a study of business performance measurem

8/16/2019 A Study of Business Performance Measurem

1/22

A Study of Business Performance Measurement of Third Party Logistics (3PL)

Organizations in the Indian Logistics Industry

*Smriti Asthana

**Hamlata Bhat

*** Rahul Singh

Abstract

The Indian logistics industry is growing rapidly. It is the interchange of infrastructure,

technology and new types of service providers that define whether the industry is able to help

its customers reduce their logistics costs and provide effective services. Logistics services are

the backbone of an economy, providing the efficient, cost effective flow of goods and serviceson which other commercial sectors are dependent. The logistics companies work as the

outsourced or third party service providers (3PL) and support the organizations logistics

functions.

This study of business performance measurement of 3PL organizations or logistics

outsourcing in Indian logistics industry explores the relationship between 3PL service

providers and supply chain partners (both upstream and downstream). The researchers have

made an attempt to determine the relationship on the basis of the performance variables such

as Service Quality (SQ), Organisational Effectiveness (OE) and Relationship Management

(RM) and there effect on the performance of the third party service provider(s).

Keywords: Third Party Logistics, Service Quality, Organisational Effectiveness, Relationship

Management, Performance measurement.

1. Introduction

The Indian Logistics Industry is becoming more multifaceted with the business transcending

geographies and logistics chain becoming multimodal and infrastructure dependent (CrisilReport, 2015 ). A key reason can be identified for the same in the years of high growth in the

Indian economy that have resulted in a remarkable rise in the volume of freight traffic

movement both within and outside the country. The large volume of freight traffic has

provided impetus and growth opportunities in all facets of logistics services.

___________________________________________________________________________

*Research Scholar, Birla Institute of Management Technology, Greater Noida** Associate Professor, G.L.Bajaj Institute of Management and Research, Greater Noida

***Associate Professor, Birla Institute of Management Technology, Greater Noida


2/22

Logistics services broadly comprise of courier services, freight forwarding, third party

logistics (3PL) and reverse logistics. According to a report by Netscribes, 2015 Growing

business o f private telecom sector, financial institutions dependence on courier and seasonal

business upsurge due to occasions and festivals are the key drivers of the Courier Market.

3PL providers have largely benefitted from the growth in auto & auto components sector and

retail sector. The trade supply chains have become geographically complex and there is an

increasing dependence on competent transport intermediaries making it essential for the

supply chain organizations and Third Party Logistics (3PL) service providers, to develop

strategies that make available differentiated value to the customer at optimum cost (Indian

Logistics Industry Snippets, 2009). Key findings of the 16th Annual 3PL study regarding the

current state of the market for the year 2012 highlighted that 3PLs made valuable

contribution and are an important success factor for the companies across industries and

around the globe. The companies give preference/credit to their 3PL partners which are

helping to provide new and innovative ways to improve logistics effectiveness (State of

Logistics Outsourcing, 2012). Crisil Research (2010) estimates that the 3PL industry

revenues to increase to INR 190 - 195 billion by the end of 2015 from INR 57 - 60 billion in

2009-10. This as result shall lead to a rise in the share of 3PL service providers from 1.5 - 2.0

percent to 3.5 - 4.0 percent in the overall Indian logistics industry.

Business performance measurement has always been a managerial priority, and attracts

increasing interests of both academicians and managers. Managers persistently measure

business performance and request performance-related information. Performance

measurement is integral to the successful execution of managerial duties. It helps in the

transference of the complex reality of performance into a sequence of communicable symbols

that can be reproduced under similar circumstances (Lebas, 1995). Examination of logistics

performance has mainly been focused on operational measures. There has been less attention

placed on the influence of organizational factors, despite the advocated need for greater inter -

organizational integration among supply chain partners (Panayides and Meko, 2005).


3/22

2. Literature Review

2.1 Third Party Logistics (3PL)

There are several perspectives on the 3PL definitions. This paper attempts to understand the

various definitions which are frequently used in several researches. References of the

definition are also found in the research papers and reports scanned for this research paper.

The Council of Supply Chain Management Professionals Glossary has defined 3PL as

"A firm [that] provides multiple logistics services for use by customers. Preferably,

these services are integrated, or "bundled" together, by the provider. Among the

services 3PLs provide are transportation, warehousing, cross-docking, inventory

management, packaging, and freight forwarding." (CSCMP, 2010)

Lau (1999) defined 3PL as the outsourcing of logistics activities to other companies, such as

transportation, warehousing, inventory management, distribution, and other value-added

services such as pick-and-pack, assembly, repairs, and re-conditioning. Field (1998) defined

3PL service providers as companies that provide a range of logistics services to outsourcing

companies to co-ordinate the transfer of goods from one place to another.

