third party operations

8/2/2019 Third Party Operations

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HISTORY

There is a continuous increase of the importance of the third party (TPL) or contract logistics in company’s performance. The study of

the TPL history has shown that as the companies continue to sourcein one continent and manufacture in another, and then selling in yetthird, the management of the distribution channels becomes a very complicated task for the companies to manage in-house. Thus theneed for contracting will continue to grow. Relevant estimates of theTPL penetration rate have shown a growth from 2.7% in 1992 to 10%

by the end of the millennium. At the same time, the market forcontract logistics is expected to reach $47-50 billion in the year 2000from $10 billion that it was in 1992 (Muller 1993). The main reasonsthat lead companies to explore outsourcing are their need to reduce

inventory, penetrate markets, reduce contracts, and gain expertise(Richardson 1990).

The study of the TPL evolution can provide guidelines for futuretrends in contract logistics development. This can contribute tofuture competitive strategy planning; company’s understandingof the way TPL can contribute to its corporate plans, andencourage academia to search for further implications for thecompany’s operations. This paper addresses three elements: therelation of organisational evolution to the TPL development, the

five different phases that contract logistics went through inrelation to the key variables affecting its growth, and the patternsemerging from the past that might predict the possible future of TPL.

Table 1: The Five TPL Phases

Phase Period Phase Name Characteristic Early 1900s - Late 1950s

Introductory Period Single Services

Late 1950s - Mid 1960s

Awareness Period Separate Services

Mid 1960s - Late 1970s

Necessity Period Integrated Services

Late 1970s - Late 1980s

Integration Period Combined Services

Late 1980s - Late Differentiation Complex Combined



1990s Period Services

INTRODUCTION

Third-party operations

A third-party operations or third party logistics

provider (abbreviated 3PL, or sometimes TPL) is a firm that provides

a one stop shop service to its customers of outsourced (or "third

party") logistics services for part, or all of their supply chain

management functions.

Third party logistics providers typically specialize in integrated

operation, warehousing and transportation services that can be scaledand customized to customer’s needs based on market conditions and

the demands and delivery service requirements for their products and

materials.

Definition

To put forward some standard definitions, we would adopt the

definition of 3PL found in the Council of Supply Chain Management

Professionals’ glossary, which reads as follows:

"A firm [that] provides multiple logistics services for use by

customers. Preferably, these services are integrated, or "bundled"

together, by the provider. Among the services 3PLs provide are

transportation, warehousing, cross-docking, inventory management,

packaging, and freight forwarding."

Third Party Operations Account Manager

Job DescriptionJob Purpose

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Under the direction of the Head of Third Party Operations,provides tactical coordination of External Manufacturingactivities (Bulk and/or Secondary operations) for one or more

contract manufacturing operations. Provides technical supportand manufacturing coordination to ensure reliable supply of products. Provides project management for the execution of improvement initiatives, regulatory readiness activities andmanufacturing quality system improvements with third party companies. Participates in contract negotiations and in-sourcing activities.

Major Accountabilities

1. Leverage operations knowledge and project managementmethods to meet external manufacturing quality, supply andprice requirements within the assigned resources andcompletion dates. Activities will include:• Execution of supply plans that define demand volumes and

commitment dates.• Coordinates activities with Quality and Site Manufacturing

to ensures cGMP, Compliance and Regulatory requirements

are defined and followed.• Provides follow up to ensure routine communication of

status, emerging issues and actions required to resolveissues in a timely manner

• Ensure escalation of issues occur in a timely manner andidentifies financial and supply impacts.

• Issues routine status reports (weekly, monthly) as required.• Maintain key performance metrics and participate in routine

technical and supply meetings.• Complete identified actions to speed the implementation of

projects and ensure commitment dates are achieved.• Team with supply chain and strategy development to create

and implement supply plans

2. Participates in the Contract Negotiations.• Assist in negotiations and the management of cross

functional team that may include representatives from



Legal, Franchise, Supply Chain, Quality and TechnicalDevelopment.

• Provided technical and business support to Head of ThirdParty operations as required to develop strategy andnegotiation execution

3. In-sourcing:• Provides support to the Head of Third Party operations and

the Franchise Head to develop business cases and provide value by in-sourcing activities.

Advantages of Using A Third Party Logistics Company

The client's of Pacesetter Delivery have shrewdly recognized the many advantages of utilizing a reliable 3PL company. Some of the clientadvantages include

• Delivery Costs Reduced• Liability Minimized• Insurance Savings• Administrative Costs Lowered• Driver Hiring Is No Longer An Issue

• Fuel & Maintenance Costs Eliminated• Capital Investment in Vehicles Eliminated• Vacation, Sick Leave, and Overtime No Longer AnIssue• Delivery Costs Are Defined and Consistent• Driver Scheduling & Routing No Longer An Issue• GPS Vehicle Tracking

Pacesetter Delivery manages the details that are frustrating inoperating a delivery fleet. We handle the hiring and fluctuating

requirements for delivery drivers, vehicle ownership andmaintenance, fuel costs and other operating expenses, scheduling androuting, administrative costs and numerous other tasks. Call us today to discuss how Pacesetter Delivery can help your business to operatemore efficiently with our 3PL services.



Key Performance Indicators

KPI # 1: Ensure reliability of supply

On time completion of supply requirements. Contract Manufactures are managed within agreed upon

quality, supply and cost metrics Full transparency of progress and emerging issues.

KPI #2: Project Results Development of project plans for new business or

improvement initiatives. Activities are planned and appropriately resourced On time completion project deliverables.

Full transparency of progress and emerging issues

KPI #3: Leadership Develop knowledge of Quality and Manufacturing systems. Ensure Governance structures are in place and followed

for each contract manufacturers. Activities are planned and appropriately resourced Annual objectives embedded appropriately, KPI's

developed and progress measures put in place and in use forprojects and on-going activities

Job RequirementsIdeal Background

Education (minimum/desirable): Degree: Bachelors in Engineering,Science, or Business. MBA (desirable)

Languages: English (minimum), otherEuropean languages (desirable)

Experience: Strong success record in Technicalor Manufacturing Roles. DirectPharmaceutical, Vaccine or ThirdParty Management required(minimum 10 years)



Benefits of Third Party Logistics Companies

Selecting the right logistics company to manage your company’ssupply chain is of vital importance to the future of your company’soperations.

