Literature search and literature review - Outsourcing logistics activities


Essay, 2012
14 Pages, Grade: 2

Excerpt

TABLE OF CONTENT

1. INTRODUCTION

2. DETERMINE KEY TERMINOLOGY

3. DRIVERS OF OUTSOURCING
3.1. WHY OUTSOURCE?
3.2 WHAT LOGISTICS FUNCTIONS SHOULD BE OUTSOURCED?
3.3 HOW TO MANAGE SATISFACTION WITHIN A 3PL PARTNERSHIP?

4. MANAGING RISKS AND PROBLEMS WITHIN AN OUTSOURCING-RELATIONSHIP

5. DISCUSSION AND CONCLUSION

REFERENCE LIST

1. INTRODUCTION

The business world offers numerous examples of companies sourcing their activities out. This literature review will put emphasis on companies that engage with a third-party that provide logistics services to them. Third-party logistics (TPL), which can be perceived as outsourcing logistics, has been receiving considerable amount of attention within the academic world (e.g. Lieb and Bentz, 2004, 2005; Lieb and Randall, 1999; Cooper and Johnstone, 1990; Fernie, 1989; Marasco, 2007). This trend has been dominating both the business world and the academic world since the 1980s (Stalk, Evans and Shulman, 1992; McKinnon, 1999) and yet, this topic doesn’t seems to be exhausted. While Porter (1985) illustrate the Value Chain, he argues that organisations need to assess their activities in their value chain and evaluate whether they create a competitive advantage by executing this activity in-house. If they do not achieve so, he continues by suggesting outsourcing that activity. Hsiao et al. (2009) distinguish between core business outsourcing and non-core business outsourcing. A firm’s core business or core competencies can be designated as “the collective learning in the organization, especially how to coordinate diverse production skill and integrate multiple streams of technologies” (Prahalad and Hamel, 1990). Core business outsourcing can be understand as activities such as product design, development, manufacturing, marketing, and sales (Facanha and Horvath, 2005), and research has proven that this business conduct may have positive effects in order to be responsiveness to inconsistencies in demand (Dabhilkar and Bengtsson, 2008; Jiang et al, 2007). The non-core business in manufacturing industry incorporates activities such as IT, HRM, accounting and logistic services (Hsiao et al, 2009). However, this literature review will not focus on outsourcing core business but will concentrate on outsourcing non-core business; in particular outsourcing of logistics activities to TPL. Initially, this paper will draw attention to essential definitions that have been published over the years. This will be followed by an examination to discover the driving forces for this field. The main body will be closing with the highlighting the risk that are associate with outsourcing.

2. DETERMINE KEY TERMINOLOGY

The aim of this chapter is to highlight definitions that are relevant to this review. In regards to TPL there are plenty definitions available within the academic world (Skjoett-Larsen, 2000), however, many scholars indicate that many definitions are not consistent for this idea (Marasco, 2008; Van Laarhoven, Berglund and Peters, 2000). Moreover, it must be mentioned that outsourcing, contract logistics and third-party logistics (3PL) refers to the same concept (Lieb, Millen and Van Wassenhove, 1993).

In the literature, the term outsourcing tends to be used to refer to “the strategic decision to contract out one or more activities required by the organization to a third-party specialist” (Browne and Allen, 2001, p.253). In a similar vein, Lieb (1992, p.29) define outsourcing as

“ the use of external companies to perform logistics functions that have traditionally been performed within an organization. The functions performed by the third party can encompass the entire logistics process or selected activities within that process ” .

These rather broad definitions might have been published in order to embrace any type of outsourcing that has previously been executed internally. Nevertheless, one must also consider definitions that link outsourcing to distinctive functional and/or inter-organisational characteristics of the TPL relationship. A more narrow approach have been contributed by Berglund et al. (1999, p.59):

‘‘ Third-party logistics are activities carried out by a logistics service provider on behalf of a shipper and consisting of at least management and execution of transportation and warehousing. In addition, other activities can be included, for example inventory management, information related activities, such as tracking and tracing, value added activities, such as secondary assembly and installation of products, or even supply chain management. Also, the contract is required to contain some management, analytical or design activities, and the length of the co-operation between shipper and provider to be at least one year, to distinguish third- party logistics from traditional ‘‘ arm ’ s length ’’ sourcing of transportation and/or warehousing ’’

This narrow and elaborate definition underscore the supply chain support and also values the operational activities as well as the minimum extent of the agreed contract between the two parties. It further emphasis the difference between the traditional sourcing of transportation and the more developed term of a third-party logistics provider.

