A Model of Logistics Outsourcing Strategy - Universidad …€¦ · presenting a data-driven descriptive model of logistics outsourcing strategy, based on grounded theory research

JOHN E. MELLOTHEODORE P. STANKTERRY L. ESPER

A Model of LogisticsOutsourcing Strategy

AbstractPrevious research points to an apparent gap between the prescriptive models designed to

guide companies in making systematic outsourcing decisions and the practices some companiesactually use. While prescriptive models would suggest the predominance of outsourcing decisionsare made using top-down, proactive, systematic- and strategic-competence-driven processes,prior researchers observed that actual decisions are often made using local, reactive, ad-hoc,and seemingly limited-strategy-driven processes. This article addresses this inconsistency bypresenting a data-driven descriptive model of logistics outsourcing strategy, based on groundedtheory research methods, that explores the experiences of logistics professionals. Our findingssupport the idea that while prescriptive models providing cognitive approaches to logisticsoutsourcing exist in the literature, in practice both cognitive and experiential search and evaluationare used to make outsourcing decisions. Additionally, we extend the work of de Boer, Gaytan,and Arroyo (2006) by adding personal factors, such as experience and self-interest, and culturalfactors, such as organizational values and norms, as inputs to the process.

The reality of competing in a global supplychain environment has caused many organiza-tions to focus on strategic renewal and creativesolutions to manage and mitigate the risks ofoperating in today's dynamic marketplace. Oneparticular strategy that has become increas-ingly popular is the use of third-party logistics(3PL) support for global supply chain execu-tion. Recent estimates suggest that global 3PLservices is a $390-billion industry, with double-digit annual growth expected, particularly asfirms continue to engage in global expansion(Quinn 2007). This suggests that, more thanever, understanding of the logistics outsourcingprocess is important to fully capturing the roleand value of logistics in corporate strategy andcompetition.

Mr, Mello, EM-AST&L, is director. TransportationManagement Program, Arkansas State University, StateUniversity, Arkansas 72467; e-mail jmello@astate,edu,Mr, Stank is Dove Professor of Logistics and head.Department of Marketing and Logistics, University ofTennessee, Knoxville, Tennessee 37966; e-mailtstank@utk,edu, Mr, Esper is assistant professor oflogistics. University of Tennessee, Knoxville, Tennessee37996; e-mail tesper@utk,edu.

There is a significant body of research thatinvestigates facets of the logistics outsourcingphenomenon. The majority of research in thisarea is concerned with such topics as environ-mental conditions that drive companies to out-source, activities typically outsourced, selec-tion criteria of providers, benefits and pitfallsassociated with outsourcing, and the factorsthat lead to outsourcing success (de Boer, Gay-tan, and Arroyo 2006; Knemeyer, Corsi, andMurphy 2003; Menon, McGinnis, and Acker-man 1998; Murphy and Poist 2000; Skjoett-Larsen 2000). Though this body of work hascontributed to an understanding of why andhow firms purchase 3PL services, it has beenvery tactical in nature. Little, if any, attentionhas been given to the understanding of howcompanies formulate, execute, evaluate, anddetermine future directions of logistics out-sourcing as a company strategy. Hence, whilethe extant literature speaks to the logistics out-sourcing process, it does not address thebroader, underlying logistics outsourcing strat-egy development process.

Existing research on logistics outsourcingprocesses primarily includes prescriptive

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models (Bagchi and Virum 1998; Sink andLangley 1997) and descriptive models basedon empirical studies (Andersson and Norrman2002; de Boer, Gaytan, and Arroyo 2006; Mar-shall et al. 1999; Rabinovich et al. 1999). Indiscussing these research paradigms, de Boer,Gaytan, and Arroyo (2006, 450) suggest thatdescriptive work primarily involves observing"local, re-active, ad-hoc, [with] seemingly lim-ited relevance of strategy and core compe-tence" outsourcing processes, while prescrip-tive models suggest outsourcing processes thatare "top down, pro-active, systematic, strate-gy- and core-competence driven." This inter-esting discrepancy underscores this manu-script. While it is generally prescribed thatlogistics outsourcing be based on corporatestrategy, the reality is that such is, perhaps, notthe case. Consequently, a deeper exploration ofthe role of outsourcing strategy development iswarranted, as such an investigation may provideinsights into why current tactical processes are,seemingly, not strategy-driven, and why currentoutsourcing strategy development processesare, perhaps, not robust and efficacious.

The purpose of this article is to address thisgap in the outsourcing literature by presentinga data-driven descriptive model of the logisticsoutsourcing strategy development process. Inparticular, grounded theory research is utilizedto explore the behavior of logistics profession-als in formulating and executing logistics out-sourcing strategies. While this article is con-ceptual in nature, it is based on empiricalmaterial collected during field research. Men-tzer and Kahn (1995) suggest that a combina-tion of literature and qualitative research isappropriate for developing a well groundedtheoretical framework. To that end, this re-search combines both field research and find-ings from appropriate literature to investigatehow firms approach logistics outsourcing as acompany strategy.

This research contributes to the literaturein three ways. First, our findings support andextend the idea that while prescriptive modelsproviding cognitive approaches to logisticsoutsourcing exist in the literature, in practiceboth cognitive and experiential search andevaluation are used to make outsourcing deci-sions (de Boer, Gaytan, and Arroyo 2006). Fur-thermore, we find that two additional inputs to

the process—personal factors, such as experi-ence and self-interest, and cultural factors, suchas organizational values and norms—are em-ployed, particularly when considering out-sourcing from a corporate strategy perspective.Second, we present a model of logistics out-sourcing describing the manner in which firmsmay make decisions concerning logistics out-sourcing as a business strategy. Our findingssuggest that the logistics outsourcing strategydevelopment process in some companies fol-lows a less structured format than suggestedin prescriptive models. In practice, as firmsmake the transition from in-house performanceto outsourcing of logistics functions, the evalu-ations they make concerning outsourcing as astrategy can be incremental, unsystematic, andinfiuenced by factors beyond cost or servicegains. These findings may help fill in some ofthe gaps between theory and practice, pointto areas of process improvement for buyingcompanies, and offer ways for selling compa-nies to take advantage of opportunities to gainnew or increase existing business. Lastly, theuse of grounded theory methodology with dataobtained in field settings represents an applica-tion of a research approach little used in thelogistics field, but one that potentially can offerinsights that traditional quantitative methodsmay miss.

In addressing these issues, the manuscriptwill proceed as follows: First, an overview ofrelevant literature will be presented, with em-phasis on highlighting the aforementioned gapin research that addresses logistics outsourcingstrategy development. Second, the groundedtheory methodology is presented, including adiscussion on the applicability of this methodfor this investigation, and the steps taken toensure research trustworthiness and validity.The findings of the research are presented next,providing an in-depth discussion of the processmodel that emerged during this research.Lastly, research implications and presented.

