The use of outsourcing logistics activities: The case of turkey

Transportation Research Part C 19 (2011) 833–852

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Transportation Research Part C

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The use of outsourcing logistics activities: The case of turkey q

Emel Aktas a,⇑, Berrin Agaran b, Fusun Ulengin b, Sule Onsel b

a Brunel University, Business School, Kingston Lane, Uxbridge UB8 3PH, United Kingdomb Dogus University, Industrial Engineering Department, Acibadem, 34722 Istanbul, Turkey

a r t i c l e i n f o a b s t r a c t

Article history:Received 22 October 2009Received in revised form 15 January 2011Accepted 9 February 2011

Keywords:OutsourcingLogisticsStructured-disguised surveyTurkey

0968-090X/$ - see front matter � 2011 Elsevier Ltddoi:10.1016/j.trc.2011.02.005

q This paper was handled by Prof. Dr. Vedat Verte⇑ Corresponding author. Tel.: +44 (0)1895 267344

E-mail addresses: [email protected] (E.(S. Onsel).

Purpose: This research aims at analyzing logistics services from the viewpoint of compa-nies who are already outsourcing their logistics services and others who currently fulfilltheir logistics needs in-house.Design/methodology/approach: This study is based on a descriptive research model; thepopulation consists of all top 500 companies registered with industrial associations andchambers of commerce in Turkey. A structured survey was selected as a tool for data col-lection. A total of 287 companies responded to the survey with a 58% response rate. 204 ofthese companies were outsourcing logistics services at the time the interview was con-ducted whereas the remaining 83 were keeping the logistics function in-house. The peopleinterviewed in the survey were logistics managers of the firms.Findings: Findings include the types of logistics services outsourced and planned to out-source, problems encountered in outsourcing these services, logistics costs, decision mak-ers in outsourcing logistics activities, and information sources used in the decision-makingprocess. Moreover, a decision support system based on Bayesian Causal Map is proposedfor 3PLs in order to assist them in their service proposals for different sectors.Originality/value: This study is a first attempt to reveal and compare the outsourcing per-ception of the companies in different sectors, to expose the firms’ underlying motives aswell as the respective importance of these motives for outsourcing logistics activities inTurkey. The use of Bayesian Causal Map based on the survey results provides an importantguide to the 3PL providers to pick a suitable strategy and to prioritize their operationalactivities in different sectors in such a way to achieve a competitive advantage.

� 2011 Elsevier Ltd. All rights reserved.

1. Introduction

In today’s highly competitive environment, many companies are aiming at gaining a share of the global market and takingadvantage of improved production and sourcing efficiencies. A key determinant of business performance nowadays is therole of the ‘‘supply chain management’’ (SCM) in ensuring the smooth flow of materials, products, and information through-out a company’s supply chains (Sum et al., 2001). An essential aspect of SCM is consistent, high-quality logistics services. AsSCM becomes more sophisticated and the gap between what companies want to accomplish and what they can do in-housecontinues to grow, the rationale for outsourcing to third-party logistics providers (3PLs) is further justified. Therefore, thereis currently a trend among industrial firms of outsourcing those products and activities that are outside the company’s corebusiness.

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Aktas), [email protected] (B. Agaran), [email protected] (F. Ulengin), [email protected]

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834 E. Aktas et al. / Transportation Research Part C 19 (2011) 833–852

Previous research has shown that the decision to employ 3PLs is often restricted to the warehousing and transportationfunctions, which somewhat reduces the extent of the 3PLs’ impact on overall supply chain performance (Ulengin andUlengin, 2003; Arroyo et al., 2006; Marasco, 2008). This raises key questions about the impact on supply chain effectivenesswhen the client organization motivated to outsource is different from the 3PL motivated to integrate logistics across thechain. To compete successfully, 3PLs may have to develop skills, competencies, and more value-added activities, whichinevitably results in additional cost. Therefore, the main challenge for a 3PL provider is to pick a competitive strategy andprioritize their operational activities in such a way to achieve acceptable business performance. While substantive researchhas been done in the area of 3PL strategy and operational drivers, very little research has been conducted to address 3PLstrategies and their operational priorities in relation to business performance (Yeung et al., 2006). In fact, if the customersegments vary in their logistics desires, it should be possible for 3PLs to customize logistics programs for different customersegments, which would improve both effectiveness and efficiency by not offering a one-service-fits-all type of offers. If, incontrast, customers view logistics services similarly across segments, and if that view consistently affects outcomes suchas customer satisfaction in the same way across segments, 3PLs should be able to create logistics services that appear iden-tical across customer segments, enabling them to leverage economies of scale. Therefore, 3PLs need to know the componentsthat constitute logistics service quality from the perspective of the customer. They should know what logistics service qual-ity means to customers if they want to examine whether groups of customers place varying degrees of emphasis on specificaspects of this perspective.

This study analyzes the clients of 3PLs in Turkey using the results of a survey conducted in 2007. The reason of focusing onTurkey is that Turkey is accepted as an emergent market in the new millennium expected to attract the interest of globalcompanies in their attempt to obtain competitive advantage. In recent years, in important international projects, such asTEN (Trans European Transport Network), TRACECA (Transport Corridor Europe-Caucasus-Asia) projects, Pan EuropeanTransport corridors (Corridors no 4, 8 and 10) Turkey has been placed over the international transport corridors, and takespart in the Trans European Transport System. From this perspective, Turkey, at the epicenter of transport corridors connect-ing Europe to the Caucasus and Asia as well as the Middle East, North Sea, and Balkan countries has a potential of becomingan important international logistics zone. This necessitates the realization of strategic plans to overcome logisticsinefficiencies.

Turkey has the world’s 15th largest GDP-PPP (USD 880,061 million) (The World Bank: World Economic Indicators Data-base, GDP (PPP) 2009), 17th largest Nominal GDP (USD 615,329 million) (The World Bank: World Economic Indicators Data-base, GDP (Nominal) 2009). The World Bank describes Turkey as an emerging market economy (World Bank, 2009). Suchgrowth puts pressure on existing infrastructure and requires expansion of the service sector to be able to support it (Johnsonet al., 2007, pp. 6–8). Many of the major third-party logistics companies have recognized the opportunities that haveemerged in the region with respect to the rapidly growing need for logistics services to support continued growth. The shareof the logistics sector in Turkey’s GDP is estimated between 8% and 12% (Deloitte, 2010). Thus, the size of the sector can beestimated to be around USD 65–95 billion in 2008, while the share of the logistics service supplier market is estimated atUSD 22 billion (Quattro, Turkey Logistics Industry Survey, 2008). Value of the total investment of the logistics sector in Tur-key is USD 5 billion, and the total employment is 400,000 people and the market size of the Turkish logistics sector is USD 4.5billion (UND, 2009).

According to research executed by the World Bank (2007), logistics costs constitute 30% of the total GDP in some of thedeveloping economies, while this ratio is only about 10% in the developed economies. This difference clearly presents theimportance of logistics for the countries’ competitive power. According to Logistics Performance Index (LPI) of World Bank(2007), in terms of how developing countries are doing per region, Turkey is the top performer of the Europe and Central Asiaregion and ranked 39th in terms of total logistics performance worldwide. However, when the logistics costs are concerned,Turkey’s rating drops to 112th rank.

In this study, the companies analyzed are classified according to their status of outsourcing logistics activities. Those com-panies which are currently outsourcing the logistics services are regarded as ‘‘current users’’. On the other hand, the studyhas an implicit assumption that the companies which are not currently outsourcing their logistics activities and keeping thelogistics function in-house will start outsourcing in the future. Therefore, these companies are regarded as ‘‘prospectiveusers’’.

