2.an exploratory
- 1. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-5771.htm BIJ 18,3 An exploratory study of outsourcing 3PL services: an Australian perspective 342 Shams Rahman School of Business IT and Logistics, RMIT University, Melbourne, Australia Abstract Purpose – Over the last two decades, a large number of studies have been conducted in the field of outsourcing third-party logistics (3PL) services and the field is growing. The purpose of this paper is to examine the extent to which 3PL services are outsourced by Australian firms. Specifically, it investigates the motivation for outsourcing, the average length of 3PL contracts, types of logistics services used and the impact of the use of outsourcing logistics services on customer satisfaction, logistics costs and employee morale of the user companies. Design/methodology/approach – This study is based on a questionnaire survey conducted in Australia. The sample was drawn from companies listed in Dun & Bradstreet’s 500 largest Australian firms. Banks and other financial firms, insurance companies and real estate companies were excluded from the list of firms and a total of 210 firms were identified for this study. Data were collected against a number of items pertaining to the extent of 3PL use and its impact on performance. Findings – The results revealed that the most frequently used logistics functions are warehouse management, order fulfillment and fleet management. The top three factors that motivated the firms to outsource are cost reduction, reduction in capital investment, and enhanced operational flexibility. The level of satisfaction with 3PL service providers is high at 86 percent and is reflected in the indication to continue their use in the future. However, employee morale has been adversely affected in 50 percent of 3PL users. Originality/value – The paper contributes to the current 3PL practices and the trends in 3PL services for achieving improved business results. Keywords Australia, Outsourcing, Warehousing, Fleet management, Order systems, Operations management Paper type Research paper Introduction The logistics sector in Australia is worth approximately A$60 billion (Frost and Sullivan, 2005) or approximately 9 percent of Australia’s GDP. This figure is similar to other developed countries. For example, logistics costs in Japan and the USA account for around 11 and 9 percent of GDP, respectively (Jones Lang LaSalle, 2007). The significance of logistics in Australia as an economic activity is obvious when compared to the economic contributions of other sectors such as construction (5.9 percent), retail (5.2 percent), tourism (4.5 percent) and education (4.4 percent). Presently, 55.0 percent of logistics activities are handled in house, while transport logistics companies comprise of 40.0 percent of the industry and the remaining 5.0 percent is performed by non-transport Benchmarking: An International companies. However, the percentage of outsourcing is likely to increase with logistics Journal service providers improving their efficiency and productivity through service Vol. 18 No. 3, 2011 pp. 342-358 integration and incorporation of information technology (IT). Technological q Emerald Group Publishing Limited enhancements in particular have led to superior information management systems 1463-5771 DOI 10.1108/14635771111153527 which ultimately enable third-party logistics (3PL) enterprises to develop customized
- 2. solutions for end-users (Frost and Sullivan, 2005). Table I shows the top 20 3PL service Outsourcing providers in Australia. These firms belong to different industries which include air, 3PL services road, rail and water transport, postal service, storage and services to road and water transport. Based on annual revenue and employment numbers, Qantas is the largest logistics company in Australia followed by Toll Holdings and the Australian Postal Corporation. Over the last two decades, a large number of studies have been conducted in the field 343 of outsourcing 3PL services and the field is still growing (Richardson, 1990a, b; Sheffi, 1990; Bardi and Tracey, 1991; Lieb and Randall, 1996; Dapiran et al., 1996; Boyson et al., 1999; Bhatnagar et al., 1999; Larson and Gammelgaard, 2001; Arroyo et al., 2006). Recent studies have identified over 100 refereed papers published between 1990 and 2005 (Jiang and Qureshi, 2006; Selviaridis and Spring, 2007). More recently, Marasco provided a comprehensive review of 152 3PL articles published between 1989 and 2006 in 33 international journals. In addition to