RELEVANT LITERATURE

Outsourcing is a subject of research in manyareas, including transaction cost economics,strategic management, information systems,human resource management, and logistics (deBoer, Gaytan, and Arroyo 2006). According tothe logistics literature, there are myriad reasons

2008 LOGISTICS OUTSOURCING STRATEGY

why firms choose to perform their own logis-tics activities in-house, or choose to outsourcethose functions. The two most frequently citedreasons for outsourcing logistics activities arecost reduction and service improvement expec-tations from outsourcing (Boyson et al. 1999;Lieb and Bentz 2005; Maltz 1994; Maltz andEllram 1997; Rao and Young 1994; Sink andLangley 1997). In addition to cost and service,a number of other factors are cited as reasonswhy firms consider logistics outsourcing.These factors include opportunities to focus oncore competencies (Leahy, Murphy, and Poist1995; Razzaque and Sheng 1998; Rao andYoung 1994; van Damme and van Amstel1996), improve productivity (Leahy, Murphy,and Poist 1995), upgrade information technol-ogy (IT) capabilities (Leahy, Murphy, andPoist 1995; Sink and Langley 1997), leveragesupply chain management (Lieb and Randall1996; Rao and Young 1994), react to changesin the regulatory environment (Sink and Lang-ley 1997), a need for expertise (Razzaque andSheng 1998; Sink and Langley 1997; vanDamme and van Amstel 1996), globalizationof business (Razzaque and Sheng 1998), com-plexities of operating in a just-in-time (JIT)environment (Razzaque and Sheng 1998),rapid growth ( van Damme and van Amstel1996), and limited resources to apply to logis-tics activities (van Damme and van Amstel1996). The extensiveness of these factors indi-cates that there are multiple ways in whichfirms consider third-party logistics providerscapable of assisting them in dealing with theirbusiness problems.

The literature also discusses specific typesof events that can "trigger" a company tobecome interested in outsourcing logisticsfunctions. Such events as (1) corporate restruc-turing, (2) changes in logistics management,(3) changes in executive management, (4) cor-porate cost/headcount programs, (5) marketand product line expansions, (6) increasing cus-tomer demands, (7) mergers and acquisitions,(8) new markets, (9) customer use of Just-In-Time or Quick Response (QR), (10) laborcosts/problems, (11) instituting a quality im-provement program, and (12) CEO directivesto investigate the feasibility of outsourcing arenoted as reasons why companies start to con-sider outsourcing as an option (La Londe and

Maltz 1992; Sink, Langley, and Gibson 1996).It should be noted that most of these triggerevents concem changes to the external andinternal environment of companies. The litera-ture thus suggests that outsourcing is a commoncoping mechanism companies use to deal withchange.

On the other hand, there are numerous fac-tors infiuencing firms to perform logistics ac-tivities in-house. Venkatesan (1992) noted sev-eral confiicting priorities regarding howmanagers justified in-sourcing. Filling idle ca-pacity on equipment, preserving jobs, main-taining cordial relations with a union, and moreresponsibility, more authority, and bigger sala-ries were cited as reasons why managers arereluctant to outsource. Concem that commoncarriers may not service customers as well asprivate carriage is another reason why compa-nies choose not to outsource transportation ac-tivities. For example, Maltz's (1994) surveyof the transportation choice literature foundservice quality to be a main reason for usingprivate carriage.

Other reasons cited for performing logisticsactivities in-house include (1) cost reductionsover currently available service, (2) specialhandling and shipping requirements not offeredby logistics providers, (3) special transporta-tion routing needs, (4) need for tight controlover interplant work-in-process goods move-ment, (5) loss and damage reduction or preven-tion, (6) need for special product control duringmovement, (7) availability of emergency trans-portation needs, (8) assurance of equipmentavailability, and (9) corporate advertising oncompany-owned vehicles (Tyworth, Cavinato,and Langley 1991). Lieb and Randall (1996)suggest that the most serious concems to ship-pers in the use of third-party logistics providersinclude the potential for loss of direct controlover logistics activities, uncertainties about theservice level to be provided, and questions con-ceming the tme cost of outsourcing. Thus, thereappears to be nearly as many reasons cited forcontinuing to perform or bringing back theperformance of logistics activities in-house asthere are to outsource them.

While a good deal of research has been con-ducted on the strategic rationale for logisticsoutsourcing, the number of articles focusingon outsourcing processes is relatively small

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(Marshall et al. 2004). The set of articles de-voted to outsourcing processes may be dividedinto two basic types: those that take a prescrip-tive model approach to provide firms with awell defined process, and those that describemodels of processes that are observed in fieldresearch (de Boer, Gaytan, and Arroyo 2006).

The prescriptive model approach focuses onsteps a company should take in selecting andevaluating carriers or other third-party logisticsproviders (e.g., Andersson and Norrman 2002;Bagchi and Virum 1998; Menon et al. 1998;Skjott-Larsen 1995; Sink and Langley 1997).Two models serving as exemplars of prescrip-tive model types are those provided by Sinkand Langley (1997) and Bagchi and Vimm(1998).

Sink and Langley identify a five-step processfor buying third-party logistics services: (1)identify need to outsource logistics beginningwith recognition of outsourcing as an option,(2) develop feasible altematives (make/buyanalysis), (3) evaluate and select supplier, (4)implement service, and (5) ongoing service as-sessment leading to an enhanced relationshipwith, or replacement of, a supplier. This modelprovides feedback loops between steps to allowfor the possibility that for some companies theprocess may be non-linear, i.e., steps may becycled or recycled through, or even bypassed.Nevertheless, this model is prescriptive is na-ture, intended to provide a ' 'managerial frame-work for the acquisition of third-party logisticsservices" (1998, 164).

The Bagchi and Vimm (1998) model identi-fies three phases: (1) need awareness, (2) alli-ance formation, and (3) relationship manage-ment, in which eight specific steps areembedded. Need awareness involves settingobjectives for outsourcing and establishingsupplier selection criteria. Alliance formationencompasses identifying qualified vendors, de-termining needs, request for bids, bid evalua-tion, supplier selection, and implementation ofrelationship. Relationship management in-cludes performance measurement of suppliers,with the possibility of revisiting goals and pro-vider capabilities resulting in a retum to earlierphases. While the authors admit there is no onebest technique for logistics outsourcing, theirmodel is "offered as a general guide-line... [that] may be easily adapted to most

companies' needs' ' (1998,206). Thus, the Sinkand Langley (1997) and Bagchi and Vimm(1998) models provide guidance for companiesinterested in outsourcing logistics functions,and both assume a logical and orderly approachwill be taken by such companies.

Another approach to researching this areauses empirical accounts to describe outsourc-ing processes observed in the field. For exam-ple, the model developed by Rabinovich et al.(1999) describes how logistics systems can bebroken down into transportation, inventory,and customer service subsystems and suggeststhat companies typically outsource logisticsfunctions in combinations of activities groupedaround these subsystems, rather than one activ-ity or function at a time. Based on nine casestudies, Marshall et al. (2004) describe out-sourcing as a process that involves four stages.The first stage, decision, includes initial ideageneration and establishment of motives foroutsourcing. The second stage, evaluation, in-volves appraisal of internal and extemal op-tions, and may terminate the process if intemaloptions are deemed superior to external ones.The third stage, management, entails imple-menting a relationship with third-party provid-ers, transfer of assets/people, problem solving,and communication between firms. The fourthstage, outcome, involves evaluation of the rela-tionship, which can end in termination, re-ten-dering, or renewal of the contract. Feedbackloops are provided between stages, demonstra-ting that the process they observed is highlydynamic and non-linear. Interestingly, the au-thors concluded that the infiuence of companystrategy and politics, rather than strict adher-ence to an objective and process-oriented setof activities, had the most infiuence on howthe outsourcing process progressed.

The research of de Boer, Gaytan, and Arroyo(2006) is also based on case studies and soughtto describe actual logistics outsourcing deci-sion-making processes. Their model is basedon what they describe as a satisficing process,constrained by the limits of bounded rational-ity, ending as soon as a satisfactory solutionis found. They maintain that firms are unlikelyto identify and evaluate all potential activitiesto be outsourced due to excessive cost, thatwhen candidates for outsourcing have beenidentified there may not be a large number of

2008 LOGISTICS OUTSOURCING STRATEGY

capable providers to evaluate and choose from,and that when search and evaluation does takeplace both cognitive and experiential methodsare used. The authors conclude that based ontheir observations the few prescriptive andpractical models of logistics outsourcing couldbenefit from incorporation of behavioral deci-sion-making theory in order to make them morerealistic tools in an "inherently arbitrary pro-cess" (2006, 453).

