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Transportation Research Part C 19 (2011) 833852

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Transportation Research Part C


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The use of outsourcing logistics activities: The case of turkey q


Emel Aktas a,, Berrin Agaran b, Fusun Ulengin b, Sule Onsel b
a
Brunel University, Business School, Kingston Lane, Uxbridge UB8 3PH, United Kingdom
b
Dogus University, Industrial Engineering Department, Acibadem, 34722 Istanbul, Turkey

a r t i c l e i n f o a b s t r a c t

Article history: Purpose: This research aims at analyzing logistics services from the viewpoint of compa-
Received 22 October 2009 nies who are already outsourcing their logistics services and others who currently fulll
Received in revised form 15 January 2011 their logistics needs in-house.
Accepted 9 February 2011
Design/methodology/approach: This study is based on a descriptive research model; the
population consists of all top 500 companies registered with industrial associations and
chambers of commerce in Turkey. A structured survey was selected as a tool for data col-
Keywords:
lection. A total of 287 companies responded to the survey with a 58% response rate. 204 of
Outsourcing
Logistics
these companies were outsourcing logistics services at the time the interview was con-
Structured-disguised survey ducted whereas the remaining 83 were keeping the logistics function in-house. The people
Turkey interviewed in the survey were logistics managers of the rms.
Findings: Findings include the types of logistics services outsourced and planned to out-
source, problems encountered in outsourcing these services, logistics costs, decision mak-
ers in outsourcing logistics activities, and information sources used in the decision-making
process. Moreover, a decision support system based on Bayesian Causal Map is proposed
for 3PLs in order to assist them in their service proposals for different sectors.
Originality/value: This study is a rst attempt to reveal and compare the outsourcing per-
ception of the companies in different sectors, to expose the rms underlying motives as
well as the respective importance of these motives for outsourcing logistics activities in
Turkey. The use of Bayesian Causal Map based on the survey results provides an important
guide to the 3PL providers to pick a suitable strategy and to prioritize their operational
activities in different sectors in such a way to achieve a competitive advantage.
2011 Elsevier Ltd. All rights reserved.

1. Introduction

In todays highly competitive environment, many companies are aiming at gaining a share of the global market and taking
advantage of improved production and sourcing efciencies. A key determinant of business performance nowadays is the
role of the supply chain management (SCM) in ensuring the smooth ow of materials, products, and information through-
out a companys supply chains (Sum et al., 2001). An essential aspect of SCM is consistent, high-quality logistics services. As
SCM 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-party logistics providers (3PLs) is further justied. Therefore, there
is currently a trend among industrial rms of outsourcing those products and activities that are outside the companys core
business.

q
This paper was handled by Prof. Dr. Vedat Verter.
Corresponding author. Tel.: +44 (0)1895 267344; fax: +44 (0)1895 232806.
E-mail addresses: emel.aktas@brunel.ac.uk (E. Aktas), bagaran@dogus.edu.tr (B. Agaran), fulengin@dogus.edu.tr (F. Ulengin), sonsel@dogus.edu.tr
(S. Onsel).

0968-090X/$ - see front matter 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.trc.2011.02.005
834 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

Previous research has shown that the decision to employ 3PLs is often restricted to the warehousing and transportation
functions, which somewhat reduces the extent of the 3PLs impact on overall supply chain performance (Ulengin and
Ulengin, 2003; Arroyo et al., 2006; Marasco, 2008). This raises key questions about the impact on supply chain effectiveness
when the client organization motivated to outsource is different from the 3PL motivated to integrate logistics across the
chain. To compete successfully, 3PLs may have to develop skills, competencies, and more value-added activities, which
inevitably results in additional cost. Therefore, the main challenge for a 3PL provider is to pick a competitive strategy and
prioritize their operational activities in such a way to achieve acceptable business performance. While substantive research
has been done in the area of 3PL strategy and operational drivers, very little research has been conducted to address 3PL
strategies and their operational priorities in relation to business performance (Yeung et al., 2006). In fact, if the customer
segments vary in their logistics desires, it should be possible for 3PLs to customize logistics programs for different customer
segments, which would improve both effectiveness and efciency by not offering a one-service-ts-all type of offers. If, in
contrast, customers view logistics services similarly across segments, and if that view consistently affects outcomes such
as customer satisfaction in the same way across segments, 3PLs should be able to create logistics services that appear iden-
tical across customer segments, enabling them to leverage economies of scale. Therefore, 3PLs need to know the components
that constitute logistics service quality from the perspective of the customer. They should know what logistics service qual-
ity means to customers if they want to examine whether groups of customers place varying degrees of emphasis on specic
aspects of this perspective.
This study analyzes the clients of 3PLs in Turkey using the results of a survey conducted in 2007. The reason of focusing on
Turkey is that Turkey is accepted as an emergent market in the new millennium expected to attract the interest of global
companies in their attempt to obtain competitive advantage. In recent years, in important international projects, such as
TEN (Trans European Transport Network), TRACECA (Transport Corridor Europe-Caucasus-Asia) projects, Pan European
Transport corridors (Corridors no 4, 8 and 10) Turkey has been placed over the international transport corridors, and takes
part in the Trans European Transport System. From this perspective, Turkey, at the epicenter of transport corridors connect-
ing Europe to the Caucasus and Asia as well as the Middle East, North Sea, and Balkan countries has a potential of becoming
an important international logistics zone. This necessitates the realization of strategic plans to overcome logistics
inefciencies.
Turkey has the worlds 15th largest GDP-PPP (USD 880,061 million) (The World Bank: World Economic Indicators Data-
base, GDP (PPP) 2009), 17th largest Nominal GDP (USD 615,329 million) (The World Bank: World Economic Indicators Data-
base, GDP (Nominal) 2009). The World Bank describes Turkey as an emerging market economy (World Bank, 2009). Such
growth puts pressure on existing infrastructure and requires expansion of the service sector to be able to support it (Johnson
et al., 2007, pp. 68). Many of the major third-party logistics companies have recognized the opportunities that have
emerged in the region with respect to the rapidly growing need for logistics services to support continued growth. The share
of the logistics sector in Turkeys GDP is estimated between 8% and 12% (Deloitte, 2010). Thus, the size of the sector can be
estimated to be around USD 6595 billion in 2008, while the share of the logistics service supplier market is estimated at
USD 22 billion (Quattro, Turkey Logistics Industry Survey, 2008). Value of the total investment of the logistics sector in Tur-
key is USD 5 billion, and the total employment is 400,000 people and the market size of the Turkish logistics sector is USD 4.5
billion (UND, 2009).
According to research executed by the World Bank (2007), logistics costs constitute 30% of the total GDP in some of the
developing economies, while this ratio is only about 10% in the developed economies. This difference clearly presents the
importance of logistics for the countries competitive power. According to Logistics Performance Index (LPI) of World Bank
(2007), in terms of how developing countries are doing per region, Turkey is the top performer of the Europe and Central Asia
region and ranked 39th in terms of total logistics performance worldwide. However, when the logistics costs are concerned,
Turkeys rating drops to 112th rank.
In this study, the companies analyzed are classied according to their status of outsourcing logistics activities. Those com-
panies which are currently outsourcing the logistics services are regarded as current users. On the other hand, the study
has an implicit assumption that the companies which are not currently outsourcing their logistics activities and keeping the
logistics function in-house will start outsourcing in the future. Therefore, these companies are regarded as prospective
users.
The eld study involved face-to-face interviews with 287 companies. Out of total 287 responses, 204 respondents (71%)
indicated that their companies use 3PL services. It is noteworthy to mention that of those rms not outsourcing, 53% of them
indicated that they consider using 3PLs services in the near future. Among the users identied in the survey, 16% had been
using 3PL services, for one-to-ve years, 17% for ve-to-ten years, and 67% reported using such services for more than ten
years. Taking into account the fact that in India, 28.6% of outsourcing companies have been using the services of third-party
logistics service providers for over three years and 18.8% have been working with third-party logistics service providers for
13 years, it can be said that Turkey has a relatively high amount of experience with third-party logistics service providers
(Sahay and Mohan, 2006).
The objectives of the research were:

1. To reveal and compare the outsourcing perception of the companies. Basically, the companies which were included in the
study can be divided into two groups as those currently outsourcing logistics activities (current users) and the others
which are keeping the logistics function in-house (prospective users).
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 835

2. To expose the rms underlying motives as well as the respective importance of these motives for outsourcing logistics
activities.
3. To show the information sources used by the companies which are currently outsourcing their logistics activities in the
decision process of selecting the outsourcing rm, the most frequently outsourced logistics services, the share of logistics
costs in total and problems encountered in outsourcing partnerships.
4. To reveal any signicant differences for current users and prospective users that may occur due to four selected indica-
tors, namely the sector in which the company operates, the existence of any foreign partnership, capital structure of the
company and perceived (current users) or expected (prospective users) benets from outsourcing activity.

