Level of logistic service, logistic organizational structure and business performance: associations and influence of product type

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1 Level of logistic service, logistic organizational structure and business performance: associations and influence of product type Marcus Vinicius de Souza Silva Oliveira (PROPAD/UFPE; FAFICA) Walter Fernando Araújo de Moraes (PROPAD/UFPE; MPGE/FBV) Abstract The theme focused in this article is the analysis of the associations among the level of logistics service (received and offered), the logistics organizational structure and business performance of large Brazilian manufacturing companies. It also analyses the influence of the product type in such associations. It takes into consideration a sample of 138 companies. Performance data were obtained from Valor Econômico 1000 Magazine, and the other data were gathered by survey. Statistical tests were utilized, including factor analysis and Pearson s correlation. In broad terms, there is no evidence that the level of logistics service and also the characteristics of logistics organizational structures are significantly associated to business performance. Product type is a limited moderator in those associations. Keywords: Logistics service; Logistics organizational structure; Business performance; product type. 1. Introduction Only a short while ago, logistics was perceived as one more means of guaranteeing efficiency and rationalisation in using the resources available. There was not, consequently, greater strategic and structural matters to be considered (STOCK, GREIS, KASARDA, 1999). In this way, it did not constitute a sustainable competitive advantage, for it was easily imitable by the competitors. At the same time, companies tried to develop and maintain essential competences (PRAHALAD, HAMEL, 1990) with the purpose of generating and maintaining sustainable competitive advantage based on the resources. In this aspect, characteristics of logistics organizational structure (HALL, 1991; CHOW, HEAVER, HENRIKSSON, 1995; STOCK, GREIS, KASARDA, 1999, 2000) and the logistics service offered to the customer (CHRISTOPHER, 1992; LAMBERT, STOCK, 1993; HESKETT, 1994; LALONDE, COOPER, NOORDEWIER, 1988) became a crucial element capable of creating worth (RUTNER, LANGLEY JR, 2000; LANGLEY JR, HOLCOMB, 1992), maintain or generate sustainable competitive advantage (DAUGHERTY, STANK, ELLINGER, 1998). It is also linked to customer loyalty and able to contribute to the profitability and generate operational profit for the company (BALLOU, 2001; BOWERSOX, CLOSS, 2001) reflecting, consequently, business performance. We point out, in the particular case of logistics, that the type of manufactured product can exercise direct influence in the manner in which it is delivered to the final customers, thus, affecting their satisfaction and the logistics service level that is offered or received (BALLOU, 2001). 2. Level of Logistics Services (LLS) 1