Since 1980s, along with the trend to outsource non-core activities (Sink and Langley, 1997)

companies have increasingly turned to 3PL both in USA (Lieb and Randall, 1996;

Rabinovich et al., 1999; Knemayer and Murphy, 2004) and in Europe (Van Laarhoven et al.,

2000). 3PL services help to achieve the tactica l objectives by focussing more on core

competency of the business than creating the whole value chain of the organisatio n which

engages very special and valuable time, effort and investment. 3PL users depend on 3PL

service providers to secure capacity and gain agility (Hannon, 2005) that not only provides

core services like supplying right quality product but also maintaining long term customer

relationship.

According to Qureshi (2007) Razzaque and Sheng (1998), outsourcing of 3PL(s) is generally

defined as a provision of a single or multiple logistics services by a vendor on a contractual

basis. At the organizational level, Aguezzoul (2007) defines 3PL as a private firm that

provides logistics services under a contract to a primary manufacturer, vendor, or user of a

product or service. It is called third-party because the logistics provider does not own the


4/22


5/22

Authors/ Researches Performance Measurement Definition

Armstrong and Baron(1998)

Performance Management is both a strategic and an integratedapproach to delivering successful results in organizations by

improving the performance and developing the capabilities ofteams and

Bititci et a l., (1997) A process by which the company manages its performance in linewith its corporate and functional strategies and objectives.

Cook et al., 1995 The process of evaluating performance in terms of explicit short- ,

medium-, and long-term objectives and reporting the results tomanagement

Gunasekaran et al., 2001The process of transferring the complex reality of performance

into a sequence of limited symbols that can be communicated andreproduced under similar circumstances

Lebas, 1995Performance measurement is an essential part of the performancemanagement. By measuring, people transform complex reality

into simplified numerical concepts that can be easilycommunicated and acted upon

Neely et al., 1995; 1996 The process of quantifying the efficiency and effectiveness ofaction

Rose, 1995 The process of evaluating performance relative to a defined goal.

Sink, 1991Performance refers to the nature and quality of an action that anorganization carries out to accomplish its principal missions and

functions for the generation of profit

Effectiveness and Efficiency are the two basic parameters determining the organizational

performance. Effectiveness is the extent to which production functions are accomplished and

customer requirements met; and efficiency is a measure of how economically the

organization’s resources are utilized in accomplishing these functions. From a quantitative

perspective, performance is related to the dimension o f scale, and means that, generally, it

can be quantified in a variety of dimensions. Performance targets are only meaningful when

they can be expressed quantitatively (Macleod et al., 1997).

Rose (1995) highlights in the paper that it is an analytical tool in the performancemeasurement process that records measures, displays results, and determines subsequent

actions. Generally, performance measures have financial or non-financial and tangible or

intangible classifications (Polakoff, 1992). Kaplan (2009) believed that measurement was

essential for managers as it was for scientists. Kaplan and Nortan (1992) emphasised that if

companies were to improve the management of their intangible assets, they had to integrate

the performance measurement of intangible assets into their management systems. Sink

(1991) found that measurement is complex, frustrating, difficult, challenging, important,

abused and misused, however Das(1994) stressed on the need of performance measurement


6/22

processes for an organization with evidence based outcome as ‘if we cannot measure it, we

cannot improve it’(Kaplan, 2009).

2.3 Performance Measurement of Third Party Logistics (3PL) Service Providers

Performance in logistics is defined as the evaluation of constituents using efficiency,

effectiveness, or social referent criteria to measure how well an organization meets the

aspiration levels of constituents (Thompson, 1967; Friedlander and Pickle, 1968). A great

deal of attention has historically been placed on individual measures, rather than on systems

of measurement (Beamon, 1999), and many of the existing studies are prescriptive in nature

and emphasize the attributes that good metrics and measurement systems should have

(Bourne et al., 2000). Keebler et al. (1999) indicated that relatively few firms measure the

performance o f the logistics supply chain, especially logistics outsourcing. This is because

the systems perspective is seldom adopted and very little empirical research exists on supply

chain performance measurement from a broader system perspective, such as organizational

performance measurement.The increasing importance on core competencies opened up many

business opportunities for logistics service providers (Christopher, 1998). They act as

intermediaries in a supply chain that enable the organized movement of goods from a point of

origin to a point of destination (i.e. from shippers to consignees) (Lai et al ., 2004). Instead of

merely focusing on transportation activities, third party logistics providers (3PL) are

additionally coordinating logistical activities, integrated on an intra- or even inter-

organizational level (Sink et al., 1996; Vaidyanathan, 2005). Companies in a supply chain

have to decide to be either cost-efficient or lead time driven and the provision of logistics

services is affected by this choice as well (Fisher 1997).

Man (2006) has highlighted in his study that efficient logistics and supply chain management

reinforces an organization’s customer - oriented performance. Sink and Langley (1997) have

found that high-level communication and interaction were needed between organizations

outsourcing logistics services and third party logistics service providers and also that

continuous evaluation of 3PL services was important for maintenance of efficient and

effective performance. Panayides and Meko (2005) have examined in their study that 3PL has

been an efficient organizational adjustment to the needs of clients for logistics solutions and

improvement in supply chain performance. This study examines empirically the influence of

relationship orientation in third-party logistics and its impact on logistics service quality and

performance. To study the performance measurement of the 3PL service providers the


7/22

variables discussed in this study are service quality, organizational effectiveness and

relationship management.