2. Literature review

As the globalization of the world economy demands cost effectiveness of the rm, more rms are likely to outsource their
business activities to specialized suppliers. However, such outsourcing activities are only justied when their overall, long
term implications are rather stable and favorable.
The logistics issue has witnessed an evolution from a passive cost-absorbing function to a strategic one which provides
competitive advantage. 3PLs, which originally emerged out of companies that had previously been involved in warehousing
and transportation, have extended their capabilities to involve a broad range of functions (Gadde and Hulthen, 2009).
Despite recent rush in outsourcing service processes, its advantages and disadvantages brought to rms are increasingly
debatable across industries (Kotabe et al., 2008). Some studies show that outsourcing allows a rm to not only cut costs, but
also focus on its core competences and help speed up its innovation processes (Graf and Mudambi, 2005). In contrast, other
research suggests that a rm that engages in outsourcing may lose control and exibility, and potentially risk disclosure of
proprietary knowledge to suppliers, who may become its competitors in the future (Harris et al., 1998). While these contra-
dictory viewpoints are equally appealing, yet no consensus is drawn in the literature as to the effect of outsourcing on rm
performance. But the analysis of the literature shows that in order to get added-value from outsourcing, 3PLs should have a
good understanding of what is required by what type of enterprise and develop strategies to enhance their service to aggre-
gate value. More research should build on current work to explore any other factors that may inuence a rms outsourcing
decision (Lee and Kim, 2010). Bolumole (2001) identies the factors which inuence outsourcing decisions and the implica-
tions of outsourcing strategies. The research reveals that the most important factors behind the growth of third-party logis-
tics in the UK petrol FMCG industry are the desire to cut logistics costs, improve customer service, and focus on core
competences.
Marasco (2008) presents a review of the major studies and key ndings on 3PLs. Marascos review indicates that a con-
siderable portion of the literature on 3PLs consists of comprehensive articles. These are empirical, survey-based studies
that provide a descriptive picture of prevalent 3PL practices in specic countries/regions.
In their previous work, Aktas and Ulengin (2005) focused solely on transportation activities of the rms surveyed. The
authors asked about the reasons for outsourcing transportation activities in a very detailed questionnaire including criteria
corresponding to transportation performance (i.e. faultless delivery, same day delivery, on time delivery, etc.).
Arroyo et al. (2006) investigated the status of 3PLs in Mexico and the feasibility of the use of 3PLs as a global, uniform
strategy. Their research reveals that the use of 3PLs seems to be a common but low prole practice among large Mexican
rms.
Boyson et al. (1999) focused on how to manage a third-party logistics relationship in the most proper way. Dapiran et al.
(1996) conducted a survey that shows that a number of key FMCGs in Australia have taken the opportunity to bring back in-
house both outsourced transport and warehousing on the expiration of recent contracts. Fernies research (1999) builds upon
the initial exploratory work in that it involves a larger sampling frame (accounting for 60% of all UK FMCG sales) and devel-
ops a deeper insight into the factors involved in outsourcing.
Hong et al. (2004) examine the current status and future prospects of Chinese manufacturers usage of external logistics
services as well as differences between users and non-users based on a survey of the industry in 2002. The results reveal that
users and non-users differ signicantly in some rm-specic characteristics, such as industry type, production mode, and
account size. There is an increasing trend for rms to outsource logistics services in China, especially in the area of logistics
information system management and logistics system design.
A paper by Jaafar and Raq (2005) presents current logistics outsourcing practices of UK rms as well as the trends from
1990 to 2003 that emerged from a series of surveys by PE Consulting. The study demonstrates the trend towards the devel-
opment of longer term partnerships, and relatively little change in the levels of satisfaction is exhibited.
A study by Lieb (1992) provides a data base for analysis based on a mail questionnaire sent to the chief logistics execu-
tives of the 500 largest manufacturing companies in the USA and was developed and administered to provide aggregate data
about the use of third-party logistics in American industry. Lieb and Bentz (2004), examine the ndings of a survey con-
ducted during 2004 of large American manufacturers that addressed their use of 3PL services. The survey data show that
the percentage of those companies using such services is at a record high level, and that users are demarcating a steadily
increasing percentage of their logistics operating budgets to 3PLs. Many 3PL relationships are long-term in nature and the
service providers continue to deliver value to their clients. Lieb and Bentz (2005) also examine the ndings of a survey of
the chief logistics executives of Fortune 500 manufacturers concerning their use of 3PLs. The survey determined that, as a
836 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

group, their use of those services has reached an all-time high, as has the percentage of their logistics budgets being given to
3PLs.
Sahay and Mohan (2006) carried out a comprehensive survey of 3PL practices in India to establish the impact of third-
party logistics services usage on business results. The results emphasize that the usage of 3PL services which has a positive
and signicant impact on business performance through 3PL practices is still at an early stage in India. Additionally, they
clearly indicate that a signicant increase in outsourcing has been planned across all activities of the logistics function over
the next 25 years.
Sohail and Al-Abdali (2005) examine the usage of 3PL services in Saudi Arabia. Empirical research is used to study the
extent to which rms use the services of 3PLs, the time period these have been used, the decision-making process for con-
tract logistics, and the impact of outsourcing on the organization. Sohail and Sohal (2003) examine the usage of 3PL services
in Malaysia. An empirical research study was carried out to determine: the extent to which Malaysian rms use the services
of logistics companies; the time period these have been used; the decision-making process for selecting contract logistics;
and its impact on the organization. Results based on the analysis of data relating to 124 rms in Malaysia indicate that most
of these users are satised with the service providers and have largely seen positive developments within the organization.
Sohail et al. (2004) examine the usage of third-party logistics services in sub-Saharan Africa with a focus on Ghana. Results
based on the analysis of data relating to 64 organizations in Ghana indicate that over 80% of the users reported a positive
impact of logistics outsourcing and have largely been satised with it. Sohail et al. (2006) undertook a comparative analysis
of the use of 3PL services by manufacturing rms in Singapore and Malaysia. The paper addresses key issues relating to the
extent of usage of 3PL services, the specic contract logistics services used, benets for the user rms, obstacles encountered
in implementing contract logistics relationships, the impact of the use of contract logistics services on logistics costs, cus-
tomer satisfaction, size of the user rms, and the future plans of current users of contract logistics services.
Wilding and Juriado (2004) explored customer perceptions of the reasons for outsourcing logistics, the functions to be
outsourced, and the management of satisfaction with the outsourcing partnership through a Europe-wide survey. Their nd-
ings showed that the cost aspect is not as important as expected in the consumer goods industry and performance measure-
ment systems require further renement in the coming years. Cultural incompatibility and poor communication were also
noted as possible problems that could be encountered in the 3PL partnership.
Table 1 provides a comparative summary of the above-mentioned papers. As it can be seen from Table 1, most heavily
investigated topics are respectively outsourced logistics services, logistics expenditures, strategic implications and reasons
for outsourcing. The researches are generally empirical and are based on surveys. The actors involved in outsourcing deci-
sion-making process are not commonly analyzed. The literature review also shows that 3PL services are often limited to
warehousing and transportation functions, which somewhat reduces the extent of impact of 3PLs on the overall supply chain
performance. This raises key questions about whether the motivation of the client organization for outsourcing is different
from the 3PL rms motivation. In order to compete successfully, 3PL providers may have to develop skills, competencies,
and more value-added activities, which inevitably results in additional cost. Therefore, the main challenge for a 3PL provider
is to pick a competitive strategy and prioritize their operational activities in such a way to achieve acceptable business per-
formance. While substantive research has been done in the area of 3PL strategy and operational drivers, very little research
has been conducted to address 3PL strategies and their operational priorities in relation to business performance. In fact, if
the customer segments vary in their logistics desires, it should be possible for 3PLs to customize logistics programs to
different customer segments, hence improving both effectiveness and efciency. If, in contrast, customers view logistics

Table 1
Findings of the literature survey.

