Journal of Purchasing & Supply Management 17 (2011) 167175

Contents lists available at ScienceDirect

Journal of Purchasing & Supply Management

journal homepage: www.elsevier.com/locate/pursup

The inuence of contractual and relational factors on the effectiveness

of third party logistics relationships
Dianne Hofenk a,n, Rinaldo Schipper b, Janjaap Semeijn a, Cees Gelderman a
a
b

School of Management, Open University of the Netherlands, P.O. Box 2960, 6401 DL Heerlen, The Netherlands
Yacht, Westbroek 49A, 4822 ZX Breda, The Netherlands

a r t i c l e i n f o

abstract

Available online 22 April 2011

Outsourcing has become popular in both management literature and practice, but few studies have
examined the effects of two important and potentially complementary elements contractual and
relational elements on the effectiveness of logistics outsourcing relationships. It is theorized that
contract formality, the thoroughness of contract negotiations, trust and commitment increase the
effectiveness of 3PL providerclient relationships. For empirical validation a survey was carried out in
the 3PL industry among both 3PL providers and clients. Using PLS path modelling, we observed that for
both LSPs and clients, contract formality, trust and commitment are all positively related to relationship
effectiveness. The results for negotiation thoroughness are mixed. The model explains 59% (LSPs) and
60% (clients) of the variance in relationship effectiveness. It is concluded that both hard contractual
aspects and soft relationship aspects are important for effective supply chain collaboration. Theoretical
and managerial implications are provided.
& 2011 Elsevier Ltd. All rights reserved.

Keywords:
Third party logistics
Contract
Relationship effectiveness

1. Introduction
Global supply chains are a source of competitive advantage
(Manuj and Mentzer, 2008), and supply chain collaboration is a
valuable approach for reaching world class operational performance (Vereecke and Muylle, 2006). Logistics outsourcing has
attracted growing interest in recent years as managers consider
whether it is in their best interest to perform activities in-house
or let them perform by a logistics service provider (LSP)
(Bolumole et al., 2007). LSPs are companies, which perform
logistics services on behalf of others, either completely or only
in part (Delfmann et al., 2002; Krauth et al., 2005). Examples of
such logistics services are inventory management, warehousing,
procurement, transportation, systems administration, information systems, materials sub-assembly, contract manufacturing
and import, and export assistance.
According to Bagchi and Virum (1996, p. 93), a logistics
alliance is a long-term partnership arrangement between a
shipper and a logistics vendor for providing a wide array of
logistics services including transportation, warehousing, inventory control, distribution, and other value-added activities. It is
widely believed that collaboration among supply chain members
will lead to competitive advantage for all (Mentzer et al., 2000).

Corresponding author. Tel.: 31 45 576 2791.

E-mail addresses: dianne.hofenk@ou.nl (D. Hofenk),
rinaldo.schipper@yacht.nl (R. Schipper), janjaap.semeijn@ou.nl (J. Semeijn),
kees.gelderman@ou.nl (C. Gelderman).
1478-4092/$ - see front matter & 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.pursup.2011.04.003

The idea behind collaboration is that one rm has insufcient

capabilities and resources to successfully compete by itself.
Because of increasingly demanding customers, rms need to
perform better. Through collaboration, rms can combine their
strengths, share risks and rewards, and achieve higher performance. However, in practice, few rms actually collaborate on a
level that goes deep enough to achieve an effective and efcient
supply chain (Min et al., 2005). Supply chain collaboration seems
to have great potential, but further investigation is needed to
understand its practical value (Min et al., 2005, p. 238).
There have been many studies investigating success factors for
third party logistics (3PL) partnerships (e.g., Van Laarhoven et al.,
2000). In our study, we focus on two categories of success factors
that have the potential to complement each other: hard contractual factors and soft relational factors (Poppo and Zenger,
2002). In regard to contractual factors, it is important to design an
optimal contract, which is acceptable to both the client and the
LSP and, at the same time, induces the LSP to truthfully reveal his
capability (Lim, 2000). According to Selviaridis and Spring (2007,
p. 140), empirical research should be directed towards contractual
practices: There is a need to examine (empirically) whether
contracts are important in terms of relationship management or
represent only part of the business deal and the client-3PL
provider relationship. Contracting agreements are perceived to
be central to the creation of effective logistics outsourcing relationships (Boyson et al., 1999). In regard to relational factors, a
growing number of LSPs try to become of strategic importance in
their clients supply chains. Because of mergers and acquisitions

