Weighting The Factors Affecting Logistics Outsourcing

Author : Lorena D. Mathien
Publisher :
ISBN 13 :
Total Pages : 405 pages
Book Rating : 4.:/5 (837 download)

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Download or read book An Empirical Investigation of the Antecedents and Validity of Five Theory Bases of Logistics Outsourcing Decisions written by Lorena D. Mathien and published by . This book was released on 2013 with total page 405 pages. Available in PDF, EPUB and Kindle. Book excerpt: The outsourcing of logistics and the procurement of logistics services have risen significantly in industry in recent years, as firms seek to focus on core competencies and outsource noncore functions to reduce cost and gain a competitive advantage. Core competencies, or core capabilities, are "the bundle of a firm's resources and capabilities that are strategically important to its competitive advantage at a certain point in time" (Wang & Ahmed, 2007). One of the objectives of this research is to more clearly define and delineate the differences among the strategic and operations management constructs of resources, capabilities, competencies, and practices. This research focuses on logistics capabilities, and proposes that the contribution of logistics outsourcing towards firm performance is dependent upon the degree of fit between logistics capabilities and the firm and logistics functional strategies. The relationships among these theoretical constructs, their empirical validation, as well as an empirical investigation of the antecedents of logistics outsourcing are pursued in this dissertation research. Outsourcing is the practice of utilizing external resources to perform activities that previously were performed in-house. In the case of logistics outsourcing, academic and industry research has indicated that shippers are becoming increasingly sophisticated in their outsourcing requirements and, with the proliferation of third party and fourth party logistics providers, shippers can demand increasing value at lower costs. Thus, logistics providers will benefit from the knowledge of the factors that drive shippers' outsourcing decisions. Such information may enable logistics service providers to differentiate themselves in the market. This dissertation investigates the factors that induce shippers to outsource logistics functions. Based on a theoretical framework rooted in the social sciences and strategic management, this study proposes an integrative model to develop and understand the critical factors in the outsourcing relationships. The motivation behind this study is threefold: (1) to use the strategic management and social sciences theory bases, in addition to drawing from the research findings on information technology (IT) outsourcing, to examine the theoretical foundations for outsourcing; (2) to apply the theoretical foundations to explain why organizations outsource logistics; and (3) to explain why the benefits are more than just cost-based or resource-based, but may also be strategic in nature. Specifically, this study starts with the research stream on production competence theory of Vickery (1991), and its recent extension to the Purchasing domain by studies such as Gonzalez-Benito (2007). We extend this framework to the logistics management domain, specifically to the emerging area of logistics outsourcing decisions, wherein such research, dealing with the development of capabilities, competences, logistics performance, etc. is very much in an incipient stage. This framework of competence hierarchy is tested empirically for the Logistics context, in addition to testing the validity of five different theory bases. The five theory bases tested are: 1) Resource-based view, 2) Dynamic capabilities view, 3) Competence-based view, 4) Relational factors view, and 5) Transaction cost economics (TCE). To better understand the relationship between outsourcing factors, and logistics and firm performance, theoretical models are developed linking these constructs, and controlling for several firm and business environment characteristics.^The theoretical constructs are defined as comprising strategic-level initiatives such as establishment of competencies, resources, relationship management practices, organizational structure, and governance structure. The dependent variables include positional advantage, defined as a comparative advantage in resources, enabling a firm to occupy positions of competitive advantage, and performance outcomes, measured by financial performance relative to competition. The structural model developed suggests several testable hypotheses and relationships. The major hypotheses are that, first, increased adoption of the proposed theoretical elements may be positively related to competitive advantage. Second, logistics performance, or the alignment of strategy and capabilities, is also positively related to competitive advantage. Finally, increased competitive advantage, or positional advantage, may be positively related to firm performance. The research methods employed involve a systematic development of a survey instrument to measure various constructs of interest. Measurement items were drawn from the literature, along with newly developed scales (e. g. the measure for cost difference for transaction cost view). The survey was pilot tested with senior logistics executives, followed by a full-scale implementation among a random sample of North American shippers. The survey methodology included both web-based and printed surveys. Analysis was conducted in two phases: the first phase being factor analysis (CFA) followed by covariance-based structural equation modeling (SEM) using partial least squares (PLS) approach, validated by ordinary least squares (OLS) regression and SEM. This research demonstrates that discrete resources do play a large role in determining positional (relative) advantage and financial performance in regards to logistics outsourcing. The unique resources developed within an outsourcing relationship account for a large variance of positional advantage; however, financial performance increases when these resources evolve based on market dynamics. Unlike resources, competences are activity-based. When viewed in isolation, top management support, logistics capabilities, and alignment of logistics strategic objectives all increase logistics performance, positional advantage, and, in turn, financial performance. However, when viewed in conjunction with other factors (integrative model), all of these factors become insignificant when determining positional advantage, suggesting that there are more important elements in logistics outsourcing success. Relational factors also play a large role in logistics outsourcing, with communication, trust, and relationship commitment all significant determinants of cooperation, and with cooperation among outsourcing partners leading to both positional advantage and positive financial performance. Among all the factors leading to cooperation, trust plays the largest role. This is not surprising given that many logistics outsourcing relationships are not long-term in nature, and that logistics is such a large spend in any firm. In both the individual models and in the integrative models, resources, the dynamic development of these resources over time, and cooperation all prove to have the most impact on firm positional and financial performance. In addition, although the initial decision to outsource may stem from a shipper's need to reduce costs, transactions costs play a very minor role in logistics outsourcing, and nothing can be claimed on the centralized or decentralized logistics structure on outsourcing success. Finally, when the individual models are combined, they explain significantly more variance in positional advantage, and slightly more variance in financial performance than the individual models. Thus, this dissertation research makes both theoretical and managerial contributions. First, a theoretical model of logistics competence was developed, describing comprehensively, the antecedents and interrelationships among constructs of relevance to logistics outsourcing, and this framework was tested empirically. This framework separates logistics practices from logistics capabilities/competencies, and redefines logistics competence to align with the definitions provided by literature. Second, this dissertation enhances the understanding of the antecedents of logistics outsourcing, and identifies the conditions for optimal performance of shippers and providers in outsourcing relationships. Whereas logistics capabilities and outsourcing competence are determinants in individual models, they are insignificant when included in an integrative model including other factors. Resources, the renewal of these resources, and relational factors play a much more significant role in determining logistics outsourcing success or failure. In addition, transaction costs and the centralization or decentralization of the logistics function within a firm have little to no impact on outsourcing performance. Thus, this research offers practical insights for both shippers and logistics providers for improving firm and supply chain performance. Shippers and providers should focus their efforts on obtaining and renewing resources, as well as building strong relationships centered on trust and cooperation. Third, this research empirically validates (refutes) the five theoretical models of Competence, Resources, Dynamic Capabilities, Relational, and Transaction Cost Economics, specifically in the logistics outsourcing context. The first four theoretical bases are supported in relation to logistics outsourcing; however, the last, TCE, which is the most widely applied theory in logistics outsourcing literature, is found to be an insignificant contributor to success.