Other scholars put emphasis on the value creation that outsourcing contributes to. Barney (1991) suggest that outsourcing generates value by diverse means and extends the firm’s value creation opportunities. This can be achieved by exchanging internal resources, which are more costly to develop internally, for using external providers. However, it is generally agreed, that outsourcing logistics activities, that have been carried out by the focal firm, range from execution activities, such as transportation, to planning activities, such as transportation planning (Dapiran, Lieb and Millen, 1996; Millen et al., 1997; Razzaque and Sheng, 1998; Sahay and Mohan, 2006).

3. DRIVERS OF OUTSOURCING

Several studies investigating outsourcing have been successfully carried out and a large number of questions were identified and subsequent answers were contributed. Accordingly, Wilding and Juriado (2004, p.629) established a framework, that highlights three key decisions that needs to be answered by an organisation in order determine outsourcing:

- “ Why outsource?
- What logistics functions should be outsourced?
- How to mange satisfaction within a 3PL partnership? ”

This chapter will be built upon this framework accordingly and tends to answer these raised issues in the following sections.

3.1. WHY OUTSOURCE?

Scientists have identified many reasons for the proliferation of contract logistics and the increasing popularity among many business practitioners. The most cited reasons for contract logistics are cost reduction and service improvement (Boyson et al., 1999; Evangelista and Sweeney, 2006; Lieb and Bentz 2005; Koh and Tan, 2005; Maltz 1994; Maltz and Ellram 1997). Furthermore, it has been agreed on other factors that were also driving forces for this trend such as: globalisation (Byrne, 1993; Foster and Muller, 1990), deregulation of the transport industry (McKinnon, 1998), improve productivity (Leahy, Murphy, and Poist 1995), providing more flexibility (Szymankiewicz, 1994; Fernie, 1999) revolution in computers and communication technology (Sheffi, 1990; Sink and Langley 1997), enhancement of asset utilisation increasing (Fernie, 1999) popularity of just-in time (Crumm and Allen, 1998; Razzaque and Sheng 1998), and focusing on core competencies (Leahy, Murphy, and Poist 1995; Prahalad and Hamel, 1990; Razzaque and Sheng 1998; Rao and Young 1994; van Damme and van Amstel, 1996). Mello, Stank and Esper (2008) subsume that the comprehensiveness of reasons for outsourcing demonstrates the many ways in which focal firms may consider contract logistics as apposite in order to cope with these kinds of business challenges.

As indicated, a large and growing body of literature has investigated the reasons for outsourcing, however, Wilding and Juriado (2004) attempt to rank these reasons by using a scoring model. Based on their model, they placed the following reasons into an order: (1) reduce costs, (2) improvement of service levels, (3) increase in operational flexibility, (4) focusing on core competencies and (5) improvement of asset utilisation.

3.2 WHAT LOGISTICS FUNCTIONS SHOULD BE OUTSOURCED?

The definition review in chapter 2 provides the plethora of logistics activities that might be outsourced by the focal firm. Widing and Juriado (2004) have conclusively investigated the different types of logistics activities that have been highlighted by different scholars. These findings, which refer to different industries, have been summarised and can be gathered from Table 1. It must be noted, that the given percentages in brackets refer to the amount that they have been using by the outsourcer. Due to limitations, this literature review will not focus on each finding but will be analysing these findings in a generally way.

According to Table 1 it is evident that some logistical activities were outsourced to a considerable amount. However, these findings also highlight the fact that there are paramount divergences to which extend providers of contract logistics were used on warehousing. Surprisingly, although, many third-party logistics service providers (TPLP) anticipated a lot of demand for their Information Systems (Piplani, Pokharel and Tan, 2004; Marasco, 2008), moreover, these results are proving low priority for contract logistics. In addition, Wilding and Juriado (2004) have proven with their study that the prevailing opinion within the business sector is, that outsourcing information systems seems to be the worst suited activity to be externalised. The last point to mention in regards to these findings is that nearly any logistics function seems to be possible to be outsourced and accordingly is offered by TPLPs (Widing and Juriado, 2004).

It has been demonstrated in literature and also been seen in the business world, that contract logistics should not been perceived as an ‘all or nothing’ business. Consequently, it is not mandatory to outsource the complete facilities but it can be observed as a mixed system. Thus, this combines the use of remaining in-house facilities with complementary third-party activities (Millen et al, 1997).

[...]

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Details

Title
Literature search and literature review - Outsourcing logistics activities
College
Heriot-Watt University Edinburgh  (School of Language and Management)
Grade
2
Author
Year
2012
Pages
14
Catalog Number
V192534
ISBN (eBook)
9783656175506
ISBN (Book)
9783656176190
File size
637 KB
Language
English
Tags
3PL, Third-Party Logistics, Outsourcing, Logistik, literature review, Spedition, Globalisierung, Entwicklung
Quote paper
Sebastian Kress (Author), 2012, Literature search and literature review - Outsourcing logistics activities , Munich, GRIN Verlag, https://www.grin.com/document/192534

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