. Marr Division of Marketing, University of Huddersfield, UK Dr G.C. Meeuse Rotterdam, The Netherlands Dr John Thomas Mentzer The Bruce Excellence Chair of Business Policy, University of Tennessee, USA Dr Alan Mercer Professor of Operations Research, Lancaster University, UK Dr Paul Murphy Professor of Marketing and Logistics, John Carroll University, USA Dr Bruce Murtagh Professor of Management, Graduate School of Management, Macquarie University, Australia Dr Pieter Nagel Partner, Burns Bridge Nagel Pty Ltd, Australia Dr R. Mohan Pisharodi Associate Professor of Marketing, Oakland University, USA Cees J. Ruijgrok Professor Logistics Section, INRO-TNO, The Netherlands Dr Jay Sankaran Senior Lecturer, University of Auckland, New Zealand Dr Philip B. Schary Professor Emeritus, Oregon State University, USA Dr Arun Sharma Associate Professor of Marketing, University of Miami, USA Dr Tage Skjott-Larsen Professor, Institute for Logistics and Transport, Copenhagen Business School, Denmark Alan Slater Director, Added Value Logistics Consulting Limited, Manchester, UK Amrik Sohal Director, Monash University, Australia Dr Mark Speece Nanyang Technological University, Singapore Dr Thomas W. Speh Professor of Marketing and Logistics, Miami University, USA Dr Jay U. Sterling Associate Professor of Marketing and Logistics, University of Alabama, USA Dr Diana Twede Associate Professor, Michigan State University, USA Hans van der Hoop Logistics International, Rotterdam, The Netherlands Dr Hugo T.Y. Yoshizaki Assistant Professor of Production Engineering, University of Sa˜o Paulo, Brazil Dr Paul H. Zinszer Associate Professor of Marketing, Syracuse University, USA
Understanding buyer information acquisition for the purchase of logistics services Carol C. Bienstock Keywords Logistics, Information, Supply chain management, Industry, Services During the last several decades, logistics has increasingly emerged as a source of sustainable competitive advantage. This article incorporates recent work in services ma rketing on customer i nforma tion acquisition, with research on industrial buying behavior to help logistics service providers understand and manage their customers’ information acquisition and purchase activities for logistics services. Internal relationship marketing: a key to enhanced supply chain relationships Scott B. Keller Keywords Relationship marketing, Supply chain, Organizational development Competitive market pressures within today’s contemporary business environments have encouraged the partnership of many supply chain members. Of particular interest is the development of successful relationships between firms in an effort to gain product and service quality and efficiency that would otherwise go left unclaimed. This research specifically identifies the need for supply chain members to foster healthier relationships within the firm in order to realize more fully success and obtain the benefits associated with external partnerships. The concept of internal relationship marketing is employed and a model is proposed to aid companies in identifying the variables associated with marketing to the internal customer. The motor carrier industry provides an appropriate service setting for the analysis, and implications for retaining the very best customer-conscious frontline employees are outlined. Shipper-carrier partnership issues, rankings and satisfaction Brian J. Gibson, Stephen M. Rutner and Scott B. Keller Keywords Shipping, Transport partnering, Alliances, Success Over the past decade, there have been a number of studies that examined either
shipper or carrier selection and evaluation factors. However, there has been little comparison between how these two groups perceive these factors with regard to their partners. This study examines the similarities and differences with the rankings of factors between shipper and carrier groups. Furthermore, the results highlight the various levels of satisfaction between the two groups.
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Effective logistics outsourcing in New Zealand: an inductive empirical investigation Jay Sankaran, David Mun and Zane Charman Keywords Contracts, Logistics, Outsourcing, Effectiveness, Quality, New Zealand Reports an inductive, qualitative investigation into third party logistics contracts in New Zealand. The objective of the study was to uncover managerial insights into effective logistics outsourcing that are appropriate to the New Zealand context. A salient feature of the research is the methodology that involved going back-and-forth between data gathering (the principal source of data was flexible interviews) and analysis, which was conducted through formal coding techniques. Analysis reveals that the third party provider’s refraining from premature monetary commitments is an instrumental variable in the effectiveness of third party logistics contracts in New Zealand. Also uncovers how the uniqueness of the NZ context shapes third party logistics in NZ.
The electronic supply chain: its impact on the current and future structure of strategic alliances, partnerships and logistics leadership Lisa R. Williams, Terry L. Esper and John Ozment Keywords Logistics, Internet, Alliances, Supply chain management, Partnering, Leadership The advent of the Internet and electronic communications has enabled companies to be
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more responsive to their customers. However, the same technological advancements are changing the marketplace and providing an impetus for changes in strategic alliance and partnership structures. Successful leaders of the future will have to understand how to operate in the new marketplace and within the evolving organizational structures where alliances and partnerships are changing. The purpose of this article is to shed light on the
current and future organizational structures in the logistics industry. Toward that end, traditional supply chain management (SCM), electronic supply chain management (eSCM), and the resulting impact on strategic alliances a n d part ne rs hi ps wil l be ex pl or ed . Additionally, considering the inherent ability of the eSC to be dynamic and adaptable, the new type of leader that is likely to be most successful in this new structure is discussed.
French abstracts Comprendre l’acquisition d’informations des acheteurs pour l’achat de services de logistique Carol C. Bienstock Mots-cle´s Logistique, Informations, Gestion de la chaıˆne d’approvisionnement, Industrie, Services Au cours des quelques dernie`res de´cennies, la logistique s’est de plus en plus manifeste´e en tant que source permettant d’obtenir un avantage compe´titif durable. L’article que voici incorpore les travaux entrepris re´cemment, dans le domaine de la mercatique des services, sur l’acquisition d’informations des acheteurs, et les recherches faites sur le comportement d’achat industriel, afin de permettre aux prestataires de services logistiques de mieux comprendre et ge´rer les activite´s d’acquisition d’informations et les activite´s d’achat de leurs clients pour les services logistiques.
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Mercatique des relations internationales: une solution permettant d’ame´liorer les relations dans la chaıˆne d’approvisionnement Scott B. Keller Mots-cle´s Mercatique des rapports, Chaıˆne d’approvisionnement, De´veloppement organisationnel Les contraintes que pre´sente la compe´titivite´ sur le marche´, qui sont ressenties dans les environnements commerciaux d’aujourd’hui, ont encourage´ le partenariat entre de nombreux membres au sein de la chaıˆne d’approvisionnement. Ce qui est particulie`rement inte´ressant, c’est le de´veloppement de rapports fructueux entre les entreprises afin d’obtenir la qualite´ des produits et services et l’efficacite´ qui resteraient autrement non revendique´es. La recherche que voici identifie plus particulie`rement le besoin que ressentent les membres de la chaıˆne d’approvisionnement d’encourager des relations plus saines dans l’entreprise, afin d’obtenir un succe`s plus complet et les avantages associe´s aux partenariats externes. L’auteur se sert de la notion de mercatique des relations internationales et propose un mode`le permettant aux socie´te´s d’identifier les variables associe´es a` la mercatique pour le client interne. L’industrie des transporteurs automobiles sert d’exemple dans le secteur des services et il est approprie´ pour l’analyse; l’auteur de´crit aussi les implications pour le maintien des meilleurs employe´s de front possibles, qui sont conscients des besoins des clients. Questions de partenariat entre expe´diteurs et transporteurs, classements et satisfaction Brian J. Gibson, Stephen M. Rutner et Scott B. Keller Mots-cle´s Expe´dition, Partenariat de transport, Alliances, Succe`s La dernie`re de´cennie a produit toute une se´rie d’e´tudes sur les facteurs de se´lection et d’e´valuation des expe´diteurs ou des transporteurs. Elles ont cependant offert peu de comparaisons entre les diffe´rentes manie`res dont ces deux groupes perc¸oivent ces facteurs, en ce qui concerne leurs partenaires. L’e´tude que voici examine les ressemblances et diffe´rences que l’on rencontre, dans le classement des facteurs, entre le groupe des expe´diteurs et celui des transporteurs. De plus, les re´sultats mettent en e´vidence les divers niveaux de satisfaction entre les deux groupes. Externalisation efficace de la logistique en Nouvelle-Ze´lande: une analyse empirique inductive Jay Sankaran, David Mun et Zane Charman Mots-cle´s Contrats, Logistique, Externalisation, Efficacite´, Qualite´, Nouvelle-Ze´lande L’article rend compte d’une analyse qualitative inductive sur des contrats logistiques avec des tiers en Nouvelle-Ze´lande. L’objectif de l’e´tude consistait a` mettre a` jour les aperc¸us de la
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direction concernant l’externalisation efficace des services de logistique, qui sont approprie´s au contexte ne´o-ze´landais. Une caracte´ristique frappante de la recherche est sa me´thodologie; celleci impliquait la transition continue entre la collecte des donne´es (la source principale des donne´es e´tait repre´sente´e par des interviews flexibles) et l’analyse des donne´es, qui se fit au moyen de techniques de codage formelles. L’analyse re´ve`le que l’abstention, de la part des prestataires tiers, d’engager leurs fonds de manie`re pre´mature´e repre´sente une variable instrumentale dans l’efficacite´ des contrats logistiques avec des tiers en Nouvelle-Ze´lande. L’analyse indique e´galement comment le caracte`re unique du contexte ne´o-ze´landais fac¸onne la logistique avec des tiers en Nouvelle-Ze´lande. La chaıˆne d’approvisionnement e´lectronique: son impact sur la structure actuelle et future des alliances et associations strate´giques et de la fonction de direction en logistique Lisa R. Williams, Terry L. Esper et John Ozment Mots-cle´s Logistique, Internet, Alliances, Gestion de la chaıˆne d’approvisionnement, Partenariat, Fonction de direction L’ave`nement de l’Internet et des communications e´lectroniques a permis aux entreprises de mieux re´pondre a` leurs clients. Cependant, ces meˆmes e´volutions techniques apportent des changements sur le marche´ et entraıˆnent des modifications a` la structure des alliances et associations strate´giques. Pour pouvoir re´ussir, les directeurs de demain devront eˆtre capables d’exploiter leur entreprise sur le nouveau marche´ et dans le cadre des structures organisationnelles en e´volution, dans lesquelles les alliances et associations changent constamment. Le but de l’article que voici est d’e´claircir les structures organisationnelles d’aujourd’hui et de demain dans l’industrie de la logistique. A cette fin, nous explorons la gestion traditionnelle de la chaıˆne d’approvisionnement (SCM - supply chain management), la gestion e´lectronique de la chaıˆne d’approvisionnement (eSC - electronic supply chain management), et l’impact sur les alliances et associations strate´giques qui en re´sulte. De plus, vu les caracte´ristiques inhe´rentes a` la chaıˆne d’approvisionnement e´lectronique, a` savoir son dynamisme et son adaptabilite´, nous discutons le nouveau type de directeur susceptible de re´ussir au mieux dans cette nouvelle structure.
Spanish abstracts Entendimiento de la adquisicio´n de informacio´n de compradores para la compra de servicios de logı´stica Carol C. Bienstock Palabras clave Logı´stica, Informacio´n, Gestio´n de la cadena de suministro, Industria, Servicios Durante las u´ltimas de´cadas, la logı´stica ha surgido progresivamente como una fuente de ventaja competitiva sostenible. Este artı´culo incorpora trabajo reciente en el marketing de servicios sobre la adquisicio´n de informacio´n de clientes con investigacio´n acerca del comportamiento de compra industrial, para ayudar a los proveedores de servicios de logı´stica a comprender y gestionar su adquisicio´n de informacio´n sobre clientes y las actividades de compra relacionadas con los servicios de logı´stica.
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Marketing de relaciones internas: una clave para mejores relaciones en la cadena de suministro Scott B. Keller Palabras clave Marketing de relaciones, Cadena de suministro, Desarrollo organizacional Las presiones competitivas del mercado dentro de los entornos comerciales contempora´neos de hoy en dı´a han estimulado la asociacio´n de muchos miembros de la cadena de suministro. Resulta de particular intere´s el desarrollo de relaciones satisfactorias entre empresas en un esfuerzo por obtener eficiencia y calidad de productos y servicios, que de otro modo se quedarı´an sin reclamar. Esta investigacio´n identifica especı´ficamente la necesidad de que los miembros de la cadena de suministro sostengan unas relaciones ma´s saludables dentro de la empresa con el fin de materializar el e´xito ma´s plenamente, y obtener beneficios relacionados con las asociaciones externas. Se emplea el concepto del marketing de relaciones internas y se propone un modelo para ayudar a las empresas a identificar las variables asociadas con el marketing dirigido al cliente interno. La industria del transporte automovilı´stico ofrece una configuracio´n de servicio apropiada para el ana´lisis, y se perfilan implicaciones para conservar a los mejores empleados de primera fila por su concienciacio´n sobre el cliente. Cuestiones sobre la asociacio´n entre expedidor-transportista, clasificaciones y satisfaccio´n Brian J. Gibson, Stephen M. Rutner y Scott B. Keller Palabras clave Despacho, Ssociacio´n de transporte, Alianzas, E´xito Durante la u´ltima de´cada, se han realizado una serie de estudios que han examinado los factores de seleccio´n y evaluacio´n, bien del expedidor o del transportista. No obstante, se ha producido poca comparacio´n entre co´mo estos dos grupos perciben dichos factores con respecto a sus socios. Este estudio examina las semejanzas y diferencias en las clasificaciones de factores entre grupos de expedidores y transportistas. Asimismo, los resultados destacan los diversos niveles de satisfaccio´n entre los dos grupos. Obtencio´n externa eficaz de logı´stica en Nueva Zelanda: una investigacio´n empı´rica inductiva Jay Sankaran, David Mun y Zane Charman Palabras clave Contratos, Logı´stica, Obtencio´n externa, Eficacia, Calidad, Nueva Zelanda Informa sobre una investigacio´n inductiva cualitativa de contratos logı´sticos de terceros en Nueva Zelanda. El objetivo del estudio fue descubrir las visiones directivas internas sobre la obtencio´n externa eficaz de logı´stica, que resultan apropiadas dentro del entorno de Nueva
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Zelanda. Una caracterı´stica destacada de la investigacio´n es la metodologı´a que requirio´ la ida y vuelta entre la recopilacio´n de datos (la fuente principal de datos fueron entrevistas flexibles) y el ana´lisis, el cual se realizo´ a trave´s de te´cnicas formales de codificacio´n. El ana´lisis revela que la abstencio´n por parte de los proveedores terceros de compromisos monetarios prematuros es una variable decisiva para la eficacia de los contratos logı´sticos de terceros en Nueva Zelanda. Tambie´n descubre co´mo la singularidad del contexto neocelande´s da forma a la logı´stica de terceros en Nueva Zelanda. La cadena de suministro electro´nico: su impacto sobre la estructura actual y futura de las alianzas estrate´gicas, asociaciones y liderazgo logı´stico Lisa R. Williams, Terry L. Esper y John Ozment Palabras clave Logı´stica, Internet, Alianzas, Gestio´n de la cadena de suministro, Asociacio´n, Liderazgo La llegada de Internet y de las comunicaciones electro´nicas ha permitido a las empresas responder ma´s ra´pidamente a sus clientes. No obstante, los mismos avances tecnolo´gicos esta´n cambiando el mercado y proporcionando un ´ımpetu para que se produzcan cambios en la alianza estrate´gica y las estructuras de asociacio´n. Los lı´deres con e´xito del futuro tendra´n que comprender co´mo funcionar en el nuevo mercado y dentro de las estructuras organizacionales evolutivas, donde las alianzas y asociaciones esta´n cambiando. El propo´sito de este artı´culo es iluminar las estructuras organizacionales actuales y futuras en la industria logı´stica. Con ese fin, se explorara´n la gestio´n tradicional de la cadena de suministro (SCM), la gestio´n de la cadena de suministro electro´nico (eSC) y el impacto resultante sobre las alianzas y asociaciones estrate´gicas. Adicionalmente, considerando la habilidad inherente de la eSC para ser dina´mica y adaptable, se discute el nuevo tipo de lı´der que probablemente tenga ma´s e´xito dentro de esta nueva estructura.
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Acknowledgements This special issue of the International Journal of Physical Distribution & Logistics Management would not have been possible without the dedication and patience of those who reviewed the submissions. Their intelligent and thorough critiques were of tremendous help to the Editor and, I am sure, to the authors of both accepted and unaccepted manuscripts. The Editor extends his deepest appreciation to: . Kenneth B. Ackerman, President, The Ackerman Company, Columbus, Ohio, USA. . George A. Gecowets, Executive Vice President (ret.), Council of Logistics Management, Downers Grove, Illinois, USA. . Robert R. Milner, Partner, Colliers, Wilkinson & Snowden, Memphis, Tennessee, USA. . Ernest L. Nichols, PhD, Director – FedEx Center for Cycle Time Research, The University of Memphis, Fogelman College of Business, Memphis, Tennessee, USA. . Michael D. Seef, Principal, MDS Logistics, Evanston, Illinois, USA. Clifford F. Lynch Guest Editor
Guest editorial Guest Editor Clifford F. Lynch of C.F. Lynch & Associates has provided management advisory services in logistics since 1993. During the previous 35 years, he was Vice-President – Logistics for the Quaker Oats Company and President of Trammell Crow Distribution Corporation. He attended public schools in Memphis, received his undergraduate degree from the University of Tennessee, and an MBA from the University of Chicago. He is a certified member of the American Society of Transportation and Logistics and is a member and past president of the Council of Logistics Management. He has received numerous awards in the field of logistics including the CLM Distinguished Service Award, Traffic Management Magazine Professional Achievement Award and University of Tennessee Department of Marketing and Transportation Distinguished Alumnus. He is the author of numerous articles on the subject of logistics and the recently published book, Logistics Outsourcing – A Management Guide. He is chairman of The Memphis Food Bank, and is licensed as an affiliate real estate broker in the State of Tennessee.
While outsourcing has been a factor in the logistics industry for centuries, in recent years there has been a dramatic growth in the contract or ‘‘third party’’ logistics industry. As provider firms have gained efficiencies and sophistication and increased their service offerings, an increasing number of firms have entered into strategic alliances or partnerships with one or more logistics service companies. In addition, a number of new providers have entered the field, and the range of services provided or desired has broadened considerably, particularly in the technology area. These developments not only have had a major impact on growth in the provider/client segment of the industry, but many contract logistics firms are turning to strategic alliances and partnerships with other providers as a means of offering full service logistics packages. According to R.V. Delaney of Cass Information Services, the logistics service market increased from $10 billion to $25 billion between 1992 and 1996. By 2000, the market size had increased to over $50 billion. Much of this more recent growth has been a result of expanded provider offerings, both from new and existing firms. Today’s typical logistics service provider is much different from those of ten or even five years ago. It is more sophisticated, offering the latest in facilities, materials handling techniques, and transportation equipment. Some of these firms, such as Schneider Logistics, have moved far beyond their logistics origins and are offering leading-edge technology and visibility of activities throughout the supply chain. While the next year or so are expected to see little if any growth, interest in outsourcing should not diminish significantly. What we will see, however, is more client emphasis on such important issues as provider strategy, global capability, financial stability, security, relationships, and information technology. This special issue provides some of the current thinking on strategic alliances and outsourcing both in the USA and abroad. Authors address technology, relationships, and satisfaction levels in the current environment, plus others which their research indicates are important. Clifford F. Lynch
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The research register for this journal is available at http://www.emeraldinsight.com/researchregisters
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The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-0035.htm
Understanding buyer information acquisition for the purchase of logistics services Carol C. Bienstock Department of Marketing and Supply Chain Management, Fogelman College of Business and Economics, The University of Memphis, Memphis, Tennessee, USA Keywords Logistics, Information, Supply chain management, Industry, Services Abstract During the last several decades, logistics has increasingly emerged as a source of sustainable competitive advantage. This article incorporates recent work in services marketing on customer information acquisition, with research on industrial buying behavior to help logistics service providers understand and manage their customers’ information acquisition and purchase activities for logistics services.
Introduction What sources of information do buyers of logistics services use in making their purchase decisions? What are the challenges inherent in making a purchase decision for a product that, prior to actually experiencing it, cannot easily be evaluated? Do all purchasers of logistics services use the same information sources? Can purchasers of logistics services be segmented according to their information acquisition activities? Understanding these issues will enhance logistics service providers’ efforts to manage customer information acquisition and purchase decisions for their services. During the last several decades, logistics has increasingly emerged as a source of sustainable competitive advantage (Kyj and Kyj, 1994; Novack et al., 1995; Bowersox et al., 1995; Bienstock et al., 1997; Mentzer and Williams, 2001). A number of researchers have responded to the growing competitive significance of logistics and supply chain management by integrating research from services marketing with the traditionally more operationally based logistics studies to explore customer service and logistics service quality issues (Bienstock et al., 1997; Mentzer et al., 1999; Mentzer et al., 2001). The purpose of this article is to continue this integration by incorporating recent work in services marketing on customer information acquisition with research on industrial buying behavior. The discussion synthesizes the existing research to generate suggestions that help logistics service providers understand and manage their customers’ information acquisition and purchase decisions for logistics services. Suggestions are also proposed for future research to empirically verify and validate these initial efforts. International Journal of Physical Distribution & Logistics Management, Vol. 32 No. 8, 2002, pp. 636-648. # MCB UP Limited, 0960-0035 DOI 10.1108/09600030210444890
Services and customer information search Achieving success in service businesses is particularly challenging because of what Bharadwaj et al. (1993, p. 83) term the ‘‘moderating effects of the
characteristics of services’’. More than two decades ago, one of the primary motivators for the origination of the field of services marketing research was the challenge of understanding the process customers use to purchase and evaluate services (Zeithaml, 1981). Understanding information acquisition is vital for service businesses because it is one of the early stages in the purchase decision process for both consumer and industrial products (Moriarty and Spekman, 1984; Engle et al., 1986; Dholakia et al., 1993). Customers use information to increase certainty and lower the risk they associate with a purchase. Research in the area of services marketing has demonstrated empirically that the perception of uncertainty, and, therefore, risk, is higher for products that are less tangible, such as services (Deshpande and Zaltman, 1987; Murray and Schlacter, 1990). And, although research in industrial/organizational buying behavior has not specifically addressed industrial purchasing processes for services (e.g. transportation), it has shown that industrial buyers engage in increased information search when the buying situation is risky (i.e. as a result of performance or economic uncertainty) (Moriarty and Spekman, 1984). Thus, it is important for service businesses, such as logistics providers, to understand, absent information in the form of actual experience from purchase and use of a service, what alternative sources of information customers seek, and how this information impacts their purchase decisions. Buyer information sources can be classified into two categories: internal and external. Sources of internal information include evaluations of past experiences with a service, past experiences with related services, and previous experience with the service environment or industry, all of which create customer knowledge (Leigh and Rethans, 1984; Lynch and Srull, 1982). Heretofore, the integration of services marketing and logistics service literatures has focused primarily on how internal information sources are created for logistics service customers. For example, Bienstock et al. (1997) and Mentzer et al. (1999, 2001) have investigated logistics service customers’ perceptions of service quality based on their experiences with logistics services. These experiences create knowledge, which forms internal sources of information for subsequent logistics service purchase decisions. In contrast, this article focuses primarily on examining and proposing guidelines that enhance logistics service providers’ ability to manage effectively external sources of information for logistics customers’ purchase decisions. External information sources include what is referred to as commercial (i.e. ‘‘marketer dominated’’) and non-commercial (i.e. ‘‘non-marketer dominated’’) information, both impersonal and personal (Engle et al., 1986; Moriarty and Spekman, 1984). An example of impersonal commercial information is a print advertisement for freight forwarding services. Personal commercial information, in contrast, is that provided by the freight forwarder’s sales or customer service representatives. Impersonal non-commercial information might originate from a Council of Logistics Management study or from carrier performance ratings by the American Trucking Association. Finally, examples
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of personal non-commercial information sources are recommendations (or warnings!) from customers of a logistics provider offering fleet management services; direct observation (examining office furniture prior to purchase); or product trial (test driving an automobile). Related to the acquisition of external information for services is the importance of what is known as the integrated marketing communications (IMC) perspective. The IMC maintains that all external sources of product/ service information play a vital role in creating and maintaining product/ service positioning, and as such, must be managed strategically for their ability to influence customer perceptions and initiate and maintain customer relationships (Duncan and Moriarty, 1998). Services marketing literature has long recognized the fact that services are distinguished by intangibility, relative lack of standardization, and simultaneous production and consumption (Berry, 1980), thus presenting particular information acquisition challenges. Because of these unique characteristics, service customers, since they cannot actually examine the service prior to purchase, confront a purchasing situation with relatively less information than do purchasers of more tangible products. The intangibility and simultaneous production and consumption of services mean that customers have no first hand information on the service they will receive until they experience the service after purchase and use. For, although they may be able to obtain information from service providers’ sales literature or recommendations from other customers, this is, at best, only a proxy for what their actual experience with the service will be. Moreover, service customers may, in some cases, lack the time, financial resources, or expertise to adequately evaluate a service, even after they have experienced it. Mindful of the unique information acquisition challenges presented by services, Smith (2000) introduced the incomplete information framework, a reconceptualization of Stigler’s (1961) cost/benefit analysis of information acquisition and Nelson’s (1970, 1974) and Darby and Karni’s (1973) economics of information taxonomy. The next section explains the basis and development of Smith’s incomplete information framework. Then, the third section integrates research in services marketing and industrial purchasing behavior to help suppliers of logistics services better understand and manage their customers’ information acquisition and purchase activities. Basis and development of the incomplete information framework Stigler first proposed his economics of information (EOI) theory in 1961 to elucidate the process of information search prior to purchase. The theory maintains that potential buyers will search for information only as long as the costs of the search do not exceed the benefits (Urbany, 1986). Nelson (1970, 1974) and Darby and Karni (1973) extended Stigler’s EOI theory in an effort to explain the relationship between suppliers’ communication efforts and purchasers’ information acquisition activities; and Zeithaml (1981) borrowed
the extended EOI framework from economics and introduced it into services marketing. The extension of EOI presents a taxonomy that classifies purchasers’ product information search and evaluation processes into three categories. If a buyer can easily obtain and evaluate information about a product before and after purchase, the information acquisition and evaluation process is dominated by search attributes. For example, it is relatively easy for purchasers of office furniture to obtain information and evaluate style and construction prior to purchase. And, they are obviously able to obtain information and easily evaluate it after purchase/use. On the other hand, an information search and evaluation process for which information, in the form of experience with the product, is unavailable prior to purchase, but is available and easy to evaluate after purchase, possesses a high degree of experience attributes. For example, prior to purchase, an apparel manufacturer has no information on their particular experience with freight forwarding services. In contrast, after purchase/use of the services, the apparel manufacturer does have the necessary information and can relatively easily evaluate their experience with the services. A third category, credence, was introduced by Darby and Karni (1973). A purchasing process high in credence attributes is one for which information/ experience is unavailable before purchase, and, although available, is difficult to evaluate, even after purchase and use. Difficulties for evaluation processes characterized by credence attributes arise because purchasers lack the resources (e.g. financial or temporal) or the expertise to evaluate products adequately. Essentially, in this situation, a buyer concludes that the costs of evaluating information after purchase are higher than the benefits. For example, if a retailer is considering the purchase of freight payment and auditing services, they are unable to obtain information on their particular experience with the service prior to purchase/use. And, after purchase/use, unless they want to constantly audit the auditor, the retailer must, to some degree, trust that the payment and auditing services are being performed satisfactorily. According to Smith (2000), prior to her reconceptualization of the EOI taxonomy, services marketing research failed to consider adequately both dimensions of purchasers’ search processes: when a buyer has information available to guide the purchase decision, as well as the difficulty of understanding, interpreting, and evaluating information when it is available. Smith’s incomplete information framework addresses these heretofore overlooked complexities in the EOI taxonomy by explicitly representing both when information is available, as well as how difficult the information is to incorporate into a purchase decision process (see Figure 1). This reconceptualization makes the framework useful for analyzing a variety of purchase situations. Another advantage of Smith’s reconceptualization is that it puts the emphasis on the purchase process or situation, rather than on the product or
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Figure 1. Characterizing purchase processes: incomplete information framework
the purchaser (Smith and Bush, 2002). This is important because all purchasers of logistics services, for example, are not the same in their level of sophistication and expertise. Evaluating logistics IT services, even after purchase/use may be difficult for a relatively unsophisticated purchaser, but relatively easy for one with more expertise. Furthermore, sophistication and expertise may change over time. For example, purchasers who have relatively little experience purchasing freight forwarding services have different information requirements and differ in their ability to evaluate information and experience after purchase/use. However, as they gain experience, these customers become more expert. Another aspect that must be considered, in relation to customer expertise, is the role that online, interactive information contributes to the development of buyer sophistication. Consumer research has demonstrated that the ease of acquisition and customization of information from interactive sources, such as service providers’ and industry and government Web sites, has the ability to significantly influence purchasers’ sophistication (Alba et al., 1997). Using the incomplete information framework’s classification of purchase processes enables a logistics service provider to understand and consider relevant information acquisition issues for all purchasers, even if these issues
change over time as purchasers become more proficient in their ability to evaluate logistics services. Since the focus of this article is on customer information acquisition for the purchase of logistics services, this discussion concentrates on the aspects of the incomplete information framework that are most relevant to services. The boxes labeled 2 and 4 in Figure 1 depict the characterization of these purchase situations as either experience (see box 2: information/experience is not available before purchase, but is available and easy to evaluate after purchase/use) or credence (see box 4: information/ experience is not available before purchase, and is available but difficult/ impossible to evaluate after purchase/use.