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D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

and horizontal alliances with other LSPs, LSPs have been able to
extend their scale and scope of operations, which has resulted in
the offering of sophisticated logistics solutions, sometimes even
on a global scale (Selviaridis and Spring, 2007). Those LSPs aim for
long-term relationships built on trust and commitment (Morgan
and Hunt, 1994). Successful collaboration between LSPs and
clients is thought to yield signicant benets, such as inventory
reduction, better quality, improved delivery, reduced costs, shorter
lead-times, and higher exibility (Min et al., 2005; Vereecke and
Muylle, 2006).
Both contractual and relational factors have independently
proven to be important for successful inter-organisational relationships. However, there are few studies that combine contractual and relational elements and investigate their effects on
relationship success (see Poppo and Zenger (2002) for an exception). Following the call for further research on contractual
practices in the 3PL industry by Selviaridis and Spring (2007),
the purpose of this paper is to empirically test the effects of both
contractual and relational factors on the effectiveness of 3PL user
provider relationships. The existing 3PL literature has mainly been
descriptive and demographic in nature (see e.g., Lieb and Bentz,
2005), often lacking a strong theoretical basis (Selviaridis and
Spring, 2007). By developing and testing specic hypotheses based
on the extensive literature on contracts and especially on relationships, we contribute to a stronger theoretical basis of 3PL literature and to the broader eld of buyersupplier relationships as
well. Furthermore, by considering both sides of the 3PL user
provider relationship, we are able to test for any differences in the
way both groups perceive their relationships with the other party.
The ndings of this study provide supply chain practitioners with
a clearer understanding of the connection between their contractual and relational efforts in 3PL userprovider relationships and
the effectiveness of these relationships. Thereby, we show them
how they can increase relationship effectiveness.
The paper is structured as follows. We rst provide a theoretical
framework leading to the development of hypotheses and a conceptual model. Then, the methods used to empirically test the model
are explained. Next, the results of the empirical research are
presented. Finally, conclusions, implications for management and
theory, limitations and suggestions for further research are provided.

2. Literature review
2.1. Logistics outsourcing and 3PL
At the end of the 1980s, outsourcing logistics activities was quite
a new phenomenon and by the end of the 1990s, logistics still did
not seem to be on the agenda of top management. However,
outsourcing all or part of the logistics activities in a supply chain
to logistics service providers has now become the norm across most
industries (Van Laarhoven et al., 2000), with more and more
companies recognising the benets of outsourcing to rms that
can meet their requirements (Webb and Laborde, 2005). As logistics
becomes more sophisticated and the gap between what companies
want to accomplish and what they can do in-house continues to
grow, the rationale for outsourcing to third parties increases.
Logistics outsourcing represents a specically dened, often contractual relationship based on third-parties meeting specied
performance criteria set by client organisations (Bolumole, 2003).
The most commonly outsourced functions are those that are noncore, routine-based, or asset based (Boyson et al., 1999).
The decision whether to outsource logistics activities depends on
both internal and external considerations (Selviaridis and Spring,
2007). Internal considerations can be product-related (e.g., special
handling needs), process-related (e.g., cycle times, resources and

capabilities), or network-related (e.g., countries served), but also

difculties with managing logistics in-house and the special expertise of the provider support the decision to outsource (Sankaran
et al., 2002). External considerations are changes in the business
environment, increased competition, pressure for cost reduction, the
need for strategic exibility, the focus on core competencies, the
improvement of service quality and the resulting need to restructure
supply chains (Qureshi et al., 2007; Selviaridis and Spring, 2007).
In our research, we use the denition offered by Bask (2001,
p. 474), who describes 3PL as relationships between interfaces in
the supply chains and 3PL providers, where logistics services are
offered, from basic to customized ones, in a shorter or longer-term
relationship, with the aim of effectiveness and efciency. The roles
of LSPs vary according to the level of outsourcing, from only
transportation services to complete integrated-logistics, valueadded services and global management of the customers logistical
setups (Stefansson, 2005). 3PL providers can offer logistics expertise
as well as cost advantages to individual organisations, because they
provide an opportunity for organisations not to tie up unnecessary
capital in costly logistics-related equipment such as warehouses,
trucks and sorting equipment (Bolumole, 2003). Further potential
benets from outsourcing to 3PL providers are increased customer
satisfaction and access to new markets (Bask, 2001).
2.2. Relationships and relationship effectiveness
Similar to 3PL, relationship marketing has only quite recently
become an important concept in the literature, from the 1980s and
1990s onwards (Knemeyer and Murphy, 2005). Since then, collaboration between supply chain members has oftentimes been studied
from a relationship marketing perspective (see e.g., Knemeyer and
Murphy, 2004). According to this perspective, long-term relationships
characterised by trust and commitment lead to better performance
than single, short-term exchange between parties (Min et al., 2005).
Relationship marketing can be dened as all marketing activities
directed toward establishing, developing, and maintaining successful
relational exchanges (Morgan and Hunt, 1994, p. 22).
According to Qureshi et al. (2007) and Frankel et al. (1996),
commitment and trust, communication, top management support, a long term contract, willingness to be exible, clear and
consistent goals, and coordination are the enablers of a successful
3PL relationship. In the broader marketing literature on buyer
supplier relationships, trust and commitment have been stated
numerous times as essential factors for successful relationships
(e.g., Morgan and Hunt, 1994). Therefore, we take these two
constructs to represent the relational factors affecting the effectiveness of clientLSP relationships.
In our study, we take the construct of relationship effectiveness
to measure the success of 3PL providerclient relationships. This
construct is drawn from van de Ven (1976) and Ruekert and
Walker (1987), and it can be dened in terms of a psychosocial
outcome, namely how worthwhile, equitable, productive and
satisfying the client perceives his/her working relationship with
the LSP to be, and vice versa. The reasons for choosing a psychosocial outcome to measure relationship effectiveness are two-fold:
(1) past studies on effective working relationships have also
focused on subjective outcomes (Chimhanzi and Morgan, 2005;
Kahn et al., 2004; Massey and Dawes, 2007; Stoel, 2002), and
(2) objective measures of effectiveness (e.g., sales volume) may not
accurately reect the quality of a relationship due to confounding
factors, such as long sales cycles (Smith and Barclay, 1997).
2.3. Contracts
The greatest risk in outsourcing is non-performance
(Domberger, 1998). Usually there are contractual instruments in

