Dependence in relation to typologies of outsourced logistics activities 51 

activities 

Logistics management activities can be separated into two; activities concerning physical flows such as handling, storage and transportation, and activities concerning information flows such as invoicing, goods clearance and order entry (Van Damme and Ploos van Amstel, 1996). But as mentioned introductorily, outsourced activities can be classified more thoroughly (Wilding and Juriado, 2004).

The first category presented is related to transport and shipment operations, such as shipment planning, fleet management, freight payment and auditing (Boyson et al. 1999), line haul and network based transport (van Laarhoven, 2000).

Second category refers to warehousing and inventory activities which include storage, order picking, inventory management and various warehousing operations (van Laarhoven, 2000; Boyson et al. 1999).

Thirdly, operations related to information systems are mentioned, and comprise activities such as track and trace, order entry and forecasting (van Laarhoven, 2000). Last, Wilding and Juriado (2004) introduce a category related to value added services. This group represents activities like packaging and final assembly (van Laarhoven, 2000), which indicate that these operations are commonly performed by a manufacturer at the end of the supply chain. Lieb and Randall (1996) name these offerings as “end – of – supply – chain services”, while in a 3PL setting they are generally referred to as value added services.

4.3.1 Bundling 

3PL companies continue to expand their assortment of services offering bundled services including everything from simple transportation to consulting, contract management, information sharing solutions, and financial services (Lieb and Bentz, 2005b; Lieb and Kendrick, 2003). Delfmann et al. (2002) presents a model consisting of four different types or clusters of 3PL providers based on their standardization of the services offered. The first group provides standardized services like transportation and warehousing. Secondly, they propose a cluster of providers who offer bundled services, where the standardized services are put together on packages which fulfill the customer’s special requirements and

demand. The third group comprises services which are highly customized (Delfmann et al. 2002). Reports indicate that by offering supplementary services, 3PL providers can enter segments of the supply chain with higher value adding services than the generally offered transport – and warehousing related services. Transportation and warehousing services are rapidly becoming commodities with low involvement from clients, low margins, and stability of relations. In other words, by expanding the scope of services, the logistics service provider can deepen the relationship with customers, and possibly give the

provider a position as value added solution supplier (van Hoek, 2000). But customers seem to show little or no interest in these solutions. This is supported by evidence from industry surveys which show that buyers of 3PL services prefer to outsource transport- and

warehouse – related functions. The bulk of logistics services bought are to be found in the areas of transportation and warehousing (Lieb and Bentz, 2005b; Lieb and Kendrick, 2003). Especially value – added solutions such as information systems are marked by low

priority, and perceived as too important to outsource. Organizations have expressed their reservation about the 3PL service providers’ capabilities with information systems, and suggest that many of the existing systems are supply-driven. Even though 3PL providers wish to offer IT related services and have made relatively large technological investments, the systems seem to disregard the shippers’ requirements and needs (Wilding and Juriado, 2004).

On the other hand, it has been stated that in essence, organizations outsource clusters of non-core operations which create “strategic subsystems” (Rabinovich et al., 1999). The activities in these clusters have a mutual influence on what customers recognize as important product attributes. Equally, they commonly share operational skills, processes, technologies and transactional information. Research support this by demonstrating that shippers outsource services in bundles by combining activities that share common elements like transactional similarities and information flows (Ellram and Maltz, 2000; Rabinovich et al., 1999). Additionally, Rabinovich et al. (1999) introduced survey results revealing that organizations outsource bundled functional activities in distinct patterns with the objective of achieving efficiency gains replicated in the attainment of economies of scale, scope, and conjunction. The result indicates that companies outsource bundled transactional and physical functions within inventory and customer – service areas. They also provided outcomes signifying that companies “bundle the outsourcing of logistics information systems with the information flows across transactional functions such as inventory management and shipment planning” (Rabinovich et al. 1999).

Since customers provide suppliers a large share of their sales revenue, suppliers tends to be dependent upon its customers. Typically, the larger the percentage of the revenue, or the bigger the supplier pool customers can choose a service, the greater the supplier’s

dependence on its client. Nevertheless, supplier dependence can be counterbalanced if the supplier, hence the 3PL provider, offers relatively unique logistics services or invests in assets required by the customer which is not possessed by potential suppliers in the market (Hart and Saunders, 1998).

This study has previously stated that 3PL providers are continuously in search for a deeper relationship with their customers, and they approach this by offering relatively customized value adding service in bundles, e.g. information sharing system and expediting

activities, which commonly share elements like transactional similarities and information flows (Ellram and Maltz, 2000; Rabinovich et al., 1999).

In situations where the supplier is dependent on the customer, Hart and Saunders (1998) state that, “the customer may exert power over the dependent supplier to influence that firm to adopt EDI”. Just as Hart and Saunders’ (1998) argue about the possibilities of counterbalancing this supplier dependence, 3PL provider’s dependence might be offset by offering customized, bundled logistics solutions to its 3PL clients.

Derived from this interpretation, we expect that the 3PL clients’ dependence upon the 3PL provider increase in situations where the client outsources services in bundles.

H3: The more dependent the 3PL clients become by bundling their outsourced logistics services, the greater is the 3PL providers’ power to influence its client to integrate electronically.