This literature review demonstrates that, asde Boer, Gaytan, and Arroyo (2006) point out,there are differences between prescriptive anddescriptive models in the literature and that, inpractice, companies may follow processes thatdiffer from the "ideal" methods offered byprescriptive models. The nature of this differ-ence primarily stems from prescriptive modelsthat suggest strategy-driven outsourcing pro-cesses, while descriptive models indicate moretactical, provider-selection decision-makingmodels. In fact, Andersson and Norrman(2002) note that the same basic phases areidentified in the logistics outsourcing literatureas are outlined in typical processes available inthe purchasing literature. These phases includedefining and specifying requirements, selectingsuppliers, establishing contracts, ordering ser-vices, and evaluating suppliers. Hence, the em-phases of current outsourcing models involvethe issues associated with selecting 3PLs andmanaging the provider relationship.

The discrepancy between the current stateof prescriptive and descriptive outsourcingmodels suggests a literature gap worthy of re-search investigation. Prescriptive models men-tion the strategy underpinnings of outsourcingdecisions, yet current descriptive models focusprimarily on the 3PL selection aspect of out-sourcing. Further work is necessary to descrip-tively understand the means by which firmsconsider outsourcing as an aspect of corporatestrategy. Investigation in this area may informthe current state of outsourcing, by describingthe broader, underlying strategy developmentprocesses used by firms when outsourcing.This research specifically addresses this issue.A descriptive outsourcing strategy processmodel is developed, based on seven firms thathave been involved in outsourcing some or allof their logistics functions. The methodologyused in this investigation is discussed next.

METHODOLOGY

Research objectives and associated ques-tions should drive selection of research meth-odologies (Patton 2002; Strauss and Corbin1998). While the preponderant methods for re-searching logistics outsourcing have beenquantitatively based, as Morgan and Smircich(1980, p. 498) point out, "different approachesand methods are required for studying ...phe-nomena" in order not to limit what can beleamed. We chose to use a specific form ofqualitative research, grounded theory, for twomain reasons. First, grounded theory is a quali-tative approach to research designed to investi-gate phenomena about which little theoreticalknowledge has been developed (Suddaby2006). Such an approach is appropriate to re-searching logistics outsourcing due to the lackof specific theory conceming the processescompanies use to evaluate logistics outsourcingas a strategy. In grounded theory research,theory emerges from analysis of data obtainedin the field rather than from a priori assump-tions developed before the research begins. Re-lying heavily (although not exclusively) on in-depth interviews, observation, and documentanalyses, grounded theory researchers aim todevelop theories that enable explanation of be-havior and are applicable to practitioners(Mello and Flint 2009).

The second reason why grounded theory wasselected is that this methodology lends itselfwell to investigating processes. Processes andthe conditions influencing them are of particu-lar interest to grounded theory researchers. Se-quences of action and interaction, and howthey change over time in response to evolvingconditions, are investigated in order to discoverpatterns of individual or organizational behav-ior (Strauss and Corbin 1998). Groundedtheory researchers often look for strategies thatindividuals or companies use to solve problemsunderlying pattems of behavior. These strate-gies are used to help explain why and in whatorder certain actions are taken. Process is usu-ally described as stages or phases of interre-lated activities, and is discussed within the con-text of the specific conditions surrounding theparticipants and their activities.

Initially we used purposive sampling tosample three firms appearing to approachoutsourcing decisions diff'erently, leading to the

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selection of one firm that primarily outsourceslogistics activities, another that combines out-sourcing with in-house management of logis-tics functions, and a third that performs mostof its own logistics functions. The initial threecompanies participating in this research werethus chosen based on only one criterion: extentof logistics outsourcing. The reason for initiallytaking this approach was to maximize the dif-ferences between firms in order to capture aswide a range of company characteristics aspossible. This allowed the outsourcing processto be compared across companies potentiallydiffering in factors specific to the degree ofoutsourcing employed by the companies.

Table 1 summarizes company "names," at-tributes, and the type of services outsourced,or under consideration for outsourcing, for thefirms used in this study. Extensive interviewingwas conducted within the three initial firms(HBP, LGP, and AFS) to obtain an in-depthunderstanding of how the companies approachlogistics outsourcing. Following theoreticalsampling procedures, the sample expanded toseven firms to compare categories and proper-ties to companies of different types, sizes, andbusiness conditions in order to compare inter-company similarities and differences (Eisenh-ardt 1989). In order to balance the initialweighting toward privately held companies,each of the additional four companies selectedwas publicly held. Additionally, companiesthat varied across the "perform in-house" tofully outsourced logistics functions weresought.

Individual participant sampling within thesecompanies began with outsourcing decisionmakers, and then expanded, following theoreti-cal sampling guidelines. Theoretical samplingis a process in which a researcher usinggrounded theory "jointly collects, codes, andanalyzes data and decides what data to collectnext and where to find them, in order to developthe theory as it emerges" (Glaser and Strauss1967, 45). The objective is to sample diversesets of groups and individuals. Theoreticalsampling ends when saturation is achieved; thatis, when no new information that will furtherthe research emerges from expanding the sam-ple (Goulding 2002). Interviews thus continueduntil pattems of regularity became evident andtheoretical saturation was reached (Eisenhardt

1989; Garver and Mentzer 2000). A total ofthirty-one individuals were interviewed. Thissample exceeds the guideline of eight inter-views necessary to answer many research ques-tions, as recommended by McCraken (1988)and followed in several logistics research stud-ies (Garver and Mentzer 2000; Golicic andMentzer 2005). Participants representing awide variety of job types and levels withinlogistics management positions were selectedto obtain a diverse set of experiences and view-points (see Table 2).

The primary source of data was in-depth,unstructured interviews lasting from forty-fiveminutes to two and one-half hours. While theformat was flexible, an interview guide con-taining specific questions, follow-up questions,and a rough outline for the ordered placementof topics was used to maintain focus on theresearch (Patton 2002). Each interview wasaudio taped, then professionally transcribed.Additional sources of data included observa-tion of activities within the participating com-panies such as carrier negotiations and reviewof company documents pertaining to logisticsoutsourcing.

Coding of the interviews followed estab-lished grounded theory guidelines as laid downby Glaser (1978). Analysis began with "opencoding," which breaks the data down into itscomponent parts where similarities and differ-ences between company approaches are com-pared and grouped together under abstract con-cepts called "categories" (Glaser 2001).Categories are further broken down into theircomponents, or "properties." As the proper-ties of categories and the categories themselvesbecome saturated, "underlying uniformities"are discovered in the data. Working hypothesesare formulated conceming these uniformities,and these hypotheses are tested as the re-searcher challenges them through systemati-cally looking for negative or contradictory data(Garver and Mentzer 2000). As these underly-ing uniformities are revealed, the analyst be-gins to tum to the second type of coding—selective coding. In selective coding the analystis looking for the core category or categoriesthat link together all of the other categoriesand explain the majority of the behavior in thephenomenon.