Outsourcing logistics has been and will continue to be a source of competive advantage for most companies. Some of the many benefitsof using a 3PL provider include:

• Greater flexibility(variable cost)• Improved operational efficiency •

Enhanced customer service capabilities• Reduction of capital expenditures (equipment, distribution

5 Reasons to use a 3PL Provider

While there’s definitely more than 5 reasons why a company mightturn to a third party logistics provider here are a few common ones.

1. To provide supplementary supply chain support to test the waters in new regional markets or countries where yourcompany doesn’t currently have a presence without taking thefull plunge and opening a new distribution center.

2. If you are a company whose business is seasonal in nature usinga 3pl provider allows you to scale your warehousing space,labor, and transportation to provide full support during thepeak months of your business while cutting back during slowermonths.

3. To increase on-time performance and realize efficiencies withthe management of your inventory by using a 3PL provider thathas superior technology and processes than your in-houseoperations.

4. To take advantage of lower transportation rates provided by logistics firms that have significant buying power due to the

volume of freight they deal with and their ability to leverageload consolidation and backhaul opportunities.

http://www.logisticslist.com/benefits-of-third-party-logistics.html

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5. To quickly build a multi-location distribution network withlower risk, without the significant capital investment associated

with building out a network on your own.

marketing research paper

Introduction More and more companies are outsourcing their logistics functions to third–party logistics providers(3PLs), to make their supply chains more effective and efficient. These 3PLs offer specialized services (Large, 2007), to handle a variety of

transportation, distribution, inventory management and warehousing needs. Few empirical studies have addressed the difference between small and largelogistics companies. Prior work on 3PL has focussed onselection criteria (Menon 1998), or the gapbetween 3PL services offered and those used by customers(Murphy and Poist, 2000). We focus onrelationship mechanisms when the 3PL provider isalready selected, and the relationship is ongoing.The performance indicators addressed in our study are

customer retention rates, service recovery,customer referrals, and operational performanceimprovements. By focussing on the differencebetween small and large 3PL providers, this study addsthe literature by complementing previous workby Knemeyer and Murphy (2005a & b), who tested theimpact of relationship marketing characteristicson relationship outcomes from the customer perspective.Where and when provider size matters canbe a crucial insight for companies, both providers and customers, as their relationships evolve. Most 3PL studies have a US perspective. Western Europeand Germany in particular can beconsidered an emerging area for 3PL services, warrantingempirically based 3PL research. After



settling on a definition of 3PL this paper reviews the extant 3PL literature, and examines relationshipattributes from the relationship marketing literature, todevelop a set of propositions, and a conceptual model. The methodology is described, the data collectionand subsequent analysis are explained, and the results are reviewed and interpreted in light of theliterature and the practical implications of the findings.Third Party Logistics (3PL) According to Knemeyer and Murphy (2004), ‘third-partylogistics’ can be referred to as ‘logisticsoutsourcing’ or ‘contract logistics’. Yet, there is nocommon definition of the concept. Knemeyer and

Murphy (2005a) provide a comparison of two different concepts of definitions regarding third-partylogistics. They propose a somewhat “broad” version of thedefinition, based on works of variousauthors. Coyle, Bardi, and Langley (2003, p.425) for example define third-party logistics to involve “anexternal supplier that performs all or part of a company’slogistics functions” and to “encompasssuppliers of services such as transportation, warehousing,distribution, financial services, and so on.”

Further contributions to this “broad” stream of third- party logistics definitions come from Menon, McGinnis, and Ackermann (1998) and Sink and Langley(1997). Menon et al. define the concept as “a for-hire provider performing logistics activities for thebuyer or seller of raw materials, goods in process, or finished products”. Sink and Langley interpret it as “using the services of an external supplier to perform some or all of a firm's logistics

functions.” These interpretations of third-partylogistics do not distinguish between short-term and long-term considerations or between transactional and relational exchanges (Knemeyer and Murphy, 2005b).The other group of third-party logisticsdefinitions takes a more “narrow” approach (e.g. Murphyand Poist, 1998; Bagchi and Virum, 1996). Murphy and



Poist (1998, p.26) define third-party logistics as being “arelationship between a shipper and third party which, compared with basic services, hasmore customized offerings, encompasses abroader number of service functions and is characterized by a longer-term, more mutually beneficial relationship.” Similarly, Bagchi and Virum (1996, p.193)consider third party logistics to becharacterized by “a long-term formal or informal relationship between a shipper and a logistics provider to render all or a considerable number of logistics activities for the shipper. The shipper and the logistics provider see themselves as long-term partners in these arrangements.” Our paper

extends the efforts of Knemeyer and Murphy (2005a),examining the effect of relationshipcharacteristics and customer attributes on the outcomes of third-party logistics relations, and thereforeadopts the relationship focus.The 3PL business and its development Companies have different options to consider in handlingtheir logistics activities effectively and efficiently. They can (1) provide the functions in-house, (2)own logistics subsidiaries, or (3) outsource

the function and buy the service (Razzaque and Sheng, 1998). Traditionally, logistics activities likedistribution, inventory management, order processing, or materials management were handled internally by firms as support functions and were givenlow priority compared to other business functions. The underlying rationale for the increasingnumber of companies focusing on the last optionis the emerging demand of advanced logistics services.

One can divide the principles underlyingorganization’s decision to outsource into two groups, theinternal and the external (Bolumole, Frankel,and Naslund, 2007). The internal principle refers torecognizing a lack of in-house resourceavailability. The external principle puts emphasis on a firm's external competitive environment.



