Toward a unied theory of

logistics
John T. Mentzer
Department of Marketing, Logistics and Transportation,
The University of Tennessee, Knoxville, Tennessee, USA
Soonhong Min
Division of Marketing and Supply Chain Management,
The University of Oklahoma, Norman, Oklahoma, USA, and
L. Michelle Bobbitt
Department of Marketing, Bradley University, Peoria, Illinois, USA
Keywords Distribution management, Operations and production management,
Supply chain management
Abstract Despite the growing importance of logistics in corporate strategy and the global
economy, the logistics literature reveals little effort to build a unied theory of logistics (i.e. a theory
of the role of logistics in the rm). Thus, the purpose of this paper is to move toward a unied
theory of logistics within the contexts of the strategic role and capabilities of logistics. Considering
the importance of logistics in todays corporate strategy, various theories of the rmare adapted to
explain the reasons for logistics activities within the rm. The proposed theory should serve as a
conceptual reference point for future theory development and empirical research in logistics.
Introduction
Logistics excellence has become a powerful source of competitive differentiation
(Mentzer et al., 2001a). In the 1980s and 1990s, companies began to view logistics as
more than simply a source of cost savings and recognize it as a source of enhancing
product or service offerings as part of the broader supply chain process to create
competitive advantage (Novack et al., 1995; McDufe et al., 2001).
Despite the growing importance of logistics in corporate strategy and the global
economy, the logistics discipline does not have as rich a heritage of theory development
and empirical research as older and more established disciplines such as anthropology,
philosophy, psychology, and sociology (Stock, 1997). In fact, much logistics literature
and research has been considered largely managerial in nature and lacking a rigorous
orientation toward theory development, testing, and application (Mentzer and Kahn,
1995). Specically, logistics researchers have made little effort to build a unied theory
of logistics (i.e. a theory of the role of logistics in the rm). Although there have been
attempts to build logistics theories (e.g. Pisarodi and Langley, 1990; Bienstock et al.,
1998; Cooper et al., 1997), they are limited to particular components of logistics (e.g.
customer service, logistics quality, etc.). In addition, it is not clear how any particular
theory is related to the foundation of the logistics discipline to understand the strategic
nature of logistics. The denition of logistics management, as offered by the Council of
Logistics Management (2003), is fairly uniformly accepted:
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/0960-0035.htm
The authors wish to thank the anonymous IJPD&LM reviewers for their insightful comments.
IJPDLM
34,8
606
Received November 2002
Revised September 2003,
January 2004
Accepted March 2004
International Journal of Physical
Distribution & Logistics Management
Vol. 34 No. 8, 2004
pp. 606-627
qEmerald Group Publishing Limited
0960-0035
DOI 10.1108/09600030410557758
Logistics management is that part of Supply Chain Management that plans, implements, and
controls the efcient, effective forward and reverse ow and storage of goods, services, and
related information between the point of origin and the point of consumption in order to meet
customer requirements.
In contrast, numerous denitions of supply chain management (SCM) have been
offered, including one by the Council of Logistics Management (CLM), with little
agreement on its scope or nature. However, most denitions of SCM again including
the one offered by CLM, which states that SCM includes all of the Logistics
Management activities . . . (Council of Logistics Management, 2003) recognize that
SCM is a broader concept that subsumes logistics management.
Therefore, as the logistics discipline continues to mature, and distinguish itself from
SCM, research is called for that presents a unied theory of logistics that offers
researchers a conceptual reference point for future theory development and empirical
research. The purpose of this paper is, thus, to move toward a unied theory of
logistics within the contexts of the strategic role and capabilities of logistics. To do so,
this paper adopts the CLM denition of logistics. Thus, logistics management is a
within-rm function that has cross-function and cross-rm (i.e. boundary-spanning)
aspects to it.
Considering the importance of logistics in todays corporate strategy and its truly
boundary-spanning nature, the starting point for theory building should be the theories
of the rm, which attempt to explain the reasons for the existence of the rm and rm
functions. The theories of the rm should provide logistics researchers with new
insights to enhance the theoretical and pragmatic aspects of the logistics discipline.
The theory of the rm serves to provide a way of conceptualizing the business
enterprise in order to investigate some phenomena of interest and particularly, issues
of competition (Seth and Thomas, 1994). Similarly, a theory of the rm indicates a
subset of the substantive areas of endeavor likely to be associated with a companys
advantage vis-a-vis other rms (Conner and Prahalad, 1996). However, the primary
role of the theories of the rm is to guide theory development within a discipline. It
provides the researcher with an ontological framework and a philosophical
methodology (Anderson, 1982). In this context, the role and structure of logistics, as
a part of a modern rm, should be investigated in the context of the theories of the rm.
Theories of the rm
Theories of the rm were originally developed to identify why rms exist (Holmstrom
and Tirole, 1989). Earlier theories of the rm were rooted in deductive economics and
have as their foundation transaction cost theory. Coase (1937) introduced the concept of
transaction costs as the factor that determines whether a rm or market contracts exist
for the coordination of production. The existence of a rm is based on differences
between the transaction costs of market contracts versus those of a rm. If market
contracts are characterized by low transaction costs, then division of labor will not be
organized within a rm (Stigler, 1968). According to the transaction cost framework,
the organization form that develops is the one that most efciently completes
transactions and minimizes production costs. Transaction costs are those costs
associated with exchange, while production costs are associated with the coordination
of various production activities in-house (Das and Teng, 2000).
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Williamson (1981; 1985) identied three characteristics of transactions asset
specicity, uncertainty, and the number of input sources that determine when rms
or markets prevail. Market contracting is more efcient when assets are non-specic to
any particular transaction. Similarly, when small numbers of sources and imperfect
information are not signicant, market contracts dominate over rms. Therefore, the
greater the asset specicity, uncertainty (imperfect information), and likelihood of a
few input sources, the greater the rationale for the organization of rms.
