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Partner-specific adaptations, performance, satisfaction, and loyalty in third-party logistics relationships

Partner-specific adaptations, performance, satisfaction, and loyalty in third-party logistics... Logist. Res. (2011) 3:37–47 DOI 10.1007/s12159-011-0047-8 OR IGINAL PAPER Partner-specific adaptations, performance, satisfaction, and loyalty in third-party logistics relationships Rudolf O. Large Received: 2 June 2010 / Accepted: 25 January 2011 / Published online: 15 February 2011 Springer-Verlag 2011 Abstract This paper addresses the question of the impact 1 Two alternative paths to building efficient third-party of alternative ways to partner-specific adaptations in third- relationships party logistics provider relationships upon performance, customer satisfaction, and the degree of customer loyalty. The markets for third-party logistics services—also refer- It offers a view of related theory and a preliminary analysis red to as contract logistics—have grown dramatically since of ‘‘request for quotation’’ documents. On this basis, sev- the early 1990s [10, 16, 26]. In Europe, the annual turnover eral hypotheses are formulated. A questionnaire survey and of the third-party logistics business in 2008 is estimated at structural equation modeling (SEM) are then used to test €93 billion. The potential market volume is believed to the hypotheses. The analysis shows that adaptations by amount to €374 billion [25]. The third-party logistics (3PL) logistics service providers exert positive influences on business is developing due to the transformation of already performance and customer loyalty. On the other hand, there existing transaction-based, loose service relationships is a negative impact of customers’ adaptations on perfor- between shippers and providers, and through continuously mance because own adaptations are perceived as an effort. increasing trend toward contract-based outsourcing of Nevertheless, the study provides evidence that the total logistical functions. In comparison with traditional ‘‘arm’s effect of customers’ adaptations on customer loyalty is length’’ transport and warehousing services, which are positive. The results suggest that third-party logistics pro- being performed transaction by transaction, third-party viders should adapt systems and procedures to their cus- logistics services ‘‘are more complex, encompass a broader tomers’ specific requirements. Despite the negative impact number of functions and are characterized by longer term, found of customers’ adaptations upon the level of per- more mutually beneficial relationships’’ [1, p. 49]. Third- ceived performance, providers should promote moderate party logistics services are based on long-term contractual customers’ adaptations in order to increase customer arrangements, and therefore, the terms third-party logistics loyalty. and contract logistics can be used synonymously [38, 41, 43]. In the academic literature, this trend leads to an emphasis on Keywords Third-party logistics service  Specific assets  the relational approach [26]. Adaptations  Relationship performance  Satisfaction  Ellinger et al. [14] generally emphasize the importance Loyalty of customer orientation of logistics service providers. Particularly, third-party logistics services are ‘‘individual- ized logistics services of some complexity and customer specificity’’ [25, p. 98] and ‘‘tailored to an individual customer’s requirement’’ [25, p. 76]. The business model of third-party logistics is essentially based on the creation R. O. Large (&) of customer-specific ‘‘customized’’ services and hence on Faculty 10: Management, Economics and Social Sciences, adaptations by the providers. Specific adaptations to the Department of Business Logistics, University of Stuttgart, systems and procedures of the customer as well as exten- Keplerstr 17, 70174 Stuttgart, Germany sive monitoring and reporting responsibilities are natural. e-mail: rudolf.large@bwi.uni-stuttgart.de 123 38 Logist. Res. (2011) 3:37–47 Third-party logistics contracts can include detailed stipu- constructs covering the wide-ranging concepts of rela- lations concerning a provider’s responsibilities [49], and tionship performance, customer satisfaction, and loyalty as many third-party logistics providers complain about one- well as customer-specific adaptations in the 3PL business. sided adaptation to customers’ systems and procedures Preparatory document studies have been used to identify [29]. In many cases, the customer insists on a specific the required degree of partner-specific adaptations in such location, demands-specific procedures, expects the usage of relationships. A sample of third-party logistics customers his equipment or requires periodical reports of specific key was drawn to collect data, and structural equation modeling performance indicators. Consequently, Hertz and Alfreds- (SEM) was applied to evaluate the data. son [21] emphasize that the ability of customer adaptation is a crucial characteristic of third-party logistics providers. On the other hand, the adaptation by the customer to 2 Review of literature contributions to logistics standardized, efficient structures and procedures estab- performance and mutual adaptation lished by the logistics provider may be viewed as an in customer-provider relationships alternative strategy to establish efficient third-party logis- tics relationships. Providers are specialists in logistics, and 2.1 Performance, satisfaction, and loyalty therefore, customers could acquire efficient and effective procedures. Furthermore, non-specific equipment of a In general, performance could be understood as the degree third-party logistics provider such as existing warehouses of goal accomplishment in a third-party logistics relation- can be efficiently used for several customers (multi-user ship [10]. Most of the previous research focused on cus- warehouses). Multi-user warehouses offer the opportunity tomers’ perceptions of third-party logistics performance. to reduce the volatility of warehouse utilization rates and Knemeyer and Murphy [26, p. 39] define third-party generate economies of scale [11]. Therefore, as an alter- logistics performance as the ‘‘perceived performance native to adaptations by providers to customers’ specifi- improvements that the logistics outsourcing relationship cations, adaptations by the customers to the providers’ has provided the user.’’ Performance improvements standardized systems and procedures come into the focus include, e.g., reduced logistics costs, reduced cycle times, of research. more efficient handling of exceptions, and improved sys- Although there is a growing body of literature on third- tem responsiveness [26, 44]. Stank et al. [47] identify three party logistics in general [32], scientific knowledge on the distinct dimensions of logistics performance: operational impact of mutual adaptations on the performance of third- performance, relational performance, and cost perfor- party logistics relationships is limited and even contradic- mance. This research conceptualizes the performance of third-party logistics relationships by using an adapted tory. For example, Knemeyer and Murphy [26] found that there is no influence of customer-specific investments on version of the reflective scale of logistics provider perfor- customers’ perceptions of the third-party logistics rela- mance used by Stank et al. [46]. tionship performance. Based on the investigation of general Generally, ‘‘customer satisfaction is defined as the result buyer–seller relationships, Cannon and Perreault [6] pro- of a cognitive and affective evaluation, where some com- vide evidence of an influence of specific adaptations on parison standard is compared to the actually perceived customer satisfaction. Consequently, this paper strives to performance’’ [23, p. 45]. According to the widely used answer the following research questions: confirmation–disconfirmation paradigm [35, 55], satisfac- tion is a post-purchase construct, which results from a • What effects on customer’s perceptions of relationship perceived product or service performance and the degree to performance come from the degree of partner-specific which it meets customers’ expectations. There is a huge adaptations by both the third-party logistics provider body of literature on customer satisfaction in the field of and the customer of a third-party logistics relationship? business-to-consumer research [30]. However, fewer • What direct effects on customer’s loyalty come from scholars have studied satisfaction in the business-to-busi- the degree of partner-specific adaptations by both the ness relationships [24, 37]. Customer satisfaction can be third-party logistics provider and the customer in a regarded as the result of an ongoing evaluation of per- third-party logistics relationship? ceived performance. In this respect, Stank et al. [47] use • What indirect effects on customer’s loyalty come from the construct of customer satisfaction in third-party logis- the degree of partner-specific adaptations mediated by tics business to describe customer’s contentedness con- perceived relationship performance and customer’s cerning the overall relationship with the provider. satisfaction? According to Cannon and Perreault [6] and Daugherty et al. Literature on third-party logistics, transaction cost the- [9], an adapted scale is used in this research to measure the ory, and relationship marketing was used to deduce degree of third-party logistics customers’ satisfaction. 123 Logist. Res. (2011) 3:37–47 39 Finally, customer loyalty indicates the long-term relat- Two types of relationships with extensive adaptations can edness between the customer and the provider of a third- be found [6]: The first one is the customer-is-king type that party logistics relationship. A high degree of relatedness is involves extensive adaptations only by the seller. The crucial because switching costs in third-party logistics are second is the mutually adaptive type that requires adapta- extensive. Therefore, loyalty is a valuable concept tions by both the seller and the supplier. Surprisingly, there reflecting the long-run success of a relationship [9]. Since seems to be limited influence of sellers’ adaptations on loyalty is one of the central constructs of customer customer satisfaction [6]. Customer satisfaction with behavior in consumer marketing, there are countless adapted relationships such as customer-is-king is almost as approaches to operationalization [4]. Oliver [36, p. 392] low as customer satisfaction with standard buying rela- defines loyalty in general as ‘‘a deeply held commitment to tionships. Furthermore, if a business relationship requires rebuy or repatronize a preferred product or service con- considerable adaptations also by the customer (mutually sistently in the future, despite situational influences and adaptive type), satisfaction is low. marketing efforts having the potential to cause switching Transaction cost theory is of vital importance to gain a behavior.’’ In the third-party logistics business, customer better understanding of adaptations in third-party logistics loyalty stands for the commitment of the customer to relationships [31]. As shown in the first section, third-party maintain the relationship and if necessary to renew the logistics consist of recurrent, complex services based on a contract. Accordingly, in this research, loyalty is measured long-term contract between a provider and a customer. For following Daugherty et al. [9]. such settings, the transaction cost theory predicts the existence of specific investments by the providers [50, 54]. 2.2 Partner-specific adaptations in third-party logistics Asset specificity indicates ‘‘a specialized investment that relationships cannot be redeployed to alternative uses or by alternative users except at a loss of productive value’’ [53, p. 377]. In the first part of this paper, the ability of customer Asset specificity is a precondition to meet the specific adaptation was introduced as a key characteristic of third- requirements of the customer and to support recurrent party logistics providers. Hertz and Alfredsson [21] transactions efficiently [51, 52]. Williamson distinguishes emphasized the importance of the general ability to solve between four important types of asset specificity: site problems and of the ability to undergo customer adapta- specificity, physical asset specificity, human asset speci- tions. Both characteristics are useful to differentiate ficity, and dedicated asset specificity [51]. between third-party logistics providers and traditional According to Williamson [50, 52], Fig. 1 displays the logistics companies, like integrators, standard transport relationship between frequency, asset specificity, and logistics contract characteristics. Detailed and long-term firms, or warehousing firms. Furthermore, Hertz and Alfredsson [21] developed a typology of third-party agreements (hybrid contracting)—like third-party con- logistics providers based on these characteristics. So-called tracts—are necessary to safeguard these specific invest- customer adapters (providers with a medium ability to ments and to reduce the risk of opportunism [54]. solve general problems and a high ability to carry out Additionally, if the frequency of service transactions is customer adaptations) usually take over present activities low, it is difficult to recoup the investments in the third- of customers and try to improve the performance of these party relationship. Therefore, third-party logistics is not existing processes. The second type of providers consisting appropriate for occasional transactions. Van Hoek [49] of companies with both a high ability of carrying out proved that customer-specific third-party logistics services customer adaptations and a high ability of solving general such as final assembly, display building or warehousing are problems is described as a ‘‘customer developer.’’ This positively related to the existence of detailed contracts. type of firm develops advanced customer solutions for each individual customer. More common, relationship marketing has emphasized Asset specificity the importance of adaptations by sellers to customers’ No Medium High systems and procedures. Cannon and Perreault [6] devel- forwarding contract oped a typology of customer–supplier relationships from a contract of carriage forwarding contract / contract of variety of characteristics that can be regarded as ‘‘rela- employment tionship connectors.’’ These relationship connectors are contract of carriage forwarding contract third-party logistics information exchange, operational linkages, legal bonds, / warehousing / cooperation contract / contract cooperative norms, adaptations by sellers, and adaptations contract agreement of employment by buyers. Therefore, partner-specific adaptations can be regarded as important characteristics of close relationships. Fig. 1 Asset specificity and logistics contract characteristics Frequency Recurrent occasional 40 Logist. Res. (2011) 3:37–47 One driver of asset specificity in third-party logistics is Analyzing the documents, we found that a considerable the need for customer-specific performance measurement amount of site specificity is conspicuous. Most of the [28]. Usually, the customer places specific demands on the customers insist on a specific location or at least stipulate service provider concerning performance measurement and that the warehouse must be located in the proximity of their reporting. For example, the third-party logistics company is own manufacturing facilities. Furthermore, they expect required to provide specific key performance indicators and specific investments by the provider such as warehouses, detailed management reports, which enable the customer to warehousing equipment, or computer systems. Consistently monitor the performed service. In order to meet these with these results, Mortensen and Lemoine [34] provide requirements, the provider is forced to invest in specific evidence of extensive usage of ICT tools to support the data-processing procedures or to adapt to the existing information exchange in 3PL relationships. Therefore, monitoring systems of the customer. Likewise, specialized physical asset specificity seems to be a frequent charac- workforce is necessary to fulfill these special demands. teristic of third-party logistics. In the case of outsourcing, Summing up, the construct of specific adaptations cov- the provider is typically requested to use existing assets of ers the phenomena of specific investments as well as of the customer. Likewise, human asset specificity exists on a behavioral adaptations by both the provider and the cus- regular basis. Usually, there is a need for additional per- tomer. Therefore, new scales have been developed to sonnel at the demanded location or at least a need for measure providers’ adaptations and customers’ adapta- training, to meet the specific requirements of the customer. tions. In this research, these scales are based on the items As expected, most of the customers place specific used by Knemeyer and Murphy [26] and Sharland [42]. demands on the service provider concerning performance measurement and reporting. With a few exceptions, there is limited willingness of the customers to accept providers’ 3 An exploratory study of third-party logistics tender performance measures. Generally, the willingness of the documents customer to adapt to the provider seems to be low. The vast majority of the documents call for one-sided adaptations by Literature emphasizes the importance of asset specificity the third-party logistics provider. and adaptations by third-party logistics providers. To gain some insight into the practice of the design of third-party logistics relationships and actual adaption practices, a 4 Hypotheses on alternative approaches to relationship preliminary study of tender documents has been conducted. adaptation Fifteen third-party logistics tender documents (requests for quotations) have been analyzed. Two major European Previous research concerning the influence of specific third-party logistics companies made these documents investments and behavioral adaptations on the performance available to the author. Eight documents relate to cus- of close business relations has presented contradictory tomer-specific distribution and warehousing. Seven docu- results. Knemeyer and Murphy [26] found that the level of ments request for physical supply or logistics services in specific investments by a provider is not related to a buy- manufacturing, e.g., sequencing activities and materials er’s perception of 3PL performance. Furthermore, rela- handling. Most of the customers belong to the automotive tionship marketing suggests limited influence of sellers’ industry. Based on the results of literature research, this adaptations on customer satisfaction [6]. In contrast, cus- analysis was focused on the required specificity (site tomers of third-party logistics firms expect tailored logis- specificity, physical asset specificity, and human asset tical solutions [43]. Furthermore, the transaction cost specificity), the intended procedure of performance evalu- theory expects a positive impact of asset specificity on the ation, the expected behavioral adaptation by the provider, performance of 3PL. Specific assets improve the perfor- and the willingness of the customer to adapt to the mance of 3PL relationships, because the usage of specific provider. assets enhances the productivity of third-party services in Typically, a request for quotations consists of a text comparison with general purpose technology [53, 54]. body of more than 50 pages that describes the current state Following the transaction cost theory, a positive relation- and the specific customer requirements. Additionally, most ship between a customer’s perception of the 3PL perfor- of the requests include an extensive appendix. Examples mance and the level of specific adaptations made by the are warehouse layouts, annual demand figures, and per- provider is expected: formance indicators of the existing equipment. Each doc- H The level of specific adaptations by the provider ument describes an individual case and shows individual influences the customer’s perception of the third-party structure and style. Therefore, the qualitative method of explorative document analysis has been applied [15, 45]. relationship performance positively. 123 Logist. Res. (2011) 3:37–47 41 As shown above, document studies of request for quo- customer on customer loyalty seems to be rather negative. tations demonstrate limited willingness of the customers to Nevertheless, following transaction cost theory, customers’ adapt to the providers systems and procedures. One investments in specific assets could support customer loy- important reason for this phenomenon could be that one’s alty due to effects of customers’ dependency on the pro- own adaptations increase customers’ cost and therefore vider. If adaptations by the customer occur, ‘‘such exert negative influence on customers’ perceptions of third- transactions give rise to bilateral dependencies, in that the party logistics relationship performance. In general, Morris parties have incentives to promote continuity, thereby to et al. [33] postulate a low willingness of customers to safeguard specific investments’’ [54, p. 9]. Furthermore, change their behaviors and procedures in order to enhance Hofer et al. [22, p. 149] found that ‘‘a customer is more cooperation with their suppliers. Artz [3] shows a negative likely to partner with a 3PL when it perceives itself to be relationship between the level of customers’ specific dependent on the 3PL’s expertise in providing logistics investments and the performance of supplier–customer services.’’ Therefore, in this paper a positive relationship is relationships. Likewise, Heide and Stump [19] found assumed: evidence of a negative impact of own investments in sup- H The level of specific adaptations by the customer plier-specific assets on the perception of relationship per- influences the customer’s loyalty positively. formance. We can assume that these general effects are also observable in the special case of third-party logistics Although no direct impact of adaptations on customer relationships. This leads to the following hypothesis: satisfaction is considered in this research, the construct of customer satisfaction is included into the model to mediate H The level of specific adaptations by the customer the relationship between performance and loyalty. The influences the customer’s perception of the third-party positive relationship between performance and customer relationship performance negatively. satisfaction is a widely recognized phenomenon in con- As shown in the literature section, third-party logistics sumer marketing as well as in business-to-business mar- relationships based upon specific investments and adapta- keting. For example, Patterson et al. [37] provided tions by the provider to perform the demanded logistics evidence of a positive impact of performance on customer efficiently and to fulfill customers’ special requirements. In satisfaction in business-to-business relationships. More- such a kind of business, customer loyalty is crucial, over, Homburg et al. [24] demonstrate positive influences because switching costs are extensive. For example, of perceived quality and perceived flexibility on the satis- switching costs are caused by contract penalties or a loss in faction of industrial customers. the value of specific assets [53]. To safeguard these specific In marketing research, customer satisfaction is recog- assets, third-party logistics relationships are predicated on nized as a main influence of loyalty [30, 40]. For example, long-term contractual arrangements with contract periods Daugherty et al. [9] show that buyers’ satisfaction of gro- between 3 and 5 years and the opportunity to renew the cery, drug, and discount chain stores has a strong impact on contract. Furthermore, asset specificity contributes to the their loyalty. Consequently, positive connections are commitment of both parties, resulting in a trustful rela- also hypothesized in the case of third-party logistics tionship between the partners. Kwon et al. [27] proved that relationships: supply chain partners’ investments increase the level of H The customer’s perception of the third-party rela- trust between the partners, because these investments are tionship performance influences the customer’s satisfaction perceived as a signal of commitment. Transaction-specific with the third-party logistics relationship positively. investments exceed positive influence on customer’s per- ception of a provider’s benevolence, because these adap- H The customer’s satisfaction with the third-party tations demonstrate the willingness of the provider to logistics relationship influences the customer’s loyalty support and maintain the relationship [22]. These ideas positively. suggest the following hypothesis: H The level of specific adaptations by the provider 5 Method: an analysis based on structural equation influences the customer’s loyalty positively. modeling On the other hand, Kwon et al. [27] consider that a customer’s own investments exert a negative influence on 5.1 Sampling and data collection the level of trust in the other party. Heide and John [19] provide evidence that customers’ investments in specific To examine the six hypotheses, a two-part questionnaire assets reduce the likelihood to control the supplier. At the was designed. The first part of the questionnaire consists of first glance, the influence of specific adaptations of the general questions about third-party logistics. The second 123 42 Logist. Res. (2011) 3:37–47 part refers to a specific third-party logistics relationship of the totality of the model parameters. Therefore, these the company. Reflective multi-item scales were used to procedures require very large samples, especially if models measure the constructs. Proven scales were modified to be are complex [5]. In contrast, the PLS estimation is based on suitable for the third-party logistics business [6, 9, 26, 42, a set of distinct multiple regressions. Following the rec- 46]. ommendations of Chin and Newsted [8], the sample size in As there is no directory of ‘‘3PL-customers’’ available in PLS estimation should be at least ten times either the Germany, we addressed the invitation letter to well-known largest number of formative indicators or the largest customers and to companies we regarded as probable users number of independent variables influencing a dependent of third-party logistics services. Following this procedure, variable of the structural model. In this research, the the questionnaire was distributed by e-mail to 400 measurement model consists of reflective indicators purchasing or logistics managers in industry and trade. exclusively. Therefore, only the second criterion is rele- Furthermore, the logistics newsletter of the German vant. The dependent variable with the largest number of Association of Purchasing and Logistics (BME) was used predictor variables is ‘‘loyalty.’’ This number is 3. Thus, to enlist additional participants. In total, 79 customer the number of usable cases should be at least 30. Based on questionnaires were returned, resulting in a response rate of this recommendation, the sample meets the sample size 19.7%. Out of this, 51 firms are actually involved in third- requirements of PLS. In comparison, AMOS would esti- party logistics relationships. Therefore, 51 cases are mate 67 parameters simultaneously and consequently available for statistical evaluation. A non-response bias test would need more than 300 cases following the recom- was conducted to examine differences in early and late mendations of Bentler and Chou [5]. Furthermore, the PLS returns [2] and showed that non-response bias is unlikely to approach is more suitable for explorative studies where the be an issue in interpreting the results of this study. level of theoretical knowledge and the availability of proved scales is rather low [7]. 5.2 Structural equation modeling with partial least square (PLS) 5.3 Measurement assessment Structural equation modeling (SEM) has been used to An important precondition for structural equation modeling prove the hypotheses. The SEM approach combines a path is measurement assessment of each single construct, model (relationships among the constructs) and a mea- especially in the case of new or modified scales. In this surement model (set of items for each construct) [17, 18]. study, the path model consists of five latent variables. Figure 2 shows the hypothesized path model. The mea- According to the chosen scales, a reflective measurement model was employed. Reliability analysis and explorative sures are given in the ‘‘Appendix’’. SmartPLS 2.0 [39] was selected for data analysis. This factor analysis using SPSS were performed. The evaluation structural equation modeling (SEM) software package is an is based on the criteria provided by Hair et al. [18]. After application of the partial least square method (PLS) [7, 48]. scale purification, the analysis results in unidimensionality In contrast to covariance-based procedures, the PLS algo- of each construct and sufficient degrees of reliability and rithm is appropriate if the model is complex and the sample convergent validity (Table 1). size is small [7]. Covariance-based SEM procedures such Finally, SmartPLS was used to evaluate the scales of the as LISREL or AMOS perform a simultaneous estimation of model. Common criteria to evaluate reflective measures of PLS path models are the average variance extracted, the composite reliability and the communality (Stone-Geisser Performance Q )[7]. The results of these calculations are shown in of the Relationship Table 2. Each of the constructs meets the requirements. Adaptations by the Provider 6 Quantitative results Customer’s Satisfaction The path relationships (standardized regression coeffi- Adaptations by the cients) of the model have been estimated using SmartPLS. Customer Additionally, the bootstrap procedure [12, 13] has been used with 50 cases and 200 samples to obtain t-statistics in Customer’s Loyalty order to evaluate the significance of the parameters. The results of these estimations are shown in Table 3 and Fig. 3. Fig. 2 Hypothesized path model 123 Logist. Res. (2011) 3:37–47 43 Table 1 Reliability and Construct Indicator Cronbach alpha Loading Variance explained validity of the measuring model [0.7 [0.7 [50% (calculations using SPSS) Performance of the relationship (PERF) PERF1 0.84 0.797 76.71 PERF2 0.897 PERF3 0.928 Satisfaction (SAT) SAT2 0.93 0.947 75.87 SAT3 0.883 SAT4 0.850 SAT6 0.886 SAT7 0.769 SAT8 0.882 Loyalty (LOY) LOY1 0.72 0.828 64.30 LOY2 0.740 LOY4 0.834 Adaptation by the provider (PSPEZ) PSPEZ1 0.74 0.926 66.87 PSPEZ2 0.859 PSPEZ5 0.641 Adaptation by the customer (CSPEZ) CSPEZ1 0.76 0.908 68.56 CSPEZ2 0.898 CSPEZ4 0.652 Table 2 Evaluation based on Average variance Composite Stone-Geissers Q Cronbach SmartPLS extracted reliability (communality) alpha [0.6 [0.7 [0 [0.7 Performance of the 0.77 0.91 0.77 0.85 relationship Satisfaction 0.76 0.95 0.76 0.93 Loyalty 0.64 0.84 0.64 0.72 Provider’s adaptations 0.67 0.85 0.67 0.74 Customer’s adaptations 0.67 0.85 0.67 0.76 Table 3 Parameter estimation PLS path Bootstrap Standard t-value Significance (calculation with SmartPLS) coefficient sample mean error PSPEZ ) PERF H 0.63 0.63 0.084 7.536 0.000 CSPEZ ) PERF H -0.41 -0.39 0.115 3.556 0.000 PSPEZ ) LOY H 0.37 0.36 0.125 2.918 0.004 CSPEZ ) LOY H 0.25 0.26 0.110 2.301 0.021 PERF ) SAT H 0.91 0.91 0.030 30.079 0.000 SAT ) LOY H 0.41 0.43 0.157 2.625 0.009 Each of the hypotheses is fully supported by the anal- expect connections between relationship performance, ysis. In support of H , there is evidence that adaptations by customer satisfaction, and customer loyalty. The data also the third-party logistics provider (PSPEZ) exert positive strongly support these hypotheses. Therefore, the direct direct influence on the performance of the relationship impact of perceived provider adaptations on customer (PERF). As H predicts, the estimation indicates that third- loyalty is strengthened by an indirect influence mediated by party logistics provider’s adaptations exert positive influ- relationship performance and customer satisfaction result- ence on the degree of loyalty (LOY). In H and H ,we ing in a strong total effect of 0.60. 