partnership determinants in logistics outsourcing: a relationship marketing perspective adriana...

Partnership determinants in logistics outsourcing:A relationship marketing perspective

Adriana Rossiter HoferUniversity of Maryland, College Park

Academy of ManagementOperations Management Doctoral ConsortiumAtlanta, August 12th 2006

About my dissertation

– Dissertation Committee:

• Prof. Martin E. Dresner, Chair (Logistics and Transportation)

• Prof. A. Michael Knemeyer (Supply Chain Management)

• Prof. Curtis M. Grimm (Supply Chain Management and Strategy)

• Prof. William J. DeWitt (Logistics and Transportation)

• Prof. Donna B. Hamilton, Dean’s representative (English)

– Defended proposal in May, pretest in process

About my dissertation

– Research questions: • What factors impact firm partnering behavior with third-party

logistics providers (3PLs)?• What is the interplay between firm, inter-organizational, and

environmental factors?

– Expected contributions:• Academic:

– Theory-based model of partnering in logistics outsourcing relationships

– Integration of partnering and marketing literatures, applying them in a different context

• Practical:– Assist 3PLs by enhancing their relationships with customers,

thus retaining and expanding customer base

– Research methodology: cross-sectional survey, structural equation modeling

– Unit of analysis: relationship, 3PL customer is the focal firm

Building closer relationships is growing in importance for 3PLs and customer firms

On the customer side:

- Globalization- Competition- Complex supply chains- Increasing customer demands

On the 3PL side:

- Increasing customer demands - Increasing competition - Higher fuel prices, driver shortages- Capacity crunch

Need to worktogether!

Showing that they are reliable partners is a strong feature of 3PLs’ marketing strategy

Theory-based 3PL research has focused on the positive effects of close logistics outsourcing relationships …

– Relationship characteristics (e.g., communication, reputation) positively influence performance and relationship outcomes (e.g., customer retention, referrals, service recovery) (Knemeyer and Murphy 2004, 2005)

– Relationship orientation improves supply chain effectiveness and performance (Panayides and So 2005)

– Positive effect of relational performance on customer market share (Stank et al 2003)

The model builds upon Ganesan (1994): “Determinants of long-term orientation in buyer-seller relationships”

Theoretical framework: relationship marketing + social exchange theory (SET)

… and this research aims to look at the antecedents of these relationships.

Structure of the model

ANTECEDENT

PRIMARY ANTECEDENT

DEPENDENT VARIABLE

ANTECEDENT

PRIMARY ANTECEDENT

ANTECEDENT

ANTECEDENT

1133 22

“A partnership is a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that result in business performance greater than

would be achieved by the two firms working together in the absence of partnership.” (Lambert et al 2004)

•Partnership behavioral elements are drawn from relational contract literature (Gardner et al 1994):

• planning • sharing benefits and burdens• extendedness• systematic operational information exchange• mutual operating controls

Defining the dependent variable: degree of partnering …

No partnership elementspresent

Range of relationship styles

Arm’s lengthJust short of full vertical integration,

e.g., corporate vertical marketing systems

Many elements of partnership present

(Source: Gardner et al 1994)

SET suggests that relationship formation and development are based on interorganizational factors Lambe et al 2001

A firm engages in a relationshipbecause it believes it will be rewarding

Trust is built over time…

dependence

Interactions

Outcomes are compared to two standards(Comparison Levels - CL):

> CL ?

> CLalt ?

satisfaction

Earlier partnering experiences with other 3PLs might affect the firm’s capability to engage in such relationships…

- From a social network perspective, prior experiences with other partners (Uzzi 1996):

- Shape firm’s expectations regarding the new relationships- Increase the likelihood of future endeavors

- Previous positive experiences with other 3PLs should impact a firm’s comparison level:

- Learning effect- More realistic expectations

Hypothesis: Prior experience with partnering with 3PLs is positively associated with the degree of partnering with the focal 3PL.