2008 LOGISTICS OUTSOURCING STRATEGY 11

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Table 2. Study Sample

Pseudonym Industry Job Title

AbbyAdamArleneBethBrianCandiceChrisCliffDanFrankGrantKatieHaroldJerryKerryLemMannyMarkNateOmarPeteRandySandySamTodShannaVemonWarrenWilburWilliamZack

Consumer Packaged GoodsYard and Garden ProductsYard and Garden ProductsConsumer Packaged GoodsYard and Garden ProductsConsumer Packaged GoodsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsYard and Garden ProductsConsumer Packaged GoodsConsumer Packaged GoodsFood DistributionFood DistributionYard and Garden ProductsFood DistributionFood DistributionConsumer Packaged GoodsConsumer Packaged GoodsDistribution 3PLConsumer Packaged GoodsConsumer Packaged GoodsConsumer Packaged GoodsFood DistributionFood DistributionAppliances, FumishingsFood Products

Manager, Supplier RelationsCompany PresidentTransportation ManagerWarehouse AnalystV.P. of OperationsDirector of DistributionDirector of LogisticsGlobal Procurement DirectorFormer Dir. Of DistributionForecasting CoordinatorV.P of SalesFreight AuditorHolding Company PresidentWarehouse ManagerCustomer Service Manager3PL Relationship ManagerV.P. of OperationsLogistics ManagerShipping SupervisorFormer Logistics ManagerPurchasing ManagerMan. Intemational Dist.Man. Distribution OperationsV.P. Customer ServiceLogistics AnalystDistribution SpecialistLogistics IntemChief Financial OfficerTransportation ManagerV.P. of DistributionTransportation Manager

All approaches to research have establishedways of assessing the rigor and trustworthinessof a research effort. Glaser (1978; 1992; 2001)maintains that the criteria for evaluatinggrounded theory studies are limited to fit, rele-vance, workability, easy modifiability, and par-simony and scope in explanatory power. Table3 demonstrates how our research meets thesecriteria (Flint, Woodruff, and Gardial 2002).

FINDINGS

Analysis of the qualitative data yielded twodecision-making categories that are associatedwith logistics outsourcing strategy develop-ment: logistics outsourcing strategy phases and

decision-making inputs (See Table 4 for de-scriptions). Figure 1 portrays the process modelof logistics outsourcing strategy involving thefive phases, and associated inputs, thatemerged. The model focuses on how firms par-ticipating in the research progressed throughthe decision-making process of developingstrategy, rather than on the individual stepsthey took to put outsourcing programs in place.This approach was taken in order to establisha framework that may be applied to firms thatare evaluating logistics outsourcing as a strat-egy. This framework serves an important re-search purpose: to provide a basis for investi-gating, interpreting, and understanding actions


Table 3. Assessing Grounded Theory Rigor and Trustworthiness

FitThe extent to which findings correspond to actual conditions within the substantive area underinvestigation.

• Verified through input on interpretation of the data and consistency across incidents inthe data from independent sources.

• Participants were involved in verifying that what was derived as theory from the dataactually fits, in their experience, what is going on in the phenomenon.

RelevanceA grounded theory is relevant to practitioners when it addresses core problems that they dealwith on a regular basis. It is relevant to researchers when it offers a new or altemativeexplanation for behavior that goes beyond that offered in extant literature.

• Participants were invited to comment on how well the research addresses the coreissues of the phenomenon, and academic researchers were solicited to assess howrelevant the results of this research are to the academic field of logistics.

• Input from these sources was used to judge whether the theory addressed core issuesin the phenomenon.

WorkabilityThe theory should be able to explain and interpret what is happening in an area of inquiry.

• The theoretical interpretations were shared with participants in the research to ensurethat the researchers faithfully reported the facts as articulated by participants.

ModifiabilityNegative cases or incidents that do not fit the emerging theory should be appropriatelyhandled with modification to that theory.

• To demonstrate that this modification occurred, an audit trail was established thatshows how and why modifications to the findings were made.

ParsimonyThe theory should be limited to the minimum number of categories and properties needed toexplain behavior in the phenomenon.

• To achieve parsimony, categories and their properties were limited to those that besthelp to explain behavior within the phenomenon, with the objective of providing aprocess model that utilizes the minimum number of properties salient to thephenomenon.

ScopeScope requires the theory to be flexible enough to clarify a wide variety of situations and todiscover multiple aspects of the phenomenon.

• Scope was achieved through theoretical sampling procedures that led the researchersto a wide variety of circumstances in which the phenomenon is played out.

• Long interviews, open in nature, were used to draw out as many facets and nuances ofthe phenomenon as possible.

by individuals and companies that may not fitinto a neatly defined rationale for outsourcingor a logical progression toward its implemen-tation.

There are similarities between this and othermodels in the logistics literature. However, thismodel differs from prescriptive buying pro-cesses such as Sink and Langley (1997) and

descriptive process models such as Marshallet al. (2004) in its focus on the ongoing evalua-tion of logistics outsourcing as a strategy, asopposed to the evaluation of specific suppliersin a buying process. For example, the Sinkand Langley model centers on the selection,implementation, and evaluation of specific sup-pliers providing logistics services. In contrast.


Table 4. Logistics Outsourcing Strategy Decision-Making Categories and TheirProperties

Category One:Outsourcing Strategy Phases

Properties:Recognition - when logistics providers are recognized as altematives to performing logisticsactivities in-house.

Motivation - when conditions that lead companies to consider the "perform vs. buy" decisionare considered.

Outsourcing - the process of outsourcing, which includes trial programs with third parties aswell as ongoing arrangements with service providers.

Confidence-building - when the viability of logistics outsourcing as a solution to problems isconsidered.

Dispositions - development of dispositions, and related actions, toward the future of logisticsoutsourcing.

Category Two:Decision-Making Inputs

Properties:Cognitive - the evaluation of "actions by means of a process of thought and cognitivedeliberation, possibly supported by calculations" to make decisions (de Boer, Gaytan, andArroyo 2006, 451).Experiential - "a process in which altematives are evaluated as a result of actual, on-lineexperimentation" by which future courses of action are determined (de Boer, Gaytan andArroyo 2006, 451).

Cultural - recognition of pattems of shared values, beliefs, and behavioral norms of anorganization that are commonly applied to solving problems (Deshpande and Webster 1989).

Personal - the determination of actions based on the personal experiences, or self-interest, ofindividuals.

our model describes how some companies be-come aware of and approach logistics outsourc-ing as an overarching strategy for dealing withlogistics as a function within the company.Thus, the assessment phase within the Sink andLangley model results in retention or replace-ment of a supplier, while in our model theresult of the disposition phase lies in a contin-uum from expansion of outsourced functionsto abandonment of the outsourcing efforts alto-gether. Likewise, the model proposed by Mar-shall et al. (2004) describes outsourcing activi-ties focused on specific vendors. Theevaluation, management, and outcome phasesoutlined in their model focus on dealing withspecific providers and contracts as opposed tothe evaluation and disposition of logistics out-sourcing as a company strategy. In essence, the

existing models provide deep understanding ofonly one phase of our model—"outsourcing."

Critical to the process offered by our modelis the fourth stage, confidence-building, whichdoes not appear in any previous prescriptive ordescriptive models. This phase is an importantpoint of departure from earlier models becauseit identifies the manner in which some compa-nies may evaluate their outsourcing strategies.Based on the research, some firms appear tobase their decision on whether to increase, de-crease, or maintain existing levels of logisticsoutsourcing on confidence in the strategygained or lost during the outsourcing phase.Additionally, the final phase in our model—dispositions—differs from previous models inthat it refers to the disposition of the ongoinglogistics outsourcing strategy as opposed to


Figure 1. A Model of the Logistics Outsourcing Strategy Process

LogisticsOutsourcing

Strategy Inputs

Cognitive

Experiential

Personal

Cultural

Logistics OutsourcingStrategy Process

stage 5: Expansion/Contraction

Stage 4: Confidence-Building

Stage 3: Outsourcing

Stage 2: Motivation

Stage 1 : Recognition

the outcome of contracts or relationships withspecific suppliers.