While many economic theories were developed to explain a rms existence, many
believed these theories did not adequately provide a rationale for a rms existence
(Cyert and March, 1963). Therefore, behavioral theories were introduced in an attempt
to overcome some of the limitations associated with the economic theories. Since
neither view completely explains rm existence, researchers have suggested the
economic and behavioral views are complementary (Foss, 1996). To gain a greater
understanding of the major principles and assumptions associated with the theories of
the rm, the theories of the rm most relevant to the development of a unied theory of
logistics from both views are presented in Tables I and II.
Overarching assumption the primary objective of the rm,
the primary rationale for rms to exist, is to maximize prot
Theory Basic premise Assumptions
Neoclassical
model
Goal is to maximize prots. Suggests
rms exist to acquire and utilize
resources to produce a good. The rm
is viewed in terms of the production
function the converting of labor and
capital into goods and services
Perfect competition in the market,
the rms ability to obtain perfect
and complete information, freely
available production resources that
are innitely divisible and mobile
across uses (Anderson, 1982;
Conner, 1991; Cyert and March,
1963; Simon, 1955), and does not
consider the degrees of risk
associated with different
investment alternatives (Anderson,
1982)
Market value
model
The objective of the rm which
exists in a perfectly competitive
capital market is to consider the risk
differences among investment
alternatives to maximize present
market value or the price of the rms
stock (Anderson, 1982; Fama and
Miller, 1972; Seth and Thomas, 1994)
Does not acknowledge owner
monitoring costs of managers
Agency cost
model
A modication of the market value
model, whose objective is still to
achieve economic value maximization.
Suggests an agency relationship
exists between stockholders and
managers in which managers are
given authority to make decisions to
perform specied services (Jenson and
Meckling, 1976)
Recognizes the different interests of
owners and managers and that
may pursue self-interests
(Anderson, 1982). Thus, the model
proposes stockholders incur
monitoring costs to minimize the
possibility of poor management
decisions
Table I.
Economic theories
of the rm
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Overarching assumption the neoclassical objective of prot maximization is questionable,
based on observations of managerial behavior (Anderson, 1982)
Theory Basic premise Assumptions
Behavioral
model
Firms exist to achieve satisfactory, rather
than maximum, prots. Adopts a coalitional
perspective where various subunits of the
organization make decisions regarding
different problems at different points in time
(Cyert and March, 1963)
Stakeholders of the organization determine
the objectives of the rm. Since different
stakeholders have different goals, it is
necessary to resolve conict through
bargaining
Resource
dependence
model
Goal is to maximize prots. Firms exist to
acquire and utilize resources to produce. The
rm is viewed in terms of the production
function the converting of labor and
capital into goods and services (Penrose,
1959). The focus is on the skill and luck in
acquiring and utilizing resources to achieve
above-normal earnings, which is a reason for
the organization of the rm, even in the
absence of opportunism (Conner, 1991)
Organizations adapt their objectives based
on the constraints imposed on the
organization by the various stakeholders
and environmental coalitions (stockholders,
creditors, and suppliers) (Pfeffer and
Salancik, 1978). The objective of the rm is
to survive through maintaining support and
obtaining resources through external
coalitions (Anderson, 1982)
Resource-
based theory
A rm should select the strategy that takes
into account the relationship between its
resources and environmental opportunities
in the generation of rents (dened as the
return in excess of a resource owners
alternative use costs) (Mahoney, 1995, p. 91)
Rents result from accumulating and utilizing
heterogeneous resources better than
competitors, achieved through government
protection, scarce resource ownership, and
entrepreneurial insights in an uncertain
environment (Mahoney, 1995). Rent is based
on how the rm uses its core competencies
(unique resources and relationships)
(Penrose, 1959; Rumelt, 1984)
Comparative
institutional
theory
Firms obtain rents even if some assumptions
of the resource-based view are not met
(Hennart, 1994). Rents are based on returns
on assets and management skill at
coordinating interactions with other
resource owners. Firms reduce costs by
organizing both internal and external
transactions cheaper than competitors
Cooperation through joint effort or exchange
yields gains that can be shared by the
cooperating parties. Firms and markets
perform three tasks: (1) create awareness of
the gains that can be achieved through
cooperation, (2) prevent parties from
bargaining to increase their own gains, and
(3) enforce agreed-upon terms (Hennart,
1994)
Knowledge-
based theory
Firms may exist due to knowledge-based
transaction costs (Conner and Prahalad,
1996)
Knowledge-based transaction costs can exist
even in the absence of opportunistic
behavior. Non-opportunistic parties may not
agree or arrive at a course of action due to
differences in knowledge rather than due to
serving self-interests
Resource-
learning theory
Managers mental models (in addition to
rm resources) are sources of rm
heterogeneity (Mahoney, 1995)
Since rents can be derived from both
behavioral and cognitive logic, they are
interrelated and necessary for sustainable
competitive advantage
Constituency-
based theory
Incorporates the functional areas of the rm
as the unit of analysis in attempting to
understand the various goals that may arise
within an organization (Anderson, 1982).
Each functional area (such as logistics) is
viewed as a specialist that provides unique
resources to the rm
There is a tendency for each functional area
to pursue its own objectives, thereby
constraining the objectives of other
departments. As a result, the objectives of
the rm are negotiated among the various
functional units, often with some units
having more inuence due to the ability to
provide important resources
Table II.
Behavioral theories
of the rm
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Toward a unied theory of logistics
Based on insights from the theories of the rm (Tables I and II), we adapt different
elements of each theory of the rm for a better understanding of the strategic role of
logistics. Theoretical propositions, based upon this nascent unied theory of logistics
(illustrated in Figure 1), are also offered.
Internal considerations of the rm
Research into various functional business areas, including logistics, can be advanced
through the theories of the rm by understanding how the goals and resources of the
organization drive rm behavior.