The field study involved face-to-face interviews with 287 companies. Out of total 287 responses, 204 respondents (71%)indicated that their companies use 3PL services. It is noteworthy to mention that of those firms not outsourcing, 53% of themindicated that they consider using 3PLs services in the near future. Among the users identified in the survey, 16% had beenusing 3PL services, for one-to-five years, 17% for five-to-ten years, and 67% reported using such services for more than tenyears. Taking into account the fact that in India, 28.6% of outsourcing companies have been using the services of third-partylogistics service providers for over three years and 18.8% have been working with third-party logistics service providers for1–3 years, it can be said that Turkey has a relatively high amount of experience with third-party logistics service providers(Sahay and Mohan, 2006).

The objectives of the research were:

1. To reveal and compare the outsourcing perception of the companies. Basically, the companies which were included in thestudy can be divided into two groups as those currently outsourcing logistics activities (current users) and the otherswhich are keeping the logistics function in-house (prospective users).

E. Aktas et al. / Transportation Research Part C 19 (2011) 833–852 835

2. To expose the firms’ underlying motives as well as the respective importance of these motives for outsourcing logisticsactivities.

3. To show the information sources used by the companies which are currently outsourcing their logistics activities in thedecision process of selecting the outsourcing firm, the most frequently outsourced logistics services, the share of logisticscosts in total and problems encountered in outsourcing partnerships.

4. To reveal any significant differences for current users and prospective users that may occur due to four selected indica-tors, namely the sector in which the company operates, the existence of any foreign partnership, capital structure of thecompany and perceived (current users) or expected (prospective users) benefits from outsourcing activity.

2. Literature review

As the globalization of the world economy demands cost effectiveness of the firm, more firms are likely to outsource theirbusiness activities to specialized suppliers. However, such outsourcing activities are only justified when their overall, longterm implications are rather stable and favorable.

The logistics issue has witnessed an evolution from a passive cost-absorbing function to a strategic one which providescompetitive advantage. 3PLs, which originally emerged out of companies that had previously been involved in warehousingand transportation, have extended their capabilities to involve a broad range of functions (Gadde and Hulthen, 2009).

Despite recent rush in outsourcing service processes, its advantages and disadvantages brought to firms are increasinglydebatable across industries (Kotabe et al., 2008). Some studies show that outsourcing allows a firm to not only cut costs, butalso focus on its core competences and help speed up its innovation processes (Graf and Mudambi, 2005). In contrast, otherresearch suggests that a firm that engages in outsourcing may lose control and flexibility, and potentially risk disclosure ofproprietary knowledge to suppliers, who may become its competitors in the future (Harris et al., 1998). While these contra-dictory viewpoints are equally appealing, yet no consensus is drawn in the literature as to the effect of outsourcing on firmperformance. But the analysis of the literature shows that in order to get added-value from outsourcing, 3PLs should have agood understanding of what is required by what type of enterprise and develop strategies to enhance their service to aggre-gate value. More research should build on current work to explore any other factors that may influence a firm’s outsourcingdecision (Lee and Kim, 2010). Bolumole (2001) identifies the factors which influence outsourcing decisions and the implica-tions of outsourcing strategies. The research reveals that the most important factors behind the growth of third-party logis-tics in the UK petrol FMCG industry are the desire to cut logistics costs, improve customer service, and focus on corecompetences.

Marasco (2008) presents a review of the major studies and key findings on 3PLs. Marasco’s review indicates that a con-siderable portion of the literature on 3PLs consists of ‘‘comprehensive’’ articles. These are empirical, survey-based studiesthat provide a descriptive picture of prevalent 3PL practices in specific countries/regions.

In their previous work, Aktas and Ulengin (2005) focused solely on transportation activities of the firms surveyed. Theauthors asked about the reasons for outsourcing transportation activities in a very detailed questionnaire including criteriacorresponding to transportation performance (i.e. faultless delivery, same day delivery, on time delivery, etc.).

Arroyo et al. (2006) investigated the status of 3PLs in Mexico and the feasibility of the use of 3PLs as a global, uniformstrategy. Their research reveals that the use of 3PLs seems to be a common but ‘‘low profile’’ practice among large Mexicanfirms.

Boyson et al. (1999) focused on how to manage a third-party logistics relationship in the most proper way. Dapiran et al.(1996) conducted a survey that shows that a number of key FMCGs in Australia have taken the opportunity to bring back in-house both outsourced transport and warehousing on the expiration of recent contracts. Fernie’s research (1999) builds uponthe initial exploratory work in that it involves a larger sampling frame (accounting for 60% of all UK FMCG sales) and devel-ops a deeper insight into the factors involved in outsourcing.

Hong et al. (2004) examine the current status and future prospects of Chinese manufacturers’ usage of external logisticsservices as well as differences between users and non-users based on a survey of the industry in 2002. The results reveal thatusers and non-users differ significantly in some firm-specific characteristics, such as industry type, production mode, andaccount size. There is an increasing trend for firms to outsource logistics services in China, especially in the area of logisticsinformation system management and logistics system design.

A paper by Jaafar and Rafiq (2005) presents current logistics outsourcing practices of UK firms as well as the trends from1990 to 2003 that emerged from a series of surveys by PE Consulting. The study demonstrates the trend towards the devel-opment of longer term partnerships, and relatively little change in the levels of satisfaction is exhibited.

A study by Lieb (1992) provides a data base for analysis based on a mail questionnaire sent to the chief logistics execu-tives of the 500 largest manufacturing companies in the USA and was developed and administered to provide aggregate dataabout the use of third-party logistics in American industry. Lieb and Bentz (2004), examine the findings of a survey con-ducted during 2004 of large American manufacturers that addressed their use of 3PL services. The survey data show thatthe percentage of those companies using such services is at a record high level, and that users are demarcating a steadilyincreasing percentage of their logistics operating budgets to 3PLs. Many 3PL relationships are long-term in nature and theservice providers continue to deliver value to their clients. Lieb and Bentz (2005) also examine the findings of a survey ofthe chief logistics executives of Fortune 500 manufacturers concerning their use of 3PLs. The survey determined that, as a


group, their use of those services has reached an all-time high, as has the percentage of their logistics budgets being given to3PLs.

Sahay and Mohan (2006) carried out a comprehensive survey of 3PL practices in India to establish the impact of third-party logistics services usage on business results. The results emphasize that the usage of 3PL services which has a positiveand significant impact on business performance through 3PL practices is still at an early stage in India. Additionally, theyclearly indicate that a significant increase in outsourcing has been planned across all activities of the logistics function overthe next 2–5 years.

Sohail and Al-Abdali (2005) examine the usage of 3PL services in Saudi Arabia. Empirical research is used to study theextent to which firms use the services of 3PLs, the time period these have been used, the decision-making process for con-tract logistics, and the impact of outsourcing on the organization. Sohail and Sohal (2003) examine the usage of 3PL servicesin Malaysia. An empirical research study was carried out to determine: the extent to which Malaysian firms use the servicesof logistics companies; the time period these have been used; the decision-making process for selecting contract logistics;and its impact on the organization. Results based on the analysis of data relating to 124 firms in Malaysia indicate that mostof these users are satisfied with the service providers and have largely seen positive developments within the organization.Sohail et al. (2004) examine the usage of third-party logistics services in sub-Saharan Africa with a focus on Ghana. Resultsbased on the analysis of data relating to 64 organizations in Ghana indicate that over 80% of the users reported a positiveimpact of logistics outsourcing and have largely been satisfied with it. Sohail et al. (2006) undertook a comparative analysisof the use of 3PL services by manufacturing firms in Singapore and Malaysia. The paper addresses key issues relating to theextent of usage of 3PL services, the specific contract logistics services used, benefits for the user firms, obstacles encounteredin implementing contract logistics relationships, the impact of the use of contract logistics services on logistics costs, cus-tomer satisfaction, size of the user firms, and the future plans of current users of contract logistics services.

Wilding and Juriado (2004) explored customer perceptions of the reasons for outsourcing logistics, the functions to beoutsourced, and the management of satisfaction with the outsourcing partnership through a Europe-wide survey. Their find-ings showed that the cost aspect is not as important as expected in the consumer goods industry and performance measure-ment systems require further refinement in the coming years. Cultural incompatibility and poor communication were alsonoted as possible problems that could be encountered in the 3PL partnership.