Accordingly, trends like globalization, lead timereductions, and emerging technology contribute to theinterest in outsourcing. Globalization increases thecomplexity of supply chains, given that “the best supplier may be found halfway around the world, and customer needs are often as diverse as thecountries in which they live” (Fawcett, Ellram, and Ogden, 2007, p.309). Lead time reductions,incorporating the shift to just-in-time production schemes,add to the increasing complexity and causeinventory and logistics control to be crucial tomanufacturing and distribution operations (Razzaqueand Sheng, 1998). As a consequence of these trends, thetasks of logistics providers are increasing in

content and complexity (Hertz and Alfredsson, 2003). Inthe end, the need for developing asustainable competitive advantage resulted in increased outsourcing and the evolution of contract logistics or third-party logistics. A recent study, conducted by Lieb and Butner (2007) among CEOs of third-party logistics providers in North America, revealsseveral industry dynamics that are currentlyoperating in the marketplace. The Top 5 of these dynamicsconsists of (1) a continuing downward

pressure on prices, (2) a growing customer interest inoutsourcing a broader array of logistics services,(3) an increased pressure to internationalize companyservice offerings, (4) large-scale mergers of 3PL providers in North America, and (5) increasingcustomer expectations with respect to IT support.Two of these dynamics, a continuing downward pressureon prices and pressures to internationalizeservice offerings, are also among the Top 5 of the main

industry problems. When asked about futuredevelopments the CEOs in Lieb and Butner’s study (2007)specified two major changes. They expect the merger and acquisition movement to continue and even accelerate not only in America but on aglobal basis. Consequently, the resulting large providersare likely to increasingly dominate the



industry which will cause especially middle-tier providersto exit the market. Relationship MarketingThe use of relationship marketing in supply chainmanagement literature belongs to an evolvingstream of research that focuses on using external theoriesin the logistics discipline (Knemeyer and Murphy, 2005b). Relationship marketing emphasizes theinteraction between buyers and sellers and focuses on multiple exchanges between them over some period of time. The concept of transactional marketing is focused on a single, short-term exchangebetween buyer and seller (Gundlach and Murphy, 1993). By focusing on the long-term relationship

between the customer and the provider, theuse of relationship marketing in this context isappropriate. Priluck (2003) indicates that relationship marketing isregarded as a means to create customer loyalty. Its aim is to create positive outcomes for both customersand providers. Similarly, following Morganand Hunt (1994, p.22), “relationship marketing refers toall marketing activities directed toward establishing, developing, and maintaining successful

relational exchanges”. Eiriz and Wilson (2004)extended this definition by adding “terminating” to thementioned activities. Yet, they indicate that theactivities do not have to be active or conscious but theycan affect marketing relationships indirectly or tangentially. Relationship marketing focuses on dyadicand multilateral relationships, and on networksof relationships.The Conceptual Framework

Provider SizeWith regard to the research aim, examining the potential impact of the size of the third-party logistics provider on the influence of relationship characteristicsand customer attributes on relationshipoutcomes, the size of the third-party logistics provider will be measured by the number of employees



indicated by the respondents. In order to distinguishbetween small “niche” providers and largeintegrators, a demarcation point of 250 employees will beused. Using this threshold is in line with the“EU Classification Scheme for Small-and Medium-sized Enterprises (from 2005 and onwards)” Thethreshold of 250 employees can also be found in academicliterature in the field of logistics. Evans, Feldman, and Foster (1990) for example referred to thisnumber in their study on perceptions of therelevant criteria used to select motor carriers. Further, Evangelista and Sweeney (2006) used a similar scheme to the EU classification in their study ontechnology usage in the supply chain. Focusing on

“small 3PLs” explicitly, their sample contained companiesup to 249 employees separated in “micro”,“small”, and “medium” sizes. Few empirical studies haveexamined the differences between small and large companies in the logistics context. Most of theliterature tends to focus solely on small companies (e.g. Evangelista and Sweeney, 2006;Gunasekaran and Ngai, 2003) or does not explicitlytake the difference between small and large companiesinto account (e.g. Large, 2007; Knemeyer and

Murphy, 2005a & b; Murphy and Poist, 2000; Boyson,Corsi, Dresner, and Rabinovich, 1999). Development of propositionsOutcomes associated with relationship marketing Boles, Barksdale, and Johnson (1997) evaluaterelationship marketing outcomes across threemeasures – customer referrals, customer retention, and service recovery. More recently, Janda, Murray, and Burton (2002) added a further relationship

outcome – performance improvements. Fromthe provider’s point of view, especially the first threerelationship outcomes are of utmost importance,because each of them has a direct impact on a company’slong-term success and increasesshareholder value (Knemeyer, Corsi and Murphy, 2003).



Customer referrals represent the positive word-of-moutheffect of satisfied customers. More precisely,a critical outcome of third-party logistics relationships isthe intention of the customers to do one or more of the following: become an advocate for the provider, promote the service provider to others,and defend the provider from detractors (Cross and Smith, 1995). According to Boyson, Corsi, Dresner, and Rabinovich (1999), especially companies searching for potential third-party logistics providers regard word-of-mouth referrals from their professional networks asimportant input. Thus, providers should make therequired efforts to get referrals from their customers. Additionally, word-of-mouth referrals represent a good

indicator of “intense loyalty” (Palmatier, 2006). Theunderlying reasoning is that only customers who arehighly satisfied and feel highly committed to the provider are willing to risk their own reputation by giving areferral to this provider.Customer retention refers to keeping existing customersby meeting and exceeding their needs. Given that meetingand exceeding the customers’ needs finally results insatisfaction, it can be stated that customer satisfaction isthe key to customer retention (Kotler, 2003). Knemeyer

and Murphy (2005a) underline this effect when they provide empirical support for a significant positiverelation between customer retention and the customers’ satisfaction with prior outcomes. Boles, Barksdale and Johnson (1997) indicate that retaining a customer enablescompanies to find out more about his business and thus tolearn how to serve him better. Consequently the customer will be satisfied and most likely increase purchases fromthe supplier. According to a generally accepted rule of