this, several journals have published special issues on 3PL management (International Journal of Physical Distribution & Logistics Management, Vol. 36, Nos 7-9, 2006; Human Systems Management, Vol. 24, No. 1, 2006; International Journal of Production Economics, Vol. 113, No. 1, 2008) which further indicates the importance of research in outsourcing 3PL services. The motivation for outsourcing logistics services arises from number of factors. Studying US companies, Sheffi (1990) suggests that cost savings, the need to concentrate on core business and improved services are the main reasons for outsourcing. Similar suggestions were reported by Richardson (1990a, b), Bardi and Tracey (1991), Sink et al. (1996) and Robinovich et al. (1999). Richardson (1992) and Fantasia (1993) found that reduction in capital investment in equipment, facilities and human resources, Revenue Company name (m AUS$) Employee number Industry type Qantas 13,646.70 34,832 Air transport Toll Holdings 4,901.00 28,000 Road transport Australian Postal Corporation 4,498.60 34,842 Postal and courier services Queensland Rail 2,478.83 12,961 Rail transport Patrick Corporation 2,395.00 8,706 Services to transport Linfox 1,700.00 NA Road transport Pacific National 1,475.76 3,966 Rail transport Virgin Blue 1,416.06 3,851 Air transport DP World Holdings (Australia) Ltd 1,205.64 NA Services to water transport TNT Australia 724.86 4,826 Road transport Scott Group of Companies 689.56 983 Road transport ANL Container 606.18 271 Water transport Co-op Bulk Handling 549.79 1,490 Storage John Swire & Sons 508.53 2,400 Road transport Star Track Express 504.64 3,064 Road transport DHL Global Forwarding (Australia) 378.10 656 Services to transport K & S Corporation 367.50 1,150 Road transport Adstream Marine 339.20 NA Services to transport Pure Logistics 257.39 1,103 Road freight transport 1st Fleet 249.00 1,700 Road transport Table I. Top 20 logistics Source: Adapted from Game-Lopata (2007) providers in Australia
- 3. BIJ and on-time delivery improvement are some of the main reasons for outsourcing. Factors 18,3 such as gaining access to sophisticated technology, flexibility of operations and risk reduction have been suggested in more recent studies. For instance, Gooley (1997), van Laarhoven et al. (2000) and Larson and Gammelgaard (2001a, b) found that one of the main reasons for outsourcing the logistics functions in Europe is to retain flexibility in logistics operations. Similarly, Bhatnagar et al. (1999) found that along with cost savings 344 and customer satisfaction, flexibility of operations is the main reason for outsourcing in the context of Singaporean manufacturing firms. Arroyo et al. (2006) reported similar findings in the context of outsourcing in Mexico. Lynch (2004) and Arroyo et al. (2006) suggest that along with flexibility of operations, opportunity to reduce risk of uncertainty is also a major factor for outsourcing logistics services. The main motivational factors for firms to outsource logistics functions are summarized in Table II. Table II reveals that in the early and middle 1990s the primary reason for organizations to turn to outsourcing was to gain competitive advantage through cost savings, whereas evidence from more recent studies indicate that organizations are focusing more and more on developing capabilities through outsourcing as a potential source of value creation and to gain competitive advantage. Hence, the earlier studies suggest that outsourcing decisions tended to rely more on economic factors and therefore the transaction cost view (TCV) became the dominant theory used to explain outsourcing decisions (Williamson, 1979), whereas more recent studies suggest that an organization’s motivation for outsourcing can be more appropriately explained using a resource-based view (RBV) rather than TCV. According to Walker and Poppo (1991), however, a more appropriate approach would be a hybrid relationship which combines economic aspects of TCV and a relational view of RBV. This view has been supported by studies suggesting that TCV and RBV are complementary (Hoetker, 2005; Jacobides and Winter, 2005). Therefore, it is becoming more apparent that an effective understanding of what motivates outsourcing decisions needs to be investigated from both transaction cost- and resource-based perspectives. This study examines the extent to which 3PL services are outsourced by Australian firms. Specifically, it investigates the motivation for outsourcing, the average length of 3PL contracts, types of logistics services used and