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Implications of the incomplete information framework for logistics services Based on research in services marketing and industrial purchasing behavior, this section discusses a variety of external information sources to help logistics service firms understand and, therefore, effectively manage their customers’ information acquisition and purchase activities. The discussion is organized around the four types of external information discussed above (impersonal and personal commercial; impersonal and personal non-commercial). The discussion in this section is summarized in Table I. Impersonal commercial information Sales literature and advertisements (including those delivered online) are typical impersonal commercial sources of information for purchasers of logistics services. Research in services marketing indicates that these sources of information have value primarily in purchasing situations where Description of purchase situation
Effective sources of information
‘‘Experience’’ purchase situations: information/experience available after purchase/use and easy to evaluate
Service information provided by sales/customer service representatives Recommendations from other customers Recommendations from colleagues in and out of the purchasing organization Sales literature and advertisements Service branding and price as market signals Government and/or industry service ratings
‘‘Credence’’ purchase situations: information/experience available after purchase/use, but difficult to evaluate
Activities by logistics providers’ sales/customer service representatives that foster/maintain trust and commitment Activities by logistics providers’ sales/customer service representatives that signify the professionalism, reputation, competence of the logistics service provider Price as a market signal Government and/or industry service ratings
Table I. Purchase situations and effective information sources
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information/experience is difficult to evaluate prior to purchase, but is available and easily evaluated after purchase and use (Zeithaml, 2000). For example, Exel’s Web site (http://www.exel.com), conveys impersonal commercial information about value added logistics services, integrated logistics IT solutions, and global freight management that firms can incorporate into their purchase decisions for these services. Another type of impersonal commercial information that logistics service providers can use to manage buyer information acquisition is what is known as market ‘‘signals’’, an example of which is product/service branding. Unfortunately, very little research has been done on industrial product branding, and none on industrial services branding. However, perhaps some preliminary conclusions can be drawn from services marketing research on branding, which has found it to be most effective in purchase situations for which information/experience is unavailable prior to purchase, but is available and easily evaluated after purchase/use (Brucks et al., 2000; Kirmani and Rao, 2000). For example, purchasers of Exel’s freight management services could be expected to base their purchase decisions to some extent on the Exel ‘‘brand’’ associated with the company’s original warehouse management services. Another type of market signal is pricing. According to a recent article by Dutta et al. (2002) in MIT Sloan Management Review, pricing strategies, if employed correctly, can represent a significant strategic weapon. For example, Dutta et al. (2002) suggest that, in industrial markets, an effective pricing strategy involves pricing industrial goods and their attendant services separately. But what are the pricing implications for industrial products that consist purely of value added services, such as logistics? Although the results have been mixed, services marketing and consumer research has found that, for some products, there is a positive correlation between price and quality, i.e. high price signals high quality (Chen et al., 1994; Faulds et al., 1995). There has been relatively little research in pricing for industrial products, and practically none for industrial services. However, research examining the effect of pricequality correlations for consumer services, such as legal services, indicates that price is an important market signal for suggesting quality in credence purchase situations, i.e. when information, although available, is difficult to evaluate even after purchase/use (Tellis and Gaeth, 1990). This effect needs to be further investigated within the context of logistics services. Personal commercial information Both services marketing research and research into industrial buying behavior stress the importance of personal sources of information, particularly for decisions that have economic or performance uncertainty. Moreover, personal commercial information, from sources such as sales or customer service representatives or discussions with representatives at trade shows, has historically been a significant factor in industrial purchasing decisions (Moriarty and Spekman, 1984).
Research in services marketing has demonstrated that, because service customers are motivated to reduce the costs of information search and uncertainty, they respond positively to what is termed ‘‘relationship marketing’’, (i.e. activities designed to develop and maintain a relationship with customers), in purchase situations where information/experience is not readily available prior to purchase (Zeithaml, 1981; Nayyar, 1990; Bharadwaj et al., 1993). Personal commercial sources of information typified by the relationships that develop between sales and customer service representatives of logistics providers and their customers are examples of relationship marketing activities. These activities play a vital role in a logistics provider’s integrated marketing communications (IMC) strategy, both for purchase situations where services can be easily evaluated after purchase/use, as well as for purchase situations where information/experience with services is available, but difficult to evaluate even after purchase/use. For purchasing situations where information/experience is unavailable before purchase, but is available and easily evaluated after purchase, skillful use of personal commercial information succeeds in shifting the emphasis from the purely transactional to a longer-term, more collaborative focus (Garbarino and Johnson, 1999). For example, suppose Retro Logistics manages outbound LTL transportation for Metro manufacturing. Metro knows Retro’s sales and/ or customer service representatives to be helpful, straightforward, and responsive. However, suppose one week, Retro’s customer service representatives notify Metro that, because of an unavoidable weather delay, Monday afternoon’s outbound freight cannot go out until Tuesday morning. Metro is less likely to turn to another logistics provider, because the actions of Retro’s customer service representatives mitigate, to some extent, their customer’s dissatisfaction with the service failure. In purchase situations where information/experience is available, but difficult to evaluate even after purchase/use, personal commercial information tends to ‘‘tangiblize’’ the service. Essentially, these sources of information build trust and commitment, thus helping to establish a logistics provider’s reputation with customers, and providing them with a basis for continuing to purchase from the organization. For example, suppose Global Transport performs freight auditing and payment for Metro manufacturing. Absent Metro’s constant monitoring of Global’s services, information from the sales and/or customer representatives of Global, and the consequent reputation that Global builds with Metro, is a significant factor in Metro’s decision to continue purchasing these services from Global. Impersonal non-commercial information Research in industrial buyer behavior has demonstrated that impersonal noncommercial sources of information (e.g. government or industry ratings services) tend to assume greater importance when the purchase process is perceived to be more risky, presumably because these sources are viewed as being relatively objective (Moriarty and Spekman, 1984). Since industrial
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services, such as logistics, would necessarily carry more performance risk (e.g. will the carrier deliver on time?), services marketing research suggests that impersonal non-commercial information plays an important role in purchasers’ decision processes (Zeithaml, 1981). Because of the relative dearth of research into the purchasing process for industrial services, there exists no empirical evidence to suggest whether impersonal non-commercial information is relatively more effective for purchase processes characterized as experience (where information/experience is not available before purchase, but is available and easy to evaluate after purchase/use) or credence (information/experience is not available before purchase, and is available but difficult/impossible to evaluate after purchase/use). However, because industrial buyers regard impersonal non-commercial information as objective, it seems intuitive that this source of information would facilitate both types of purchase decisions. For example, suppose Woodline, a furniture manufacturer, is contemplating securing the services of REACT!, a third party logistics provider, for freight management. Assuming a reasonable level of expertise on Woodline’s part, their purchase process for these services can probably be characterized as an experience situation, i.e. although they do not have the necessary information to evaluate their experience with REACT!’s freight management services prior to purchase and use, information/experience will be available and relatively easy for them to evaluate after purchase/use. As part of the purchasing process, Woodline could obtain REACT!’s International Motor Carrier Audit Commission (IMCAC) rating and/or ratings from the Bureau of Transportation Statistics (BTS) to provide them with objective assessments of REACT!’s safety, financial, and operating record. Personal non-commercial information Research in both services marketing and industrial purchasing behavior has found a significant role for ‘‘word of mouth’’ information, i.e. personal noncommercial sources of information for both consumer and industrial purchasing decisions, particularly when there is uncertainty surrounding the decision (Webster, 1968; Zeithaml, 1981; Moriarity and Spekman, 1984). For example, if PCWinner, a computer manufacturer, is contemplating engaging Access Logistics to handle their product returns, PCWinner, prior to using the services of Access, has no information/experience about the quality of the product return service they will receive. However, positive recommendations from the Access Logistics’ current customers would diminish uncertainty about the product return service, thereby reducing the perceived risk and facilitating the purchase decision for PCWinner. Unfortunately, because of the relative scarcity of research in services marketing and industrial buying behavior related to industrial services, such as logistics, it is not clear whether the effectiveness of personal non-commercial information varies depending on whether or not information/experience with a service can be easily evaluated after purchase and use. Moreover, even in the context of consumer services, services marketing research has not explored the
differential efficacy of personal non-commercial sources for experience versus credence purchasing situations. This is an area that should be explored more thoroughly. Conclusions and suggestions for future research This article has integrated recent work on customer information acquisition in services marketing with research on industrial buying behavior for the purpose of helping logistics service providers understand their customers’ information acquisition activities for purchases of logistics services. Based on the existing research, the discussion presented sources of information which were expected to be effective in purchasing situations characterized as either experience (information/experience is not available before purchase, but is available and easy to evaluate after purchase/use) or credence (information/experience is not available before purchase, and is available but difficult/impossible to evaluate after purchase/use). The information provided in our discussion is best viewed from an integrated marketing communications (IMC) perspective. That is, logistics service providers must think strategically in terms of the role external sources of information play in creating and maintaining product/service positioning, as well as the ability of these information sources to influence customer perceptions and initiate and maintain customer relationships. In addition, the discussion presented here should motivate logistics service firms to consider their IMC strategy in terms of customer segments. The incomplete information framework used in this article suggests that customers can be segmented according to the sophistication and expertise of their purchase process, thus enabling logistics service firms to differentially manage their customer segments’ information acquisition activities. For example, a relatively sophisticated and knowledgeable group of customers may not require the same intensity of relationship marketing activity from a logistics firm’s sales and/or customer service representatives that a less sophisticated group of customers requires. Related to this issue of customer segmentation, recent research into customer service and logistics service quality issues has already demonstrated empirically that logistics quality perceptions differ among customer segments (Mentzer et al., 2001), thus providing at least two bases on which to segment industrial service customers meaningfully: information acquisition related to purchase process; and logistics quality perceptions. Based on the discussion presented here, it is clear that further research is required to investigate purchase and evaluation processes for industrial services. For example, although the incomplete information framework has been tested empirically for consumer services, it should be examined more thoroughly within the context of industrial services, such as logistics. Doing so would provide more information about how logistics service providers could segment customers based on their information acquisition requirements and purchase situation. Related to this is the examination of the issue of the effect
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interactive media (e.g. the Internet) has on logistics customers’ information search and purchase processes. As has been demonstrated for consumer purchase processes, do interactive media transform the purchase process for buyers of industrial services by enabling them to increase their expertise more rapidly? Do the roles and/or effectiveness of personal and impersonal noncommercial information differ depending on whether or not information/ experience with a service can be easily evaluated after purchase and use? Since so little research has been done on the role of industrial product branding (and none on industrial services branding), the issue of how this market signal affects logistics customers’ information acquisition and purchase processes needs to be examined empirically. Similarly, exactly what role does price as a market signal play in the purchase process for logistics services? Does its role differ depending on whether the buyer has the expertise and/or resources to evaluate the service after purchase/use? In summary, these initial efforts to integrate services marketing and industrial purchasing research for the purpose of exploring logistics purchasers’ information acquisition activities provide a solid beginning, as well as preliminary guidelines for logistics service providers to consider as they formulate IMC strategies to manage their customers’ information acquisition and purchase activities. They also highlight several productive areas for future research that will serve to enhance the rapidly developing field of study on logistics service quality and supply chain management. References Alba, J., Lynch, J., Weitz, B., Janiszewski, C., Lutz, R., Sawyer, A. and Wood, S. (1997), ‘‘Interactive home shopping: consumer, retailer, and manufacturer incentives to participate in electronic marketplaces’’, Journal of Marketing, Vol. 61, July, pp. 38-53. Berry, L.L. (1980), ‘‘Services marketing is different’’, Business, Vol. 30, May-June, pp. 24-9. Bharadwaj, S.G., Varadarajan, P.R. and Fahy, J. (1993), ‘‘Sustainable competitive advantage in service industries: a conceptual model and research propositions’’, Journal of Marketing, Vol. 57, October, pp. 83-99. Bienstock, C.C., Mentzer J.T. and Bird, M.M. (1997), ‘‘Measuring physical distribution service quality’’, Journal of the Academy of Marketing Science, Vol. 25 Winter, pp. 31-44. Bowersox, D.J., Mentzer, J.T. and Speh, T.W. (1995), ‘‘Logistics leverage’’, Journal of Business Strategies, Vol. 12, Spring, pp. 36-49. Brucks, M., Zeithaml, V.A. and Naylor, G. (2000), ‘‘Price and brand name as indicators of quality dimensions for consumer durables’’, Journal of the Academy of Marketing Science, Vol. 28 No 3, pp. 375-87. Chen, I.J., Gupta, A. and Rom, W. (1994), ‘‘A study of price and quality in service operations’’, International Journal of Service Industry Management, Vol. 5 No. 2, pp. 23-33. Darby, M. and Karni, E. (1973), ‘‘Free competition and the optimal amount of fraud’’, Journal of Law and Economics, Vol. 16, April, pp. 67-86. Deshpande, R. and Zaltman, G. (1987), ‘‘A comparison of factors affecting use of marketing information in consumer and industrial firms’’, Journal of Marketing Research, Vol. 24, February, pp. 114-18.
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Stigler, G. (1961), ‘‘The economics of information’’, Journal of Political Economy, Vol. 69, June, pp. 213-25. Tellis, G. and Gaeth, G. (1990), ‘‘Best value, price-seeking, and price aversion: the impact of information and learning on consumer choice’’, Journal of Marketing, Vol. 54, April, pp. 3445. Urbany, J. (1986), ‘‘An experimental examination of the economics of information’’, Journal of Consumer Research, Vol. 13, September, pp. 257-71. Webster, F.E. (1968), ‘‘On the applicability of communication theory to industrial markets’’, Journal of Marketing Research, Vol. 5, November, pp. 426-8. Zeithaml, V. (1981), ‘‘How consumer evaluation processes differ between goods and services’’, in Donnelly, J. and George, W. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 186-90. Zeithaml, V. (2000), ‘‘Service quality, profitability, and the economic worth of customers: what we know and what we need to know’’, Journal of the Academy of Marketing Science, Vol. 28, Winter, pp. 67-85.
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Internal relationship marketing: a key to enhanced supply chain relationships Scott B. Keller Department of Marketing and Supply Chain Management, The Eli Broad College of Business, Michigan State University, East Lansing, Michigan, USA
Internal relationship marketing 649 Received December 1999 Revised October 2001
Keywords Relationship marketing, Supply chain, Organizational development Abstract Competitive market pressures within today’s contemporary business environments have encouraged the partnership of many supply chain members. Of particular interest is the development of successful relationships between firms in an effort to gain product and service quality and efficiency that would otherwise go left unclaimed. This research specifically identifies the need for supply chain members to foster healthier relationships within the firm in order to realize more fully success and obtain the benefits associated with external partnerships. The concept of internal relationship marketing is employed and a model is proposed to aid companies in identifying the variables associated with marketing to the internal customer. The motor carrier industry provides an appropriate service setting for the analysis, and implications for retaining the very best customer-conscious frontline employees are outlined.
Introduction Research indicates that supply chains may be strengthened through the manifestation of longer-term, mutually beneficial relationships between its members (e.g. Bowersox et al., 1992, 1999; Ellram, 1995; Ellram and Cooper, 1990; Gentry, 1996). Managers realize that product and service costs may be inflated while quality diminishes as members retain traditional myopic views of their roles in the chain. The concept seems intuitive: let us get together, share information, resources, rewards, and risks, and in the end we shall all be better off. It is that simple, right?– not in all cases. Several researchers have documented critical reasons for failures of relationships between suppliers and buyers (Ackerman, 1996; Bowersox et al., 1992; Ellram, 1995; Lambert et al., 1999). Increasing the chance of successful relationships with select partners is therefore very important. Successful partnerships and relationship integration throughout the supply chain have the potential to render efficiencies, profits, and service unattainable by firms operating more individually (Bowersox et al., 1999; Ellram, 1995; Lambert et al., 1999; Tate, 1996). In an effort to develop successful relationships with select partners, researchers have prescribed decision-making models for identifying potential partners, developmental processes for designing relationships, and implementation principles for fostering partnerships (Lambert et al., 1999). Moreover, studies have rendered industry data indicating key motivations, success factors, and reasons for failures (Ellram and Cooper, 1990; Ellram, 1995).
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Business relationships have been analyzed from an external perspective. That is, experts have studied and documented the most important factors in fostering successful inter-firm relationships. An area in need of more attention, however, is relationship building within firms who are in pursuit of external partnerships. In brief, advocates of internal relationship marketing (IRM) believe that managers must first work to develop solid relationships within the firm (i.e. between co-workers, functional areas, horizontal and vertical) before external relationship marketing (ERM) may fully be achieved (Berry, 1981; Gro¨nroos, 1981). IRM is therefore identified as the ‘‘first’’ market while ERM the second. Purpose Is it not logical to expect employees who are better skilled at managing work relationships within the firm will also be better equipped to maintain healthier relationships with external customers? For example, one primary reason for buyers to enter partnerships is to secure a source that exercises dependability in upholding product and service commitments (Ellram, 1995). Supposing the buyer is aware of a supplier’s program, whereby the supplier continually works to improve relationships within the firm in an effort to assure such dependability. This internal effort would add to the buyer’s confidence that the supplier may be a quality-focused partner. A lack of such focus on total quality commitment may have adverse consequences on the longevity of the relationship and contribute to possible partnership failure (e.g. Ellram, 1995; Gentry, 1996). Toward this end, the purpose of this study is to propose and evaluate one comprehensive internal practice that may contribute to the success of such external relationships. This is the practice of internal relationship marketing (Berry, 1981). The concept of internal relationship marketing Marketing concepts can be called upon to provide an analysis of the internal marketing mix elements needed to satisfy internal customer wants and needs (Berry, 1981). Marketers establish the product, price, promotion, and place for creating marketing plans by which to ensure the satisfaction and patronage of consumers; so too can employers who pursue the satisfaction and allegiance of the very best employees. Employees outside of the traditional marketing functions may have an impact on the quality of service provided to the ultimate customer. It follows, therefore, that employees are in essence the first market, and external customers the second (Gro¨nroos, 1981). Certainly, both ‘‘markets’’ are important to the overall success of service firms; however, it is suggested that firms concentrate on motivating customer-conscious employees through internal marketing and thus enhance their relationship performance in the external supply chain. While other factors such as products and technology also play important roles in the success of external marketing, the effects of internal marketing can,
none-the-less, be overlooked. This point is stressed as Gro¨nroos (1990) makes the case for service firms to pursue effective internal marketing strategies to achieve external marketing potential more fully. Traditional marketing functions have been departmentalized, yet personnel functioning in service firms in the capacities of, for example, service delivery, directly affect the outcome of the service provided and, consequently, the consumer’s perception of the firm. Therefore, such personnel should be considered marketing resources and managed accordingly. While identifying internal marketing as a fundamental philosophical stance available to management, according to Gro¨nroos (1990, p. 8), ‘‘Management should create, continuously encourage, and enhance an understanding of and an appreciation for the roles of the employees in the organization.’’ Only then, will firms be able to retain customer-conscious employees. George (1990, p. 64) concurs, ‘‘The premise of this philosophy is that if management wants its employees to do a great job with customers, then it must be prepared to do a great job with its employees.’’ To implement the concept, firms must identify the needs of employee segments and develop a service concept to meet those needs. Outcome expectations include, for example, increased employee retention, reduced training costs, improved external performance and customer relationships. Following the work of Schneider (1986), George (1990) identifies the need for firms to recruit employees with personality characteristics capable of being molded through formal procedures designed to enhance interpersonal competency. Specifically, he suggests that firms hire people who are ‘‘interpersonally sensitive and responsive’’ to the needs of other persons (George, 1990, p. 66). Understanding these employee behavioral skills and capabilities will aid in the facilitation of an internal marketing strategy within the firm. Management’s support should include providing training, influencing effective communication patterns, and providing and collecting regular employee feedback. By recognizing these communication issues as one of management’s top priorities, service organizations can become more effective in the external marketplace by managing and fostering positive behavioral characteristics of employees who serve the internal as well as external customer. An attempt has been made to illustrate the concept, utility, and potential impact of internal marketing and considering employees, especially those closest to the external customer, as internal customers. Throughout this paper an effort will be made to employ the concept of internal marketing within the context of the motor carrier industry in an attempt to help firms retain truck drivers, improve performance in the field, and, in the process, enhance external relationships with supply chain members. Research setting Service firms provide settings very appropriate for this analysis, whereas difficulty arises in separating the service provided from the service provider
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(Gro¨nroos, 1990). It is proposed that relationships between co-workers may highly impact customers’ perceptions of the service delivered. Where better can this concept be explored than within the motor carrier industry? It could hardly be disputed that the motor carrier industry is a major link in most supply chains built around raw materials transport, product flow to, through, and from manufacturing, and finished goods distribution (Gentry, 1996). Failures in the partnership with carriers who provide critical transport, for example by excluding carriers in initial delivery system design stages, may be accompanied by recurring operating problems. Internally speaking, a lack of carrier communication between terminals has caused problems between suppliers, carriers, and customers (Gentry, 1996). From this perspective, motor carriers provide the valuable time and place utility for product marketing. Because of this central impact, and the costs involved to perform such a role, supply chain members have begun to develop long-term relationships with carriers as they have with product suppliers and buyers. Similarly, motor carriers have looked to strengthen relationships with shippers and receivers in an effort to better plan and execute their operational supply chain duties (Ellram and Cooper, 1990; Gentry, 1996; Gibson et al., 1996; La Londe and Cooper, 1989). Motor carriers must continue to adopt a proactive approach to relationship building within the supply chain. One step should be to look within the carrier and strengthen the first market relationships (IRM). A critical place to begin is with the driver; the primary contact between trucking firms and their shippers and receivers. Drivers are in the unique position of affecting services as promised; one of the leading pitfall areas of logistics partnerships (Ackerman, 1996). Due to the unique impact of a driver on services rendered, motor carriers interested in strengthening the quality commitments of zero defects, continuous improvement, and sustained performance (i.e. the necessary basic quality commitments, Bowersox et al., 1992) must focus attention to this critical area. From this perspective, truck drivers are considered the internal customer; an area further explored in the next section. One key internal customer affecting entire supply chains Berry (1981) set out to establish the employee as customer. Perhaps this practice may be even more important to firms in a homogeneously competitive environment. In relating this to the trucking industry, it is commonly known that carriers offer similar pay and working conditions and are, in essence, quite parallel in their employment offerings. This is evidenced by Richard et al. (1995, p. 281): ‘‘Problems with pay and time home do not account for the fact that most drivers leave one over-the-road trucking job for another, usually one that offers the same level of pay and the same amount of time home.’’ Therefore, it has been suggested that companies, operating under such conditions, implement internal marketing as a tool of distinction for attracting and retaining good employees. Berry (1981, p. 34) explains:
Thinking like a marketer doesn’t have to stop at the boundary of the external marketplace. The people who buy goods and services in the role of the consumer, and the people who buy jobs in the role of employee, are the same people. And the exchange that takes place between employees and employers is no less real than the exchange that takes place between consumers and companies. Whereas consumers exchange economic resources for goods and services, employees exchange human resources for jobs that provide, among other things, economic resources.
