The White Space of 3PL Research: Importance of Understanding the Intention to Use

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1 The White Space of 3PL Research: Importance of Understanding the Intention to Use Nasrin Akter*, Professor Prem Chhetri ** and Professor Brian Corbitt *** Broad Track: Management 1. Introduction The application of optimization techniques for modeling the efficient flow and storage of inventory goods, third party logistics (3PL) use patterns, trend and integration issues are at the center of attention to scholars and practitioners in the field of logistics and supply chain management. The aspect of human behaviour and associated uncertainty in logistics decision processes are largely overlooked. The paper demonstrates the importance of conducting behavioural research in the area of 3PL, based on the need that such research would offer new insights into developing more informed logistics and supply chain models to improve the understanding of third-party logistics usage patterns and decision processes. The growing trend of outsourcing logistics activities across industries attests the significance and validity of third-party logistic (3PL) services in achieving efficient and agile supply chains (Langley and Capgemini 2010). In this new backdrop logistic cost advantage has become an important means of competitive in the global logistics market. Moreover, there is a growing need to be more responsive to customer demand thus manufacturer have to react faster to the changing demands accordingly (Horne, 1989). A better trade-off is needed between efficiency and responsiveness (Chopra, et al., 2006) which requires immense flexibility especially in the supply chain. Logistic practitioners can manage effective and efficient logistics operation by selecting a single or a combination of either three options. They are: an in-house service, own logistic subsidiaries (either setting their own or buying) and outsourcing the function. The environmental uncertainty, impact of globalization, time and quality based competition etc. are forcing as well as influencing firms to choose the third option- a partnering and collaborative orientation with the third party logistics (3PL). The research in the area of Third-party logistics (3PL) has attracted considerable attention in recent year. This can be partly explained by the growing trend of outsourcing logistics activities in a wide variety of industrial sectors (Langley and Capgemini 2010). The recent research in the logistics stream has shown remarkable progress in devising the optimization techniques relating to the efficient flow and storage of inventory goods and services throughout the supply chain (CSCMP, 2008). However, in spite of this notable progress, the issue of logistics related to human behaviour and decision making is often overlooked by the logistics researchers. Behavioural issues, especially judgment and decision making, have significant relevance in logistics research because people are less likely to make a choice consistent with normative or optimal policy and do so in specific and systematic way (Bazerman, M.H. and Terrell, J., 2006). Although the behavioural * PhD candidate, nasrin.akter@rmit.edu.au ** Professor, prem.chhetri@rmit.edu.au *** Professor, brian.corbitt@rmit.edu.au School of Business IT and Logistics, RMIT university, Australia Page 1 of 11

2 issues are receiving considerable research interest from various disciplines, very few published research relating to human behaviour, judgment, decision making and integrating those issues into models, processes and tasks is evidenced in the logistics and supply chain management journals. The present study thus inspires to shed light on the importance of conducting behavioural research specifically, on the underlying psychological factors those affect the business customers intention to use third party logistics services. The insight from behavioural research in the logistic and SCM context may provide significant, detail and accurate knowledge regarding issues like management of suppliers and customers, negotiation with supply chain partners and how partner firms respond to a given situation (Toker, 2010). As development of theory in logistics can ensure its practical application and savings of time of the logistics practitioners (Dunn et al., 1994), therefore the behavioural research in logistics can complement the theory development through theoretical insight and predictions of behavior (Camerer and Lowenstein, 2003). Past studies on 3PL investigates the buyer s perception toward third party logistics services and providers in USA (Sink et al. (1996). Customer perceptions and evaluations of the purchasing experience are examined by Esper et al. (2007) to investigate the effects of online retail delivery strategies on consumers. Balancer and Ellram (1997) applied psychological contract and organizational justice theories to examine strategic supplier partnering (SSP) between buyer and seller. Machuca and Barajas (2004) used human subjects in a controlled experiment to examine the impact of electronic data interchange on supply chain efficiency and the bullwhip effect. Therefore, it can be argued that the literature on 3PL services has a vacuum where no studies consider the issues of 3PL from the trade customers (for example, retailers who buy from the manufacturers and where that manufacturers use the 3PL services to serve those retailers) perspective and their intention to use 3PL services. As manufactures or suppliers decisions to use 3PL are interrelated with the quality of the services provided to the business customers, examination and inclusion of the business customer s intention seems to be strategically very important. Moreover, behavioral research is of equal importance where it needs to include the human decision makers (suppliers, customers and service providers) of multiple firms (CSCMP, 2008). The importance of conducting behavioral research and the stated gap in the literature motivates the present study to explore this issue by linking it with behavioural research and shed some light on it as a promising area of study and practice. This paper is structured in two core sections. The first, looks at the white space ( the research gap) by exploring the different dimensions of 3PL research. The second, explores the need to predict intention to use 3PL services and argues that linking behavioral research with 3PL have important implications for both 3PL client and the provider. 2. Third-Party Logistics and the White Space Unless we understand the existence of different perspectives of 3PL research that the academics and logisticians approached overtime, it will not be possible to find out the missing space of 3PL research. Therefore, this section focuses on issues like definition of 3PL, internal and external factors investigated with 3PL research over time and categorization of 3PL research. This discussion will justify the existence of white space in the context of 3PL research. Page 2 of 11