D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

place to ensure that performance remains within acceptable limits

(Jane and de Ochoa, 2006). Parties who have not done business
before may have the need to enter into more detailed contracts
than those who have had extensive prior dealings (Ciccotello and
Hornyak, 2000). Another reason for drawing up contracts is that
parties want to use contracts to transmit information to each
other. Also the fact that contracts are customary, in other words,
the contract symbolizes the existence of the business deal, is a
reason for having a contract (Roxenhall and Ghauri, 2003).
Contracts are legal instruments that explicitly dene the terms
of inter-organisational agreements (Handeld and Bechtel, 2002).
A logistics contract can be dened as a commercial contract under
which one party, known as the LSP, provides services of a logistical
nature to a customer/client in exchange for payment of an
economic amount (Jane and de Ochoa, 2006). Organisations use
contracts in three different ways. First, they use them as proof of
what was agreed upon in case of a conict. Second, the contract has
the function of controlling individuals, within their own organisation, within the organisation of the other party, and potentially
individuals in competitors organisations. Third, the contract is
used as an interpretation tool to interpret those aspects of the
agreement that are not obvious (Roxenhall and Ghauri, 2003).
Many 3PL relationships do not live up to the expectations both
parties have from the relationship. Oftentimes, there are difculties,
such as lack of understanding clients supply chain needs, lack of
adequate expertise in specic products and markets, unrealistic
customer expectations, inadequate description of services and
service levels, lack of logistics cost awareness by the client and lack
of 3PL innovation (Selviaridis and Spring, 2007, p. 134). Fully
dening the expectations and abilities of both parties, thereby
avoiding unrealistic expectations, is critical to the success of a
clientLSP relationship. In our research, we focus on two contractual
factors that potentially inuence relationship effectiveness: contract
formality and the thoroughness of contract negotiations.

3. Hypotheses
3.1. Inuence of contract formality on relationship effectiveness
Inter-organisational relationships can be governed in two ways:
through formal or informal mechanisms. Formal mechanisms use a
written contract to specify the details of the relationship, such as
the degree of cooperation and integration between the partners.
Informal mechanisms are unwritten agreements between partners
which are not enforced by law, but by feelings of mutual interest
and trust from both partners (Frankel et al., 1996).
Most authors agree that formal contracts are necessary for
effective management of 3PL relationships. However, detailed
contracts can also be interpreted as an indication of lack of trust
(Selviaridis and Spring, 2007). According to Poppo and Zenger
(2002, p. 708), for example, there are critiques that state that
in the presence of relational governance, formal contracts are at
best an unnecessary expense and at worst counter-productive.
Furthermore, Frankel et al. (1996) conclude that rms do not
believe that formal written contracts are an integral or necessary
component to achieve an effective alliance relationship.
However, there are more studies that support the opposite view.
Poppo and Zenger (2002) point out that well-specied contracts
diminish the amount of risk in exchange relationships, thereby
promoting close, collaborative and long-term relationships. Bucklin
and Sengupta (1993) mention the benet of a written contract for
making clear to partners what behaviour is expected from them.
According to Qureshi et al. (2007), a precise long-term contract
with clearly dened expectations, responsibilities and performance
parameters forms the basis for an enduring relationship, and

