A comparative assessment of senior and logistics executives' perceptions of logistics value

Journal of Business Logistics, 1996 by Novack, Robert A, Rinehart, Lloyd M, Langley, C John Jr

Distribution was once referred to as the "dark continent" of business.1 This reference was a call to management to realize that distribution, or logistics, is one of the few remaining areas in business that can be used to gain a competitive advantage. Logistics academics and practitioners have attempted to convince upper management and other functional managers of the importance of logistics to the success of their organizations. The importance placed on logistics within the organization is partially based on senior management's perceptions of the importance of the logistics function and processes. Measuring these perceptions can give insights into not only whether logistics is considered important to the organization, but also how logistics can play an important role in accomplishing organizational goals.

Previous research has presented results on logistics executives concerning their perceptions of whether and how logistics adds value.2 However, these attempts must be expanded to include the perceptions of others within the organization who have decision-making power and who have influence over the importance given to any one functional area. The purpose of this research is to present a comparative assessment of the logistics executive and senior executive perceptions of logistics value.

CONCEPTUALIZING THE DEVELOPMENT OF THE LOGISTICS VALUE PROCESS

Most research of customers has focused on the external customers of the firm. These customers can be classified as organizational customers in business-to-business transactions or as the ultimate consumer at the end of the logistics channel. However, the logistics executive has three groups of customers to satisfy. Exhibit 1 is a representation of these customer groups.

Zeithaml, Berry, and Parasuraman have identified five gaps between providers and customers of service that affect perceptions of service quality.3 These gaps have been identified in the appropriate locations in Exhibit 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; and, Gap 5 is the difference between customer expectations and perceptions. This research will address a dimension of Gap I in this model-the perceptions of logistics executives and senior executives concerning the value of logistics service provided to the external customer.

Two of these customer groups are considered to be internal to the firm.4 First, logistics has functional customers, such as marketing and engineering, that require certain logistics services to accomplish storage or movement of materials and products under design or finished goods destined to external customers. Senior executives also are customers. They require effective performance of logistics processes to achieve organizational profit or revenue goals. The external customer obviously requires logistics services in order to receive the product in the right form, at the right time, at the right place, in the right quantity, with no damage, and at the right price. The impact that these logistics services have on each customer group cannot be separated. If logistics fails to meet the delivery requirements of manufacturing, production schedules might not be met, resulting in missed deliveries of finished product to external customers and potentially lost revenue for the supplying firm. What can be different, however, is how each customer group perceives the performance and importance of logistics. Therefore, value is created through the performance of logistics processes based on internal and external customer perceptions of the benefit received.5

Using a conceptual model of the logistics value process introduced by Novack, Rinehart, and Langley, this research investigates the comparative perceptions of logistics executives and their senior executives for an expanded understanding of these theoretical relationships. (See Exhibit 2.)6 The specific theoretical relationships and measures of the logistics functions, logistics quality, and the value created by logistics are presented in Exhibit 3 and are supported by previous research findings.7

The model in Exhibit 3 provides the underlying conceptual structure used for the development of the constructs analyzed in this research. Logistics functions (e.g., forecasting, purchasing, inventory management, transportation, warehousing, and logistics engineering and control) are combined in logistics processes to fulfill customer service requirements. Meeting customer specifications results in the creation of what has been called objective quality.8'9 Perceived quality is created when the receiver of the service recognizes that the firm has met predetermined specifications.10'1 1 When objective quality is consistent with perceived quality, value has been created for the customer.12