Another significant difference of our modelare the four types of inputs that are identifiedas infiuencing decisions throughout the fivephases of the logistics outsourcing process.First of all, we found two additional inputs thatare not acknowledged in the extant literature(i.e., de Boer, Gaytan, and Arroyo 2006): per-sonal and cultural. Furthermore, findings sug-gest that the importance of each input typevaried by company. Cognitive input appearedto be most important in larger companies, andthose companies owned by a parent company.Experiential input appeared to be more preva-lent and infiuential in smaller, privately ownedcompanies. Cultural and personal inputs wereinfluential in all companies studied, and theirrelative influence did not appear to be relatedto any specific company characteristics.

The logistics outsourcing strategy process isdescribed in more detail next.

RecognitionRecognition of third parties as altematives

to in-house performance of logistics services

emerged as a necessary first phase in the pro-cess, because without it firms will lack aware-ness of logistics outsourcing as a business strat-egy. Participants talked about multiple waysin which they or their company became awareof logistics outsourcing. Participants oftentalked about their company's recognition oflogistics service providers arising from per-sonal sources such as previous dealings withvarious other types of outsourcing, but cogni-tive strategies such as intentional search forinformation also played a part in the recogni-tion phase.

Previous experience in logistics outsourcingwas mentioned by several companies as asource of recognition. One participant from afood distribution company that manages all ofits own logistics functions discussed the arrivalof a new company president with prior relation-ships with a logistics service provider who al-lowed that firm to ' 'come in and talk to a fewpeople here and convince them to allow himand his company to manage the in-boundfreight" (Mark). A second participant said thathis company's logistics manager initially cameup with the idea of outsourcing some of the


warehousing activities from a logistics servicesprovider ' 'he had previously worked with at adifferent facility" (Dan). Another participant,with outsourcing experience at a previous com-pany, talked about starting work at a family-mn company that had never considered out-sourcing because ' 'they figured what they weredoing was the best way' ' to manage logistics,yet "did not know much about distribution.. .-didn't know much about the tmcking industry' '(William). He attributed his experience withoutsourcing at another company as the ' 'maindriver" behind his recommendation for thecompany to consider logistics service providersto manage distribution and transportation.These examples illustrate how personal inputs,such as experience with logistics outsourcing,can lead to its recognition as an altemativeto in-house performance. They also confirmprevious research conceming the impact ofmanagerial change on outsourcing strategies.

Other inputs to the recognition phase dis-cussed by participants were of a cognitive na-ture, involving assimilation of informationfrom various sources. One source of recogni-tion discussed by participants comes from pre-vious dealings in other types of outsourcing.In this kind of scenario the company has pre-viously applied outsourcing to solve a problemand recognizes its usefulness in addressing anew issue. One participant (Chris) describedthe difficulties of establishing businesses inforeign countries, and how his company useda third party to manufacture goods in Chinarather than attempt to run their own facility.The arrangement worked well, and when itcame time to set up a distribution center inCanada this experience influenced him to in-vestigate a logistics provider to mn the opera-tions. Similarly, participants from a recentlyacquired company that had always performedits logistics activities in-house talked about theacquiring company's history of outsourcingmany activities throughout their extensive net-work of companies and how management"saw the writing on the wall...[outsourcing]is just the way it's going to be" (Tod). Whilelogistics management wanted to continue per-forming activities in-house, it had to face therealization that it "could not fight that battle"(Lem) and had to recognize outsourcing as thedirection the parent company wanted to go in.

Several participants mentioned "keepingpace' ' with the rising use of logistics outsourc-ing and the types of services they offer throughreading trade journals. A second source of in-formation discussed was professional meetingssuch as seminars and shipper associations. Onelogistics manager said he ' 'never really thoughtmuch about using logistics service providers"(Omar) until he talked to an employee of amajor tmcking company at a supply chain man-agement seminar who informed him of thetypes of logistics services they offer. The CFOof the same firm said he talked to ' 'two 3PLsat the conference, and they offered insight"(Warren) into how they could service his com-pany. A vice president of operations (Brian)discussed leaming about how other companiesuse service providers at local logistics councilmeetings. Visits from sales representativeswere mentioned as another information source.A logistics manager (Mark) pointed to "salessolicitations" as a source of information re-garding the availability of specialized transpor-tation services he was previously unaware of.These examples show various ways in whichlogistics professionals actively or passively ac-quire information that makes them aware ofthe use of logistics providers as a businessstrategy.

Thus, through both personal and cognitiveinputs, awareness of the service offerings andcapabilities of logistics providers led partici-pants to recognize outsourcing as an altemativeto in-house performance of logistics functions.An important finding emerging from the recog-nition phase is that some firms begin the pro-cess of establishing a logistics outsourcingstrategy without an intentional effort to do so.Recognition appears to occur in some compa-nies prior to the company being motivated tooutsource, in contrast to other research thatdiscusses the recognition phase as being trig-gered by problems or change agents (de Boer,Gaytan, and Arroyo 2006; Marshall et al. 2004;Sink and Langley 1997). We found that somefirms become aware of logistics outsourcingas an altemative prior to events triggering amotivation to outsource. Ownership by anothercompany with a different outsourcing strategyalso emerged as impactful on the recognitionphase. Mere recognition, however, is unlikely


to trigger active outsourcing activities. Compa-nies need compelling reasons to move to theoutsourcing phase due to the impact such adecision has on operations and the potentialdisruptions of service to intemal and extemalcustomers.

MotivationMotivation is the catalyst that, combined

with recognition, appeared to lead participatingcompanies in the direction of outsourcing. Themajority of reasons for outsourcing cited byparticipants can be categorized as cognitive:Outsourcing is seen as a means through whicha business condition or problem can be allevi-ated in a manner that is more efficient or effec-tive than in-house performance of logisticsfunctions. Cognitive motivation involves care-ful analysis of altematives or a well-thought-out corporate policy indicating that outsourcingis the best path for the company (de Boer,Gaytan, and Arroyo 2006). Less frequentlytalked about, yet having some influence onmotivation, were inputs that can be categorizedas personal or cultural in nature. Personal moti-vation involves rationales for outsourcingbased on previous experiences with outsourc-ing that eased the burden of managing an activ-ity or problem. Cultural motivation stems fromthe norms of a company, and is based on fol-lowing established organizational behaviors.As described by participants, cognitive, per-sonal, and cultural motivations all can playa part in the decision to outsource logisticsactivities.

Among cognitive motivations, cost reduc-tion was the most frequently discussed reasonfor considering outsourcing, and often the de-termining factor in the decision. Pressure frommajor retailers to reduce costs emerged as acondition affecting many of the companies in-volved in the research. Poor financial perform-ance also was a contributing factor at severalcompanies, along with corporate pushes to re-duce headcount or operating expenses. Oneparticipant described her company as "downfor the dollars... if financially it makes senseto outsource it, that'll be the decision" (Abby).A second participant described the move to-ward outsourcing as " . . . [a] financial decision;we saved a lot of money" (Lem). Anothersummed up the influence of cost in this way:

"There were many factors, but it all boileddown to cost...." (Wilbur).

Service improvement was discussed as a mo-tivator as well. Interestingly, several partici-pants said that the issue was not that theircompany was poor at servicing customers, butrather that demand for product fluctuated andin-house capacity was inadequate to handlepeak periods. One transportation manager de-scribed the situation this way: "The outsourc-ing part of it is we only have so much fleet ...and the demand for our product is definitelymuch higher than we can handle... during thesummer season" (Arlene). In these situationsthe motivation was to use logistics service pro-viders temporarily to supplement rather thansupplant in-house logistics functions in orderto not "get cmnched all the time during thebusy season" (Chris). Nearly all of the compa-nies in the research talked about the effectsof seasonality and how they reached out totransportation or warehousing providers to add' 'flexing capability in times of high demand' '(Jerry).