169

Min et al. (2005) observe that formalization is necessary for successful

collaboration execution. Finally, Atkin and Rinehart (2006) conclude
in their study that higher levels of contract formality actually increase
the satisfaction in the relationship. In conclusion, we found two
contrasting views regarding the effects of formal contracts on
relationships in the literature, but the majority of the studies support
the viewpoint that more formal contracts lead to more successful
relationships. Hypothesis 1 is therefore as follows:
H1. Contract formality has a positive effect on relationship
effectiveness.
3.2. Inuence of the thoroughness during contract negotiations on
relationship effectiveness
The foundations for relationships are often built during the
initial negotiation process. The process of negotiating can lead to
satisfaction or dissatisfaction with the relationship on the part of
the supplier and the customer (Atkin and Rinehart, 2006). Negotiation is a management process involving the preparation for
bargaining, the interaction of two or more parties in a bargaining
situation, and the resolution or outcome of this interaction
(Rinehart et al., 1988). Much has been written about the negotiation process. Sink and Langley (1997) propose a sequential,
managerial framework for the effective acquisition of logistics
services. The framework is a sequence of the following ve steps:
identify the need to outsource logistics, develop feasible alternatives, evaluate and select suppliers, implement the service, and
conduct ongoing service assessments. Such a model can guide the
purchasing process. Sankaran et al. (2002) provide a conceptualization of 3PL contracts, existing of the prelude, the physical
actualisation of the contract, the multi-lateral management of the
contract, and the context embedding the contract. Roxenhall and
Ghauri (2003) focus more on the negotiations itself. They have
analysed contract negotiations based on ve phases, namely the
offer, the discussion, the adjustment, the preparation, and the nal
negotiation phase. Professional experience shows us that when
negotiating a contract, the parties pay little attention to its content
aside from those matters related to the technical, economic, and
operational aspects of the contract. However, the 3PL provider that
wishes to enter into a contract with a company seeking its services
has to be an expert with respect to identifying the needs of its
customer, in order to design the logistical operation in such a way
that it satises the customers requirements in terms of service,
cost and quality (Jane and de Ochoa, 2006). Otherwise, after a
while a new tender is arranged, which results quite often in a new
partner (Van Laarhoven et al., 2000). The problem is that by
shifting partners too often the learning curve has to be restored
and all knowledge and competencies developed in the existing
relationship might disappear (Halldorsson and Skjtt-Larsen,
2004). During the negotiation process both parties will establish
an important foundation for the nal contract (Jane and de Ochoa,
2006). The ndings of Sankaran et al. (2002) support this idea,
because they observe that the thoroughness of the contract
logistics service provider during contract negotiations is a major
determinant of contract success, resulting in Hypothesis 2:
H2. The thoroughness during contract negotiations has a positive
effect on relationship effectiveness.
3.3. Inuence of trust and commitment on relationship effectiveness
No partnership can exist without trust and commitment. True
partners do not have to constantly worry about being replaced
and although most executives involved in partnerships nd it
difcult to precisely dene trust, they all intuitively know when it

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D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

exists (Lambert et al., 1999). The constructs trust and commitment have been widely applied in inter-organisational relationship research (Golicic, 2007).
Trust is a frequently mentioned construct in many models of
long-term business relationships and appears to be a cornerstone
of successful logistics outsourcing relationships (Knemeyer and
Murphy, 2005). Trust can be dened as reliance on, and condence in, another party (Knemeyer and Murphy, 2005, p. 713).
Trust enables close working relationships, which in turn result in
higher performance, in terms of higher satisfaction, increased
benets, decreased costs, and higher value (Golicic, 2007). Therefore, we formulate Hypothesis 3 as follows:
H3. Trust will have a positive effect on relationship effectiveness.
Commitment has emerged in the literature as a critically
important element for effective relationships. Organisational
researchers have identied various types of commitment. Of these,
affective commitment and calculative commitment appear most
frequently and also seem to be the most relevant for inter-organisational relationships. An affectively committed party desires to
continue the relationship, because it likes the partner and enjoys
the partnership. Calculative commitment results from a calculation
of costs and benets, including an assessment of the investments
made in the relationship and the availability of alternatives to
replace the other party (Geyskens et al., 1996). Various authors
provide a more holistic insight of commitment by treating it as a
single construct, which manifests a want for prolonging a relationship (Gounaris, 2005). We follow these authors and dene commitment as an enduring desire to maintain a valued relationship
(Moorman et al., 1992, p. 316). Commitment is argued to be vital for
successful relationships (Gounaris, 2005; Morgan and Hunt, 1994),
which leads to the following hypothesis:
H4. Commitment will have a positive effect on relationship
effectiveness.
Hypotheses 14 are visualised in our conceptual model (see
Fig. 1).

4. Methodology
4.1. Context and sample
The data for this study were collected in the 3PL industry. Because
the trend in the 3PL industry seems to be towards consolidation,
resulting in large, globally operating LSPs (Selviaridis and Spring,
2007), we randomly selected ten globally operating LSPs from a list
containing the fty largest LSPs operating in the Netherlands. Seven
LSPs were willing to participate in our study. We believe these

Contract
formality

H1

Negotiation
thoroughness

H2

H3

Commitment
H4

Fig. 1. Conceptual model.

LSP

Turnover in Euros

Number of employees

1
2
3
4
5
6
7

250500 million
100250 million
5001000 million
100250 million
More than 10,000 million
Less than 100 million
Less than 100 million

10005000
10005000
500010,000
2501000
10,00025,000
Less than 250
Less than 250

seven LSPs are representative of many other globally operating LSPs.