the impact of the use of outsourcing logistics services on customer satisfaction, logistics costs and employee morale of the user companies. Motivational factor Author Economic Cost savings/reduction/capital Richardson (1990), Sheffi (1990), Bardi and Tracey (1991), Lieb investment reduction and Randall (1996), Dapiran et al. (1996), Gooley (1997), Boyson et al. (1999), Bhatnagar et al. (1999), Larson and Gammelgaard (2001a, b) and Sahay and Mohan (2006) Capability building/enhancement Concentrate on core business Sheffi (1990), Boyson et al. (1999), Bhatnagar et al. (1999), Larson and Gammelgaard (2001a, b), Sahay and Mohan (2006) and Arroyo et al. (2006) Flexibility of operations Gooley (1997), Bhatnagar et al. (1999), van Laarhoven (2000), Table II. Larson and Gammelgaard (2001a, b) and Arroyo et al. (2006) Motivation for Access to sophisticated technology Bhatnagar et al. (1999) and Arroyo et al. (2006) outsourcing 3PL services Reduce risk Lynch (2004) and Arroyo et al. (2006)
- 4. Literature review Outsourcing Published research in outsourcing 3PL functions has focused on a range of issues. 3PL services This body of literature can be broadly analyzed from three perspectives: a logistics service user perspective, a logistics service provider perspective and a user-provider perspective. 345 Users’ perspective The vast majority of the 3PL studies have been conducted from the users’ perspective. The first comprehensive survey of the extent of use of 3PL services was conducted by Lieb (1992). This study surveyed large American manufacturers to identify the extent to which companies outsource their logistics services, the specific 3PL services used, the benefits experienced from outsourcing logistics services, the impact of 3PL services on logistics costs, customer satisfaction and the trends of use of 3PL services over time and across nations. Sohal et al. (2002) and Bhatnagar et al. (1999) also conducted similar studies in the Australian and Singaporean contexts, respectively. They found that most users of 3PL services are satisfied with their providers and are likely to increase their usage of contact logistics in the future. Arroyo et al. (2006) investigated the status of logistics practices in Mexican firms as compared with logistics activities in Europe and the USA. The results indicate that generally Mexican firms aim for customer service and concentration on core functions while firms in Europe and the USA focus more on tactical and integrated functions when using 3PL. Some studies in this category compared the usage of logistics services amongst two or more geographical regions/countries (Lieb et al., 1993). Lieb and Miller (2002) surveyed the chief logistics executives of Fortune 500 manufacturers concerning their use of 3PL. They concluded that users are generally satisfied with the impact of 3PL services on their companies, and are most satisfied with the impact on logistics costs, logistics service levels and customer service. There have been a few studies in developing economies which investigate the extent and usage of logistics services from a users’ perspective. For instance, Sohail et al. (2004) and Cilliers and Nagel (1994) studied logistics services in Ghana and South Africa, respectively, and found that such services are more or less operational in nature rather than tactical or integrated systems. Sohail and Sohal (2003) studied 124 firms in Malaysia and conclude that most of the users are satisfied with their logistics service providers and that the industry is growing. In an analysis of outsourcing logistics services in India, Sahay and Mohan (2006) noted that the most important factors that motivate Indian firms to outsource are cost reduction, focus on core competencies and improved customer services. Hong and Chin (2004) suggested that compared to the developed nations, China’s logistics market is still in its infancy and may have to adopt different strategies for its development. Recently, Wang et al. investigated the impact of IT on the financial performance of 3PL in China and found that greater IT uptake can offer 3PL companies better financial performance. Zhou et al. (2008) identified factors that significantly affect the operational efficiency of Chinese 3PLs and proposed ways to improve the competitiveness of 3PLs. Recently, Hsiao et al. (2010) investigated the impact of outsourced logistics functions on service performance within the food processing industry in The Netherlands and Taiwan, and concluded that outsourcing has no direct impact on service performance.