2 The logistics service to the customer is the consistent offer of utility in time and place (CHRISTOPHER, 1992). It represents the product in the logistics system and is a component of the market mix (LAMBERT, STOCK, 1993). The relation of logistics service with speed and reliability was established by Heskett (1994); and its main objective of supplying significant benefits of aggregated value to the chain of supplies, in a cost efficient manner, is argued by LaLonde, Cooper and Noordewier (1988). It can be considered as a form of value generation by means of logistics activities (RUTNER, LANGLEY JR., 2000; LANGLEY JR., HOLCOMB, 1992) or as a way of maintaining or generating sustainable competitive advantages (LAMBERT, HARRIGTON, 1989; DAUGHERTY, STANK, ELLINGER, 1998). The logistics services can be best understood through its specific attributes. Studies, such as Harding (1998), Lambert and Harrigton (1989), Mentzer, Flint and Kent (1999), Fleury and Lavalle (2000), Figueiredo et al (2000a, 2000b), La Londe, Cooper e Noordwier (1988), Bowersox e Cooper (1992), have used combined attributes to indicate the level and importance of logistics service. In evaluating the service of physical distribution among industries of consumer goods and wholesale and retail trade, Bowersox and Cooper (1992), Christopher (1992) and La Londe, Cooper and Noordewier (1988), Fleury and Lavalle (2000) have proposed nine representative attributes of logistics service, namely: product availability, consistency in delivery timing, order period cycle, delivery frequency, failure recovery system, support in physical delivery, flexibility, support information system and post-delivery support. These attributes were used in other Brazilian researches in an integral approach (FIGUEIREDO et al 2000a, 2000b) or with some modifications (KOVACS, 2004). In this paper these nine dimensions are used. 3. Logistic Organizational Structure (LOS) Organizational structures can be studied in many forms. Traditional analyses consider the degree of centralization (HALL, 1991; FORD, ARMANDI, HEATON, 1988). Another approach divides organization structures in basic configurations and analyses aspects regarding the centralization, coordination mechanisms, formalization, among others (MINTZBERG, 1995). In addition, considerations related to international corporations activities are proposed by Daniels, Pitts and Tretter (1984) and Habib and Victor (1991). Despite the fact that issues related to the dimensions of the organizational structures (centralization, formalization and integration) are well explored in the field of organizational theories, logistics organizational structure has been neglected. Nevertheless, studies which associated organizational properties to logistics structure have been presented by Davis (1993), Chow, Heaver e Henriksson (1995), Stock, Greis e Kasarda (1999, 2000). They presented the dimensions of the traditional organizational structure (centralization, concentration, formalization and integration) and adopted other dimensions more appropriated to the supply chain (intensity, frequency, standardizing and reciprocity). 4. Business Performance (BP) In spite of the relevance of the theme, measuring organizational performance is something which has not been totally agreed by researchers in the area of Strategic Administration, who are constantly in disagreement as to the use of objective and/or subjective factors. 2

3 Utilizing financial measures, from accounting data, to evaluate the business performance is a traditional practice adopted in academic research (FISCHMANN, ZILBER, 1998; MORAES, 2003; MIRANDA, AZEVEDO, 2000). However, there are some limitations, in special the ones concerning the difficulty in obtaining reliable objective data for the performance measurement (PERIN, SAMPAIO, 1999; EL-SHISHINI, 2001). Faced with such a limitation, one alternative for the research would be to use the subjective indicators (perception of the managers). Researches have already evidenced positive correlation between subjective and objective measures of performance (DESS, ROBINSON, 1984; VENKATRAMAN, RAMANUJAM, 1987; PERIN, SAMPAIO, 1999). The researchers formation and the availability of data will influence the selection of indicators to be used (MORAES, 2003). Taking into consideration such difficulties (objective and/or subjective indicators), the access to the financial data available in the yearly publication of the Valor 1000 magazine (VALOR ECONÔMICO, 2004) led to their use in this research. 5. Product Type (PT) The classification of product types is well established in the marketing and logistics literature (BALLOU, 2001; KOTLER, 2000; CHURCHILL, 2000). According to their use, products can be classified as industrial or for consumption. This traditional classification takes into consideration the idea that each type of product possesses its own characteristics as to its forms of distribution and, consequently, appropriate logistic service (BALLOU, 2001). The consumption products are those directed toward the final consumer (BALLOU, 2001; CHURCHILL, 2000) and are divided in convenience products, comparison products and specialty products. Convenience products are those that the customer acquires frequently with little comparison, immediately with a minimum of effort (KOTLER, 2000; CHURCHILL, 2000); they demand ample distribution (various points of sale) and need a high logistics service level (BALLOU, 2001). When it comes to the comparison products, the customers are willing to investigate and compare several products in various points of sale and only decide purchasing after a careful study, analyzing adequacy, quality, price and model characteristics (KOTLER, 2000; BALLOU, 2001; CHURCHILL, 2000). The logistics services of these products tend to be different from the convenience products, mainly in relation to the dimensions regarding availability, delivery frequency and post delivery support. As to the specialty products, the customers are prepared to spend substantial time in acquisition. These products are generally identified by the brand. A significant number of buyers will be determined to expend extra effort to acquire them (KOTLER, 2000; CHURCHILL, 2000). Ballou (2001) arguments that the distribution of these products should be centralized and that the service levels to the customers are not as high as the convenience and comparison products. Industrial products are those obtained by individuals or by companies for the production of other products. Ballou (2001) emphasizes that industrial customers do not demonstrate preference for the level of different logistics services for the different classes of products. 3