2.3.1 Service Quality (SQ)

Service quality has emerged as an important area in the sustainability and growth of the

business and its various d imensions have been explored by researchers. Wikipedia defines

Service Quality as a comparison of expectations with the performance. Juran and Godfrey

(1999) defined quality as ‘fitness for use’ and those product features which meet customer

needs and thereby provide customer satisfaction. Practitioners across various fields have used

service quality synonymously with customer satisfaction, both being related concepts. But

empirical and theoretical researches support the view that the two concepts are different and

that quality performance leads to customer satisfaction (Rosen and Surprenant, 1998; Olsen,

2002). Factoring the service quality, Kim, Cheong and Cho (2006) formulated five

dimensions of 3PL service quality (tangibles, reliability, responsiveness, assurance and

empathy) and applied the Analytic Hierarchy Process (AHP) method to determine the relative

weights of the five service quality dimensions to select the best 3PL service provider. In an

empirical case study on four companies providing 3PL services in Korea, responsiveness

came out as most important of the five service quality dimensions in the perception of 3PL

customers.

Man (2006) has described customer service as marketing and logistics activity that is aimed

at enrichment of the offered products or the facilitation of the exchange process between

suppliers and customers. According to Man (2006), customer service, from a marketing

perspective, includes elements of product design and maintenance, training in sales attitudes

and responsiveness, the ease of customer interaction with suppliers, guarantees, price, and

elements of logistics service. From the customers point of view, Power, Sharafali and Bhakoo

(2007), attempted to present how customers perceived their logistics service providers in

terms of achieving the claimed benefits of outsourcing in Australia. The results indicate that

customers of 3PL service providers place significant value on the services provided,

technologies used and objectives that go beyond low cost to the customers, and that,

customers focus on service based solutions that provide a set of benefits going beyond sheer

cost control. From an emerging market perspective, Seth, Deshmukh and Vrat (2006)

explored some of the critical issues in the area of service quality and offered practical help to

researchers and practitioners in providing a direction for supply chain service quality


8/22

improvement. They proposed a model for assessing the quality of service at various interfaces

of supply chain using third party logistics.

2.3.2 Customer Relationship

Man (2006) emphasised that in addition to the context-structure-output framework

relationship management, an external factor also affects the organizational performance of

the 3PL service providers. Most of the previous studies have focused on outsourcing and

have therefore taken customers’ perspective on 3PL relationships (Lieb and Kendrick, 2002).

Man quoted Elmuti (2002), who elaborated that a good relationship management such as one

that involves guanxi, trust and commitment among supply chain partners enhances 3PL

organizational performance. Ferrer, Santa, Hyland (2010) in their study have identified three

factors that have significant influence on relationships: sharing, power and interdependency.

These three factors have been defined as: Sharing is the willingness of the organisation to

share resources with other members of the supply chain; Power relates to exercising control

based on experience, knowledge and position in the supply chain; and, Interdependency is the

relative levels of dependency along the supply chain.

Additionally, Large, Nikolai, Rahel, and Hartmann (2011) in their study provide evidencethat customer-specific adaptation by logistics service providers is an important prerequisite to

3PL performance. The paper shows that 3PL providers should adapt and integrate their

systems and procedures to specific requirements of the customers to ensure high-relationship

performance. Satisfied customers in turn should promote the service providers’ adaptations,

because these adaptations enhance the p robability of contract renewal and reduce the risk of

providers’ unexpected termination of the contract.

Knemeyer, A.M., Murphy, P.R. (2005) provide a comparison of users and providers of third- party logistics (3PL) services with respect to relationship marketing elements, such as trust

and communication, as well as relationship marketing outcomes such as retention and

recovery. Tian, Ellinger, and Chen (2010) proposed and tested a conceptual model of the

relationship between customer orientation of third-party logistics (3PL) service providers and

logistics improvement of customer firm, and found that customer orientation of 3PL service

provider significantly influences customer firm’s logistics improvement. Wu and Chou

(2007) quoted Edvinsson and Malone (1997) and emphasised that intellectual capital (IC)such as customer relationships, business processes, research and development, knowledge of


9/22

employees, and customer loyalty cannot be presented in the financial reports or analyzed for

future prediction. The findings of the study show that human capital, structure capital, and

customer relationship have a positive association with IC performance.

2.3.3 Organizational Effectiveness (OE)

Effectiveness and Efficiency are the two basic parameters determining the organizational

performance. Effectiveness is the extent to which production functions are accomplished and

customer requirements are met. Efficiency is a measure of how economically the

organization’s resources are utilized in accomplishing these functions. Performance targets

are only meaningful when they can be expressed quantitatively (Macleod et al., 1997).

