The role of a supply chain has never been as critical as it is in today’s globalised economy. Market competition has dynamically shifted to the extent where one supply chain is competing against another, rather than the traditional competition among firms. Thus, the chain versus chain competition paradigm has challenged firms to develop their supply chain strategy within the firm itself. The focus of the firm is then predominantly narrowed down to core businesses where their expertise lies. The help they need from external firms is to compete in other non-core activities to not only gain economic benefits, but to also care for the environment and society as a whole.
The shippers (those who outsource activities to others) have many reasons (i.e. economic, environmental and social) to outsource logistics activities to firms externally, the success of this strategic outsourcing yet remains a major challenge. While the strategic partnerships with third-party logistics (3PL) service providers transfer the responsibility of accomplishing non-core functions—such as transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding—the question is to what extent this is accomplished successfully to the satisfaction of shippers and customers. Studies on outsourcing abound in the literature where the focus is mostly on outsourcing reasons, activities outsourced, 3PL selection criteria and success factors of outsourcing. Some researchers argue that logistics outsourcing is a business risk where success is far from reality. It remains unclear as to what ensures outsourcing success, given that the shippers have many strategic reasons for outsourcing.
The objective of this research is to develop a strategic outsourcing success framework that considers three process enablers: governance mechanism (collaborative approach and mutual conflict resolution), 3PL selection criteria, and 3PL performance measurement. While the firms’ outsourcing reasons are less likely to guarantee their success, these enablers are perceived to help achieving the outsourcing success. This study establishes the impact of these three enablers on outsourcing success and also explains how closely these enablers are aligned to the reasons for outsourcing. This research identifies a governance mechanism comprising a collaborative approach from both parties and mutual conflict resolution as tools to avoid conflicts and roadblocks in achieving success. The second enabler explored is the 3PL selection criteria that enable the right match between the shipper and the service provider (3PL). The third enabler is the performance evaluation of the service provider (3PL), which encompasses strategic planning metrics, supplier metrics, production metrics, and delivery performance metrics.
Given the size and well-established businesses in India, it was decided to adapt a web-based survey method, combined with social media (e.g. LinkedIn and Facebook), to collect cross-sectional data through a questionnaire anchored to a 5-point Likert scale, where 1 = totally disagree to 5 = totally agree. An invitation was sent out to the participants drawn purposefully from manufacturing and service organisations in India that returned 278 responses representing about a 40% response rate. The data were analysed using covariance-based structural equation modeling to establish the hypothesised relationships among the study constructs.
The results from AMOS-SEM path analysis reveal that strategic outsourcing is likely to be successful and the perceived success is enabled by three process enablers: governance mechanism, 3PL selection criteria and performance measurement. While the businesses have reasonable reasons to outsource their non-core activities, they are less likely to be successful unless the outsourcing process enablers mediate the relationship positively.
This study provides both theoretical and practical contributions. Theoretically, it offers an empirical framework for strategic outsourcing success with three identified process enablers that help shippers achieve their outsourcing objectives. These study variables are conceptualised, defined and tested for their significant relationships using structural equation modeling, an analysis technique rarely used in the outsourcing literature. This study is unique in that the strategic logistics outsourcing objectives (reasons) may not necessarily drive outsourcing success but more indirectly through the abovementioned process enablers, thereby suggesting their significant role in the world of outsourcing between shippers and 3PL service providers.
Practically, this study provides valuable insights for managers about the way outsourcing success is strategically achievable in business entities (i.e. shippers’ firm) from manufacturing and service sectors. It offers context-specific suggestions on the effectiveness of the enablers such as governance mechanism (collaborative approach and mutual conflict resolution), 3PL selection criteria and performance measurement of 3PL service providers. This study encourages shippers to view logistics outsourcing from a strategic partnership perspective to gain competitive advantage using the capabilities of 3PL service providers. The study alerts managers about the perceived desired outcome on the premise of an effective governance mechanism of collaboration and mutual conflict resolution between parties. Furthermore, using the right selection criteria and performance assessment of service providers could achieve targeted success in outsourcing.