Outsourced Logistics Strategic Reasons for Information 3PL Departments Contracts Satisfaction Country
logistics expendi- implica- outsourcing sources Selection included in with the
services tures tions criteria the decision outsourcing
process
Arroyo et al. (2006) U U U U Mexico
Yeung et al. (2006) U U U Hong Kong
Sahay and Mohan (2006) U U U U India
Aktas and Ulengin (2005) U U U U U U U Turkey
Jaafar and Raq (2005) U U U U U UK
Lieb and Bentz (2005) U U U U USA
Sohail and Al-Abdali (2005) U U U U Saudi Arabia
Hong et al., 2004 U U U U U U China
Sohail et al. (2004) U U U U U Ghana
Wilding and Juriado (2004) U U U U U Europe
Sohail and Sohal (2003) U U U U Malaysia
Bolumole (2001) U U UK
Sum et al. (2001) U U U U Singapore
Boyson et al. (1999) U U U U U U U USA
Fernie (1999) U U UK
Dapiran et al. (1996) U U U U U U U U Australia
Lieb (1992) U U U U U U U USA
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 837

services similarly across segments, and if that view consistently affects outcomes such as customer satisfaction in the same
way across segments, 3PLs should be able to create logistics services that appear identical across customer segments, en-
abling them to leverage economies of scale. Closer interactions between 3PLs and its customers shall provide advantages
to both rms. With more information about the characteristics of the client, the service provider would be able to design
an offering adapted to the context of the buyer (Gadde and Hulthen, 2009). Therefore, 3PLs need to know the components
that constitute logistics service quality from the perspective of the customer. They should know what logistics service qual-
ity means to customers if they intend to examine whether groups of customers place varying degrees of emphasis on specic
aspects of quality.

3. Methodology

This section explains how the survey was designed and administered. The purpose of conducting this survey is to describe
the state of 3PL in Turkey and to compare the responses of current users and prospective users.

3.1. Survey design

To determine the current usage of 3PL services, a eld study involving face-to-face interviews with the clients of logistics
service providers was conducted. This study is based on a descriptive research conducted in 2007; the population consists of
all companies registered with industrial associations and chambers of commerce in Istanbul. Five hundred rms were se-
lected to be included in the survey so that they represent the market appropriately in terms of turnover, number of employ-
ees, industry, etc. and the rate of return was 58%. Consequently, the survey was realized with 287 rms.
In the eld study, face-to-face interviews were preferred, rather than sending questionnaires by mail. The main reasons
for this are the low rates of return for studies performed via mail, the lack of possibility to correct misunderstandings and the
loss of the opportunity to obtain information that can only be achieved during an interview.
Before the performance of the real interviews, pilot interviews were made in order to ensure the functionality of the ques-
tion forms. The question forms were updated according to the feedback obtained from the participants during the pilot inter-
views and the main interviews proceeded. During the process, participation was provided in the interviews that were
selected randomly and in a sector-based way and interviews were detailed in order to provide enlightening information
about trends in the sector.
In the eld study, the people to be interviewed were informed orally and in writing about the objective, method and con-
tent of the research before every interview.

3.2. Questionnaire design

In order to increase the efciency of the interviews, the questionnaires were prepared with multiple choices with pref-
erably open-ended questions to gather more detailed information where applicable. Open-ended questions are used in order
to measure majority of the prole-based variables as well as problems encountered with the 3PL. The use of outsourcing for
different logistics services is measured by a dichotomous question. Moreover, most of the qualitative information was col-
lected by asking the participant to rank certain statements for importance of reasons to outsource. The criteria considered in
the selection process of 3PLs were asked using a multiple choice question where the respondent had the opportunity to in-
clude any other criterion which is not included in the list. Questions about the outsourced logistics services required yes or
no for an answer.
The questionnaire contains eight sections with a total of 49 questions. The rst section includes 15 questions about com-
pany prole. The participants are asked to choose from a number of possible answers: the duration of operation of the com-
pany, the sector in which they operate, the primary area of highest turnover, capital structure, type of partnership, net sales
as well as the percentage of domestic and international sales, logistics function(s) that can be outsourced and that are be-
lieved to help create a competitive advantage.
The second section (questions 1621) is about the operations of the company: the type, number, size, and capacity uti-
lization rate of their warehouses; the number of owned and rented vehicles in their eet, the total capacity of their eet and
the percentage of transport mode used. The third section (questions 2232) is about the outsourced logistics services. The
section is classied as users and non-users of outsourcing activities. The users of outsourcing companies are asked questions
about the most frequently preferred 3PLs and the services that are outsourced, the average ratio of the total logistics cost,
percentage of logistics expenditures, share of outsourced logistics activities in total logistics activities and their respective
cost, the type of logistics services that will be required in the future and the most frequently faced problems encountered
with 3PLs, the names of three 3PL companies that they can recall immediately, the factors that are important in the 3PL
selection process and the information sources used to nd them, and the authorities responsible for the selection process.
On the other hand, the non-users are asked questions about the percentage of their logistics expenditures, the type of logis-
tics services that they need for their international operations, and the 3PL companies that they recall immediately. The third
section (questions 3438) is about information systems and in this section, the type of the operating system used in the
company, the software packages they use, programs that are installed and the e-commerce activities that are used in the
838 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

company are revealed. In the fth section (questions 3941); human resources activities of the company are analyzed: the
number of employees, the ratio of white and blue collar workers, the number of employees taking part in logistics activities
as well as their educational background. The sixth section (questions 4243) is about the quality activities of the rm, the
certicates they possess and plan to possess in the future. The seventh section (questions 4849) is about the technology
structure of the company, the type of the technologies they might develop, the reason for requiring new technologies,
whether the R&D activities are done in-house or outsourced. The last section (questions 4447) includes questions about
the type of projects they are conducting, the ones they plan to actualize by using external sources from the projects, and
whether they conduct a market research or not.

4. Research ndings

4.1. Company prole

Breakdown of the participants according to the sectors they belong, is presented in either as primary sector or secondary
area of business, depending on their responses. In terms of proportional distribution, automotive, FMCG, construction, and
textile sectors seem to be prominent ones. The relatively high number of participants from these sectors can be attributed to
more test subjects being chosen from these sectors due to their size in the countrys economy and to the fact that more test
subjects from these categories have accepted to participate in the research.
The data in Fig. 1 is tested against representation of industries in both current and prospective users and no statistically
signicant evidence is found. None of the industries are neither under nor over represented in each type of company groups.
The average duration of operation of the companies by sector is provided in Table 2. 58% of the participants outsourcing
their logistics activities and 44% of the participants performing their logistics activities in-house of the research comprised
companies that had been operating for more than 20 years.
Details on the partnership status of the participating companies are given in Fig. 2. Regarding the partnership status of the
participants, it is seen that 66% of the companies are in multi-partnership structure, 24% are in single-partnership structure
and 810% are public companies.
There is no foreign partnership in 79% of logistic service users, 10% operate with totally foreign capital, 7% have foreign
partnership, 1% have patent agreements. The test results again do not reveal any statistically signicant difference between
outsourcing decision and partnership status. The results are consistent with the results of Love and Roper (2001) and Hong
et al., (2004) ndings.