thumb, the acquisition of new customers costs five timesmore than satisfying and retaining current customers(Knemeyer and Murphy, 2005a). More precisely, theincrease of the net present value of profits resulting from a five percent increase in customer retention varies between 25 percent and 85 percent over different industries (Oliver, 1999). Thus, customer retention has a strong influence on



the performance of a company and should be of great interest to decision-makers. Service Recovery isconcerned with mistakes that happen in the focal third- party logistics relationship.While mistakes can happen in any kind of transaction, theconsequences depend on how the situation is handled. Especially in relational exchanges, recovery frommistakes is an important factor influencing the success of the relationship (Priluk, 2003). Yet, frequent and real-timeinformation sharing between the parties involved in therelationship is crucial to detect problems and react tothem immediately (Maltz, 1995). As stated by Dwyer, Schurr, and Oh (1987), relational exchanges will alwaysexhibit some kind of conflict. However, when these

conflicts are resolved they can finally be beneficial to therelationship. In other words, when conflicts lead toimprovements of a relationship they can be referred to as“functional conflicts” (Morgan and Hunt, 1994, p.26).These functional conflicts can have a positive impact onthe focal relationship by preventing stagnation,stimulating interest, and providing a potential forum for discussions. Performance Improvements are related to perceived logistics operational performance improvements on the

customer side resulting from the outsourcing relationshipwith the third-party logistics provider. Contrary to the previous outcomes which are primarily relevant for the providers, performance improvements focus on thecustomer perspective. Knemeyer and Murphy (2005a)state that outsourcing arrangements will most likelybecome unsuccessful when one party fails to do what isexpected from the other party. Hence, when the customersdo not perceive the relationship as leading to measurable

improvements in their logistics performance, they aremost likely to be dissatisfied with the relationship.Consequently, this will have a negative effect on the other three outcomes as well. Examples of improvements inlogistics performance are cost reductions, risk reductions,and improvements of the system responsiveness. A recent study by Zsidisin, Voss, and Schlosser (2007), testing the



effect of relational closeness on several performancemetrics, found varying results. Especially on-time deliverywhich was expected to improve with increasing closenessof the relationship exhibited no significant differencebetween arm’s-length relationships and partnerships. However, the authors found that relationship closeness positively affects the willingness of providers to commit assets during times of constrained capacity.

Relationship Marketing CharacteristicsThe following relationship characteristics are going to beexamined with regard to their effect on the third-partylogistics relationships’ outcomes specified before: the trust in the provider, the perceived commitment of the provider,

the communication with the provider, the dependence onthe provider, and the reputation of the provider. Theselection of these characteristics is consistent with Knemeyer’s and Murphy’s (2005a) suggestion to test theeffect of additional relationship characteristics on therelationship outcomes.Trust in the provider: Mayer, Davis, and Schoorman(1995, p. 712) define trust as the “willingness of a party tobe vulnerable to the actions of another party based on theexpectation that the other will perform a particular action

important to the trustor, irrespective of the ability tomonitor or control that other party”. Moorman, Deshpandé, and Zaltman (1993, p. 82) provide a similar but more compressed perspective and define trust as the“willingness to rely on an exchange partner in whom onehas confidence”. These definitions reflect two separatecomponents – credibility and benevolence (Ganesan, 1994). Credibility refers to trust in a provider’s expertiseand reliability. Benevolence focuses on the motives and

intentions of the provider and can be present even whenthe relationship lacks credibility. Maltz and Ellram (1997)indicate that trust between firms is important when thereis much at stake for the firms. Especially when firmsoutsource all or part of their logistics functions and become dependent on third-party provider, this is oftenthe case. Accordingly, in most B2B relationships buyers



try to reduce the risk of their purchase by choosing the firms they can trust (Doney, Barry, and Abratt, 2007). More precisely, they will select the provider that is capableof providing the product or service and who is regarded asbeing interested in the buyer’s well-being. Since trust is amajor prerequisite in successful relationships (Soonhongand Mentzer, 2000), 3PL providers should aim for establishing trust in their customers’ minds. In the field of third-party logistics relationships the “inability to formmeaningful and trusting relationships” is still regarded asa major area for improvement (Langley, 2007). Perceived commitment of the provider: According to Morgan and Hunt (1994, p. 23) “relationship commitment is central torelationship marketing”. They define it as “an exchange

partner believing that an ongoing relationship withanother is so important as to warrant maximum efforts at maintaining it; that is, the committed party believes therelationship is worth working on to ensure that it enduresindefinitely” (p. 23). A further description of commitment, from the perspective of logistics alliances, indicates that it is “characterized by a long-term orientation with a lack of a distinct endpoint, requiring trust, loyalty, and a sharingof information, risks, and rewards” (Moore and Cunningham, 1999, p. 108). What these definitions have in

common is that they focus on the enduring desire tomaintain a valued long-term relationship (Moorman, Zaltman, and Deshpandé, 1992). One integral part of relationship commitment is that the members do not accept short term gains at the expense of the long-termbenefits of the relationship, and rather work onmaintaining it (Morgan and Hunt, 1994). Theimportanceof committed members to an outsourcing relationshipbecomes clear. In the end, relationships characterized by a

high degree of commitment are harder to switch for both parties compared to those with low commitment (Hertz and Alfredsson, 2003). It is expected that customers who perceive their third-party logistics provider to be highlycommitted to the relationship will be more likely to givereferrals and stick to this provider than customers perceiving their providers to be less committed.