For more than a decade, researchers have studied the problem of driver turnover and even longer, managers have lived with it. Wholesale and retail prices escalate with deteriorating service as equipment sits idle due to the industry-wide condition. It is doubtful that motor carriers, and perhaps more importantly shippers and receivers, are capturing the full extent of the costs involved with the loss of a single driver. Total supply chains are affected as greater uncertainties enter into logistics systems. While supply chain relationship concepts are based on complete and shared information, in an effort to reduce the guesswork within the system, it hardly seems possible for the chain to function optimally without a complete and reliable driving force. Since the 1980s, countless trade and research articles about driver turnover have been published. A key point of disseminating such ideas and information is to offer industry further insights and suggestions for helping understand and reduce the problem. Yet, firms continue to report enormous annual turnover figures. What then is missing? Are firms taking heed of research findings and able and willing to forge ahead to employ suggested corrective actions? Can motor carriers alone rectify the situation? Research shows the need for partners to understand the dynamics of each other’s business and join together in problem solving activities in an effort to achieve lowest system costs and highest continued improvements (Gentry, 1996; Stuart, 1993). Many carriers have employed various programs that have had positive effects on managing driver retention, however it is obvious that more must be done. As one effort to provide industry with a means to employ the many suggestions of researchers, a comprehensive integrated model is offered. Figure 1 illustrates a model based on the marketing concept, whereby carriers focusing on the internal customer are shown to improve their external performance in the field. By pinpointing the marketing mix elements of product, price, promotion, and place to satisfy the wants and needs of drivers, carriers are better positioned to perform higher service levels with respect to suppliers, manufacturers, and customers. More specifically, the driver is identified as the internal customer. From this perspective, it becomes apparent that in order to satisfy the needs of this internal customer, industry must identify the marketing elements similar to the manner by which companies seek to understand and satisfy their external customers. Without this critical understanding of the marketing elements, it is unlikely that efforts to build long-term relationships will have much chance to succeed. It then makes sense that if a firm has established a solid marketing plan based on identified marketing mix elements for their external customers, the same marketing-type plan should be employed within the firm.
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Figure 1. Internal relationship marketing
The concept of internal relationships parallels that of external relationships and partnerships. In fact, it is expected that by focusing on the internal, firms will enhance their external relationships. Research findings in the study of truck drivers are many, and, therefore, by categorizing the findings/ suggestions, it is hoped that motor carriers will have an organized marketing mix by which to establish legitimate internal marketing plans for servicing and retaining drivers. A complete internal marketing plan should help firms foster and better manage longer-term relationships with drivers. Ongoing research has linked internal relationships with drivers to external customer relations and performance in the field (Keller, 1999). It is clear that this internal effort will aid carriers and shippers in creating stronger relationships. To fully explore ‘‘marketing’’ to truck drivers, the concept of internal relationship marketing is called upon (George, 1990; Gro¨nroos, 1981). Industry practices offer anecdotal evidence of the importance of treating drivers as customers (Johns, 1995), and since 1996 several researchers have specifically suggested for firms to treat drivers as internal customers (e.g. Keller and Lynch, 1996; Keller and Ozment, 1999a, b; Taylor and Cosenza, 1998). This
study builds on the knowledge gained from previous research by more precisely employing the total internal marketing concept, as set forth by George (1990) and Gro¨nroos (1981). Previous research efforts have identified multiple factors that influence driver decisions to remain with the firm. These factors pertain to the driver, dispatchers, managers, recruiters, the job itself, and other areas. Through this writing, a framework is offered to categorize these factors as product, price, promotion, or place elements of internal marketing to drivers. It is this categorization that is most unique and the primary outcome of this effort; whereas previous studies have stopped short of completely operationalizing the entire concept. The following sections offer this conceptual breakdown. Motor carrier driver products Research suggests that dispatchers may play a greater role in helping retain drivers than was once expected. However, studies have been few that focus directly on the driver and dispatcher relationship, yet the dispatcher is in a unique position to help retain drivers as dispatch is in more frequent contact with drivers compared to other positions within the firm. For this study, the dispatcher is identified as the internal supplier. The question is then proposed, ‘‘What products are supplied by dispatchers (internal suppliers) to fulfill the wants and needs of drivers (internal customer)?’’ Table I contains a breakdown of ‘‘driver products’’ identified through a thorough review of the literature. Of the products outlined, those influenced by the dispatcher will be further explored. Products important to drivers and partially influenced by dispatchers include driver pay (associated with miles), time-home (associated with promised driver-due-home dates), helpfulness in resolving concerns (responsiveness), relationships with supervision, recognition, appreciation, balanced load assignments, non-threatening corporate environment, adherence to realistic job previews, and the promotion of better treatment by customers (Table I contains references to these products). Today, the trucking industry has experienced a reduction in the driving labor pool while the demand for drivers continues to escalate (Delaney, 1999). Under such market conditions drivers are in the position to demand more from firms. Similar to external customers, drivers are expecting a higher level of compliance in the more traditional areas. Increased driver wages may seem out of reach in an industry faced with high competition and the pressure to reduce transport rates. Moreover, the general characteristics of driving irregulartruckload routes require extended time away from home. However, adequate miles for ample pay (e.g. Keller and Ozment, 1999a; Rakowski et al., 1989; Southern et al., 1989; Stephenson and Fox, 1996; Taylor, 1991) is expected by all drivers while promised due-home dates are to consistently be met (e.g. Dobie et al., 1998a; Fuller and Walter, 1993; LeMay et al., 1993; Southern et al., 1989; Stephenson and Fox, 1996). On the occasion that such ‘‘basic’’ needs and wants are unmet, drivers are aware that other positions are immediately available
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Dispatcher related Pay Corsi and Martin (1982) Beilock and Cappelle (1990) LeMay et al. (1993)
656
Taylor (1994)
Time-home
Responsiveness
LeMay et al. (1993) Stephenson and Fox (1996) Keller and Ozment (1999a) Taylor (1991)
Keller and Ozment (1999b) McElroy et al. (1993)
Richard et al. (1994a)
Richard et al. (1994b)
Taylor and Cosenza (1998) Rodriguez and Griffin (1990) McElroy et al. (1993) Taylor (1994)
Keller and Ozment (1999a) Taylor (1991)
Recognition Appreciation/ treatment Balanced load assignment Non-threatening Corporate environment
Realistic job previews (RJP) Treatment by customers
Taylor (1991) McElroy et al. (1993) Dobie et al. (1998a)
Richard et al. (1994a) Ozment and Keller (1999) Keller and Ozment Keller and Ozment (1999a) (1999b) Rodriguez and Griffin Fuller and Walter (1990) (1993) Richard et al. (1994b) Richard et al. (1994a) Richard et al. (1994b) Taylor (1991)
Richard et al. (1994b) Ozment and Keller (1999) Taylor and Cosenza (1998) Taylor and LeMay (1991) Guthrie and Fox (1994)
Fuller and Walter (1993) Taylor (1994) Dobie et al. (1998b)
Guthrie and Fox (1994) Ozment and Keller (1999) Keller and Ozment (1999b) Fuller and Walter (1993) Richard et al. (1994b) Taylor and Cosenza (1998) Richard et al. (1994a) Stephenson and Fox (1996)
LeMay et al. (1993)
Rakowski et al. (1989) Southern et al. (1989) McElroy et al. (1993)
Rakowski et al. (1989)
Rodriguez and Griffin Fuller and Walter (1990) (1993) McElroy et al. (1993) Guthrie and Fox (1994) Stephenson and Fox Keller and Ozment (1996) (1999a)
Keller and Ozment (1999b) Southern et al. (1989)
Relationships with supervision
Table I. Motor carrier driver products
Southern et al. (1989)
Guthrie and Fox (1994) Richard et al. (1995) Keller and Ozment (1999a) Taylor (1994)
Rodriguez and Griffin (1990) Richard et al. (1994a) Dobie et al. (1998a) Keller and Ozment (1999b) Taylor and Cosenza (1998) (Continued)
Company related Retention/ satisfaction programs Benefits Wellness programs Working conditions
Corsi and Fanara (1988)
Internal relationship marketing
McElroy et al. (1993)
Rakowski et al. (1989) Rodriguez and Griffin Fuller and Walter (1990) (1993) McElroy et al. (1993) Holmes et al. (1996)
Rakowski et al. (1989) Rodriguez and Griffin (1990) Guthrie and Fox Stephenson and Fox (1994) (1996) Equipment/tools LeMay et al. (1993) McElroy et al. (1993) Stephenson and Fox (1996) Work itself Rodriguez and Griffin Fuller and Walter (1990) (1993) Advancement Rodriguez and Griffin Fuller and Walter programs (1990) (1993) Taylor and Cosenza (1998) Ongoing training Fuller and Walter McElroy et al. (1993) (1993) Firm as whole Rakowski et al. (1989) LeMay et al. (1993)
657
Fuller and Walter (1993) Taylor (1994) Guthrie and Fox (1994) McElroy et al. (1993)
Taylor and Cosenza (1998) Taylor (1994)
elsewhere in the industry. What Andraski and Novack (1996, p. 25) point out about external customers also holds true for internal customers: Today, these logistics services can be called ‘‘reliability’’ services. Customers expect 100 percent conformance at all times. Doing them well will not gain a firm business but performing them poorly will cost a firm market share.
Fulfilling these basic driver services are simply qualifiers for recruiting but performing them poorly will reduce a firm’s ability to retain drivers and maintain a mobilized fleet. Perhaps the movement of a driver from one job to a similar driving job may be fostered by the failure of dispatchers to recognize the necessity to provide consistently for these basic driver needs. Some carriers are working to provide these internal driver services. For example, one firm conspicuously posts freight bookings by dispatcher name in an effort to create a healthy competitive atmosphere among dispatchers. Dispatchers react to the publicized information by working more diligently to obtain more profitable loads. Drivers benefit from this strategy by having the opportunity to haul more loads associated with better pay. A more radically direct approach has been taken by some truckload motor carriers with their increasing driver pay above the industry average. Beyond these basics, today’s drivers are influenced by their attitudes toward dispatchers (e.g. Richard et al., 1994a, b, 1995; Stephenson and Fox, 1996). Driver attitudes are affected by their perception of the dispatcher’s personable
Table I.
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and helpful nature, positive attitude, and trustworthiness. In addition, driver retention has been shown to increase as dispatchers exercise greater responsiveness (Keller and Ozment, 1999a, b; Ozment and Keller, 1999; Richard et al., 1995; Taylor, 1991). Responsiveness to driver concerns includes dispatcher pursuit of a resolution even if results seem out of the direct control of the dispatcher. Responsiveness is driven by a dispatcher’s sensitivity to the voice of the driver (Keller and Ozment, 1999a, b) thus creating a nonthreatening working environment. Lastly, dispatchers are in the unique position of being in communication with customers and drivers. The opportunity must not be taken for granted, whereas in the development of internal and external relationship integration, dispatchers must be adequately skilled and equipped to negotiate for either side. Carriers must work to establish open communications with shipping and receiving departments, so as to establish a trust that facilitates fair treatment of drivers in the field. Together, these dispatcher attributes contribute to the manageability of their relationships with drivers. Repeated pursuit of these driver services may be the best offense for recruiting drivers and defense against driver turnover, therefore contributing to the satisfaction and allegiance of the very best drivers. Driver and dispatcher price The literature concerning truck drivers indicates very little research with respect to sacrifices associated with providing and obtaining driver products. Table II outlines the price components associated with the previously identified driver products (see Table for references to these price components). For the purpose of this study, price refers to the sacrifices which drivers endure to receive products and to the costs incurred by dispatchers and firms when providing products. For example, more miles are associated with greater levels of pay, therefore, drivers must be more willing to accept such loads that contribute to greater pay. In turn, dispatchers must increase their pursuit of more profitable loads that are more attractive to drivers; possibly reducing some bookings that are inadequate for enhancing the quality of internal relationships with drivers and, consequently, productivity in the field. In addition, dispatchers must be trained in more equally distributing loads to drivers. Assuming this is a driver product, dispatchers and firms must work to develop meaningful measures to monitor and report feedback concerning the service provided to drivers with respect to this product. This may require additional investment in training and monitoring tools. Driver time-home is another product associated with a price. Driver comments clarify that the problem is not so much the frequency or amount of time-home, rather the primary concern is in getting drivers home when first promised or scheduled (Keller and Ozment, 1999a). Failure to meet driver expectations causes drivers to miss personal appointments and family events. While adherence may mean a reduction in bookings or adding driving positions, firms must treat these dates with the same respect given to order
Internal relationship marketing
Dispatcher related Develop customer relationships that Guthrie and Fox (1994) improve driver field treatment Participate in RJPs given to driver candidates
Taylor and LeMay (1991), Taylor (1991)
Keller and Ozment (1999a, b) Obtain more profitable and appealing loads Training and monitoring in balanced load allocation Treat driver-due-home dates with greater importance Provide efficient and effective driver feedback tools Training and monitoring utility and effectiveness of feedback tools Provide training to dispatchers before they assume a position in dispatch Develop tools to monitor performance in sensitivity and responsiveness to drivers Reduce number of drivers assigned per dispatcher Add assistants/trouble shooters Company related Modern equipment
659
McElroy et al. (1993)
Attitude of company to drivers Driver career tracks Invest in measures tying dispatcher Richard et al. (1994a) performance to driver satisfaction Driver related Training in constructive use of feedback tools
Keller and Ozment (1999a, b)
Willingness to negotiate time-on-road to accommodate due-home dates
Keller and Ozment (1999a, b)
Career stage
McElroy et al. (1993)
McElroy et al. (1993)
delivery dates. Drivers may also be asked to pay a price for this adherence. Perhaps it may become necessary to increase a driver’s average time in the field. By extending this road time, more miles may be achieved while dispatchers have more time resources by which to plan driver routes home. It is apparent that internal relationships require great efforts of supplier and customer flexibility.
Table II. Dispatcher and driver price
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Managers often refer to the many lines of communication available for driver feedback. Some include, open-door policies, suggestion boxes, and tollfree driver help-lines. Quite often, while in place, these communication modes are underutilized. Firms may insist they provide drivers the tools, by which to voice their opinions; however, often drivers comment about the lack of effectiveness of the very same tools (Keller and Ozment, 1999a). For this reason, firms must invest in the most efficient and effective methods for collecting driver feedback. Designing and testing each tool for its utility is important and must be diligently pursued. Simply having tools in place is no longer enough for establishing effective internal relationship environments (feedback methods will be discussed in the following section pertaining to the distribution of products). In addition, drivers must invest a genuine interest in participating in the programs. This cannot simply be mandated. Firms must take the time to demonstrate fully the usefulness of each tool while drivers must consistently employ the tools. Training and perseverance on the part of drivers, managers, and executives is vital for creating a less threatening, more cooperative corporate environment. Dispatcher responsiveness also is associated with a price. Properly trained, monitored, and provided with adequate job environments, dispatchers will be better prepared to reduce driver turnover. Monitoring is necessary for capturing the effects of sensitive and responsive dispatchers. Through such measurements, firms will better understand the impact of dispatcher attitudes and behaviors. Measurements may then be used in coaching dispatchers. Ample job conditions may mean a reduction in number of drivers assigned to each dispatcher. Dispatchers quite often cite the assignment of too many drivers as a reason for their lack of responsiveness. For example, a dispatcher assigned 50 drivers would have less than ten minutes a day to communicate with each driver. Relationships are fostered by quality communication and it is hardly expected that under these conditions dispatchers can effectively develop productive internal relationships. Dispatch assistants may provide the necessary flexibility to pursue and resolve driver issues completely. Drivers must also pay a price for more responsive dispatchers. Drivers must make concerted efforts to improve their feedback content. That is, drivers must prioritize and pursue the most important issues first, while affording dispatchers ample time to resolve each issue. Recruiters must include dispatchers in the development of realistic job previews (Taylor, 1991) for new driver candidates. It is doubtful that along with their many duties dispatchers currently play a central role in advising candidates. Along with drivers (Taylor and LeMay, 1991), dispatchers should be called upon to present their realistic views of the driving position, working environment, and customers. Motor carriers must assist dispatchers in developing relationships with external customers in an effort to ensure the fair treatment of drivers (Guthrie and Fox, 1994). Often cited as a problem area for drivers is the attitude of
indifferent customers. Carriers and customers alike must realize that driver retention is not solely a trucking industry problem, rather it affects the performance and costs of the supply chain in total. Driver product distribution (place) As a preface, the author conducted several brainstorming group sessions with drivers in the field to obtain candid driver assessments of feedback tools used by carriers. Some firms provide suggestion boxes, 1-800 driver phone lines, open-door policies, group meetings, and annual review periods for disseminating information among drivers and dispatchers. However, most often, drivers reported minimal effectiveness of these communication modes. Therefore, it seems necessary to consider the product when evaluating the tools used to facilitate fulfillment of internal customer needs and wants. Table III contains the methods by which dispatchers may best administer products to their drivers (see Table for references to these place components). More miles, associated with higher pay, relates to the driver assignment of loads. Discussions with drivers in the field have revealed some perceptions that favoritism often occurs when dispatchers assign loads. The insinuation is that Dispatcher related Face-to-face interaction Quality of telephone communication in the field
Taylor and Cosenza (1998)
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Keller and Ozment (1999a, b)
Keller and Ozment (1999a, b)
Internal driver report card: Automated driver feedback collection in the field Administer realistic job previews
Taylor and LeMay (1991)
Taylor (1994)
Taylor and Cosenza (1998) Develop driver retention policies
Corsi and Fanara (1988)
Conduct exit interviews and publish feedback
Corsi and Fanara (1988)
Periodic meetings with drivers, dispatchers, and managers to discuss load assignment effectiveness
Keller (1999)
Taylor and Cosenza (1998)
Automate and publish driver-due-home date schedules Publish by dispatcher the performance in meeting driver-due-home dates
Table III. Product distribution (place)
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some drivers believe they routinely receive less profitable unappealing loads. Perhaps this perception is fostered as drivers are assigned loads via computer transmission, and consequently they have little immediate input and influence in the decision. While such scheduling is for maintaining operational integrity, dispatchers may find it useful to discuss with drivers, face-to-face, exactly how assignment plans are derived. Moreover, firms are encouraged to solicit ongoing driver perceptions of the fairness of the loads assigned. Formal collective personal interaction between drivers, dispatchers, and terminal managers should be employed for managing the dissemination of such information. This method may afford a check-and-balance on fairness as terminal managers may hear feedback from drivers and dispatchers during the same meeting. With respect to ‘‘due-home dates’’, it may prove beneficial and value adding in satisfying driver needs for firms to adopt procedures similar to advanced shipment notices. One example may be for dispatch and driver computers to be programmed to automatically notify each party, for example, seven days in advance of the driver’s date expected home. Dispatchers should utilize this notice to begin looking for return loads. Moreover, drivers will be assured that the dispatcher is very aware that the due-home date is forthcoming and will not be ignored. Rankings of dispatchers by the ratio of missed due-home dates to those dates scheduled should be regularly published and circulated among dispatchers. Similar to the objective of one firm publishing dispatcher rankings on number of loads booked, the intention would be to inspire healthy competition among dispatchers to more effectively manage their promises to route drivers home. From a general communication perspective, it seems that the interaction between drivers and dispatchers may be heading to ‘‘all-electronic’’ with the further adoption of satellite transmissions, e-mail, etc. Perhaps this is not the most effective manner for all communication with drivers. However, it seems that with the increased number of drivers assigned to a single dispatcher, traditional telephone communication is becoming too cumbersome. To the contrary, and considering the driver need for personable relationships with dispatchers (Taylor, 1991), managers are encouraged to strengthen the quality of each telephone and face-to-face interaction with their drivers. In an operation where less opportunity is available for this type of communication, each occasion missed to reinforce the sensitive and responsive nature of dispatch is a failure toward improving the retention of the driver (Keller and Ozment, 1999a, b; Taylor and Cosenza, 1998). This may seem counterproductive to traditional productivity measures, however, firms should consider this when relying on driver turnover as a measure of productivity. Many driver issues are not unique. For these occurrences dispatchers are encouraged to utilize the computer for sending progress reports to drivers in the field. Simple computer programs may be created that contain categories of issues and fields for indicating progress status reports. Updates would signal
to the driver that his or her issue was, in fact, being pursued, consequently, driver perceptions of dispatcher responsiveness would be more positive. Similar to the suggestion of ranking due-home date ratios, managers are encouraged to capture and tally the information from each progress report. Data may be collected in the form of a driver ‘‘report card’’ (e.g. ongoing driver surveys for collecting driver feedback in the field) (Keller and Ozment, 1999a, b; Taylor and Cosenza, 1998). From this data, comparisons of dispatchers may be made with respect to the ratio of the number of progress reports and resolutions to the actual number of issues raised by the drivers assigned to each dispatcher. Again, this is another method of providing drivers with a tool for voicing, dispatchers a tool for information collection, and management a tool for training and evaluation. The same report card can be utilized to capture information about the driver’s satisfaction with his or her equipment, other areas of the firm, with the external customer’s receiving facilities, and general overall satisfaction (Richard et al., 1994a). Lastly, in distributing the product of ‘‘realistic job previews’’ (Taylor and LeMay, 1991; Taylor, 1994; Taylor and Cosenza, 1998) developing driver retention policies (Corsi and Fanara, 1988), and conducting exit interviews (Corsi and Fanara, 1988; Taylor and Cosenza, 1998), dispatchers should be involved. By employing these procedures, drivers could be assured that the driving job being promoted is, in fact, an accurate representation of the actual position. Driver product promotion Traditional promotional elements New recruit advertising and strategy has been the focus of several studies pertaining to the motor carrier industry (LeMay and Taylor, 1988; Southern et al., 1989; Rakowski et al., 1989). Table IV contains a breakdown of such promotional suggestions (see Table for references to these promotional components). Firms are directed to increase advertising on highway billboards, within truck stops, and in trade publications read by drivers (Southern et al., 1989). Recruiters are encouraged to utilize actual drivers when creating visual advertisements, and look to non-driving personnel within the firm as possible driver candidates (LeMay and Taylor, 1988; Rakowski et al., 1989). Other studies have supported the need for extreme honesty when providing driver candidates with job previews (LeMay and Taylor, 1988; Southern et al., 1989; Rakowski et al., 1989; Taylor and LeMay, 1991; Taylor, 1994). Helping candidates develop realistic expectations about the driving job within the firm has proven beneficial in retaining drivers. In general, those drivers receiving realistic job previews know exactly what to expect and are far less disappointed when encountering known negative aspects on the job. To the contrary, those new hires that have expectations higher than what the job or company will bear become dissatisfied and quit. Perhaps it could be said that previous research in this ‘‘promotional’’ area has centered on recruiting drivers. What about after drivers have been
Internal relationship marketing 663
LeMay and Taylor (1988) LeMay and Taylor (1988)
Focus on non-traditional driver candidates
Use actual drivers in advertisement
Current propositions
Provide industry comparisons in the areas of pay and driver miles
Solicit and publish in a periodic company newsletter driver comments on the progress made by dispatchers and the firm in satisfying drivers
Publicize feedback tool performance in concern resolution
Publicize feedback tool utilization by driver
Design promotional campaigns to encourage drivers to provide constructive feedback
Track and publicize dispatcher performance on meeting driver-due-home dates
Taylor and Cosenza (1998)
Internal promotional elements Set goals to improve driver job aspects
Utilize recruiting videos using current drivers to explain the realistic aspects of the job
Provide realistic job previews
Show how current drivers handle poor aspects of job LeMay and Taylor (1988) Rakowski et al. (1989) Taylor (1994) Taylor (1994)
Taylor and LeMay (1991)
Present positive aspects of job first
Do not present only the bad aspects of the job
Rakowski et al. (1989)
Promote equipment, pay, benefits, and firm reputation
Use minority models for advertisements
Focus advertisement content on realistic picture of truck driving
Southern et al. (1989) Taylor and LeMay (1991)
Rakowski et al. (1989)
664
Advertise in minority publications, radio, and television
Southern et al. (1989)
Table IV. Product promotion
Traditional promotional and recruiting elements Billboard, trade publication, driver word-of-mouth, and truckstop advertising
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recruited? In more traditional marketing environments businesses do not quit advertising to customers just because they have made an initial purchase. Perhaps promotional activities actually need to be increased to current customers in an effort to develop more allegiance and patronage to the firm. Motor carriers are encouraged to do the same, that is, to increase or at the very least maintain a promotional campaign geared to drivers, internal customers, within the firm (Keller and Ozment, 1999a, b; Taylor and Cosenza, 1998). Specific to the internal driver products previously outlined, the remainder of this section will address possible corresponding promotional elements. Internal promotional elements Considering the products of more driver miles and pay, firms may look to providing drivers with ongoing industry comparisons. Comparisons, such as this, should help drivers and companies assess how they measure up to the competition. Firms may not have to be the highest paying recruiter especially if they are promoting the many other factors of driving for their company. Drivers may see that, compared to the industry average, their compensation is quite commensurate. Many drivers may envision higher salaries and more miles elsewhere in the industry, however, by publishing these comparisons firms may dispel the significance of these perceptions. Performance on meeting driver-due-home dates should also be tracked and promoted to drivers. Transport firms commonly measure on-time performance and promote their successes to their customers. Why not publish this for the internal customer? It should be restated that driver focus groups revealed drivers’ desire to have their due-home dates met more often so that they can plan family events with confidence that they may meet these obligations. This performance measure may aid firms in dispatcher evaluation, as well as promoting more positive driver attitudes toward the dispatcher and firm; two important indicators of driver retention (Taylor and LeMay, 1991). From a communication position, firms are encouraged to remind drivers of the need to utilize the feedback tools regularly. Only then can a firm understand the perceptions of their drivers, hopefully, before a problem gets out of control. A good way to promote this may be for firms to track and report the number of times drivers utilize specific communication tools offered by the firm. Moreover, firms may indicate a ‘‘success rate’’ for each mode. For example, the complaint categories discussed in the previous section, ‘‘place’’, could be crossreferenced by the number of issues raised by drivers and resolved by dispatchers. Disseminating this usage information to drivers would allow them to assess the utility and success of the feedback method. It is expected that as drivers realize the firm’s persistence in promoting the use and success of such methods, drivers will begin to regularly provide feedback. In an effort to positively enhance drivers’ attitudes toward dispatch, managers must find a way to make the driver aware of the sensitive and responsive nature of the dispatcher (Keller and Ozment, 1999a, b; Taylor and Cosenza, 1998). As a product, responsiveness relates to the helpfulness of a
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dispatcher in complaint resolution (Keller and Ozment, 1999a). The successes of dispatchers in providing these driver services should be captured and promoted. By using the driver report card method, explained earlier, firms could add a final field containing the outcome of the complaint, documented by dispatch. Again, summaries of the outcomes could be promoted to drivers on a regular basis. Lastly, as measures to improve driver treatment by customers take effect, dispatchers should actively solicit driver feedback about the progress. Brief progress reports should be published in company/driver newsletters (Taylor and Cosenza, 1998) to let fellow workers know of successes. It is expected that success will lead to future attempts to succeed rather than to regress. Conclusion An attempt has been made to illustrate the importance of treating personnel who are in frequent contact with the external customer as internal customers, themselves. Motor carrier firms provide a unique opportunity by which to evaluate the appropriateness of such internal marketing plans. In this study, an effort has been set forth to place in four internal marketing mix categories the findings of previous research about driver recruitment, retention, and turnover. In doing so, perhaps managers may be equipped to utilize more fully the many suggestions of researchers over the years. This grouping of implications simplifies the information and organizes it in such a manner that managers may make reference to the elements when assessing their firms’ driver recruitment and retention plans. For example, a manager may not have fully identified the products that are most important to drivers. Field research has rendered this information, however, managers may not have known exactly where to obtain and how to compile such suggestions meaningfully. It is expected that most motor carriers understand the implications of the driver turnover problem, yet, many fall short of developing and implementing a comprehensive plan fully to improve the relationships between drivers and the firm continuously. The primary elements present in any successful marketing plan are to understand the product offerings of the firm fully with respect to the target market, develop prices perceived to be fair and reasonable, establish efficient, reliable, and effective methods of delivering the product to the customer, and employ promotions that continually reinforce the value and quality of the products. By developing and employing an internal customer marketing program, firms will gain a better understanding of the impact and importance of relationship marketing, both internal and external. References Ackerman, K.B. (1996), ‘‘Pitfalls in logistics partnerships’’, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 3, pp. 35-7. Andraski, J.C. and Novack, R.A. (1996), ‘‘Marketing logistics value: managing the 5 Ps’’, Journal of Business Logistics, Vol. 17 No. 1, pp. 23-33. Beilock, R. and Capelle, R.B. (1990), ‘‘Occupational loyalties among truck drivers’’, Transportation Journal, Vol. 29, Spring, pp. 20-8.