Fig. 1. The distribution of sectors for current and prospective users.

Table 2
Sectors of the sample.

Industry Average duration of operation (years)


Current users Prospective Users
Automotive 22.8 23.8
Chemicals 21.0 11.8
Computers and electronics 17.5 14.4
Construction 17.9 17.8
Machinery 32.5 28.0
Paper and packaging 19.4 14.7
Pharmaceuticals 18.5 25.4
FMCG 23.3 22.8
Textile 22.0 26.4
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 839

Partnership status

Capital Structure

Fig. 2. Partnership status and capital structure of participating rms.

Domestic road transportation


International road transportation
Customs Clearance
Distribution to customer warehouse
Container transportation
Distribution to end-consumer
Air transportation
Bonded warehouse
Warehouse
Export-import operations
Reverse Logistics
Intermodal transportation
Ro-ro transportation
Packaging
Labeling
Distribution Center
Railway transportation
Harbor operations
Bulk load transportation
Shrink-wrapping
Palleting
Cross-docking
Shipment consolidation
Project transportation
Quality control
Product prospects preparation and printing
e-order fulfillment
Vendor managed inventory
Operational reporting
Collaborative planning and forecasting
Light assembly-disassembly
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Planned
Used

Fig. 3. The logistics services that are currently being purchased and planned to be purchased.
840 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

Fig. 4. Cluster analysis according to the outsourced activities.

4.2. Logistics services

Another question logistics service customers were asked was in which logistics areas and to what extent they were using
external sources for their logistics activities. Eighty-three percent of the participants stated they had chosen outsourcing for
their logistics services in at least one area, in other words, only 17% of the participating companies performed all their logis-
tics services themselves. As can be seen from Fig. 3, the most frequently outsourced logistics functions are domestic and
international road transportation. This service is followed by customs clearance and distribution to customer warehouse.
This result is similar to the results of previous studies carried out by PE Consulting (1996), Ferrari (2000), and Jaafar and
Raq (2005) in that transportation and warehousing remain the main services used by the customers.
A cluster analysis is also conducted in order to analyze the grouping of sectors according to the outsourced activities. The
result is given in Fig. 4.
In this regard, two different groups can be identied: automotive, pharmaceuticals and textile constitute the rst group
and the rest of the sectors; chemicals, computers and electronics, Construction, Machinery, Paper and packaging, FMCG, form
the second group. The automotive and textile industry in the rst group have 38% share in total exports of Turkey in 2008,
thus it is well expected that this group has a higher use of international road transportation (TL) (1. group average 63.8%, 2.
Group average 51.6%, p = 0.027). Due to its higher exportimport operations (18.8%, versus 11.2%, p = 0.019), its customs
clearance activities (55.8% versus 37.4%, p = 0.038), its air transportation (51.3% versus: 22.2%, p = 0.009) are higher as ex-
pected. Especially textiles and automotive industries are required to deliver their products to customer warehouse and con-
sequently this service is signicantly higher than the second group (54.8%, versus 34.8%, p = 0.01).
The participants were asked in which areas they wished to outsource in the coming years. It was found out that the break-
down of the services intended to be procured was not any different than the present situation. Domestic highway transpor-
tation was again prominent, whereas distribution to end customer and customs clearance were recognized as areas where
less outsourcing was planned. An interesting outcome to mention is that 7% of the rms do not plan to outsource in the fol-
lowing 12 years.
It could be seen from Fig. 3 that the customers of some services (distribution to customer warehouse, domestic road
transportation, and customs clearance) do not plan to continue outsourcing. On the other hand, the customers may shift
from domestic road transportation to other modes. It is promising that several rarely used services such as e-order fulll-
ment raised from 4% to 11%, collaborative planning and forecasting (27%), or vendor managed inventory (37%) are being
planned to be used by the customers in the very near future. The increase in the demand for railroad transportation (711%)
may be due to soaring energy prices.
As it was previously mentioned, there were 83 companies within the logistics customers sample which did not outsource
any logistics service at all. These companies were also asked about their future plans of outsourcing and 47% responded that
they would not outsource in the following years.
The breakdown of services they intended to procure was not very different from the current customers. It can be seen
from Table 3 that companies are planning to outsource transportation services to a great extent.
When the participants were asked about special services required by their business, they answered medical supplies trans-
portation, e-marketplace, door-to-door transportation without using transshipment canters, aggregate supplier inventories,
e-procurement, carrier services, vehicles appropriate for the transported products, assembly at delivery, and services in
accordance with the requirements of the sector.
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 841

Table 3
Logistics services planned to be purchased by the non-users.

Service Percentage of non-users


planning to outsource (%)
Domestic road transportation 34
International road transportation 16
Distribution to end-consumer 12
Distribution to customer warehouse 11
Container transportation 11
Air transportation 10
Customs Clearance 8
Bulk load transportation 7
Quality control 7
Bonded warehouse 6
Warehouse 5
Palleting 5
Intermodal transportation 4
Packaging 4
Product prospects preparation and printing 4
Exportimport operations 4
Collaborative planning and forecasting 4
e-Order fulllment 4

Table 4
The impacts of outsourcing logistics activities.

Positive impact of outsourcing logistics services Current users (%) Prospective users (%)
Lowering costs 87 78
Improving Service quality 85 87
Meeting demands just in time 84 83
Ability to reach wider markets 69 64
Focus on core business activities 61 54
Efcient inventory management 43 36

The companies outsourced 8.83 different logistics services on average. Considering the variety of services rendered by
3PLs, it is noteworthy that customers are interested in certain areas only. For example, actual and planned outsourcing in
the eld of order fulllment is less than 5%. The main reasons behind this might be the insufcient information of customers
regarding the 3PLs; customers unwillingness to outsource activities they deem to be critical, such as warehousing and cus-
tomer services; and their belief that the logistics rms in the market are incapable of providing such services at acceptable
levels.

4.3. The effects of logistics services on competitive advantage

Within the framework of the research, the effects of operations on the competitive advantage of the companies were
investigated for every sector and the participants were asked to state in which areas their logistics operations created a com-
petitive advantage. Despite showing sector based differences, in almost all sectors the logistics service clients stated the
areas in which logistics operations would create a competitive advantage as, in order of priority, low supply chain costs,
an increase in the level of customer service, perfection in meeting orders, accessibility to a larger eld, and effective inven-
tory management. Of the respondents, 87% state that logistics cost reduction is the most important reason for outsourcing
which facilitates competitive advantage (see Table 4). Although this result is not in line with the majority of ndings in ear-
lier studies in which customer service improvement is ranked as top benet (PE Cons., 1996; Fernie, 1999; Bolumole, 2001;
Arroyo et al., 2006), the research nding from developing countries such as by Sahay and Mohan (2006) and Sohail et al.
(2006) reveals the similar results. Moreover, it is totally in agreement with the latest studies that underline that the eco-
nomic slowdown will see a move back towards cost-driven outsourcing (Edgell et al., 2008, Hansen and Schsumburg-Mller,
2008).
It is noteworthy that on average, 57% of the respondents do not consider outsourcing logistics activities has an impact on
effective inventory management. Inventory management requires information sharing. However, the biggest barrier in inter-
company coordination is in information sharing and the issue of trust. Many researches carried out about information shar-
ing show that companies which collaborate and share information reaped tremendous amounts of benets.
Moreover, approximately 40% of respondents do not consider outsourcing as an opportunity to focus on in their core
businesses.
The responses of non-users to the question what might be the benets of outsourcing logistics activities reveal slightly
different results. Most of those companies which are currently not outsourcing logistics services expect improvements in
842 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

service quality rather than reducing costs while the nancial factors are more important for the rms using outsourcing.
Meeting demands just in time is the second top expected benet of outsourcing for those which are currently not
outsourcing.
Two sample t-tests showed that there is no statistically signicant difference between the perceptions of current and pro-
spective users regarding the positive impacts of outsourcing logistics activities. Inventory management is the least cited ben-
et of outsourcing logistics activities both for current and prospective users. The reason for that may be the fact that both
current and prospective users also have their own storage facilities.