3 2.1. Defining Third-Party Logistics (3PL) Generally, a 3PL is an outsourced provider that manages all or a significant part of an organization s logistics requirements. The term outsourcing, third-party logistics and contract logistics generally mean the same thing (Lieb et al., 1993). However, the definition of 3PL and the terminologies are not consistent across 3PL literature (Skjoett-Larsen, 2000). Third party logistics related functions differ in terms of its purposes and country perspectives. Traditionally, 3PL services were considered as narrow in scope and limited to one or two types of services like warehousing, transportation or material handling (Lieb et al., 1993). Bowersox et al. (1995) define the relationship between buyer and seller of third party logistic services through a continuous scale, ranging from a single transaction to integrated service agreements. The need for developing sustainable competitive advantage, the growing emphasis on providing good customer service effectively and efficiently, and the strategic value of focusing on core businesses and re-engineering (Hill, 1994; Sheffi, 1990) resulted in the evolution of contract logistics which is very different from traditional logistics. The use of 3PL is widely adopted as an alternative to the traditional logistic activities. Therefore, third party logistics providers included marketing, packaging, distribution, import and export to their functional lists (Richardson, 1992). 3PL services are increasingly being used for value-added activities like assembly and quality control (Fawcett et al., 1993). Other than transporting and warehousing some 3PL companies only involves in selling software and consulting services for their customers so that transporting, inventory and warehousing become more efficient than before. Many 3PL companies serve their customers with logistic information systems, shipment consolidation, rate negotiations and product returns (Lieb and Randall, 1997). Considering the diverse need of the 3PL clients, many companies are offering services ranging from very basic to most customized one for both short term and long term transactions or relationships (Marasco, 2008). Consequently, to categorize these wide varieties of 3PL services, Muller (1993) proposed four classification schemes of the 3PL vendors. These include: asset-based vendors, management-based vendors, integrated vendors and administration based vendors. From the perspective of relationships, Bask (2001) conceives 3PL as a set of triadic (linking buyer, seller and logistics service provider-lsp) though most of the literature considers the 3PL relationship as dyadic (either seller and LSP or buyer and LSP) point of view (Burgland, 2000). Hence, it is clear that the 3PL concepts are most often developed by the users, the researchers or the consultants on the basis of the business needs and the services offered by third party Factors Investigated with 3PL Research The increased use of third party logistics has drawn a considerable attention among researchers which encourages the researchers to seek deeper understanding of the 3PL related issues. Different internal and external factors have been researched along with the 3PL issues and its impact on 3PL arrangements, development and relationships. From the perspective of macro-environmental factors, Sheffi (1990) analyses some economic, regulatory trend and technological change and its impact on the development of the 3PL. Similarly, forces like globalization, lack of specific knowledge of customer,regulation and infrastructure issues in global logistics, (Foster and Muller, 1990; Rao et al., 1993) just-intime (JIT) principles (Sheffi, 1990; Trunick, 1989) the versatility of third party services (Trunick, 1989), information technology (Langley et al., 2002, 2005), and e-commerce Page 3 of 11