Table 1 provides a comparative summary of the above-mentioned papers. As it can be seen from Table 1, most heavilyinvestigated topics are respectively outsourced logistics services, logistics expenditures, strategic implications and reasonsfor outsourcing. The researches are generally empirical and are based on surveys. The actors involved in outsourcing deci-sion-making process are not commonly analyzed. The literature review also shows that 3PL services are often limited towarehousing and transportation functions, which somewhat reduces the extent of impact of 3PLs on the overall supply chainperformance. This raises key questions about whether the motivation of the client organization for outsourcing is differentfrom the 3PL firm’s motivation. In order to compete successfully, 3PL providers may have to develop skills, competencies,and more value-added activities, which inevitably results in additional cost. Therefore, the main challenge for a 3PL provideris to pick a competitive strategy and prioritize their operational activities in such a way to achieve acceptable business per-formance. While substantive research has been done in the area of 3PL strategy and operational drivers, very little researchhas been conducted to address 3PL strategies and their operational priorities in relation to business performance. In fact, ifthe customer segments vary in their logistics desires, it should be possible for 3PLs to customize logistics programs todifferent customer segments, hence improving both effectiveness and efficiency. If, in contrast, customers view logistics

Table 1Findings of the literature survey.

Outsourcedlogisticsservices

Logisticsexpendi-tures

Strategicimplica-tions

Reasons foroutsourcing

Informationsources

3PLSelectioncriteria

Departmentsincluded inthe decisionprocess

Contracts Satisfactionwith theoutsourcing

Country

Arroyo et al. (2006) U U U U MexicoYeung et al. (2006) U U U Hong KongSahay and Mohan (2006) U U U U IndiaAktas and Ulengin (2005) U U U U U U U TurkeyJaafar and Rafiq (2005) U U U U U UKLieb and Bentz (2005) U U U U USASohail and Al-Abdali (2005) U U U U Saudi ArabiaHong et al., 2004 U U U U U U ChinaSohail et al. (2004) U U U U U GhanaWilding and Juriado (2004) U U U U U EuropeSohail and Sohal (2003) U U U U MalaysiaBolumole (2001) U U UKSum et al. (2001) U U U U SingaporeBoyson et al. (1999) U U U U U U U USAFernie (1999) U U UKDapiran et al. (1996) U U U U U U U U AustraliaLieb (1992) U U U U U U U USA


services similarly across segments, and if that view consistently affects outcomes such as customer satisfaction in the sameway across segments, 3PLs should be able to create logistics services that appear identical across customer segments, en-abling them to leverage economies of scale. Closer interactions between 3PLs and its customers shall provide advantagesto both firms. With more information about the characteristics of the client, the service provider would be able to designan offering adapted to the context of the buyer (Gadde and Hulthen, 2009). Therefore, 3PLs need to know the componentsthat constitute logistics service quality from the perspective of the customer. They should know what logistics service qual-ity means to customers if they intend to examine whether groups of customers place varying degrees of emphasis on specificaspects of quality.

3. Methodology

This section explains how the survey was designed and administered. The purpose of conducting this survey is to describethe state of 3PL in Turkey and to compare the responses of current users and prospective users.

3.1. Survey design

To determine the current usage of 3PL services, a field study involving face-to-face interviews with the clients of logisticsservice providers was conducted. This study is based on a descriptive research conducted in 2007; the population consists ofall companies registered with industrial associations and chambers of commerce in Istanbul. Five hundred firms were se-lected to be included in the survey so that they represent the market appropriately in terms of turnover, number of employ-ees, industry, etc. and the rate of return was 58%. Consequently, the survey was realized with 287 firms.

In the field study, face-to-face interviews were preferred, rather than sending questionnaires by mail. The main reasonsfor this are the low rates of return for studies performed via mail, the lack of possibility to correct misunderstandings and theloss of the opportunity to obtain information that can only be achieved during an interview.

Before the performance of the real interviews, pilot interviews were made in order to ensure the functionality of the ques-tion forms. The question forms were updated according to the feedback obtained from the participants during the pilot inter-views and the main interviews proceeded. During the process, participation was provided in the interviews that wereselected randomly and in a sector-based way and interviews were detailed in order to provide enlightening informationabout trends in the sector.

In the field study, the people to be interviewed were informed orally and in writing about the objective, method and con-tent of the research before every interview.

3.2. Questionnaire design

In order to increase the efficiency of the interviews, the questionnaires were prepared with multiple choices with pref-erably open-ended questions to gather more detailed information where applicable. Open-ended questions are used in orderto measure majority of the profile-based variables as well as problems encountered with the 3PL. The use of outsourcing fordifferent logistics services is measured by a dichotomous question. Moreover, most of the qualitative information was col-lected by asking the participant to rank certain statements for importance of reasons to outsource. The criteria considered inthe selection process of 3PLs were asked using a multiple choice question where the respondent had the opportunity to in-clude any other criterion which is not included in the list. Questions about the outsourced logistics services required ‘‘yes’’ or‘‘no’’ for an answer.

The questionnaire contains eight sections with a total of 49 questions. The first section includes 15 questions about com-pany profile. The participants are asked to choose from a number of possible answers: the duration of operation of the com-pany, the sector in which they operate, the primary area of highest turnover, capital structure, type of partnership, net salesas well as the percentage of domestic and international sales, logistics function(s) that can be outsourced and that are be-lieved to help create a competitive advantage.

The second section (questions 16–21) is about the operations of the company: the type, number, size, and capacity uti-lization rate of their warehouses; the number of owned and rented vehicles in their fleet, the total capacity of their fleet andthe percentage of transport mode used. The third section (questions 22–32) is about the outsourced logistics services. Thesection is classified as users and non-users of outsourcing activities. The users of outsourcing companies are asked questionsabout the most frequently preferred 3PLs and the services that are outsourced, the average ratio of the total logistics cost,percentage of logistics expenditures, share of outsourced logistics activities in total logistics activities and their respectivecost, the type of logistics services that will be required in the future and the most frequently faced problems encounteredwith 3PLs, the names of three 3PL companies that they can recall immediately, the factors that are important in the 3PLselection process and the information sources used to find them, and the authorities responsible for the selection process.On the other hand, the non-users are asked questions about the percentage of their logistics expenditures, the type of logis-tics services that they need for their international operations, and the 3PL companies that they recall immediately. The thirdsection (questions 34–38) is about information systems and in this section, the type of the operating system used in thecompany, the software packages they use, programs that are installed and the e-commerce activities that are used in the


company are revealed. In the fifth section (questions 39–41); human resources activities of the company are analyzed: thenumber of employees, the ratio of white and blue collar workers, the number of employees taking part in logistics activitiesas well as their educational background. The sixth section (questions 42–43) is about the quality activities of the firm, thecertificates they possess and plan to possess in the future. The seventh section (questions 48–49) is about the technologystructure of the company, the type of the technologies they might develop, the reason for requiring new technologies,whether the R&D activities are done in-house or outsourced. The last section (questions 44–47) includes questions aboutthe type of projects they are conducting, the ones they plan to actualize by using external sources from the projects, andwhether they conduct a market research or not.

4. Research findings

4.1. Company profile

Breakdown of the participants according to the sectors they belong, is presented in either as primary sector or secondaryarea of business, depending on their responses. In terms of proportional distribution, automotive, FMCG, construction, andtextile sectors seem to be prominent ones. The relatively high number of participants from these sectors can be attributed tomore test subjects being chosen from these sectors due to their size in the country’s economy and to the fact that more testsubjects from these categories have accepted to participate in the research.

The data in Fig. 1 is tested against representation of industries in both current and prospective users and no statisticallysignificant evidence is found. None of the industries are neither under nor over represented in each type of company groups.

