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The status and development of logistics cost management:

Evidence from Mainland China

Article  in  Benchmarking An International Journal · August 2009

DOI: 10.1108/14635770910987869

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The status and

The status and development development
of logistics cost management: of LCM
evidence from Mainland China
657
Hua Song
School of Business, Renmin University of China, Beijing, China, and
Lan Wang
School of International Business, Beijing Language and Culture University,
Beijing, China

Abstract
Purpose – The purpose of this paper is to examine current practices of logistics cost management
(LCM) in Mainland China and identify factors impacting on the effectiveness of LCM.
Design/methodology/approach – The questionnaire-based survey is conducted in Mainland
China. To analyze the status quo of LCM in Mainland China, the paper takes two nonparametric tests,
Mann-Whitney U-test and Kruskal-Wallis one-way analysis of variance to compare the difference
between firms with and without attaching importance to LCM.
Findings – The difficulties of LCM in China is as follows: first, there is a lack of effective cost
measurement tools and analyses as well as reporting systems, especially in terms of distributors.
Second, it is very critical to organize intra-organizational cross-functional teams and
inter-organizational collaboration based on business processes to promote information integrating
instead of blindly investing on information technology application. Third, professional logistics
managers are in short supply, even among logistics service providers.
Research limitations/implications – First, although the sample covers some industries, the
generalization of the conclusion is still limited due to sample size. In future research, more industries
should be covered to test the hypotheses proposed. Second, this paper just analyzes the status quo of
Chinese company LCM. Future studies are encouraged to deeply explore internal and external
operational management factors impacting on LCM.
Practical implications – This paper is a very insightful source of information about LCM in
Mainland China for logistics managers and policy makers. This paper provides logistics managers
with insight so as to improve their performance. There are also suggestions for government and
educational institutions to provide more resources to develop and offer more logistics courses and
training programs to fulfill the needs of the logistics industry. The paper sets up a basis for research
on LCM in China.
Originality/value – Despite the importance of LCM in Mainland China, the extant literatures
scarcely have a sound analysis. Theoretically, this paper extends theories of LCM in China and
identifies main issues concerning LCM. This paper is an exploratory study to figure out an effective
LCM approach in China.
Keywords Distribution management, Costs, China
Paper type Research paper

Benchmarking: An International
Journal
Vol. 16 No. 5, 2009
pp. 657-670
q Emerald Group Publishing Limited
This paper is supported by China Nature Science Foundation (70772088) and China Social 1463-5771
Science Foundation (08BJY078). DOI 10.1108/14635770910987869
BIJ 1. Introduction
16,5 Logistics cost management (LCM) is a critical factor for supply chain benchmarking,
because it brings a necessary level of objective regarding performance evaluation. The
supply chain-benchmarking program enables firms to pinpoint the bottlenecks in
supply chains and advance necessary performance improvements. As these supply
chain operations are fixed, substantial savings in cost, cycle time, inventory, and
658 working capital could be optimized. Benchmarking internally or against external
operations can be profitable and increase revenue. However, in the operation of LCM,
firms are unable to collect accurate cost information and allocate the related costs of
logistics activities to specific cost objects, because traditional accounting system and
records cannot obtain necessary information about components of logistics costs,
therefore people have no way to arrange logistics activities to decrease costs or
increase rate of profit (Binshan et al., 2001). So, a deep study on the key factors on LCM
is not only necessary but also important for supply chain benchmarking program.
Since the late of 1990s, China has been aiming at fostering logistics industry and
improving logistics management skills, for the huge manufacturing industries in China
has driven logistics industry growing rapidly in recent years. But the high logistics
cost nibble the competence of firms. According to the data released by Development
Research Center of the State Council of PR China, the annual growth rate of total
logistics expenditures is 10.29, 12.99, 16.76 and 12.86 percent from 2002 to 2005
(National Development and Reform Commission, 2004). One of the most important
reasons is that China firms neglect LCM or incapable of having a systematic analysis
on logistics costs. Despite the importance of LCM in Mainland China, the extant
literatures scarcely have a sound analysis. This paper examines status quo of LCM and
evaluates their relationship with performance of LCM. This study also provides
logistics managers with insight to improve their business performance. In the
following part, we first review the extant literature on LCM, and propose hypothesizes
on CLM in China. Then, research methodology (non-parametric chi-square test) is
presented, following by a discussion of hypotheses tested. Finally, this paper comes up
with managerial and research implications.

