Influence of service quality and ethical integration on branding outcomes in logistics services outsourcing

Abstract

Outsourcing is increasingly being utilised by organisations to improve efficiency and minimise costs in order to effectively compete in the global environment. One of the most commonly outsourced activities is logistics, which typically consists of the transportation and warehousing functions. When logistics activities are outsourced third party logistics service providers (3PLs) undertake part or all logistics activities on behalf of the outsourcing organisation. As outsourcing is often motivated by cost minimisation, past research has mostly focused on assessing how the outsourcing organisation’s financial performance is affected by outsourcing logistics to 3PLs. However, other organisational performance dimensions such as brand equity and corporate reputation have received limited attention. Thus, this study investigates how outsourcing logistics activities to 3PLs affects outsourcing organisations’ brand equity, corporate reputation and financial performance. To determine the effect the 3PL has on outsourcing a multi-research design was used. First, an exploratory study was undertaken. This involved semi-structured in-depth interviews with 15 executives in supply chain, logistics and operations management areas. The results of the in-depth interviews pointed to the need for specific capabilities in both 3PLs and outsourcing organisations in outsourcing relationships. Logistics service quality emerged as the mechanism through which 3PLs and the outsourcing organisations capabilities were assessed. In addition, ensuring ethical behaviour emerged as another important issue in outsourcing partnerships as some organisations viewed ethical integration and alignment of ethical thinking as crucial in outsourcing relationships. In the second stage of the research a quantitative research design utilising a self-administered survey questionnaire was used to test the proposed relationships. Multiple regression and structural equation modeling (SEM) were used to test the direct and mediated relationships, as well as moderated mediated relationships. The results indicate that 3PL capabilities and the outsourcing organisation’s relational capabilities had significant effects on at least one dimension of the outsourcing organisation’s performance. While some of these effects were direct, others were mediated through the 3PLs’ logistics service quality. Ethical integration emerged as a moderator of the mediated relationship through logistics service quality for some dimensions of capabilities. In particular, high ethical integration emerged as a crucial issue in financial performance and corporate reputation gains from the 3PL capabilities dimension of information sharing and the outsourcing organisation’s long-term relationship orientation and communication with the 3PL. This study contributes to resource based view, transaction cost and outsourcing theory and has important implications for managers involved in outsourcing relationships. Specifically, the study fills gaps in existing knowledge on how 3PLs that act as agents of an outsourcing organisation can significantly affect the end customer’s perception of the outsourcing organisation. For managers to maximise the positive outcomes of outsourcing on the outsourcing organisation’s brand, reputation and financial performance, the current study points to the need to take a proactive approach in selecting 3PLs with the right capabilities, as well as developing relational capabilities within the outsourcing organisation to enhance 3PLs’ logistics service quality and maximise performance gains. Additionally, cultivating ethical integration between the outsourcing partners is critical for the success of outsourcing relationships.