4.4. Selection process of 3PLs

The most important criteria taken into consideration by logistics service customers during the selection process of
the logistics service provider are discounts made by the service provider, speed and the quality of customer services (Table 5).
Other important criteria listed are the geographical range (accessibility to a larger area), the culture and management ap-
proach of the service provider being suitable for long-term collaboration and suitability with the customers business cul-
ture, the technology owned by the service provider being of a high level and effectively utilized and expertise in both the
logistics eld and the relevant sector.
It is interesting that the companys name and prestige in the market was not considered as an importance factor by
approximately 40% of the participants. What interested the customers more was if the service provider could or could
not meet their requirements? Another important aspect is that the scope of the services in terms of variety and range
was considered unimportant by 33% of the participants. The fact that the customers still procuring services in some certain
areas only, and being unaware of the other areas of services are the basic reasons behind this negative consideration.
A Cluster Analysis is conducted in order to group the sectors according to their selection process. Cluster Analysis is a
multivariate data analysis technique used in grouping objects according to the characteristics they possess. If the classica-
tion is successful, the objects within clusters will be with similar characteristics and there will be important differences be-
tween clusters. In this study, Hierarchical Agglomerative Clustering is used. In this method, each object starts out as its own
cluster. In subsequent steps, the two closest clusters are combined to form a new cluster, thus reducing the number of clus-
ters in each step. Wards method is selected as the agglomeration procedure because this clustering procedure minimizes the
within-cluster sum of square at each stage. It attempts to combine clusters with a small number of observations and form
clusters, which tends to have the same number of objects. Distance between objects is measured through squared Euclidean
Distance measure. For more information about Cluster Analysis, one may consult Hair et al., 2010. The analysis of the dend-
ogram and ANOVA used to test the signicance of the differences between the group means nally resulted in ve signicant
clusters. However, as can be seen from Fig. 5, the cluster analysis indicates an apparent difference among the sectors regard-
ing their selection process. We can identify two sets of groups. The common characteristics corresponding to each cluster are
specied and a title is given according to these characteristics.
Automotive, Chemicals, Pharmaceuticals, FMCG and Textile industries (group 1, namely export-oriented industries) act
differently than Computer and Electronics, Construction, Machinery, Paper and packaging industries (group 2, namely
domestic market-oriented industries) in their selection procedure by assigning more importance to the service quality,
exibility, nancial status, reputation and culture of the 3PL. The reasons behind this distinction were in our interest. The
rms operating in the rst group are mainly export-oriented rms, taking the rst ve ranks in the sector distribution of
exports (Istanbul Chamber of Industry, 2010), which means they operate in highly competitive markets where service qual-
ity and exibility is a rst rank asset.
Table 6 shows the differences between two groups in terms of selection criteria.

Table 5
Decision criteria of outsourcing companies.

Decision criteria Automotive Chemicals Computers Construction Machinery Paper and Pharmaceuticals FMCG Textile Grand
and packaging total
electronics
Cost 4.5 4.8 4.3 4.7 4.4 4.6 4.5 4.7 4.5 4.6
Market 4.5 4.2 4.2 4.0 4.3 4.1 4.4 4.4 4.0 4.2
Speed 4.6 4.7 4.7 4.6 4.7 4.6 4.6 4.6 4.8 4.6
Service quality 4.9 4.8 4.6 4.4 4.4 4.4 4.7 4.7 4.8 4.6
Flexibility 4.2 4.3 4.0 4.2 4.1 4.0 4.1 4.2 4.2 4.1
Wide range of services 3.9 3.9 3.6 3.6 3.9 3.8 3.9 3.9 3.9 3.8
Financial status 3.9 4.1 3.4 3.6 3.8 3.8 3.8 4.0 4.4 3.9
Size/turnover 3.6 3.3 3.2 3.5 3.3 3.5 3.7 3.5 3.9 3.5
Reputation 3.6 3.7 3.4 3.4 3.5 3.8 4.0 3.6 4.0 3.7
Geographical proximity 4.1 3.7 3.5 3.7 4.3 4.0 4.1 4.1 4.1 3.9
Culture and management 4.3 4.1 4.2 4.1 4.0 3.8 4.2 4.3 4.4 4.2
philosophy
Technological level 4.6 4.4 4.5 3.9 4.1 4.2 4.4 4.4 4.5 4.3
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 843

Fig. 5. Cluster analysis according to the selection process.

Table 6
Differences between two groups of rms.

Export-oriented Domestic market Signicance levels


oriented
Cost 4.6 4.5 0.202
Market 4.3 4.15 0.109
Speed 4.66 4.65 0.423
Service Quality 4.78 4.45 0.001
Flexibility 4.2 4.075 0.039
Wide Range of Services 3.9 3.725 0.051
Financial Status 4.04 3.65 0.014
Size-turnover 3.6 3.375 0.058
Reputation 3.78 3.525 0.048
Geographical proximity 4.02 3.875 0.245
Culture 4.26 4.025 0.032
Technology 4.46 4.175 0.051

A detailed analysis of each industry in the respective groups reveals following results:
The rms were asked to rate the importance of these criteria on a 15 scale where 5 meant very important. The results for
automotive industry show that service quality (with an average of 4.875) is the most important criterion followed by cost
(4.459), market (4.542), speed (4.625), and technology (4.625).
For automotive industry, service quality is statistically signicantly more important than cost (p = 0.022). Furthermore,
the companies in the automotive industry regard cost statistically signicantly more important than nancial status, size/
turnover, and reputation of the logistics service provider. Other statistically signicant importance gures assigned by the
automotive industry are summarized in Table 7.
The rms were asked to rate the importance of these criteria on a 15 scale where 5 meant very important. The results for
automotive industry show that service quality (with an average of 4.875) is the most important criterion followed by cost
(4.459), market (4.542), speed (4.625), and technology (4.625).
A similar analysis is conducted for chemicals industry. The results are given in Table 8.
For chemicals industry, cost (4.8), speed (4.7), and service quality (4.75) are the top most important factors; however,
there is no statistical evidence to conclude that one is better than another.
Moreover, there is a statistically signicant difference of importance given to cost by computer and electronics industry
and paper and packaging industry. Cost is a more important criterion for paper and packaging industry than it is for com-
puter and electronics industry. In Table 9, the results of a similar method that is conducted for denoting the criteria which
are statistically signicantly more important for some industries than they are for other industries is given.
The resources utilized in the stage of deciding which services to be outsourced in the selection process of the logistics
service provider are listed as the companys own information sources, other companies in the sector, customers, benchmark-
ing reports, the opinions of experts and consultants, information from the vendors, Internet, media, conferences and semi-
nars, societies, professional experience and ofcial resources (Table 10).
844 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

Table 7
Signicance Results of different decision criteria for automotive industry.

Service quality Market p = 0.029


Market is statistically signicantly Wide range of services p = 0.019
important than
Financial status p = 0.012
Size/turnover p = 0.002
Reputation p = 0.003
Speed Wide range of services p = 0.007
Financial status p = 0.005
Size/turnover p = 0.000
Reputation p = 0.000
Geographical proximity p = 0.031
Flexibility Size/turnover 0.032
Reputation 0.045
Technological level Wide range of services p = 0.002

Table 8
Signicance results of different decision criteria for chemicals industry.

Service quality Technological level p = 0.015


Cost is statistically signicantly Market p = 0.010
important than
Flexibility p = 0.017
Technological level p = 0.028
Speed Culture and management philosophy p = 0.019

Table 9
Signicance results of different sectors for decision criteria.