2. Literature review and hypotheses

2.1 The key factors of LCM
Many scholar recognized that the key to cost reduction lies not so much in the internal
activities of the firm but in the wider logistics (Bernard and Terrance, 1996;
Christopher and Gattorna, 2005; Drew et al., 2004). The definition of cost is confined
within their business entity. However, it has been argued that today’s competition
takes place not only between companies but between supply chains (Christopher,
1992). Hence, the proper view of costs has to be “end-to-end”, since all costs will
ultimately be reflected in the price of the finished product in the marketplace. However,
logistics cost within and across-firms are further underscored in most out-sourcing
cases. For most companies, the costs is beyond their legal boundaries. Activities that
used to be performed in-house are now out-sourced to service providers. For the
majority of organizations, if logistics costs are beyond the business boundaries, a
bigger opportunities for cost improvement will also be found in that wider supply
chain. As out-sourcing activities become popular, the logistics is more like a network
than a chain (Normann and Ramirez, 1994) and, as a result, the number of interfaces
between organizations increases. It is our contention that a growing proportion of total The status and
costs in the network occur at these interfaces. These costs have sometimes been labeled development
transaction costs (Williamson, 1985), but in fact they are much more than the everyday
costs of business operation. These costs result possibly from the lack of transparency of LCM
or invisibility across organizational boundaries.
Hence, LCM activities are isolated. Rather, the ability for LCM depends on several
factors. Ellram et al. (2002) argued that effective LCM depends on multiple factors such as 659
strategic cost management and organization culture, cost management techniques,
information technology (IT) application and support operating process. In the study of
purchasing and supply management (PSM), some intra-organization factors like the way
PSM being perceived within the firm affect the extend to which PSM engaged in total cost
of ownership analysis, supplier cost structure analysis and target costing (Ellram et al.,
2002). Therefore, to reduce logistics cost, we need set up an effective LCM system.
Since 1990s, LCM has attracted not only business attention, but a growing amount
of academic interest. Not surprisingly, total logistics costs often represent a large
portion of total sales income. According to a report published by Chinese Federation of
Logistics and Purchasing, logistics costs of finished products ranged from 5 to
10 percent of sales revenue for 56 percent of manufacturing firms, below 5 percent of
sales for 33 percent of manufacturing firms and roughly 11 percent of sales for about
11 percent of manufacturing firms. Notably, nearly 50 percent of manufacturing firms,
logistics costs of raw materials range from 2 to 5 percent of total purchasing costs;
3 percent of enterprises, the ratio is above 10 percent and the other 47 percent firms, the
ratio is below 2 percent (Chinese Federation of Logistics and Purchasing, 2004).
Therefore, without an effective LCM, it is hard to achieve competitive advantage and
increase business performance (Porter, 1985).