Relationship marketing research has emphasized that some firms employ relationship marketing as a philosophy: Relationship Marketing Orientation

- To use relationship marketing, a relationship orientation must pervade the mind-set, values and norms of the organization (Day 2000)

- Relationship Marketing Orientation: “an organizational culture that puts the buyer-seller relationship at the center of the firm strategic or operational thinking” (Tse et al 2004, Sin et al 2005)

Hypothesis: A 3PL customer’s relationship marketing orientation is positively associated to the degree of partnering with a 3PL

3PL customer buyer

3PL

rela

tions

hip

relationship

- Carriers within buyer-seller partnerships exhibit higher degrees of partnership elements (Gentry 1996)

- Trust and commitment are mediators of satisfaction only for high relational customers (Garbarino and Johnson 1999)

A model of 3PL customer’s degree of partnering

Dependence ofcustomer on 3PL

3PL’s credibility(trust)

Degree of partnering

3PL’s benevolence(trust)

Satisfaction with previous outcomes

Perception of 3PL’s dependence on customer

Prior experience partnering

Relationship MarketingOrientation

7 Primary Hypotheses

*Based on and expanded from Ganesan (1994)

Sub-model 1

Sub-model 2

The antecedents of dependence are related to environmental, relationship, and firm specific factors


Env. Diversity3PL market

Env. Volatility3PL market


Perception of TSI by 3PL

TSI by customer

Customercapabilities

Logisticscomplexity

Env. DiversityProduct market

Env. VolatilityProduct market

Environmental uncertainty in the market for 3PL services:

Diversity negatively related to customer’s dependence on 3PL

Volatility positively related to customer’s dependence on 3PL

Environmental uncertainty in the product market:

Diversity positively associated with customer’s dependence on 3PL

Volatility positively associated with customer’s dependence on 3PL

Transaction-specific investments: TSI by customer positively related to dependence on

3PL and negatively related to perceived 3PL dependence

Perception of 3PL TSI negatively related to customer’s dependence and positively related to perceived 3PL dependence

Firm specific: Complexity of logistics operations positively

associated with customer’s dependence on 3PL Customer’s logistics capabilities negatively

associated with customer’s dependence on 3PL

Antecedents of Dependence (Sub-model 1)

The antecedents of trust are mainly related to the partner’s behavior and experience with the partner



Customer’s experience with 3PL

Reputation of the 3PL



•A 3PL customer’s perception of the 3PL’s TSI is positively related to the customer’s perception of the 3PL credibility and benevolence.

•The reputation of a 3PL is positively related to its customer’s perception of the 3PL’s credibility.

•A customer’s experience with a 3PL is positively related to the customer’s perception of the 3PL’s credibility.

•A 3PL customer’s satisfaction with past outcomes is positively related to the customer’s perception of the 3PL’s credibility and benevolence.

Antecedents of Trust (Sub-model 2)

Final Model


Env. diversity3PL market

Env .volatility3PL market



Degree of partnering


Customer’s experience with 3PL

Reputation of the 3PL


TSI by customer


Customercapabilities

Logisticscomplexity

Prior experience3PL partnering

Relationship MarketingOrientation

Env. diversityproduct market

Env. volatilityproduct market

*Based on and expanded from Ganesan (1994)

Research Methodology

- Web-based survey of customers of Rapidão Cometa, a large Brazilian 3PL

- Large array of services offered- Diverse customer base: various industries, sizes, logistics functions contracted, experience

- Diversity of relationship styles

Survey design and implementation

- Measurement of the constructs: - most items adapted from existing research- logistics complexity and capabilities: new scales

- Survey pretests: concurrent and retrospective think-aloud interviews

- Survey implementation:- Sample size: approximately 4,000 customer firms- Key informants: provided by Rapidão Cometa- Pre-notification e-mail (Rapidão Cometa)- Web-based survey implementation- Thank you/reminder e-mails

