44 FUGATE, MENTZER & STANK
since research has shown misspecification can greatly compromise the validity of the findings (Jarvis, Mackenzie,and Podsakoff 2003).This research makes several important contributions toward the objective of enhancing our understanding of top performing logistics functions and documenting their influence on organizational performance. First, it draws fromresearch in organizational and strategic management and logistics to develop theoretically based conceptualizationsof logistics efficiency, effectiveness, and differentiation, and provides empirical results contradicting thetraditionally assumed mutually exclusive relationship among them. Further, it introduces the logistics discipline toformative constructs and presents criteria for determining whether a construct is formative or reflective. Finally, thisresearch empirically investigates the influence of the performance of the logistics function on organizational performance. Importantly, our perceptual measures for organization performance were strongly correlated withsecondary, objective financial data collected on participating firms from Compustat.
With the increasing awareness of the strategic implications of logistics (Cheng and Grimm 2006; Stank, Davis,and Fugate 2005) and the growing awareness of the benefits of leveraging logistics to increase customer value(Mentzer and Williams 2001; Stank et al. 2003), measuring the performance of logistics has become a high priority(Griffis et al. 2007). Understanding logistics performance has long been of interest to logistics researchers and has been conceptualized and empirically tested in a variety of ways (for an expansive list of logistics metrics, seeEnslow et al. 2005).Traditional logistics performance measures include “hard” measures such as service (e.g., order cycle time andfill rates), cost, and return on assets or investment (Brewer and Speh 2000; Morash, Dröge, and Vickery 1996) andsoft measures, such as managers’ perceptions of customer satisfaction and loyalty (Chow, Heaver, and Henriksson1994; Holmberg 2000). More recently, some have maintained that logistics performance measures be linked tocorporate strategy (Lambert and Pohlen 2001; Zacharia and Mentzer 2004) and more explicitly incorporatecustomers’ perspectives (Brewer and Speh 2000; Mentzer, Flint, and Kent 1999).Mentzer and Konrad (1991) defined logistics performance as effectiveness and efficiency in performinglogistics activities. Langley and Holcomb (1992) extended this definition by adding logistics differentiation as a keyelement of logistics performance because the value customers receive from logistics activities also serves as anindicator of logistics performance. They contended that logistics could create value through efficiency,effectiveness, and differentiation. For instance, value can be created through customer service elements such as product availability, timeliness and consistency of delivery, and ease of placing orders. If logistics can create valuethrough the inimitability of its logistics activities, a firm may be able to differentiate itself from its competitors.Excellence in logistics performance requires superiority when compared to competitors (i.e., differentiation). Later,Smith (2000) extended Langley and Holcomb (1992) to define logistics performance as a second-order constructconsisting of logistics efficiency, effectiveness, and differentiation. Bobbitt (2004) extended Smith (2000) to refinesome of the measures. In summary, virtually all of the diverse logistics performance criteria presented in previousliterature can be subsumed under the dimensions of effectiveness, efficiency, and differentiation, as shown in Figure1. Therefore, the cumulative evidence of previous research suggests that logistics performance is
multi-dimensional and is defined as the degree of efficiency, effectiveness, and differentiation associated with the accomplishment of logistics activities
(Bobbitt 2004; Cameron 1986).
Based on research long-rooted in the management discipline, effectiveness is defined as the resource gettingability, and refers to an absolute level of outcome attainment (Ostroff and Schmitt 1993). It has been defined as theratio between the real or actual outputs and normal or expected outputs (Katz and Kahn 1978; Sink 1985). Inlogistics, it has been described as the ability to achieve pre-defined objectives, for example, in meeting customer requirements in critical result areas (e.g., product guarantee, in-stock availability, fulfillment time, convenience)(Langley and Holcomb 1992). Similarly, we adopt Mentzer and Konrad’s (1991) definition of logisticseffectiveness as
the extent to which the logistics function’s goals are accomplished