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Defining the attributes that make third Party Logistics provider partnerships work
Assignment: Week 3 Topic Paper
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Question #1
In the article written by Anderson, Coltman, Devinney & Keating (2011) there are ten factors
that account for 75% of variation in 3PL choice decisions in the minds of customers. Identify
these factors and then explain and rank them from the most important to least important. Make
sure you justify your answer with external research.
Answer
Question #2
Read the entire article and then describe the type of firm that is comfortable with having more
than one supplier and would chose them based on price and service.
Answer
WHAT DRIVES THE CHOICE OF A THIRD-PARTY LOGISTICS PROVIDER?
Edward J Anderson; Tim Coltman; Timothy M Devinney; Byron Keating
Journal of Supply Chain Management; Apr 2011; 47, 2; ABI/INFORM Global
pg. 97
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PETER J.H. LUKASSEN
CARL MARCUS WALLENBURG
Pricing Third-Party Logistics Services:
Integrating Insights from the Logistics
and Industrial Services Literature
Abstract
As the logistics services outsourced by companies increase in scope and complexity, the
challenge of designing appropriate contracts grows. Here, the price model, which determines
the remuneration, takes a central position. In practice, however, the agreed-upon contracts often
fail to govern the relationship and set wrong or misleading incentives for either or both of the
involved parties.
In order to provide a conceptual basis and to identify promising avenues for future research
in the increasingly important field of pricing third-party logistics services, this article provides
a comprehensive review of the existing literature on logistics and industrial service pricing using
a refined version of the established Industrial Marketing and Purchasing (IMP) group relationship
management framework.
For more than two decades the logistics services industry has exhibited tremendous
growth (Maloni and Carter 2006). Especially
since the 1990s this development was paralleled by an increasing academic interest in
third-party logistics (3PL). With the majority of
academic articles on 3PL, however, following a
descriptive approach (Selviaridis and Spring
2007), this field is still in its early stage of
development (Marasco 2008). While the increase of theory testing articles (Sachan and
Datta 2005) indicates a beginning maturation
(Colquitt and Zapata-Phelan 2007; Boyd et al.
2005), deficits in the theoretical foundation of
3PL research still exist (Marasco 2008; Selviaridis and Spring 2007; Mentzer et al. 2004).
Recently, three extensive reviews of logistics literature related to 3PL have been published: Maloni and Carter (2006), Selviardis
and Spring (2007), and Marasco (2008). All
stress the potential importance of contractual
arrangements and incentives in logistics outMr. Lukassen is research fellow, Kuehne-Center for
Logistics Management, WHU — Otto Beisheim School
of Management, 56179 Vallendar, Germany; e-mail
lukassen@whu.edu. Mr. Wallenburg is professor of
logistics and Kuehne-Foundation Chair of International
Logistics Networks, Technische Universität Berlin,
10623 Berlin, Germany; e-mail wallenburg@tuberlin.de.
sourcing as well as the need for further research
in this area. Maloni and Carter (2006) emphasize studies on logistics contracts being underrepresented. Selviardis and Spring (2007) call
for more work on the question of whether contracts are an important element of relationship
management or just a necessary formality, and
Marasco (2008) claims that bonding elements,
necessary for the preservation and development of sustainable logistics relationships, require closer examination. This need for further
research is substantiated by the empirical observation that users and providers of logistics
services lack the know-how how to design purposeful agreements and pricing structures. The
agreed-upon contractual arrangements often
fail to govern the relationship and set wrong
or misleading incentives (Halldorsson and
Skjoett-Larsen 2006). Considering contractual
arrangements to define the legal frame of 3PL
relations, pricing represents its economic
“heart” and will be the focal point of the following analysis.
According to Williamson (1979; 1991), contracts are an important instrument of relational
governance. One of their central elements and,
thus, of major importance is the agreed-on price
model; others include the service specifications. In long-term arrangements, as present in
3PL relationships (Lieb and Bentz 2005a), a
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PRICING 3PL SERVICES
well fitted price model sets the path for further
relational development and success. In contrast, an inappropriate price model may impede
further prospering of the relationship as the
service provider may only undertake the most
necessary changes and improvements to its services and not consider specific investments that
are mainly beneficial to the customer. Therefore, knowledge about 3PL pricing is not only
relevant to service providers, but also to the
customers – especially since customers heavily
influence the structure of price models through
the tendering process and by issuing detailed
and specific requests for proposal (RFPs) and
requests for quotation (RFQs).
The three aforementioned literature reviews,
due to their broad scope, do not provide detailed insights into the existing body of knowledge regarding the pricing of 3PL services.
In order to facilitate future research on 3PL
pricing, it is necessary to consolidate previous
studies – especially from the fields of logistics
and marketing – and to identify promising avenues for further theoretical development. This
is the aim of this article.