- Test for non-response bias


Structural Equation Modeling

- Quality of data evaluation:- Check for outliers- Check for symmetry- Check for missing data

- Controls (as in Knemeyer and Murphy 2005): firm size and number of functions outsourced

- Tests for unidimensionality, convergent and discriminant validity, and scale reliability

- Two-step SEM with EQS software:- Measurement phase- Structural phase

- Check goodness-of-fit information- Interpretation of path coefficients


Concluding Remarks

- Managerial implications:

- What factors should 3PLs emphasize in their relationship with customers and in the pursuit of new customers

- Relative impact firm vs. environmental vs. relationship characteristics on partnering behavior

- Limitations:

- Not capturing dyadic observations

- All firms are customers of a single 3PL - asset based firm

Thank you!

Questions? Comments?

Extras …

Partnership Construct (Gardner et al 1994)

Partnership behavior

Extendedness OperationalInfo Exchange

OperatingControls

Sharing Benefits& Burdens

Planning

…..

Partnership Construct: a second order factor?

Partnership behavior

Extendedness OperationalInfo Exchange

OperatingControls

Sharing Benefits& Burdens

Planning

Primary Hypotheses:

H1: Dependence of a customer on a 3PL is positively related to the customer’s degree of partnering.

H2: Perceived dependence of a 3PL on a customer is negatively related to the customer’s degree of partnering.

H3: A customer’s trust in a 3PL’s credibility is positively related to the degree of partnering.

H4: A customer’s trust in a 3PL’s benevolence is positively related to the degree of partnering.

H5: A customer’s satisfaction with past outcomes of the relationship with a 3PL is positively related to the customer’s degree of partnering with that 3PL.

H6: There is a positive relationship between prior experience with partnering with 3PLs and the degree of partnering with the focal 3PL.

H7: There is a positive relationship between a customer’s relationship marketing orientation and the degree of partnering with a 3PL, all else constant.

Antecedents of dependence:H8: Environmental volatility in the product market is positively related to a customer’s dependence on a 3PL.

H9: Environmental diversity in the product market is positively related to a customer’s dependence on a 3PL.

H10: Environmental volatility in the market for 3PL services is positively related to a customer’s dependence on a 3PL.

H11: Environmental diversity in the market for 3PL services is negatively related to a customer’s dependence on a 3PL.

H12: A customer’s logistics complexity is positively related to a customer’s dependence on a 3PL.\

H13: A customer’s TSIs are positively related to a customer’s dependence on a 3PL.

H14: A customer’s TSIs are negatively related to a customer’s perception of 3PL dependence on a customer.

H15: A customer’s perception of a 3PL’s TSIs is negatively related to a customer’s dependence on a 3PL.

H16: A customer’s perception of a 3PL’s TSIs is positively related to a customer’s perception of a 3PL dependence.

H17: There is a negative relationship between customer’s perceived logistics capabilities and dependence on a 3PL.

Antecedents of trust:

H18: The reputation of a 3PL is positively related to its customer’s perception of the 3PL’s credibility.

H19: A customer’s satisfaction with past outcomes is positively related to the customer’s perception of the 3PL’s credibility.

H20: A customer’s satisfaction with past outcomes is positively related to the customer’s perception of the 3PL’s benevolence.

H21: A customer’s experience with a 3PL is positively related to the customer’s perception of the 3PL’s credibility.

H22: A customer’s experience with a 3PL is positively related to the customer’s perception of the 3PL’s benevolence.

H23. A customer’s perception of 3PL specific investments is positively related to the customer’s perception of the 3PL’s credibility.

H24. A customer’s perception of 3PL specific investments is positively related to the customer’s perception of the 3PL’s benevolence.

partnership determinants in logistics outsourcing: a relationship marketing perspective adriana...

Documents

pl customer

customer demands

customer firms

process slide

pls marketing strategy

relationship orientation

customer retention

relationship outcomes