5 6 123 44 Logist. Res. (2011) 3:37–47 The first implication of this study relates to the impor- Performance of the tance of providers’ specific adaptations. As shown in the Relationship results section, sufficient behavioral adaptations and/or Adaptations transaction-specific investments by providers are crucial by the Provider for third-party logistics performance and customer satis- faction. Adaptations by the service provider are an essential Customer’s Satisfaction element of the third-party logistics business and therefore Adaptations being expected by the customer [21]. As predicted by the by the confirmation–disconfirmation paradigm [35], insufficient Customer adaptations by the provider lead to poor performance *** p < 0.01 Customer’s evaluations and hence to customer dissatisfaction. Conse- ** p < 0.05 Loyalty * p < 0.1 quently, we suggest that third-party logistics providers should adapt their own systems and procedures to cus- Fig. 3 Approved path model (Standardized Regression Coefficients) tomers’ specific requirements. Examples are the acceptance of customer-specific locations, the usage of existing facil- ities, and the application of customers’ IT systems. Fur- Since one’s own adaptations are recognized as an thermore, logistics providers should enhance flexibility and additional effort, there is a negative impact of specific customer orientation as well as the skills and the expertise adaptations by the customer (CSPEZ) on the level of per- of own personnel in order to meet the specific requirements ceived relationship performance. If customers have to of the customer. adapt to providers, they will judge the performance of the On the other hand, since one’s own behavioral adapta- resulting relationships as inadequate. Therefore, the data tions and specific investments are sensed as an effort, there support H . Furthermore, the strong positive impact of the 2 is a negative impact of customers’ adaptations on rela- perceived relationship performance (PERF) on customer tionship performance. This result corresponds to the satisfaction has to be considered (H )—this impact causes 5 insights of Artz [3] and Heideand Stump [20] concerning an indirect negative effect of customer’s adaptations on the adaptations of customers in general supplier–customer customer satisfaction (-0.37). relationships. Nevertheless, maybe this is rather a matter of The positive direct effect of the adaptations by the customers’ preconception than of their rational assessment. customers on the degree of their loyalty (LOY) corresponds Therefore, customers should seriously evaluate own con- to the predictions of the transaction cost theory that tributions and be aware of possible positive effects of own assumes mutual commitment in the case of partner-specific adaptations. Especially, they should assess the application adaptations [50, 54]. Thus, the data support H . However, 4 of efficient approaches such as multi-user warehouses this direct effect will be slightly weakened by a negative without prejudice. indirect effect of CSPEZ on LOY (-0.15), mediated by Thirdly, providers’ adaptations exert strong positive PERF and SAT. In total, the influence of CSPEZ on LOY direct and indirect effects on the degree of customer loy- is positive (0.10). alty. Therefore, providers should accept specific invest- The coefficients of determination (R ) for each depen- ments such as specific locations to maintain third-party dent construct deliver insight into whether the independent logistics relationships and enhance the probability of con- variables of the model exert substantial influence on this tract renewal. Fourthly, this study provides evidence that construct [7]. Altogether, the values of the coefficients of the total effect of customers’ adaptations on customer determination (R-square) of PERF (R = 0.53), SAT loyalty is positive. This leads us to suggest that providers 2 2 (R = 0.82), and LOY (R = 0.53) give evidence that the should promote moderate customers’ behavioral adapta- model is appropriate. tions and customers’ investments in specific assets. In the long run, customers’ adaptations may increase the proba- bility of contract renewal. However, this paper has also 7 Discussion and management implications highlighted the negative influence of these adaptations on the perceived level of performance and on customer sat- This study delivers a better understanding of the nature of isfaction. Therefore, in a provider perspective, specific partner-specific adaptations and the influence of these adaptations should be mutual in order to equalize negative adaptations on the performance of third-party logistics influences of customer adaptations on performance by the relationships and on customer’s loyalty. These findings positive effects of provider adaptations. This outcome have some consequences and helpful managerial corresponds to the predictions of the transaction cost theory implications. that assumes mutual commitment in the case of partner- 123 Logist. Res. (2011) 3:37–47 45 specific adaptations [50, 54]. On the other hand, customers Table 4 continued should be careful with their own adaptations to avoid one- Construct Indicator Statement Source sided dependence caused by being locked into the rela- Loyalty LOY1 The relationship that my firm has [9] tionship. Summing up, managers involved in third-party with this third-party logistics (adapted) logistics should be aware of the complex consequences of provider is something we are very committed to specific adaptations on customer loyalty. LOY2 The relationship that my firm has with this one is something we intend to maintain indefinitely LOY3 The relationship that my firm has 8 Suggestions for future research with this provider deserves our maximum effort to maintain There are several limitations to this study that should be LOY4 Maintaining a long-term relationship with this provider is very important dealt with in future research. The most important limitation to my firm is the small size of the sample. The reason for this small Satisfaction SAT1 Our firm regrets the decision to do [6, 9] sample size is the comparatively small number of third- business with this provider party logistics relationships operating in Germany. SAT2 Overall, we are very satisfied with this provider Although PLS is a suitable method, larger samples would SAT3 We are very pleased with this allow to use covariance-based methods like AMOS or provider’s work LISREL. The most important advantage of AMOS or SAT4 Our firm is not completely happy LISREL is the availability of goodness-of-fit statistics to with this provider evaluate the overall quality of a structural equation model. SAT5 If we had to do it all over again, we would still choose to use this Further research should try to receive larger samples by provider collecting data in more than one single country. SAT6 We are delighted with our overall business relationship with them Second, this research is focused on customers’ percep- SAT7 We wish more of our providers were tions of partner-specific adaptations and third-party logis- like this one tics relationship performance. It is conceivable that SAT8 It is a pleasure to deal with this providers would have divergent perceptions and points of provider view. We can especially assume that from a provider’s SAT9 There is always some problem or another with this provider perspective, the effects of adaptations by the customer on Adaptation by PSPEZ1 This third-party has changed its way [26, 42] performance and loyalty are not the same as in the case of the provider of working to be able to cooperate (adapted) customers’ data. Therefore, additional work should inves- with its business PSPEZ2 This third-party has tailored its tigate providers’ perceptions of partner-specific adaptations services and procedures to meet the and third-party logistics relationship performance. specific needs of our company PSPEZ3 This third-party would find it difficult to recoup the investments in our company if our relationship were to Appendix end PSPEZ4 This third-party made considerable investments in tools and equipment See Table 4. in its relationship with us PSPEZ5 Gearing up to deal with us required highly specialized tools and Table 4 Items used in the questionnaire equipment Adaptation by CSPEZ1 We changed our way of working to [26, 42] Construct Indicator Statement Source the customer cooperate with the business of this (adapted) provider Performance PERF1 My firm’s association with this [46] of the service provider has been a highly (adapted) CSPEZ2 We have tailored our procedures to relationship successful one meet the specific needs of this provider PERF2 This third-party logistics service provider leaves a lot to be desired CSPEZ3 We would find it difficult to recoup from an overall performance our investments in this provider if standpoint our relationship were to end CSPEZ4 We have made considerable PERF3 If I have to give this service provider a performance appraisal for the past investments in tools and equipment year, it would be outstanding in our relationship with this provider PERF4 Overall, I would characterize the results of my firm’s relationship CSPEZ5 Gearing up to deal with this provider with this service provider as having required highly specialized tools exceeded our expectations and equipment 123 46 Logist. 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J Supply Chain Manag 44(2):5–16 nance of contractual relations. J Law Econ 22:233–261 55. Wirtz J, Lee CM (2003) An examination of the quality and 51. Williamson OE (1984) The economics of governance: framework context-specific applicability of commonly used customer satis- and implications. J Inst Theor Econ 140:195–223 faction measures. J Serv Res 5(4):345–355 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Logistics Research Springer Journals

Partner-specific adaptations, performance, satisfaction, and loyalty in third-party logistics relationships