- 5. BIJ Providers’ perspective 18,3 Relatively, little attention has been paid to the service providers’ perspective. Leahy et al. (1995) surveyed 37 US 3PL firms and found that they provided both asset-based dedicated services and non-asset-based management services. While surveying 16 CEOs of large 3PL providers operating in Europe, Peters et al. (1998) concluded that the most frequently provided services are logistics information system, order processing, product 346 returns, warehousing and consolidation, and repacking and relabelling. Larson and Gammelgaard (2001a) studied Danish logistics firms including air, rail and truck transportation providers, warehousing companies, freight forwarders and 3PL providers and concluded that the Danish logistics providers tend to be niche firms, focusing on the internal market and providing services mainly to the food and beverage industry. Sum and Teo (1999) investigated the different strategic postures of 3PL providers in Singapore. By analysing technological issues and operations objectives of providers, Sum and Teo (1999) proposed plans for different strategic types. Lai and Cheng (2003) assessed the supply chain performance by service providers in transport logistics in Hong Kong. The results provided insights on how managers might better understand their supply chain performance in transport logistics and how to benchmark areas for performance improvement. Yeung et al. (2006) and Wang et al. (2006) studied logistics providers in Hong Kong and China, respectively. Surveying a total of 105 3PL providers in China, Wang et al. (2006) reported on current and future business objectives, operations priorities, business performance and concerns of the 3PL providers. The findings of this study provide valuable insights for 3PL providers, educators and government policy makers. Recently, using a CEOs’ perspectives of ten logistics companies, Lieb provided an insight into the dynamics of 3PL in the Asia-Pacific region. Users’-providers’ perspective Only a limited number of studies have examined outsourcing logistics services from both users’ and providers’ perspectives simultaneously. One of those rare studies is by Daugherty et al. (1996). They investigated US manufacturers’ perceptions regarding their international logistics service providers’ capabilities and found that the suppliers had performed well in the areas of responsiveness and flexibility. However, Daugherty et al. (1996) recommended that their service needs to improve in areas such as: . ability to adjust operations to meet unforeseen needs; . calling in advance to advise of shipment or delivery problems; and . recommending alternative actions when difficulties arise. These issues point to the fact that users and providers are required to work closely together and tailor services whenever possible. Further, differences between high-performance logistics providers and those perceived as providing lower levels of performance are identified and discussed. While studying 3PL services, Murphy and Poist (2000) found a high degree of agreement between users and providers in terms of what they saw to be key factors in successful 3PL relationships and each party’s satisfaction with existing 3PL relationships. Knemeyer and Murphy (2005) investigated 388 users of outsourced logistics services and 31 providers of logistics services using relationship marketing elements and performance outcome constructs. Comparisons indicate that there are statistically
- 6. significant differences between the two parties across 12 of the 13 constructs which Outsourcing shows a marked contrast to Murphy and Poist (2000)’s findings. literature related to 3PL services different perspectives of 3PL is summarized in Table III. Our study investigates the outsourcing 3PL services from the users’ perspective. Using a sample drawn from Australia’s top 500 companies, our study investigates the extent to which outsourced logistics services are used, the motivations for outsourcing, the type of services used, the impact of the use of outsourcing services on customer 347 satisfaction, costs and the employee morale of user companies. Previously, two studies were conducted on 3PL practices in Australia (Dapiran et al., 1996; Sohal et al., 2002). Dapiran et al. (1996) presented the first survey results of 3PL services usage by Australian firms. Overall, the results suggested that Australian companies are comparable to US firms in terms of the usage of 3PL services. Fleet management, warehouse management and shipment consolidation were the most frequently outsourced logistics services. Sohal et al. (2002) replicated the study by Dapiran et al. (1996). The results indicated notable differences between the two surveys. A significantly higher number of firms were found to be using 3PL companies for international purposes and were signing longer contracts with their 3PL service providers. To assess the trend or changes in 3PL practices over time in Australia, the results of our study are compared with the results of two previous studies. The rest of the paper is organized as follows. The next section of the paper summarises the research methodology. The subsequent sections present the results of the study and provide a discussion of the findings of this study. The paper concludes with a discussion of the implications of the findings and limitations of this study. Research methodology In this study, the survey