The average duration of operation of the companies by sector is provided in Table 2. 58% of the participants outsourcingtheir logistics activities and 44% of the participants performing their logistics activities in-house of the research comprisedcompanies that had been operating for more than 20 years.

Details on the partnership status of the participating companies are given in Fig. 2. Regarding the partnership status of theparticipants, it is seen that 66% of the companies are in multi-partnership structure, 24% are in single-partnership structureand 8–10% are public companies.

There is no foreign partnership in 79% of logistic service users, 10% operate with totally foreign capital, 7% have foreignpartnership, 1% have patent agreements. The test results again do not reveal any statistically significant difference betweenoutsourcing decision and partnership status. The results are consistent with the results of Love and Roper (2001) and Honget al., (2004) findings.

Fig. 1. The distribution of sectors for current and prospective users.

Table 2Sectors of the sample.

Industry Average duration of operation (years)

Current users Prospective Users

Automotive 22.8 23.8Chemicals 21.0 11.8Computers and electronics 17.5 14.4Construction 17.9 17.8Machinery 32.5 28.0Paper and packaging 19.4 14.7Pharmaceuticals 18.5 25.4FMCG 23.3 22.8Textile 22.0 26.4

Partnership status

Capital Structure

Fig. 2. Partnership status and capital structure of participating firms.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Light assembly-disassembly Collaborative planning and forecasting

Operational reporting Vendor managed inventory

e-order fulfillment Product prospects preparation and printing

Quality control Project transportation

Shipment consolidationCross-docking

Palleting Shrink-wrapping

Bulk load transportationHarbor operations

Railway transportation Distribution Center

Labeling Packaging

Ro-ro transportationIntermodal transportation

Reverse Logistics Export-import operations

Warehouse Bonded warehouse Air transportation

Distribution to end-consumer Container transportation

Distribution to customer warehouse Customs Clearance

International road transportation Domestic road transportation

Planned

Used

Fig. 3. The logistics services that are currently being purchased and planned to be purchased.


Fig. 4. Cluster analysis according to the outsourced activities.


4.2. Logistics services

Another question logistics service customers were asked was in which logistics areas and to what extent they were usingexternal sources for their logistics activities. Eighty-three percent of the participants stated they had chosen outsourcing fortheir logistics services in at least one area, in other words, only 17% of the participating companies performed all their logis-tics services themselves. As can be seen from Fig. 3, the most frequently outsourced logistics functions are domestic andinternational road transportation. This service is followed by customs clearance and distribution to customer warehouse.

This result is similar to the results of previous studies carried out by PE Consulting (1996), Ferrari (2000), and Jaafar andRafiq (2005) in that transportation and warehousing remain the main services used by the customers.

A cluster analysis is also conducted in order to analyze the grouping of sectors according to the outsourced activities. Theresult is given in Fig. 4.

In this regard, two different groups can be identified: automotive, pharmaceuticals and textile constitute the first groupand the rest of the sectors; chemicals, computers and electronics, Construction, Machinery, Paper and packaging, FMCG, formthe second group. The automotive and textile industry in the first group have 38% share in total exports of Turkey in 2008,thus it is well expected that this group has a higher use of international road transportation (TL) (1. group average 63.8%, 2.Group average 51.6%, p = 0.027). Due to its higher export–import operations (18.8%, versus 11.2%, p = 0.019), its customsclearance activities (55.8% versus 37.4%, p = 0.038), its air transportation (51.3% versus: 22.2%, p = 0.009) are higher as ex-pected. Especially textiles and automotive industries are required to deliver their products to customer warehouse and con-sequently this service is significantly higher than the second group (54.8%, versus 34.8%, p = 0.01).

The participants were asked in which areas they wished to outsource in the coming years. It was found out that the break-down of the services intended to be procured was not any different than the present situation. Domestic highway transpor-tation was again prominent, whereas distribution to end customer and customs clearance were recognized as areas whereless outsourcing was planned. An interesting outcome to mention is that 7% of the firms do not plan to outsource in the fol-lowing 1–2 years.

It could be seen from Fig. 3 that the customers of some services (distribution to customer warehouse, domestic roadtransportation, and customs clearance) do not plan to continue outsourcing. On the other hand, the customers may shiftfrom domestic road transportation to other modes. It is promising that several rarely used services such as e-order fulfill-ment raised from 4% to 11%, collaborative planning and forecasting (2–7%), or vendor managed inventory (3–7%) are beingplanned to be used by the customers in the very near future. The increase in the demand for railroad transportation (7–11%)may be due to soaring energy prices.

As it was previously mentioned, there were 83 companies within the logistics customers sample which did not outsourceany logistics service at all. These companies were also asked about their future plans of outsourcing and 47% responded thatthey would not outsource in the following years.

The breakdown of services they intended to procure was not very different from the current customers. It can be seenfrom Table 3 that companies are planning to outsource transportation services to a great extent.

When the participants were asked about special services required by their business, they answered medical supplies trans-portation, e-marketplace, door-to-door transportation without using transshipment canters, aggregate supplier inventories,e-procurement, carrier services, vehicles appropriate for the transported products, assembly at delivery, and services inaccordance with the requirements of the sector.

Table 3Logistics services planned to be purchased by the non-users.

Service Percentage of non-usersplanning to outsource (%)

Domestic road transportation 34International road transportation 16Distribution to end-consumer 12Distribution to customer warehouse 11Container transportation 11Air transportation 10Customs Clearance 8Bulk load transportation 7Quality control 7Bonded warehouse 6Warehouse 5Palleting 5Intermodal transportation 4Packaging 4Product prospects preparation and printing 4Export–import operations 4Collaborative planning and forecasting 4e-Order fulfillment 4

Table 4The impacts of outsourcing logistics activities.

Positive impact of outsourcing logistics services Current users (%) Prospective users (%)

Lowering costs 87 78Improving Service quality 85 87Meeting demands just in time 84 83Ability to reach wider markets 69 64Focus on core business activities 61 54Efficient inventory management 43 36


The companies outsourced 8.83 different logistics services on average. Considering the variety of services rendered by3PLs, it is noteworthy that customers are interested in certain areas only. For example, actual and planned outsourcing inthe field of order fulfillment is less than 5%. The main reasons behind this might be the insufficient information of customersregarding the 3PLs; customers’ unwillingness to outsource activities they deem to be critical, such as warehousing and cus-tomer services; and their belief that the logistics firms in the market are incapable of providing such services at acceptablelevels.

4.3. The effects of logistics services on competitive advantage

Within the framework of the research, the effects of operations on the competitive advantage of the companies wereinvestigated for every sector and the participants were asked to state in which areas their logistics operations created a com-petitive advantage. Despite showing sector based differences, in almost all sectors the logistics service clients stated theareas in which logistics operations would create a competitive advantage as, in order of priority, low supply chain costs,an increase in the level of customer service, perfection in meeting orders, accessibility to a larger field, and effective inven-tory management. Of the respondents, 87% state that logistics cost reduction is the most important reason for outsourcingwhich facilitates competitive advantage (see Table 4). Although this result is not in line with the majority of findings in ear-lier studies in which customer service improvement is ranked as top benefit (PE Cons., 1996; Fernie, 1999; Bolumole, 2001;Arroyo et al., 2006), the research finding from developing countries such as by Sahay and Mohan (2006) and Sohail et al.(2006) reveals the similar results. Moreover, it is totally in agreement with the latest studies that underline that the eco-nomic slowdown will see a move back towards cost-driven outsourcing (Edgell et al., 2008, Hansen and Schsumburg-Müller,2008).

It is noteworthy that on average, 57% of the respondents do not consider outsourcing logistics activities has an impact oneffective inventory management. Inventory management requires information sharing. However, the biggest barrier in inter-company coordination is in information sharing and the issue of trust. Many researches carried out about information shar-ing show that companies which collaborate and share information reaped tremendous amounts of benefits.