Berry, L.L. (1981), ‘‘The employee as customer’’, Journal of Retail Banking, Vol. 3 No. 1, pp. 33-40. Bowersox, D.J., Closs, D.J. and Stank, T.P. (1999), 21st Century Logistics: Making Supply Chain Integration a Reality, Council of Logistics Management, Oak Brook, IL. Bowersox, D.J., Daugherty, P.J., Droge, C.L., Germain, R.N. and Rogers, D.S. (1992), Logistical Excellence, Digital Press, Burlington, MA. Corsi, T.M. and Fanara, P. (1988), ‘‘Driver management policies and motor carrier safety’’, Logistics and Transportation Review, Vol. 24 No. 2, pp. 153-63. Corsi, T.M. and Martin, J.C. (1982), ‘‘An explanatory model of turnover among owner-operators’’, Journal of Business Logistics, Vol. 3 No. 2, pp. 47-71. Delaney, R.V. (1999), ‘‘A look back in anger at logistics productivity’’, 10th Annual ‘‘State of Logistics Report, pp. 16-18. Dobie, K., Rakowski, J.P. and Southern, R.N. (1998a), ‘‘Managerial proactivity: attracting and retaining the essential driver force’’, Journal of Transportation Law, Logistics and Policy, Vol. 65 No. 2, pp. 149-65. Dobie, K., Rakowski, J.P. and Southern, R.N. (1998b), ‘‘Motor carrier road driver recruitment in a time of shortages: what are we doing now?’’, Transportation Journal, Vol. 37 No. 3, pp. 5-12. Ellram, L.M. (1995), ‘‘Partnering pitfalls and success factors,’’ International Journal of Purchasing and Materials Management, Vol. 31 No. 3, pp. 36-44. Ellram, L.M. and Cooper, M.C. (1990), ‘‘Supply chain management, partnerships, and the supplier-third party relationship’’, International Journal of Physical Distribution & Logistics Management, Vol. 1 No. 2, pp. 1-10. Fuller, N.P. and Walter, C.K. (1993), ‘‘Job satisfaction of Iowa truck drivers’’, Transportation Research Forum, Vol. 33 No. 2, pp. 42-55. Gentry, J.J. (1996), ‘‘Carrier involvement in buyer-supplier strategic partnerships’’, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 3, pp. 14-25. George, W.R. (1990), ‘‘Internal marketing and organizational behavior: a partnership in developing customer-conscious employees at entry level’’, Journal of Business Research, Vol. 20 No. 1, pp. 63-70. Gibson, B., Rutner, S.R. and Mundy, R.A. (1996), ‘‘Building successful alliances: are shippers doing their part?’’, Transportation Quarterly, Vol. 50 No. 2, pp. 35-46. Gro¨nroos, C. (1981), ‘‘Internal marketing – an integral part of marketing theory’’, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 236-8. Gro¨nroos, C. (1990), ‘‘Relationship approach to marketing in service contexts: the marketing and organizational behavior interface’’, Journal of Business Research, Vol. 20 No. 1, pp. 3-11. Guthrie, D.M. and Fox, J.E. (1994), ‘‘The driver shortage in truckload carriage’’, Morgan Keegan Research, Morgan Keegan and Company, Memphis, TN, 29 June, pp. 1-7. Holmes, S.M., Power, M.L. and Walter, C.K. (1996), ‘‘A motor carrier wellness program development and testing’’, Transportation Journal, Vol. 35 No. 3, pp. 33-48. Johns, M. (1995), ‘‘Retaining quality drivers critical during driver shortage’’, Fleet Owner, Vol. 90, p. 104. Keller, S.B. (1999), ‘‘Driver relationships with customers and driver turnover: key mediating variables affecting driver performance in the field’’, Journal of Business Logistics. Keller, S.B. and Lynch, D.F. (1996), ‘‘Integrating marketing’s relational exchange theory: an explanation of performance in the motor carrier industry’’, 1996 AMA Summer Educators’ Conference, San Diego, CA, pp. 49-50. Keller, S.B. and Ozment, J. (1999a), ‘‘Managing driver retention: effects of the dispatcher’’, Journal of Business Logistics, Vol. 20 No. 2, pp. 97-119.
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Keller, S.B. and Ozment, J. (1999b), ‘‘Exploring dispatcher characteristics and the effect on driver retention’’, Transportation Journal. La Londe, B.J. and Cooper, M.C. (1989), Partnerships in Providing Customer Service: A Third Party Perspective, Council of Logistics Management, Oak Brook, IL. LeMay, S.A. and Taylor, G.S. (1988), ‘‘Truck driver recruitment: some workable strategies’’, Transportation Journal, Vol. 28 No. 1, pp. 15-22. LeMay, S.A., Taylor, G.S. and Turner, G.B. (1993), ‘‘Driver turnover and management policy: a survey of truckload irregular route motor carriers’’, Transportation Journal, Vol. 32 No. 2, pp. 15-21. Lambert, D.M., Emmelhainz, M.A. and Gardner, J.T. (1999), ‘‘Building successful logistics partnerships’’, Journal of Business Logistics, Vol. 20 No. 1, pp. 165-81. McElroy, J.C., Rodriguez, J.M., Griffin, G.C., Morrow, P.C. and Wilson, M.G. (1993), ‘‘Career stage, time spent on the road, and truckload driver attitudes’’, Transportation Journal, Vol. 33 No. 1, pp. 5-14. Ozment, J. and Keller, S.B. (1999), ‘‘Exploring dispatcher communication effectiveness: implications for retaining drivers in the trucking industry’’, Journal of Managerial Issues, Vol. 11, Spring, pp. 94-109. Rakowski, J.P., Southern, N. and Godwin, L.R. (1989), ‘‘Recruiting and the truck driver shortage: is the industry reactive or proactive?’’, Transportation Practitioners Journal, Vol. 56 No. 4, pp. 381-92. Richard, M.D., LeMay, S.A. and Taylor, G.S. (1995), ‘‘A factor-analytic logit approach to truck driver turnover’’, Journal of Business Logistics, Vol. 16 No. 1, pp. 281-98. Richard, M.D., LeMay, S.A., Taylor, G.S. and Turner, G.B. (1994a), ‘‘A canonical correlation analysis of extrinsic satisfaction in a transportation setting’’, Logistics and Transportation Review, Vol. 30, December, pp. 327-38. Richard, M.D., LeMay, S.A., Taylor, G.S. and Turner, G.B. (1994b), ‘‘An investigation of the determinants of extrinsic job satisfaction among drivers’’, International Journal of Logistics Management, Vol. 5 No. 2, pp. 95-106. Rodriguez, J.M. and Griffin, G.C. (1990), ‘‘The determinants of job satisfaction of professional drivers’’, Transportation Research Forum, Vol. 30 No. 2, pp. 453-64. Schneider, B. (1986), ‘‘Notes on climate and culture’’, in Venkatesan et al. (Eds), Creativity in Services Marketing, American Marketing Association, Chicago, IL, pp. 63-7. Southern, R.N., Rakowski, J.P. and Godwin, L.R. (1989), ‘‘Motor carrier road driver recruitment in a time of shortages’’, Transportation Journal, Vol. 28, Summer, pp. 42-8. Stephenson, F.J. and Fox, R.J. (1996), ‘‘Driver retention solutions: strategies for for-hire truckload (TL) employee drivers’’, Transportation Journal, Vol. 35 No. 4, pp. 12-25. Stuart, F.I. (1993), ‘‘Supplier partnerships: influencing factors and strategic benefits’’, International Journal of Purchasing and Materials Management, Vol. 29 No. 4, pp. 22-8. Tate, K. (1996), ‘‘The elements of a successful logistics partnership’’, International Journal of Physical Logistics Management, Vol. 26 No. 3, pp. 7-13. Taylor, G.S. (1991), ‘‘Using performance appraisals of dispatchers to reduce driver turnover’’, Transportation Journal, Vol. 30, Summer, pp. 49-55. Taylor, G.S. (1994), ‘‘Realistic job previews in the trucking industry’’, Journal of Managerial Issues, Vol. 6 No. 4, pp. 457-73. Taylor, G.S. and LeMay, S.A. (1991), ‘‘A causal relationship between recruiting techniques and driver turnover in the truckload sector’’, Transportation Practitioners Journal, Vol. 59 No. 1, pp. 56-66. Taylor, S.L. and Cosenza, R.M. (1998), ‘‘Truck driver turnover: an internal marketing perspective’’, Journal of Transportation Management, Spring, pp. 20-32.
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Shipper-carrier partnership issues, rankings and satisfaction Brian J. Gibson Auburn University, Auburn, Alabama, USA
Stephen M. Rutner
Shipper-carrier partnership issues 669 Received November 2001 Revised April 2002
University of Arkansas, Fayetteville, Arizona and Georgia Southern University, Statesboro, Georgia, USA, and
Scott B. Keller Michigan State University, East Lansing, Michigan, USA Keywords Shipping, Transport partnering, Alliances, Success Abstract Over the past decade, there have been a number of studies that examined either shipper or carrier selection and evaluation factors. However, there has been little comparison between how these two groups perceive these factors with regard to their partners. This study examines the similarities and differences with the rankings of factors between shipper and carrier groups. Furthermore, the results highlight the various levels of satisfaction between the two groups.
Introduction Although the concept of ‘‘partnershipping’’ is more than a decade old, it remains a very important strategy in today’s business environment. The current emphasis on supply chain management and collaborative transportation management propels transportation buyers and their service providers toward stronger, mutually beneficial relationships (Cooke, 2000). Without each group adopting a long range, cooperative perspective, it would certainly be difficult to take additional time, inventory, and cost out of the pipeline (Parks, 2001). This fundamental shift from price driven, arm’s length transactions to efficiency focused, collaborative relationships has received considerable media attention. Likewise, numerous academic studies have investigated logistics partnerships. Primarily, these efforts have focused on the potential benefits of partnerships (Gentry, 1993; Bowersox, 1990), critical success factors (e.g. Tate, 1996; Bowersox et al., 1989; La Londe and Cooper, 1989), partner selection criteria (Bradley, 1994), and partner evaluation criteria (Byrne and Markham, 1991). The partnership development process (Lambert et al., 1996; Ellram, 1991a, b) and adoption rates (Wood and Nelson, 1999; Cooke, 1994) have also been analyzed. For the most part, partnership studies have focused on the buyer side of the dyad, the developmental activities, and the anticipated benefits. With a few exceptions (Gibson and Rutner, 1996; Crum and Allen, 1990), information regarding the transportation service provider perspective is largely anecdotal
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and focuses on individual organizations (e.g. Auguston, 1992). Thus, there is little known about the service providers’ thoughts regarding key partnership attributes and their existing relationships. With these issues in mind, a survey of transportation buyers (i.e. shippers) and transportation service providers (i.e. carriers) was conducted to enhance the partnershipping knowledge base. In particular, this study examined the following questions: . What do shippers and carriers perceive to be the critical success attributes in their partnerships? . How satisfied are shippers and carriers with their partners’ performance on these success attributes? After a brief literature review and description of the research methodology, the results of the study are presented. The article concludes with a summary of the key findings and a discussion of the study’s implications. Literature review While the logistics partnership literature covers a wide range of important issues, the most pertinent topic for this research is the discussion of critical success factors. Since 1989, numerous studies have documented key ingredients of effective logistics partnerships. Some of these studies focused on logistics partnerships in general, while others targeted specific types of relationships (e.g. shipper-carrier alliances). A brief chronological review of research directly relevant to the current study is provided below. In 1987, Dwyer et al. provided a theoretical framework of buyer-seller relationships. They investigated the evolution of exchanges from discrete events to ongoing relationships (Dwyer et al., 1987). Their research also identified a basic list of critical success factors for strategic alliances: detailed planning for future exchange, increased measurement and quantification, sharing of benefits and burdens, reduced uncertainty, shared efficiency, and high switching costs. The Council of Logistics Management sponsored two research studies that discussed partnership issues in logistics. La Londe and Cooper (1989) analyzed shipper-third party relationships among cutting edge firms. This survey-based study discussed five major relationship building facilitators: (1) defining an effective relationship; (2) developing a non-zero sum solution; (3) establishing a technology interface; (4) possessing global capabilities; and (5) sharing of benefits and burdens. The Bowersox et al. (1989) Leading Edge Logistics study focused partly on logistics alliances. Through numerous interviews and case studies, the authors identified specific actions that are necessary to establish and maintain
successful alliances. The six categories of actions included: channel perspective, selective matching, information sharing, role specification, ground rules, and freedom to exit. Ellram conducted a number of studies that included analysis or discussion of partnership success factors. Her 1990 interview-based research of purchasing managers revealed that financial stability and performance, cultural and top management compatibility, trust, strategic fit, and organizational structure (in addition to many of the already mentioned factors) are vital to the selection of appropriate suppliers for strategic partnerships (Ellram, 1990). In 1991, Ellram identified trust between firms, transfer of necessary information, mutual dependence, and sharing of new technology as key attributes of successful relationships in her analysis of buyer-seller partnership life cycles (Ellram, 1991a, b). Later, Ellram and Hendrick (1995) identified and analyzed more than 80 buyer-seller dyads on 24 relational criteria. Studies subsequent to the 1987-1991 timeframe reiterated and built upon the primary facilitators of successful alliances. Cooper and Gardner (1993) discussed the issues of extendedness and operating controls. Stuart (1999) analyzed more than a dozen factors including joint problem solving activities and a long-term planning horizon. The logistics service user survey and factor analysis work of Dahlstrom et al. (1996) centered on five factors, most notably flexibility and formalization. Walton (1996) provided insight into asset specificity, interdependence, and other critical success factors. She used regression modeling to analyze interview information and survey data collected from managers directly involved in the development of supply chain partnerships. Tate (1996) provided an effective summary of critical success factors and their application to a long-term manufacturer – third party logistics provider alliance. Recent studies have attempted to refine the categorization of critical success factors and have added emerging supply chain issues to the existing list of key partnership attributes. In developing a partnership model, Lambert et al. (1999) separated partnership success factors into primary facilitators (corporate compatibility, similar management philosophies and techniques, mutuality, and symmetry) that must be present in every relationship and situation specific facilitators (exclusivity, share competitors, physical proximity, a prior history of partnering, and a shared end user) that may be needed and will strengthen the partnership when present. Anderson (2000) and Parks (2001) add Internetbased technology tools, collaborative planning, and synchronization of information to the inventory of critical success factors. The literature review helped to develop a composite list of critical success factors for logistics partnerships. This list served as a key resource during the development of the shipper-carrier partnership study survey instrument. Details regarding this instrument and the study methodology are provided in the following section.
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Methodology While the partnership literature contains a wealth of information regarding shipper perceptions of critical success factors, there are some limitations. In many instances, the information was derived from a few cases and/or only one perspective of the partnership was analyzed (Lambert et al., 1999; Crum and Allen, 1990). The methodology used in the current study addressed these concerns by analyzing the perspectives of both shippers and their carrier partners. Specifically, the data for this research are generated from a national mail survey of account managers from US motor carriers and the shippers with whom these carriers have partnerships. Two comparable mail questionnaires (one for carriers and one for shippers) were developed based on the partnership literature discussed above. The questionnaires directed participants to rate the importance of 60 common success ingredients gleaned from the literature review. The ratings were based on a five-point Likert scale (1 = no importance to 5 = critical importance). The participants were also asked to indicate satisfaction with their partner’s performance on these factors using a five-point scale (1 = no satisfaction to 5 = complete satisfaction). The participant lists were obtained from US motor carrier executives who provided names and addresses for customer-partners and their carrier account representatives. A total of 200 surveys were mailed to the sample (100 to the customer-partners and 100 to the account representatives). A total of 100 surveys were completed and returned (41 from the customer-partners and 59 from the account representatives) for a 50 per cent response rate. The first step toward extending previous research of partnership success factors in logistics was to refine empirically the extensive list of multiple measures that represent key attributes of partnerships. This process offers a sound basis for analyzing perceptual differences between groups of respondents. To this end, principal components analyses were conducted to identify statistically sound items representing a priori concepts (i.e. partnership attributes). Next, paired-samples t-tests were utilized to evaluate the statistical differences between the importance shippers place on 13 characteristics of partnerships and how satisfied the shippers are with key carriers in each dimension of the partnership. Carrier perceptions were also evaluated using this method of analysis. Finally, independent samples t-tests were utilized to evaluate the statistical differences between the importance shippers and the importance carriers place on 13 characteristics of partnerships. An analysis was also conducted to evaluate differences between satisfaction levels of shippers and carriers with respect to the partnership attributes. The following section offers the results of the analyses. Implications important for managers and researchers are also discussed.