4 (Delfmann et al., 2002; Koh and Tan, 2005) are also captured substantial research concentration among 3PL researchers. A significant amount of research has already been done by focusing the strategic perspectives of all the related 3PL parties. It includes the subject area like strategic segmentation (Berglund et al. 1999), strategic choice of business competition (Yeung et al. 2006), strategic development (Hertz and Alfredsson, 2003) and strategic relationships (merger, acquisition and logistic alliances) either from a single country or cross country perspectives (Carbone and Stone, 2005). 3PL research have also focused on the behavioural factors, such as trust, commitment and equity (knemeyer et al., 2003; Moore, 1998; Moore and Cunningham, 1999) and some relationship marketing elements like attachment, communication, dependence, investment, opportunistic behaviour, reciprocity, reputation, customer referrals, customer retention, service recovery and performance improvements (Knemeyer and Murphy, 2005). Further studies also investigate how the involved parties organizational characteristics and structure in 3PL arrangements are related to the 3PL decision making and relationship (Daugherty and Droge, 1997; Murphy and Poist, 1998). For example, House and stank (2001) investigates the difficulties of achieving the positive outcome of 3PL relationships that arises due to organizational characteristics and Maltz and Ellram (1997) and de Boer et al., (2006) attempted to suggest different models and decision frameworks that are presented either in conceptual form or tested empirically to fight back with those impediments of building 3PL relationship Categorization of 3PL Research The studies conducted in 3PL can be conceptually categories from different perspectives. These include: user perspective, provider perspective, user-provider perspective (Rahaman, 2011) and comprehensive studies (Marasco, 2008). User perspective: The studies (e.g, Lieb 1992; Sohal et al., 2002, Bhatnagar et al., 1999;) on user perspective examines extensively the issues relating to 3PL uses, types of service uses by the user, the benefits of using 3PL for both developed and developing countries. Provider perspective: The providers perspective (e.g., Larson and Gammelagaard, 2001; Sum and Teo, 1999) examined the types of services offered by the 3PL providers, strategic posture of single country as well as cross-country comparisons, performance measurement, and the provider s current and future objectives. User-provider perspective: On the whole the studies on user-provider perspective (e.g, Daugherty et al., 1996; Knemeyer and Murphy, 2005) those are limited in numbers primarily focuses on the user s perception regarding providers capabilities, responsiveness and flexibility issues and the elements of their successful relationship. Comprehensive studies: A few of 3PL research synthesized the overall research of 3PL by reviewing the status of the 3PL literature and presented the literature review scheme accordingly ( Marasco, 2008). From the broad perspective of 3PL research, Razzaque and Sheng (1998) attempted to develop a comprehensive literature on outsourcing by focusing on the issues like, definition, driving forces, importance, types, advantages, disadvantages and critical success factors of outsourcing. A considerable portion of 3PL research have Page 4 of 11

5 conducted from the different country perspectives. Marasco (2008) listed those surveys based empirical 3PL studies with a geographical focus like US (e g, Lieb and Bentz 2004), Europe (e.g., Wilding and Juriado 2004) and other regions {e.g, Aktas and Ulengin 2005 (Turkey), Bhatnagar et al., 1999 (Singapore), Dapiran et al., 1996 (Australia), Fernie 1999 (UK), Hong et al., 2004 (China)}. Some transnational comparisons are also evident in the literature {e.g, Arroyo et al., 2006 (Mexico Europe US), Lieb et al., 1993 (US Europe), Millen et al., 1997 (Australia US Western Europe), Sohail et al., 2006 (Singapore Malaysia)} The white space of 3PL Research The literature on 3PL is mainly focused on the operational issues so far, few research has been conducted to examine the importance of applying the psychological underpinnings in the logistics and SCM so that it can benefit logistics and SCM by generating broader theoretical insights, better predictions of field phenomena, and more effective policy. Therefore, there is a call for conducting research within a theoretical framework that considers a range of individual factors such as attitude, perceived norms, and perceived capabilities those determines the intention toward 3PL uses among trade customers. The review of existing literature on 3PL services clearly identifies a number of research gaps that need to be addressed. Firstly, the literature ignored the importance of behavioral research in supply chain management and logistics. Secondly, the use of behavioral model seems to be almost non-existent in the logistics research stream. Thirdly, although behavioral research is well-suited for testing and building theory, quantitative empirical large scale survey based theory building research is almost absent. Fourthly, research has been conducted from the perspective of 3PL provider and 3PL user, but no research is evident so far on trade customers (customers of 3PL user) who are also beneficiaries /looser of 3PL services. Finally, the most influential and wellsupported social psychological theory (TRA and TPB for predicting human behaviour which has been applied almost in all domains of business) is not applied yet to predict the trade customers intention in SCM. Therefore, this study will shed light on how to develop a theory driven empirical model to examine the factors affecting the intention to use 3PL services by trade customers. 3. Intention to use 3PL Services The decision to use 3PL services to supply products to customers is influenced by a mix of various parties affected by the decision. For example, how the employee of the organization and business customer (retailer and other wholesaler) will react regarding the decision to use 3PL services to deliver their (trade customer) product (e.g., which delivered before by the company itself) may be a matter of major concern for the organization. In a study of 3PL uses by large American market, it was found that 19% respondents consider the impact of 3PL uses on the employee morale as negative (Lieb, 1992). According to Cooke (1988) and Muller (1991) uses of outside firms may develop a fear of being cut back among the existing employees. Moreover, in a study of buyer observation of the US third party logistics market, customer s non-acceptance and impaired credibility regarding 3PL was found to be two of the major disadvantages cited by the buyers (Sink et.al., 1996). All of these indicate stakeholders negative perception toward the use of 3PL services. Hence, the decision to use 3PL services without the knowledge of customers attitude may harm the longstanding business relations that they built with their business customers. Furthermore, research on exploring the underlying Page 5 of 11