2.2 Hypotheses
First, from perspective of strategic management, LCM is valuable, costly to imitate
strategic resources. The accuracy and reliability of LCM have an important impact on
supply chain performance and inter-firm relationship (Munday, 1992). Zsidisin et al.
(2003) view an effective cost manage system as a kind of valuable, non-transferable,
and non-imitable human and knowledge resources that result in a high level of
openness and information sharing by employing cost management activities of total
cost of ownership analysis, supplier cost structures analysis, and target costing.
Furthermore, Ellram and Siferd (1998) have studied 11 organizations that applied total
cost of ownership concepts to their purchasing decisions. Their findings suggest
supply chain costs management is a complicated task, because it involves in creating
an understandable concept, developing a right model, flexible enough to adapt to the
situation and corporate culture, and getting support from the top management and
users. So, we cannot take LCM as an isolated accounting task, but a systematic and
structural strategic managerial practice with significant influence on corporate
competitiveness and profitability. Therefore:
H1. Firms emphasizing on LCM have a lower ratio of logistics costs to sales and
a higher perceived value of LCM than those not emphasizing on LCM.
In addition, the importance of an operation process or function with an organization is
directly related to the reporting level (Ellram et al., 2002). The logistics activities should
BIJ be visible and transparent, in particular, to share information on supply and demand
16,5 issues across corporate boundaries (Christopher and Gattorna, 2005). To nail down
each step of the processes, the detailed record and information of these activities should
be available in order to analyze the efficiency of related logistics activities. Hence,
institutional reporting system that support cost and value management is a critical
factor amongst strategy and culture factors, if there is no such kind of reporting
660 system, operational problems in logistics activities cannot be identified. Therefore:
H2. Firms with emphasizing on LCM have a high reporting level of LCM than
those without.
As to the cost management tactics, one of the most important factors is to employ LCM
tools or analysis system. Currently, the main cost management approaches include
direct product profitability analysis (Salmon et al., 1993), total cost of ownership
analysis (Carr and Christopher, 1992), and target costing analysis (Ellram, 2000).
However, there are some limitations in the above methods. For example, as far direct
product profitability analysis is concerned, the direct logistics costs subtracted from
the sales income with little consideration of overhead cost like monitoring,
administration, maintenance, purchasing, and inventory holding cost which are
independent on scale. In addition, the database that traces the products and business
process is needed (Ernst & Young LLP and Joint Industry Project on Efficient
Consumer Response, 1994). As to total cost of ownership analysis, although it includes
all of the significant cost associated with a transaction, only relate to a particular
supply chain member and neglect cost information of the whole chain (La Londe and
Terrance, 1996). Besides, total cost of ownership analysis cannot show how the
behavior of buyer influence costs of supplier. Target-costing approach is a technique
whereby firms determine the price of the market will bear and back out desired profit;
the amount remaining is the cost. However, it cannot be used to support business
process analysis and reengineering and cannot clearly guide firms to allocate cost to
activities. Traditional cost accounting systems have become extremely disable since
they continue to allocate these escalating overhead costs on a volume-driven basis such
as labor hours or machine hours which no longer depict the true consumption of
resources in modern manufacturing and design. In fact, overhead should not be
allocated at all but become directly traceable, variable costs of the individual product
or process (Morton, 1997; Harrison and Sullivan, 1995). For limitations of above cost
accounting systems, activity-based costing has been an important system to measure
total logistics costs. Activity-based costing helps allocate all costs to business activities
and then traces these activities to particular cost objects such as specific products,
territories, customers, or departments of the corporation (Harrison and Sullivan, 1995).
Although activity-based costing system does not replace the traditional accounting
system and records, it has become an effective approach to optimize logistics activities
and management. Since LCM in Mainland China is still in the developing stage, how to
measure and manage logistics costs is an important and exploratory research topic.
Therefore:
H3. Currently, a major issue preventing implementation of LCM is lack of effective
logistics costs measurement or analysis system. Firms with emphasizing on
LCM are more likely to adopt activity-based costing system besides the
traditional accounting system than those without.
In addition to improve the process of the organization or the supply chain, cost The status and
considerations should span the boundaries of firms, which from internal to external development
costs management. Moreover, the ability of LCM represents a kind of human capital,
which involved with many complicated skills, experience and judgments (Ellram and of LCM
Siferd, 1998). However, China is in short supply of qualified logistics managers. The
ratio of supply to demand is 1:7 (National Development and Reform Commission and
Logistics Research Center of Nan Kai University, 2007). Especially, in short supply of 661
professionals good at measuring and managing logistics costs. Therefore:
H4. A major issue preventing effective LCM is the lack of professional LCM
managers.
IT application and support operating process are also the key factors affecting LCM
performance. (Langley (1986) suggests information system helps to provide right
information on the right place at the right time. In addition, information system can
integrate all logistics activities into strategy plan (Kerr, 1989). However, investing in
information system does not definitely result in improving financial performance. The
key issue here is that whether firms can integrate information system with operating
process (Zhang et al., 2005). Information integration is different from information
sharing, which means that there is a special unit or department named like supply
chain management center in the firm responsible for collaborate and integrate the
activities of other functional departments both within the firm and across firms.
In other words, this department is responsible for integrating the information from
other functional departments in order to conduct more effective logistics and supply
chain activities. Although various amounts of resources have been invested on
utilization of IT, in act, the ability of integrating cost information to optimize decision
making in cost management is still poor. Therefore:
H5. Although Chinese companies input a large amount of resources on IT
application, a major issue preventing effective LCM is the lack of information
integrating.
Besides IT application, organizing cross-functional teams is also an important support
process of LCM. Many scholars assert that establishing cross-functional team of
intra-organization and inter-organization is a critical factor for LCM (Spina and Zotteri,
2000; Handfield et al., 2000). It may promote information sharing (Min and Yu, 2008),
whereby in order to have a better control cost of operational process, a better
understanding of customer needs is necessary to improve operational performance
(Ellram, 2002). Therefore:
H6. A major issue preventing effective LCM is the lack of cross-functional team of
intra and inter-organization based on business process.
So, based on the above review, we come up with six hypotheses as shown in Table I.