The goals of the rm drive rm activities, as well as direct the behavior of
management and other stakeholders of the rm. The prot maximization goal in early
economic theories evolved into the achievement of satisfactory prots in later theories
of the rm. This transition occurred as newer theories began to focus on the internal
aspects of the rm. In addition to the focus on protability, multiple goals might exist
across various functions (logistics, marketing, production, nance, etc.) that may
include inventory optimization, sales and market share, production, and prot. The
goals of the rm can also be inuenced by external factors such as competitors,
stockholders, suppliers, customers, and industry structure. Dening the goals of the
rm becomes more complex as these groups place different demands on the rm. In
such circumstances, economic theories suggest that goals are adjusted through an
authority structure, where management or owners establish the goals. Firm goals are
determined through a bargaining process, and inconsistent goals may arise due to
changing constraints imposed on the rm by stakeholders (Cyert and March, 1992). As
Figure 1.
A unied theory of
logistics
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such, the stakeholders of the organization not only affect the goals of the organization,
but also the degree to which the goals are obtained.
Considering that rst, resource heterogeneity exists among different rms and
functions, both of which are determinants of a rms survival (cf. Dowling and Pfeffer,
1975), and second, the customers value perception plays a decisive role in a rms
nancial performance (Drucker, 1954), one goal of the rm may be the continuous
creation of customer value to satisfy end users (Drucker, 1954; Olavarrieta and
Ellinger, 1997). As resource-based theories argue, capabilities within a network of
rms often complement rms internal resources (Langlois, 1992). Consequently, rms
engage in collaborative relationships to add value or reduce cost in inter-rm
exchanges (Anderson, 1995). For example, Buchanan (1992) found that the best
performing categories from the perspective of a buying rm were not those in which
the rm held power over the suppliers, but rather those in which the rm and suppliers
were mutually dependent to serve their ultimate customers better. Under such
circumstances, a rm is more likely to work with suppliers that deliver value (Cannon
and Homburg, 2001).
Reichheld and Sasser (1990), Hallowell (1996), and Cannon and Homburg (2001)
found creating customer value also helps the supplier rms bottom line: the economic
worth of retaining customers over time is much higher than replacing them. Hallowell
(1996) also reported that customer loyalty is related to protability in the banking
industry. In addition, Cannon and Homburg (2001) found a supplier that enhances
customer value increases its share of customer at the expense of suppliers who do not
provide such benets. Beyond nancial benets, neither prot nor the rms survival
can last long by manipulating customers as competition increases. Consequently,
market offerings are abundant: customers want to deal with a rm that is responsive to
all their needs (Woodruff and Gardial, 1996). Thus, success in the market place rests on
a rms ability to attract, satisfy, and retain its customers by creating customer value
(Johnson 1998). Accordingly, Bowersox et al. (2000) argued the goal of integrated
logistics, both inside and outside a rm within a supply chain, is to enhance
end-customer value.
The strategic perspective of the rm considers the rm an entity that makes
proactive decisions to optimally utilize its unique specialized resources (Seth and
Thomas, 1994). Heterogeneity of resources (in particular, logistics resources
(Olavarrieta and Ellinger, 1997)) serves as a source of competitive advantage for
rms since they are not completely imitable by competing rms. These barriers to
imitation explain not only a rms ability to sustain rents but also the differences
among rms within an industry (Mahoney, 1995; Rumelt, 1991). Resources can be
tangible (e.g. plants, equipment, raw materials, distribution centers, and logistics
networks of these plants and distribution centers) or intangible (e.g. relationships,
corporate culture, management skills, logistics expertise, and customer loyalty).
One intangible resource frequently discussed in the theories of the rm is
knowledge. Firms have different technological and organizational knowledge bases,
which determine how resources are utilized to create products/services. The rm
develops a collective memory of past problems and solutions and develops behavioral
rules and standard operating procedures to use when facing environmental changes
(Cyert and March, 1963). As a resource, knowledge (including logistics expertise
(Olavarrieta and Ellinger, 1997)) can help a rm create competitive advantage. Firm
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specic knowledge is difcult to transfer to another rm, even if an employee from one
rm transfers to another. One reason is any particular employee will only contain
partial knowledge about the rm. In addition, other rms may not possess the same
resources or processes to take advantage of the knowledge. Thus, the knowledge the
collective rm gains through experience is unique to that rm and can be used as a
competitive weapon. This includes competitive advantage through the management of
superior logistics knowledge.
In summary, one goal of the rm is the continuous creation of customer value to
satisfy end-users (Drucker, 1954). In fact, neither above-normal prots, nor the rm
itself, can last long by simply manipulating end-users. Thus, prots and the resulting
long-term survival are a reward rather than the goal of the rm. The rm consists of
multiple stakeholders and coalitions that constantly provide the necessary resources
(including logistics capabilities) to achieve this customer value goal of the rm, but
also meditate its importance as a rm goal, based upon the individual stakeholders
goals and the rms management of those goals.
Creating customer value requires inter-functional coordination and, as a result, the
boundaries between functions become blurred (Min and Mentzer, 2000). Therefore,
collaboration, rather than conict, should be the norm between functions in rms that
seek competitive advantage. Likewise, the boundaries between rms become indistinct
as rms engage in inter-rm cooperation with supply chain partners. In this sense, the
rm is not a substitute for the market. Instead, markets are complementing structures
to accomplish the goals of the rm.
This discussion leads to the initial propositions of a unied theory of logistics:
P1. The competitive advantage goal of the rm is to continuously create customer
value to satisfy end users.
P2. Prots are earned as rewards for the rms efforts to create customer
satisfaction.
P3. Long-term protability and satised customers leads to rm survival.
P4. Collaboration between each function inside the rm and between each rm in
a supply chain is necessary to convert stakeholder goals into rm competitive
advantage.
P5. The management of the overall resources of the rm leads to distinctive
logistics capabilities.
P6. The relationship between logistics capabilities and rm competitive
advantage is mediated by the management of stakeholder goals.