6 factors of intention may offer valuable insights to the logistic practitioners about what services to outsource and what needs to be kept in-house. Past studies on 3PL revealed that although clients exhibit increased tendency to use 3PL services, they simultaneously express some concerns relating to implementation. In a recent study it was revealed that 74% of the surveyed Australian firm utilized the services of one or more 3PL services which show a modest increase of only 6% from the 1998 figure (Rahman, 2011). Despite the growing interest although modest, the Australian firms are encountering many drawbacks while deciding and implementing the 3PL usages decision. Measurement of service-level performance, understanding of the firm s policies and requirements of third parties, definition of required service level, maintaining and integrating information system between the firm and 3PL provider, cost of outsourcing and loss of direct control are some of the most cited implementation concerns. Moreover, the growing 3PL usages interest is not adequately reflected in the actual 3PL uses if we consider the statistics of organizational commitment and budget related issues. Although there was a slight increase in the commitment to use 3PL services from 1995 to 1998, 26% of the surveyed Australian firms regarded their company s commitment as limited and almost half of the organizations dedicated less than 20% of their logistics budget to 3PL services (Sohal et.al., 2002). Nonetheless, in the same study respondents tend to believe the above mentioned percentage of budget commitment will rise in five years time from 22 to 35 percent. The study result of 2011 is an actual reflection of the prediction of 1998 s study. 48% of the respondents indicated their commitment level as extensive and 44% respondent allocated a substantial amount of their logistic budget ranging from 41 to 100 percent for 3PL services (Rahman, 2011). On top of this, 90% of the surveyed respondents regarded outsourcing as a positive development (Sohal et al, 2002). However, the level of respondents' satisfaction has dropped by 10% in a recent study (Rahman, 2011) and similar decreasing trend was also evident in an earlier study conducted by Dapiran et al., (1996). Given this paradoxical view, the question naturally comes- why firms are not adopting the 3PL services while acknowledging its advantages? What actually determines the intention to use 3PL services? Thus, awareness of the factors those encourages the firm to adopt 3PL services seems to be very critical for logistics and supply chain practitioners Behavioral Intention Theory The theory of planned behavior (TPB- Ajzen, 1985) has been the most influential and wellsupported social psychological theory for predicting human behavior. According to TPB, behavioral decision is not made spontaneously, rather are the results of attitude (evaluation of target behaviour), subjective norms (perceived social pressure regarding the performance of the behaviour) and perceived behavioural control (perceive control over the performance of the behaviour) which influences the behaviour primarily through their impact on behavioural intention. Hence, the more one intends to engage in a particular behaviour, the more likely one is to engage in it. Overall, research in different contexts have offered extensive support for the ability of this model to predict a wide range of behaviours (Armitage and Conner, 2001). The studies that applied TPB in the organizational decision making can be grouped into three broad categories (Southey, 2011). They are, financial decision making (Bagozzi, 2000) strategic decision making (Branzei et.al, 2004;) and professional decision making (Marquardt & Hoeger, 2009). However, little has been done so far in decision making in the logistic context. Page 6 of 11

