Warehousing firms: The impact of alliance involvement

Journal of Business Logistics, 1995 by Rogers, Dale S, Daugherty, Patricia J

In recent years, many firms have adopted a new strategic orientation emphasizing the development and maintenance of enduring, long-term customer relationships.(1) Benefits associated with long-term customer relations have been well documented, prompting reconsideration of traditional buyer-seller interactions. Creating closer relationships is especially important within service industries because short-term service relationships are typically more expensive to develop.(2) In contrast, repetitive or continuing exchanges are usually characterized by lower costs per transaction.

Buyer-seller relationships can generally be classified as either transactional or relationship-oriented.(3) Alliances fall into the latter category and represent an "entirely new way to think about business partnering" moving "from a transactional relationship, predicated on a series of single transactions, to one based on mutual dependency and trust..."(4) Alliance partners are motivated by the potential for generating synergy through reduced costs, new opportunities, and/or increased access to expertise.

Because of the purported benefits associated with closer, alliance-type relationships, the authors conducted an empirical investigation into the impact of alliance development on firms' operations. Specifically, the research examined alliance involvement among a select group of logistical service providers: warehousing firms. The intent was to identify differences between relationship-oriented warehousing firms and transactional warehousing firms regarding their operations and service capabilities.

RELATED LITERATURE

Following is a brief overview of relevant literature covering the evolution in buyer-seller relationships and alliance formation as applied to logistical service relationships.

Make or Buy

Logistical support is critical to meeting the challenge of distributing products and services in a timely and cost effective manner. Product proliferations, multi-location operations, expanded domestic and global markets, and escalating customer service expectations compound the demands placed upon distribution systems. Organizations must decide whether to produce needed logistical services internally or purchase them from external service providers--commonly referred to as the "make or buy" decision.

The feasibility of using intrafirm resources to "make" needed services is evaluated in terms of cost, convenience, internal capacity and capabilities, and control of quality.(5) The assessment of internal capabilities is then compared to services available externally. Factors used to evaluate external vendors include cost; quality; delivery: supply assurance; control; fit with corporate objectives; strategy; social, political, and environmental concerns; secrecy; market conditions; and excess capacity.(6)

Trends among United States firms indicate changes in traditional buyer-seller relationships, particularly with respect to logistical services. Longer term, cooperative relationships between buyers and sellers are becoming more common.(7) Many firms have changed from their traditional preference of "making" all of their own distribution needs to buying all or a portion externally. Firms are critically examining the need to own all of their logistics and distribution systems and the expensive asset management requirements that are usually associated with such ownership.

Historically, the decision to outsource has been predicated on desires for efficiency improvements. Today, the decision to buy needed services rather than produce them internally is often influenced by the desire to maintain strategic flexibility.(8) Many firms are now using outsourcing as a key part of their strategic focus. Quinn notes that while many have disparaged outsourcing of services as "hollowing out," which leads to noncompetitiveness, the "real effects have proved just the opposite." Many firms have been able to leverage their core competencies by forming coalitions with "best-in-class" service providers. Further, according to Quinn, "for maximum long-term strategic advantage, companies focus their own internal resources on a relatively few basic sources of intellectual or service strength--or classes of service activities--which create and maintain a real and meaningful long-term distinctiveness in customer's minds."(9) It makes sense to concentrate on what one does best and is most important, and to procure assistance in areas of weakness or lesser importance. A firm can maintain strategic focus by concentrating on core competencies and developing long-term relationships with service firms to provide those capabilities that it cannot make as efficiently or effectively as external service providers.

Buyer-Seller Relationships

In a traditional adversarial buyer-seller relationships, each party seeks to leverage its power--often to the detriment of the other. Such situations are much more rare today than they have been in the past because of increased recognition of the desirability of establishing cooperative relationships and the associated sharing of information, risks, and rewards.(10) The extent and type of cooperation can vary considerably. Figure 1 presents one approach illustrating the wide range of working relationships that can be entered into by buyers and sellers. (Figure 1 omitted) As shown, buyer-seller interactions range from discrete, transaction-oriented to closer relationship or alliance type exchanges.(11) The types of interaction are arrayed along the continuum based upon the degree of formalization and commitment involved.