Environmental considerations
The rm is confronted with many environmental factors that affect its goals,
behaviors, and decisions. Organizations must respond to changes in the environment,
just as they must adapt to changing stakeholder demands, through learning and
organization memory (Cyert and March, 1963; Knudsen, 1995). While there are many
environmental factors an organization encounters, there are two factors of signicant
interest to most rms: technology and global competition. Organizational processes
such as manufacturing, order processing, and inventory management can become
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more effective and efcient as an organization adopts new technology. Firms can
achieve a competitive advantage through capitalizing on differences in resources and
capabilities (including logistics capabilities). In fact, Conner and Prahalad (1996)
suggest a rms existence depends on how it performs relative to other rms and
whether it can achieve a sustainable competitive advantage. Logistics is often
technology driven. Further, the more global the competition in an industry, the more
critical logistics capabilities are to rm success.
P7. Environmental intensity and volatility affects the importance of logistics
capabilities in accomplishing rm goals.
Logistics capabilities and competitive advantage
Early logistics literature focused on the economic theories of the rm i.e. cost control
and its contribution to the bottom line. Thus, total cost analysis was an important
performance measure (cf. Stock and Lambert, 2001). The role of logistics during this
period is reected in Druckers (1962) statement that logistics was one of the last real
frontiers of opportunity for organizations to improve their corporate efciency. The
goal of logistics was, thus, to optimize the number, size, and geographical arrangement
of plant and warehouse facilities, select transportation methods, and control
distribution costs. Consequently, logistics has done an excellent job of managing
and moving inventory the operational aspects of logistics (Mentzer et al., 1999).
Starting in the 1980 s, rms viewed time as a source of competitive advantage,
based upon the observation that rms competing effectively on time tend to excel at
improving quality, understanding evolving customer needs, exploiting emerging
markets, entering new businesses, and generating new ideas and incorporating them
into innovations (Stalk et al., 1992). Thus, rms started to focus on eliminating waste in
the form of time, effort, defective units, and inventory in manufacturing-distribution
systems (Larsen and Lusch, 1990; Schonberger and El Ansary, 1984; Schultz, 1985). In
erce time and quality-based competition, logistics capabilities become critical. In fact,
many rms particularly those operating in commodity or convenience goods
markets succeed as a result of their logistics systems, rather than their marketing
strategies (Christopher, 1994; Bowersox et al., 1995; Mentzer and Williams, 2001).
Therefore, creating customer value is possible by focusing on logistics customer
service (Langley and Holcomb, 1992; Morash et al., 1996a; Manrodt et al., 1997).
Beyond the efciency function, logistics capabilities are a source of competitive
advantage (cf. Zhao et al., 2001; Lynch et al., 2000; Bowersox et al., 1999; Olavarrieta
and Ellinger, 1997; Morash et al., 1996a,b; Bowersox and Closs, 1996; the Global
Logistics Research Team, 1995). Day and Wensley (1988) dened superior skills as the
distinctive capabilities of personnel that set them apart from the personnel of
competing rms, and superior resources as more tangible requirements for advantage
(e.g. physical facilities, wide distribution channels, and brand name) that enable a rm
to exercise its capabilities. Superior skills and resources, taken together, represent the
ability of a rm to surpass its competitors in the marketplace (Day and Wensley, 1988).
Customer value consists of economic values such as protability, and lowest total cost
and market value including assortment and convenience, both of which satisfy
customers current and future requirements (Bowersox et al., 2000). Logistics
capabilities, thus, contribute to a rms competitiveness through creating economic
(cost leadership) and market-based (differentiation) values.
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P8. Logistics capabilities help rms achieve the cost leadership component of
competitive advantage through efciency (cost and capital reduction).
P9. Logistics capabilities help rms achieve the differentiation component of
competitive advantage through effectiveness (customer service).
The nature of logistics capabilities
Logistics capabilities can be categorized into demand-management interface
capabilities supply-management interface capabilities, and information
management capabilities (Morash et al., 1996a,b; Zhao et al., 2001; Bowersox et al.,
1999; the Global Logistics Research Team, 1995), all of which require internal and
external coordination capabilities. The demand-management interface capabilities of
logistics (e.g. customer service and logistics quality) provide product or service
differentiation and service enhancement for lasting distinctiveness with customers
(Bowersox et al., 1999; Morash et al., 1996a). These capabilities are also called
customer-focused (Zhao et al., 2001), valued-added (Lynch et al., 2000), or customer
integration capabilities (Bowersox et al., 1999). These capabilities help a rm target a
given customer base, and meet or exceed their expectations by providing unique
value-added activities (Lynch et al., 2000; Bowersox et al., 1999; the Global Logistics
Research Team, 1995).
Customer service capability includes exibility (i.e. adapting to unexpected
operational circumstances) and responsiveness (i.e. the accommodation of unique
and/or unplanned customer requirements) in satisfying changing customer
requirements and demands (Bowersox et al., 1999; Schary, 1979; Schary and
Skjoett-Larson, 1979; Christopher, 1994). Logistics quality is a component of overall
customer service (Mentzer et al., 2001a), is dened as the ability to distribute products
or materials in conformance with customer requirements and standards (Morash et al.,
1996a), and consists of four dimensions: timeliness, availability, delivery quality, and
related communication with customers. These dimensions combine with broader
service quality processes, as well as other attributes such as price and product quality,
to better explain industrial customers purchasing patterns (Bienstock et al., 1998;
Emerson and Grimm, 1996; Mentzer et al., 1989; 1999; 2001a). When the dimensions of
the demand side of logistics capabilities are mixed in a unique way over time to fend
off competitors, the rm has a core competency and innovative ways of competing in
the market (Olavarrieta and Ellinger, 1997).