Table 1 shows the demographics of these LSPs.
The unit of analysis in this study is the relationship between
an LSP and its client. Therefore, we asked both managers from the
LSP as well as their clients to ll out a questionnaire about the
relationship they had with the specic client/LSP. From each of
the seven LSPs a random selection of clients was selected,
resulting in the distribution of 120 questionnaires to LSP managers working with these clients and 120 questionnaires to client
managers working with the LSPs. All respondents were directly
involved in the relationship they were asked questions about.
We followed the ve-step survey process recommended by
Dillman (2000). The rst step involved an initial contact by email
to pre-notify the respondent. The second step was sending the
questionnaire along with a letter explaining the purpose of the
questionnaire (also by email). A reminder postcard was emailed
for the third step. The fourth step consisted of another letter and
questionnaire, and the nal step was a follow-up phone call to
encourage response.
4.2. Measurement scales
Multiple-item scales, closely following previous studies, were
used to measure each construct. The items that were used to
assess the latent constructs are reported in the Appendix. All
items were measured on a 7-point Likert scale and were similar
for 3PL providers and clients. The items used to measure contract
formality were adopted from Atkin and Rinehart (2006). According to Sankaran et al. (2002), the thoroughness during contract
negotiations has various indicators. Sankaran et al. (2002) identied these indicators in a qualitative study. We used three of the
ve indicators of Sankaran et al. (2002) and adapted them so that
they could be measured on a 7-point Likert scale and thus be used
in our quantitative study. We deemed the other indicators of
Sankaran et al. (2002) not suitable for our study: one indicator
was too complex and one indicator was only applicable to 3PL
providers and not clients. The survey items assessing trust and
commitment were adopted from Morgan and Hunt (1994).
Relationship effectiveness was measured with a scale based on
the work of Ruekert and Walker (1987), which was also used by
Chimhanzi and Morgan (2005) in their research.

5. Results

+
Relationship
effectiveness

Trust

Table 1
Demographics of LSPs.

5.1. Response
In this study 120 questionnaires were emailed to LSPs and 120 to
LSP clients. We received 77 usable responses from LSPs (response
rate of 64.2%) and 51 from clients (response rate of 42.5%). A
distribution of the respondents over the seven LSPs can be seen in
Table 2. The client organisations consisted of manufacturers (31),
suppliers (13), wholesalers (5), and other (2). Almost all respondents
fullled a management function in their organisation (see Table 3).

D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

171

5.2. Measurement properties

Table 2
Distribution of respondents over LSPs.
LSP

Number of LSP
respondents

Number of client
respondents

1
2
3
4
5
6
7

22
9
9
7
8
18
4

12
4
6
8
3
12
6

Total

77

51

Table 3
Respondents job description.
Function

LSPs

Clients

Director
Vice president
Operations manager
Logistics manager
Purchasing manager
Key account manager
Project manager
Other

13
4
14
9
0
20
11
6

1
1
13
23
8
0
0
5

Total

77

51

Table 4
Logistics activities being performed (LSPs) or outsourced (clients) in the
relationships.
Activity

LSPs

Clients

Warehousing
Transportation
Order processing
Customs clearance
VAL
Return logistics
Tracking and tracing
Inventory management

67
61
56
47
49
46
42
45

40
45
30
35
32
34
29
24

We tested for non-response bias using the procedure recommended by Armstrong and Overton (1977). Tests indicated that no
statistically signicant mean differences were present between the
rst wave and the second wave of both respondent groups (LSPs and
clients), which is an indication that the study does not suffer from a
serious non-response bias.
Respondents were asked about the duration of the relationship
which was object of study. There was a small percentage of
relationships (5.2% in the LSP sample and 2% in the client sample)
which were formed less than a year ago. The majority of the
relationships had been in place for 310 years (63.7% in the LSP
sample and 72.5% in the client sample), but there were also quite
a number of relationships of more than 10 years (18.2% in the LSP
sample and 11.8% in the client sample).
Furthermore, the respondents were asked to indicate which
logistics functions were part of the relationship. A list of functions
was provided and the respondents indicated whether each function was currently outsourced (clients) or performed for the client
(LSPs). As shown in Table 4, warehousing and transportation were
the functions most commonly outsourced (clients) or performed
(LSPs) by the respondents rms. Tracking and tracing, and
inventory management were, on the other hand, the least commonly outsourced or performed functions in the relationship.