Another common factor given as an impetusto outsourcing was careful consideration ofwhether logistics functions were a core compe-tency of the firm, or if expertise existed in thecompany to perform particular logistics activi-ties at a high level. One participant explainedthe thought process her company was em-ploying:

[I]t's really around finding ... an area thatyou don't wanna be the... best practice com-pany. For example, running a warehouse.You know, it's not our core competency asa business. Our core competency is we makereally good soap, so you know, we shouldn'tbe investing our time, resources and tech-nology in an area that we can buy that exper-tise from a company that has dedicated theirresources completely to. (Mary)

Other participants talked about how their com-pany was looking at outsourcing in order to"focus on our core business" (Sandy) or fol-lowing a policy that says ' 'if distribution is notyour core competency, get out of it" (Lem).Other companies were motivated not by a cor-porate policy or philosophy, but simply an un-derstanding that they did not have the requisiteexpertise in a particular area of logistics. Oneparticipant talked about needing to use a freight


broker to arrange backhauls for his company'struck because "we did not have that expertisehere" (Pete). Another participant (Chris) citedlack of knowledge conceming conducting busi-ness in Canada as influencing their decision toseek a logistics provider familiar with doingbusiness in that country.

Analysis of cost, service, core competencies,and lack of expertise are examples of motiva-tion to outsource based on cognitive inputs.Other, more personal motivations emergedfrom the research as well. These motivationsare more qualitative in nature and revolvearound "ease of doing business" issues and"headaches going away." For example, whenasked why his company decided to use a logis-tics service provider, one participant explained:"We ...don't want to own a building, we don'twant to hire the people, and we don't haveas much of a headache' ' (Chris) (emphasisadded). Another participant said the reason forinterest in 3PLs at one location was: " . . . simplybecause we just did not want employees downthere. It's just easier to handle" (Adam) (em-phasis added). Another reason given for usinga logistics provider was to be able to "tumproduct over to a freight forwarder and fromthere we wash our hands of it" (Chris) (empha-sis added). The motivation to hand off prob-lems to a third party based on past bad experi-ences came up often during the research. Whilethis type of motivation is difficult to quantify,it appears to exert an influence in many caseson logistics managers as they consider out-sourcing.

Most sources of motivation discussed byparticipants are not surprising based on thefindings of previous research. What were unex-pected findings, however, were situations inwhich more than straightforward comparisonsof cost or service numbers were used to drivedecision making. While the use of what oneparticipant described as a "stmctured ap-proach" (Abby) based on quantitative analysisor a well-thought-out corporate policy was ex-hibited by many participants, the research alsorevealed motivations of a more personal ornormative nature. Motivation centered on easeof doing business or tuming problems over toother firms proved decisive to certain partici-pating firms. Such findings mn counter to ex-pectations established by previous research that

motivations to outsource revolve around logis-tics-related performance problems, costs, cus-tomer service, or core competency considera-tions (de Boer, Gaytan, and Arroyo 2006;Marshall et al. 2004; Sink and Langley 1997;Rao and Young 1994). It thus appears thatwhile prescriptive models may provide guide-hnes for behavior in determining justificationfor outsourcing, in practice other factors notfitting inside such logical frameworks can alsocome into play in infiuencing companies tooutsource logistics operations.

OutsourcingSeveral firms participating in this research

described what appears to be a cognitive ap-proach: establishing a corporate outsourcingpolicy, then following a well defined set ofsteps involving identification of activities to beoutsourced and selection of providers based oncarefully thought-out selection criteria. Thisapproach appeared to be taken by the larger,publicly owned firms in the research. Othercompanies seemed to take a more experientialapproach of "trying out" the concept of out-sourcing to see how well it worked before com-mitting to the strategy. This approach appearedto be taken more by the smaller, privatelyowned companies in the research.

Participants in companies that had an estab-lished outsourcing policy described their out-sourcing experience as directed by a parentcompany or "from corporate." One set of par-ticipants talked about how after their companywas purchased by a much larger firm therewas an analysis to determine core competencyfunctions, and how over the years in-housemanufacturing, transportation, and distributionwere gradually being displaced by third-partyproviders. The process for distribution centers(DCs), for example, involved the selection oftwo primary providers and a systematic region-by-region transition to the providers. The pro-viders were chosen based on selection criteriaprimarily focusing on cost and service compo-nents. As soon as one regional DC was transiti-oned, another was begun, until all seven DCswere completed. A participant from anothercompany talked about how the outsourcing ap-proach came out of their "corporate of-fice...and basically they informed us that theywould be outsourcing certain transportation op-erations to take cost out of the system .. . ."


(Wilbur). The approach was to compare costsat the forty locations against third-party costsand replace in-house operations that were moreexpensive to mn than to outsource. During thisprocess the company transitioned thirty-sevenlocations to a third-party provider.

In a third, privately held company the pro-cess was initiated at the CEO, CFO, and vicepresident of logistics levels, where it was de-cided that the company could not adequatelyservice its customers with its current opera-tions, and due to time constraints outsourcingwas the only altemative. A weighted "matrixof what we were looking for from 3PL provid-ers" (William) was constructed, includingcost, service, and capability components, andrequests for price were sent to prospective pro-viders. A transportation-based provider was se-lected and the company's logistics operationswere quickly transferred to the third-party inwhat was described as a "changing of theshirts" (William) during which employeeswere transferred from one company to another.In all three of these companies, policies regard-ing outsourcing initiated and drove the process,and quantitative analysis was used to selectproviders.

In contrast, other participating companiesentered into outsourcing without a specific out-sourcing policy in place. The behavior of thesefirms appears to involve opportunities to testthe concept of outsourcing rather than imple-menting a policy or program. One logisticsmanager described his company's approach asstrictly based on cost— if the company couldoperate a distribution center less expensivelythan 3PLs it would maintain the status quo;otherwise, the firm would outsource the func-tion to a third party. This method led to amixture of both in-house managed and out-sourced DCs throughout North America. An-other logistics manager talked about hiring afreight broker to locate backhauls for his tmcksas his company's first use of a third-party pro-vider. Their approach was to "use our ownintemal person to handle the [local] side... andthen have the outsourcing company doing the[other two] locations' ' (Manny). In this mannerthe company was able to implement a logisticsoutsourcing trial without making a full commit-ment to the strategy.

As a vice president of distribution at onecompany explained his company's approach,he underscored the importance some compa-nies attribute to proceeding cautiously withoutsourcing:

[W]e signed a three month bridgingagreement with [a 3PL] to see how they didwith the carrier management side of it...our fear was that the marriage of the twocompanies is very easy, everybody likesthat, but divorce of those companies is avery costly and difficult process because itabout brings your distribution operations toits knees, because you have severed ties witha lot of your carriers and a lot of people thatyou were doing business with and if youdecide that divorce is eminent it leaves youin a very serious situation to get product toyour customers. (William) (emphasisadded)

Lack of a definitive outsourcing policy, andconcems with the long-term effects of perform-ance failures by third parties, thus appear toinfluence some firms into taking an experien-tial approach to logistics outsourcing.

