An internal assessment of logistics value

Journal of Business Logistics, 1994 by Novack, Robert A, Rinehart, Lloyd M, Langley, C John Jr

Throughout the last forty years of the evolution of the logistics discipline, there have been a number of significant attempts to identify and measure the importance of logistics. These efforts include the on-going findings of the Ohio State University research on logistics careers. This research has highlighted the increasing number of organizations that have initiated senior management positions with logistics responsibilities.(1) The "Leading Edge" logistics research at Michigan State University introduced differing organizational formats that help to effectively manage logistics processes.(2) The annual reports on the "State of the Logistics Industry" by Robert Delaney of Cass Logistics have also provided significant support and understanding of the impacts of logistics within the economy.(3) Various studies have also been undertaken to assess the importance of customer service to a firm's products and its competitive positioning.(4)

In general, these efforts have focused on logistics performance but have not included logistics executives' perceptions of the value that logistics in their organizations creates for their external customers. Additionally, previous research has not attempted to identify the relationships, if any, among the performance of logistics activities, quality, and value. This research will address this gap by examining the relationships between logistics activities performed by the firm, the level of logistics quality attained through the performance of those activities, and the logistics executive's perception of value created through the logistics activities.

CONCEPTUALIZING THE DEVELOPMENT OF THE LOGISTICS VALUE PROCESS

The logistics discipline has witnessed an evolution in the use of terminology related to the customer. Initially, the discipline introduced the concept of customer service, which represented the combined output of the logistics functions.(5) Today, however, the term "customer service" applies to all of the service offered by a firm to its customers, not just logistics services. As such, where appropriate, this research will use the term "logistics service" to describe those outputs traditionally identified with logistics processes, such as product availability and order cycle time. Then the output of marketing and logistics activities were linked through customer service to create a level of customer satisfaction, which is the customer's perception of the service provided by the supplier.(6) Most recently, the concept of customer success has been introduced to link the service provided by the firm not only with the satisfaction of the customer, but with the success that the customer realizes in attaining its organizational objectives.(7)

Most of this logistics service research has focused on the external customer, or consumer. However, the logistics executive has three levels of customers to satisfy, as represented in Figure 1. (Figure 1 omitted) Two of these customer groups are internal to the firm. Functional customers, like marketing and manufacturing, require certain logistics services in order for them to be able to accomplish their goals. Executive customers, like the president or CEO of the firm, require certain logistics services so profit or revenue goals can be achieved. The external customer, or consumer, obviously requires logistics services in order to receive the product at the right place, at the right time, in the right quantity. The effects these logistics services have on each customer group cannot be separated i.e., how logistics performs in meeting functional customer requirements will affect how it performs for the other customer groups. What can be different, however, is how each customer group perceives the performance of the logistics service. Value is created by logistics service based on the customer's perceptions of the relationship between the service performed and the service received.(8)

Zeithaml, Berry, and Parasuraman have identified five gaps that occur between providers and consumers of service that impact perceptions of service quality,(9) also shown in Figure 1. Gap 1 is the difference between customer expectations and management perceptions of customer expectations. Gap 2 is the difference between management perceptions of customer expectations and service quality specifications. Gap 3 is the difference between service quality specifications and the service actually delivered. Gap 4 is the difference between service delivery and what is communicated about the service to customers. Gap 5 is the difference between customer expectations and perceptions. This research will address the perceptions of the logistics executive concerning the relationship of logistics service to the value of that service perceived by the external customer, or Gap 1.

To understand the relationships among customer service, quality, and value, a conceptual model of the logistics value process is introduced in Figure 2. (Figure 2 omitted) This model provides the underlying conceptual structure for the development of the constructs to be analyzed in this research. Logistics functions, also known as logistics activities, provide the basis for performing logistics service. Examples include sales forecasting, purchasing, inventory management, transportation, and warehousing. These functions are combined in logistics processes to fulfill logistics service requirements. Meeting customer specifications results in the creation of what has been called mechanistic, or objective, quality.(10,11) Humanistic, or perceived quality, is created when the receiver of the service recognizes that the predetermined specifications have been met.(12,13) When objective quality is consistent with perceived quality, value has been created for the customer.(14) This relationship has also been hypothesized and tested in recent research conducted by Bolton and Drew.(15) Traditional research has examined the relationship between quality and value from the perspective of the customer. This research addresses this relationship from the perspective of the logistics executive, or provider of service. Examining whether or not the logistics executive perceives value has been created is important because it is this perception that is used as an input to the control mechanism of the firm to detect whether customer expectations were met and whether changes in service offerings are necessary. Transaction-specific customer satisfaction occurs when value has been created; satisfaction is a result of confirmation or disconfirmation of expectations.(16)