We used PLS path modelling (SmartPLS 2.0, Ringle et al., 2005)

to estimate the specied model. Since there may be differences in
both the measurement model and structural model for LSPs and
clients, we tested the models for both samples separately. Given
the small sample sizes (N 77 for the LSP sample and N 51 for
the client sample), the use of PLS path modelling is appropriate.
PLS path modelling has shown to provide robust results for small
sample sizes (Reinartz et al., 2009).
Before we present the results for the structural models, we
analysed the measurement models. Since our measurement
models were reective in nature, we conducted a conrmatory
factor analysis to assess unidimensionality. By inspecting factor
(cross-)loadings, we were able to conclude that in both measurement models all indicators loaded on their intended factors,
thereby indicating unidimensionality.
To assess convergent validity of the measures, we tested the
signicance and analysed the magnitude of each indicators
loading on its intended latent variable (Anderson and Gerbing,
1988). For LSPs, the loading of one of the items of negotiation
thoroughness was not signicant (p 4.05). Therefore, this item
was deleted. Furthermore, one item of relationship effectiveness
had a factor loading below the recommended value of .7. This
item was deleted as well. All other items were signicant at
po.01 with standardized loadings above the recommended value
of .7. For clients, all factor loadings were signicant at po.01.
However, two commitment items and one relationship effectiveness item had factor loadings below the threshold value of .7 and
they were therefore deleted from the model. All items and factor
loadings can be found in the Appendix.
The composite reliability was used to assess construct reliability. All constructs scored well above the recommended value of
.7 with the lowest score being .88 (see the Appendix for all scores).
Finally, the average variance extracted (AVE) was computed. The
AVE of all constructs was above the threshold value of .5 (Fornell
and Larcker, 1981). Discriminant validity was assessed by comparing the square root of the AVE of each construct with its correlations
with the other latent constructs. For each pair of latent variables, the
square root of the AVE was higher than the correlations between the
variables, indicating discriminant validity (Fornell and Larcker,
1981). Descriptive statistics (means and standard deviations), correlations and the square root of the AVEs of the variables can be seen
in Tables 5 and 6. Independent samples t-tests showed no signicant
differences in the means of contract formality, trust, and relationship
effectiveness for LSPs and clients (contract negotiations and commitment cannot be compared, because different items are used for
each group). Overall, the results for both measurement models were
satisfactory and suggested that it was appropriate to proceed with
the evaluation of the structural models.
5.3. Hypothesis testing
In Table 7 we present the results of our analyses of the structural
models. Hypothesis 1 stated that contract formality would have a
positive effect on relationship effectiveness. This hypothesis was
supported for both LSPs and clients: a signicant positive relationship
was found. We hypothesised that negotiation thoroughness would be
positively associated with relationship effectiveness (Hypothesis 2).
This hypothesis was not supported. For LSPs a signicant negative
relationship was found, while for clients no signicant relationship
was found. We found a positive effect of trust on relationship
effectiveness, thereby supporting Hypothesis 3. Finally, Hypothesis
4 stated that commitment would have a positive effect on relationship effectiveness. This hypothesis was also supported. For LSPs, the
model was able to explain 59% of the variance in relationship

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D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

Table 5
Descriptive statistics and correlations: LSPs.
Constructs

Mean

S.D.

1.
2.
3.
4.
5.

5.12
4.82
5.26
5.62
5.17

1.26
1.51
1.28
.98
.91

.82a
.60n
.26nn
.52n
.34n

.92
.30n
.41n
.10

.88
.60n
.65n

.83
.58n

.77

.83
.35nn
.40n
.46n

.90
.51n
.61n

.85
.61n

.86

Contract formality
Thoroughness of contract negotiations
Trust
Commitment
Relationship effectiveness
a
n

The numbers (italics) on the diagonal represent the square roots of the AVEs.
Signicant at p o .05 (two tailed test).
Signicant at p o .01 (two tailed test).

nn

Table 6
Descriptive statistics and correlations: clients.
Constructs
1.
2.
3.
4.
5.

Mean

Contract formality
Thoroughness of contract negotiations
Trust
Commitment
Relationship effectiveness

S.D.

5.44
4.89
5.52
5.37
5.41

1.15
1.01
.91
.96
.83

.86
.57n
.18
.31nn
.48n

The numbers (italics) on the diagonal represent the square roots of the AVEs.
Signicant at p o .05 (two tailed test).
nn
Signicant at p o .01 (two tailed test).
n

6. Discussion

Table 7
Structural model results.
Constructs

Contract formality
Thoroughness of contract negotiations
Trust
Commitment
R2

Standardized estimates (t-values)a

LSPs

Clients

.25n (2.19)
 .30n (2.40)
.53nn (6.49)
.27n (2.35)

.30nn (2.75)
.04 (.33)
.38nn (3.63)
.30n (2.59)

.59

.60

Signicance is based on bootstrapping (5000 samples for each group).