Knemeyer and Murphy (2004) in their study explore the possible connection between

relationship management extent and 3PL service providers performance. On performance, t he

study by Sahay and Mohan (2006) has cited substantial growth in various financial indicators

using services of 3PL. For instance, the improvements in sales revenue by 13.5%, working

capital by 12.3%, returns on assets by 10%, capital assets reduction by 10%, production cost

reduction by 10.5%, labour cost reduction by 10.0%, and logistics cost reduction by 15% are

identified in the study.

There are different competencies that companies from developed markets and emerging

markets possess. Study of different countries indicates changes in the structure and output

relationship. According to Elmuti (2002) a good organizational structure achieves

organizational effect iveness in 3PL service providers. The structure-output relationship (Man,

2006) develops a research model to identify the relationship between 3PL service providers

and their supply chain partners. The relationship has elements like productivity, financial

performance, market share, cycle time, customer service, reputation and goodwill (Beamon,

1999; Thomas, 1999; Mentzer et al., 2000; Carr and Person, 1999; Elmuti, 2002; Lai et al.,

2004; Reiner, 2005). Halldorsson, Larsen, Tage (2004) consider 3PL from the resource and

competency perspective. According to them there is a need for new competencies and the

same are to be developed between the shipper and the 3PL service provider from time to

time.


10/22

3. Objective of the study

The purpose of this study is to empirically investigate the organizational business

performance of 3PL service providers and their supply chain part ners (upstream and

downstream) and also to study about the relationship management of 3PL service providers

with upstream and downstream supply chain partners in the transport logistics industry in

India. It is aimed to determine the interrelationship between the three constructs of

organizational performance being service quality, relationship management and

organizational effectiveness.

The specific research objectives of this study are presented as follows.

1. To empirically investigate the service quality performance of 3PL service providers with

respect to their supply chain partner organizations (upstream and downstream).

2. To study the relationship framework of 3PL service providers and their supply chain

partners (upstream and downstream) investigating trust, commitment and guanxi.

3. To study the organizational effectiveness in terms of productivity, goodwill and reputation

of the 3PL service providers.

4. Research Methodology

To realize the research objectives, this study is designed to identify the expectation and actual

practice of 3PL organizational performance in Indian Logistics Industry. The researchers

collected data from the supply chain partners (upstream and downstream) and the internal

staff of the leading ten 3PL providers in India. The 3PL service providers located in Mumbai

and Delhi (NCR) and Chennai have been surveyed for the study. The 3PL service providers

with certain commonalities have been selected for this study to facilitate the analysis of

performance measurement between 3PL service providers and their partners.


11/22

4.1 Research Instrument

A total of 600 questionnaires in four groups (3PL expected performance, 3PL actual

performance, customer s’ expectations of 3PL performance, and customer s’ actual experience

with 3PL service providers performance ) were distributed to the target 3PL service providers

and their customers / supply chain partners (upstream and downstream).

Part I of the questionnaire is designed to gather the demographic details of the respondents

and their companies, such as position, type of industry, type of company, total number of

employees, number of year in operation, annual sales, and the personal information of the

respondents, such as name, designation and contact information.

Part II consists of 12 measurement items that examine the service quality of 3PL service

providers. The respondents were asked to evaluate the extent to which they agreed or

disagreed with statements that addressed the service quality in targeted 3PL providers on a

seven- point Likert scale that ranges from “1” (strongly disagree) to “7” (strongly agree).

Part III outlines the 14 measurement items of 3PL organizational effectiveness in four

dimensions: productivity, cycle time, goodwill and reputation and customer service.

Productivity is measured by 5 items, cycle time is measured by 4 items, customer service is

measured by 3 items and goodwill and reputation is measured by 2 items. All of the

measurement items are evaluated in a seven-point Likert scale where “1” represents strong

disagreement and “7” represents strong agreement. Table 4.2 shows the measurement items

of 3PL organizational effectiveness.

Part IV outlines the 9 measurement items of 3PL relationship management in three

dimensions: Guanxi, Trust and commitment. Guanxi is measured by 3 items, trust by 3 items,

and commitment is measured by 3 items. The respondents were asked to evaluate the extent

to which they agreed or disagreed with statements that describe the relationship and business

links between 3PL service providers and their customers on a seven-point Likert scale that

ranges from “1”(strongly disagree) to “7” (strongly agree).


12/22

4.2 Target Respondents

The questionnaires were administered physically to ten employees of each of the ten 3PL

service providers in the three locations of Mumbai, Chennai and Delhi-NCR to answer the

questions related to their customers’ expectations and actual performance delivered in terms

of service quality, organizational effectiveness and relationship management. Similar

questionnaires were also administered to five business partners of each selected 3PL service

provider to identify their expectation in terms of service quality, organizat ional effectiveness

and relationship management from the service providers and the actual performance received

by them. Two executives from each such organization were randomly selected for the

purpose of the survey. In the selection of the samples, despite potential information bias, only

the key respondents from each company are considered. This is inspired by Teo and King

(1997), in order to avoid potential perceptual discrepancies between respondents. However, it

is still necessary to examine the suitability of the respondents. As this study aims to examine

3PL performance measurement, the target respondents of this study are the senior

management, middle management and front line managers of the selected 3PL service

providers and their business partners (upstream and downstream).