Our findings describe various ways in whichour participating companies approached logis-tics outsourcing. These findings point towarddifferences in outsourcing behavior appearingto follow two distinct paths. While some com-panies follow a cognitive approach by estab-lishing an outsourcing policy and proceed toimplement it throughout its logistics opera-tions, others take an experiential or "wait-and-see" approach by initiating a trial outsourcingprogram without committing to additionalones. Cognitive approaches appeared in firmsthat had an established policy toward outsourc-ing, while those firms without a clear-cut policy(which were primarily small, private firms)took an experiential approach. T"hese findingsindicate that while existing prescriptive modelsoutlining a series of steps toward transitioninglogistics functions to service providers mayoffer useful frameworks for understanding thebehavior of larger companies with establishedoutsourcing policies, small companies, thatseemingly lean toward taking an experientialapproach, may not set about the process in sucha linear fashion, preferring instead to "wait-and-see" for results before committing to afull outsourcing program.

20 TRANSPORTATION Fall

Confidence-BuildingOnce one or more logistics activities or func-

tions are outsourced, participating companiesappeared to move into a phase we term conft-dence-building. This phase centers not onlyon evaluations of how well logistics serviceproviders execute activities, but also on per-sonal feelings toward providers. During thisphase the firm can either confirm its strategyof outsourcing through building confidence inthe performance of 3PLs, or disconfinn its out-sourcing strategy by building confidence thatit can perform logistics functions better in-house.

Participants discussed both experiential andpersonal factors influencing how they viewedtheir logistics outsourcing experience. Regard-ing experientially-based confidence-building,performance was the main factor brought upby participants. The logistics supplier relation-ships manager of one company stated thatwhile he initially resisted outsourcing, he be-came confident that it is the right strategy basedon the performance of his supplier: "I didn'twanna lose my job, but you know [the logisticsprovider] understands distribution, that's whatthey do for a living" (Lem). The vice presidentof distribution for another company talkedabout needing to get to a "comfort level" withoutsourcing based on an outsourcing trial:

[The logistics provider] was chosen as apartner and our arrangement with them wasthey would first do a carrier managementarrangement and when we felt comfortablewith that one, then they would start lookingat mnning the warehouse for us (William)(emphasis added).

The director of logistics for a third companyrecalled quickly gaining confidence in out-sourcing as the provider "immediately startedhitting our required dates with [the main cus-tomer]...and other issues started to go away"(Chris). Performance thus emerged as a mainfactor in confidence-building.

Other, more personally-based factors alsocontributed to positive feelings toward out-sourcing. The customer service manager of onecompany described the process of convertingfrom in-house mn DCs to outsourcing that tookhis company several years to complete. He sawconfidence-building as stemming in part from

interpersonal relationships between his com-pany and the provider, which resulted in a"closeness that's been developed over theyears between people" (Kerry). The supplierrelationship manager of the same firm de-scribed his feelings toward the relationship as". . .a partnership where you can solve prob-lems" (Lem). The logistics manager of anotherfirm described his positive experience in termsof ease of doing business: "It's great... I'd cutthem a check every month for their services,and they run everything for me" (emphasisadded) (Chris). These examples illustrate howconfidence in outsourcing can develop fromother factors beside those based on cost orservice criteria.

This phase can also involve loss of confi-dence in outsourcing. The main issue to partici-pants who lost faith in outsourcing was service,although price was brought up as an issue aswell. The supplier relationship manager of onecompany pointed to service issues sometimesbeing rooted in the desire for logistics providersto get a company's business without com-pletely understanding what would be requiredto satisfy the client:

I think the expectation is they know thatservice is number one...I think that there[are] a lot of assumptions going on, that ...they can make it happen. I think the gap isthe 3PL's not having all the information theyneed to really be able to do a good assess-ment on whether they can make it happenor not.... (Abby)

Logistics providers not being able to "make ithappen' ' was a theme that recurred throughoutour research. Issues such as "not getting thegoods here" (Chris), not being "focused in onservice" (Shanna), and the "fuss and night-mare' ' (Pete) of missed deliveries led to severalparticipating firms losing faith in outsourcing.

An interesting outcome is that some firmsgained confidence that their own performancecould surpass that of their logistics supplier. Alogistics manager talked about how his firm' 'figured out how [backhaul arrangement] wasdone" (Mark) and planned on doing their ownbrokerage in the future. A traffic manager re-called how he could see that his company was"better off sticking with the private fleet"because of the ' 'dependability element and re-lationships" (Wilbur) with customers. These


examples suggest that as firms lose confidencein their logistics suppliers, disconfirmation oflogistics outsourcing as a strategy occurs. Poorperformance by a logistics provider can makeit difficult for others "to overcome the oldstigma of the last third party" (Wilbur), poten-tially leading to a reassessment of outsourcing.

Our findings thus suggest that during theconfidence-building phase the performance oflogistics service providers can both instill con-fidence that an outsourcing strategy makessense or convince the company that its out-sourcing activities are no longer appropriateby outsourcing. This phase differs from theservice assessment phase outlined by Sink andLangley (1997), the performance measurementstep of Bagchi and Virum (1998), and the eval-uation stage established by Marshall et al.(2004), because they focus on assessments ofindividual suppliers rather than assessment ofoutsourcing as a strategy. This phase thus dif-ferentiates the findings of this research fromprevious research on the subject and points tothe potential importance of confidence-build-ing in establishing outsourcing as an ongoingstrategy in certain companies.

Disposition toward OutsourcingThe next stage of logistics outsourcing in-

volves the expansion, maintenance of statusquo, or contraction of third-party use. Partici-pants discussed factors that in their view influ-enced firms in making decisions regarding thefuture use of outsourcing as a strategy. Cogni-tive, experiential, personal, and cultural inputsall appeared to play some part in influencingthe outcome of these decisions.

Participants in companies favoring expan-sion of logistics outsourcing discussed the useof three types of inputs in deciding to go for-ward with increased use of logistics providers:cognitive, experiential, and personal. Cognitiveinputs typically were based on corporate poli-cies based on previous performance in the areasof cost and service. For example, a transporta-tion manager discussed the expansion of logis-tics outsourcing from transportation to ware-housing functions in his company as a ' 'logicalnext step" of policy coming from corporateheadquarters: "If you look at it strategically itwas probably the right thing to do...they

weren't running a very good operation any-way" (Wilbur). Another firm appeared to fol-low a more experiential path in this phase, withdecisions based on previous outsourcing trialsand ad hoc opportunities rather than a specificpolicy. When asked about future directions ofoutsourcing, one director of logistics statedthere was no specific corporate policy but thathe was pleased with previous experiences withoutsourcing and that as opportunities arise ' 'I'llpush for 3PLs if I can get the right costs... [and]as long as the service is right" (Chris). A per-sonal component of his decision process alsoemerged as a factor. He stated that because3PLs "run everything for me" he was in favorof outsourcing whenever possible.

At this stage of the outsourcing process afirm may choose to maintain status quo, reduce,or even eliminate the use of 3PLs. The plannedcontraction of 3PL use was discussed in oneof the firms participating in the study, whiletwo other firms planned to maintain status quowith primarily in-house logistics operations.Participants from these firms noted cultural,experiential, and personal factors that influ-enced their outsourcing direction. Cultural in-put stemmed from company values such astaking "pride in the way we deliver to ourcustomers" (Mark), considering "our work-force as an asset' ' (Zack), an historical commit-ment to personal service since the days whenproduct was delivered to customers with "abuggy and horse" (Zack), a feeling that thereis "more to running a business than just hiringan outside company to dehver your product foryou" (Manny), and a company philosophy of"keep it all in-house" (Manny). Experientialinput was based primarily on service issuessuch as "not getting the goods here on time"(Mark), not being treated as the ' 'focal point' '(Beth) of the supplier's efforts, and the ' 'stigmaof the last third party' ' (Pete) failing to live upto service expectations. One participant alsodiscussed cost as a driver, stating that "wheneverything is said and done it's always lower,almost every time" (Zack) to perform deliver-ies with company drivers and tmcks.