4 6. Methodology The research aims the analysis of the associations among LLS, LOS and BP of large Brazilian industrial companies and also the influence of product type PT, based on the hypothesis shown in table 1. It deals with a descriptive and co-relational study of transversal profile, which described some characteristics of a determined sample, in a determined period of time, identifying associations of one factor with one other, or others (MARTINS, 2000). Survey was used as the research strategy, considering it to be the appropriate instrument (MARTINS, 2000). The data analysis was done in a quantitative manner, with the help of statistical instruments, using the SPSS 11.0 and EXCEL as basic programmes for the analysis of the results obtained from a sample of 138 companies. Such results were 95% confident with a relative error of 6.81%. Of an initial group of 1000 companies (VALOR ECONÔMICO, 2004), those related to the agricultural, commercial and undertaking service segments were removed. At the end, 522 companies were obtained. In addition, 61 companies were eliminated due to lack of available financial indexes. Other 49 outliers were also eliminated after the financial indexes were normalized. In this last case, the criteria adopted was to exclude from the population the companies whose performance indicator values were superior or inferior to 3 standard deflections of normalized segments, considering the exclusion of eventual outliers. In this manner, 412 companies of 15 sectors represented the population. Hypothesis 1: Logistic organizational structure (LOS) and business performance (BP): Hypothesis null H 0A : There is no significant association between LOS and BP; Alternative Hypothesis H 1A : There is significant association between LOS and BP. Hypothesis 2: Level of logistic service received (LLSR) and business performance (BP): Hypothesis null H 0B: There is no significant association between LLSR and BP; Alternative Hypothesis H 1B: There is significant association between LLSR and BP. Hypothesis 3: Level of logistic service offered (LLSO) and business performance (BP): Hypothesis null H OC: There is no significant association between LLSO and BP; Alternative Hypothesis H 1C : There is significant association between LLSO and BP. Hypothesis 4: Influence of the product type (PT) in the associations Hypothesis null H 0D : There is no influence of product type in the associations; Alternative Hypothesis H 1D; There is influence of product type in the associations. Table 1: Research hypothesis Telephone research (69 cases) and electronic research (69 cases) were used as data gathering techniques. The difference between the average answers received by telephone and was tested, regarding the representative LOS dimensions and the attributes of the level of 4

