International logistics outsourcing partnerships are a key class of strategic alliance, but until now little has been known about their performance.
This type of partnership involves a logistics provider, often called a third party logistics provider or 3PL, and a customer. The logistics provider offers expertise in services such as transportation, warehousing, inventory control and distribution, while the customer offers the long-term commitment and activity volume that the providers need to operate efficiently. Like any strategic alliance, the long-term goals are to achieve specific performance objectives and mutual benefits.
However, as we know, many strategic alliances end up in shambles or in divorce court. Their volatile nature makes it important to measure their performance.
Joan Jané of Hewlett-Packard, IESE Production, Technology and Operations Management Professor Alejandro Lago, and IESE General Management Professor África Ariño have worked together to advance knowledge about this type of strategic alliance by analyzing information from 75 top European logistics providers and their clients.
Their paper "Measuring the Performance of International Logistics Outsourcing Partnerships: A Dyadic Perspective Analysis" introduces, for the first time, a reliable way to measure the performance of the partnership between a logistics provider and a customer.
Are both parties meeting their initial and strategic goals? This is no easy question since an alliance's effectiveness may depend on each partner's satisfaction with different dimensions. Generally, logistics partnerships seek similar objectives, such as cost reduction through specialization, enhanced customer service, reduced risk and uncertainty, and strategic flexibility. Of course, 3PLs and customers also pursue different strategic goals. 3PLs seek profit, profit stability and competitive advantage, while customers often look for improvements in customer service levels, in costs, and in strategic flexibility. "Underlying these objectives are the partners' particular views of how to gain competitive advantage," write the authors.
The authors asked interviewees to assess five different dimensions of the partnership: overall expectations fulfillment, global performance satisfaction, strategic goal fulfillment, net spillover effects and process performance. Net spillover effects are the unexpected benefits that might "spill out" of the relationship, such as improved decision making or a reduction in the size of the logistics department.
The analysis of the data shows that the different measures of partnership performance reasonably "capture one common underlying construct." In other words, performance may indeed be clearly tied to some specific customer goal. The exception is net spillover effects, which are valued but are seldom considered part of the partnership performance.
What also makes the study unique is that the authors have looked at information from both sides of the same alliance- from both the logistics provider and from the customer. The authors understand inter-party perceptions, one partner's perception of the other's performance. This is important because logistics partnerships are generally long-term arrangements based on an asymmetric relationship (i.e., a buyer versus seller arrangement). Furthermore, they are based on services instead of goods, which often fosters different perceptions depending on each party's expectations. Indeed, the analysis shows that inter-party perceptions are a poor judgment of the actual perception of a partner's performance.
Such misinterpretations are a clear representation of the service gap, meaning that service providers are very often unable to adequately measure and understand how their service is perceived by the customer. Often, customers are even less aware of their provider's satisfaction. "Our study suggests that in supplier-customer relationships the surveyed party should be the supplier as... they are more likely to be aware of their customer's satisfaction with the partnership than the other way around," write the authors.
Jané, Lago and Ariño shed light on a key class of strategic alliance and introduce a new, reliable way to measure whether or not an international logistics partnership is helping both sides to reach their goals.