instrument developed by Lieb (1992) was used with minor modifications. Two earlier studies conducted in the context of Australia (Dapiran et al., 1996; Sohal et al., 2002) also used a similar instrument. The sample was drawn from companies listed in Dunn & Bradstreet’s 500 largest Australian firms. Banks and other financial firms, insurance companies and real estate companies were excluded from Orientation of the Perspective study Author User 3PL practices and Richardson (1990a, b), Sheffi (1990), Bardi and Tracey (1991), perspective trend Lieb (1992), Lieb et al. (1993), Dapiran et al. (1996), Gooley (1997), Boyson et al. (1999), Bhatnagar et al. (1999), Robinovich et al. (1999), Larson and Gammelgaard (2001a), Sohail and Sohal (2003), Wilding and Juriado (2004), Hong and Chin (2004), Lieb and Bentz (2005), Sahay and Mohan (2006), Wang et al. (2006), Zhou et al. (2008) and Hsiao et al. (2010) Comparison of 3PL Lieb et al. (1993), Lieb and Randall (1996), van Laarhoven practices and trend (2000), Sohal et al. (2002) and Arroyo et al. (2006) Provider Leahy et al. (1995), Peters et al. (1998), Lieb and Randall (1996), perspective Sum and Teo (1999), Larson and Gammelgaard (2001b), Lai Table III. and Cheng (2003), Yeung et al. (2006) and Wang et al. (2006) A summary of three User-provider Daugherty et al. (1996), Murphy and Poist (2000) and perspectives of 3PL perspective Knemeyer and Murphy (2005) literature
- 7. BIJ the list of firms and a total of 210 firms were identified for this study. This selection was 18,3 made in line with those of the previous two studies which allowed us to compare the findings of our study with the results of the previous studies. Logistics/operations managers from the selected companies were identified and sent copies of survey questionnaires, together with a cover letter and a pre-paid reply envelope. In order to maximize the response rate and to avoid non-response bias affecting the transferability 348 of the findings, the following procedure was used. First, companies listed in the database of participants were contacted by telephone. The names of the relevant managers and their current contact details were then obtained. Where possible, an attempt was made to speak to the relevant manager about the aim and the content of the survey. Approximately, two to three weeks after the mail out a reminder call was made to the relevant managers. Those who had not responded were encouraged to do so and those who had not received the package were sent a second copy. The survey resulted in 38 responses. Two responses were unusable because of missing data. The remaining 36 responses were considered usable resulting in a response rate of 18 percent. The response rates in similar studies ranged between 12 and 22 percent (Bhatnagar et al., 1999; Lieb and Bentz, 2005). This study follows the research framework shown in Figure 1. Presentation and discussion of results Demographic profile The participating firms were distributed over a large number of industries including automotive, computer, telecommunications, food and beverage, publishing and printing, pharmaceuticals and chemicals industries. About 22 percent of the organizations were automotive companies, followed by 15 percent pharmaceuticals and 13 percent chemicals companies (Figure 2). Figure 3 shows the distribution of employees in the surveyed firms. A large proportion of the companies (39 percent) had between 101 and 500 employees. About 30 percent of the companies had over 1,000 employees and about one-quarter of the companies had between 501 and 1,000 employees. This shows that a vast majority Characteristics of the responding firms Motivation for outsourcing 3PL • Industry type • Cost reduction • Employment characteristics • Reduction in capital investment • Service coverage • Enhance flexibility • Access to new technology Level at which decision for using 3PL • Access to techniques and expertise Future usage of 3PL providers providers is taken • Access to new market • Overall satisfaction with 3PL • Local level • Focus on core business • Level of commitment to use • Division level 3PL services • Corporate level • Increase usage of 3PL services Impact of usage of 3PL providers Extent of current usage of 3PL • Internal logistics system performance • Number of 3PL providers used • Employee morale • Logistics services outsourced • Employee retrenchment • Length of experience with 3PL • Logistics cost Figure 1. providers Schematic diagram of • Percentage allocation of logistics research framework budget to 3PL service providers
- 8. Others Outsourcing 9% 3PL services Publishing and printing 4% Automotive 22% Telecommunications 349 8% Computer Pharmaceutical 9% 15% Food and beverage 9% Figure 2. Chemicals Classification of 13% Medical equipment respondents by industry 11% 1-100 6% Over 1,000 30% 101-500 39% Figure 3. Employment characteristics of 501-1,000 responding firms 25% of the firms who participated in this study are large firms (over 100 employees). This is consistent with other published 3PL studies (Boyson et al., 1999; Lieb and Randall, 1996). About 55 percent of the firms who participated in this study operate globally and one-quarter of the firms operate in the Australasian region. The rest of the firms operate at national, state and intrastate level (Figure 4). Decisions for outsourcing 3PL services Motivating factors for outsourcing. Respondents were asked to rank the top three factors that had motivated them to outsource 3PL logistics services. Over three-quarter (78 percent) indicated that logistics cost reduction is an important factor in outsourcing. About 70 percent of the respondents want to use the 3PL providers so that they can reduce the capital investment. About 66 percent of the respondents are also seeking to enhance flexibility by using 3PL service providers. Other factors of importance in order
