Labour at Work: The Factors Influencing the Sourcing Decisions of Outbound Road Transport

Abstract

All businesses are comprised of a distinct set of operating units (e.g. inbound logistics, operations and outbound logistics). But why do some organisations choose to outsource the labour they use to operate these units, rather than employ? This thesis examines what factors contribute to the decisions of firms to outsource their road transport functions, or not, in the current employment relations environment. Road transport plays a central role in the national economy by provisioning domestic commodity exchange. Almost all goods must travel by road, be it from one depot to another or from a railhead, seaport or airport to their destination. In undertaking this transport function, a business has two options. First, it can carry out the task itself – forward integrate – using its own fleet of vehicles and staff, thereby making road transport an “ancillary”, or secondary, component of the organisation. Alternatively, firms may outsource (economically referred to as “market exchange”) all or part of their transport function to what is known as hire-and-reward operators, for whom transport is their sole or, at least, primary function. Why is it necessary that we understand the decision to outsource? According to employment relations literature, outsourcing erodes the employment relationship, weakening the ability of unions to maintain employment standards and protections for the working community. Reducing the capacity of unions to intervene in workplace matters shifts the balance of control in favour of employers, increasing their ability to dictate the terms and conditions of work and, as far as the state allows, reduce labour costs. Many Australian examples support outsourcing as a means to avoid unions, not least of which includes the Patrick Stevedores waterfront dispute in 1998 and the Qantas conflict of 2011. However, can such examples be used as model explanations for the decision to outsource? Significantly, this research looks to not only explain why some companies outsource but, conversely, why some do not outsource, despite higher union and labour costs than could otherwise be achieved. In order to accomplish this objective, three separate organisations were studied to determine what factors underpinned their decision to structure their outbound road transport service in an integrated, outsourced or mixed method. If the sourcing decision was not explicable within employment relations, as the companies have incurred greater exposure to unionisation or regulatory complexity as a result of their governance structure, the research expanded its scope to consider the contribution of transaction cost economics and neoclassical economic theories of value to determine the decisive influence. A comparative analysis of the cases examined has resulted in four findings. First, there was a marked difference between inbound and outbound transport. Inbound transport is a firmderived demand necessary for moving raw materials or retail goods into the organisation. The movement of outbound freight, on the other hand, is a consumer-derived demand necessary to meet a “joint demand” for both goods and their delivery. Second, this research has found no evidence of firms outsourcing to circumvent unions or reduce labour costs in any of the cases examined. On the contrary, it was discovered that, in some instances, an organisation’s sourcing decision increased the potential for union intervention and elevated labour costs. Further contradictions emerged in the analysis of the cases within the framework of transaction cost economics. Despite the literature indicating that the optimal sourcing arrangements are often those that produce lowest transaction costs, this study has nevertheless found that cost minimisation is not a decisive factor in the outbound transport sourcing decision in the cases evaluated (Polyworx, Coles and Woolworths). Finally, the emergence of an overarching dimension was found to have the greatest influence on the make-or-buy decision. It was found in all three cases considered within this thesis that the primary factor informing the decision as to outsource or not was the effect of this decision on value enhancement. It is easy to overlook the fact that profitability can be enhanced through an increase in the value of a firm’s goods and/or services as well as through a reduction in the cost of providing consumers with those goods and/or services. Indeed, value enhancement typically provides a better base for firm survival and competitive advantage than cost minimisation.