7 3.2. Linking 3PL with Behavioural Research Intention to use 3PL services can be based on the proposed theoretical framework (Figure 1). The framework is an application of the theory of planned behaviour in the context of 3PL which distinguishes between perceived capacity and perceived autonomy and also examines its combined impact on behavioral intention. It theorizes that the intention to use 3PL services (e.g. getting the product delivered through 3PLservices) will be influenced by some coonstucts like attitude, perceived norms, and perceived behavioral control. The perceived capacity (e.g. whether there is enough lead time available to match with the 3PL delivery schedule) and the perceived autonomy (e.g. whether there is complete control over the decision of using a 3PL to get the product delivery) jointly is expected to influence attitude and revealed behavior via the perceived behavioral control. Perceived norms (e.g. whether the business person thinks that most business people like him are using 3PL services for getting their product delivered and they also prescribing others to do the same.) is also expected to influence attitude. Figure 1: Conceptual Framework (Theory of Planned Behaviour) Attitude Revealed Behavior Perceived Norms Behavioral Intention Perceived Behavioral Control Perceived Capacity Perceived Autonomy Source: Adapter from Fishbein and Ajzen (2010) 4. Conclusion The continued focus of third party logistics research, its growing importance and contributions in the supply chain management discipline is indicating toward the need for deeper understanding of the 3PL issues, arrangements, developments and relationships. Extant literature that includes diverse perspectives of the 3PL research can be placed in a broad continuum. The spectrum includes from the very basic (e.g., evolution, definition, advantages and disadvantages) to the very complex 3PL issues (e.g., transportation network, factors impedes to develop strategic alliances, e-commerce). However, the research within the 3PL field misses out to tease the behavioral complexities that can be emerged through the interaction between the buyer and the provider. From marketing point of view, it can be argued that, the trade customers of logistics business should be considered as the internal customers who actually serve the external customers (ultimate/end customers). The trade customers satisfaction motivates them to serve their Page 7 of 11

8 best to the ultimate customers, therefore, research on understanding these internal customers black box (through understanding trade customer s attitude, perceived norms and perceived behavioral capacity) is also seems to be crucial. However, little empirical evidence exists on the dynamics of formation of such behavioural research where trade customers intention to use 3PL services is taken into account. Future research expects to fill the gap of third-party logistics research by examining the psychological factors affecting trade customers behavioural intention to use 3PL services. Understanding of the factors affecting trade customers behavioural intention anticipates to have implications for both 3PL clients (suppliers who use 3PL services to serve the trade customers) and the trade customers. Precisely, a) the users of 3PL services can predict customers reactions before undertaking the strategic decisions about using 3PL services b) inclusion of customer perspective can provide empirical evidence to reflect the customers perception, attitude and response patterns in regards to the extent of 3PL usage (e.g., what services to outsource and what services keep in-house) c) the research itself may work as a change agent among the trade customers because during the research, a trade customer (who is not using the 3PL services yet) would get the indication of the potential uses of 3PL services by their manufacturer, suppliers or marketers. Along with highlighting the importance of understanding the 3PL user's intention, this paper attempts to exhibit the way to develop a theory driven empirical model to examine the factors affecting the intention to use 3PL services by trade customers. Although a conceptual framework is proposed, the study can further be enhanced through testing the model empirically with a clear model specification (e.g., specification of constructs to be measured and their related latent and observed variables) and estimation. Even though the proposed framework is based on TPB, other relevant behavioural theories can be used and adapted to understand the behavioural intention of 3PL use. References Ajzen, I 1985, From intentions to actions: a theory of planned behaviour, viewed 08 November 2011,< nned%20behavior-%20azjen.pdf>. Aktas, E & Ulengin, F 2005, Outsourcing logistics activities in Turkey. The Journal of Enterprise Information Management, vol. 18 no. 3, pp Arroyo, P, Gaytan, J, & de Boer, L, 2006, A survey of third party logistics in Mexico and a comparison with reports on Europe and USA, International Journal of Operations & Production Management, vol. 26, no. 6, pp Armitage, CJ & Conner, M 2001, Efficacy of the theory of planned behaviour: A meta-analytic review, British Journal of Social Psychology, vol. 40, pp Bagozzi RP 2000, The Poverty of Economic Explanations of Consumption and an Action Theory Alternative, Managerial and Decision Economics, vol. 21, pp Bask, AH, 2001, Relationships among TPL providers and members of supply chains A strategic perspective, Journal of Business & Industrial Marketing, vol. 16 no. 6, pp Bazerman, MH & Terrell, J 2006, Judgment in Managerial Decision Making, Hoboken, NJ: Wiley, New York, 6th ed. Berglund, M 2000, Strategic positioning of the emerging thirdparty logistics providers, Department of Management and Economics, Linko ping Studies in Management and Economics, Dissertation no. 45 Berglund, M, van Laarhoven, P, Sharman, G, & Wandel, S, 1999, Third-party logistics: Is there a future? The International Journal of Logistics Management, vol. 10, no.1, pp Page 8 of 11

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