Logistics Research , Volume 3 (1) – Feb 15, 2011

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Copyright © 2011 by Springer-Verlag
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Engineering; Engineering Economics, Organization, Logistics, Marketing; Logistics; Industrial and Production Engineering; Simulation and Modeling; Operation Research/Decision Theory
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1865-035X
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1865-0368
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10.1007/s12159-011-0047-8
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Abstract

Logist. Res. (2011) 3:37–47 DOI 10.1007/s12159-011-0047-8 OR IGINAL PAPER Partner-specific adaptations, performance, satisfaction, and loyalty in third-party logistics relationships Rudolf O. Large Received: 2 June 2010 / Accepted: 25 January 2011 / Published online: 15 February 2011 Springer-Verlag 2011 Abstract This paper addresses the question of the impact 1 Two alternative paths to building efficient third-party of alternative ways to partner-specific adaptations in third- relationships party logistics provider relationships upon performance, customer satisfaction, and the degree of customer loyalty. The markets for third-party logistics services—also refer- It offers a view of related theory and a preliminary analysis red to as contract logistics—have grown dramatically since of ‘‘request for quotation’’ documents. On this basis, sev- the early 1990s [10, 16, 26]. In Europe, the annual turnover eral hypotheses are formulated. A questionnaire survey and of the third-party logistics business in 2008 is estimated at structural equation modeling (SEM) are then used to test €93 billion. The potential market volume is believed to the hypotheses. The analysis shows that adaptations by amount to €374 billion [25]. The third-party logistics (3PL) logistics service providers exert positive influences on business is developing due to the transformation of already performance and customer loyalty. On the other hand, there existing transaction-based, loose service relationships is a negative impact of customers’ adaptations on perfor- between shippers and providers, and through continuously mance because own adaptations are perceived as an effort. increasing trend toward contract-based outsourcing of Nevertheless, the study provides evidence that the total logistical functions. In comparison with traditional ‘‘arm’s effect of customers’ adaptations on customer loyalty is length’’ transport and warehousing services, which are positive. The results suggest that third-party logistics pro- being performed transaction by transaction, third-party viders should adapt systems and procedures to their cus- logistics services ‘‘are more complex, encompass a broader tomers’ specific requirements. Despite the negative impact number of functions and are characterized by longer term, found of customers’ adaptations upon the level of per- more mutually beneficial relationships’’ [1, p. 49]. Third- ceived performance, providers should promote moderate party logistics services are based on long-term contractual customers’ adaptations in order to increase customer arrangements, and therefore, the terms third-party logistics loyalty. and contract logistics can be used synonymously [38, 41, 43]. In the academic literature, this trend leads to an emphasis on Keywords Third-party logistics service  Specific assets  the relational approach [26]. Adaptations  Relationship performance  Satisfaction  Ellinger et al. [14] generally emphasize the importance Loyalty of customer orientation of logistics service providers. Particularly, third-party logistics services are ‘‘individual- ized logistics services of some complexity and customer specificity’’ [25, p. 98] and ‘‘tailored to an individual customer’s requirement’’ [25, p. 76]. The business model of third-party logistics is essentially based on the creation R. O. Large (&) of customer-specific ‘‘customized’’ services and hence on Faculty 10: Management, Economics and Social Sciences, adaptations by the providers. Specific adaptations to the Department of Business Logistics, University of Stuttgart, systems and procedures of the customer as well as exten- Keplerstr 17, 70174 Stuttgart, Germany sive monitoring and reporting responsibilities are natural. e-mail: rudolf.large@bwi.uni-stuttgart.de 123 38 Logist. Res. (2011) 3:37–47 Third-party logistics contracts can include detailed stipu- constructs covering the wide-ranging concepts of rela- lations concerning a provider’s responsibilities [49], and tionship performance, customer satisfaction, and loyalty as many third-party logistics providers complain about one- well as customer-specific adaptations in the 3PL business. sided adaptation to customers’ systems and procedures Preparatory document studies have been used to identify [29]. In many cases, the customer insists on a specific the required degree of partner-specific adaptations in such location, demands-specific procedures, expects the usage of relationships. A sample of third-party logistics customers his equipment or requires periodical reports of specific key was drawn to collect data, and structural equation modeling performance indicators. Consequently, Hertz and Alfreds- (SEM) was applied to evaluate the data. son [21] emphasize that the ability of customer adaptation is a crucial characteristic of third-party logistics providers. On the other hand, the adaptation by the customer to 2 Review of literature contributions to logistics standardized, efficient structures and procedures estab- performance and mutual adaptation lished by the logistics provider may be viewed as an in customer-provider relationships alternative strategy to establish efficient third-party logis- tics relationships. Providers are specialists in logistics, and 2.1 Performance, satisfaction, and loyalty therefore, customers could acquire efficient and effective procedures. Furthermore, non-specific equipment of a In general, performance could be understood as the degree third-party logistics provider such as existing warehouses of goal accomplishment in a third-party logistics relation- can be efficiently used for several customers (multi-user ship [10]. Most of the previous research focused on cus- warehouses). Multi-user warehouses offer the opportunity tomers’ perceptions of third-party logistics performance. to reduce the volatility of warehouse utilization rates and Knemeyer and Murphy [26, p. 39] define third-party generate economies of scale [11]. Therefore, as an alter- logistics performance as the ‘‘perceived performance native to adaptations by providers to customers’ specifi- improvements that the logistics outsourcing relationship cations, adaptations by the customers to the providers’ has provided the user.’’ Performance improvements standardized systems and procedures come into the focus include, e.g., reduced logistics costs, reduced cycle times, of research. more efficient handling of exceptions, and improved sys- Although there is a growing body of literature on third- tem responsiveness [26, 44]. Stank et al. [47] identify three party logistics in general [32], scientific knowledge on the distinct dimensions of logistics performance: operational impact of mutual adaptations on the performance of third- performance, relational performance, and cost perfor- party logistics relationships is limited and even contradic- mance. This research conceptualizes the performance of third-party logistics relationships by using an adapted tory. For example, Knemeyer and Murphy [26] found that there is no influence of customer-specific investments on version of the reflective scale of logistics provider perfor- customers’ perceptions of the third-party logistics rela- mance used by Stank et al. [46]. tionship performance. Based on the investigation of general Generally, ‘‘customer satisfaction is defined as the result buyer–seller relationships, Cannon and Perreault [6] pro- of a cognitive and affective evaluation, where some com- vide evidence of an influence of specific adaptations on parison standard is compared to the actually perceived customer satisfaction. Consequently, this paper strives to performance’’ [23, p. 45]. According to the widely used answer the following research questions: confirmation–disconfirmation paradigm [35, 55], satisfac- tion is a post-purchase construct, which results from a • What effects on customer’s perceptions of relationship perceived product or service performance and the degree to performance come from the degree of partner-specific which it meets customers’ expectations. There is a huge adaptations by both the third-party logistics provider body of literature on customer satisfaction in the field of and the customer of a third-party logistics relationship? business-to-consumer research [30]. However, fewer • What direct effects on customer’s loyalty come from scholars have studied satisfaction in the business-to-busi- the degree of partner-specific adaptations by both the ness relationships [24, 37]. Customer satisfaction can be third-party logistics provider and the customer in a regarded as the result of an ongoing evaluation of per- third-party logistics relationship? ceived performance. In this respect, Stank et al. [47] use • What indirect effects on customer’s loyalty come from the construct of customer satisfaction in third-party logis- the degree of partner-specific adaptations mediated by tics business to describe customer’s contentedness con- perceived relationship performance and customer’s cerning the overall relationship with the provider. satisfaction? According to Cannon and Perreault [6] and Daugherty et al. Literature on third-party logistics, transaction cost the- [9], an adapted scale is used in this research to measure the ory, and relationship marketing was used to deduce degree of third-party logistics customers’ satisfaction. 