Moreover, approximately 40% of respondents do not consider outsourcing as an opportunity to focus on in their corebusinesses.

The responses of non-users to the question ‘‘what might be the benefits of outsourcing logistics activities’’ reveal slightlydifferent results. Most of those companies which are currently not outsourcing logistics services expect improvements in


service quality rather than reducing costs while the financial factors are more important for the firms using outsourcing.Meeting demands just in time is the second top expected benefit of outsourcing for those which are currently notoutsourcing.

Two sample t-tests showed that there is no statistically significant difference between the perceptions of current and pro-spective users regarding the positive impacts of outsourcing logistics activities. Inventory management is the least cited ben-efit of outsourcing logistics activities both for current and prospective users. The reason for that may be the fact that bothcurrent and prospective users also have their own storage facilities.

4.4. Selection process of 3PLs

The most important criteria taken into consideration by logistics service customers during the selection process ofthe logistics service provider are discounts made by the service provider, speed and the quality of customer services (Table 5).Other important criteria listed are the geographical range (accessibility to a larger area), the culture and management ap-proach of the service provider being suitable for long-term collaboration and suitability with the customer’s business cul-ture, the technology owned by the service provider being of a high level and effectively utilized and expertise in both thelogistics field and the relevant sector.

It is interesting that the company’s name and prestige in the market was not considered as an importance factor byapproximately 40% of the participants. What interested the customers more was if the service provider could or couldnot meet their requirements? Another important aspect is that the scope of the services in terms of variety and rangewas considered unimportant by 33% of the participants. The fact that the customers still procuring services in some certainareas only, and being unaware of the other areas of services are the basic reasons behind this negative consideration.

A Cluster Analysis is conducted in order to group the sectors according to their selection process. Cluster Analysis is amultivariate data analysis technique used in grouping objects according to the characteristics they possess. If the classifica-tion is successful, the objects within clusters will be with similar characteristics and there will be important differences be-tween clusters. In this study, Hierarchical Agglomerative Clustering is used. In this method, each object starts out as its owncluster. In subsequent steps, the two closest clusters are combined to form a new cluster, thus reducing the number of clus-ters in each step. Wards method is selected as the agglomeration procedure because this clustering procedure minimizes thewithin-cluster sum of square at each stage. It attempts to combine clusters with a small number of observations and formclusters, which tends to have the same number of objects. Distance between objects is measured through squared EuclideanDistance measure. For more information about Cluster Analysis, one may consult Hair et al., 2010. The analysis of the dend-ogram and ANOVA used to test the significance of the differences between the group means finally resulted in five significantclusters. However, as can be seen from Fig. 5, the cluster analysis indicates an apparent difference among the sectors regard-ing their selection process. We can identify two sets of groups. The common characteristics corresponding to each cluster arespecified and a title is given according to these characteristics.

Automotive, Chemicals, Pharmaceuticals, FMCG and Textile industries (group 1, namely ‘‘export-oriented’’ industries) actdifferently than Computer and Electronics, Construction, Machinery, Paper and packaging industries (group 2, namely‘‘domestic market-oriented’’ industries) in their selection procedure by assigning more importance to the service quality,flexibility, financial status, reputation and culture of the 3PL. The reasons behind this distinction were in our interest. Thefirms operating in the first group are mainly export-oriented firms, taking the first five ranks in the sector distribution ofexports (Istanbul Chamber of Industry, 2010), which means they operate in highly competitive markets where service qual-ity and flexibility is a first rank asset.

Table 6 shows the differences between two groups in terms of selection criteria.

Table 5Decision criteria of outsourcing companies.

Decision criteria Automotive Chemicals Computersandelectronics

Construction Machinery Paper andpackaging

Pharmaceuticals FMCG Textile Grandtotal

Cost 4.5 4.8 4.3 4.7 4.4 4.6 4.5 4.7 4.5 4.6Market 4.5 4.2 4.2 4.0 4.3 4.1 4.4 4.4 4.0 4.2Speed 4.6 4.7 4.7 4.6 4.7 4.6 4.6 4.6 4.8 4.6Service quality 4.9 4.8 4.6 4.4 4.4 4.4 4.7 4.7 4.8 4.6Flexibility 4.2 4.3 4.0 4.2 4.1 4.0 4.1 4.2 4.2 4.1Wide range of services 3.9 3.9 3.6 3.6 3.9 3.8 3.9 3.9 3.9 3.8Financial status 3.9 4.1 3.4 3.6 3.8 3.8 3.8 4.0 4.4 3.9Size/turnover 3.6 3.3 3.2 3.5 3.3 3.5 3.7 3.5 3.9 3.5Reputation 3.6 3.7 3.4 3.4 3.5 3.8 4.0 3.6 4.0 3.7Geographical proximity 4.1 3.7 3.5 3.7 4.3 4.0 4.1 4.1 4.1 3.9Culture and management

philosophy4.3 4.1 4.2 4.1 4.0 3.8 4.2 4.3 4.4 4.2

Technological level 4.6 4.4 4.5 3.9 4.1 4.2 4.4 4.4 4.5 4.3

Fig. 5. Cluster analysis according to the selection process.

Table 6Differences between two groups of firms.

Export-oriented Domestic marketoriented

Significance levels

Cost 4.6 4.5 0.202Market 4.3 4.15 0.109Speed 4.66 4.65 0.423Service Quality 4.78 4.45 0.001Flexibility 4.2 4.075 0.039Wide Range of Services 3.9 3.725 0.051Financial Status 4.04 3.65 0.014Size-turnover 3.6 3.375 0.058Reputation 3.78 3.525 0.048Geographical proximity 4.02 3.875 0.245Culture 4.26 4.025 0.032Technology 4.46 4.175 0.051


A detailed analysis of each industry in the respective groups reveals following results:The firms were asked to rate the importance of these criteria on a 1–5 scale where 5 meant very important. The results for

automotive industry show that service quality (with an average of 4.875) is the most important criterion followed by cost(4.459), market (4.542), speed (4.625), and technology (4.625).

For automotive industry, service quality is statistically significantly more important than cost (p = 0.022). Furthermore,the companies in the automotive industry regard cost statistically significantly more important than financial status, size/turnover, and reputation of the logistics service provider. Other statistically significant importance figures assigned by theautomotive industry are summarized in Table 7.

The firms were asked to rate the importance of these criteria on a 1–5 scale where 5 meant very important. The results forautomotive industry show that service quality (with an average of 4.875) is the most important criterion followed by cost(4.459), market (4.542), speed (4.625), and technology (4.625).

A similar analysis is conducted for chemicals industry. The results are given in Table 8.For chemicals industry, cost (4.8), speed (4.7), and service quality (4.75) are the top most important factors; however,

there is no statistical evidence to conclude that one is better than another.Moreover, there is a statistically significant difference of importance given to cost by computer and electronics industry

and paper and packaging industry. Cost is a more important criterion for paper and packaging industry than it is for com-puter and electronics industry. In Table 9, the results of a similar method that is conducted for denoting the criteria whichare statistically significantly more important for some industries than they are for other industries is given.

The resources utilized in the stage of deciding which services to be outsourced in the selection process of the logisticsservice provider are listed as the company’s own information sources, other companies in the sector, customers, benchmark-ing reports, the opinions of experts and consultants, information from the vendors, Internet, media, conferences and semi-nars, societies, professional experience and official resources (Table 10).

Table 7Significance Results of different decision criteria for automotive industry.

Service quality Market p = 0.029

Market is statistically significantlyimportant than

Wide range of services p = 0.019

Financial status p = 0.012Size/turnover p = 0.002Reputation p = 0.003

Speed Wide range of services p = 0.007Financial status p = 0.005Size/turnover p = 0.000Reputation p = 0.000Geographical proximity p = 0.031

Flexibility Size/turnover 0.032Reputation 0.045

Technological level Wide range of services p = 0.002

Table 8Significance results of different decision criteria for chemicals industry.