4.3 Pilot Study

Before distributing the questionnaires to the targeted respondents, a pilot study was

conducted with several industry experts and academic professionals. Based on their feedback,

modifications were made to enhance the clarity of the items. After incorporating feedback

from a pre-test, the revised questionnaire was further pilot tested on a 3PL company, and

included both company employees and customers. Four sets of questionnaires were

administered. Ten expected and actual questionnaires were administered to employees of a

3PL company and twenty expected and actual questionnaires were administered to the

business partners of a 3PL company.

The purpose of the pilot test was to obtain feedback and to test the content validity and clarity

of the measurement scale. A copy of the questionnaire, a covering lettering explaining the

purpose of the pilot study was personally administered to thirty respondents.


13/22

4.4 Hypotheses

On the basis of literature review and objectives of the study the major hypothesis developed

are as mentioned below:

H1: The service quality of 3PL service provider has a positive impact on its business

performance with supply chain partners (upstream and downstream).

H2: The quality of relationship management of a 3PL service provider has a positive impact

on its organizational performance.

H3: The organizational effectiveness of 3PL service provider’s has a positive impact on its

service quality and relationship management with supply chain partner organizations

(upstream and downstream).

4.5 Statistical Tools

The research methods used for the purpose of the study are Chi-square Goodness of fit,

Correlation Coefficient Analysis and Cronbach’s Alpha.

- Cronbach’s Alpha - To check the reliability of the research instrument the researchers

have used

- Chi-square Goodness of fit – for hypothesis testing for one variable

-

Correlation coefficient analysis – to test the extent of correlation between the three

constructs of SQ, OE and RM

5. Data Analysis and Interpretations

This study examines the performance framework of third party logistics and finds that the

performance measurements are primarily based on common variables with special weight to

Service Quality (SQ), Relationship Management (RM) and Organisational Effectiveness

(OE). The most commonly used statistical software packages of SPSS, MINITAB and MS

Excel have been used for the purpose of this study.

5.1 Reliability Test

A reliability test has been conducted to cross check the reliability of the research instrument.

Reliability is determined by the Cronbach’s Alpha coefficient, which is based on the internal


14/22

consistency of the scale. It implies that an instrument is stable. The higher the value of the

Cronbach’s Alpha coefficient, the higher the internal consistency of the item measurement of

each construct, which indicates the instrument’s high reliability. Cronbach's alpha is an index

of reliability associated with the variation accounted for by the true score of the "underlying

construct." Construct is the hypothetical variable that is being measured (Hatcher, 1994).

Table 5.1 Reliability of the Instrument

Constructs Items(n)

Cronbach's Alpha Coefficient

3PLActual

3PLexpected

CustomersActual

CustomersExpected

Service Quality 12 0.894 0.87 0.94 0.869

Organisational Effectiveness 14 0.943 0.903 0.898 0.876

Relationship Management 09 0.962 0.919 0.897 0.923 Note: n = Number of Items measured Source: Authors own compilation of primary data

Table 5.1 shows the Cronbach’s Alpha coefficients for each instrument and the constructs of

3PL service quality, 3PL organizational effectiveness, and relationship management. The

table shows that there is a positive Alpha Coefficient of greater than 0.85 for all the three

constructs hence determines a good reliability of the research instrument.

Nunnally (1978) claimed that a Cronbach’s Alpha coefficient of greater than the

recommended value of 0.60 is acceptable for exploratory research. A value of greater than

0.72 reveals that a good reliability has been achieved. Cronbach's alpha increases as the inter -

correlations among the measured items increase, and is thus known as an internal consistency

estimate of reliability of the items. Cronbach's alpha is widely believed to indirectly indicate

the degree to which a set of items measures a single unidimensional latent construct.

5.2 Correlation Coefficient

Correlation analysis is performed to investigate the inter-correlations between the three

constructs of service quality, organisational effectiveness and relationship management.

A correlation coefficient is a statistical measure of the degree in which changes to the value

of one variable will predict change to the value of another. In positively correlated variables,

the value increases or decreases in tandem. In negatively correlated variables, the value of

one variable increases as the value of the other decreases.


15/22

Correlation coefficients are expressed as values between +1 and -1. A coefficient of +1

indicates a perfect positive correlation: A change in the value of one variable will predict a

change in the same direction in the second variable. A coefficient of -1 indicates a perfect

negative correlation: A change in the value of one variable predicts a change in the opposite

direction in the second variable. Lesser degrees of correlation are expressed as non-zero

decimals. A coefficient of zero indicates there is no discernible relationship between the

degrees o f change of the variables.