Demand-management interface capabilities can be explained with the resource
dependence and constituency-based theories of the rm (cf. Anderson, 1982;
Olavarrieta and Ellinger, 1997). According to the resource-based approach, the
rms eventual goal is to obtain above-normal returns via either a distinctive product
in the eyes of buyers (e.g. the rms product must offer consumers a different and
attractive attribute/price relationship, in comparison to substitutes), or low-cost
products, that are otherwise identical to competitive offerings (Porter, 1985; Day and
Wensley, 1988; Conner, 1991). Day and Wensley (1988) implied that a perception of
superior service, which ultimately leads to customer satisfaction, might be gained by
various logistics activities such as faster delivery of orders, choice of technology,
shipping methods, or order handling activities. Lambert and Stock (1993) also argued
that logistics can differentiate product-service offerings because distribution can be
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used as the primary reason why a target market will purchase, and distribution can be
designed as a unique offering not duplicated by competition.
The variants of resource-based theory (especially, knowledge-based theory) view
the rm as the creator of a positive and unique productive value through
organizational learning (Conner, 1991). Because logistics capabilities are unique skills
that are learned, maintained, and even enhanced in time and quality-based competition,
logistics capabilities can become a rms core competency. Core competency is
essential because the real sources of a rms success are due to rm-specic
(idiosyncratic) resources, such as management skills and behavior, attained through
collective learning (Prahalad and Hamel, 1990; Conner, 1991).
The constituency-based model argues that each functional area is a specialist that
provides unique resources to the rm (Anderson, 1982). The logistics function provides
distinctive capabilities (i.e. logistics management and coordination skills) along with
its resources (i.e. a logistics network of physical nodes and links) to help the rm offer
customers unique products (i.e. the combination of tangible products and intangible
logistics services), good service quality, and low cost. As a result, the rm can achieve
competitive advantage in the market.
Schumpeter (1950) theorized that rms are seekers of new ways of competing
and, thus, should focus on market dynamics. Schumpeter further argued that
competition based upon innovation is more effective than price-based competition.
In logistics, for example, postponement (the extent to which production and
distribution are delayed to add options or differentiate the product as close as
possible to when customer purchases the product) is an innovative approach in
which rms achieve not only cost reduction but also product customization (Waller
et al., 2000). From the Schumpeterian view, distinctive logistics capabilities based
upon organizational learning emerge as valuable factors in the development of
customer-oriented corporate strategies aimed at obtaining sustainable competitive
advantage through creating customer value.
P10. Logistics demand-management interface capabilities are customer-focused,
multidimensional (i.e. customer service and logistics quality), longitudinal (i.e.
before, during, and after sales), and lead to strategic advantage.
Supply-management interface capabilities are operational capabilities that include
total cost minimization and efcient logistics processes (Morash et al., 1996a; Lynch
et al., 2000). Total cost minimization (also measured as total process optimization) is at
the core of supply-management interface capabilities, and is the ability to minimize
total system costs so that cross-functional cost tradeoffs are explicitly considered
(Morash et al., 1996a). Supply-management interface capabilities are also a rms
ability to nd proactive, timely, and creative logistics solutions to situation-,
emergency-, or customer-specic problems, as well as the ability to simplify and
standardize key logistics activities in various supply chain ows (Lynch et al., 2000).
Supply-management interface capabilities are more focused on the traditional view
of the logistics function as a fundamental source of cost and capital reduction.
However, cost reduction should not be pursued at the expense of customer service. For
example, the implementation of time and quality-based concepts including
just-in-time (JIT), quick response (QR), and vendor managed inventory (VMI) not
only eliminate waste but also increase service velocity. In this context,
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supply-management interface capabilities may be explained by the comparative
institutional theory of the rm. Hennart (1994) suggested that rms exist because they
organize production at a lower cost by using organizational modes superior to those
used by competitors. For example, minimizing the variable costs associated with the
movement and storage of goods and minimizing the level of investment in the logistics
system (i.e. inventory and facilities) may sometimes be easier within the structure of a
rm (internal coordination) than through market transactions (i.e. 3PLs).
P11. Logistics supply-management interface capabilities lead to optimization of
the total process of logistics activities, which leads to minimization of
system-wide total cost, which leads to competitive advantage.
Logistics has a unique role in dealing with both upstream (i.e. materials management)
and downstream (i.e. physical distribution) ows of goods, services, and related
information (Council of Logistics Management, 2003). Thus, logistics has information
management capabilities that acquire, analyze, store, and even distribute tactical and
strategic information both inside and outside the rmwithin a supply chain (Zhao et al.,
2001; Bowersox et al., 1999). Information management capabilities consist of
information technology (i.e. the hardware, software, and computer network and
design), information sharing (i.e. the exchange of key technical, nancial, operational,
and strategic data), and connectivity (i.e. the exchange of data in a timely, responsive,
and usable format) (Zhao et al., 2001). These capabilities meet operational and strategic
information needs to balance supply and demand and facilitate supply chain
exchanges. For example, lean logistics strategy, in which information replaces
inventory, directly results in the elimination of unnecessary investment in old
technology and quick response to changing customer needs, both of which contribute
to a rms bottom line and long term survival.
Organizational learning is a source of sustainable competitive advantage (Crossan
et al., 1995; Olavarrieta and Ellinger, 1997). According to the resource-based theories of
the rm, one of a rms dynamic capabilities includes information management (or
processing) capabilities, i.e. the ability to understand information storage and ow,
perform two-way communication among supply chain members, and collectively learn
how to coordinate diverse production skills and integrate multiple streams of
technology (Mahoney, 1995; Prahalad and Hamel, 1990). In addition, vertical
coordination/integration is a viable alternative for obtaining environmental
information (Robertson and Gatignon, 1986).
P12. Logistics information management capabilities meet the supply chain
operational and strategic information needs to balance supply and demand
and facilitate supply chain exchanges, which leads to optimization of
system-wide capital investment, which leads to competitive advantage.