Service quality Technological level p = 0.015

Cost is statistically significantlyimportant than

Market p = 0.010

Flexibility p = 0.017Technological level p = 0.028

Speed Culture and management philosophy p = 0.019

Table 9Significance results of different sectors for decision criteria.

Construction Cost Computers and electronics p = 0.016Chemicals Computers and electronics p = 0.006FMCG Computers and electronics p = 0.039Automotive Service quality Computers and electronics p = 0.032

Paper and packaging p = 0.005Construction p = 0.001Machinery p = 0.013

Chemicals Paper and packaging p = 0.049Construction p = 0.028

Textile Paper and packaging p = 0.019Construction p = 0.009Machinery p = 0.034

FMCG Financial status Computers and electronics p = 0.037Textile Computers and electronics p = 0.001

Paper and packaging p = 0.016Construction p = 0.008Automotive p = 0.030Pharmaceuticals p = 0.048

Textile Size/turnover Computers and electronics p = 0.035Pharmaceuticals Reputation Computers and electronics p = 0.039Automotive Culture and management

philosophyPaper and packaging p = 0.043

Textile Paper and packaging p = 0.023Automotive Technological level Paper and packaging p = 0.024

Construction p = 0.013Textile Construction p = 0.032


Looking at the above breakdown, it is seen that the clients rely upon word-of-mouth references more than any other inthe selection process of service providers. The shortage of scientific research on the performance of the logistics sector firmsleaves the customers with no other choice.

In fact, as Table 11 indicates, the resources utilized during the selection procedure of 3PLs are quite different dependingon the sector. Automotive, machinery, paper and textile industries use their customers’ references as main source in decisionprocess, whereas for the firms in FMCG, construction, and pharmaceuticals sectors the choice of other companies is consid-ered as a main factor in evaluation. The views of experts and consultants are mostly exploited by computers and electronicssector. Internet is another resource which is widely used especially by machinery sector.

Table 10The resources used deciding to outsource logistics operations.

Criteria Percentage of companies using asan information source (%)

Resources of the company 52Customers 45Other firms in the sector 44Internet 40Suppliers 37Market research 34Industry guides 19Benchmarking reports 18Experts and consultants 15Media 13Conferences and seminars 8Associations 4

Table 11The resources used during the decision process for outsourcing logistics operations.

Source of information Auto-motive(%)

Chemicals(%)

Computersandelectronics(%)

Construction(%)

Machinery(%)

Paper andpackaging(%)

Pharmaceuticals(%)

FMCG(%)

Textile(%)

Media 13 20 18 4 33 16 12 8 4Experts and consultants 13 0 23 22 17 20 12 18 9Other firms in the sector 33 35 50 39 42 28 65 55 43Associations 8 10 0 4 0 4 6 3 0Conferences and seminars 21 10 0 0 0 4 12 13 4Customers 67 35 41 30 75 40 35 37 57Suppliers 42 45 41 35 58 36 53 26 22Industry guides 25 10 14 22 17 16 29 16 22Internet 38 25 41 35 75 36 35 42 43Benchmarking reports 33 15 9 13 17 20 18 16 17Information sources of the

company54 55 59 52 50 40 71 53 43

Market research 25 35 36 35 25 36 29 47 26

Table 12Actors in the decision-making process of outsourcing logistics operations and their effectiveness.

Industry Boardchairman (%)

CEO (%) ViceCEO (%)

Financemanager (%)

Purchasing andlogistics manager (%)

Marketing and salesmanager (%)

Operationsmanager

Automotive 42 13 13 8 8Chemicals 35 45 5 10Computers and electronics 18 41 14 5 5 9Construction 30 39 13 4Machinery 33 17 8 8 17Paper and packaging 28 40 8 4 4 12Pharmaceuticals 18 53 12 12 6FMCG 21 42 3 5 3 13Textile 9 30 4 9 4 9 4


The responses given by the participants as to which departments and authorities assume roles in the decision-makingprocess regarding outsourcing logistics services are summarized in Table 12. On average, 59% of the participants stated thattheir purchasing manager took part in the decision-making process. Chief Executive Officer, with a ratio of 58%, follows pur-chasing manager. This indicates that outsourcing in logistics is important for the company both strategically and financially.This result is in parallel with the findings of Lieb and Randall (1999).

One of the basic conditions for a successful logistics outsourcing process is participation in the decision by all the units ofthe firm that are going to be influenced by the choice of the service provider company. It is very interesting that, althoughinformation systems departments are one of the main components of the logistics processes, they do not participate at all.The problems that can be experienced in the field of information systems integration between the service providers and thecustomers will considerably restrict the customers’ expectations and what the service providers can do.


4.5. Logistics expenditures

Current and prospective users were asked about their logistics expenditures in terms of transportation, storage, distribu-tion center and order management (Table 13). The area with the highest rate within total logistics expenditure was trans-portation expenditure. The share of transportation costs in total logistics costs was found to be 78% and 70% on average forcurrent and prospective users, respectively. This difference is statistically significantly higher for current users (p = 0.022).On the other hand, quite similar figures were obtained for the share of storage costs which was found to be 24.7% for currentusers and 24.3% for prospective users. The cost of distribution center was found to be 20% for current users and 17% for pro-spective users on average. However, this difference is not statistically significant. Finally, order management costs were 21%on average for current users and 20% for prospective users which was also quite similar for both types of companies.

The respondents of this study declared that expenditure on outsourced logistics services constitutes 40% of the total logis-tics expenditure whereas this ratio is on average 47% in north America and 66% in Europe (The State of Logistics Outsourcing,2009 third-party logistics).

Generally speaking, the fact that transportation was found to be the area with the highest proportion of expenditure is inline with the findings of other similar studies done in Europe and in the rest of the world (Ballou, 2004; Jaafar and Rafiq,2005).

4.6. Customer satisfaction in outsourcing

The clients of 3PLs were asked an open-ended question about the problems they encountered in their outsourcing part-nerships. Eight different categories of problems were detected: delays, shipping errors, poor exchange of information, qualityof personnel, level of cost, loss and damage performance, low service quality, and technical insufficiency. Thirty percent ofcustomers declared to have encountered no problems. In other words, the level of satisfaction is 30%. From another point ofview, the fact that 70% of the participant firms outsourcing logistics services had complaints is a serious warning.

The 29% of the complaints expressed by the participant firms were related to delays and incompliance with timingarrangements. Apart from the 30% of the participants that had no complaints, 29% of the remaining 70% – i.e. almost halfof them – had complaints about timing. This shows to the service providers that they must concentrate on this issue. As men-tioned above, the clients of 3PLs declared that they gave less importance to service quality. Hence, selecting service providerson the basis of lowest cost quotes might be the source of quality and technical insufficiency related issues (see Table 14).

As mentioned previously, although information systems departments are one of the main components of logistics pro-cesses, they do not participate in the decision-making process at all. The problems encountered in terms of technical insuf-ficiency can be explained by the lack of integration of information systems between the service providers and the customers.

Table 13The share of different logistics functions in total logistics expenses for outsourcing firms.

Industry Transportationmanagement

Warehousemanagement

Distribution centeroperations

Ordermanagement

Automotive 77 25 20 27Chemicals 71 20 18 10Computers and electronics 84 30 6 10Construction 81 18 4 27Machinery 84 27 15 10Paper and packaging 84 20 10 32Pharmaceuticals 65 27 31 11FMCG 81 25 11 10Textile 78 33 46 55

Table 14Problems encountered in outsourcing partnerships.