With this aim in mind, the nature of 3PL
services will be discussed first. In order to
carve out their distinguishing characteristics,
the scope of examination is narrowed gradually, beginning with basic services via industrial services and finally 3PL services. Then the
methodology and framework used is described,
and relevant literature is identified and reviewed, providing a synthesis of the field of
logistics and industrial services pricing. The
manuscript closes with a discussion of implications and directions for further research.
CHARACTERIZING THIRD-PARTY LOGISTICS
Characteristics of Industrial Services
3PL services are a subset of services in general and industrial services in particular. Services are described by Zeithaml et al. (1985)
as being (1) intangible, (2) inseparable, (3)
heterogeneous, and (4) perishable. Compared
to services in general, industrial services exhibit several additional characteristics that distinguish them from other services, especially
consumer services. According to Morris and
Fuller (1989), industrial services are non-convenience products, customized to the specific
needs of the customer, thus requiring a formal
25
and extensive provider selection process in order to assure the service provider’s capability
to perform accordingly. Moreover, industrial
services are often provided at the location of the
customer, performed to goods (e.g., in logistics
transporting, handling, and storing objects)
rather than to people, and based heavily on
human resources and their specific knowledge
involving costly service-specific equipment
(Morris and Fuller 1989). Finally, industrial
service relationships tend to be long-term and
continuous, showing a more predictable demand pattern than consumer services.
Revisiting the initially cited four service
characteristics, there are additional typical
specifications relevant for industrial services:
(1) intangibility does not only complicate service comparisons but requires an intense exante supplier selection process, (2) inseparability does not only imply the customer but especially its assets to be integral part of the service
production, (3) heterogeneity does not only result in service performance that varies due to
differing customer attributes, but also due to
prerequisite service-specific equipment and
know-how, and finally (4) perishability does
not only refer to a discrete capacity allocation
problem but also – due to the long-term nature
of the relationship – to a continuous capacity
dedication and planning problem. While this
complicates the analysis on the one hand, demand is more predictable on the other hand.
Definition and Particularities of 3PL
As a next step, common definitions of 3PL
are analyzed to identify the specificities of 3PL.
Here, different views can be identified that
reach from broad to narrow (Deepen et al.
2008; Marasco 2008). The first conceptualization depicts a broad view of 3PL. It encompasses simple “traditional” transportation,
warehousing services, and more complex
multi-service bundles (Lieb 1992) as well as
respective contract durations ranging from
short-term agreements to long-term relationships (Bask 2001). Second, a narrower view
associates 3PL with the provision of comprehensive logistics services (Sink et al. 1996) on
the basis of a longer-term relationship (e.g.,
Berglund et al. 1999; Murphy and Poist 1998;
Skjoett-Larsen 2000; Knemeyer and Murphy
2005).
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TRANSPORTATION JOURNAL™
Observing the market for logistics services,
the first perception of 3PL includes all service
offerings that range from basic logistics, like
freight forwarding, courier, express, and postal
services, to the provision of complex services
bundles and logistics solutions. In the more
narrow view, only the second, more complex
services belong to 3PL. This latter notion of
3PL, specifically the one of Berglund et al.
(1999), is applied in the following. Otherwise
3PL would include all outsourced logistics and
would, in this way, not differ from the more
general term logistics services.
Based on this definition, a further refinement
of the services characteristics is proposed for
3PL – especially regarding the third element
of heterogeneity. In contrast to other industrial
services, like auditing or operations and maintenance services, 3PL comprise the management and execution of multiple services. This
implies high complexity and customer specificity of the service bundle. While this requires
a larger part of the associated investments to
be not only specific to the service but also to
the individual customer, it allows for greater
price differentiation too. Along this line, 3PL
services are especially heterogeneous industrial services, where both the service and price
components can be customized. This refined
characterization serves as a guideline when
evaluating whether certain service pricing articles may be relevant for 3PL services and therefore should be included in the subsequently
conducted literature review.
METHODOLOGY
Consistent with, for example, Marasco 2008,
Spens and Kovács 2006, Li and Cavusgil 1995,
and Krippendorff 1980, we apply content analysis to consolidate the existing knowledge regarding pricing of 3PL. Content analysis aims
for a reliable, objective, systematic, and quantitative study of existing publications (Ellinger
et al. 2003; Krippendorff 1980) and allows
for the investigation of implicit assumptions as
well as explicit statements of texts (Krippendorff 1980). Thus, it represents a promising
method for reviewing literature (Cullinane and
Toy 2000). In order to conduct a content analysis, two steps are required: sampling and categorization (Li and Cavusgil 1995).
Spring
Sampling
In an initial step, articles that contribute to
the domain of logistics service pricing have to
be identified. Given the diversity of available
publications, appropriate limits have to be applied in the search. First, only literature penned
in the English language and published or frequently referenced in academic journals was
considered to account for quality and traceability. Next, the scrutinized literature was limited
to two areas: (1) logistics articles dealing with
pricing and contracting issues (this area will
be referred to as “logistics pricing”) and (2)
due to the proximity of 3PL services and other
industrial services, articles that address industrial service pricing (this area will be termed
‘industrial service pricing’). Concerning the
year of publication, all electronically available
literature until the end of 2007 was included.