Construction Cost Computers and electronics p = 0.016


Chemicals Computers and electronics p = 0.006
FMCG Computers and electronics p = 0.039
Automotive Service quality Computers and electronics p = 0.032
Paper and packaging p = 0.005
Construction p = 0.001
Machinery p = 0.013
Chemicals Paper and packaging p = 0.049
Construction p = 0.028
Textile Paper and packaging p = 0.019
Construction p = 0.009
Machinery p = 0.034
FMCG Financial status Computers and electronics p = 0.037
Textile Computers and electronics p = 0.001
Paper and packaging p = 0.016
Construction p = 0.008
Automotive p = 0.030
Pharmaceuticals p = 0.048
Textile Size/turnover Computers and electronics p = 0.035
Pharmaceuticals Reputation Computers and electronics p = 0.039
Automotive Culture and management Paper and packaging p = 0.043
philosophy
Textile Paper and packaging p = 0.023
Automotive Technological level Paper and packaging p = 0.024
Construction p = 0.013
Textile Construction p = 0.032

Looking at the above breakdown, it is seen that the clients rely upon word-of-mouth references more than any other in
the selection process of service providers. The shortage of scientic research on the performance of the logistics sector rms
leaves the customers with no other choice.
In fact, as Table 11 indicates, the resources utilized during the selection procedure of 3PLs are quite different depending
on the sector. Automotive, machinery, paper and textile industries use their customers references as main source in decision
process, whereas for the rms in FMCG, construction, and pharmaceuticals sectors the choice of other companies is consid-
ered as a main factor in evaluation. The views of experts and consultants are mostly exploited by computers and electronics
sector. Internet is another resource which is widely used especially by machinery sector.
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 845

Table 10
The resources used deciding to outsource logistics operations.

Criteria Percentage of companies using as


an information source (%)
Resources of the company 52
Customers 45
Other rms in the sector 44
Internet 40
Suppliers 37
Market research 34
Industry guides 19
Benchmarking reports 18
Experts and consultants 15
Media 13
Conferences and seminars 8
Associations 4

Table 11
The resources used during the decision process for outsourcing logistics operations.

Source of information Auto- Chemicals Computers Construction Machinery Paper and Pharmaceuticals FMCG Textile
motive (%) and (%) (%) packaging (%) (%) (%)
(%) electronics (%)
(%)
Media 13 20 18 4 33 16 12 8 4
Experts and consultants 13 0 23 22 17 20 12 18 9
Other rms in the sector 33 35 50 39 42 28 65 55 43
Associations 8 10 0 4 0 4 6 3 0
Conferences and seminars 21 10 0 0 0 4 12 13 4
Customers 67 35 41 30 75 40 35 37 57
Suppliers 42 45 41 35 58 36 53 26 22
Industry guides 25 10 14 22 17 16 29 16 22
Internet 38 25 41 35 75 36 35 42 43
Benchmarking reports 33 15 9 13 17 20 18 16 17
Information sources of the 54 55 59 52 50 40 71 53 43
company
Market research 25 35 36 35 25 36 29 47 26

Table 12
Actors in the decision-making process of outsourcing logistics operations and their effectiveness.

Industry Board CEO (%) Vice Finance Purchasing and Marketing and sales Operations
chairman (%) CEO (%) manager (%) logistics manager (%) manager (%) manager
Automotive 42 13 13 8 8
Chemicals 35 45 5 10
Computers and electronics 18 41 14 5 5 9
Construction 30 39 13 4
Machinery 33 17 8 8 17
Paper and packaging 28 40 8 4 4 12
Pharmaceuticals 18 53 12 12 6
FMCG 21 42 3 5 3 13
Textile 9 30 4 9 4 9 4

The responses given by the participants as to which departments and authorities assume roles in the decision-making
process regarding outsourcing logistics services are summarized in Table 12. On average, 59% of the participants stated that
their purchasing manager took part in the decision-making process. Chief Executive Ofcer, with a ratio of 58%, follows pur-
chasing manager. This indicates that outsourcing in logistics is important for the company both strategically and nancially.
This result is in parallel with the ndings of Lieb and Randall (1999).
One of the basic conditions for a successful logistics outsourcing process is participation in the decision by all the units of
the rm that are going to be inuenced by the choice of the service provider company. It is very interesting that, although
information systems departments are one of the main components of the logistics processes, they do not participate at all.
The problems that can be experienced in the eld of information systems integration between the service providers and the
customers will considerably restrict the customers expectations and what the service providers can do.
846 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

4.5. Logistics expenditures

Current and prospective users were asked about their logistics expenditures in terms of transportation, storage, distribu-
tion center and order management (Table 13). The area with the highest rate within total logistics expenditure was trans-
portation expenditure. The share of transportation costs in total logistics costs was found to be 78% and 70% on average for
current and prospective users, respectively. This difference is statistically signicantly higher for current users (p = 0.022).
On the other hand, quite similar gures were obtained for the share of storage costs which was found to be 24.7% for current
users and 24.3% for prospective users. The cost of distribution center was found to be 20% for current users and 17% for pro-
spective users on average. However, this difference is not statistically signicant. Finally, order management costs were 21%
on average for current users and 20% for prospective users which was also quite similar for both types of companies.
The respondents of this study declared that expenditure on outsourced logistics services constitutes 40% of the total logis-
tics expenditure whereas this ratio is on average 47% in north America and 66% in Europe (The State of Logistics Outsourcing,
2009 third-party logistics).
Generally speaking, the fact that transportation was found to be the area with the highest proportion of expenditure is in
line with the ndings of other similar studies done in Europe and in the rest of the world (Ballou, 2004; Jaafar and Raq,
2005).

4.6. Customer satisfaction in outsourcing

The clients of 3PLs were asked an open-ended question about the problems they encountered in their outsourcing part-
nerships. Eight different categories of problems were detected: delays, shipping errors, poor exchange of information, quality
of personnel, level of cost, loss and damage performance, low service quality, and technical insufciency. Thirty percent of
customers declared to have encountered no problems. In other words, the level of satisfaction is 30%. From another point of
view, the fact that 70% of the participant rms outsourcing logistics services had complaints is a serious warning.
The 29% of the complaints expressed by the participant rms were related to delays and incompliance with timing
arrangements. Apart from the 30% of the participants that had no complaints, 29% of the remaining 70% i.e. almost half
of them had complaints about timing. This shows to the service providers that they must concentrate on this issue. As men-
tioned above, the clients of 3PLs declared that they gave less importance to service quality. Hence, selecting service providers
on the basis of lowest cost quotes might be the source of quality and technical insufciency related issues (see Table 14).
As mentioned previously, although information systems departments are one of the main components of logistics pro-
cesses, they do not participate in the decision-making process at all. The problems encountered in terms of technical insuf-
ciency can be explained by the lack of integration of information systems between the service providers and the customers.

Table 13
The share of different logistics functions in total logistics expenses for outsourcing rms.

Industry Transportation Warehouse Distribution center Order


management management operations management
Automotive 77 25 20 27
Chemicals 71 20 18 10
Computers and electronics 84 30 6 10
Construction 81 18 4 27
Machinery 84 27 15 10
Paper and packaging 84 20 10 32
Pharmaceuticals 65 27 31 11
FMCG 81 25 11 10
Textile 78 33 46 55

Table 14
Problems encountered in outsourcing partnerships.