Industry Delays (%) Service quality (%) Price (%) Communication (%) Vehicle (%)

Automotive 58 33 13 21 13Chemicals 70 20 20 25 10Computers and electronics 59 36 18 9 0Construction 48 4 30 0 0Machinery 50 17 17 25 17Paper and packaging 40 24 4 4 16Pharmaceuticals 35 35 18 6 0FMCG 66 18 18 16 21Textile 65 17 30 22 9Grand Total 56 23 19 14 10


5. A road map for 3PLs

As an additional analysis, a decision support system based on Bayesian Belief Networks is built to analyze the change inthe behavior of firms according to the industry they operate in, their capital structure or partnership status. Moreover, tohelp 3PLs in their future decisions regarding specific sectors and services is another motive underlying this model. For thisstudy, all of the 204 firms that outsource their logistics activities are used as to provide the data to the network.

Bayesian Belief Network (BBN) is a type of graphical model, which uses probability theory to manage uncertainty andcomplexity by explicitly representing the conditional dependencies between the nodes (concepts) (Jensen, 2002). The visualrepresentation of BBN can be very useful in clarifying previously opaque assumptions or reasoning hidden in an expert’smind. From a mathematical point of view, the basic property of BBN is the chain rule: a BBN is a compact representationof the joint probability table over its universe.

The chain rule for BBNs then yields

PðA;B;CÞ ¼ PðAÞ � PðB n AÞ � PðC n BÞ

In theory, the posterior marginal probability of a variable can be computed from the joint probability by summing allother variables one by one:

PðAijBÞ ¼PðAiÞPðBjAiÞPn

i¼1PðAiÞPðBjAiÞ

The example in Fig. 6 shows that if the company is single partnered and its capital is completely foreign, then logisticscost will be low with 25% probability, medium with 25% probability, and high with 50% probability. In practice, such an ap-proach is computationally intractable when there is an extensive number of variables since the joint distribution will have anexponential number of states and values. Although BBNs create an efficient language for building models of domains withinherent uncertainty, it may be time consuming to calculate conditional probabilities, even for a very simple BBN. Fortu-nately, there are several commercial software tools such as Hugin and Netica that can perform this operation.

In the current research, Netica version 1.12 was used. It is a complete software package designed to work with BBNs, deci-sion networks, and influence diagrams. In particular, it can be used to identify patterns in data, create diagrams encodingknowledge or representing decision problems, and then utilize those patterns to answer queries, find optimal decisions,and create probabilistic expert systems. It is suitable for application in the areas of diagnosis, prediction, decision analysis,

Fig. 6. Simple example of Bayes’ rule.

LEVEL 1

LEVEL 2

Fig. 7. An analysis for reasons to outsource.


sensor fusion, expert system building, reliability analysis, probabilistic modeling, risk management, and selected types ofstatistical analysis and data mining.

Bayesian Belief Network of the system analyzed in this paper is given in Fig. 7. Although BBNs create a very efficient lan-guage for building models of domains with inherent uncertainty, it is a tedious job to perform evidence transmission even fora very simple network (Jensen, 2002). In this paper, Netica (www.norsys.com) software is used to carry out this operation.

Level 1 in this map shows the sectors of the companies involved in the analysis along with their partnership status andcapital structure. It is assumed that the sector that the firm is in as well as its partnership and capital status directly affectsthe reasons for outsourcing logistics activities to 3PLs. So level 2 shows the reasons of these firms for outsourcing logisticsactivities to 3PLs. For sector, partnership and capital structure nodes, discrete variables, meaning that a well defined finite setof possible values are used where as for the nodes denoting the outsourcing reasons, continuous variables are used since therelated data was on a 1–5 scale.

When the firms’ answers are analyzed, logistics cost (3.38) is seen as highly important while order fulfillment (3.17) andimproved customer services (3.07) keep their medium level importance. Inventory management has the least importanceamong all (1.69).

5.1. A guide map for 3PLs

The effects of sector, partnership status and capital structure of the firms in decision-making process for outsourcing areanalyzed in details in the following sections. The purpose of this analysis is to provide insights on the impact of a prospectiveclient’s sector, partnership status, and capital structure. Scenario analysis can easily be conducted by specifying values foreach variable, i.e. sector = FMCG, partnership status = single, and capital structure = no foreign. The reasons for outsourcingof such firms can easily be revealed by BBN.

5.1.1. Sector based analysisFirms in the automobile sector expect their outsourcing activities to improve their customer services (3.24) in the first

place. Their secondary reason to outsource logistics services is decreasing their logistics cost (3.12). Effective inventory man-agement is regarded as of low importance (1.97).

For chemicals sector; on the other hand, the primary concern for outsourcing is order fulfilment (3.32). Effective inventorymanagement is again regarded as of low importance (1.82).

Computer electronics sector considers improving their customer service (3.25) as the main reason for outsourcing logis-tics services. Access to wider markets as well as effective inventory management is given a low level importance (1.99).

Similar to the chemistry sector, firms in construction sector outsource logistics services for order fulfilment (3.42). Effec-tive inventory management is regarded as of low importance (1.69).

Firms from machinery, paper packaging, pharmaceuticals, FMCG and textile sectors regards logistics cost as the main rea-son of outsourcing (�3.6).

5.1.2. Partnership statusFirms with single partnership status give high importance to logistics cost (3.16). These firms regard order fulfilment and

customer service as of medium importance (2.9). So, it can be said that a 3PL, targeting firms with single partnership statusshould consider highlighting logistics cost, order fulfilment and improving customer service in the first place.

Firms with multiple partnership status give high importance to improving logistics costs (3.43) and order fulfilment(3.28). These firms give low importance to effective inventory management (1.53) like any other firms.


Like firms having single partnership, public firms in terms of partnership status regard improving logistics costs as of highimportance (3.38). Therefore, 3PLs attempting to make contracts with public firms should emphasize the prospective reduc-tion in logistics costs. Order fulfilment, improving customer service and focusing on core business are given medium impor-tance by the public sector (2.8).

5.1.3. Capital structureThe firms which have no foreign capital involvement in their capital structure regard logistics cost reduction (3.43) as the

primary reason for outsourcing while effective inventory management is regarded as of low importance (1.55). Firms withcomplete foreign capital have a similar structure whereas the firms which have foreign share in their capital structure regardfocusing on core business as their primary reason for outsourcing.

The findings of Sections 5.2.1-5.2.3 are given in more detail in Table 15.As can be seen in Table 15, lowering logistics cost has the highest values in denoting the reasons for outsourcing. It is

followed by order fulfilment and customer service. 3PLs should especially consider reducing logistics costs and find waysto improve order fulfilment and increase their customer services.

5.1.4. Scenario analysisThe merit of this model is aiding 3PLs in managing their customer relationships according to the sectors they intend to

provide services in. By generating several different scenarios, the proposed model can offer useful guidelines to the 3PLs intheir attempt to specify their strategies for different customer segments. For example, a 3PL aiming at providing service tothose firms having public partnership with foreign capital in chemicals sector (see Fig. 8) should propose an outsourcing

Table 15Directions for 3PLs.

Logisticscosts

Orderfulfilment

Improvedcustomerservices

Access towidermarkets

Effective inventorymanagement

Focus on corebusiness

SectorAutomobile 3.12 3.08 3.24 2.56 1.97 2.32Chemicals 3.16 3.32 3.21 2.84 1.82 2.37Computers electronics 2.97 2.96 3.25 1.99 1.99 2.62Construction 3.34 3.42 3.3 2.73 1.69 2.38Machinery 3.45 3.08 3.34 2.88 1.82 2.11Paper packaging 3.57 3.21 2.87 2.8 1.5 1.97Pharmaceuticals 3.85 3.11 2.41 3.39 1.35 2.24FMCG 3.45 3.35 2.93 2.25 1.56 2.68Textile 3.54 2.83 3.2 2.72 1.63 2.14

Partnership statusSingle 3.16 2.9 2.87 2.59 1.99 2.38Multiple 3.43 3.28 3.16 2.62 1.53 2.3Public 3.38 2.88 2.8 2.54 2.33 2.8

Capital structureNo foreign 3.43 3.21 3.11 2.63 1.55 2.19Completely foreign 3.3 3.14 3.01 2.37 2.17 2.92Foreign share 3.02 2.84 2.82 2.78 2.26 3.11

Fig. 8. Scenario 1: Chemicals sector /public partnership/with foreign share.