123 Logist. Res. (2011) 3:37–47 39 Finally, customer loyalty indicates the long-term relat- Two types of relationships with extensive adaptations can edness between the customer and the provider of a third- be found [6]: The first one is the customer-is-king type that party logistics relationship. A high degree of relatedness is involves extensive adaptations only by the seller. The crucial because switching costs in third-party logistics are second is the mutually adaptive type that requires adapta- extensive. Therefore, loyalty is a valuable concept tions by both the seller and the supplier. Surprisingly, there reflecting the long-run success of a relationship [9]. Since seems to be limited influence of sellers’ adaptations on loyalty is one of the central constructs of customer customer satisfaction [6]. Customer satisfaction with behavior in consumer marketing, there are countless adapted relationships such as customer-is-king is almost as approaches to operationalization [4]. Oliver [36, p. 392] low as customer satisfaction with standard buying rela- defines loyalty in general as ‘‘a deeply held commitment to tionships. Furthermore, if a business relationship requires rebuy or repatronize a preferred product or service con- considerable adaptations also by the customer (mutually sistently in the future, despite situational influences and adaptive type), satisfaction is low. marketing efforts having the potential to cause switching Transaction cost theory is of vital importance to gain a behavior.’’ In the third-party logistics business, customer better understanding of adaptations in third-party logistics loyalty stands for the commitment of the customer to relationships [31]. As shown in the first section, third-party maintain the relationship and if necessary to renew the logistics consist of recurrent, complex services based on a contract. Accordingly, in this research, loyalty is measured long-term contract between a provider and a customer. For following Daugherty et al. [9]. such settings, the transaction cost theory predicts the existence of specific investments by the providers [50, 54]. 2.2 Partner-specific adaptations in third-party logistics Asset specificity indicates ‘‘a specialized investment that relationships cannot be redeployed to alternative uses or by alternative users except at a loss of productive value’’ [53, p. 377]. In the first part of this paper, the ability of customer Asset specificity is a precondition to meet the specific adaptation was introduced as a key characteristic of third- requirements of the customer and to support recurrent party logistics providers. Hertz and Alfredsson [21] transactions efficiently [51, 52]. Williamson distinguishes emphasized the importance of the general ability to solve between four important types of asset specificity: site problems and of the ability to undergo customer adapta- specificity, physical asset specificity, human asset speci- tions. Both characteristics are useful to differentiate ficity, and dedicated asset specificity [51]. between third-party logistics providers and traditional According to Williamson [50, 52], Fig. 1 displays the logistics companies, like integrators, standard transport relationship between frequency, asset specificity, and logistics contract characteristics. Detailed and long-term firms, or warehousing firms. Furthermore, Hertz and Alfredsson [21] developed a typology of third-party agreements (hybrid contracting)—like third-party con- logistics providers based on these characteristics. So-called tracts—are necessary to safeguard these specific invest- customer adapters (providers with a medium ability to ments and to reduce the risk of opportunism [54]. solve general problems and a high ability to carry out Additionally, if the frequency of service transactions is customer adaptations) usually take over present activities low, it is difficult to recoup the investments in the third- of customers and try to improve the performance of these party relationship. Therefore, third-party logistics is not existing processes. The second type of providers consisting appropriate for occasional transactions. Van Hoek [49] of companies with both a high ability of carrying out proved that customer-specific third-party logistics services customer adaptations and a high ability of solving general such as final assembly, display building or warehousing are problems is described as a ‘‘customer developer.’’ This positively related to the existence of detailed contracts. type of firm develops advanced customer solutions for each individual customer. More common, relationship marketing has emphasized Asset specificity the importance of adaptations by sellers to customers’ No Medium High systems and procedures. Cannon and Perreault [6] devel- forwarding contract oped a typology of customer–supplier relationships from a contract of carriage forwarding contract / contract of variety of characteristics that can be regarded as ‘‘rela- employment tionship connectors.’’ These relationship connectors are contract of carriage forwarding contract third-party logistics information exchange, operational linkages, legal bonds, / warehousing / cooperation contract / contract cooperative norms, adaptations by sellers, and adaptations contract agreement of employment by buyers. Therefore, partner-specific adaptations can be regarded as important characteristics of close relationships. Fig. 1 Asset specificity and logistics contract characteristics Frequency Recurrent occasional 40 Logist. Res. (2011) 3:37–47 One driver of asset specificity in third-party logistics is Analyzing the documents, we found that a considerable the need for customer-specific performance measurement amount of site specificity is conspicuous. Most of the [28]. Usually, the customer places specific demands on the customers insist on a specific location or at least stipulate service provider concerning performance measurement and that the warehouse must be located in the proximity of their reporting. For example, the third-party logistics company is own manufacturing facilities. Furthermore, they expect required to provide specific key performance indicators and specific investments by the provider such as warehouses, detailed management reports, which enable the customer to warehousing equipment, or computer systems. Consistently monitor the performed service. In order to meet these with these results, Mortensen and Lemoine [34] provide requirements, the provider is forced to invest in specific evidence of extensive usage of ICT tools to support the data-processing procedures or to adapt to the existing information exchange in 3PL relationships. Therefore, monitoring systems of the customer. Likewise, specialized physical asset specificity seems to be a frequent charac- workforce is necessary to fulfill these special demands. teristic of third-party logistics. In the case of outsourcing, Summing up, the construct of specific adaptations cov- the provider is typically requested to use existing assets of ers the phenomena of specific investments as well as of the customer. Likewise, human asset specificity exists on a behavioral adaptations by both the provider and the cus- regular basis. Usually, there is a need for additional per- tomer. Therefore, new scales have been developed to sonnel at the demanded location or at least a need for measure providers’ adaptations and customers’ adapta- training, to meet the specific requirements of the customer. tions. In this research, these scales are based on the items As expected, most of the customers place specific used by Knemeyer and Murphy [26] and Sharland [42]. demands on the service provider concerning performance measurement and reporting. With a few exceptions, there is limited willingness of the customers to accept providers’ 3 An exploratory study of third-party logistics tender performance measures. Generally, the willingness of the documents customer to adapt to the provider seems to be low. The vast majority of the documents call for one-sided adaptations by Literature emphasizes the importance of asset specificity the third-party logistics provider. and adaptations by third-party logistics providers. To gain some insight into the practice of the design of third-party logistics relationships and actual adaption practices, a 4 Hypotheses on alternative approaches to relationship preliminary study of tender documents has been conducted. adaptation Fifteen third-party logistics tender documents (requests for quotations) have been analyzed. Two major European Previous research concerning the influence of specific third-party logistics companies made these documents investments and behavioral adaptations on the performance available to the author. Eight documents relate to cus- of close business relations has presented contradictory tomer-specific distribution and warehousing. Seven docu- results. Knemeyer and Murphy [26] found that the level of ments request for physical supply or logistics services in specific investments by a provider is not related to a buy- manufacturing, e.g., sequencing activities and materials er’s perception of 3PL performance. Furthermore, rela- handling. Most of the customers belong to the automotive tionship marketing suggests limited influence of sellers’ industry. Based on the results of literature research, this adaptations on customer satisfaction [6]. In contrast, cus- analysis was focused on the required specificity (site tomers of third-party logistics firms expect tailored logis- specificity, physical asset specificity, and human asset tical solutions [43]. Furthermore, the transaction cost specificity), the intended procedure of performance evalu- theory expects a positive impact of asset specificity on the ation, the expected behavioral adaptation by the provider, performance of 3PL. Specific assets improve the perfor- and the willingness of the customer to adapt to the mance of 3PL relationships, because the usage of specific provider. assets enhances the productivity of third-party services in Typically, a request for quotations consists of a text comparison with general purpose technology [53, 54]. body of more than 50 pages that describes the current state Following the transaction cost theory, a positive relation- and the specific customer requirements. Additionally, most ship between a customer’s perception of the 3PL perfor- of the requests include an extensive appendix. Examples mance and the level of specific adaptations made by the are warehouse layouts, annual demand figures, and per- provider is expected: formance indicators of the existing equipment. Each doc- H The level of specific adaptations by the provider ument describes an individual case and shows individual influences the customer’s perception of the third-party structure and style. Therefore, the qualitative method of explorative document analysis has been applied [15, 45]. relationship performance positively. 