Dependent variable: relationship effectiveness.
n
p o .05 (two tailed test).
nn
p o.01 (two tailed test).

effectiveness and for clients, the explained variance in relationship

effectiveness was 60%.
To exclude the possibility that the specic results we found for
LSPs and clients were due to the different measurement models we
used for both samples, we also ran the analyses with equal
measurement models. We specied a model excluding all items
that were found to be invalid in our analysis of the measurement
models for either one of the two samples or both samples. Thus,
this alternative model consisted of all four items for contract
formality, all ve items for trust, ve items for relationship
effectiveness, two items for negotiation thoroughness and three
items for commitment. Although we observed some small changes
in the size of the path coefcients compared to our original models
(based on unequal measurement models), the difference between
LSPs and clients in regard to the effect of negotiation thoroughness
on relationship effectiveness remained unchanged (a signicant
negative effect for LSPs and an insignicant effect for clients). The
effect of commitment on relationship effectiveness became somewhat stronger in the LSP sample (from .27 to .33) and thereby, it
became the second strongest effect after trust (changing places
with negotiation thoroughness). The pattern of outcomes for the
client sample remained unchanged. These ndings suggest that the
specic results we found for LSPs and clients cannot be contributed
to measurement inhomogeneity.

6.1. Findings and contribution

This study focused on the impact of both contractual and
relational aspects on the effectiveness of LSPclient relationships.
Based on the extant literature a conceptual model was developed
containing four hypotheses. Using PLS path modelling, we tested
this model with two samples: LSPs and clients. For both groups,
three out of four hypotheses were supported. The results of the
research provide valuable insights into the effects of both contractual and relational elements in 3PLclient relationships for both
LSPs and clients. Existing studies have mainly focused on the
impact of either contractual or relational elements on relationship
success, with the majority of the studies focusing on the relational
elements. Our study shows that contractual elements should not be
neglected in building an effective working relationship. Both hard
contractual aspects and soft relationship aspects are shown to
inuence relationship effectiveness. In addition, by empirically
testing a model strongly grounded in theory, we contribute to the
theoretical basis of 3PL literature (Selviaridis and Spring, 2007).
Finally, by considering both sides of the relationship, we provide
insights into the differences and similarities in the ways both
groups view their relationships with the other party. In regard to
the differences, separate analyses of the measurement models for
LSPs and clients revealed that we need to make slight differences in
those measurement models to correctly analyse the effects of
contractual and relational elements on relationships effectiveness
for both groups. Although the measurement models were slightly
different, the pattern of outcomes was remarkably similar. Moreover, the means of contract formality, trust, and relationship
effectiveness do not differ between the groups. In that regard, they
have similar views of their relationships with the other party, which
is in contradiction to ndings of Golicic (2007). She found that
shippers reported signicantly higher levels of trust than carriers.
For both groups, LSPs and clients, a positive relation was found
between contract formality and relationship effectiveness, which
is in accordance with the majority of the existing literature. In the
research of Min et al. (2005) the respondents placed emphasis on
the need to formalize collaboration arrangements as an important

D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

prerequisite and foundation for collaboration. According to

Qureshi et al. (2007) formal contracts should be better deployed
to improve relationship effectiveness.
A negative relation was found between thoroughness of
contract negotiations and relationship effectiveness for LSPs. For
clients no signicant relationship was observed. The mixed
results warrant further investigation of the negotiation thoroughness construct and its effect on relationships.
Trust has shown to be the most important aspect for relationships effectiveness (for both groups), followed by commitment
and contract formality. Trust and commitment have often found
to be key variables in inter-organisational relationships (e.g.,
Morgan and Hunt, 1994). Especially trust seems to be a necessary
condition for an effective working relationship. Based on the
results of this study, however, we observe that trust is not a
sufcient condition. Relationships also need a formal contract as a
base to build upon, and commitment from both partners.
6.2. Managerial implications
Our study has implications for managers from both LSPs and
clients. According to Golicic and Mentzer (2006), it is critical for
practitioners to have a better understanding of the nature of interorganisational relationships. Successful supply chain management
can only be achieved when organisations successfully develop and
manage relationships with other organisations in their supply chain.
Our study gives valuable insights into the importance of both
contractual and relational aspects for relationship effectiveness.
Managerial attention is not only necessary for the construction and
use of formal contracts, but also for the development of trust and, to a
lesser extent, commitment to achieve successful long-term relationships. We believe that the elements of contract formality and trust are
complementary, which is in line with Poppo and Zenger (2002). This
nding is an important contribution, because formal contracts have
historically been seen by many rms as just a part of legal
considerations (Frankel et al., 1996), while we show that contracts
are also important in terms of relationship management. In other
words, to develop a more effective relationship, LSPs and clients must
use a formal contract as the base for their relationship in achieving
high levels of trust and commitment.
6.3. Limitations and directions for future research
This research has three important limitations. The rst limitation relates to the size and the composition of the sample. We use
two rather small samples to test our model. Although PLS path
modelling has shown to provide robust results for small sample
sizes (Reinartz et al., 2009), we recommend using larger samples
in future research to increase validity and reliability. Furthermore,
the questionnaires are lled out by managers and clients of only
seven LSPs. These LSPs all operate on a global scale. Therefore, we