Industry Delays (%) Service quality (%) Price (%) Communication (%) Vehicle (%)
Automotive 58 33 13 21 13
Chemicals 70 20 20 25 10
Computers and electronics 59 36 18 9 0
Construction 48 4 30 0 0
Machinery 50 17 17 25 17
Paper and packaging 40 24 4 4 16
Pharmaceuticals 35 35 18 6 0
FMCG 66 18 18 16 21
Textile 65 17 30 22 9
Grand Total 56 23 19 14 10
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 847

5. A road map for 3PLs

As an additional analysis, a decision support system based on Bayesian Belief Networks is built to analyze the change in
the behavior of rms according to the industry they operate in, their capital structure or partnership status. Moreover, to
help 3PLs in their future decisions regarding specic sectors and services is another motive underlying this model. For this
study, all of the 204 rms that outsource their logistics activities are used as to provide the data to the network.
Bayesian Belief Network (BBN) is a type of graphical model, which uses probability theory to manage uncertainty and
complexity by explicitly representing the conditional dependencies between the nodes (concepts) (Jensen, 2002). The visual
representation of BBN can be very useful in clarifying previously opaque assumptions or reasoning hidden in an experts
mind. From a mathematical point of view, the basic property of BBN is the chain rule: a BBN is a compact representation
of the joint probability table over its universe.
The chain rule for BBNs then yields
PA; B; C PA  PB n A  PC n B
In theory, the posterior marginal probability of a variable can be computed from the joint probability by summing all
other variables one by one:
PAi PBjAi
PAi jB
P
n
PAi PBjAi
i1

The example in Fig. 6 shows that if the company is single partnered and its capital is completely foreign, then logistics
cost will be low with 25% probability, medium with 25% probability, and high with 50% probability. In practice, such an ap-
proach is computationally intractable when there is an extensive number of variables since the joint distribution will have an
exponential number of states and values. Although BBNs create an efcient language for building models of domains with
inherent uncertainty, it may be time consuming to calculate conditional probabilities, even for a very simple BBN. Fortu-
nately, there are several commercial software tools such as Hugin and Netica that can perform this operation.
In the current research, Netica version 1.12 was used. It is a complete software package designed to work with BBNs, deci-
sion networks, and inuence diagrams. In particular, it can be used to identify patterns in data, create diagrams encoding
knowledge or representing decision problems, and then utilize those patterns to answer queries, nd optimal decisions,
and create probabilistic expert systems. It is suitable for application in the areas of diagnosis, prediction, decision analysis,

Fig. 6. Simple example of Bayes rule.


848 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

LEVEL 1

LEVEL 2

Fig. 7. An analysis for reasons to outsource.

sensor fusion, expert system building, reliability analysis, probabilistic modeling, risk management, and selected types of
statistical analysis and data mining.
Bayesian Belief Network of the system analyzed in this paper is given in Fig. 7. Although BBNs create a very efcient lan-
guage for building models of domains with inherent uncertainty, it is a tedious job to perform evidence transmission even for
a very simple network (Jensen, 2002). In this paper, Netica (www.norsys.com) software is used to carry out this operation.
Level 1 in this map shows the sectors of the companies involved in the analysis along with their partnership status and
capital structure. It is assumed that the sector that the rm is in as well as its partnership and capital status directly affects
the reasons for outsourcing logistics activities to 3PLs. So level 2 shows the reasons of these rms for outsourcing logistics
activities to 3PLs. For sector, partnership and capital structure nodes, discrete variables, meaning that a well dened nite set
of possible values are used where as for the nodes denoting the outsourcing reasons, continuous variables are used since the
related data was on a 15 scale.
When the rms answers are analyzed, logistics cost (3.38) is seen as highly important while order fulllment (3.17) and
improved customer services (3.07) keep their medium level importance. Inventory management has the least importance
among all (1.69).

5.1. A guide map for 3PLs

The effects of sector, partnership status and capital structure of the rms in decision-making process for outsourcing are
analyzed in details in the following sections. The purpose of this analysis is to provide insights on the impact of a prospective
clients sector, partnership status, and capital structure. Scenario analysis can easily be conducted by specifying values for
each variable, i.e. sector = FMCG, partnership status = single, and capital structure = no foreign. The reasons for outsourcing
of such rms can easily be revealed by BBN.

5.1.1. Sector based analysis


Firms in the automobile sector expect their outsourcing activities to improve their customer services (3.24) in the rst
place. Their secondary reason to outsource logistics services is decreasing their logistics cost (3.12). Effective inventory man-
agement is regarded as of low importance (1.97).
For chemicals sector; on the other hand, the primary concern for outsourcing is order fullment (3.32). Effective inventory
management is again regarded as of low importance (1.82).
Computer electronics sector considers improving their customer service (3.25) as the main reason for outsourcing logis-
tics services. Access to wider markets as well as effective inventory management is given a low level importance (1.99).
Similar to the chemistry sector, rms in construction sector outsource logistics services for order fullment (3.42). Effec-
tive inventory management is regarded as of low importance (1.69).
Firms from machinery, paper packaging, pharmaceuticals, FMCG and textile sectors regards logistics cost as the main rea-
son of outsourcing (3.6).

5.1.2. Partnership status


Firms with single partnership status give high importance to logistics cost (3.16). These rms regard order fullment and
customer service as of medium importance (2.9). So, it can be said that a 3PL, targeting rms with single partnership status
should consider highlighting logistics cost, order fullment and improving customer service in the rst place.
Firms with multiple partnership status give high importance to improving logistics costs (3.43) and order fullment
(3.28). These rms give low importance to effective inventory management (1.53) like any other rms.
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 849

Like rms having single partnership, public rms in terms of partnership status regard improving logistics costs as of high
importance (3.38). Therefore, 3PLs attempting to make contracts with public rms should emphasize the prospective reduc-
tion in logistics costs. Order fullment, improving customer service and focusing on core business are given medium impor-
tance by the public sector (2.8).

5.1.3. Capital structure


The rms which have no foreign capital involvement in their capital structure regard logistics cost reduction (3.43) as the
primary reason for outsourcing while effective inventory management is regarded as of low importance (1.55). Firms with
complete foreign capital have a similar structure whereas the rms which have foreign share in their capital structure regard
focusing on core business as their primary reason for outsourcing.
The ndings of Sections 5.2.1-5.2.3 are given in more detail in Table 15.
As can be seen in Table 15, lowering logistics cost has the highest values in denoting the reasons for outsourcing. It is
followed by order fullment and customer service. 3PLs should especially consider reducing logistics costs and nd ways
to improve order fullment and increase their customer services.

5.1.4. Scenario analysis


The merit of this model is aiding 3PLs in managing their customer relationships according to the sectors they intend to
provide services in. By generating several different scenarios, the proposed model can offer useful guidelines to the 3PLs in
their attempt to specify their strategies for different customer segments. For example, a 3PL aiming at providing service to
those rms having public partnership with foreign capital in chemicals sector (see Fig. 8) should propose an outsourcing

Table 15
Directions for 3PLs.

Logistics Order Improved Access to Effective inventory Focus on core


costs fullment customer wider management business
services markets
Sector
Automobile 3.12 3.08 3.24 2.56 1.97 2.32
Chemicals 3.16 3.32 3.21 2.84 1.82 2.37
Computers electronics 2.97 2.96 3.25 1.99 1.99 2.62
Construction 3.34 3.42 3.3 2.73 1.69 2.38
Machinery 3.45 3.08 3.34 2.88 1.82 2.11
Paper packaging 3.57 3.21 2.87 2.8 1.5 1.97
Pharmaceuticals 3.85 3.11 2.41 3.39 1.35 2.24
FMCG 3.45 3.35 2.93 2.25 1.56 2.68
Textile 3.54 2.83 3.2 2.72 1.63 2.14
Partnership status
Single 3.16 2.9 2.87 2.59 1.99 2.38
Multiple 3.43 3.28 3.16 2.62 1.53 2.3
Public 3.38 2.88 2.8 2.54 2.33 2.8
Capital structure
No foreign 3.43 3.21 3.11 2.63 1.55 2.19
Completely foreign 3.3 3.14 3.01 2.37 2.17 2.92
Foreign share 3.02 2.84 2.82 2.78 2.26 3.11

Fig. 8. Scenario 1: Chemicals sector /public partnership/with foreign share.


