What Drives the Choice of a Third-Party Logistics Provider? essay
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Brief Statement of the Author’s Purpose
The broader objective of the authors involves exploring the buyer-supplier relationships wherein the main challenge revolves around having a better understanding of the how customers, having dissimilar needs, value each service component differently when selecting a service provider (Anderson, Coltman, Devinney, & Keating, 2011). Specifically, the primary objective of the authors is to identify the factors that are important with regard to a customer’s preference of a logistics service provider. In order to achieve this research objective, the empirical focus adopted by the author is twofold: exploring the service components that matter most when selecting a third partly logistics provider; and ascertaining whether the preferences of different customers are sufficient to facilitate segmentation.
Model, Theory, or the Treatment Being Discussed
The primary premise adopted by Anderson, Coltman, Devinney, & Keating (2011) is that customers often differ regarding their preferences for 3PL service providers (heterogeneity) and that customizing logistics service packages to meet the needs of various customer segments can play an integral role improving the perceived value of the 3PL service offering (segmentation). In order to remain with segmentation and heterogeneity as a model for understanding buyer-supplier relations with regard to 3PL service provider selection, the author highlights the weaknesses of other theories in explaining the nature of 3PL selection process. The authors discusses a number of theories and models for understanding the 3PL service provider selection process and discusses their limitations when it comes to explaining the 3PL selection process. Some of the theories taken into account include the Transaction Cost Economics theory, theories drawn from the Resource-Based View (RBV), and Resource Advantage theory of competition.
According to TCE, the buyer often selects a provider offering with the greatest efficiency as regards monitoring, adapting and planning costs; therefore, risk prevention and costs competencies among the competing 3PL providers tend to determine the choice of the provider (Flint, Larsson, & Gammelgaard, 2005). However, Anderson, Coltman, Devinney, & Keating (2011) insist that TCE fails to offer a complete picture regarding the complexity of the decision-making process during 3PL provider selection; this is because supplier preference is determined by the perceived value due to outsourcing and the need by buyers to make the most of the benefits emerging from the outside supplier relationships. With regard to RBV, 3PL providers are likely to win contracts if they present the potential customers with unique capabilities not offered by their competitors. It can be noted that this leans towards segmentation (Floetker, 2005).
As aforementioned, the main predisposition held by Anderson, Coltman, Devinney, & Keating (2011) is that different attributes have relative importance with regard to the choice of 3PL service provider. Some of the attributes include logistics performance such as reliability and delivery speed; technology such as IT related capabilities; flexibility; and relational attributes among others. In the line of this view, the author proposes that buyers are likely to trade off between various attributes that tend to both create value and minimize the transaction costs; however, the final preference for a 3PL provider depends on the specific degrees of each attribute instead of simply weighting the attributes (Floetker, 2005).
Basing on the heterogeneity among buyers, Anderson, Coltman, Devinney, & Keating (2011) proposes that different buyers have dissimilar preferences when selecting 3PL service providers and that these preferences are satisfactorily divergent so that 3PL service providers can identify segments having positional advantage.
Settings/Situation of the Research
The study embarked on evaluating the degree of demand for the various service attributes provided by the various 3PL providers. Modeling the choices response for the service attributes were achieved using Discrete Choice Analysis (DCA). The authors used 10 service attributes and provided their relative definitions. They included reliable performance (consistency in time and delivery without loss or damaging the shipment); delivery speed (the time duration from pick up to delivery); customer service (effective and prompt handling of customer queries and requests); track and trace (transparency regarding the shipment’s location); customer service recovery (prompt addressing of problems relating to customers); and supply chain flexibility (being able to adapt to the changing customer needs). Other service attributes used in this study included proactive innovation, supply chain capacity and relationship orientation. The study required that respondents rate the service attributes between 1 and 5 with 1 denoting not critical and 5 denoting absolutely critical. The study used a sample of 309 Asia Pacific companies, which is relatively large enough to provide diverse outcomes and guarantee the reliability and validity of the study.
Discussion of Managerial Implications
The study provided important insights regarding how 3PL service providers can gain competitive advantage. From the study, it is evident that most 3PL service provider preference is determined by four main factors, which include reliable delivery performance, price, customer recovery, and being easy to deal with. The authors reported that these are the most critical variables that influence the selection of 3PL service providers (Anderson, Coltman, Devinney, & Keating, 2011). However, a significant challenge for 3PL providers is to evaluate the value that buyers are placing on their various service offering; in doing so, they can focus on providing the perfect service to the ideal customer segment (Flint, Larsson, & Gammelgaard, 2005). The study has been able to identify three main segments with regard to the provision of 3PL services. The first segment includes firms concerned with customer service recover, customer interaction and reliable performance; the second segment includes firms concerned primarily with reliable performance; the third segment comprises of firms concerned mainly with price.