Results and implications Shippers mostly represented manufacturers of component parts and finished products (68 per cent) having international scope and operations throughout the North American continent (85 per cent). Shippers most frequently reported being involved with 12 carrier partnerships of which they rated the overall success of their partnershipping efforts relatively high (mean of 2.61 on a scale of 1 = unsuccessful to 3 = very successful). Carriers primarily reported operating nationally throughout the USA and within the North American geographic region (66 per cent). They indicated most often having partnerships with 21 shippers in which they perceived their partnering efforts to be moderately successful (mean of 2.48 on a scale of 1 = unsuccessful to 3 = very successful). Multi-item measures Construct conceptualization and content validity was ensured as questionnaire items were based on previous literature in the field and discussions with managers involved in logistics partnerships. Table I contains the final multiitem scales and the results of principal components analyses conducted to verify the unidimensional nature of the items representing each partnership attribute. As a start, the analyses were performed utilizing shippers’ and carriers’ responses with respect to the importance the sample as a whole placed on each primary attribute. This step was taken to ensure that meaningful subsequent comparisons between the perceptions of shippers and carriers were based on identical multi-item scales. Moreover, it is logical to establish the make-up of items representing each measurement scale by examining the data corresponding to the importance of a partnership attribute. Table I indicates that all item principal component scores equal or exceed 0.63, with the exception of two variables (their scores equal 0.59) that were determined conceptually important to the scales and were retained. Once the scales were developed, principal component analyses were conducted on the responses pertaining to shipper and carrier satisfaction with each attribute. Resulting coefficients are in parentheses and equal or exceed 0.67, with the exception of one variable that had a principal component score of 0.58 and was retained for the purposes of this research. Table I also contains the item-to-total correlations for each measure. For the purposes of this research, all items equal or exceed 0.33, with the exception of one (at 0.29) that was deemed important to the conceptualization of the construct (Dunn et al., 1994). Cronbach alpha was calculated to further establish the comparability of the items in each scale. The reliabilities for measures of partnership attribute importance and satisfaction exceed 0.60, with the exception of shared risk and reward (0.59) and channel perspective importance (0.48). While in a few cases an individual item that failed to demonstrate high correlation with other items representing a single attribute was retained for the
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Table I. Reliabilities and principal component scores of summated scales
Scale/items
PC scores Item-to- Cronbach correlations total Alpha
Planning – importance Open discussion of demand forecasts Joint development of service schedules and goals Participating in each other’s strategic planning
0.82 (0.76) 0.53 (0.50) 0.78 (0.81) 0.46 (0.56) 0.69 (0.86) 0.38 (0.63)
Control/power – importance Equal power in the relationship Mutual authority to end the partnership The authority to require process changes by partner
0.71 (0.77) 0.40 (0.49) 0.82 (0.78) 0.52 (0.50) 0.76 (0.83) 0.44 (0.57)
Flexibility – importance Proactive management of special needs and exceptions The ability to handle changing carrier requirements
0.86 (0.89) 0.48 (0.58) 0.86 (0.89) 0.48 (0.58)
Trust – importance A culture of cooperation and trust Adversarial views are replaced by cooperation and loyalty Expectation of a long-term relationship
0.84 (0.88) 0.62 (0.73) 0.81 (0.90) 0.57 (0.77) 0.83 (0.87) 0.60 (0.70)
Information sharing – importance Timely sharing of cost and performance data The existence of an open book policy Information sharing at multiple levels across firms
0.79 (0.74) 0.49 (0.46) 0.73 (0.83) 0.44 (0.56) 0.83 (0.81) 0.55 (0.54)
Rules of engagement – importance A written, detailed contract A conflict resolution process A formal process to analyze performance Simple process to renew, amend, or end contract
0.77 0.76 0.66 0.64
(0.76) (0.70) (0.58) (0.80)
0.50 0.50 0.64 0.40
(0.52) (0.45) (0.34) (0.53)
Shared risk and reward – importance Specific rewards for outstanding performance Specific penalties for unacceptable performance An equal distribution of planned and unexpected costs The willingness to share cost savings (gain sharing)
0.77 0.65 0.63 0.63
(0.81) (0.70) (0.76) (0.79)
0.48 0.35 0.33 0.33
(0.62) (0.49) (0.55) (0.60)
Channel perspective – importance A clear vision of the supply chain and one’s role in it A focus on supply chain performance improvement
0.82 (0.87) 0.35 (0.53) 0.82 (0.87) 0.35 (0.53)
Effectiveness – importance A commitment to continuous improvement Rigorous performance measurement A corrective action program to eliminate problems Partner profitability and financial stability Improvement of your carrier service levels
0.84 0.59 0.64 0.67 0.79
Cost focus – importance The ability to take cost out of the operation The ability to control costs An emphasis on supply chain cost reduction
0.64 (0.74)
0.64 (0.70)
0.64 (0.73)
0.76 (0.76)
0.66 (0.70)
0.67 (0.67)
0.59 (0.76)
0.48 (0.69)
0.73 (0.81) (0.80) (0.73) (0.77) (0.70) (0.77)
0.65 0.39 0.43 0.48 0.58
(0.64) (0.58) (0.61) (0.53) (0.61)
0.67 (0.77) 0.83 (0.83) 0.59 (0.61) 0.71 (0.88) 0.42 (0.69) 0.82 (0.78) 0.56 (0.54) (continued)
Scale/items
PC scores Item-to- Cronbach correlations total Alpha
Performance management – importance Standardized reports and reporting methods The use of quality charts/tools to monitor performance Well-defined performance metrics Periodic performance review meetings
0.70 0.83 0.77 0.59
0.70 (0.70)
Time horizon – importance A focus on future activities A long range planning horizon The ability to weather short-term ups and downs
0.85 (0.81) 0.56 (0.55) 0.78 (0.81) 0.41 (0.56) 0.61 (0.78) 0.29 (0.51)
Strategic fit – importance Compatible strategies, goals and objectives Similar management styles Compatible corporate cultures
0.88 (0.87) 0.73 (0.71) 0.92 (0.91) 0.80 (0.79) 0.90 (0.89) 0.77 (0.75)
(0.71) (0.67) (0.80) (0.73)
0.46 0.60 0.53 0.36
(0.46) (0.45) (0.57) (0.49)
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0.61 (0.72)
0.88 (0.87)
Note: Coefficients related to satisfaction are in parentheses
Table I.
analyses, overall the summated scales demonstrate characteristics of unidimensionality and reliability. Discussion and implications of the results Tables II-IV contain the primary comparisons of average responses between manufacturers (shippers) and transportation providers (carriers). It could be argued that the priority with which customers place on factors governing supply chain relationships with key suppliers of transport services should be of highest importance. Therefore, Table II provides the ranking of shipper perceptions of the important elements of partnerships and will be discussed first.
Factor Cost Effectiveness Trust Flexibility Channel perspective Information sharing Time horizon Performance management Planning Strategic fit Rules of engagement Control/power Shared risk/reward
Importance Mean Ranking 4.64 4.59 4.58 4.50 4.19 4.10 4.04 3.99 3.97 3.95 3.94 3.67 3.52
1 2 3 4 5 6 7 8 9 10 11 12 13
Satisfaction Mean Ranking 3.67 4.06 4.32 3.96 3.75 3.70 3.61 3.72 3.67 3.85 3.85 3.70 3.51
10 2 1 3 6 8 12 7 11 5 4 9 13
Difference Sig. level ( p <) 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.05 0.05 n.s. n.s. n.s. n.s.
Table II. Comparison of shipper perceptions of partnership factors
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Table III. Comparison of carrier perceptions of partnership factors
Factor Trust Effectiveness Flexibility Cost Planning Time horizon Channel perspective Information sharing Strategic fit Performance management Rules of engagement Shared risk and reward Control/power
Importance Mean Ranking 4.72 4.44 4.30 4.26 4.19 4.18 4.16 4.13 4.11 4.09 4.08 4.00 3.94
Satisfaction Mean Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13
4.07 4.04 3.93 3.69 3.70 3.67 3.98 3.66 3.72 3.82 3.83 3.50 3.59
1 2 4 9 8 10 3 11 7 6 5 13 12
Importance Factor
Table IV. Comparison of carrier and shipper perceptions of partnership factors
Cost Effectiveness Trust Flexibility Channel perspective Information sharing Time horizon Performance management Planning Strategic fit Rules of engagement Control/power Shared risk and reward
Shipper ranking 1 2 3 4 5 6 7 8 9 10 11 12 13
Difference Carrier sig. level Shipper ( p <) ranking ranking 4 2 1 3 7 8 6 10 5 9 11 13 12
0.05 n.s. n.s. 0.01 n.s. n.s. n.s. n.s. 0.05 n.s. n.s. n.s. 0.01
10 2 1 3 6 8 12 7 11 5 4 9 13
Difference Sig. level ( p <) 0.01 0.01 0.01 0.01 0.01 0.01 n.s. 0.01 0.01 0.01 0.01 0.01 0.01
Satisfaction Difference Carrier sig. level ( p <) ranking 9 2 1 4 3 11 10 6 8 7 5 12 13
n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s.
Shipper perceptions. Traditionally, it was common for a shipper to shop for a carrier offering the lowest freight rate. Table II results seem to indicate that cost continues to hold the highest importance when shippers consider doing business with carrier partners. The mean importance score for cost is 4.64 and places this partnership attribute as top importance with respect to shipper perceptions. Ironically, in comparison shippers indicate significantly lower satisfaction (p<0.01) when evaluating carriers on providing low cost transportation service (mean 3.67, tenth ranking). Shippers must not only convey the importance of this factor to their carriers, they must also work with carriers to collaboratively reduce the cost of transportation service. By eliminating non-value adding activities, taking on
some responsibilities (e.g. shipper load and count), and/or forecasting requirements more effectively, shippers will help carriers reduce costs. Thus, satisfaction for both parties should improve. On the other hand, shippers rated partnership effectiveness second in importance (mean 4.59) and in satisfaction (mean 4.06) with their key carrier partners. While there is room for carrier improvement in satisfying shippers (i.e. there is a statistically significant difference between the emphasis shippers place on importance and satisfaction, p<0.01), it is encouraging that shippers are highly satisfied with carrier partners in such an important attribute of the relationship. With respect to trust, flexibility, and channel perspective, it is also encouraging that the results indicate shippers ranked the attributes similarly in satisfaction as in importance. However, there continues to be a statistically significant difference (p<0.01) between the top attributes important to shippers and their satisfaction with carrier partners. Since these are not the most concrete factors, shippers must clarify for carriers what aspects of these factors must change to enhance shipper satisfaction. Otherwise, carriers will be left to (mis)interpret what the shippers require. The partnership success factors falling into the middle ranks of importance include information sharing, time horizon, performance management, and planning. There is an overall mismatch between the importance shippers place on the attributes and their satisfaction with such lower ranked partnership attributes. Again, shippers must take the lead in communicating expectations and needs to carriers. Carriers should also be included in strategic planning activities and involved in scheduled performance scorecarding activities to foster development in these four areas. Lastly, while the rankings are different between shipper importance and satisfaction with respect to strategic fit, partnership rules of engagement, control/power, and shared risk and reward, the results indicate no statistical significant difference between the mean rankings. Therefore, the satisfaction that shippers express with the partner carriers is comparable to the importance that they place on these relationship elements. This suggests that shippers are comfortable with the role of partnerships in their activities and the processes for developing relationships. Given the lower need to emphasize these implementation issues, shippers’ efforts should focus on the day-to-day management and improvement of existing partnerships with carriers. Carrier perceptions. In the typical business sense, shipper perceptions may be considered more highly important than the perceptions held by their providers of transport services. However, healthy partnerships must include a mutual consideration of the perceptions of all supply chain ‘‘partners’’. This includes the perceptions that carriers have with respect to the important elements of developing and maintaining successful long-term relationships with select customers (shippers). The results in Table III indicate that trust between a carrier and shipper is of greatest interest and importance to carriers. Overall, carrier respondents rated
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trust 4.72 on a five-point scale with 5 being critically important. Also illustrated in Table III is the satisfaction of carriers with the characteristics of trust exhibited by their partnering shippers. While carriers also ranked satisfaction with trusting key shippers the highest, the results indicate shippers have room to improve. There is a significant statistical difference between the importance of trust to a carrier and their satisfaction with shipper-partners on this attribute. For some carriers, satisfaction may increase over time as they gain more partnership experience, while others may always be a bit wary on this factor. It is important for carriers to identify how shippers can enhance trust and communicate accordingly. Similar to the results pertaining to trust, carriers rated supply chain partnership effectiveness second most important in developing healthy relationships with shippers (mean of 4.44). Table III also indicates that carrier satisfaction with the effectiveness of their partnerships is relatively high, however their satisfaction is not to the level of the importance they place on the attribute (statistical difference is significant at the 0.01 level). Flexibility is an important factor of successful partnerships, and although carriers rated this attribute third in importance to trust and effectiveness, their satisfaction with shippers exercising flexibility is ranked statistically significantly lower (p<0.01). To this point, the results indicate that trust, effectiveness, and flexibility are the most important attributes to carriers when developing and managing longterm cooperative partnerships with key shippers. Partnership attributes ranked lower in importance to the top three include (in rank order) cost, planning, time horizon, channel perspective, information sharing, strategic fit, performance management, rules of engagement, shared risk and reward, and control/power. Table III indicates a general mismatch of carrier importance with how well they are satisfied with their shippers on these factors. Again, the developmental aspects of partnerships are giving way to the ongoing relationship and performance issues from the perspective of the carriers. Primary efforts to improve relationships should focus on these forward focused factors. Success will facilitate carrier satisfaction levels on the most important issues. Comparison of shipper and carrier perceptions. While it is, indeed, essential and interesting to assess the importance and satisfaction that shippers and carriers, as unique groups, place on the elements of partnering, it is equally important to draw comparisons between the perceptions of the two groups of key supply chain partners. Table IV offers the results. Three observations are highly visible. First, the attribute, cost, is observed as highly important to both shippers and carriers (rankings are 1 and 4 respectively), although there is a significant statistical difference in their mean rankings (p<0.05). More alarming is the extremely low satisfaction that both groups express with their partners’ performance in controlling, reducing, and removing cost from the operation. This is an obvious area needing attention by shippers and carriers alike, as neither side can bear the entire burden of cost
reduction efforts. Also, the largest benefits may be gained through cooperative transportation process improvements such as developing joint cost goals, cost reduction expectations, and collaborative teams to pursue cost savings opportunities. Teams would be responsible for eliminating non-value adding activities and implementing cost saving practices in both organizations. The net result will be lower cost in the supply chain and higher satisfaction with partner performance on this factor. Second, and a more positive observation, the attributes of effectiveness and trust are highly ranked in importance and in satisfaction by both shippers and carriers. In fact, the results indicate that there is no statistical significant difference between the perceptions of the two partnering groups. While partnership flexibility was ranked differently in importance by shippers and carriers the ranking was high for both groups and there was no significant difference in satisfaction expressed by the two groups. Therefore, partners are encouraged to identify the characteristics and skills they are employing to achieve such levels of satisfaction in these highly important areas. The skills must be continued and perhaps duplicated for other attributes to assist in achieving relationship satisfaction in other important areas. Lastly, it is interesting to see that in no case did the results identify statistically significant differences in the satisfaction expressed between shippers and carriers on all 13 core partnership success factors. Summary and future directions Overall, the study furthers the understanding of critical success factors in shipper-carrier partnerships as it pertains to the use of US motor carrier services. Given the number of motor carriers and the money spent on this mode, the importance of partnerships and collaboration in the supply chain, and the interest in the topic, the results are pertinent to a variety of groups: . For organizations contemplating the partnership strategy, the research provides insight into the critical aspects of such relationships. It provides comparative perspectives of the involved parties in terms of factor importance and factor satisfaction. The research revealed that, in general, both groups of participants are satisfied with their partners’ performance on critical success factors. Also, partnership development and implementation concerns are less of an issue today and the focus has shifted to relationship maintenance. This information should help new participants adopt this strategy with more confidence, focus on relevant issues, and understand where effort must be placed. . Organizations already involved in partnerships can gain insight from the research regarding the perspective of their counterparts on critical success factors. It was revealed that satisfaction levels significantly lag importance levels for a number of factors. These gaps or discrepancies should receive the focused attention of both partners. Only through collaborative attention to partnership maintenance factors (e.g. costs and time horizon) will relationships thrive over the long run.
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Individuals involved in partnership and strategic alliance research can use and build on the current study. Critical success factors identified by this research as high importance and/or low satisfaction should be analyzed in further detail. The study could certainly be replicated in other modes and logistical activities where partnerships exist to understand the nature of critical success factors in those partnership endeavors. Also, research of specific dyads, similar to the work done by Ellram and Hendrick (1995), could be conducted to provide more indepth information regarding shipper-carrier partnership dynamics. Finally, analysis of shipper-carrier partnerships in non-US and international supply chains would be of value.
Just as logistics theories and practices evolve, the attributes of successful partnerships change over time. Shipper-carrier partnerships will continue to thrive as long as managers on both sides communicate their needs effectively and work collaboratively toward increasing the satisfaction of partners on the critical success factors identified within this study. References Anderson, S. (2000), ‘‘The globally competitive firm: functional integration, value chain logistics, global marketing, and business college strategic support’’, Competitiveness Review, Vol. 10 No. 2, pp. 33-46. Auguston, K. (1992), ‘‘Vendor partnering pays off for Pillsbury’’, Modern Materials Handling, Vol. 47 No. 9, pp. 47-9. Bowersox, D. (1990), ‘‘The strategic benefits of logistics alliances’’, Harvard Business Review, Vol. 68 No. 4, pp. 36-44. Bowersox, D., Daugherty, P., Droge, C., Rogers, D. and Wardlow, D. (1989), Leading Edge Logistics: Competitive Positioning for the 1990s, Council of Logistics Management, Oak Brook, IL. Bradley, P. (1994), ‘‘Transportation report: what really matters’’, Purchasing, Vol. 117 No. 1, pp. 66-71. Byrne, P. and Markham, W. (1991), Improving Quality and Productivity in the Logistics Process – Achieving Customer Satisfaction Breakthroughs, Council of Logistics Management, Oak Brook, IL. Cooke, J. (1994), ‘‘Shippers jump on the partnership bandwagon’’, Traffic Management, Vol. 33 No. 8, pp. 26-31. Cooke, J. (2000), ‘‘Bringing carriers into the loop’’, Logistics Management and Distribution Report, Vol. 39 No. 9, pp. 77-80. Cooper, M. and Gardner, J. (1993), ‘‘Building good business relationships – more than just partnering or strategic alliances?’’, International Journal of Physical Distribution & Logistics Management, Vol. 23 No. 6, pp. 14-26. Crum, M. and Allen, B. (1990), ‘‘Shipper EDI, carrier reduction, and contracting strategies: impacts on the motor carrier industry’’, Transportation Journal, Vol. 32 No. 2, pp. 18-32. Dahlstrom, R., McNeilly, K. and Speh, T. (1996), ‘‘Buyer-seller relationships in the procurement of logistical services’’, Journal of the Academy of Marketing Sciences, Vol. 24 No. 2, pp. 110-24. Dunn, S., Seaker, R. and Waller, M. (1994), ‘‘Latent variables in business logistics research: scale development and validation’’, Journal of Business Logistics, Vol. 15 No. 2, pp. 145-72.
Dwyer, F., Schurr, P. and Oh, S. (1987), ‘‘Developing buyer-seller relationships’’, Journal of Marketing, Vol. 57 No. 2, pp. 11-27. Ellram, L. (1990), ‘‘The supplier selection decision in strategic partnerships’’, Journal of Purchasing and Materials Management, Vol. 26 No. 4, pp. 8-14. Ellram, L. (1991a), ‘‘A managerial guideline for the development and implementation of purchasing partnerships’’, International Journal of Purchasing and Materials Management, Vol. 27 No. 3, pp. 2-8. Ellram, L. (1991b), ‘‘Life-cycle patterns in industrial buyer-seller partnerships’’, International Journal of Physical Distribution & Logistics Management, Vol. 21 No. 9, pp. 12-21. Ellram, L. and Hendrick, T. (1995), ‘‘Partnershipping characteristics: a dyadic perspective’’, Journal of Business Logistics, Vol. 16 No. 1, pp. 41-64. Gentry, J. (1993), ‘‘Strategic alliances in purchasing: transportation is the vital link’’, International Journal of Purchasing and Materials Management, Vol. 29 No. 3, pp. 11-17. Gibson, B. and Rutner, S. (1996), ‘‘Partnershipping: what’s in it for the carrier?’’, Journal of Transportation Law, Logistics, and Policy, Vol. 64 No. 1, pp. 105-8. La Londe, B. and Cooper, M. (1989), Partnerships in Providing Customer Service: A Third Party Perspective, Council of Logistics Management, Oak Brook, IL. Lambert, D., Emmelhainz, M. and Gardner, J. (1996), ‘‘Developing and implementing supply chain partnerships’’, The International Journal of Logistics Management, Vol. 7 No. 2, pp. 1-17. Lambert, D., Emmelhainz, M. and Gardner, J. (1999), ‘‘Building successful logistics partnerships’’, Journal of Business Logistics, Vol. 20 No. 1, pp. 165-81. Parks, L. (2001), ‘‘Partnerships fortify supply chain initiatives’’, Drug Store News, Vol. 23 No. 2, pp. 1, 13. Stuart, F. (1999), ‘‘Supplier partnerships: influencing factors and strategic benefits’’, International Journal of Purchasing and Materials Management, Vol. 29 No. 4, pp. 22-8. Tate, K. (1996), ‘‘The elements of a successful partnership’’, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 3, pp. 7-13. Walton, L. (1996), ‘‘Partnership satisfaction: using the underlying dimensions of supply chain partnership to measure current and expected levels of satisfaction’’, Journal of Business Logistics, Vol. 17 No. 2, pp. 57-75. Wood, D. and Nelson, R. (1999), ‘‘Industrial transportation management: what’s new?’’, Transportation Journal, Vol. 39 No. 9, pp. 26-30.
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Effective logistics outsourcing in New Zealand An inductive empirical investigation
682 Received October 1999 Revised October 2001
Jay Sankaran MSIS Department, The University of Auckland, Auckland, New Zealand
David Mun Huhtamaki Henderson, Henderson, Auckland, New Zealand
Zane Charman The University of Auckland, Auckland, New Zealand Keywords Contracts, Logistics, Outsourcing, Effectiveness, Quality, New Zealand Abstract Reports an inductive, qualitative investigation into third party logistics contracts in New Zealand. The objective of the study was to uncover managerial insights into effective logistics outsourcing that are appropriate to the New Zealand context. A salient feature of the research is the methodology that involved going back-and-forth between data gathering (the principal source of data was flexible interviews) and analysis, which was conducted through formal coding techniques. Analysis reveals that the third party provider’s refraining from premature monetary commitments is an instrumental variable in the effectiveness of third party logistics contracts in New Zealand. Also uncovers how the uniqueness of the NZ context shapes third party logistics in NZ.
Background In keeping with the trend towards outsourcing and the focus of corporations on their core competencies, the third party logistics industry is on the ‘‘growth’’ phase of its life-cycle in the USA (Lieb, 1992; Lieb and Randall, 1996), Europe (Virum, 1993), and elsewhere. For our purposes, we employ Sink and Langley’s (1997) characterization of third party logistics (3PL): ‘‘. . . using the services of an external supplier to perform some or all of a firm’s logistics functions’’. Empirical research on 3PL contracts is emerging concurrently. (Third-party logistics is sometimes referred to as ‘‘contract logistics’’, which is a ‘‘process whereby the shipper and the third part[ies] enter into an agreement for specific services at specific costs over some identifiable time horizon’’ (see La Londe and Cooper, 1988, p. 5).) The effectiveness of any such contract, as well as its determinants, is increasingly receiving attention. However, much of the published, prescriptive literature is not tied rigorously enough to empirical
International Journal of Physical Distribution & Logistics Management, Vol. 32 No. 8, 2002, pp. 682-702. # MCB UP Limited, 0960-0035 DOI 10.1108/09600030210444926
The authors acknowledge with deep gratitude the participation of senior executives of two contract logistics providers in New Zealand, without which the present study would not have been possible. The research was partially supported by research grants from the University of Auckland Research Committee and the Chartered Institute of Transport (NZ). The first author also wishes to thank sincerely the Institute of Transport Studies (Sydney) (The Australian Key Centre for Transport Management) for courteously hosting him in February-March 1999, during which time part of this research was undertaken. The authors thank Gabrielle Peko for useful comments on earlier drafts of the paper.
evidence. A notable exception is Sink and Langley (1997), who propose a sequential, managerial framework for the effective acquisition of logistics services. They gleaned the framework from a variety of information sources (the relevant literature, a focus group, eight case studies, and a survey) based in North America and Europe. The respondents of the survey were senior logistics executives of companies, some of whose apparently successful contracts with 3PL service providers were publicized in the business and trade literature. The framework proposed by Sink and Langley (1997, p. 175) is a sequence of the following five steps: (1) identify need to outsource logistics; (2) develop feasible alternatives; (3) evaluate and select supplier; (4) implement service; and (5) [conduct] ongoing service assessment. However, feedback loops between steps are possible. Lambert et al. (1999) prescribe a model for partnership development and implementation, which they based on an analysis of 18 relationships in leadingedge firms. The model has three major elements, namely, drivers, facilitators, and management components, all of which lead to outcomes. Lambert et al. (1999) also discuss how their model seeks to address the causes of partnership failure. The motivation for the above empirical investigations is to develop a framework/model that can ‘‘guide the purchasing process’’ (Sink and Langley, 1997, p. 165). However, we know of at least one rather well publicized 3PL contract in New Zealand, with which both the client and the provider are well pleased, although the client apparently departed from prescribed frameworks, such as that of Sink and Langley, in many ways. (We refer to the client as Sigma and to the provider as Alpha. This contract, along with certain others engaged in by the provider, has received attention in the New Zealand business press owing to the ‘‘win-win’’ efficiency gains realized by the provider through consolidation in distribution. Such consolidation is especially significant in New Zealand in light of the country’s thin population density of 14 people per sq. km..) Sigma did not send out requests for proposals (RFPs). The origination of the contract could be traced back to a certain gathering where the GM of Alpha happened to meet and converse, for the first time, with the CEO of Sigma’s Australian parent. According to a senior executive of Alpha: They were talking about what they did and the CEO said I have just taken over YYY. He said how would you like to take a look at Sigma (a New Zealand subsidiary of YYY) – the place is a shambles. He was right. We put together a warehouse model and warehouse costs. Then, we sat down and started talking about active issues and how we would handle those issues. Then, we talked about budgets and how we would put those budgets together. . .
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At no stage did Sigma look at alternative logistics providers: We told them this is what we are going to do and they evaluated it.
In fact, Sink and Langley themselves noted that in the contracts examined by them, the buying process did not always follow the five-step sequence. They attributed this departure to the influence of ‘‘the realities of power, conflict, and compromise’’ (Sink and Langley, 1997, p. 174). On occasion, either a step was altogether omitted and/or it was initiated before its predecessor had been completed in its entirety. Furthermore, as observed by the senior executive referred to earlier with regard to Sigma’s refraining from a formal issuance of RFPs: To be fair, at that stage in New Zealand, the alternatives were limited.
While a formal survey of logistics outsourcing in NZ is elusive, one local logistics specialist estimates the rate of local outsourcing as of mid-1999 to be at 15 per cent (O’Neill, 1999). This is well short of the proportions of companies in 1997 that used third party logistics services in Europe (84 per cent) and North America (69 per cent) (Bowman, 1998). The business development manager of another 3PL operator in NZ believed that the ‘‘very low’’ penetration of 3PL in NZ was because: . . .there’s still a measure of desire of a lot of companies, even big ones, to actually keep their own warehouse for some reason or another. It’s like a mindset. A lot of the companies have not woken up to the benefits of outsourcing.