Keeping in mind that pricing research is still
comparatively weak (Hinterhuber 2004; Malhotra 1996), especially with respect to services
(Bolton and Myers 2003) and industrial goods
(Noble and Gruca 1999), no starting date was
specified and no journal preselection applied.
For the first area (logistics pricing) the keywords “Third Party Logistics” or “Logistics
Outsourcing” and “Contract” or “Price” or
“Pricing” were applied to titles, abstracts, and
author-supplied keywords using the EBSCO
database. The resulting thirty-one academic
publications were scrutinized as to whether
they contribute to the analysis of logistics pricing, which resulted in the omission of thirteen
articles. In the next step the references of the
remaining eighteen articles, as well as the most
recent literature reviews on logistics from Maloni and Carter (2006), Selviaridis and Spring
(2007), and Marasco (2008), were searched for
further articles potentially addressing logistics
pricing. This revealed another nine academic
articles, as well as five studies, to be included
in the present literature review. Thus, in total,
thirty-two publications were considered from
the logistics pricing domain (see Appendix 1).
Likewise, for the second area (industrial service pricing), a keyword search was conducted
in the titles, abstracts, and author-supplied keywords of articles in the EBSCO database using
“Service(s) Price” or “Service(s) Pricing,” revealing 170 academic articles. In order to identify those articles relevant for the question of
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PRICING 3PL SERVICES
3PL pricing, the characteristics of 3PL services
previously described were applied to each of
them. Based on this, articles focusing solely
on spot transactions (e.g., Chao and Wilson
1987; Crew et al. 1990; Yano and Newman
2007), on retail services (e.g., Hoffman et al.
2002; Rabinovich and Bailey 2004), or on services non-specific to an individual relationship
(e.g., Morris and Fuller 1989; Essegaier et al.
2002) were excluded. Moreover, an intense
search for relevant cross-references was conducted. This resulted in a total of twenty-nine
articles, which were included in the present
literature analysis (see Appendix 2).
Literature Classification
For the classification of the literature according to methodological research orientation
we follow the approach taken by Croom et al.
(2000) and Selviaridis and Spring (2007), which
distinguishes between conceptual and empirical
work on a first dimension and descriptive and
prescriptive work on a second dimension. It becomes apparent that the research orientation differs widely between the two areas of literature
(see Figure 1). 81 percent, and thus the clear majority of logistics pricing publications, are empirical, while only 31 percent of the articles on
industrial service pricing are empirical and thus
the majority conceptual. Also 81 percent of
studies on pricing in logistics are confined to
describe the phenomenon, whereas the majority
of articles on industrial service pricing offer explanatory norms.
This lack of conceptual as well as prescriptive work on logistics pricing is no surprise,
as logistics research in general is still primarily
descriptive: 69 percent of all logistics articles
and 80 percent of the specific literature on 3PL
are descriptive in nature (Selviaridis and Spring
2007; Marasco 2008). However, it is surprising
to note that the conceptual work on logistics
pricing primarily – in five out of six cases –
is prescriptive. This is in contrast to the general
conceptual literature on logistics and supply
chain management which by Croom et al.
(2000) and Selviaridis and Spring (2007) is
found to be predominantly descriptive. In this
respect, the methodological approach in the
logistics pricing literature is closer to industrial
service pricing literature, where the major part
(90 percent) of conceptual work is prescriptive.
27
Research on service pricing, and more specifically on industrial service pricing, has a
longer history than the specialized logistics
pricing research. The first article identified in
this area is Beard and Hoyle (1976), fourteen
years before Bowersox (1990) wrote about
pricing issue in logistics outsourcing relationships for the first time. However, looking at
the number of published articles (see Figure
2), research on industrial service pricing also
did not receive much attention for a long time.
Only recently there seems to be increasing interest in the topic, especially in the work of
Avlonitis and Indounas, who alone have contributed six of the last twelve articles on industrial service pricing (Avlonitis and Indounas
2005a; 2005b; 2006; 2007a; 2007b; Avlonitis
et al. 2005).
Nevertheless, the further theoretical development of industrial service pricing is impeded
by the wide dispersion of the articles in primarily second-tier journals. The twenty-nine industrial service pricing articles have been published in twenty different journals. Only seven
journals yield more than one article, and only
one of these, the Journal of Service Marketing,
with four studies, more than two articles. In
contrast, logistics research profits from a
stronger focus within dedicated journals (Zsidisin et al. 2007; Carter 2002; Fawcett et al.
1995). Out of the thirty-two logistics publications, twenty-eight have been published in
fourteen different academic journals, much
more than half (57 percent) in three of the most
renowned logistics outlets (Carter 2002): seven
in the International Journal of Physical Distribution and Logistics Management, six in the
Journal of Business Logistics, and three in the
Transportation Journal. The rem …
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