- 9. BIJ State Regional/intrastate 2% 18,3 4% National 14% 350 Global 55% Figure 4. Classification of Australasia responding firms based on 25% the geographic coverage of operation of importance included access to new markets (48 percent) and a need for managers to concentrate on core competencies of the company (46 percent) (Figure 5). Previous studies regarding outsourcing 3PL services in Australian did not investigate the factors that would impact on outsourcing decisions. Organizational level at which decisions regarding outsourcing 3PL services are made. The surveyed firms were asked to indicate the organizational level at which the strategic decision to use outsourced logistics services originated within their companies. In 65 percent of cases, this decision was undertaken at the corporate level (Table IV). This finding represents a sharp departure (significant at a 0.05 level based on a x 2 test) Cost reduction 78 Reduction in capital investment 70 Enhance operational flexibility 66 Access to new technology 54 Access to upto date techniques and expertise 52 Access to new market 48 Focus on core business 46 Figure 5. Motivation for 3PL 0 10 20 30 40 50 60 70 80 90 Percentage of respondents Organisational level Percentage of respondents Table IV. Organisational level at Local level 13 which the decisions for Divisional level 22 3PL services are made Corporate level 65
- 10. from previous Australian studies (Sohal et al., 2002), where the corresponding figures Outsourcing were 38 and 51 percent, respectively. These results indicate that decisions as to whether 3PL services to use outsourced logistics functions are becoming the realm of corporate decision making, rather than at the divisional or local level. Extent of usage of 3PL services Usage of 3PL providers. The survey revealed that 66 percent of the respondents use 351 outsourced logistics services from one or more 3PL providers. Of those companies currently outsourcing, about three quarters (74 percent) indicated that their companies use the services of more than one contract 3PL provider. Compared to an earlier study of 3PL practices in Australia (Dapiran et al., 1996), the present study showed a slight increase (from 61 to 66 percent) in the extent of the use of 3PL services. However, this increase is not as significant as in the case of the USA where the use of 3PL services increased from 65 to 83 percent between 1991 and 2003. This could reflect the expansion of service offerings by 3PL providers to users, an increase in specialised 3PL services or the competitive nature of Australian companies. This increase supports an earlier theoretical proposition by Fuller et al. (1993). They suggested that one important reason for the growth of 3PL services is that companies compete in a number of businesses and industries that are logistically distinct due to varied customer needs. The choice to retain more than one 3PL provider may reflect the caution of Australian businesses in retaining “fall back” 3PL in the event of uncertainties. The use of multiple contractors may also reflect the specialised nature of logistics providers in Australia. The providers may specialise in only one or two functions such as transport and warehousing and not in other functions that the user may require. This feature is quite understandable given the small industry syndrome in Australia compared with those of the USA and Europe. The respondents were asked to indicate if their current contracts were less than one year, between one to three years or over three years in duration. The results showed that of the respondents who used 3PL contracts, 61 percent had been using them for more than three years (Table V). This result is consistent with the findings of the Dapiran et al. (1996) and Sohal et al. (2002) studies. However, compared to the previous two studies, the present study reveals a significantly larger percentage (significant at 0.05 level based on a x 2 test) of respondents using 3PL contacts for less than one year (26 percent compared to only 0 percent). This observation was not reflected in previous Australian studies. The Range of outsourced logistics services used. The typical user of 3PL services employs an extensive range of services reflecting their engagement of several logistics services. The respondents indicated that the most frequently used logistic functions were: warehouse management (64 percent), order fulfillment (59 percent), fleet management (41 percent), product returns (27 percent), shipment consolidation (27 percent) and order processing (Figure 6). There appears to be a sharp increase in the use of warehouse management and order fulfillment compared with the previous Contract length (years) Percentage of respondents ,1 26 Table V. 1 to # 3 13 Average length of 3PL .3 to # 5 61 contracts