The earlier illustration of how contracts have been informally initiated is not uncommon in NZ. This is because, as the same manager put it: The industrial base in NZ is very small, people know each other, know of each other.
To clarify, in 1995, NZ’s population of about 3.5 million was greater than that of only two of the then-25 OECD member countries, namely, Iceland and Luxembourg (OECD, 1997). Under the exchange rates at the time of writing (one NZ Dollar [NZD] was roughly 0.44 US Dollars in April 2002), the annual sales of at least ten US corporations in Fortune magazine’s list of the top 500 US companies exceeded New Zealand’s gross domestic product in 1997. In 1997, 71 per cent of manufacturing activity units in New Zealand employed five or fewer full-time equivalent (FTE) persons. The average number of FTE persons engaged per unit was 11.6 (Statistics New Zealand, 1998, Ch. 21). Only 394 of the 21,711 geographic manufacturing units employed at least 100 people. The average annual sales and other income of a manufacturing unit were NZD 2.35 million. Thus, by international standards, New Zealand’s manufacturing is relatively small-scale. This means that for several NZ manufacturers, the size of the 3PL contract and the benefits from outsourcing are not large enough to make the contract really worthwhile for either the client or the 3PL provider (Sheffi, 1990, p. 36).
Motivating the present study The foregoing discussion would imply that buying firms that do not employ the sequence gleaned by Sink and Langley (or similar other frameworks) could yet outsource logistics successfully in NZ. This implication was our point of departure for the present study. Given the NZ context, perhaps managerial blueprints (e.g. Sink and Langley) that were inferred from the experience of US corporations might not translate in toto to the NZ situation – which would then beg research of the kind reported here. A pamphlet of the US-based Warehousing Education and Research Council notes the ‘‘sobering’’ fact that 55 per cent of logistics alliances are terminated after three to five years (Gulisano, 1997). The high proportion of failures is confirmed by a more recent survey conducted by the New York-based Outsourcing Institute: 55 per cent of third party partnerships fail within five years (Foster, 1999). Boyson et al. (1999, p. 80) note that a ‘‘significant’’ percentage (12.5 per cent) of the respondents to their survey indicated that they had to make critical changes and take previously outsourced functions back inhouse. They remark that ‘‘these changes may very well have been the result of third party providers’ performing below expectations and the outsourcing firms’ realizing that they are better able to perform these functions internally’’ (Boyson et al., 1999, p. 80). In light of these facts, and the lag in logistics outsourcing in NZ, the present study appears topical. Case study research has been deemed to be especially appropriate for gleaning theoretical insight into an emerging empirical topic, such as the effectiveness of 3PL contracts, of which comparatively little is known (Eisenhardt, 1989, p. 548; Ellram, 1996, p. 97). In building theory, theoretical sampling governs case selection; it is appropriate to choose cases that vary along the dimension(s) of emerging theoretical importance, while controlling for other possibly confounding dimensions (Eisenhardt, 1989, p. 537). A manufacturer or marketer might enter into just one contract with a service provider but that provider will likely be engaged in the provision of 3PL services for several clients simultaneously. Hence, a logical starting point for case study research into 3PL contracts would be to examine various contracts in which the same service provider is engaged concurrently. Consequently, in the present investigation, we focus on contracts that all involve Alpha. Our choice of Alpha was quite deliberate. Despite the small industrial base in NZ and the slow uptake of 3PL in the country, Alpha has witnessed rapid growth since it commenced operations in NZ in 1989. Between 1989 and 1998, the number of its permanent staff grew steadily from 25 to over 400 (since Alpha is still privately owned we are unable to access any financials). The business development manager of another 3PL operator, Beta, who was familiar with Alpha’s operations, readily agreed that Alpha’s growth had been ‘‘huge’’. He went on to clarify that transportation-based operators such as Beta entered the 3PL industry in NZ by diversifying into multi-user, public warehousing. In contrast, Alpha till recently had specialized in:
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. . .facilities management, which is basically taking over an existing facility on behalf of another party. Facilities management requires a different set of principles to operate. Generally speaking, you need to have management experience, you need to acquire the management expertise first before you get into it. And that is not an area where we have progressed at this stage. Certainly, there’s been plenty of opportunities – don’t get me wrong. Alpha’s growth has been huge because there is nobody in that field in NZ. Alpha saw a niche in the market, or rather a sector in the market, not a niche (it is a big niche). And there’s nobody with that expertise in NZ. So they all transplanted their experience and knowledge [from Australia] very very rapidly, and have got a large chunk of that section of the business very quickly.
A principal reason underlying Alpha’s growth, especially in relation to other 3PL providers in NZ, was that unlike those of its competitors, Alpha’s contracts tended to be renewed when they came up for review. Several of Alpha’s clients had come to designate Alpha formally as their preferred supplier of logistical services. Further, in its ten-year history in NZ, Alpha had not instigated the termination of any of its contracts. On only one occasion the client instigated the termination of the contract. A reason for that was Alpha had taken on the distribution of product for a competitor of the client. Further, the client, a retailer, had just acquired another retail chain, and that had made it economical for the client to in-source distribution. The paper is organized as follows. The following section details the qualitative methodology employed in the present investigation. The strong accent on induction distinguishes the present research from the extant empirical literature on 3PL. Hence, we dwell at some length on our inductive process of analysis. We then describe the outcomes of our analysis. One basic outcome is an anatomy of 3PL contracts, which depicts the constituent elements of contracts and their relationship to each other as well as to the whole. We briefly relate our inductively derived conceptualization of 3PL contracts with those of other authors. We also explore in-depth a key category that emerged from our data, namely, the provider’s refraining from making firm and strong monetary commitments early in the contract negotiations. We conclude with a discussion of the implications of our findings for effective logistics outsourcing in NZ. Methodology Iterative data gathering The issue of what constitutes an appropriate degree of theoretical formulation prior to data gathering in qualitative research has been debated at length. One set of authors, including Lofland (1971) among others, maintains that ideally, data collection should be commenced from a ‘‘blank state’’. However, for reasons similar to those cited by Miles and Huberman (1994, p. 17), we followed their recommendation of commencing data collection with a rudimentary conceptual framework of sorts. In our context, a ‘‘mundane’’ reason (Miles and Huberman, 1994, p. 17) for doing so was that the principal source of data was interviews with a senior executive of Alpha and, to a lesser extent, a senior executive of Beta. Both executives were business development managers of
their respective companies. To minimize our imposition on their time and simultaneously to ‘‘get the most’’ out of the interviews, we saw fit to do some prior ‘‘homework’’. This took the form of, among other things, a stock-take of all references to the effectiveness of 3PL contracts in the extant academic literature, as well as the business press in New Zealand. As it happened, our first introduction to the senior executive (SE) of Alpha had been at a formal presentation by him on Alpha’s business and its various, ongoing 3PL contracts in New Zealand. Thus, his presentation suggested issues and topics that we could probe further in research interviews. For instance, in the course of his presentation, the SE had dwelt a little upon his own career and prior professional experience, which included being the distribution manager of a large NZ breweries company. At Alpha, he had also negotiated a contract with Sigma, which was a NZ distributor of liquor. Given our focus on the effectiveness of 3PL contracts, we subsequently probed whether the SE’s own professional experience in the liquor industry had contributed significantly to the success of Alpha’s contract with Sigma, by his having been in the ‘‘client’s shoes’’, so to speak. It turned out that while the SE had had a prior understanding of the liquor industry, he realized that Sigma was completely different once he went into the business. (It was this question that led us to uncover the concept of the provider’s refraining from premature monetary commitments, which we discuss at length in the next section.) The SE was himself, in the above mentioned manner, a major source of issues for discussion for even the first interview. This accentuated the inductive character of our methodology. Moreover, immediately prior to the first interview, the SE gave us a guided tour of the Sigma site, during which he described at length various aspects of Alpha’s business. In turn, the site-visit fed into the first interview. The imperative of ‘‘going back-and-forth’’ between incipient conceptual frameworks and data gathering is a hallmark of the grounded theory approach (Glaser and Strauss, 1967). Thus, after the first interview with the SE, we coded the interview transcript along the lines proposed by Rose (1982), which is quite similar to, for example, the open coding logic of Strauss and Corbin (1990). In keeping with our constant attempt to understand the ‘‘hows’’ and ‘‘whys’’ concerning 3PL contracts, we also compiled a new set of issues to probe based on the first interview. Then, in the subsequent interview, we sought to explore these issues as well as to ‘‘fill’’ (and modify, if necessary) the concepts and categories that were emerging from our coding. This process was repeated until we appeared to reach closure with regard to our findings. Documents furnished by the SE of Alpha and the business development manager of Beta constituted other sources of potentially useful data for the present study. These included for example a statement of the partnering agreement between Beta and one of its clients. We now clarify our approach towards data gathering through a concrete illustration. During the first interview, the SE had remarked that Alpha employed open book costing in its contract with Sigma. Rho had also started
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out with open book costing. However, it subsequently sought merely a variable-cost-per-carton figure from Alpha, which the SE remarked was a ‘‘definite’’ indication of its growing trust in Alpha. This begged the question as to whether Rho trusted Alpha more than Sigma did (perhaps because Rho’s contract was the older of the two). We duly probed this issue subsequently. The SE responded that Sigma’s continued use of open book costing proceeded more from its history of gross in-house mismanagement of the warehouse when ‘‘there were huge cartels of people doing dodgy things’’ such as pilferage. Our coding process Before we describe our coding process, we need to set out some definitions. A concept is a pattern that emerges from the data. An indicator is an empirical phenomenon that fits into a concept. A category is an abstract idea that unifies several concepts. During coding, we scanned the text (e.g. interview transcripts) from start to finish, all the while searching for various patterns or themes that began to manifest in the data and that evinced the potential for recurring subsequently in various ways. Each such manifestation constituted an indicator of the underlying pattern (concept). To illustrate our coding process, we reproduce below a snippet from one of the interviews, wherein ‘‘A’’ refers to the authors. 1 2 3 4 5 6 7 8 9
A: You manage Zeta’s warehouse and so forth but how does Alpha win with a contract such as Zeta, wherein, because of the nature of Zeta’s product (XXXX), you cannot consolidate distribution as you might with, say, Sigma’s products? SE: Zeta is a contract that we took on under the impression that it would extend its product range, and deliver to other outlets. This did not come about. A: Did this change your business plan? SE: Yes. It [Zeta] is a small xxx-dollar contract. We will only get a win out of it if it changes to a multipurpose [warehouse].
In lines 5-6 of the snippet, we discern a potential concept (theme), one that appears likely to recur in several ways. We label it ‘‘premises/assumptions in the client’s business plan that underlie the provider’s acceptance of the contract’’. Two indicators of this concept are: ‘‘the client’s plans to extend its product range’’; and ‘‘the client’s plans to expand its customer base’’. Continuing further, in lines 8-9, we discover another emergent concept, ‘‘ways in which Alpha gets a win out of a contract’’. An indicator of this concept is ‘‘operating the contract out of a multipurpose warehouse’’. Such emergent concepts will be ‘‘filled’’ on the analysis of subsequent text, failing which they will be explored through subsequent data gathering. In the manner of the constant comparisons method (Glaser and Strauss, 1967), on the gathering and analysis of subsequent data, a concept could well be redefined/ relabeled, perhaps as not one but several (lower-level) concepts. It is vital to ensure that at all times, each one of the indicators of a concept truly constitutes a manifestation of the pattern/theme that is referred to by the concept’s label. Thus, not only should the indicators of a concept cohere with the label that is
assigned to the concept, the various indicators should stand in relation to each other as being different representations of the same pattern/theme. We clarify this process with reference to another snippet, wherein, to avoid confusion with the preceding extract, the lines are numbered starting from 101: 101 A: Do all contracts have an initial duration of three years? 102 SE: They vary. It depends on a number of things . . . With Sigma, it was originally a 103 three year contract. We have invested in the paperless [warehousing] system, 104 and an expensive computer system. We renegotiated the contract for a further 105 length of time on the basis that we have made an investment and we need some 106 ROI on this investment. Where we don’t spend a lot of capital, the shortest 107 term is three years. Like Zeta. A normal contract is three to five years. We had 108 a five year contract with Delta and after 3 years this has been extended to be 109 renewed to the year 2002. They have extended this out as they have been 110 happy with the way the contract has been working.
In lines 104-106, we uncover a concept relating to renegotiation, which we label ‘‘drivers for renegotiating the contract duration’’. One indicator of this concept is ‘‘the provider’s making an investment and needing some ROI’’. Proceeding further, it appears, at first glance, that in lines 107-110, this concept is manifesting again as ‘‘the client’s being satisfied with the way the contract has been working’’. However, while the first indicator refers to a driver from the provider’s side, the second refers to a driver from the client’s side. Hence, the emergent concept is redefined as two lower-level concepts, ‘‘provider’s drivers for renegotiating the length of the contract’’, and ‘‘client’s drivers for renegotiating the length of the contract’’. As happens quite often in inductive research of the present kind, some of the concepts that are induced echo those that have been developed, perhaps somewhat deductively, in the literature. As an illustration, we present below the indicators of a major concept that has been well addressed in its own right in the literature in the context of decision drivers (see for example, Coyle et al., 1996, p. 551; Rao and Young, 1993). Two other concepts are so important, and not explored enough in the extant literature, that they are discussed as part of the findings in the next section. All quotations, unless otherwise specified, are of the SE of Alpha verbatim. [Concept] Impetuses to the client for going into contract logistics: .
[Indicator] Difficulties with managing logistics in-house. (For instance, at Sigma, as noted earlier, pilferage was a serious problem. At Zeta, ‘‘The warehouse was a mess’’; the available space was poorly utilized requiring Zeta to occasionally use outside storage at considerable expense. Omega had had ‘‘a whole lot of owner drivers that were making a lot of money.’’)
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[Indicator] The practice of allied firms overseas to go in for contract logistics. (The US owners of Zeta were employing contract logistics in the USA, and hence wished to explore it in New Zealand.)
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[Indicator] The intent of the parent group of companies to use the client subsidiary as a ‘‘pilot’’ to test out contract logistics. (At the time our study commenced, a prominent Australasian group of companies trialled contract logistics in New Zealand with Alpha for one of its newly acquired subsidiaries, Omega.)
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[Indicator] The special expertise of the provider. (Alpha’s special capabilities in the transport of food products, as well as its ability to move product in accordance with the changing needs of the market [‘‘flexible walls’’], were the main reasons that Omega approached Alpha.)
Findings In the manner described in the preceding section, we first induced lower-level concepts and, subsequently, higher-level categories that represented greater degrees of abstraction. In terms of our findings, we first present a basic outcome of our analysis, namely, an anatomical description of 3PL contracts. We emphasize that since the description has been rigorously induced from the available data, it is empirically solidly grounded. Subsequently, we describe an important category that emerged through an analysis of our data: the provider’s refraining from making firm and strong commitments regarding costs, early in the negotiations. A conceptualization of third party logistics contracts The concepts and subcategories that we have induced from the data can be grouped into four major categories. These we have labeled as follows: (1) The prelude. This pertains to the ‘‘coming into being’’ of the contract, and includes the origination and initial multilateral negotiations. (2) The physical actualization/realization of the contract. This relates to the direct, concrete, and ongoing physical manifestation of the contract and includes, but is not limited to, the logistical services that are provided therein. (3) The multi-lateral management of the contract. This refers to the indirect, managerial planning and controlling of the contract/alliance/ relationship. (4) The context embedding the contract. This relates to influences on the contract that are not intrinsic to any one of the preceding (namely, the prelude, the physical actualization, and the management of the contract) but rather pervade them all. The categories along with their included concepts are presented in the Appendix. Each concept/category is accompanied with an indicator that is contained in the data and that serves to clarify its definition. The concepts that are included within each category in the Appendix are an illustrative subset of those that we uncovered. They nevertheless suffice to sharpen the definition of the same. The four categories and their relationship to each other are also pictorially depicted in Figure 1. The conceptualization depicted in Figure 1 can be compared and contrasted to the buying process of Sink and Langley (1997, p. 175) and to the three-phase process model of logistics alliances proposed by Bagchi and Virum (1998). In the latter, phase 1 is characterized by a ‘‘growing awareness of the need for a radical change in the management of the logistics function’’, phase 2 consists of
the ‘‘preparation and planning for the alliance’’, and phase 3 includes ‘‘managing the process’’. Further, as with Sink and Langley’s buying process, adjustment feedback loops from phase 3 to the preceding phases can prevail in Bagchi and Virum’s process model. The ‘‘prelude’’ in Figure 1 roughly corresponds to the first three steps in the buying process and to phase 1 in the process model. However, in our conceptualization, the physical actualization of the contract and the multilateral management of the contract are, more or less, concurrent processes. The two stand roughly in a first-order/second-order, direct/indirect relation to each other. The method by which either the five-step buying process or the three-phase process model has been inferred from the associated data is not transparently clear. For example, Bagchi and Virum (1998, p. 205) note merely that ‘‘the logic of dividing the process into three phases emerged from the findings of the case studies’’. We argue that, in contrast, the anatomy depicted in Figure 1 has been rigorously and systematically grounded in empirical data through the use of formal techniques for inductively analysing qualitative data. We also note that Figure 1 makes explicit the notion of ‘‘context’’. The context that embeds a contract and shapes it may not be intrinsic to the contract per se. However, the effectiveness of a contract will have to be interpreted with reference to contextual variables, such as ‘‘flux within the client company and in its environment’’ (see the Appendix). In fact, the impact of a manufacturer’s operating environment on the formation of cooperative logistics relationships by it is the very focus of Stank and Daugherty (1997). We envisage that the conceptual framework of 3PL contracts described earlier will serve as a handy blueprint for developing in-depth case descriptions (within case analysis – see Eisenhardt, 1989). Thus, a case write-up on a contract could proceed along four lines, namely, the prelude, the (direct) physical actualization, the (indirect) joint management of the contract, and the embedding context. The concepts within each of these four major categories can be used as a basis for the collection and organization of data. The resulting descriptions will be fairly consistent across contracts. This feature is important for at least two reasons. First, it facilitates cross case comparisons (Eisenhardt, 1989) in an obvious way. Second, it facilitates joint
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Figure 1. A pictorial conceptualization of third party logistics contracts
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research by multiple investigators who can develop case descriptions, independently of each other, with little loss of coherence in the investigation. Our inductive conceptualization assumes even more significance because the lack of consistency across extant case descriptions has been a criticism of case study research into logistics alliances. Lambert et al. (1999, p. 168) remark that ‘‘while case studies of partnerships do provide a fuller picture at the micro organizational level, such studies have not followed a unified research framework that would permit replication and generalization of findings.’’ Provider’s refraining from premature monetary commitments A key category that emerged from our data was Alpha’s refraining from making firm and strong monetary commitments early in the contract negotiations. Table I summarizes the concepts and indicators associated with this category. Below, we first describe the various ways by which Alpha refrained from premature monetary commitments and then describe the reasons for it. The provider’s ways of refraining from premature monetary commitments: . Outright refusal to suggest unit rates. The SE of Alpha noted that: We actually tell people if they want us to give them a price per unit for their business, for the next few years, forget about talking to us because the first thing you do is give them the wrong price.
One of Alpha’s clients, ZZZ, had a management consulting company acting on its behalf for getting a suitable 3PL provider by sending RFPs to six different providers. In response to the RFP, Alpha put in: . . .what we called a non-conforming proposal. We were the only one that didn’t put in a whole lot of rate suggestions . . . We went down to do the presentations and moved The provider’s refraining from making firm and strong monetary commitments early in the contract negotiations Ways of refraining Reasons for refraining Outright refusal to suggest flat rates per unit Previous negative experiences of committing prematurely
Table I. Concepts and indicators associated with the provider’s refraining from premature monetary commitments
Premising that it is not knowledgeable enough (about the client’s business)
Lack of sufficient information from the client
Stipulating conditions/qualifications while presenting budgets
Inherent difficulty
Giving only ballpark estimates, ‘‘indicative costs’’, possibly based on past experience
The provider’s exposure to risk
Giving distant timeframes for cost reduction
The client’s oft-mistaken belief that certain aspects of the operation cannot be improved on
Focusing on possibilities Seeking more information on the client’s business before drawing budgets
Difficulties in re-establishing credibility with the client’s customers after the client’s history of mismanagement of distribution
to the front of the queue and we got the business on the basis that we said to them, ‘‘there’s no way in a million years that any one could tell you what it’s going to cost you.’’ .
Premising that it is not knowledgeable enough. The SE of Alpha notes: The first thing we do when we go into a new contract is point out that we don’t understand your business. That’s the position we take . . . We tell clients categorically, we do not know enough about your business to know what costs are going to be.
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Stipulating conditions/qualifications while presenting budgets. Alpha qualifies its budgets: . . .here is a budget under certain conditions given what we think and based on what we understand. We can only say based on certain premises this is what we think until we actually get into the place.
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Giving only ballpark estimates, ‘‘indicative costs’’, possibly based on past experience. Rather than ‘‘go in and say this is exactly what it’s going to cost you [the client]’’, Alpha provides ‘‘indicative’’ costs: I believe the best thing we can do is say to people that, ‘‘we are not going to your business to do this, this, and this’’. Typically we might say that, ‘‘historically in some businesses, we have saved people 10% on freight cost’’, not necessarily on rates, because most people have got good rates. We will be looking at consolidating orders, looking at service aspects of transport, timing aspects (getting goods to customers in time), etc.
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Giving distant timeframes for cost reduction. Alpha disabuses clients of the perception that savings from outsourcing will kick in immediately: We will say to people ‘‘year one is not a time for saving money’’ . . . We normally say in terms of the contract year one is for cost consolidation and year two is where we look at costs coming down. It depends on the nature of the contract of course. Whether you take over existing staff. We may have an initial capital investment to buy new vehicles, etc.
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Focusing on possibilities. Rather than commit to budgets early in discussions with the client, Alpha focuses on ‘‘the things we can do to save money [for the client]’’: From a short look at your business, here is the sort of things that we believe we will have a look at and concentrate upon . . . We actually say to them [prospective clients], ‘‘in your business we would imagine here are some of the key areas that we’ll look at.’’ We talk about systems opportunities, order options, things like supply chain studies that will depend on the size of the operation.
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Seeking more information on the client’s business before drawing budgets. In the case of ZZZ, while Alpha refused to put in rate suggestions in the RFP, the SE nevertheless ‘‘asked ZZZ if I could spend two days in their business just to have a look at it’’. He then discovered a means of realizing savings of at least 20 per cent through shipment consolidation.
Reasons for the provider’s refraining from premature monetary commitments: . Previous negative experiences of committing prematurely. We know it [premature commitments] well. We’ve been bitten in the behind by it several times . . . Too many times we’ve come in and said this is what it’s going to cost . . . we just don’t do it now.
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Lack of sufficient information from the client. For example, VVV [a client of Alpha] was reckoning freight costs as a fixed percentage of sales. Alpha had to clarify that: . . .things that can affect freight are (a) the size of the good that goes out the door, and (b) the mix, where does it go to. They [VVV] might be moving a lot of products to the South Island and nothing in the North Island, what will that tell us about the freight?
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Also, during initial negotiations, some clients cite only selective cost components and express a desire to see the ‘‘total cost’’ come down from their current estimate through the outsourcing of logistics. It is then incumbent upon Alpha to systematically ascertain all the relevant costs before suggesting what improvements might ensue. Inherent difficulty. The SE of Alpha observed: We get a lot of people asking us to quote on their business on the basis that they give us some figures and ask us how we are going to improve for them. It is an absolute impossibility for us to go to people and say this is what we will do your business for. Every business is different, every business has a different set up. There are so many variables in any business that affect costs. We refuse to get into the area of ‘‘ticking the boxes’’ or ‘‘our cost’’ versus ‘‘your cost’’. There is nothing more certain than we will get it wrong.
As an example, in Alpha’s contract with VVV, the provider found that at the end of the first year: . . .everything that we said was meaningless but now we are coming out of the tunnel.
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A good example of the idiosyncracies encountered by Alpha is the ‘‘single-bottle’’ sales of liquor made by Sigma to its customers, who were retail outlets such as pubs. While these sales represented only 3 per cent by volume, they were costing 30 per cent of the wages. Hence, Alpha had to figure out how to sort this issue before drawing budgets for Sigma. The provider’s exposure to risk. A prominent NZ governmental agency had had an inflexible budget of several million dollars. However, Alpha ‘‘pulled out of the tender because we might have made money but there was a great opportunity to lose our shirt as well’’. The client’s oft-mistaken belief that certain aspects of the operation cannot be improved on. According to the SE of Alpha: A lot of them [clients] say, ‘‘Don’t worry about this, it is perfect.’’ A lot of the times it’s not. I’ll give you an example of VVV. They had gear but they hadn’t replaced their forklifts for 18 years. Imagine the shape of it. They were breaking down everyday so what effect has it got on the customer? We had to replace all their equipment, every single piece of gear in there.