Communication with the provider: Communication inexchange relationships, according to Anderson and Narus(1990, p. 44), “can be defined broadly as the formal as well as informal sharing of meaningful and timely informationbetween firms”. Meaningful and timely exchange of information helps to resolve disputes and align perceptions and expectations and consequently enhancesthe relationship building process (Etgar, 1979). Murphyand Poist (2000) identified a mismatch between thosethird-party logistics services offered by providers and those used by the customers. The existence of thismismatch underlines the importance of continuous and collaborative communication. A recent study on logisticsoutsourcing by Langley (2007) identified communication

as one of the most important elements of successful collaboration. Similarly, Knemeyer and Murphy (2005a) provide empirical support for a strong positive effect of communication on each of the four outcomes of athirdparty logistics relationship described before. Sinceboth studies were conducted in North America, thereasoning behind testing the construct again is to identify potential cultural differences between North America and Europe. However, following the findings above, it isexpected that communication positively affects the

outcomes of third-party logistics relationships. Dependence on the provider: To be successful, relational exchanges must provide benefits for both parties. In thiswork, dependence is related to the benefits that can beachieved by the specific thirdparty logistics relationshipunder investigation. Following Heide and John (1988),dependence on a third-party logistics provider will behigher under the following circumstances: (1) when theservices obtained by the provider are important, highly

valued, and the magnitude of the exchange is high; (2)when the services obtained exceed services available fromthe best alternative provider; and (3) when fewer sourcesor potential sources of exchange are available to thecustomer. More precisely, “dependence refers to the need to maintain a relationship to achieve goals” (Palmatier, Dant, and Grewal, 2007, p.175). The ongoing trend of



global logistics, especially its specialized nature and thedistances involved, creates dependence by shippers onthird-party logistics providers who are capable of providing a broad range of value-added services to assurelogistical continuity (Bowersox and Calantone, 1998). Dependence is expected to be positively related toretention and service recovery given that dependent customers will most likely remain with the provider evenwhen adverse effects occur. Further, a positive relationbetween dependence and performance improvements isexpected because the customer should become dependent only when the provider has something to offer that isunique or at least important to him (Ganesan, 1994). Reputation of the provider: Reputation refers to how one

party, in this case a third-party logistics provider, isviewed by other parties. Organizational reputation refersto providing reliable results and consistent performanceover time. A company will estimate the future performance of a third-party logistics provider based onthe provider’s reputation, which in turn is a result of past performance and behavior in other relationships(Ganesan, 1994). Knemeyer and Murphy (2005a) found that reputation has no significant effect on any of the four focal relationship outcomes. However, some authors

identified the importance of reputation in relationships. Arecent study identified that the reputation of a supplier can reduce the influence of competing suppliers’ marketing actions on customers which in turn increasescustomer retention (Shih-Ping, 2008). Furthermore, Houston and Johnson (2000) found a strong negative linkbetween a firm’s reputation and opportunistic behavior.Companies that developed a good reputation over timewill be careful not to jeopardize it. Customer Attributes

Besides testing the effect of relationship characteristics onrelationship outcomes, the present study investigateswhat impact certain customer attributes have on theseoutcomes, and how the size of the provider influences theeffects. Large customers, in contrast to small customers,can better exploit their power advantage in order tocontrol the relationship to their satisfaction and



performance needs (Maloni and Carter, 2006). Theattributes to be examined, with regard to the customers,are the size of the customer firm, the length of therelationship between the customer and the provider, thenumber of third-party logistics relations in place, thenumber of logistics functions outsourced, and the type of functions outsourced.

MethodologyTo investigate the propositions an online questionnairewas developed. Access to this questionnaire was made possible via a hyperlink that was added to an email invitation sent to the prospective respondents. The target group of the survey was defined as “professionals who are

working at companies that are using at least one third- party logistics provider, and who are directly involved inat least one relationship to a provider”. A threefold approach was used to reach relevant companies: First, prospective companies were randomly chosen froma company database provided by the German IHK (www.ihk.de; Industrie- und Handelskammer; Chamber of Industry and Commerce). In total, 330 invitations for taking part in the survey were sent out to companiesspread all over Germany.

Second, an invitation and a link to the survey were presented on the front page of the “Competence Center Kontraktlogistik, Logistics Outsourcing” which is part of the German logistics forum “Logistics.de”. Logistics.de is aneutral and independent platform, aiming at bringingtogether users and providers of logistics know-how, products, and services (www.logistics.de). Third, aninvitation and a link to the questionnaire were put onseveral German logistics bulletin boards

( www.logipool.de, www.forum-speditionen.de, and www.cargoforum.de). The scales and items used in thequestionnaire with regard to the relationshipcharacteristics and outcomes were partly adopted fromthe research by Knemeyer and Murphy (2005a) and partlyderived from other studies. Following Knemeyer and Murphy’s suggestion to use different constructs in future

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studies, trust in the provider, dependence on the provider,and the perceived commitment of the provider were added to the framework. The related items were adapted from Moorman et al. (1993), Ganesan (1994), and Moore and Cunningham (1999), respectively. All items weretranslated into German. Two native German colleaguesretranslated the questionnaire into English to check for translation errors. Further, two German professionalsworking in the logistics departments of large Germancompanies reviewed the questionnaire to check for clarityand accuracy. After implementing some alterations thequestionnaire was put online and the email invitationswere sent out on December 27, 2007. An English versionwas uploaded and included in the email invitation as well

to account for potential non-native professionals workingin the target companies.The questionnaire was separated into two major sections.The first section dealt with the focal thirdpartyrelationship and was further subdivided in two partscontaining the items for measuring the five relationshipcharacteristics and four relationship outcomes,respectively. The second section addressed background information of the relationship. All items in the first section were measured on seven-point Likert scales

ranging from 1 = “strongly disagree” to 7 = “stronglyagree”. The seven-point Likert scale was chosen becausethe study by Knemeyer and Murphy (2005a) and thestudies by Ganesan (1994) and Moorman et al. (1993) onrelationship marketing used this scale as well. Some of theitems were provided with negative wording, given that “it is better to use dual statements, some of which are positiveand others negative” (Malhotra and Birks, 2003). Theitems in the second section were adapted from Knemeyer

and Murphy’s study (2005a) in order to obtaincomparable results.Questions on the size of the respondent’s company and the provider company were added. Analysis Partial least squares (PLS) was conducted using thesoftware SmartPLS (Ringle, Wende, and Will, 2005). PLS



analysis was complemented by analyses conducted with SPSS. According to Lohmöller (1988), PLS iscomplementary with other Latent Variable Path (LVP) programs like LISREL for example. Major advantages of using PLS instead of other programs are the ability to copewith nonnormally distributed data (White, Varadarajan,and Dacin, 2003), small sample sizes (Cao, Gruza, and Klemz, 2004), and potentially existing multicollinearity(Cassel, Hackl, and Westlund, 2000). Further, PLS isquicker than other programs what is especially useful when complex models are analyzed. The analysisconducted via PLS actually tests two models, the factor model and the path model (Lohmöller, 1988). The factor model which is also referred to as the “outer model” or