Internal coordination logistics capabilities
Logistics capability to provide the interface with other functional areas necessitates
logistics work closely with other functions to plan, coordinate, and integrate
cross-functional activities (Bowersox et al., 1999; the Global Logistics Research Team,
1995; Morash et al., 1996a). To facilitate synergistic and synchronous operations,
logistics together with other functional areas can implement company-wide
standardization (i.e. cross-functional policies and procedures), simplication (i.e.
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continuous improvement through benchmarking), compliance (i.e. adherence to
established operational and administrative policies and procedures), and structural
adaptation (i.e. the network structure and the deployment of necessary resources to its
activities) (Bowersox et al., 1999). Strategic logistics distinguishes itself from the
traditional, operational perspective through its ability to coordinate and integrate a
number of interdependent activities simultaneously across major functional areas,
thereby providing various additional dimensions and ways in which logistics can
create incremental customer value (Langley and Holcomb, 1992).
The boundary-spanning role of logistics capabilities inside a rm can be explained
by the behavioral theories of the rm. Pfeffer and Salancik (1978) proposed that a rm
consists of internal coalitions of many groups (e.g. departments and functional areas),
and, therefore, the functional areas are specialists providing particular resources for
the rm. To enhance efciency and effectiveness, each internal group specializes in
certain functional areas in negotiating exchanges with external coalitions (such as
suppliers, distributors, and customers) that provide uninterrupted ows of resources.
Each functional area is constrained by the objectives of other departments, which
triggers strategic conicts among functions (Anderson, 1982).
Logistics capabilities play a distinctive role in the integrative strategic process, due
to the expected benets of improving efciency (cost and capital reduction) and
effectiveness (customer service) via two-way communication and information
processing (information management) in a strategic context (creating customer
value) to obtain competitiveness, all of which are aimed at long-term rm protability
and survival. Competitive advantage grows out of the value a rm creates for its
buyers that exceeds the rms costs of creating it (Porter, 1985). Logistics capabilities
should provide competitively superior customer service at the lowest possible total
costs to create customer value (Bowersox and Closs, 1996). Logistics capabilities, thus,
put logistics personnel in the unique position to actively coordinate with other
functions in pursuing two objectives (i.e. efciency and effectiveness) for attaining the
objective of creating customer value. In this context, a rm exists to achieve
satisfactory prots (rather than maximum prots) in an attempt to coordinate the
efforts of the internal coalition toward the long-term survival of the rm (cf. Seth and
Thomas, 1994).
In the comparative institutional perspective, Hennart (1994) proposed rents are
based on returns on assets and management skill at coordinating interactions with
other resource owners. Logistics capabilities that expand the boundary of logistics into
the integrative strategic process of a rm to organize production at a lower cost in fact
contribute to attaining above-normal returns. Each subset of logistics plays an
important role in the inter-functional coordination process of arriving at an integrative
corporate strategy. Logistics provides the physical means of delivering inbound
resources and outbound goods in the form of transportation and, thus, logistics has an
important role in time-sensitive business environments. Furthermore, pipeline
visibility made possible by logistics information networks that span suppliers,
distributors, and customers also provides essential input to the rms strategic
planning process. The supply side of logistics capabilities may be reinforced by the
purchasing group that is responsible for introducing new technology, improving
quality, reducing costs, and securing the relationship with selective suppliers who are
the owners of critical resources. Finally, the demand side of logistics capabilities
Toward a unied
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617
(availability, timeliness, delivery quality, and communication) is critical to satisfy
customers because logistics personnel are often a primary customer contact (logistics
delivery and/or order processing personnel as customer service specialists). Logistics
activities, coupled with operational efciencies and effectiveness, help marketing
implement the marketing concept to gain competitive advantage (Stock and Lambert,
2001).
P13. Each subset of logistics plays an important role in the inter-functional
coordination process of arriving at an integrative corporate strategy, which
leads to competitive advantage.
External coordination logistics capabilities
Mentzer et al. (2001b) dene supply chain management as the systemic, strategic
coordination of the traditional business functions and the tactics across these business
functions within a particular company and across businesses within the supply chain,
for the purposes of improving the long-term performance of the individual companies
and the supply chain as a whole. Mentzer et al. (2001b) further dene supply chain
management as encompassing all upstream and downstream ows of products,
services, nances, and/or information from a source to a customer. Thus, supply chain
management encompasses all logistics ows and functions (a point on which most of
the myriad supply chain management denitions seem to agree), but also encompasses
additional (e.g. nancial) ows and functions (e.g. all the business functions) not
explicitly included in the CLM (2003) denition of logistics management.
By expanding logistics beyond the existing company structure to involve suppliers
and customers, parties involved in the logistics process obtain benets such as asset
productivity, operational effectiveness, cost efciencies, and enhanced customer value,
in addition to logistical capabilities (Langley and Holcomb, 1992). Those who adopt a
supply chain perspective see logistics as one of the companys most important strategic
initiatives (Manrodt et al., 1997). As a result, logistics is one (if not the major) of the
contributions to the benets of supply chain management.
When there are environmental uncertainties in both upstream and downstream
supply chain ows (e.g. technological turbulence and/or supply and demand
uctuations), the role of logistics is critical to rapidly change production and reduce
inventory and, as a result, total costs. Especially when information is a critical resource
in the rm, the importance of logistics increases (Smaros et al., 2003). Conversely, the
boundary-spanning capabilities of logistics cannot exist if potential opportunism (i.e.
self-interest seeking behavior with guile) (cf. Coase, 1937) prevents collaborative
inter-rm relationships among supply chain members. In this context, Mentzer et al.
(2001a,b), Bowersox et al. (1999), and Day (1994) proposed the need to forge inter-rm
relationships among supply chain partners before working together toward a common
goal. Day (1994) proposed that a close buyer-seller relationship that is beyond arms
length, called channel linking, becomes a distinctive capability.