Table 5.2 Correlation Coefficient between Constructs

Note: r ranges from -1.00 to +1.00 Source : Authors own compilation from primary data

Table 5.2 shows that all the three constructs display moderate to high correlation with each

other. According to the table the correlation coefficients in the Customer Actual group show

a moderate relationship between SQ and OE with correlation coefficient being 0.664 and

between SQ and RM with coefficient at 0.619.However the relation between RM and OE

does not seem to be very strong as the correlation coefficient is only 0.42.This means thataccording to the customers the actual performance of the 3PL service provider is not much

effected by the relationship management however, service quality of the service provider

does have a positive impact on the organisational performance.

In the customer expected category the above table shows that the relationship between SQ

and OE and SQ and RM are not having much influence on each other as the correlation

coefficients are 0.213 and 0.239 respectively, which is quite low as compared to the other

category. According to the customers’ expectations organisational effectiveness (OE) is

SQ OE RM SQ OE RM SQ OE RM SQ OE RM

Respondent

SQ 1 0.664 0.619 1 0.213 0.239 1 0.076 0.101 1 -0.058 -0.048

OE 0.664 1 0.42 0.213 1 0.887 0.076 1 0.918 -0.06 1 0.087

RM 0.619 0.42 1 0.239 0.887 1 0.101 0.918 1 -0.05 0.087 1

3PL Actual 3PL Expected

Correlation Coefficient between Constructs

Constructs

Customer Actual Customer Expected


16/22

directly influenced by the relationship that the service provider has with the customers as

correlat ion coefficient between RM and OE is 0.887.

According to the data collected from the 3PL service providers (actual) it has been observed

that the correlation coefficient between SQ and OE is 0.76 and between RM and OE is at

0.918 and only 0.101 between SQ and OE. Thus, it shows that there is a high relationship

between the Organisational effectiveness and relationship management and a moderate

relationship between the service quality and the organisational effectiveness of the 3PL

service provider in terms of their supply chain partners (upstream and downstream).

The data collected from the 3PL service providers (expected) determines that the correlation

coefficient between SQ and OE is - 0.58 and between RM and OE is at 0.087 and - 0.048

between SQ and RM. Thus, according to the representatives of the 3PL service providers it is

expected that the service quality does not have much influence on the Organisational

effectiveness and relationship management of the service provider with their counter parts.

However, the relationship management of the 3PL service provider has a positive impact on

its organisational effectiveness.

5.3 Hypothesis Testing

For the purpose of the study and hypothesis testing the most commonly used statistical

software package MINITAB has been used. Table 5.1 gives a detail of the results derived by

the application of the tool for the said purpose.

5.3.1 Hypotheses

H1: The service quality of 3PL service provider has a positive impact on its business

performance with supply chain partners (upstream and downstream).

H2: The quality of relationship management of a 3PL service provider has a positive impact

on its organizational performance.

H3: The or ganizational effectiveness of 3PL service provider’s has a positive impact on its

service quality and relationship management with supply chain partner organizations

(upstream and downstream).


17/22

Assumptions

1) Null Hypothesis: H10 : The service quality of 3PL service provider has a positive impact on

its business performance with supply chain partners (upstream and downstream).Alternative Hypothesis: H1a: The service quality of 3PL service provider does not have any

impact on its business performance with supply chain partners (upstream and downstream)

Table 5.3 Chi square Test- Goodness of Fit (one variable)

*P > 0.05 , N = observed value , n= 150 **Source: Authors own compilat ion from primary data.

From Table 5.3 it has been observed that at α = 0.05 level of significance the p -value for Chi

– Square Goodness of fit test is greater than 0.05 in all the four groups of respondents for the

construct service quality, so we shall accept null hypothesis. Thus, it can rightly be said that

the service quality of the 3PL service provider has a positive impact on its business performance with the supply chain partners.

2) Null Hypothesis: H20 : The quality of relationship management of a 3PL service provider

has a positive impact on its organizational performance.

Alternative hypothesis: H2a: The quality of relationship management does not have any

impact on its organizational performance.

Chi Square- Goodness of Fit (one variable)

Customer Actual Customer Expected 3PL Actual 3PL Expected

Constructs N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value

Service Quality 23 12 10.3478 0.585 14 9 3.14286 0.958 18 10 6.44444 0.777 13 6 4.76923 0.574

Respondents


18/22



From Table 5.4 it has been observed that at α = 0.05 level of significance the p -value for Chi

– Square Goodness of fit test is greater than 0.05 in all the four groups of respondents for the

construct relationship management, so we shall accept null hypothesis. Thus, it can rightly be

said that relationship management of the 3PL service provider has a positive impact on its

business performance with the supply chain partners. The respondents feel that relationship

management is an important factor in building strong long term relation and thus improving

the overall organisational performance of 3PL service provider.

3) Null Hypothesis: H30 : The organizational effect iveness o f 3PL service provider’s has a

positive impact on its service quality and relationship management with supply chain

partner organizations (upstream and downstream).