“measurement model” focuses on the relationship betweenthe latent (unobserved constructs) variables and theassociated manifest (observed or measured) variables. The path model also referred to as the “inner model” or the“structural model” focuses on the relationships or “paths” between the latent variables (Lohmöller, 1988). In order toensure reliable and valid measures of constructs beforeconclusions about the construct relationships are drawn,the analysis of PLS models is usually conducted in twosequential stages (Hulland, 1999). The first stage is the

evaluation of the measurement model and the second stage analyses the structural model. ResultsOverall, 75 questionnaires were completed with 8 beingunusable due to incomplete responses, leaving a sample of 67. Based on the assumption that most complete responseswere approached via the 330 email invitations and disregarding the bulletin boards, a rough approximationof a response rate is 20%. With respect to firm size, 14.9%

of responding organizations employ less than 100 and 14.9% employ 100 to 250 workers. 250 to 500 and morethan 500 people are employed by 13.4% and 56.7%,respectively. Figure 3 presents the distribution of therespondent companies engaged in relationships withsmall and large third-party logistics providers. Accordingto these distributions, companies with less than 100 and



between 250 and 500 employees are more often engaged inrelationships with small providers. Companies with 100to 250 and more than 500 employees are more oftenengaged in relationships with large providers. Respondents were asked to indicate their level of responsibility and the duration of their involvement in the focal relationship. Responsibility was measured on asemantic differential scale from (1) “no responsibility” to(7) “primary responsibility”.The mean score of 5.22 indicates a rather high level of responsibility. Further, the respondents had on averagealmost five years (4.75) of involvement in the focal relationship. With regard to the functions outsourced bythe respondent companies, approximately 70% of the

companies outsource more than 3 functions to therespective provider they focus on in the questionnaire. Moreover, more than half of the respondent companiesoutsource transport related functions as “Outbound trafficcontrol” and “Inbound traffic control” with 75% and 60%,respectively. “Inventory management” and “Pick & pack” score third and fourth, with 46% and 42%, respectively. Of the 67 useful responses, only 3 indicated to outsourcemerely transport related functions. Table 1 gives anoverview of the relationships between the independent

variables (relationship characteristics and customer attributes) and the four relationship outcomes. Further the table presents the moderation effect of the size of thethird-party logistics provider on the mentioned relationships.

Summary and Conclusion

The effect of the relationships examined and customer attributes on the outcomes of a 3PL relationship is onlyconditionally affected by the size of the provider. Only 7 out of 36 observed relationship effects indicate asignificant differences between small and large 3PL providers.



From a customer perspective, the size of the provider doesnot seem to have any significant effect on operational performance improvements. Small and large providersalike are able to provide these services and no performance distinction can be made. Performanceimprovements are also independent of customer attributes, such as size of the customer, number of providers used, or number of outsourced activities.

From provider perspective it appears that large providersseem to have difficulties in establishing close relationshipswith their customers: As the size of the provider increases,the positive effects of certain relationship characteristicsare reduced, or negative effects are intensified. An

example is the result for customer referrals, which were found as very important in a 3PL context (Boyson et al, 1999): customers tend to provide fewer referrals to large providers. As for customer retention, the results indicatethat when customers have outsourced activities to many 3PL providers, they are less willing to maintainrelationships with the large providers. Large providersseem to have difficulties in terms of relationship building.The commitment of a provider has a large impact onrelationship performance.

The results for communication and reputation arecontrary to the findings of Knemeyer and Murphy(2005a). In our study, reputation was found to be thestrongest antecedent of relationship performanceimprovement. Perceived commitment, dependence, and reputation have the largest impact: Yet the larger the provider, the smaller the effect. To retain customers, large 3PL firms should be careful not to harm their reputation,and offer either a very specialized or a very broad range of

servicesto increase dependence of their customers. The findings for customer referrals are similar, as to the direct antecedents. Perceived commitment and reputationincrease the probability of referrals. LimitationsThe sample of 67 respondents is considered representative for German 3PL customers. The geographic scope was



limited to Germany: future studies should widen the scope,and make international comparison possible. Industry factors (high margin industries versus low cost industries)would impact the use of 3PL providers and types of services demanded.

References Anderson, J. C., & Narus, J. A. (1990). A Model of Distributor Firm and Manufacturer Firm Working Partnerships. Journal of Marketing, 54(1), 42-58. Bagchi, P. K., & Virum, H. (1996). European Logistics Alliances: A Management Model. International Journal of

Logistics Management, 7(1), 93-108. Barnes, J. G. (2001). Secrets of Customer Relationship Management: It's All about How You Make Them Feel. New York, NY: McGraw Hill. Berglund, M., van Laarhoven, P., Sharman, G., & Wandel, S. (1999). Third-Party Logistics: Is There a Future? International Journal of Logistics Management, 10(1), 59-70.

Boles, J. S., Barksdale, H. C., & Johnson, J. T. (1997). Business relationships: An examination of the effects of buyersalesperson relationships on customer retention and the willingness to refer and recommend. Journal of Business & Industrial Marketing, 12(3/4), 248. Bolumole, Y. A., Frankel, R., & Naslund, D. (2007). Developing a Theoretical Framework for LogisticsOutsourcing.