The boundary-spanning capability of logistics may help rms build strong
partnerships. For example, potential opportunism along with uncertainty raises
transaction costs (i.e. expenditures associated with an economic exchange) such as
bargaining, monitoring, and maladaption costs (Williamson, 1985). By efciently and
effectively managing information ows in a supply chain, logistics helps supply chain
members reduce transaction costs, increase condence levels among rms and, thus,
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decrease uncertainty. As such, integrated logistics may perform a coordinating
function to better manage a supply chain. In summary, as knowledge-based theory (e.g.
Prahalad and Hamel, 1990) suggests, to convert the role of logistics into a boundary
spanning capability a rm should achieve collaboration among supply chain members.
At the same time, the unique role of integrated logistics may create a rms supply
chain capability by linking systems and operational interfaces to reduce redundancy,
while maintaining operational synchronization. Thus, though separate concepts, the
relationships between supply chain management and the boundary-spanning
capabilities of logistics are intertwined.
Porter (1985) proposes that vertical linkages reect interdependencies between a
rms activities and the value chains of suppliers and distributors (i.e. supply chains).
Coordinating and jointly optimizing with suppliers (inbound) and customers
(outbound) can lower costs and/or enhance differentiation (Porter, 1985). Thus,
strategic alliances with suppliers, customers, or intermediaries (e.g. transportation
and/or warehousing service providers) leverage the strategic alignment of capabilities
to create customer value (Langley and Holcomb, 1992). As such, effective supply chain
management requires rms to work together and mutually share information, risks,
and rewards to create a competitive advantage (Ellram and Cooper, 1990).
The resource-based models and the constituency-based model offer insight into the
role of logistics in supply chain management. Pfeffer and Salancik (1978) argued the
behavior of organizations reect the coalitional nature of organizations and the manner
in which organizations respond to pressures from the environment. They also
proposed that many activities of organizations, which are viewed as structures of
coordinated behaviors, can be explained by the desire for stable resource exchanges
on one hand, and the need for exibility and autonomy on the other. A managed supply
chain consists of such parties as labor, stockholders, creditors, suppliers, distributors,
customers, government, and various interested publics (cf. Pfeffer and Salancik, 1978).
Through cooperation in long-term relationships, a rm ensures the continued supply of
critical resources, as well as market demand. Assuring both resources and demand is
possible because supply chain management takes place in an extended supply chain
that consists of external coalitions or alliances among manufacturers, carriers, and
distributors, each of which is a functional specialist (cf. Christopher, 1992; Gentry,
1996; Mentzer et al., 2001). As with internal coalitions (i.e. functional areas of a rm),
each rm participating in implementing supply chain management is constrained by
the objectives of the others and, thus, successful supply chain management requires
agreement on supply chain visions and goals (cf. Mentzer et al., 2001), and the role of
logistics within the supply chain.
The ultimate goal of supply chain management is the long-term prosperity of the
participating parties as well as the supply chain (i.e. an external coalition) (Mentzer
et al., 2001). Supernormal prots are acquired from efcient coordination of both
internal and external transactions (Hennart, 1994). In other words, a unique capability
that is not available inside the rm should be obtained from the market to generate
above-normal business performance. Thus, the boundary-spanning capabilities of
logistics, which lie at the center of supply chain management, may produce
above-normal prots for the rm.
In summary, supply chain management places a premium on the adoption of a
cross-functional, externally focused view of logistics (cf. Manrodt et al., 1997).
Toward a unied
theory of
logistics
619
Therefore, explanations of the role of logistics in supply chain management are
possible through the resource-based, constituency-based, and comparative
institutional models. Supply chain design, the formation of relevant capabilities into
a unied supply chain, is the most fundamental competence of an organization (Fine,
1998) and, therefore, the inuence of the resource-based and constituency-based
models is relevant to explain logistics capabilities in supply chain management.
P14. Logistics capabilities help rms acquire, analyze, store, and distribute tactical
and strategic product/service ow information both inside the rm and across
the supply chain for better coordination and collaboration.
P15. The boundary-spanning nature of logistics capabilities makes possible
coordination of activities inside rms and cooperation of multi-corporate joint
activities (i.e. pursuing both efciency and effectiveness) for the purposes of
external coordination of supply chain demand and supply ows.
Borrowing external logistics capabilities make versus buy
A central question of the theories of the rm is whether a rm can more efciently
produce inputs in-house or acquire them in the market. The rm is the most effective
method of organization if the costs of transactions are less in the rm than in the
market. The make or buy decision not only has ramications for the existence of the
rm but also for the boundaries (scope) of the rm. Milgrom and Roberts (1988)
suggested a continuum of institutional arrangements, with controlled organizational
forms on one end and discrete market exchanges on the other. Richardson (1972)
suggested coordination of activities occurs through the market, as well as through
managerial direction and cooperation with other rms. The rm is viewed as a
complex institution with the purpose of mediating collaboration between resource
owners (Knudsen, 1995). As rms engage in coordination with suppliers, third party
logistics providers, or even competitors, rm boundaries become indistinct.
Outsourcing logistics functions to other rms, known as third-party logistics
providers (3PLs), has increasingly become a powerful alternative to the traditional,
vertically integrated rm. 3PL arrangements are more than simply contracting out
cost-inefcient functions (Skjoett-Larsen, 1999). Gentry and Vellenga (1996) argue it is
highly unlikely that all of the primary activities in a supply chain inbound and
outbound logistics, operations, marketing and sales, and service will be performed
by any one rm to maximize customer value. Changing customer demands and
regulatory frameworks encourage rms to outsource logistics functions to gain
exibility to quickly adjust to the market (e.g. Bahatnagar et al., 1999; Shef, 1990).
The scope of 3PL arrangements encompasses a variety of options ranging from narrow
(limited to specic activities like transportation) to broad (covering substantive
activities in the entire supply chain) (Rohit et al., 1999; Sink and Langley, 1997). For
example, 3PLs are willing to perform part or all of the logistics requirements for a
buying rm, including transportation, warehousing, order fulllment, information
management, light assembly, inventory management, and strategic distribution
consultation (Sink et al., 1996; Moore, 1998).