Also, at VVV, poor ordering of stock, which was beyond Alpha’s purview, adversely affected Alpha’s efficiency in the warehouse: VVV perceived that we were going to save them a lot of money but they didn’t take into account that paperless warehousing hadn’t gone in. So what was happening was that we still had all these staff looking for 25% of the orders that weren’t there. We had to spend a lot of time looking for information to show them that their business was not going properly and that it was affecting the way we were running our business. We had this head butting exercise with VVV because the guy in charge of
ordering is the guy we were supposed to report to. His area of procurement wasn’t working properly. So, he was trying to throw all his problems to the warehouse and say we didn’t deliver so it’s our fault when in actual fact it was an out-of-stock issue. .
Difficulties in re-establishing credibility with the client’s customers after the client’s history of mismanagement of distribution. The SE noted that: What we’ve found over time and experience is that customers want reliability rather than urgency. As long as you meet lead-times and they feel comfortable that those lead-times are going to be met all the time, then they are happy. The reason why a lot of people order in ‘‘urgently’’ [and increase the cost of distribution by disabling shipment consolidation] is that they believe that the service they are getting isn’t good. And that’s why it takes a year to develop reliability in the business in terms of those things.
This was an issue with several of Alpha’s contracts: A lot of people pick us [Alpha] to go in there because their business gets to a point where they haven’t concentrated on this area [distribution]. They perceive themselves in the gardening business or in the liquor business or in manufacturing, they don’t perceive themselves as a distribution company but they fail to do that job properly . . . We have to really come in and organise their business.
Discussion We have reported an inductive, empirical investigation into 3PL contracts in the NZ context, with the objective of understanding what makes for effective outsourcing in the NZ situation. Below, we summarize by turn the various insights that we have induced from our data. The avoidance of premature monetary commitments The concept of the provider’s refraining from making firm and strong monetary commitments early in the contract negotiations is closely related to that of the avoidance of overpromising. Overpromising has been discussed in the 3PL literature, as in Ackerman (1996) as well as Gulisano’s (1997) provocatively titled article, ‘‘Third-party failures: why keep it secret?’’ However, we have observed that the term is subject to varying interpretations by practitioners; overpromising can also imply over-commitment concerning service delivery. Vincent Gulisano is vice president of USCO Distribution Services, which is a logistics service provider that operates nearly 10 million square feet of warehouse space throughout the USA and Mexico. On one occasion, USCO ‘‘overpromised’’ on the basis of insufficient data. While describing that instance, Gulisano (1997) corroborates our perspective of the importance of the provider’s refraining from premature monetary commitments: . . . we relied on spreadsheets to tell the story . . . We won the contract but the relationship failed – the first major failure within our company in nearly 30 years. The fault rested squarely on our shoulders. Our mistake was in not insisting that we understand every aspect of the operation.
As reported by Gulisano: They [the client] assumed we, the logistics experts, should have the right answers.
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Thus, with regard to 3PL contracts, it would appear that the expertise of a provider is indicated not so much by its ability to quote budgets offhand with minimal information about the client’s operation. On the contrary, a provider’s expertise/experience is reflected in its appreciation of the difficulties that are involved in its furnishing realistic budgets before acquiring a good understanding of the client’s operation. Thus, if a client supplies only minimal information about its operation when requesting proposals, it should beware of 3PL providers who respond to the request with rate regimes. Gulisano explains USCO’s lack of understanding of the client’s operation: We were not allowed to tour the existing facility. We couldn’t speak to upper management or warehouse managers . . . The client did not want to offer information that might influence our proposal or hurt contract negotiations.
Boyson et al. (1999) present a similar quote from the parts operations manager of a major European car manufacturer in the USA: Maintaining a productive relationship involves good communication . . . If you go into a situation where you have forced things upon a provider who feels s/he cannot deliver but takes it anyways, you are not going to have a long-term relationship.
The implied need for ‘‘a high degree of communication and interaction between the buying team and supplier personnel’’ is also highlighted by Sink and Langley in the context of step 3 (‘‘evaluate candidates and select supplier’’) of their buying process. The need for communication also emerged from our data as the following quote from the business development manager of Beta indicates: I have a ten-page document sitting on my desk at the moment for a large multi-national that wants to outsource its warehousing and distribution. It has given us very little information with which to actually derive a cost model. And they want us to divulge our fixed and variable costs for our warehousing and the fixed and variable costs for our distribution, and then they want us to commit ourselves to what percentage of reduction in costs will take place. So we have absolutely very little information about the profile of the company, what the dynamics of the business are, except for the very sketchy information that they have provided. And then they want us to commit to cost savings as well!
Beta did not tender for the contract. With regard to premature monetary commitments or the avoidance thereof, Alpha stands in interesting contrast to Gamma, which, like Beta, is a transportation-based TPL provider in NZ. However, while Beta is quite a small player, having entered the market only in the late 1990s, Gamma has been offering TPL services for nearly as long as Alpha. According to the business development manager of Beta, Gamma is seen as a ‘‘very aggressive’’ player in the market. He remarked that: . . .if they [Gamma] were to receive an RFP, they would probably actually state rate reductions as requested by the client and try to secure the business . . . They would rather risk ‘‘losing their shirt’’ than lose the client’s business.
Although exact figures are unavailable, Alpha’s turnover appears to be nearly five times that of Gamma. This suggests that Gamma does not renew/rewin its clients’ contracts as often as Alpha. Gamma’s strategy is perhaps to be interpreted in light of the ‘‘unfortunate’’ mindset in NZ, as noted by practitioners in the freight industry including the business development manager of Beta, that ‘‘price is the beginning and end of everything’’. The SE of Alpha himself conceded that Alpha’s refusal to commit to rates per unit in RFPs had caused it to lose business before it established itself. Our findings suggest that the ‘‘thoroughness’’ of the contract logistics service provider during contract negotiations is a major determinant of contract success. The provider’s thoroughness manifests, for instance, in its refraining from premature monetary commitments. It also manifests in: the provider’s insistence on integrated logistics management; its careful handling of staffing issues; its consideration of quality issues of the carrier (not just with regard to delivery performance); and its attempt to understand the needs of the client’s customers (not just the client’s). Table II presents these indicators of the provider’s thoroughness during contract negotiations, as well as associated data support. One means of reconciling the findings of Sink and Langley with our data and USCO’s experience is depicted in Figure 2 and proceeds as follows. The ‘‘service provider’s avoidance of premature monetary commitments’’ is an instrumental cause of effectiveness in outsourcing. Further, it has as its antecedents, the thoroughness of the provider during initial negotiations and/or step 3 of Sink and Langley’s systematic buying process. The theory in Figure 2 is restricted to the ‘‘initiation’’ of contracts, and is therefore provisional. In due course, the authors will undertake further inductive research to extend the provisional theory of effective outsourcing that is depicted in Figure 2, to include the execution of contracts, as well as other possible antecedents to the avoidance of overpromising. Lambert et al. (1999, p. 172) discuss overpromising as being a cause of ‘‘failure due to poor execution’’ (emphasis ours). On the other hand, our inductive analysis suggests that overpromising is a cause of failure due to poor initiation/negotiation of the contract. The provider’s perspective of contract success The effectiveness of a contract/alliance should perhaps be related to the extent to which each party/signatory perceives it to be a win for itself, as opposed to the extent to which only the client manufacturer/marketer sees it as a win. Leahy et al. (1995, p. 6) have noted the user-centrism that is latent in empirical research on third party logistics. They remark that it is ‘‘somewhat curious in part because one of the distinguishing features of third-party logistics involves the long-term, mutually beneficial relationships between users and providers of third-party services’’ (emphasis in original). The SE of Alpha noted that Zeta, one of its smaller clients: . . .seem perfectly happy that we have added value into their operation through the implementation of KPI recording and those sorts of things . . . the biggest benefit being they no longer have to concentrate resources on running a warehouse.
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The provider’s thoroughness during contract negotiations Data support
Refraining from making firm and (See Table I) strong monetary commitments early in the contract negotiations
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Insistence on integrated logistics management
‘‘We manage Phi’s warehouse and we manage their transport contract. The reason we do that is the distribution has been excellent in the past, so why change a good thing? What we did insist though is that we manage him [the proprietor of the freight company]. There is nothing worse than managing the warehouse and getting things done and having no one to pick it up. There is a very strong link between timings in warehousing and transport. It was important to us that we took a lot of time in talking to this guy . . .’’
Careful handling of staffing issues
‘‘I guess if there is one area we have had to tread reasonably carefully it is in staffing issues. We have used contractors (Auckland Employment Association). We are always very careful when setting up contracts and we spend a lot of time talking to staff. We make sure all the sensitive issues are well covered’’
Consideration of quality issues of the carrier, not just with regard to delivery performance
‘‘There is a lot of issues with customers around the carrier’s performance in terms of delivery, rudeness, and all those types of things. The face they [the customers] see the most is the carrier’s, and it’s a very important issue. That’s the face in front of the customers and the carrier’s got to be prepared to act in front of the customer the same way as the Managing Director of VVV’’
Table II. Seeking to understand the needs of Indicators and data support associated with the client’s customers, not just the client’s the provider’s thoroughness during contract negotiations
Figure 2. A provisional theory of effective logistics outsourcing
‘‘When we go in [during contract negotiations,] we talk about developing a relationship with their [the client’s] people, getting alongside with their customers, making sure they [the client] understand what their customers want’’
However, Alpha does not see it as a win for itself because the consolidation of distribution that had been envisaged when the contract was signed did not materialize. In the introductory section, we highlighted the difficulties in achieving scale economies and business growth in a tiny economy such as NZ. Hence, at least in the NZ context, from the provider’s perspective, current performance alone may not be a sufficient criterion to distinguish highly successful contracts from less successful contracts. Rather, the prospects for business growth to the provider that stem from the contract also have to be reckoned with. Alpha’s contract with Omega had several teething problems due to serious differences of opinion at the start: In all of our negotiations with Omega, we expressed concern over the vehicle configuration they wished us to use. We spent a lot of time telling them how we thought they should do business (because I knew something about their business). They wanted to do it their way so we made it clear we didn’t think it would work. We wrote the issues down [in the contract] . . . and it became a case of ‘‘we told you so’’.
However, Alpha hung on (‘‘we had to do it their way’’) because it saw ‘‘long-term value’’ in the contract. As mentioned earlier, Omega’s parent company was trialing contract logistics through Omega. Alpha potentially stood to gain the business of Omega’s sister companies in due course. Thus, although Omega’s contract was not more profitable than Zeta’s contract to Alpha in the short-run, Alpha viewed the former far more favourably due to the prospects of ‘‘organic growth’’ that it afforded. In light of this, the expected net present value of the present contract as well as all future resulting contracts might be a better basis for gauging the benefit from a contract to the service provider. References Ackerman, K.B. (1996), ‘‘Pitfalls in logistics partnerships’’, International Journal of Physical Distribution & Logistics Management, Vol. 26 No. 3, pp. 35-7. Bagchi, P.K. and Virum, H. (1998), ‘‘Logistical alliances: trends and prospects in integrated Europe’’, Journal of Business Logistics, Vol. 19 No. 1, pp. 191-213. Bowman, R.J. (1998), ‘‘On the bandwagon’’, World Trade, Vol. 11 No. 11, pp. 62-3. Boyson, S., Corsi, T., Dresner, M. and Rabinovich, E. (1999), ‘‘Managing effective third party logistics relationships: what does it take?’’, Journal of Business Logistics, Vol. 20 No. 1, pp. 73-100. Coyle, J.J., Bardi, E.J. and Langley, C.J. Jr (1996), The Management of Business Logistics, 6th ed., West, Minneapolis and St Paul, MN. Eisenhardt, K. (1989), ‘‘Building theories from case study research’’, Academy of Management Review, Vol. 14, pp. 532-50. Ellram, L. (1996), ‘‘The use of the case study method in logistics research’’, Journal of Business Logistics, Vol. 17 No. 2, pp. 93-138. Foster, T.A. (1999), ‘‘Lessons learned’’, Logistics Management & Distribution Report, Vol. 38 No. 4, pp. 67-72. Glaser, B.G. and Strauss, A.L. (1967), The Discovery of Grounded Theory, Aldine, Chicago, IL. Gulisano, V. (1997), ‘‘Third-party failures: why keep it secret?’’ Transportation & Distribution, Vol. 38 No. 9, p. 77.
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La Londe, B.J. and Cooper, M.C. (1988), Partnerships in Providing Customer Service: A Third Party Perspective, Council of Logistics Management, Oak Brook, IL. Lambert, D.M., Emmelhainz, M.A. and Gardner, J.T. (1999), ‘‘Building successful logistics partnerships’’, Journal of Business Logistics, Vol. 20 No. 1, pp. 165-81. Leahy, S.E., Murphy, P.R. and Poist, R.F. (1995), ‘‘Determinants of successful logistical relationships: a third-party provider perspective’’, Transportation Journal, Vol. 35 No. 2, pp. 5-13. Lieb, R.C. (1992), ‘‘The use of third party logistics services by large American manufacturers’’, Journal of Business Logistics, Vol. 13 No. 2, pp. 29-42. Lieb, R.C. and Randall, H.L. (1996), ‘‘A comparison of the use of third party logistics services by large American manufacturers’’, Journal of Business Logistics, Vol. 17 No. 1, pp. 305-20. Lofland, J. (1971), Analyzing Social Settings, Wadsworth, Belmont, CA. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis, 2nd ed., Sage, Thousand Oaks, CA. OECD (1997), Labour Force Statistics: 1975-1995, OECD, Paris. O’Neill, R. (1999), ‘‘Competition and technology drive change in logistics’’, The Independent, 21 July, p. 32. Rao, K. and Young, R.R. (1993), ‘‘Global supply chains: factors influencing the outsourcing of logistics functions’’, International Journal of Physical Distribution & Logistics Management, Vol. 23 No. 6, pp. 11-19. Rose, G. (1982), Deciphering Sociological Research, Macmillan, London and Basingstoke. Sheffi, Y. (1990), ‘‘Third party logistics: present and future prospects’’, Journal of Business Logistics, Vol. 11 No. 2, pp. 27-39. Sink, H. and Langley, C.J. Jr (1997), ‘‘A managerial framework for the acquisition of third-party logistics services’’, Journal of Business Logistics, Vol. 18 No. 2, pp. 163-89. Stank, T.P. and Daugherty, P.J. (1997), ‘‘The impact of operating environment on the formation of cooperative logistics relationships’’, Logistics and Transportation Review, Vol. 33, pp. 53-65. Statistics New Zealand (1998), New Zealand Official Yearbook 1998, GP Publications, Wellington. Strauss, A. and Corbin, J. (1990), Basics of Qualitative Research: Grounded Theory Procedures and Techniques, Sage, Newbury Park, CA. Virum, H. (1993), ‘‘Third party logistics development in Europe’’, Logistics and Transportation Review, Vol. 29, pp. 355-62. Appendix. An anatomy of 3PL contracts Note: Categories are labeled 1-4, concepts are labeled in italics, and lower-level concepts (and indicators of concepts) are bulleted. (Indicators of lower-level concepts are indicated by –.) 1 Prelude (inception and initial negotiations) (1) Impetuses to the client for going for the contract. .
Difficulties with managing logistics in-house.
(2) Reasons for the provider’s entering into the contract. .
An opportunity to expand the XXX side of our operation [those aspects of the provider’s business which it does quite well].
(3) Factors determining the length of the initial contract. .
The amount of capital investment. (XXX is a ten year contract because we bought their real estate. Where we don’t spend a lot of capital, the shortest term is three years.)
(4) Premises/assumptions in the client’s business plan that underlie the provider’s acceptance of the contract. .
The client’s plans to extend its product range.
(5) Ways by which the provider sells its custom to the client. .
Recommendations by existing clients: one of the selling points we try and stress is please go and talk to our customers about the things we do for them.
(6) Provider’s recommendations that are rejected by the client but upheld in hindsight. .
Vehicle configuration. (Omega wanted a very low operation [in terms of the positioning of the doors and the sizes of the wheels and tyres] . . . We made it clear we didn’t think it would work . . . The current tyres wear out twice as fast.)
2 Physical actualization of the contract (1) Services provided by the third party operator. .
Issues related to warehousing. – Policies concerning existing warehouse staff in the client company.
(2) Idiosyncratic complications in serving the client. .
Odd shape of product. (The Zeta system is a cold pressed XXXX system so some of the products are square bits of rubber rather than round bits of rubber. There is an added difficulty in moving square and round stuff together.)
(3) Kinds of capital investment made by the third party provider. .
A paperless warehousing system.
(4) Ways in which the provider gets a ‘‘win’’ from the contract. .
Consolidation of distribution with other clients.
(5) Benefits to the client from the contract. (6) Ways by which the provider ‘‘adds value’’ to the client’s business. .
The recording of KPIs.
(7) Kinds of evolution/growth in an alliance. .
Growth in the product range. (With XXX, we began just doing dry goods in the North Island [of New Zealand], we now do all their goods and are looking at the South Island.)
(8) Means of increasing asset utilization. .
Seeking other clients whose demands are counter-seasonal with existing client(s).
3 Multi-lateral management of the contract (1) Reasons for the provider’s persistence with a contract that is performing less than optimally and/or not living up to its promise/initial expectations. .
Credibility: We don’t want to lose credibility by taking someone on and saying ‘‘thanks very much, see you later’’, we would never do that in a million years.
(2) Criteria for gauging the profitability of a contract to the provider. .
ROI.
(3) Agenda for periodic meetings/reviews. .
Examining strategic options: Look at the strategic things they [e.g. Sigma] and we are doing.
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(4) Types of costing mechanisms. .
Open book costing. (We show the clients an operating statement every month which shows all costs and revenues. We give them the total picture. They know how much our margins are. They know all the various cost components.)
(5) Factors influencing the client’s choice of costing mechanism and/or operating statements. .
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Facilitation of business planning. (With Rho, we have gone back [from an ‘‘open book’’ regime] to a point now of splitting everything up into a unit rate because of how costs have changed over time. We still show them operating statements but it suits their business to work under the unit rate scenario. They know how much each unit rate is so they can relate this back to their sales costs and product costs.)
(6) Reasons for entering into a formal partnering agreement, where applicable. .
Major changes in the supply chain. (The reason for the partnering agreement with Rho’s parent company was that there were a lot of issues that affected distribution, that were outside of the distribution area. They were moving manufacturing sites. There were three different operations. . .)
(7) Ways in which the client exhibits trust in the provider’s management of the contract. .
The client’s dispensing with open book costing (e.g. Rho).
(8) Provider’s drivers for renegotiating the duration of the contract. .
The provider’s making an investment and needing some ROI.
(9) Client’s drivers for renegotiating the duration of the contract. .
(10)
The client’s being satisfied with the way the contract has been working.
Factors influencing the frequency of reviews. .
Development of trust. (The three month review meetings don’t happen now but Zeta seem perfectly happy.)
4 The context embedding the contract (1) Types of complexity in the alliance/relationship. .
Multiple parties/signatories. (The Rho contract involved a total of four parties, including Alpha.)
(2) Kinds of flux within the client company and in its environment. .
Change in ownership. (Omega were going through a lot of change. They were part of the XXX group that had just been purchased by YYY.)
(3) Elements of the provider’s overall strategy. .
Greater emphasis on warehousing than on transportation. (Most of the transport we have complements the rest of the business gained. We tend to concentrate on warehousing first and transport second . . . Transport has a lot of competitors so margins become less and less.)
(4) Special expertise of the provider. .
Ability in staff-related issues: Alpha has made money [through its] reputation of ‘‘firm but fair’’ [and] its ability to deal with unions.
(5) Relevant aspects of the prevailing legal environment. .
The Employment Contracts Act (in New Zealand). (. . . the employment contracts act has helped a lot in New Zealand. When we took over [Sigma], we were able to set up contracts with people that allowed them to work for us and make the change.)
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Lisa R. Williams, Terry L. Esper and John Ozment Department of Marketing and Transportation, Walton College of Business, University of Arkansas, Fayetteville, Arkansas, USA
Received September 2000 Revised October 2001
Keywords Logistics, Internet, Alliances, Supply chain management, Partnering, Leadership Abstract The advent of the Internet and electronic communications has enabled companies to be more responsive to their customers. However, the same technological advancements are changing the marketplace and providing an impetus for changes in strategic alliance and partnership structures. Successful leaders of the future will have to understand how to operate in the new marketplace and within the evolving organizational structures where alliances and partnerships are changing. The purpose of this article is to shed light on the current and future organizational structures in the logistics industry. Toward that end, traditional supply chain management (SCM), electronic supply chain management (eSCM), and the resulting impact on strategic alliances and partnerships will be explored. Additionally, considering the inherent ability of the eSC to be dynamic and adaptable, the new type of leader that is likely to be most successful in this new structure is discussed.
Introduction The advent of the Internet and electronic communications has enabled companies to be more responsive to their customers. Now companies can receive their customer orders in a matter of seconds, enabling faster order processing and shorter order cycle times. This ultimately results in customer service improvements. However, the same technological advancements are changing the marketplace and providing an impetus for changes in organizational structures. Successful leaders of the future will have to understand how to operate in the new marketplace and within the evolving organizational structures where alliances and partnerships are changing. Forward thinking leaders have already begun to operate within this new environment. For example, Executives at the toy manufacturer Galoob have restructured its operations to the point where they have contractual relationships with suppliers, manufacturers and carriers. Galoob primarily operates as the ‘‘brain center’’, trying to determine the newest and most trendy toys for the marketplace. They contract with manufacturers in the Pacific Rim for production and global carriers for worldwide distribution. The Internet enables all entities in the supply chain to be linked. Firms are linked into the supply chain because of their ability to efficiently contribute to the product. Due to the highly volatile nature of the toy industry, when the market preferences change, Galoob, if needed, can de-couple from unproductive alliances and re-connect with more suitable partners. The relationships in this organizational structure are based on productivity not on establishing and maintaining long-term partnership relationships. While relationships are important, the new structure gives leaders additional options in achieving operational objectives (Williams, 2001a).
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This type of relationship is a departure from the traditional supply chain relationships formed during the 1980s. To compete against global competition and other environmental pressures, companies formed strategic supply chain partnerships and alliances. They were designed to realize increased efficiencies, streamline processes and enhance customer service through long-term collaborative relationships. In fact a recent definition of supply chain management is: The systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer, 2001).
The new millennium, however, has brought forth new developments in technology and organizational structures. The resulting electronic supply chain (eSC) is SCM organizations that are linked within and between their trading partners by the Internet and/or EDI to buy, sell, move products/ services and cash flows. The primary distinction between the eSC and the traditional supply chain is that the eSC, while structurally based on technology-enabled relationships, makes decisions based upon efficiency benefits (see Figure 1). Because the eSC is created via electronic linkages, thereby providing low switching cost, it allows for the supply chain configuration to be very adaptable to changing trends, consumer preferences and competitive pressures. As depicted in Figure 2, esupply chains are quite different from the traditional supply chain structure. The underlying goal of the partnership and alliance-based supply chain is increased stability and the long-range cost benefits associated with solid, longlasting relationships. The eSC, on the other hand, is rather dynamic in nature, adaptable to changing in highly unpredictable situations. Thus, the eSC offers another structure to managers seeking adaptability and flexibility in highly dynamic environments. In essence the eSC is a hybrid between traditional arm’s length and traditional supply chain approaches. It is relationship based but only as long as business objectives are being met. It potentially allows firms to realize the low procurement costs associated with arm’s length relationships, and shared risks and expertise of traditional supply chain. Moreover, eSCM can be thought of as a balancing act, causing firms to seek equilibrium between the cost benefits associated with arm’s length
Figure 1. Hybrid nature of e-supply chain
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Figure 2. Comparison of partnership structures
relationships and the structural benefits of traditional supply chain management (see Figure 3). An example of this can be found in the case of Weyerhaeuser: Weyerhaeuser, a major paper producer, maintained collaborative long-term relationships with its carriers. While these partnerships had been beneficial for both Weyerhaeuser and its carriers, they were laden with manual processes and inefficiencies. In an effort to automate these processes, Weyerhaeuser partnered with a transportation management third-party provider that supplied a technological platform for Internet-based carrier relationships. This migration into the e-Supply Chain environment proved to have an adverse impact on Weyerhaeuser’s carrier relations. The once strong relationships, characteristic of the traditional SCM philosophy, have now been replaced with carrier relations that are more arms length in nature. Weyerhaeuser, realizing the cost benefits of this current eSCM structure, has continued to implement this approach even in light of some carrier dissatisfaction. While the company is still maintaining carrier relationships they are now based upon performance measurements instead of past relationship history (Williams, 2001b).