- 11. BIJ Warehouse management 64 18,3 Order fulfillment 59 Fleet management 41 Shipment consolidation 27 Order processing 27 352 Product returns 27 Carrier selection 23 Figure 6. Percentages of respondents Product assembly/installation 9 outsourcing the various logistics functions 0 10 20 30 40 50 60 70 Percentage of respondents Australian studies (Sohal et al., 2002; Dapiran et al., 1996). Fleet management has fallen but the relationship between fleet management and shipment consolidation has remained consistent. Interestingly, the recent US survey (Lieb and Bentz, 2005) shows respondents indicating that the most frequently used 3PL services were: freight payment services 72 percent, shipment consolidation 66 percent, direct transportation services 62 percent and warehouse management 60 percent. The US study by Lieb and Bentz (2005) show that of all 3PL services outsourced, warehouse management had yielded the greatest cost benefits, followed by rate negotiations, shipment consolidation, freight payment services and direct transportation services. A similar study of Singaporean companies has shown that there is a very high degree of commitment to the usage of 3PL services (76 percent) and the most frequently used contract logistics service was shipment consolidation (55 percent) (Bhatnagar et al., 1999). Impact of 3PL services Commitment for future use. Respondents were asked to indicate the level of commitment they have towards the usage of 3PL. About 87 percent of the respondents, currently using the services of 3PL providers, indicated that their commitment was “moderate” or “extensive” (Table VI). Such a high level of commitment is also reflected in the percentage of the total logistics budget allocated to the 3PL providers as a proportion of the total cost of logistics services. About 44 percent of respondents allocated between 41 and 100 percent of their total logistics budget to 3PL service providers. This figure indicates a rather high level of commitment towards the usage of 3PL (Table VII). Level of satisfaction with 3PL providers. About 86 percent of respondents claimed that they were satisfied or very satisfied with using 3PL providers (Table VIII). Compared to the finding of an earlier study (Dapiran et al., 1996), it appears levels of satisfaction have Extent of commitment % Very limited 4 Table VI. Limited 9 Extent of commitment to Moderate 39 use 3PL service providers Extensive 48
- 12. dropped (from 96 to 86 percent). The results also suggest that satisfaction at the “very Outsourcing satisfied” level has dropped and the overall level of dissatisfaction has increased. 3PL services However, Lieb and Kendrick (2003) have observed that an important indication of the satisfaction of a firm with 3PL services can be found in plans for future usage of such services. This information was captured by asking: “How would you modify your company’s use of contract logistics companies if given complete responsibility for the decision?” Of the companies that responded, 81 percent indicated they would moderately 353 or substantially increase their use of 3PL services (Table IX). This finding is comparable with the finding of the earlier study (84 percent) (Dapiran et al., 1996). The organizational impacts of using 3PL service providers. Historically, the negative impact that accompanies a decision to use a 3PL provider relates to the downsizing of the logistics workforce of the user. About 55 percent of participants in this study indicated that the use of 3PL service providers had allowed their organization to reduce the number of full-time logistics positions. It showed that 80 percent of the users reduced up to 20 percent of their full-time logistics staff at their firms (Table X). This figure is higher than the figure found in the Dapiran et al. (1996) study. However, a statistical test did not reveal significant difference between these results. In one-fifth of the firms, over 40 percent of logistics staff were let go. This is larger than similar earlier studies in Australia had found (Sohal et al., 2002; Dapiran et al., 1996). This study reaffirms a consistent consensus that the major positive impact from using 3PL services relates to internal logistics system performance (86 percent) and Percent age of respondents Percentage allocation of total logistics budget for Very 3PL services Extensive Moderate Limited limited Total 0-20 7.5 15.0 3.5 0.0 26.0 21-40 5.0 21.0 4.0 0.0 30.0 Table VII. 41-60 0.0 7.0 6.0 0.0 13.0 Percentage allocation 61-80 3.5 3.0 11.5 0.0 17.0 of total logistics budget 81-100 0.0 5.0 9.0 0.0 14.0 for 3PL services Level of satisfaction Percentage of respondents Very satisfied 18 Satisfied 64 Table VIII. Neutral 0 Level of satisfaction with Dissatisfied 14 3PL providers’ services Future use of contract logistics Percentage of respondents Substantially increase use 10 Moderately increase use 71 Table IX. Moderately decrease use 14 Future use of 3PL Substantially decrease use 5 services