Transportation Journal, 46(2), 35-54. Bowersox, D. J., & Calantone, R. J. (1998). Executive Insights: Global Logistics. Journal of International Marketing, 6(4), 83-93. Boyson, S., Corsi, T., Dresner, M., & Rabinovich, E. (1999). MANAGING EFFECTIVE THIRD PARTY LOGISTICS



RELATIONSHIPS: WHAT DOES IT TAKE? Journal of Business Logistics, 20(1), 73-100. Bradley, P. (1994, 20 October). Contract logistics: It's all about costs. Purchasing, 56A53-A14.example 1JACOBSON COMPANIES (GLOBAL THIRD-

PARTY LOGISTICS)

Jacobson Companies is aleading third party logisticscompany offering end-to-endsupply chain managementsolutions around the globe. Our

extensive network includes 195facilities worldwide operating 35million square feet of warehousespace. With our recentestablishment of Jacobson GlobalLogistics in Asia, we offer a very competitive advantage for a onestop end-to-end solution.

Our GLOBAL Can Do Logistics

offerings include freightforwarding (ocean & air),customs

brokerage, PO management,origin services/consolidation,deconsolidation, warehousing &distribution, contract packagingand manufacturing, staffing andtransportation management.

Jacobson Provides Cost-Effective Warehousing Solutions and RevenueSharing to Global Leader in Agricultural Chemicals

The Challenge:

http://www.jacobsonco.com/

http://www.jacobsonco.com/



capabilities, Jacobson can have space preparedand accept shipments within the week.

CEVA Logistics serves a diverse range of market sectors,including automotive and tires, technology, industrial,retail and consumer goods, healthcare, publishing,aerospace and oil and gas.

Mission Statement: CEVA Logistics is passionate about supply chain management. It is the company’s mission to deliver value to itscustomers through robust and repeatable supply chain solutions on alocal, regional and global scale. It goes beyond the boundaries of traditional supply chain management and designs innovative

solutions based on state-of-the-art technology, advanced supply chainengineering and global operational expertise. Everything done ismeasured by rigorous standards and global metrics. It invests inrelationship management to ensure perfect communication withcustomers.

Capabilities: CEVA helps business flow more efficiently forcustomers by designing globally recognized supply chain strategiesthat optimize the flow of products. With an ongoing focus onoperations excellence and supply chain visibility, CEVA provides end-to-end design, implementation and operation of logistics solutions incontract logistics, freight forwarding, distribution management andtransportation management.

The company focuses on a diverse range of market sectors, includingautomotive and tires, technology, industrial, retail and consumergoods, healthcare, publishing, aerospace and oil and gas. Its sectorsolutions are based on sophisticated technology, advancedengineering and proven global operational expertise. CEVA is

recognized as a leading logistics provider for the automotive sectorand is among the top three 3PLs in several regions in retail andconsumer goods and tires.

Technology Advantages: CEVA proactively reassesses solutions toanticipate changing requirements in supply chains. With connectivity

between all actions of the supply chain being vital, Matrix, its flagship



optimal planning. To gain insight in this area, weconsidered the Key Performance Indicators (KPI)literature. Typically, KPIs are used in a post-ante context:to evaluate the past performance of acompany. We reason that KPIs could be utilized the other way around as well: if one knows what counts afterwards, it would be smart to anticipate this inthe planning phase already. Understandingthis leads to better designed information systems.This paper aims at giving more insight on the key performance indicators in the area of logisticsservice provision. To fulfill this goal we perform aliterature study and we propose a framework tocluster performance indicators. The organization of the

paper is as follows. We first briefly describethe LSP industry and shortly introduce the KPI domain(section 2). Then, we undertake a literaturereview in the areas of supply chain management and logistics service providers (section 3). In section 4 wesynthesize the literature and develop a framework for KPI utilization (including the perspectives of several stakeholders). A first validation is shown in section 5. Section 6 presents the intended application and end goal of this research – to develop an agent-based planning system

for a logistics service provider. Other shorter-term futureresearch directions and conclusions are given in section 7. 2 KPI’S AND THIRD PARTY LOGISTICS The increasing importance on core competencies opened up many business opportunities for logistics service providers (Christopher, 1998). They act as intermediariesin a supply chain that enable the organized movement of goods from a point of origin to a point of destination (i.e. from shippers to consignees) (Lai et al., 2004). Instead of

merely focusing on transportation activities, third partylogistics providers (3PL) are additionally coordinatinglogistical activities, integrated on an intra- or even inter-organizational level (Sink et al., 1996; Vaidyanathan, 2005). Companies in a supply chain have to decide to beeither cost-efficient or lead time driven and the provisionof logistics services is affected by this choice as well



(Fisher 1997). Logistics service providers are further trying to expand their activities outside their homecountry (Lemoine, Dagnaes 2003). A logistics service provider can be successful only, if it acts based on reliableand complete information about the performance of thecompany as a whole and all its units. It is thereforesurprising that such an activity is usually carried out inan ad-hoc manner. This is due to a number of reasons. First of all, the selection of performance indicators is not trivial. No single indicator can give a full picture on the performance – each one presents a partial view from aspecific viewpoint and is therefore not enough to serve asbasis for management decisions. Historically, companiesconcentrated on financial indicators. Nowadays it is

widely recognized that non-financial and even non-numerical indicators can give valuable information aswell (Brewer and Speh, 2000; Ittner and Larcker, 2003;Chan, 2003). Such indicators though are more difficult tomeasure and compare. Considering an allegedly full set of indicators could result in a huge amount of data whichwould require a lot of efforts and high costs both inacquiring and analyzing. A reasonable solution would beto select the set of the most important indicators having inmind the goals of the company. The analysis should be

performed with extreme caution so that the resulting set of indicators covers every relevant point of view. It is not uncommon that the selected indicators turn out to beconflicting – improving one may worsen another (Kleijnenand Smits, 2003).Performance indicators are to a largeextent domain specific. Our research focuses on the area of thirdparty logistics. But even within this area no uniquesubset of indicators can be selected. The choice is companyspecific and depends on the goals, state and orientation of

the company. Therefore it is worthwhile to first concentrate efforts on providing aid in the selection process. Drawbacks of 3PL· Still requires top management's time to managerelationships & resources· Unable to cover full range of SC requirements e.g.



logistics information, tech development...· Lack of shared goals...