5 logistics service received (LLSR) and offered (LLSO). The result of the test made evident that only 4 of the 17 LOS dimensions presented a significant difference among themselves. As for the LLSR, 3 attributes out of 9 displayed significant differences, while there were no differences amid the LLSO attributes. The questionnaire included issues associated with the LLS (received from suppliers and offered to customers), with the LOS and with the main type of product of the company. The financial indicators related to the BP were collected directly, through consultation of data available in the yearly publication of the Valor Econômico magazine (VALOR ECONÔMICO, 2004). In the evaluation of the answered questionnaires, the Alpha de Cronbach Coefficients for the LOS, the LLSR and the LLSO were relevant (0.8353, and respectively), having good internal consistency and reliability concerning evaluation, not requiring, in this manner, the exclusion of any variables for such values to be accepted. The answers, as to the typology of the product, were classified as Industrial Product (55.8% of the sample) and Consumption Product (38.4% of the sample). The answer there is no predominance was eliminated from the analysis because it presented few cases, being inadequate for the application of statistical tests. Pearson s Chi-Square correlation tested the representation of regions and sectors of activity in the sample in relation to the population and presented suitable values (respectively and 0.695). Considering that the number of indicators used for measuring the LOS variable in the questionnaire was high (17 variables), resulting in a difficulty to analyse the associations, the factorial analysis technique was chosen. An analysis of the main components was conducted, with varimax rotation applied to seek simplified features of the factorial structure, facilitating the interpretation of the data. In the composition of factors, only the variables which presented load larger than 0.50 in each factor were considered, according to the indication of Hair et al (1995), with exception of the dimension regarding the company s negotiation power with their main suppliers, which was included in the factor 4 composition despite having a load. This procedure was adopted considering that the factor would be best applied with the inclusion of this dimension. From the factorial analysis four factors emerged. The KMO test presented a factor, indicating that the technique could be used (NORUSIS, 1990). Bartlett s sphericity test based on the chi-square transformation of the determinants of the correlation matrix presented acceptable value ( ) associated with a level of satisfactory significance (sig = 0.000), indicating that the correlation matrix of the sample was adequate. The total variance explained by the four factors was of approximately 54%. The factors are: Factor 1 Internal process; Factor 2 Formalised contacts; Factor 3 Intensity in the external integration; and Factor 4 Negotiation capacity (figures not shown due to space limitations). For processing of the associations among the factors extracted from the factorial analysis of the LOS, the factors were normalised and considered by the component scores represented in the matrix of the factorial analysis coefficients. The resulting factor scores are the representative sets of original variables (HAIOR et al 1995). The new variables of the LOS, shown next, were calculated as follows: New variable = Component Score x * [(Variable x Average x) / (Standard deviation x)] The indexes for LLS, which were also created, were calculated from the normalisation of the average of logistics service of the sampled companies. The indicators of BP were also 5

6 obtained from the normalisation of each value of the company indicators in relation to its respective sector of activity. They are: variation of net revenue, profitability; and variation of EBITDA. 7. Analysis of the Associations The existent associations among the representative factors of the logistics organizational structure (LOS), the level of logistics service received (LLSR), the level of logistics service offered (LLSO) and business performance (BP) were analysed using the application of analysis correlation based on Pearson s formula (NORUSIS, 1990), as will be illustrated in the following sections. 6

7 7.1 Associations between LOS, LLS and BP Pearson s correlations were performed (results no shown due to space limitation). As proposed in hypothesis 1, it is expected that the LOS dimensions are capable of having some relation with the business performance of the companies. Nevertheless, none of the representative LOS factors (factors 1, 2, 3 and 4) are significantly correlated with the variables of the BP (normalized Variation of the Net Revenue VARRL, normalized Profitability RENTPL and normalized Variation of the EBITDA VAREBITD). Thus, the null hypothesis H 0A can not be rejected, that is, it must be accepted that internal process characteristics, formalized contacts, external integration intensity and the business capacity of the company apparently do not impact the business performance. Hypotheses 2 and 3, in that order, deal with the possible associations between the LLSR and BP and the LLSO and BP. However, none of the representative variables of BP are significantly correlated with the variables of LLS. In this way, neither the null hypothesis H 0B nor the null hypothesis H 0C can be rejected, therefore, there is no evidence that the business performance is influenced by the level of logistics service received and offered. 8. Influence of the Product Type (PT) The influence of moderator variables in the analysis of associations amid main variables has been considered in Hypothesis 4. It deals with the possible influence of the contingency variable PT in the association in question. The supposition is that product type can exercise influence regarding the associations within the main variables. For the verification of this hypothesis, the analysis of the correlations considered the moderators product type as Industrial and Consumption. Concerning the associations between LOS (Internal process, formalised contacts, Intensity in the external integration and Negotiation capacity) and BP (Business performance), the absence of significant correlations, when confronted with PT Industrial or of Consumption, was maintained. Thus, independently of the type of product considered, the inexistence of associations between logistics organizational structure and the business performance is preserved. The associations between the LLS (level of logistics service received and offered) and BP, by type of product, are also considered. It reveals that when the PT Industrial is considered, the LLSO is negatively correlated to the profitability. Similar fact occurs when the Consumption Product is regarded. In this case, the associations are significant and negative for the LLS (received and offered) and the variation of EBITDA. In other words, the company can, for example, be offering high levels of logistics service and find itself achieving business performance poorer than desired. This can imply that the company must render different levels of logistics service for different customers, as proposed by Figueiredo (2000). Product type appears to have partial influence in the association between LLS and BP. In this way, the null hypothesis H 0D can be rejected (there is no influence of the contingency variables in the associations). That is, in some cases, the moderators (Product type) alter the associations among the main variables considered. 7