Alternative hypothesis: H3a: The organizat ional effectiveness of 3PL service provider’s has

a positive impact on its service quality and relat ionship management with supply chain

partner organizations (upstream and downstream).



Table 5.5 shows that at α = 0.05 level of significance the p -value for Chi – Square Goodness

of fit test is greater than 0.05 in all the four groups of respondents for the construct

organisational effectiveness, so we shall accept null hypothesis. Thus, it can rightly be said

that organizational effectiveness of 3PL service provider’s has a positive impact on its service


Customer Actual Customer Expected 3PL Actual 3PL Expected

Constructs N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value

Relationship

Management(RM) 22 10 8 0.629 8 6 0.75 0.993 17 10 3.05882 0.980 11 8 1.27273 0.996

Respondents


Customer Actual Customer Expected 3PL Actual 3PL ExpectedConstructs N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value N DF Chi-Sq P-Value

Organisational

Effectiveness(OE) 24 10 16.3333 0.090 16 11 6.5 0.838 22 10 12 0.285 21 9 9 0.437

Respondents


19/22

quality and relationship management with supply chain partner organizations (upstream and

downstream). The better the performance of the organization the better is its service quality

in terms of reliability, responsiveness, tangibility, empathy and assurance. Also the better the

organizational performance the better is its relationship with the supply chain partners in

terms of trust, commitment and guanxi.

Limitations and Future Scope

Appropriate care has been taken to conduct a thorough research. Possibility however remains

that some articles on the topic might have been missed out accidentally while conducting

literature review. Since the coverage has been exhaustive, it is hoped that possible omissions

would not significantly alter the review and conclusion. This study mainly considers the

relation between Service Quality (SQ), Organizational Effectiveness (OE), and Relationship

Management (RM) and 3PL Organizational Performance. There may be other critical factors

that influence 3PL organizational performance that should be considered in future studies.The

survey for the purpose of the study was done based on 600 responses in four groups of

respondents. Ensuring a better and unbiased response is difficult in the present market

situation as the Indian 3PL industry is still in its infancy and the market is fragmented with a

handful of serious players. Future studies may look into the issue of larger sample size. Morecomparative studies between Asian countries such as India and China can be possible topics

for future research. Last but not the least, further research work should focus on managing

4PL and 5PL processes, supply chain partnership and their long term customer relat ionships.

Conclusion

A well developed and networked logistics industry is vital to the success and overall growth

of the economy as efficient supply chain management gives industry a competitive

advantage. This Study provides insight into several factors that relate to the success of 3PL

service provider and supply chain partner relationships: service quality, organisational

effectiveness and relationship management to accommodate current and future business

needs and challenges. 3PL industry initially was a transaction based service but has gradually

evolved into a more strategic function that is integral to an organisation’s operational

activities and its adoption in the Indian industries is likely to gain momentum with the


20/22


21/22

Keebler, J. S., Manrodt, K. B., Durtsche, D. A., and Ledyard, D. M. (1999). KeepingScore: Measuring the Business Value of Logistics in the Supply Chain , Oak Brook,

IL: Council of Logistics Management Knemeyer, A.M., Murphy,P.R.(2005), Is the glass half full or half empty?: An examination

of user and provider perspectives towards third-party logistics relationships, International

Journal of Physical Distribution &Logistics Management, Vol. 35 Iss: 10 , pp. 708 – 727 Knemeyer, A. M., Murphy, P.R.(2004), Evaluating the Performance of Third-Party Logistics

Arrangements: A Relationship Marketing Perspective, Journal of Supply Chain Management;40, 1, pg. 35

Langley,C.J., Capgemini, 2012 Third-Party Logistics Study, The State Of LogisticsOutsourcing , Results And Findings Of The 16th Annual Study, www.3plstudy.com, lastAccessed: September 2012

Large, R. O., Kramer, N., Hartmann, R.H.(2011), Customer-specific adaptation by providersand their perception of 3PL-relationship success, International Journal of PhysicalDistribution & Logistics Management, Vol. 41 Iss: 9, pp. 822 – 838

Laarhoven, P., Van Berglund, M., and Peter, M. (2000). Third-party logistics in

Europe – Five year later, International Journal of Physical Distribution and LogisticsManagement, 30(5), 425-442. Lai, K. H., Ngai, E. W. T., and Cheng, T. C. E. (2004). An empirical study of supply

chain performance in transport logistics, International Journal of ProductionEconomics, 87, 321-331.

Lau, (1999). Importance of third party logistics, Shippers Today, 22(1), 51-53.

Lebas, M. J. (1995). Performance measurement and performance management,International Journal of Production Economics, 41, 23-35.

Lieb, R. and Randall, H. (1996) A comparison of the use of third party logistics services bylarge American manfacturers, 1991, 1994, and 1996 . Journal of Business Logistics, 17, 1,305-320.