The primary reasons for outsourcing logistics functions are to save costs and
enhance revenues (Boyson et al., 1999; Shef, 1990; Bowersox, 1990). According to
neoclassical price theory, rms are organized to minimize total transaction costs if
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market contracts lower transaction costs, rms prefer market exchange to internal
division of labor (Coase, 1937). Firms expect to reduce total transaction costs by hiring
3PLs (Skjoett-Larsen, 1999). When the asset specicity of logistics services is low (e.g.
transportation and warehousing services), manufacturers outsource logistics functions
(Aertsen, 1995; Williamson, 1999). When asset specicity is high and market
conditions uncertain, manufacturers either internalize logistics operations or enforce
detailed legal contracts with 3PLs (Hoeck, 2000; Williamson, 1975).
Although the neoclassical price approach provides a valuable theoretical basis to
explain many 3PL arrangements, it does not explain the growing number of long-term,
committed, strategic partnerships (arrangements that provide nal assembly,
packaging, and distribution activities, for example) between buyers and sellers. The
comparative institutional approach suggests a way to obtain supernormal prots is to
efciently organize better external procurement contracts that are difcult to imitate
(cf. Hennart, 1994).
An alternative explanation is provided by resource-based views that propose close
cooperation with 3PLs is a natural consequence of the fact that rms in a vertical
supply chain possess heterogeneous resources and capabilities (Pfeffer and Salancik,
1978; Skjoett-Larsen, 1999). Therefore, it is harder for an individual rm in a supply
chain to achieve its business objectives to develop new products and markets due to
the lack of resources in the highly competitive business environment (Kotler, 1997).
When customer needs vary, rms capabilities should be logistically distinct (Fuller
et al., 1993; Mentzer et al., 2001). In this case, 3PLs can perform logistics activities at
higher service levels (Murphy and Poist, 2000).
Each functional specialist should provide ows of resources from appropriate
external coalitions (i.e. 3PLs) (Anderson, 1982). Logistics resources and capabilities are
core competencies of 3PLs, but not of many manufacturers, assemblers, technology
companies, and retailers (Boyson et al., 1999) and, thus, 3PLs allow the parties involved
to focus on their core competencies (Sink et al., 1996; Murphy and Poist, 2000). 3PL
arrangements generate core competencies in one or more of the rms supply chain
functions that enable the rms to generate rents from a resource advantage (Hitt and
Ireland, 1985; Prahalad and Hamel, 1990).
P16. Logistics activities are such a vital part in implementing corporate strategy
that some rms (i.e. 3PLs) specialize in providing distinctive logistics
capabilities to other rms to obtain competitive advantage.
Conclusions
We have attempted to offer relevant explanations of different aspects of logistics
activities based on the theories of the rm. A review of the theories of the rm leads to
the conclusion that the role of logistics is to provide the boundary-spanning, demand
and supply coordinating, capabilities the rm needs to create customer value to satisfy
customers. The logistics contribution to rm competitive advantage is signicant in
both efciency (cost leadership) and effectiveness (customer service). Logistics
capabilities for competitive advantage include demand-management interface
capabilities (customer service and logistics quality), supply-management interface
capabilities (low cost supply and distribution), and information management
capabilities (information sharing via information technology and connectivity).
Logistics capabilities also play an important role in boundary-spanning interfaces
Toward a unied
theory of
logistics
621
between internal functional areas and between the focal rm and supply chain
partners. Coordinated with the marketing function, logistics can differentiate product
and/or service offerings to fulll unique customer requirements (Mentzer et al., 2001).
When joined with production, logistics offers cost and investment reductions while
maintaining service levels. Logistics capabilities also help the rm cooperate with
supply chain partners (i.e. suppliers, distributors, and other intermediaries) in
coordinating supply and demand ows to deliver customer value and, in return, in
sharing benets. Thus, logistics is an integral part of the larger concept of supply chain
management.
This attempt should move logistics research toward a unied theory of logistics,
and provide benets for both logistics researchers and practitioners. Considering that
scholars have not attempted to develop a theory of the rm that accommodates the role
of logistics, the existing theories of the rm set a standard for constructing a theory of
the rm from the perspective of logistics. Accordingly, we presented a comprehensive
view of logistics capabilities within a unied theory of logistics (Figure 1). The
proposed theory is important to the logistics discipline as the scope of the discipline
expands from operational issues into such strategic issues as customer service,
customer value, and relationship management. In particular, the proposed theory
should help guide denitional development as scholars explore the differences between
logistics and supply chain management.
We also provided a theoretical explanation of each capability of logistics, utilizing
the existing literature and the existing theories of the rm. Due to the complexity, as
well as the diverse characteristics of logistics capabilities, multiple theories of the rms
were adapted to offer a complete view of the role of logistics in the strategic process of
the rm. This work should serve as a foundation for theory development in logistics
that is essential in generalizing logistics phenomena. Thus, the resultant propositions
should encompass already extant research in logistics (dening where various
theory-development efforts have t into a larger unied theory of logistics), and guide
future logistics theory development and testing.
Practitioners are offered a holistic, strategic view of how logistics produces
competitive advantage, beyond the traditional view of cost reduction and customer
service, and widened into a supply chain context. We also point out ways of utilizing
the capabilities of logistics within supply chain management as a source of competitive
advantage.
Although we have presented a unied theory of logistics based upon logistics
capabilities, we do not claim the proposed theory is the only framework to understand
and further study logistics. In fact, we offer the proposed unied theory as only one
way of looking at the logistics discipline. Therefore, future research is strongly
encouraged to challenge and/or rene our view of logistics. In addition, how this theory
of logistics ts into the larger area of supply chain management needs to be further
explored.
For the theories of the rm to be fruitful, they must be congruent with the
established research tradition of the eld (Laudan, 1977), i.e. logistics. This paper is
only a starting point in what we hope will be on-going development of a unied theory
of logistics.
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622
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