123 Logist. Res. (2011) 3:37–47 41 As shown above, document studies of request for quo- customer on customer loyalty seems to be rather negative. tations demonstrate limited willingness of the customers to Nevertheless, following transaction cost theory, customers’ adapt to the providers systems and procedures. One investments in specific assets could support customer loy- important reason for this phenomenon could be that one’s alty due to effects of customers’ dependency on the pro- own adaptations increase customers’ cost and therefore vider. If adaptations by the customer occur, ‘‘such exert negative influence on customers’ perceptions of third- transactions give rise to bilateral dependencies, in that the party logistics relationship performance. In general, Morris parties have incentives to promote continuity, thereby to et al. [33] postulate a low willingness of customers to safeguard specific investments’’ [54, p. 9]. Furthermore, change their behaviors and procedures in order to enhance Hofer et al. [22, p. 149] found that ‘‘a customer is more cooperation with their suppliers. Artz [3] shows a negative likely to partner with a 3PL when it perceives itself to be relationship between the level of customers’ specific dependent on the 3PL’s expertise in providing logistics investments and the performance of supplier–customer services.’’ Therefore, in this paper a positive relationship is relationships. Likewise, Heide and Stump [19] found assumed: evidence of a negative impact of own investments in sup- H The level of specific adaptations by the customer plier-specific assets on the perception of relationship per- influences the customer’s loyalty positively. formance. We can assume that these general effects are also observable in the special case of third-party logistics Although no direct impact of adaptations on customer relationships. This leads to the following hypothesis: satisfaction is considered in this research, the construct of customer satisfaction is included into the model to mediate H The level of specific adaptations by the customer the relationship between performance and loyalty. The influences the customer’s perception of the third-party positive relationship between performance and customer relationship performance negatively. satisfaction is a widely recognized phenomenon in con- As shown in the literature section, third-party logistics sumer marketing as well as in business-to-business mar- relationships based upon specific investments and adapta- keting. For example, Patterson et al. [37] provided tions by the provider to perform the demanded logistics evidence of a positive impact of performance on customer efficiently and to fulfill customers’ special requirements. In satisfaction in business-to-business relationships. More- such a kind of business, customer loyalty is crucial, over, Homburg et al. [24] demonstrate positive influences because switching costs are extensive. For example, of perceived quality and perceived flexibility on the satis- switching costs are caused by contract penalties or a loss in faction of industrial customers. the value of specific assets [53]. To safeguard these specific In marketing research, customer satisfaction is recog- assets, third-party logistics relationships are predicated on nized as a main influence of loyalty [30, 40]. For example, long-term contractual arrangements with contract periods Daugherty et al. [9] show that buyers’ satisfaction of gro- between 3 and 5 years and the opportunity to renew the cery, drug, and discount chain stores has a strong impact on contract. Furthermore, asset specificity contributes to the their loyalty. Consequently, positive connections are commitment of both parties, resulting in a trustful rela- also hypothesized in the case of third-party logistics tionship between the partners. Kwon et al. [27] proved that relationships: supply chain partners’ investments increase the level of H The customer’s perception of the third-party rela- trust between the partners, because these investments are tionship performance influences the customer’s satisfaction perceived as a signal of commitment. Transaction-specific with the third-party logistics relationship positively. investments exceed positive influence on customer’s per- ception of a provider’s benevolence, because these adap- H The customer’s satisfaction with the third-party tations demonstrate the willingness of the provider to logistics relationship influences the customer’s loyalty support and maintain the relationship [22]. These ideas positively. suggest the following hypothesis: H The level of specific adaptations by the provider 5 Method: an analysis based on structural equation influences the customer’s loyalty positively. modeling On the other hand, Kwon et al. [27] consider that a customer’s own investments exert a negative influence on 5.1 Sampling and data collection the level of trust in the other party. Heide and John [19] provide evidence that customers’ investments in specific To examine the six hypotheses, a two-part questionnaire assets reduce the likelihood to control the supplier. At the was designed. The first part of the questionnaire consists of first glance, the influence of specific adaptations of the general questions about third-party logistics. The second 123 42 Logist. Res. (2011) 3:37–47 part refers to a specific third-party logistics relationship of the totality of the model parameters. Therefore, these the company. Reflective multi-item scales were used to procedures require very large samples, especially if models measure the constructs. Proven scales were modified to be are complex [5]. In contrast, the PLS estimation is based on suitable for the third-party logistics business [6, 9, 26, 42, a set of distinct multiple regressions. Following the rec- 46]. ommendations of Chin and Newsted [8], the sample size in As there is no directory of ‘‘3PL-customers’’ available in PLS estimation should be at least ten times either the Germany, we addressed the invitation letter to well-known largest number of formative indicators or the largest customers and to companies we regarded as probable users number of independent variables influencing a dependent of third-party logistics services. Following this procedure, variable of the structural model. In this research, the the questionnaire was distributed by e-mail to 400 measurement model consists of reflective indicators purchasing or logistics managers in industry and trade. exclusively. Therefore, only the second criterion is rele- Furthermore, the logistics newsletter of the German vant. The dependent variable with the largest number of Association of Purchasing and Logistics (BME) was used predictor variables is ‘‘loyalty.’’ This number is 3. Thus, to enlist additional participants. In total, 79 customer the number of usable cases should be at least 30. Based on questionnaires were returned, resulting in a response rate of this recommendation, the sample meets the sample size 19.7%. Out of this, 51 firms are actually involved in third- requirements of PLS. In comparison, AMOS would esti- party logistics relationships. Therefore, 51 cases are mate 67 parameters simultaneously and consequently available for statistical evaluation. A non-response bias test would need more than 300 cases following the recom- was conducted to examine differences in early and late mendations of Bentler and Chou [5]. Furthermore, the PLS returns [2] and showed that non-response bias is unlikely to approach is more suitable for explorative studies where the be an issue in interpreting the results of this study. level of theoretical knowledge and the availability of proved scales is rather low [7]. 5.2 Structural equation modeling with partial least square (PLS) 5.3 Measurement assessment Structural equation modeling (SEM) has been used to An important precondition for structural equation modeling prove the hypotheses. The SEM approach combines a path is measurement assessment of each single construct, model (relationships among the constructs) and a mea- especially in the case of new or modified scales. In this surement model (set of items for each construct) [17, 18]. study, the path model consists of five latent variables. Figure 2 shows the hypothesized path model. The mea- According to the chosen scales, a reflective measurement model was employed. Reliability analysis and explorative sures are given in the ‘‘Appendix’’. SmartPLS 2.0 [39] was selected for data analysis. This factor analysis using SPSS were performed. The evaluation structural equation modeling (SEM) software package is an is based on the criteria provided by Hair et al. [18]. After application of the partial least square method (PLS) [7, 48]. scale purification, the analysis results in unidimensionality In contrast to covariance-based procedures, the PLS algo- of each construct and sufficient degrees of reliability and rithm is appropriate if the model is complex and the sample convergent validity (Table 1). size is small [7]. Covariance-based SEM procedures such Finally, SmartPLS was used to evaluate the scales of the as LISREL or AMOS perform a simultaneous estimation of model. Common criteria to evaluate reflective measures of PLS path models are the average variance extracted, the composite reliability and the communality (Stone-Geisser Performance Q )[7]. The results of these calculations are shown in of the Relationship Table 2. Each of the constructs meets the requirements. Adaptations by the Provider 6 Quantitative results Customer’s Satisfaction The path relationships (standardized regression coeffi- Adaptations by the cients) of the model have been estimated using SmartPLS. Customer Additionally, the bootstrap procedure [12, 13] has been used with 50 cases and 200 samples to obtain t-statistics in Customer’s Loyalty order to evaluate the significance of the parameters. The results of these estimations are shown in Table 3 and Fig. 3. Fig. 2 Hypothesized path model 123 Logist. Res. (2011) 3:37–47 43 Table 1 Reliability and Construct Indicator Cronbach alpha Loading Variance explained validity of the measuring model [0.7 [0.7 [50% (calculations using SPSS) Performance of the relationship (PERF) PERF1 0.84 0.797 76.71 PERF2 0.897 PERF3 0.928 Satisfaction (SAT) SAT2 0.93 0.947 75.87 SAT3 0.883 SAT4 0.850 SAT6 0.886 SAT7 0.769 SAT8 0.882 Loyalty (LOY) LOY1 0.72 0.828 64.30 LOY2 0.740 LOY4 0.834 Adaptation by the provider (PSPEZ) PSPEZ1 0.74 0.926 66.87 PSPEZ2 0.859 PSPEZ5 0.641 Adaptation by the customer (CSPEZ) CSPEZ1 0.76 0.908 68.56 CSPEZ2 0.898 CSPEZ4 0.652 Table 2 Evaluation based on Average variance Composite Stone-Geissers Q Cronbach SmartPLS extracted reliability (communality) alpha [0.6 [0.7 [0 [0.7 Performance of the 0.77 0.91 0.77 0.85 relationship Satisfaction 0.76 0.95 0.76 0.93 Loyalty 0.64 0.84 0.64 0.72 Provider’s adaptations 0.67 0.85 0.67 0.74 Customer’s adaptations 0.67 0.85 0.67 0.76 Table 3 Parameter estimation PLS path Bootstrap Standard t-value Significance (calculation with SmartPLS) coefficient sample mean error PSPEZ ) PERF H 0.63 0.63 0.084 7.536 0.000 CSPEZ ) PERF H -0.41 -0.39 0.115 3.556 0.000 PSPEZ ) LOY H 0.37 0.36 0.125 2.918 0.004 CSPEZ ) LOY H 0.25 0.26 0.110 2.301 0.021 PERF ) SAT H 0.91 0.91 0.030 30.079 0.000 SAT ) LOY H 0.41 0.43 0.157 2.625 0.009 Each of the hypotheses is fully supported by the anal- expect connections between relationship performance, ysis. In support of H , there is evidence that adaptations by customer satisfaction, and customer loyalty. The data also the third-party logistics provider (PSPEZ) exert positive strongly support these hypotheses. Therefore, the direct direct influence on the performance of the relationship impact of perceived provider adaptations on customer (PERF). As H predicts, the estimation indicates that third- loyalty is strengthened by an indirect influence mediated by party logistics provider’s adaptations exert positive influ- relationship performance and customer satisfaction result- ence on the degree of loyalty (LOY). In H and H ,we ing in a strong total effect of 0.60. 