173

believe the results can be generalised to many other LSPs that

operate globally. However, for LSPs operating on a smaller regional
or local scale, the results might not be applicable, because there
might be differences in the way they do business compared with
global LSPs. Future research should include not only more LSPs, but
also different types of LSPs to get a more comprehensive overview of
3PL industry practices.
A second limitation is the cross-sectional design employed.
Collaboration is a time-oriented process, for instance, in most
cases, trust increases as the relationship matures. Thus, the
nal model could benet from being tested in a longitudinal
design. In that way, it can be determined whether, and if so,
how the importance of contractual and relational aspects
changes throughout the relationship. According to Selviaridis
and Spring (2010), it is important to take into account the
dynamics of business service exchanges. Knoppen et al. (2010)
refer to a process void in the literature on inter-organisational relationships, which should be lled.
The third limitation relates to the differences in measurement
models we found for both groups. Although the nding that the
groups perceive contractual and relational constructs in different
ways is an interesting nding in itself, it limits the possibility to
compare both groups. Further research should strive for measurement invariance so that not only the pattern of outcomes can be
compared for the two groups, but also the structural paths in the
model (Golicic, 2007).
Finally, we have four suggestions for future research. First, we
suggest the development of an extended model. Future research can
develop a more comprehensive model by examining other constructs,
like cultural inuences, top management support and communication
(Golicic, 2007; Knemeyer and Murphy, 2005; Sandberg, 2007) in
order to enable a better explanation of relationship effectiveness.
Second, attention should be paid to the development of trust between
LSPs and clients. We observed that trust has an important effect on
relationship effectiveness, but how does trust develop between
parties? And what is the role of information asymmetries in this
regard? Third, given the mixed results of negotiation thoroughness on
relationship effectiveness and the scarce use of negotiation thoroughness in existing literature, further research is needed with regard to
scale development and testing of consequences of this construct.
Fourth, more research is needed to help organisations measure the
value of their relationships, beyond relying on perceptual evaluations.
Relationship effectiveness might be quantied with metrics. Then, the
success of efforts towards improving relationship effectiveness can
also be evaluated in a quantitative manner.

Appendix
The items that were used to measure the latent constructs and
their measurement properties are reported in Table A1.

Table A1
Construct items.
Construct items

Contract formality (Atkin and Rinehart, 2006)b

The terms of our relationship between our company and our client/LSP have been
written down in detail
Our expectations of our client/LSP have been communicated in great detail
In coordinating our activities with our client/LSP, formal contractual terms have
been developed
The terms of our relationship with our client/LSP have been explicitly verbalized and
discussed

Factor loadings

Composite reliabilitya

AVEa

LSPs

Clients

LSPs

Clients

LSPs

Clients

.89

.92

.68

.75

.82

.85

.86
.75

.88
.83

.86

.90

174

D. Hofenk et al. / Journal of Purchasing & Supply Management 17 (2011) 167175

Table A1 (continued )
Construct items

Negotiation thoroughness (Sankaran et al., 2002)

During contract negotiations:
we insisted on integrated logistics management
we carefully handled stafng issues
we considered the quality issues of our company, not just with regard to delivery
performance
Trust (Morgan and Hunt, 1994)
In our relationship, the client/LSP:
has high integrity
can be counted on to do what is right
is sincere in their promises
treats our company fairly and justly
is a company our company trusts completely
Commitment (Morgan and Hunt, 1994)
The relationship my rm has with the client/LSP:
is something our company is very committed to
is something our company intends to maintain indenitely
deserves our companys maximum effort to maintain
is something our company would do almost anything to keep
is something our company cares a great deal about long-term
Relationship effectiveness (Ruekert and Walker, 1987)
To what extent does your company have an effective working relationship with the
client/LSP?
To what extent does the client/LSP carry out its responsibilities and commitments in
regard to your company?
To what extent does your company carry out your responsibilities in regard to its
client/LSP?
To what extent does your company feel the working relationship between your
company and the client/LSP is productive?
To what extent is the time and effort your company spent in developing and
maintaining the working relationship with the client/LSP worthwhile?
Overall, to what extent was your company satised with the working relationship
between your company and the client/LSP during the past 6 months?

Factor loadings

Composite reliabilitya

AVEa

LSPs

LSPs

Clients

LSPs

Clients

.91

.87

.84

.69

.94

.96

.77

.81

.91

.89

.68

.73

.88

.93

.60

.74

.93
.90
.58c

.88
.86
.86
.89
.90

Clients

.83
.80
.87

.88
.92
.89
.92
.91

.81
.81
.87
.78
.86

.88
.61
.82
.55
.84

.81

.79

.83

.81

.48

.68

.76

.86

.72

.91

.74

.88

The composite reliability and AVE scores represent the scores after removing the items with a factor loading below .7.
All scales were 7-point Likert scales ranging from totally disagree to totally agree, except for the relationship effectiveness scale, which was a 7-point Likert scale
ranging from not at all to to a great extent.
c
The items with a factor loading below .7 (in italics) were deleted and not used in the nal scales.
b

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