850 E. Aktas et al. / Transportation Research Part C 19 (2011) 833852

Fig. 9. Scenario 2: Pharmaceuticals sector/multiple partnership/completely foreign capital.

service package especially in a way to help the rm to access wider markets (2.89). Besides, focusing on core business is an
area which should be stressed by the 3PL. With such available information, the 3PL would avoid focusing on some other fac-
tors such as improving customer service, which seemingly has less importance for logistics customers acting in chemicals
sector.
On the other hand, as can be seen from Fig. 9, a 3PL planning to provide services to those rms in the pharmaceuticals
sector, with multiple partnership and completely foreign capital, should be aware of the fact that the main reasons of out-
sourcing for those rms is order fullment (4.46) and thus, the 3PL could provide an outsourcing package proposal using this
information.
A 3PL can conduct similar type of analysis for different rms having different characteristics and prepare appropriate pro-
posal packages for each of them based on the information that will be received from the model.

6. Summary and further suggestions

The recent trend towards outsourcing of logistics activities has given prominence to the concept of 3PLs. However, the
3PL sector will not grow at the expected rates unless it surmounts some of its current obstacles. A good logistics service
is a source of competitive advantage and the keys to provide effective customer service are determining customer needs
accurately and responding to them in a consistent manner. After discovering the customers needs and the prevailing com-
petitive situation, possible competitive advantages/disadvantages and improvement potential can be identied. In order to
perform well, the 3PLs should formulate a proper strategy to improve their level of services.
This study has portrayed several key ndings on logistics outsourcing practices of the logistics service customers percep-
tions of 3PLs in Turkey based on a structured survey, carried out in 2007. It is aimed at performing a scientic study that will
draw the prole of the logistics sector and create a source of reference that will meet the needs of 3PLs operating in the sec-
tor and the companies that demand their services.
When the BBN model is analyzed according to industry, partnership and capital structure parameters, no signicant dif-
ference is found between the outsourcing reasons. In most of the cases, the most mentioned reasons are logistics costs, order
fulllment and improved customer service. The only exception is for rms with foreign share capital structure; focusing on
core business has a priority among other reasons.
Though this analysis has not reached a clear conclusion, the actual purpose of building a BBN model is to provide a deci-
sion support system that might assist 3PLs as to which characteristics of rms to consider and what areas to focus on while
preparing offers to such rms. Two samples with regard to this have been presented in Section 5.1.4. Although the model has
not found discontiguous results upon individual analysis of parameters, it has produced striking and discriminating results
when all 3 parameters showing rm characteristics were modied. By using this model, a 3PL preparing a quote in order to
provide outsourcing to a rm can do so knowing full well what to consider while preparing its offer.
Cost-related factors seemed to gain top priority among customers, over service-related factors, in 2007. This is in parallel
with the global trends where the economic slowdown will see a move back towards cost-driven outsourcing- despite the fact
that, over the long term, service-driven or value-driven deals tend to deliver more stable, successful relationships (Edgell et
al., 2008).
As a result, it can be said that the drivers for outsourcing deals are cyclical. In slower economic times, cost has played a
more signicant factor, while in better times, the other benets of outsourcing may receive a greater focus. In fact, the 2007
results may be accepted as the signal of 2008 global crisis.
In light of the predicted economic slowdown in 2008, the cost will become more prominent. But, as in previous economic
slow-downs, this tightened focus on cost over value needs to be approached with caution. Companies should look back to
previous economic cycles and appreciate that projects driven by value or service issues tend to be more successful.
E. Aktas et al. / Transportation Research Part C 19 (2011) 833852 851

Another reason seems to be that, considering the high volume of complaints, (satised customer level is only 17%) out-
sourcing rms may think that they do not get value for money for the service that they receive from the 3 PL providers and
hence attempt to drive down costs.
However, it is also necessary to underline that export-oriented and domestic market oriented rms show signicant dif-
ferences in this respect. Both cluster analysis and BBN scenarios yielded the same results in that they provide 3PLs rms with
different approaches on a sectoral basis. Firms in the two sectors, namely automotive and textile, which happen to be the
engines of export in the economy, highlight service quality among their reasons for both their choice of 3PLs and their out-
sourcing. Among different types of services procured, transportation services obviously exceed the others. The areas apart
from transportation are customs clearance, distribution to customer warehouse, container transportation, and distribution
to end customer. Considering the variety of services rendered by logistics service providers, it is noteworthy that the custom-
ers are interested in certain areas only.
7% of existing customers do not think to outsource their logistics activities anymore and 57% of non-customers consider
buying 3PLs services in the coming years. Other factors that relate to the service performance or relationship characteristics
of the 3PL providers that might deter the non-3PL users from using the 3PL service are worth researching.
Although warehouse services rank among the most frequently purchased services, contributors assigned the least signif-
icance to effective inventory management in their ratings of outsourcing impacts on competitive advantage. There may be
two reasons for this: (1) the insufcient information the service customers have on the logistics service providers offers and/
or their belief that the logistics rms in the market are incapable of providing such services at accepted levels (2) their
unwillingness to outsource the activities they deem as critical, and require information sharing. In addition, the mere
percentage usages of VMI and collaborative forecasting services (2% and 4% respectively) reinforce the reluctant behavior
of outsourcing rms in information sharing with third-party logistics rms. From 3PL providers standpoint, having early
demand information and being part of the collaborative forecasting effort, will denitely help in planning the transportation
capacity, inventory levels, and scheduling. This will on one hand decrease total supply chain cost and on the other hand
increase responsiveness of the outsourcing rms as well as the 3PLs.
When the companies working with 3PLs were asked about their satisfaction with the services they had been purchasing,
17% of them stated that they had no problem at all. This is a very small percentage of satised customers and this may be due
to their cost oriented preferences. Forty percent of the participants declare that the companys name and prestige in the mar-
ket were not considered as an importance factor in selecting 3PLs partner. The reason for such high volumes of complaints
might be that service providers are selected from among those offering the lowest prices rather than the ones with the ability
to satisfy said companies requirements. The main complaint of participating companies is related to delays and non-
compliance with timing. As it was previously mentioned, with collaboration in certain areas, the timing problems can be
resolved. The 3PLs must emphasize the cost benets and improvements to service quality in order to persuade their custom-
ers with regard to information sharing and both parties have to work together to build mutual trust. The competitiveness of
3PLs depends, to a large extent, in their ability to add value to their clients. 3PLs can do that effectively through cooperating
with their clients, learning their business practices and introducing innovation with a view towards improving the
performance of the supply chain (Panayides and So, 2005).
It is a long-term process to reveal the prole of the logistics sector clearly. This and similar research should be repeated in
the coming years; guided by the results from this research, the survey questions and the areas to be focused on should be
continuously reviewed and the related data should be collected and analyzed continuously.
As a further suggestion, a cross validate information with 3PLs will be used to conrm if they are using a differentiation
strategy and/or segmenting customers in terms of clients prole.
It is also possible to link Bayesian network with Structural Equation Modeling (SEM) in order to benet from both. SEM is
suitable to model linear relationships. However, if the relationships are non-linear, the potential effect of independent vari-
ables would not be accurately known, resulting in poor prediction and diagnosis. Additionally, SEM is suitable for empirical
validation of a theoretical construction at the latent variable level, whereas Bayesian networks are especially suitable for pre-
diction and diagnosis of any situation at the individual items (observed variables) level. Prior conditional probabilities may
be estimated from the latent scores obtained from SEM. Each variable could be discretized into states and the conditional
probability of these states could be estimated on the basis of frequency and based on the prior conditional probabilities,
and then conditional probability distribution for the dependent variables could be calculated. Once the structure is learned,
it can be used to further train the network if more data is available, in which case, the conditional probabilities of the nodes
in the network will change (Gupta and Kim, 2007).

Acknowledgement

We would like to thank three anonymous reviewers comments of whom helped us improve our paper.

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