5 6 123 44 Logist. Res. (2011) 3:37–47 The first implication of this study relates to the impor- Performance of the tance of providers’ specific adaptations. As shown in the Relationship results section, sufficient behavioral adaptations and/or Adaptations transaction-specific investments by providers are crucial by the Provider for third-party logistics performance and customer satis- faction. Adaptations by the service provider are an essential Customer’s Satisfaction element of the third-party logistics business and therefore Adaptations being expected by the customer [21]. As predicted by the by the confirmation–disconfirmation paradigm [35], insufficient Customer adaptations by the provider lead to poor performance *** p < 0.01 Customer’s evaluations and hence to customer dissatisfaction. Conse- ** p < 0.05 Loyalty * p < 0.1 quently, we suggest that third-party logistics providers should adapt their own systems and procedures to cus- Fig. 3 Approved path model (Standardized Regression Coefficients) tomers’ specific requirements. Examples are the acceptance of customer-specific locations, the usage of existing facil- ities, and the application of customers’ IT systems. Fur- Since one’s own adaptations are recognized as an thermore, logistics providers should enhance flexibility and additional effort, there is a negative impact of specific customer orientation as well as the skills and the expertise adaptations by the customer (CSPEZ) on the level of per- of own personnel in order to meet the specific requirements ceived relationship performance. If customers have to of the customer. adapt to providers, they will judge the performance of the On the other hand, since one’s own behavioral adapta- resulting relationships as inadequate. Therefore, the data tions and specific investments are sensed as an effort, there support H . Furthermore, the strong positive impact of the 2 is a negative impact of customers’ adaptations on rela- perceived relationship performance (PERF) on customer tionship performance. This result corresponds to the satisfaction has to be considered (H )—this impact causes 5 insights of Artz [3] and Heideand Stump [20] concerning an indirect negative effect of customer’s adaptations on the adaptations of customers in general supplier–customer customer satisfaction (-0.37). relationships. Nevertheless, maybe this is rather a matter of The positive direct effect of the adaptations by the customers’ preconception than of their rational assessment. customers on the degree of their loyalty (LOY) corresponds Therefore, customers should seriously evaluate own con- to the predictions of the transaction cost theory that tributions and be aware of possible positive effects of own assumes mutual commitment in the case of partner-specific adaptations. Especially, they should assess the application adaptations [50, 54]. Thus, the data support H . However, 4 of efficient approaches such as multi-user warehouses this direct effect will be slightly weakened by a negative without prejudice. indirect effect of CSPEZ on LOY (-0.15), mediated by Thirdly, providers’ adaptations exert strong positive PERF and SAT. In total, the influence of CSPEZ on LOY direct and indirect effects on the degree of customer loy- is positive (0.10). alty. Therefore, providers should accept specific invest- The coefficients of determination (R ) for each depen- ments such as specific locations to maintain third-party dent construct deliver insight into whether the independent logistics relationships and enhance the probability of con- variables of the model exert substantial influence on this tract renewal. Fourthly, this study provides evidence that construct [7]. Altogether, the values of the coefficients of the total effect of customers’ adaptations on customer determination (R-square) of PERF (R = 0.53), SAT loyalty is positive. This leads us to suggest that providers 2 2 (R = 0.82), and LOY (R = 0.53) give evidence that the should promote moderate customers’ behavioral adapta- model is appropriate. tions and customers’ investments in specific assets. In the long run, customers’ adaptations may increase the proba- bility of contract renewal. However, this paper has also 7 Discussion and management implications highlighted the negative influence of these adaptations on the perceived level of performance and on customer sat- This study delivers a better understanding of the nature of isfaction. Therefore, in a provider perspective, specific partner-specific adaptations and the influence of these adaptations should be mutual in order to equalize negative adaptations on the performance of third-party logistics influences of customer adaptations on performance by the relationships and on customer’s loyalty. These findings positive effects of provider adaptations. This outcome have some consequences and helpful managerial corresponds to the predictions of the transaction cost theory implications. that assumes mutual commitment in the case of partner- 123 Logist. Res. (2011) 3:37–47 45 specific adaptations [50, 54]. On the other hand, customers Table 4 continued should be careful with their own adaptations to avoid one- Construct Indicator Statement Source sided dependence caused by being locked into the rela- Loyalty LOY1 The relationship that my firm has [9] tionship. Summing up, managers involved in third-party with this third-party logistics (adapted) logistics should be aware of the complex consequences of provider is something we are very committed to specific adaptations on customer loyalty. LOY2 The relationship that my firm has with this one is something we intend to maintain indefinitely LOY3 The relationship that my firm has 8 Suggestions for future research with this provider deserves our maximum effort to maintain There are several limitations to this study that should be LOY4 Maintaining a long-term relationship with this provider is very important dealt with in future research. The most important limitation to my firm is the small size of the sample. The reason for this small Satisfaction SAT1 Our firm regrets the decision to do [6, 9] sample size is the comparatively small number of third- business with this provider party logistics relationships operating in Germany. SAT2 Overall, we are very satisfied with this provider Although PLS is a suitable method, larger samples would SAT3 We are very pleased with this allow to use covariance-based methods like AMOS or provider’s work LISREL. The most important advantage of AMOS or SAT4 Our firm is not completely happy LISREL is the availability of goodness-of-fit statistics to with this provider evaluate the overall quality of a structural equation model. SAT5 If we had to do it all over again, we would still choose to use this Further research should try to receive larger samples by provider collecting data in more than one single country. SAT6 We are delighted with our overall business relationship with them Second, this research is focused on customers’ percep- SAT7 We wish more of our providers were tions of partner-specific adaptations and third-party logis- like this one tics relationship performance. It is conceivable that SAT8 It is a pleasure to deal with this providers would have divergent perceptions and points of provider view. We can especially assume that from a provider’s SAT9 There is always some problem or another with this provider perspective, the effects of adaptations by the customer on Adaptation by PSPEZ1 This third-party has changed its way [26, 42] performance and loyalty are not the same as in the case of the provider of working to be able to cooperate (adapted) customers’ data. Therefore, additional work should inves- with its business PSPEZ2 This third-party has tailored its tigate providers’ perceptions of partner-specific adaptations services and procedures to meet the and third-party logistics relationship performance. specific needs of our company PSPEZ3 This third-party would find it difficult to recoup the investments in our company if our relationship were to Appendix end PSPEZ4 This third-party made considerable investments in tools and equipment See Table 4. in its relationship with us PSPEZ5 Gearing up to deal with us required highly specialized tools and Table 4 Items used in the questionnaire equipment Adaptation by CSPEZ1 We changed our way of working to [26, 42] Construct Indicator Statement Source the customer cooperate with the business of this (adapted) provider Performance PERF1 My firm’s association with this [46] of the service provider has been a highly (adapted) CSPEZ2 We have tailored our procedures to relationship successful one meet the specific needs of this provider PERF2 This third-party logistics service provider leaves a lot to be desired CSPEZ3 We would find it difficult to recoup from an overall performance our investments in this provider if standpoint our relationship were to end CSPEZ4 We have made considerable PERF3 If I have to give this service provider a performance appraisal for the past investments in tools and equipment year, it would be outstanding in our relationship with this provider PERF4 Overall, I would characterize the results of my firm’s relationship CSPEZ5 Gearing up to deal with this provider with this service provider as having required highly specialized tools exceeded our expectations and equipment 123 46 Logist. 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Journal

Logistics ResearchSpringer Journals

Published: Feb 15, 2011

References