8 9. Conclusions Regarding the associations between the logistics organizational structure and the business performance, it is inferred that apparently their factors are not associated to the business performance. This conclusion can be extended to the associations between the level of logistics service (received and offered) and business performance. The product type (industrial and consumption) appears to have no influence, as moderator, in the non-significant association between logistics organizational structure and performance. On the contrary, the findings of this paper suggest that the higher the level of logistics service (received and offered), worst is the variation of EBITDA. By the same token, the lower the business profitability, higher is the level of logistics service received. In general, these findings do no corroborate the contemporary theory in logistics management. 10. References BALLOU, R. H. Gerenciamento da cadeia de suprimentos: planejamento, organização e logística empresarial. Porto Alegre: Bookman, BOWERSOX, D. J. & CLOSS, D. J. Logística Empresarial: o Processo de Integração da Cadeia de Suprimento. São Paulo: Atlas, BOWERSOX, D. & COOPER, M. B. Strategic marketing channel management; New York: McGraw-Hill, 1992 CHOW, G., HEAVER, T. D. & HENRIKSSON, L. E. Strategy, structure and performance: a framework for logistics research. Logistics and Transportation Review, p , Dec, CHRISTOPHER, M. Logistics and supply chain management. London: Pintman, CHURCHILL, G. Marketing: criando valor para o cliente. São Paulo: Saraiva, DANIELS, J. D., PITTS, R. A. & TRETTER, M. J. Strategy and structure for U. S. multinationals: an exploratory study. Academy of Management Journal, v.27, p , DAUGHERTY, P. J., STANK, T. P. & ELLINGER, A. E. Leveraging logistics/distribution capabilities: the effect of logistics service on market share. Journal of Business Logistics, v. 19, n. 2, p , DAVIS, T. Effective supply chain management. Sloan Management Review, nº 34, p.35-46, DESS, G. G. & ROBINSON, R. B. Measuring organizational performance in the absence of objective measures: the case of the privately-held firm and conglomerate business unit. Strategic Management Journal, v. 5, p , EL-SHISHINI, H. Integrating financial and non-financial performance measures: state of art and research opportunities, In: MANAGEMENT ACCONTING RESEARCH GROUP CONFERENCE, 2001, Birmingham. Anais Birmingham, FIGUEIREDO, K. Rentabilidade de clientes e nível de serviço. In: FLEURY, P. F. WANKE, P. FIGUEIREDO, K. Logística empresarial: a perspectiva brasileira. São Paulo: Atlas, FIGUEIREDO, K. ARKADER, R. LAVALLE, C. K. L. & HIJJAR, M. F. Dimensões relevantes de serviço ao cliente na distribuição de alimentos: um estudo de caso entre atacadistas e varejistas no Brasil. In: FLEURY, P. F. WANKE, P. FIGUEIREDO, K. Logística empresarial: a perspectiva brasileira. São Paulo: Atlas, 2000a ; ;. Evolução do desempenho em distribuição no setor brasileiro de alimentos no período de In: ; ;. Logística empresarial: a perspectiva brasileira. São Paulo: Atlas, 2000b. FISCHMANN, A. A. & ZILBER, M. A. Utilização de indicadores de desempenho como instrumento de suporte à gestão estratégica. CD-ROM Encontro ENANPAD,

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