- 13. BIJ logistics costs (82 percent). However, employee morale has been adversely affected in 18,3 50 percent of users (Table XI). This is not unexpected given the reduction in internal logistics staff which accompanies outsourcing. The study shows that most users perceive a very positive impact from system performance, but this may be indicative that performance measures are anecdotal rather than objective. 354 Summary and implications This paper has identified a variety of factors that may impact on the future use of 3PL services, namely: the extent of use of 3PL service providers, the effect of the usage of 3PL providers and future plans concerning the use of 3PL providers. On the whole, a majority of respondents have provided positive feedback on each of these factors. The study’s findings have significant implications for future research. We observe that a great many users are reducing in-house operations and using 3PL service providers instead. Many users are contracted to multiple contractors. The main 3PL services used were warehouse management, fleet management and order fulfillment. The level of satisfaction with 3PL service providers is high and is reflected in a commitment to continue their use in the future. Thus, it appears that the use of 3PL services will continue to grow over the next several years. The results show that the use of 3PL service providers is increasing in two ways. First, more firms are beginning to use 3PL services and second, more Australian firms are using 3PL service providers for more functions along their supply chains, scope and depth of outsourcing logistic services are increasing. This indicates that the trend has extended over the past years from an increasing in usage of 3PL services to a greater depth of usage of services along the supply chain. Other conclusions that can be drawn from this study are as follows: . Decisions to use outsourced logistics functions are becoming the realm of the corporate decision making, rather than the divisional or local level. The two critical factors associated with the motivation for outsourcing logistics services found in this study include cost reduction and capital investment reduction. Similar results have been reported by many previous studies (Sheffi, 1990; Boyson et al., 1999; Sahay and Mohan, 2006; Richadson, 1990a, b; Lieb and Randall, 1996). Decisions Percentage of full-time positions eliminated Percentage of respondents Table X. 0-20 80 Full-time logistics 21-40 0 employees eliminated 41-60 13 through use of 61-80 7 3PL services 81-100 0 Percentage of respondents Areas of impact Very negative Negative Positive Very positive Table XI. Logistics costs 3 15 59 23 Impact of the use of Internal logistics system performance 2 12 71 15 3PL services Employee morale 5 45 39 11
- 14. for capital investment and policies for cost reduction are generally taken by the Outsourcing senior management. Hence, the finding that the decision to use 3PL services has 3PL services become part of corporate decision making is supported by the current business trend towards concentration of similar decisions. . There has been an increase in the extent of the use of 3PL services in Australia. This increase is more prominent in the use of warehouse-related services which has increased from 43 to 64 percent. This could reflect the expansion of 355 warehouse-related services offerings by 3PL providers. In addition to classical warehousing functions such as storage, in the current business environment warehousing services include cross-docking, product returns and other value-adding services. This sharp increase in outsourced warehousing-related services may also be related to the cost of warehouse operations. There is evidence that out of all 3PL services, outsourced warehousing functions provide the greatest cost-benefits. . There is an increasing trend towards using shorter contracts. Compared to the previous two Australian studies, this study recorded a significantly larger percentage of respondents using 3PL contacts of less than one-year duration (26 percent compared to only 0 percent). This development is not restricted to the Australian 3PL market alone. A similar trend has been reported in the context of the US 3PL market as well. This could be linked to the prevailing uncertainty and economic volatility of global markets (Langley and Capgemini, 2009). Conducting empirical studies in the future in this area is also important. Limitations Two limitations of this study need to be highlighted. First, in this study only, Australia’s top 500 companies were considered for study and they mostly constitute (94 percent) large firms. Future research should include more small and medium-sized enterprises and compare their practices with those of large firms. Such a study would provide valuable insights about the future 3PL requirements of the two categories of firms. Second, the sample organizations used in this study belonged to four different states in Australia. Because of the relatively small sample size, it was not possible to compare the differences which may exist between the states in a meaningful way. Further research with larger samples is suggested. References Arroyo, P., Gaytan, J. and de Boer, L. (2006), “A survey of third party logistics in Mexico and a comparison with reports on Europe and USA”, International Journal of Operations & Production Management, Vol. 26 No. 6, pp. 639-67. Bardi, E.J. and Tracey, M. (1991), “Transportation outsourcing: a survey of US practices”, International Journal of Physical Distribution & Logistics Management, Vol. 21 No. 3, pp. 15-21. Bhatnagar, R., Sohal, A.S. and Millen, R. (1999), “Third party logistics services: a Singapore perspective”, International Journal of Physical Distribution & Logistics Management, Vol. 29 No. 9, pp. 569-87. Boyson, S., Corsi, T.M., Dresner, M.E. and Robinovich, E. (1999), “Managing effective third party logistics partnerships: what does it take?”, The Journal of Business Logistics, Vol. 20 No. 1, pp. 73-100.
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