Unsurprisingly, personal factors revolvedaround saving one's own job and the jobs ofemployees. One participant was very forthcom-ing about his personal interest in maintainingthe status quo: "I'll be honest with you, I was


transportation manager and I was very inter-ested in keeping my private fleet intact" (Wil-bur). In this case the transportation managerand his team compiled cost and service dataso that "when they came to talk to us, wefought back." Another example involved atransportation department fighting to keeptheir jobs:

[The VP of Supply Chain] made a hintabout outsourcing transportation, so we'relike yeah, okay. He actually went to a thirdparty that's a buyer transportation com-pany... we took it upon ourselves as ateam... to say alright, we'll prove youwrong, and we did. (Shanna)

Personal security of one's own job and the jobsof one's employees can thus provide a strongincentive for managers to want to maintain thestatus quo.

These findings suggest that the dispositionphase of logistics outsourcing can follow oneof three strategic paths: expansion, contraction,or maintenance of the status quo of logisticsoutsourcing. This stage differs from previousoutsourcing models that focus the final stagesin outsourcing processes on actions with spe-cific suppliers regarding tendering offers (e.g.,de Boer, Gaytan, and Arroyo 2006) or enhanc-ing relationships with suppliers or replacingcurrent suppliers with new ones (e.g., Bagchiand Vimm 1998; Marshall et al. 2004; Sink andLangley 1997) because it goes beyond specificbuying situations to address overall companystrategies toward outsourcing. All four typesof inputs were identified in this phase duringthe research, indicating that the dispositionphase involves a complex set of factors thatcan infiuence a firm's decision-making pro-cess. The findings suggest that while somecompanies may develop an outsourcing strat-egy based on calculated gains in such areas ascost and service, other companies proceed withoutsourcing without a defined process and withan approach that may be infiuenced by non-cognitive factors.

DISCUSSION

The model developed in this research repre-sents a general process of logistics outsourcingstrategy that the data indicated many of thefirms participating in the research followed.This process involves companies moving

through various stages: awareness of and moti-vation to use logistics outsourcing as a strategy,initial implementations of the strategy, confir-mation or disconfirmation of the strategy, anddisposition towards its future use. We identifyvarious factors that can come into play that mayinfluence the direction of the process, includingcognitive, experiential, cultural, and personalinputs. Our findings thus add to the currentliterature on logistics outsourcing by providingboth a descriptive model of how some compa-nies evaluate and apply logistics outsourcingas a company strategy and a typology of inputfactors influencing the process that extendsprevious research beyond cognitive and experi-ential factors. This model differs from previousmodels in its focus on logistics outsourcingstrategy as opposed to buying or relationshipbuilding processes with specific suppliers.

An additional research implication from ourfindings is that while prescriptive models mayoffer valuable insight into how firms shouldproceed with logistics outsourcing initiatives,they often fail to predict the actual outsourcingbehaviors of companies. As identified in ourresearch, the logistics outsourcing process insome companies follows a less structured for-mat than presented in prescriptive models. Ourresearch demonstrates that in practice the tran-sition from in-house performance to outsourc-ing of logistics functions can be incremental,unsystematic, and influenced by inputs such ascultural and personal factors that go beyondstraightforward calculations of costs and bene-fits. The application of grounded theory meth-ods, which allow the researcher to obtain datain a field setting without a priori assumptions,was critical to obtaining an understanding ofthese behaviors. This research demonstrates thepotential value of grounded theory methodol-ogy to logistics research.

The research has managerial implications aswell. One finding of interest to service provid-ers is that while recognition sometimes camefrom cognitive sources such as an intentionalsearch for information, more often participantstalked about their awareness of 3PLs arisingfrom personal sources, such as previous deal-ings with various other types of outsourcing.This suggests that logistics providers shouldstrive to maintain contact with managers when


they leave the employment of current custom-ers since these managers tend to draw on previ-ous experience and contacts in the awarenessphase of outsourcing. Additionally, not all lo-gistics managers appear to be aware of theoption to outsource, or if they are aware of theoption they may not be cognizant of potentialimprovements in cost and service that mayresult from outsourcing. It should not be as-sumed that all logistics managers are wellversed in the application of outsourcing as astrategy. Identification of such managers forthe purpose of directing marketing efforts to-ward helping them recognize third-party logis-tics providers as viable altematives to in-houseperformance of logistics activities may proveto be worthwhile. Thus, opportunities to seekout logistics managers of firms performingtheir own logistics functions at venues such asconferences and trade shows may be rewardedby new business.

Another finding having potential managerialimplications centers on the incremental ap-proach some companies appear to take in tran-sitioning from in-house performance to out-sourcing of logistics functions. This approachappeared to occur with smaller, privatelyowned firms and may provide a clue for suppli-ers on how to approach such firms when sellingtheir services. Also, confirmation or disconfir-mation of an outsourcing strategy often hingedon the performance of a single provider. Itcould therefore be advantageous for sellingfirms to understand this dynamic and be willingto put extra effort in instilling confidence intheir current and future performance. Indeed,current providers may be able to take advantageof their position to influence the buying firminto expanding its outsourcing strategy, anddirectly benefit from such expansion.

Selling firms should also be aware of thecultural and personal inputs into logistics out-sourcing decisions. It behooves suppliers to tryto understand the culture of potential buyingcompanies in order to determine the source andlevel of motivation to outsource, the importantvalues and goals of the buying company, andthe company's philosophy toward outsourcingas a competitive strategy. Such understandingis likely to help the service provider tailor itsmarketing efforts to the specific needs and de-sires of potential customers.

Personal factors should also be recognizedas a key to establishing new or maintainingexisting business with buying companies. Forexample, the concept of "ease of doing busi-ness" was important to some participants inthis research. Identifying such personal factorsas a desire to let a service provider handle mostof the headaches could be a potentially strongselling point. Likewise, personal factors suchas fear of losing power, prestige, or employ-ment can influence managers to attempt toblock outsourcing as a strategy. Marketing ef-forts aimed at senior level management of suchfirms could help circumvent those managerswho consider third-party providers a threat totheir livelihood. Buying company senior man-agers should also look for signs of "turf protec-tion" or bias against outsourcing on the partof logistics managers potentially affected byoutsourcing. Such attitudes on the part of em-ployees can derail the application of an out-sourcing strategy along any of the stages in theprocess.

CONCLUSIONS

Logistics outsourcing is a complex process.Companies vary in how they approach the pro-cess, and in what factors influence their actions.We have attempted to model one aspect oflogistics outsourcing: the process throughwhich some companies appear to evaluate andimplement logistics outsourcing as a companystrategy. Additionally, we have identified a ty-pology of the primary inputs used for decisionmaking by companies participating in the re-search that extends previous research. Ourmodel contributes to the literature by providinga framework for investigating the processthrough which organizations initiate and evalu-ate logistics outsourcing as a business strategy.

Future research should be conducted in orderto shed light on such questions as what condi-tions exist in a company or its environment thatmay infiuence its approach toward logisticsoutsourcing, the efficacy of a "wait-and-see"approach versus one that is driven by a corpo-rate outsourcing policy, the advantages and dis-advantages of each approach, and whether con-ditions exist that influence the relativeimportance of cognitive, experiential, cultural,or personal factors in logistics outsourcingstrategy formation and implementation. Such


research would provide insight into the factorsthat shape these decisions, which may be usefulto researchers and practitioners alike.

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A Model of Logistics Outsourcing Strategy - Universidad …€¦ · presenting a data-driven descriptive model of logistics outsourcing strategy, based on grounded theory research