Selling inbound logistics services: Understanding the buyer's perspective

Journal of Business Logistics, 2000 by Maltz, Arnold B, Ellram, Lisa M

Manufacturing and service firms increasingly rely on specialists to assume logistics activities previously performed in-house. The growth of logistics outsourcing has been well documented in empirical work by Lieb et al., and in other multiyear studies.1,2 An entire industry - third-party logis-, tics - has emerged to fill the demand for integrated services. Traditional single-service providers remain in place in the form of trucking companies, warehouse concerns, and so on. Third-party companies perform functions that "can encompass the entire logistics process, or, more commonly, selected activities within that process."3

The current interest in outsourcing represents a major market opportunity for logistics service firms of all kinds.4 The purpose of this article is to increase provider insight into the mindset of potential buyers. We adapt currently accepted concepts of supply management, marketing, and outsourcing to the logistics arena and then empirically test the usefulness of these ideas in explaining buyer behavior and perspectives. This research should improve provider knowledge in three areas:

What types of buys (strategic versus non-strategic) will likely involve outsourcing of associated inbound logistics services?

What is the participation of procurement (as opposed to logistics) personnel in outsourcing inbound logistics services?

Does the level of outsourcing, and thus the sales potential, vary among inbound logistics activities?

These questions have great practical significance for the logistics provider community. Our findings also should be of interest to academics. Previous studies have not concentrated on inbound logistics services, and have not incorporated "type of buy" as a potential explanatory variable. Yet, the distinction between strategic and non-strategic activities is the basis for the extensive literature on core competencies and other current theories of business strategy.5 Finally, we use case studies and statistical methods to better understand what logistics activities are likely to be outsourced together. With rare exceptions, previous work examined activities individually.6

We begin with a discussion of theoretical perspectives on the relationship between type of buy and after-sale service. It is based on a synthesis of the general strategy, purchasing strategy, and buyer behavior literatures. This is followed by a brief review of research on logistics outsourcing, which in turn leads to development of research hypotheses. Research methodologies are described and study findings are presented. The article closes with managerial implications and suggestions for further research.

THE STRATEGIC BUY AND INBOUND LOGISTICS

Logistics is concerned with "the flow of material, work-in-process, and finished inventory."7 Thus, the demand for logistics services is connected to the movement of inventory throughout the supply chain. From the manufacturer's viewpoint, orders for finished goods trigger the need for outbound logistics services from manufacturers to customers. Orders for raw materials, components, or goods for resale create the need for inbound logistics services to manufacturers.

It is now routine to recommend customizing outbound logistics services based on the needs of specific customer segments.8 But just as marketing can identify different logistics requirements for finished goods segments, procurement almost certainly has different logistics needs for different types of purchases. In that case, third parties seeking to market inbound logistics need to pay attention to the kinds of purchases they are servicing.

The buyer behavior literature suggests that the importance of the particular purchase makes a difference in terms of the buying process and the ongoing buyer-supplier relationship. A purchase can be important to a firm for several reasons. Kraljic identifies "strategic" items as those with "high profit impact [and] high supply risk" and more specifically as "scarce and/or high value materials."9 Gross et al. define "strategic purchased items" as those that "represent major costs for the company or that are vital to its competitive advantage."10 Lehmann and O'Shaughnessy differentiate purchased product attributes based on whether they are standard or nonstandard, simple or complex, have a standard or a novel application, and involve a high or low overall dollar commitment.11 There is agreement that purchases involving large (relative) expenditures, difficult to obtain items, or irreplaceable supplies are very important or "strategic" buys.

However defined, the perceived importance of the purchase is a factor in both the initial buying decision and the ongoing relationship. Johnston and Lewin found that purchase risk, purchase complexity, and purchase importance are among the most frequently used variables in attempts to predict organizational buying behavior.12 All these factors are consistent with the above definitions of strategic items. Empirical studies have consistently found statistically significant relationships between these purchase characteristics and (1) aspects of buyer-seller relations, (2) perceived seller characteristics, and (3) buying center characteristics. The specifics of these three general categories are shown in Table 1.