The purpose of this article is to shed light on the current and future organizational structures in the logistics industry. Toward that end, traditional supply chain management, electronic supply chain management, and the
Figure 3. Managing the e-supply chain
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resulting impact on strategic alliances and partnerships will be explored. Additionally, considering the inherent ability of the eSC to be dynamic and adaptable, a new type of leader is potentially required. Thus, the concept of supply chain leadership will be discussed, with an attempt to provide a recipe for the most effective leadership style in the eSC environment. Thus, the article will be presented as follows. First, the historical perspective of how the esupply chain structure has evolved will be highlighted. Then, the nature of partnerships and alliances within the e-supply chain will be discussed, including propositions about the future of inter-organizational relationships. Third, supply chain leadership will be investigated, particularly in the context of the e-supply chain structure, with propositions offered accordingly. Finally, conclusions and implications of this research are provided. The evolution of the e-supply chain organization Vertical integration One of the early prevalent organizational structures was vertical integration (VI). Early leaders, like Henry Ford, attempted to control operations perceived vital to their business by buying other companies in the distribution channel (Bowersox and Cooper, 1992; Miles and Snow, 1994; Pfeiffer, 1997). Mr Ford believed he could best facilitate the process of automotive manufacturing and marketing if he owned all stages of the process from raw material extraction to finished auto showrooms (Bowersox and Cooper, 1992; Miles and Snow, 1994). Thus, The Ford Motor Company bought suppliers up the channel in backward integration and showrooms down the channel in forward integration, thereby gaining total channel control (see Figure 4). During the era in which the vertically integrated structure was ubiquitous, inter-firm relationships were quite adversarial. Buyers and sellers typically operated in arm’s-length, independent relationships, competing for resources instead of engaging in cooperative efforts. Furthermore, short-term partnering and multiple-vendor sourcing was prevalent (Watts et al., 1995). The primary benefits associated with the arm’s length philosophy centered on cost efficiencies. By creating and maintaining an adversarial, competitive environment, firms were able to realize significant cost benefits when managing external sourcing.
Figure 4. Vertically integrated structure
This arm’s length approach to vendor/customer relations was commensurate with the vertically integrated structure, as primary functions of the organization were mostly under the firm’s control. Thus, organizational needs that led to external sourcing were primarily supportive in nature, and did not require long-term strategic alliances or partnerships. Thus, the primary goal was to source externally at the most advantageous cost. Before long, this vertically integrated organizational structure began to flatten, giving rise to the supply chain organization. As global competition increased, particularly by the Japanese, many US companies were required to follow suit through the implementation of new philosophies, including the Deming method. These philosophies call for flatter organizations, closer supplier relationships, and employee quality circles which all provided impetus for supply chain management.
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The supply chain With the need to cut costs and focus on core competencies, many firms began to spin off units acquired via vertical integration and partner with other firms that provided the spun-off expertise. Consequently, the concept of supply chain management developed, as firms were attempting still to realize the cost management benefits of vertical integration while not carrying the burden of firm ownership along the supply chain (Whipple and Frankel, 2000). Thus, as a whole, relationships with suppliers moved from adversarial to ones promoting trust (La Londe and Cooper, 1989). Relationships have advanced from competitive to collaborative (Bowersox and Closs, 1996). We have moved from short-term cost-based relationships to strategic value-added relationships (Coyle et al., 1996). We have even instituted customer satisfaction programs that ask and incorporate customer’s input (see Figure 5) (Novack et al., 1995). Since supply chain management is a set of independent firms coming together to take advantage of opportunities in the marketplace (Porter, 1985), their design is by nature flexible. This flexibility enables businesses to respond to fierce global competition, short product life cycles, and heightened customer demands (Simchi-Levi et al., 1999). The market is no longer satisfied with just the tangible product. Now customer mandates include cost effectively delivering the products to, when, where, how and in the quantity desired (Handfield and Nichols, 1999). Electronic linkages enable supply chains to efficiently coordinate operations, share information, and improve customer responsiveness (Williams, 1994a). SCM helps to improve the competitiveness of channels, which translates into improved competitiveness for all channel
Figure 5. Suppy chain structure
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members. It is truly a synergistic situation, where the entire performance of the channel is improved (Cooper et al., 1997). As previously indicated, one of the prevalent organizational issues, that developed out of the traditional supply chain concept, was the focus on longterm partnerships and strategic alliances. In fact, it has been posited that firmto-firm competition has migrated to supply chain against supply chain, necessitating supply chain integration and strategically developed supply chain networks (Watts et al., 1995). Thus, the very core of a successful supply chain, from a traditional perspective, is the development of strong inter-firm relationships among the organizations comprising the supply chain. And, the evolution of the primary organizational structure, from vertical integration to supply chain management, was accompanied by a shift in inter-firm relations, from primarily arm’s length to collaborative. However, yet another form of supply chain management is on the horizon that provides another variation in inter-firm relationship philosophies – the e-supply chain. The e-supply chain New challenges still face logistics and supply chain organizations. In addition to previous marketplace demands and global competition, the advent of ecommerce and increased pressures from stockholders has created a more demanding landscape. The role of logistics has expanded over the decades beyond carrier and customers to encompass other stakeholders. Environmentalists have concerns about warehouse locations, stockholders want increase on investments, and politicians are concerned about tax collection. Logisticians within its expanded role must now operate within organizational structures that allow them easily to interact between multiple stakeholders. Organizational structures of the future will possess the attributes of the electronic supply chain, where technology linkages tie many corporations and outsourced functions together enabling low-cost partner switching and a high flexibility. It is expected that investments on brick and mortar buildings will be replaced by additional investments in technology (Wheatley, 1999). The electronic supply chain is expected to flourish from the increased investment. It links all entities in the supply chain with Internet and/or EDI connections. It has been called boundary less (Kanter, 1996), spherical (Miles and Snow, 1994), circular (Hesselbeinn, 1997), reconfigurable (Galbraith, 1997), and even chameleon (Miller, 1997). The electronic supply chain is highly adjustable. It rotates to meet the demands within and around the organization (see Figure 6). The electronic supply chain is round in form. Unlike structures of the past, it is extremely dynamic. Corporations connected via information technology linkages form chains that rotate and re-link as needed to bring the available resources in contact with requests from stakeholders. The inner ring, representing the focal organization, will rotate and spin to find the appropriate resource needed to answer the needs of the outer circle (see Figure 6). The outer circle represents external relationships, suppliers, customers, environmentalists, etc. When the resource is found that matches the demands
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Figure 6. E-supply chain structure
of external stakeholders a connection is made for as long as the need is met. When costs increase beyond a certain threshold, or sales expectations are not met, an uncoupling can be done so that a connection can be made with a more beneficial partner; this is the re-linking concept. The ability of the e-supply chain to rotate and re-link sheds light on the change in the underlying philosophy brought about with this structure. The objective in eSCM is meeting goals, not maintaining collaborative relationships as with traditional SCM. Hence, the relative value of partnerships and alliances has become a salient issue. Partnerships and alliances in the e-supply chain Perhaps the most noteworthy difference between the traditional supply chain and the e-supply chain structures is the relative value of partnerships and strategic alliances within each structure. While the focus of the traditional supply chain was the development of long-term inter-organizational relationships, the dynamic nature of the eSC structure may potentially lead to less focus on such collaborative efforts. It is important to note that, while it is not the authors’ contentions that the eSC environment will lead to the demise of inter-organizational collaborations, it is believed that the relative necessity of long-term partnerships and alliances may be softened. When considering such issues as technology expenditures, increased opportunities, SCM costs, and organizational culture, it is conceivable that, within the context of the eSC, the relative focus on partnerships and strategic alliances has changed (see Figure 7). Technology expenditures The traditional technological support of supply chain relationships is the electronic data interchange (EDI) system. By its very definition, EDI is an
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Figure 7. Proposed model of e-supply chain partnerships and alliances
inter-organizational process (Williams, 1994b). Therefore, business partnerships have been shown to be very important to the adoption and use of EDI. In fact, Walton and Miller (1995) found that one of the key motivations for EDI adoption was the promise of faster and easier communication with trading partners, particularly as logistics organizations employ the supply chain management concept. In addition, EDI has been characterized as the ‘‘glue’’ that binds supply chains together (Bowersox, 1988). Although EDI has been a significant technological platform for supply chain organizations, one of the primary drawbacks of the technology has been the cost associated with EDI adoption and implementation (Cross, 2000). The traditional approach to SCM, which may include the use of computer-tocomputer EDI systems, could require hearty technological expenditures. However, in the e-SC environment, which is primarily Internet-based, the costs of information exchange along the supply chain are greatly reduced. In fact, it has been stated that operating in the eSC context only requires ‘‘a free Web browser, a $500 computer, and $14.95/month Internet access’’ (Sanchez, 2001). This decrease in technological expenditures associated with supply chain exchange has a positive impact on the ease of entering, as well as terminating, inter-firm relationships. Thus, long-term relationships in the e-supply chain may not be the goal, but instead meeting and exceeding business objectives, as entering into new relationships with new vendors/customers does not require intensive technological expenditures. Accordingly, we propose the following: P1. E-supply chain organizations will put less relative value on long-term partnerships and strategic alliances, when compared to traditional supply chain organizations, because of the reduction of technological expenditures associated with forging new relationships in the Internetbased e-supply chain.
Increased opportunities Another potential drawback associated with the traditional EDI platform of supply chain management is the specificity associated with the technology. EDI adoption that results from partnership consensus creates a situation where the capital invested to acquire the hardware, software, and personnel, as well as the training and maintenance to support the EDI adoption decision creates asset specificity. Because the trading partners have invested in assets that are specific to the exchange relationship, full utilization of the asset, in an effort to realize all benefits associated with its specificity, is optimal. Hence, partners are more likely to sustain the supply chain relationship, if for no other reason, to utilize their EDI assets. Moreover, the long-term relationships that exist as a result of this specificity reduce the potential opportunity for new relationships to be fostered with other organizations. The ‘‘one-to-one’’, specific nature of traditional EDI has been replaced by the ‘‘one-to-many’’, ‘‘many-to-one’’, and ‘‘many-to-many’’ capabilities of the Internetbased e-supply chain (Cross, 2000). Thus, firms operating in the eSC environment have access to many more trading partners, or potential trading partners, increasing their opportunities for value-added processes. For example, the Lighting Division of GE realized a 20 per cent reduction in material acquisition costs by using the Internet to reach a larger network of qualified vendors than previously considered, including some that offered comparable products at lower prices (Cross, 2000). In fact, many firms involved in e-procurement use e-marketplaces to have access to many potential suppliers at one time. The result of this increase in vendor/customer opportunities is potentially an increase in the amount of current partner re-evaluations, which could lead to new supply chain partners being considered more often. Thus, we propose the following: P2. E-supply chain organizations will put less relative value on long-term partnerships and strategic alliances, when compared to traditional supply chain organizations, because of the increase in potential partnership opportunities associated with the Internet-based e-supply chain. Supply chain management costs Perhaps one of the leading justifications for long-term partnerships within the supply chain network is long-range cost savings (Bowersox and Cooper, 1992; Trent and Monczka, 1998). Two primary costs relevant to SCM are switching costs and product/service price. Within the context of the traditional supply chain management approach, oftentimes organizations forego the immediate cost savings associated with frequent vendor/customer switching, and bank on long-term cost savings from key partnerships and alliances. In fact, search, rebidding and switching are often considered too costly to justify, causing firms to maintain current partner relationships (Trent and Monczka, 1998). However, the e-supply chain, with its Internet-based technological platform, has decreased search, qualification and even transaction costs to near-zero levels
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(Cross, 2000). Thus, the costs associated with searching, and even switching, supply chain partners are more manageable. Another cost benefit of the eSC has been the realization of dramatic decreases in product/service price. Internet-based procurement has resulted in significant procurement cost savings. For example, IBM reduced the costs of purchased goods and services by $4.2 billion by employing Internet-based procurement. Additionally, the company, which bought approximately $12 billion worth of goods over the Internet in 1999, made plans to spend roughly $29 billion on electronic purchases in 2000, partly due to the previously realized cost savings (Cross, 2000). Moreover, a survey conducted by AMR Research has indicated that high-tech procurement organizations have been able to save $100 per purchase order when issuing electronic rather than traditional purchase orders (Bernstein, 2001). Additionally, the use of online reverse auctions have led to purchase price reductions of 10-15 per cent (Hong and Hartley, 2001). When considering the documented cost savings of product/service procurement within eSCM, in combination with the decreased costs of rebidding and switching, many firms may conceivably trade in long-term partnerships for cost-cutting opportunities of the e-supply chain. Thus: P3. E-supply chain organizations will put less relative value on long-term partnerships and strategic alliances, when compared to traditional supply chain organizations, because of the cost savings opportunities associated with the Internet-based e-supply chain. Organizational culture Whipple and Frankel have indicated that the transition from adversarial to cooperative relationships has been difficult for many managers, as the necessary changes in organizational culture and behavior have proven quite overwhelming (Watts et al., 1995). In fact, McIvor and McHugh maintain that organizations will have considerable difficulties in partnering with external entities if they cannot develop a partnering culture internally (McIvor and McHugh, 2000). In essence, management has struggled with foregoing the short-term cost reductions of arm’s length relationships for the long-term benefits of alliances and strong partnerships. Consequently, new research suggests traditional adversarial relationships continue to exist, under the new name of alliances and partnerships. One of the primary benefits of the e-supply chain is that it allows firms to realize many benefits that were associated with the traditional adversarial approach, yet in a supply chain management context. As previously indicated, the key to successful eSCM is the ability to balance the cost benefits of the arm’s length approach and the structural benefits of the SCM philosophy. Thus, organizational cultures that are still ‘‘riding the fence’’ between the arm’s length and partnership approaches would find a better ‘‘fit’’ in the eSC structure. Short-term, cost-driven benefits can be realized, and long-term partnerships can be developed as needed. Furthermore, the need for
partnerships may not be as forceful as in the traditional supply chain philosophy, allowing firms to still implement short-term competitive relationships that may have opportunities for ongoing relationships. Thus: P4. E-supply chain organizations will put less relative value on long-term partnerships and strategic alliances, when compared to traditional supply chain organizations, because of the ‘‘structure-culture fit’’ in the Internet-based e-supply chain. Having discussed and developed propositions relating to the relative value of partnerships and alliances within the e-supply chain, it is important to also consider the leadership implications of this new structure. Being that the concepts of costs, opportunism, and organizational culture were utilized to justify the new alliance/partnership paradigm, it would be helpful to shed light on the proper leadership approach necessary to ensure the realization of the aforementioned benefits of the e-supply chain. Doing so provides supply chain managers with a guideline for proper management of the eSC, as well as a framework for getting the best ‘‘bang for the buck’’. Supply chain leadership in the e-supply chain Recently, the editor of the Journal of Business Logistics had the foresight to begin a ‘‘strategic visioning’’ series. ‘‘Don Bowersox target[ed] logistical leadership as the topic for the first strategic visioning series’’ (Closs, 1998). Before this series there were virtually no articles highlighting the importance of effective logistics and supply chain leadership. The only notable exception was an article written over a decade ago by Neuschel (1987) in which he stated, ‘‘Indeed, the new challenge in transportation [logistics and supply chain] is for excellence in managerial leadership’’. Andraski (1998) issued a similar statement calling for new logistics leadership to navigate the changes needed to collaborate. He clearly stated the changes necessary to achieve success ‘‘will only become a reality if driven by effective leadership’’ (Andraski, 1998). With leadership being a prevalent issue in logistics and supply chain research, an additional purpose of this article is to examine leadership styles in supply chain management, particularly in the context of the eSC environment. To accomplish this goal, three common leadership styles, namely autocratic, participative, and transformational, will be discussed. Moreover, the relative success of the leadership styles in eSC organizations will be proposed, with corresponding justification. Autocratic leadership The traditional autocratic leader is characterized as dictating commands to subordinate employees (see Figure 8). They are viewed as having all the answers and, therefore, make all the decisions (Oakley and Krug, 1991). This is understandable when one considers that the most traditional management roles have military roots. During the Industrial Revolution, when unskilled laborers were introduced to factories, managers were needed to closely monitor
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behavior and command worker compliance. ‘‘Scientific management’’ was needed to guide large numbers of people to work productively. The only model available for managing large groups at that time was the command-and-control structure of the military. As a result, this became the model for managing organizations (Oakley and Krug, 1991). ‘‘The command model, with a very few at the top giving orders and a great many at the bottom obeying them, had remained the norm for nearly 100 years [from 1870]’’ (Drucker, 1980). While autocratic leaders are perhaps not as prevalent in the marketplace, this leadership style is conceivably still utilized in supply chain organizations. Supply chain organizations under autocratic leadership are potentially very flexible, because there is no group decision-making process that would complicate implementation of decisions. Thus, it is relatively easy for autocratically led organizations to switch exchange partners and adopt an arm’s length approach to inter-organizational relationships. This indicates that such supply chain entities would be potentially successful at tapping into the cost benefits of the eSC. However, when considering the hybrid nature of the eSC organization, the traditional autocratic leadership style raises concerns, particularly from a structural perspective. A potential weakness associated with autocratic leadership is the lack of consideration and appreciation for the ideas of others, both within the organization and among exchange partners. Because the autocratic leader is responsible for every component of the organization, and ultimately must endorse all decision making, supply chain organizations under autocratic leadership may suffer from a ‘‘tunnel vision’’ approach to managing the supply chain. This approach would potentially be adverse to the eSC organization realizing the structural benefits of the e-supply chain environment. While the eSC organization potentially places less relative value on partnerships and strategic alliances, when compared to the traditional SCM paradigm, they are still important tools, and are often utilized. Accordingly, we offer the following proposition: P5. Autocratic leadership will be cost effective, highly responsive but is structurally ineffective when operating in an eSC environment. Participative leadership The formation of supply chain management motivated a change in leadership styles. Since each member in the supply chain is independently owned, the
Figure 8. Autocratic leadership
earlier autocratic style of traditional management was no longer appropriate. Managers reared on the philosophy that questioned the competence and commitment of everyone but top executives had to be transformed. Gone was the mechanistic view that employees were little more than interchangeable parts, to be hired and fired at will (Miles and Snow, 1994). Instead leaders realized the importance of relationships with employees, suppliers, and customers. The pyramid leadership structure of the past was oftentimes replaced with the collaborative ‘‘plus model’’ (see Figure 9). Participative leaders follow the plus model, thereby reaching far and wide to work with suppliers and adapt to customers’ needs. They are willing to share power, consult with subordinates and make joint decisions (Yukl, 1989). While using their vantage point of setting the vision for the organization they will simultaneously delve deep to connect with employees, gaining a balanced viewpoint. The participative leader is amenable to sharing information and negotiating relationships. In the context of the eSC, the utilization of participative leadership can potentially be effective, from a structural perspective. Because the eSC environment is dynamic and constantly necessitating change and reevaluation, the eSC organization would benefit from the collaborative, joint decision-making nature of the participative leader. By the leadership of the eSC organization being open and attentive to different viewpoints, collaborative ventures are easier, thus providing for potential realization of the structural benefits of eSCM. However, a concern still exists. Since participative leaders employ such a ‘‘we’’ philosophy, this approach is also utilized when developing inter-organizational relationships. Thus, participative leaders are potentially more inclined to prefer long-term collaborative relationships with trading partners, which explains the popularity of this leadership style in the traditional supply chain management approach. As previously indicated, the eSC environment provides the most benefit when there is a ‘‘balance’’ between long-term relationships and shortterm cost-driven exchanges. Hence, participative leadership may result in cost ineffectiveness when utilized in the context of eSC organizations, as short-term
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Figure 9. Participative leadership
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Figure 10. Transformational leadership
arm’s length relationships may be viewed as counterproductive and undesirable. Therefore, P6. Participative leadership will be structurally effective and cost ineffective when operating in an eSC environment. Transformational leadership No longer sitting atop the pyramid, as in the traditional command and control pyramid structure, the transformational leader is positioned in the middle of a circle (see Figure 10). They know that their actions, those of employees, and the corporation as a whole, do not occur in a vacuum. Additionally, they are able to smoothly transition between their organization and others, while also encouraging community involvement, global awareness, and environmental consciousness (Drucker, 1980). Transformational leaders provide an opportunity and an environment that allow people to enjoy their work, while setting high expectations, resulting in increased performance (Oakley and Krug, 1991). When performance improves, so do self-esteem, job and personal satisfaction, which further generate improvements in performance. Because they understand that both the intellect and the spirit of the employee must be provided for, they inspire employees to not only work well together, but to enjoy it (Oakley and Krug, 1991). The transformational leader encourages individuals to achieve excellence and understand the true interdependence between themselves and others in the organization. Not only do transformational leaders have vision but they also inspire others to be visionaries, thereby developing commitment. Transformational leaders help people realize they have the potential to surmount any obstacle. They have an optimism that is contagious, and people around them see the opportunity in all situations because the transformational
leader illuminates the way. Transformational leaders are charismatic, intellectually stimulating and are respectful and considerate of individual employees (Howell and Avolio, 1993; Bass, 1985). Perhaps the most important aspect of the transformational leader, from an eSC perspective, is their adaptability. As previously indicated, both the autocratic and the participative leaderships styles are proposed as potentially ineffective in the eSC context. However, the key attribute of the transformational leader is that it can potentially ‘‘transform’’ to tap into the benefits of both autocratic and participative leadership. Thus, the transformational leader can be perceived as a leader that balances the autocratic and participative styles, depending on the particular situation or circumstances (see Figure 11). Because the transformational leader is able to adapt to allow for the realization of benefits associated with both the cost and structural aspects of the eSC environment, we offer the following proposition: P7. Transformational leadership will be both cost and structurally effective when operating in an eSC environment.
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Conclusions and implications In summary, this research article contends that the value and relative importance of partnerships and strategic alliances have changed, as we migrate from the traditional SCM approach to the eSCM perspective. Additionally, this research also maintains that not all leadership styles are effective when managing an organization in the e-supply chain environment. The rationale behind these positions is that the Internet and electronic commerce, combined with supply chain-related costs and opportunities, have given way to an environment where the benefits of both the arm’s length approach to interorganizational relations, and the supply chain management philosophy can be jointly realized. Consequently, there has been a shift in the supply chain paradigm, resulting in the eSC, which has necessitated a new outlook on supply chain partnerships and corresponding leadership styles. The proposed model of e-supply chain partnerships and alliances provides a framework for further research into supply chain relationships, and ultimately the ever-changing and dynamic e-supply chain environment. Additionally, the e-supply chain leadership component offers a basis for investigating supply
Figure 11. Managing transformational leadership
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chain leadership, particularly in the context of the e-supply chain. The next step in the process of researching partnerships and alliances, as well as leadership, in e-supply chains is empirically to test the propositions developed in the models. Such tests will allow for increased academic knowledge on the nature of the e-supply chain, as well as provide management of supply chain organizations with a better understanding of the ingredients necessary to manage the eSC organization effectively. By including leadership styles, management would also benefit from the ability to predict the relative success of their organization in developing and managing an e-supply chain organization. The focus on leadership also provides management with a guideline for assessing potential organizational leadership changes that may be necessary in order to reap fully the benefits of operating in the eSCM environment. Overall, this research contributes to the understanding of the dynamic and volatile electronic commerce marketplace by focusing on the new approaches to supply chain management necessary in this environment. References Andraski, J. (1998), ‘‘Leadership and the realization of supply chain management collaboration’’, Journal of Business Logistics, Vol. 19 No. 2, pp. 9-11. Bass, B.M. (1985), Leadership and Performance Beyond Expectations, The Free Press, New York, NY. Bernstein, C. (2001), ‘‘Early adopters reap e-commerce benefits – although risks still abundant, industry execs beginning to tally gains’’, Ebn, No. 1254, 19 March, p. 58. Bowersox, D. (1988), ‘‘Logistical partnerships’’, in McKeon, J.E. (Ed.), Partnerships: A Natural Evolution in Logistics, Logistics Resource, Cleveland, OH. Bowersox, D. and Closs, D. (1996), Logistical Management: The Integrated Supply Chain Approach, McGraw-Hill, New York, NY. Bowersox, D. and Cooper, M.B. (1992), Strategic Marketing Channel Management, Jossey-Bass, San Francisco, CA, p. 18. Closs, D.J. (1998), ‘‘Preface’’, Journal of Business Logistics, Vol. 19 No. 2. Cooper, M.C., Ellram, L.M., Gardner, J.T. and Hanks, A.M. (1997), ‘‘Meshing multiple alliances’’, Journal of Business Logistics, Vol. 18 No. 1, pp. 67-89. Coyle, J.J., Bardi, E.J. and Langley, C.J. Jr (1996), The Management of Business Logistics, 6th ed., West Publishing, St Paul, MN. Cross, G.J. (2000), ‘‘How e-business is transforming supply chain management’’, The Journal of Business Strategy, (March/April) Vol. 21 No. 2, pp. 36-9. Drucker, P. (1980), The New Realities, HarperCollins, New York, NY. Galbraith, J.R. (1997), ‘‘The reconfigurable organization’’, The Organization of the Future, JosseyBass Publishers, San Francisco, CA. Gardner, J.T., Cooper, M.C. and Noordewier, T.G. (1994), ‘‘Understanding shipper-carrier and shipper-warehouser relationships: partnerships revisited’’, Journal of Business Logistics, Vol. 15 No. 2, pp. 121-43. Handfield, R. and Nichols, E. Jr (1999), Introduction to Supply Chain Management, Prentice-Hall, Upper Saddle River, NJ, p. 1. Hesselbeinn, F. (1997), ‘‘The circular organization’’, The Organization of the Future, Jossey-Bass Publishers, San Francisco, CA.
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