The review reveals that 3PL research is empirical-descriptive innature and that it generally lacks a theoretical foundation. Surveyresearch is the dominant method employed, reflecting the positivistresearch tradition within logistics. It identifies certain knowledge gapsand develops five propositions for future research. It suggests thatfocus should be directed towards more normative, theory-driven andqualitative method-based studies. It also argues that further empiricalresearch in relation to 3PL design/implementation and fourth partylogistics services is needed.

Originality/value – This paper fulfils an identified need for acomprehensive classification framework of 3PL studies. It essentiallyprovides both academics and practitioners with a conceptual map of existing 3PL research and also points out opportunities for futureresearch.

Integrative literature reviews in the third-party literature differ basedon their purpose. Most reviews are performed in conjunction withprojects addressing specific issues. For example, Murphy and Poist

(1998) derive testable propositions for usage based on interpretationof previous work by Sink et al. (1996), Lieb and Randall (1996), andStank and Maltz (1996). Boyson et al. (1999) consider work by Bardiand Tracey (1991), Lieb and Randall (1996), and Sink and Langley(1997) and conclude that "none of the previous academic work hasresearched ways to internally plan, organize, operate, and controlthird party relationships." These project-specific reviews are designedto identify appropriate topics for research, but are not suitable for identifying trends in the values of key quantities such as actual 3PL

usage. The emphasis is on positioning new work, rather thansynthesizing previous efforts to draw conclusions. These reviewshave some of the shortcomings identified above, in that their selection is necessarily partial and subjective, as is the weighting of the various studies.

But researchers in third-party usage have also produced a secondkind of review.



only as a reference benchmark for descriptive statistics included inFigure 1 and Table 1.Summary

In the last fifteen years many studies have addressed issues

surrounding the rise of third-party logistics, and there have beennumerous attempts to measure the level of usage. However,synthesis of the findings of these studies has been done informally(e.g., Langley, Allen, and Dale 2004, Lieb and Randall 1996) or not atall. (1) Other disciplines have dealt with this issue by developing theprocedures of meta-analysis (Farley, Lehmann, and Sawyer 1995,Wolf 1986) and analysis of repeated surveys (Firebaugh 1997). Areview of leading logistics journals suggests that these approacheshave rarely, if ever, been used for logistics research. As wedemonstrate below, their use here can be potentially effective butalso problematic. However, we believe that even failure can bevaluable if it shows the way to improvements in ongoing third-partylogistics research.

SUMMARY AND IMPLICATIONS

We have been deliberately cautious in drawing conclusions from afairly intensive analysis of the available longitudinal survey data. Webelieve that both the Lieb and Langley data series are valuable asbarometers of the third-party logistics market, but that there are

changes that could increase the contribution of these efforts andproduce additional insights. These potential changes fall into threecategories: better visibility of the survey instrument, differentmeasurement methods, and more detailed tracking and reporting of respondents and respondent characteristics.

CONCLUSION

Third-party logistics was identified as a separate industry and serviceonly in the late 1980s, and there have been numerous studies of theindustry as it has grown. The research presented here is an attempt

to formally combine the results of some of these studies to better estimate the growth rate of third-party logistics in general and of warehouse and transportation outsourcing as well. We were fortunateto access two separate sets of studies of these phenomena, led byRobert Lieb and John Langley, Jr., respectively. We estimated thatfrom 1996 to 2004 market penetration, measured in percentcompanies outsourcing, has been increasing from 5-8 percent



Langley, C. J. Jr. (1997), "Third-party Logistics: Key Market / KeyCustomer Study." The University of Tennessee and Exel Logistics.

Langley, C. J. Jr., B. F. Newton, and G. R. Tyndall (1998), "Third-party Logistics: Key Market / Key Customer Study." The University of

Tennessee, Ernst & Young, and Exel Logistics.Langley, C. J. Jr., B. F. Newton, and G. R. Tyndall (1999), "Third-party Logistics Services: View from the Customer. Results andFindings of the 1999 Fourth Annual Survey." The University of Tennessee, Ernst & Young, and Exel Logistics.

Langley, C. J. Jr., B. F. Newton, and G. R. Allen (2000), "Third-partyLogistics Services: View from the Customer. Results and Findings of the 2000 5th Annual Survey." The University of Tennessee, ExelLogistics, and Cap Gemini Ernst & Young.

Langley, C. J. Jr., G. R. Allen, and G. R. Tyndall (2001), "Third-partyLogistics: Results and Findings of the 2001 Sixth Annual Survey." C.John Langley Jr., Georgia Institute of Technology, Cap Gemini Ernst& Young, and Ryder System, Inc.

Langley, C. J. Jr., G. R. Allen, and G. R. Tyndall (2002), "Third-partyLogistics: Results and Findings of the 2002 Seventh Annual Survey."C. John Langley Jr., Georgia Institute of Technology, Cap GeminiErnst & Young, and Ryder System, Inc

Lieb, R. and B. A. Bentz (2004), "The Use of Third-Party LogisticsServices by Large American Manufacturers: the 2003 Survey,"Transportation Journal, Vol. 43, No. 3, pp. 24-33.

Lieb, R. and B. A. Bentz (2005), "The Use of Third-Party LogisticsServices by Large American Manufacturers: the 2004 Survey,"Transportation Journal, Vol. 44, No. 2, pp. 5-15

Lieb, R., C., Third-Party Logistics: A Manager's Guide, Houston, JKLPublications, 2000.

Lieb, R. C., R. A. Millen, and L. N. Van Wassenhove (1993), "Third-Party Logistics Services: A Comparison of Experienced Americanand European Manufacturers," International Journal of PhysicalDistribution & Logistics Management, Vol. 23, No. 6, pp. 35-44.

Lieb, R. C. and H. L. Randall (1996), "A Comparison of the Use of Third-Party Logistics Services by Large American Manufacturers:

third party operations

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