Lieb, R.C. and Kendrick, S. (2003), The Year 2002 Survey: CEO Perspectives on the CurrentStatus and Future Prospects of the Third-Party Logistics Industry in the United States,Transportation Journal, 42 (3), 5

Man, Y.S.(2006), Performance Measurement and Management of Third Party Logistics: AnOrganizational Theory approach.

Maskell, B. H. (1991). Performance Measurement for World Class Manufacturing: A Model for American Companies. Productivity Press, Portland, Oregon

Mentzer, J. T., Foggin, J. H., and Golicic, S. L. (2000). Collaboration, Supply chain Management Review, 4(4), 52-60.

Macleod, M., Bowden, R., Bevan, N., and Curson, I. (1997). The MUSIC Performancemeasurement method, Behavior and Information Technology, 16(4/5), 279-293.

Neely, A., Gregory, M., and Platts, K. (1995). Performance measurement systemdesign: A literature review and research agenda, International Journal of Operationsand Production Management, 15(4), 80-116.

Neely, A., Mills, J., Platts, K., Gregory, M., and Richards, H. (1996). Performancemeasurement system design: Should process based approach be adopted?

International Journal of Production Economics, 16(3), 423-431.

Nunnaly, J. (1978). Psychometric theory. New York: McGraw-Hill Olsen, S.O., (2002) Comparative evaluation and the relationship between quality,

satisfaction, and repurchase loyalty, Journal of the Academy of Marketing Science 30 (3),240 – 249.

Panayides, P. M. and Meko.S., (2005) The Impact of Integrated Logistics Relationships on

Third-Party Logistics Service Quality and Performance, Maritime Economics & Logistics,2005, Vol. 7, pp. 36 – 55


22/22

Polakoff, J. C. (1992). How to design a performance measurement program,

Corporate Controller, 4(3), 49-53.

Power,D., Sharafali,M. and Bhakoo,V. (2007), Adding value through outsourcing:Contribution of 3PL services to customer performance , Management Research News,

Vol. 30 Iss: 3, pp.228 - 235

Pursell, R. B. (1980 ). Administrating divisional incentive compensation,Compensation Review, 12, 15-20.

Qureshi, M.N., Kumar, D. and Kumar, Pradeep (2007c), Modelling the logistics outsourcingrelationship variables to enhance shippers, productivity and competitiveness in logistical supply chain, International Journal of Productivity and Performance Management, Vol.56

No.8, pp.689 –714. Rabinovich, E., Windle, R., Dresner, M., and Corsi, T. (1999). Outsourcing of integrated

logistics functions: An examination of industry practices, International Journal of Physicaland Distribution Management, 29(6), 353-373.

Razzaque, M. and Sheng, C. (1998) Outsourcing of logistics functions: A literature survey.International Journal of Physical Distribution and Logistics Management, 30, 2, 112-127.

Rose, K. H. (1995). A performance measurement method, Quality Progress, 28(2), 63-66.

Rosen, D.E., Surprenant,C. (1998) Evaluating relationships: are satisfaction and qualityenough?, International Journal of Service Industry Management, Vol. 9 Iss: 2, pp.103 - 125

Sahay, B.S., Mohan, R.(2006), 3PL practices: an Indian perspective , International Journal ofPhysical Distribution & Logistics Management, Vol. 36 Iss: 9, pp. 666 – 689

Seth,N., Deshmukh,S.G.,Vrat,P.(2006), A conceptual model for quality of service in the supply chain, International Journal of Physical Distribution & Logistics Management, Vol. 36Iss: 7, pp. 547 – 575

Sink, H. L., Langley, C. J. Jr(1997), A managerial framework for the acquisition of third- party logistics services, Journal of Business Logistics; 18, 2, pg. 163

Sink, D. S. (1991). The role of measurement in achieving world-class quality and productivity management , Industrial Engineering, June So,S.H., Kim, J.J., Cheong, K., Cho, G.(2006), Evaluating The Service Quality Of Third

Party Logistics Service Providers Using The Analytic Hierarchy Process, Revista de Gestãoda Tecnologia e Sistemas de Informação Journal of Information Systems and TechnologyManagement, Vol. 3, No. 3, p. 261-270, ISSN online: 1807-1775

Tian,Y., Ellinger, A.E., Chen, H.(2010) , Third-party logistics provider customer orientationand customer firm logistics improvement in China, International Journal of PhysicalDistribution & Logistics Management, Vol. 40 Iss:5, pp. 356 – 376

Thompson, J.D. (1967). Organization in Action. New York: MC Graw-Hill Vaidyanathan, G. (2005). “A Framework for Evaluating Third-Party Logistics”

Communications of the ACM, January 2005 48, 1: 89-94.

Wu,Y.C.C.J , Chou,Y.H.(2007), A new look at logistics business performance: intellectualcapital perspective, The International Journal of Logistics Management, Vol. 18 Iss: 1, pp. 41 – 63

http://www.crisil.com/research/logistics.html

Netscribes (India) Pvt. Ltd., Logistics Services Market in India 2015, February 10,

2015

a study of business performance measurem

Documents