Fig. 9. Scenario 2: Pharmaceuticals sector/multiple partnership/completely foreign capital.


service package especially in a way to help the firm to access wider markets (2.89). Besides, focusing on core business is anarea which should be stressed by the 3PL. With such available information, the 3PL would avoid focusing on some other fac-tors such as improving customer service, which seemingly has less importance for logistics customers acting in chemicalssector.

On the other hand, as can be seen from Fig. 9, a 3PL planning to provide services to those firms in the pharmaceuticalssector, with multiple partnership and completely foreign capital, should be aware of the fact that the main reasons of out-sourcing for those firms is order fulfilment (4.46) and thus, the 3PL could provide an outsourcing package proposal using thisinformation.

A 3PL can conduct similar type of analysis for different firms having different characteristics and prepare appropriate pro-posal packages for each of them based on the information that will be received from the model.

6. Summary and further suggestions

The recent trend towards outsourcing of logistics activities has given prominence to the concept of 3PLs. However, the3PL sector will not grow at the expected rates unless it surmounts some of its current obstacles. A good logistics serviceis a source of competitive advantage and the keys to provide effective customer service are determining customer needsaccurately and responding to them in a consistent manner. After discovering the customers’ needs and the prevailing com-petitive situation, possible competitive advantages/disadvantages and improvement potential can be identified. In order toperform well, the 3PLs should formulate a proper strategy to improve their level of services.

This study has portrayed several key findings on logistics outsourcing practices of the logistics service customers’ percep-tions of 3PLs in Turkey based on a structured survey, carried out in 2007. It is aimed at performing a scientific study that willdraw the profile of the logistics sector and create a source of reference that will meet the needs of 3PLs operating in the sec-tor and the companies that demand their services.

When the BBN model is analyzed according to industry, partnership and capital structure parameters, no significant dif-ference is found between the outsourcing reasons. In most of the cases, the most mentioned reasons are logistics costs, orderfulfillment and improved customer service. The only exception is for firms with foreign share capital structure; focusing oncore business has a priority among other reasons.

Though this analysis has not reached a clear conclusion, the actual purpose of building a BBN model is to provide a deci-sion support system that might assist 3PLs as to which characteristics of firms to consider and what areas to focus on whilepreparing offers to such firms. Two samples with regard to this have been presented in Section 5.1.4. Although the model hasnot found discontiguous results upon individual analysis of parameters, it has produced striking and discriminating resultswhen all 3 parameters showing firm characteristics were modified. By using this model, a 3PL preparing a quote in order toprovide outsourcing to a firm can do so knowing full well what to consider while preparing its offer.

Cost-related factors seemed to gain top priority among customers, over service-related factors, in 2007. This is in parallelwith the global trends where the economic slowdown will see a move back towards cost-driven outsourcing- despite the factthat, over the long term, service-driven or value-driven deals tend to deliver more stable, successful relationships (Edgell etal., 2008).

As a result, it can be said that the drivers for outsourcing deals are cyclical. In slower economic times, cost has played amore significant factor, while in better times, the other benefits of outsourcing may receive a greater focus. In fact, the 2007results may be accepted as the signal of 2008 global crisis.

In light of the predicted economic slowdown in 2008, the cost will become more prominent. But, as in previous economicslow-downs, this tightened focus on cost over value needs to be approached with caution. Companies should look back toprevious economic cycles and appreciate that projects driven by value or service issues tend to be more successful.


Another reason seems to be that, considering the high volume of complaints, (satisfied customer level is only 17%) out-sourcing firms may think that they do not get value for money for the service that they receive from the 3 PL providers andhence attempt to drive down costs.

However, it is also necessary to underline that export-oriented and domestic market oriented firms show significant dif-ferences in this respect. Both cluster analysis and BBN scenarios yielded the same results in that they provide 3PLs firms withdifferent approaches on a sectoral basis. Firms in the two sectors, namely automotive and textile, which happen to be theengines of export in the economy, highlight service quality among their reasons for both their choice of 3PLs and their out-sourcing. Among different types of services procured, transportation services obviously exceed the others. The areas apartfrom transportation are customs clearance, distribution to customer warehouse, container transportation, and distributionto end customer. Considering the variety of services rendered by logistics service providers, it is noteworthy that the custom-ers are interested in certain areas only.

7% of existing customers do not think to outsource their logistics activities anymore and 57% of non-customers considerbuying 3PLs services in the coming years. Other factors that relate to the service performance or relationship characteristicsof the 3PL providers that might deter the non-3PL users from using the 3PL service are worth researching.

Although warehouse services rank among the most frequently purchased services, contributors assigned the least signif-icance to effective inventory management in their ratings of outsourcing impacts on competitive advantage. There may betwo reasons for this: (1) the insufficient information the service customers have on the logistics service providers’ offers and/or their belief that the logistics firms in the market are incapable of providing such services at accepted levels (2) theirunwillingness to outsource the activities they deem as critical, and require information sharing. In addition, the merepercentage usages of VMI and collaborative forecasting services (2% and 4% respectively) reinforce the reluctant behaviorof outsourcing firms in information sharing with third-party logistics firms. From 3PL provider’s standpoint, having earlydemand information and being part of the collaborative forecasting effort, will definitely help in planning the transportationcapacity, inventory levels, and scheduling. This will on one hand decrease total supply chain cost and on the other handincrease responsiveness of the outsourcing firms as well as the 3PLs.

When the companies working with 3PLs were asked about their satisfaction with the services they had been purchasing,17% of them stated that they had no problem at all. This is a very small percentage of satisfied customers and this may be dueto their cost oriented preferences. Forty percent of the participants declare that the company’s name and prestige in the mar-ket were not considered as an importance factor in selecting 3PLs partner. The reason for such high volumes of complaintsmight be that service providers are selected from among those offering the lowest prices rather than the ones with the abilityto satisfy said companies requirements. The main complaint of participating companies is related to delays and non-compliance with timing. As it was previously mentioned, with collaboration in certain areas, the timing problems can beresolved. The 3PLs must emphasize the cost benefits and improvements to service quality in order to persuade their custom-ers with regard to information sharing and both parties have to work together to build mutual trust. The competitiveness of3PLs depends, to a large extent, in their ability to add value to their clients. 3PLs can do that effectively through cooperatingwith their clients, learning their business practices and introducing innovation with a view towards improving theperformance of the supply chain (Panayides and So, 2005).

It is a long-term process to reveal the profile of the logistics sector clearly. This and similar research should be repeated inthe coming years; guided by the results from this research, the survey questions and the areas to be focused on should becontinuously reviewed and the related data should be collected and analyzed continuously.

As a further suggestion, a cross validate information with 3PLs will be used to confirm if they are using a differentiationstrategy and/or segmenting customers in terms of clients profile.

It is also possible to link Bayesian network with Structural Equation Modeling (SEM) in order to benefit from both. SEM issuitable to model linear relationships. However, if the relationships are non-linear, the potential effect of independent vari-ables would not be accurately known, resulting in poor prediction and diagnosis. Additionally, SEM is suitable for empiricalvalidation of a theoretical construction at the latent variable level, whereas Bayesian networks are especially suitable for pre-diction and diagnosis of any situation at the individual items (observed variables) level. Prior conditional probabilities maybe estimated from the latent scores obtained from SEM. Each variable could be discretized into states and the conditionalprobability of these states could be estimated on the basis of frequency and based on the prior conditional probabilities,and then conditional probability distribution for the dependent variables could be calculated. Once the structure is learned,it can be used to further train the network if more data is available, in which case, the conditional probabilities of the nodesin the network will change (Gupta and Kim, 2007).

Acknowledgement

We would like to thank three anonymous reviewers comments of whom helped us improve our paper.

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The use of outsourcing logistics activities: The case of turkey

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