3. Data collection
The paper focuses on the status quo of LCM in Mainland China by nonparametric tests
base on survey data. Logistics managers of manufacturer, distributor, and logistics
services providers were targeted for this study. We randomly select 780 firms from a
sample frame of 900 firms which are ranked top 100 in nine industries in China.
BIJ
Factor Hypotheses
16,5
Strategy and cultural factors of H1 Firms emphasizing on LCM have a lower ratio of logistics costs to
LCM sales income and a higher perceived value of LCM enhancing
competency than those not emphasizing on LCM
H2 Firms emphasizing on LCM have a higher reporting level of LCM
than those not emphasizing on LCM
662 Management techniques and H3 Currently, a major issue preventing implementation of LCM is lack of
operational factors of LCM effective logistics costs measure tools and analysis system. Firms
emphasizing on LCM are more likely to adopt activity-based costing
system besides the traditional accounting system than those not
emphasizing on LCM
H4 A major issue preventing effective LCM is the lack of professional
LCM personnel
IT application and support H5 Although Chinese companies input a large amount of resources into
Table I. process of LCM IT application, a major issue preventing effective LCM is the lack of
Hypotheses about the information integrating
status and development H6 A major issue preventing effective LCM is the lack of cross-functional
of LCM in Mainland team of intra-organization and inter-organization based on business
China process

There are altogether 780 pieces of questionnaires being sent out. Of them 201 returned
and the return rate was 25.7 percent. In total, 75 pieces of returned questionnaires were
incompletely filled or with obvious mistakes, which were considered as unqualified
questionnaires. Hereby, the returned usable completed questionnaires are 126 pieces,
resulting in an effective respond rate of 16.15 percent. There were no significant
differences between responding ventures and non-responding ventures in terms of
venture size and sales revenues per year. Among them, 14.29 percent are from tobacco
industry, 6.35 percent from industrial products industry, 20.63 percent from consumer
goods and food industry, 5.56 percent from pharmaceutical industry, 9.52 percent from
auto industry, 8.73 percent from electronic and household appliances industry, 23.81
percent from petrochemical and chemical industry, 5.56 percent from logistics industry,
and 5.56 percent from telecommunication industry. Nearly, 5.56 percent have less than
RMB 1 million sales income, 3.97 percent range from RMB 1 million to RMB 3 million,
11.11 percent range from RMB 3 million to RMB 1 billion, 15.87 percent range from RMB
150 million to RMB 3 billion, and 63.49 percent more than RMB three billion. As for
business type, 34.92 percent are only engaged in manufacturing, 28.57 percent are
manufacturer which also deal with distribution, 25.4 percent are engaged in distributing
(wholesaling or retailing), and 11.11 percent are logistics service providers. The sample
covers industry of various kinds and includes main companies of each industry.
And also logistics cost occupies considerable portion of the total costs in the sample.

4. Data analysis and discussion

Two nonparametric tests in terms of the Mann-Whitney U (also called the Mann-
Whitney-Wilcoxon (MWW), Wilcoxon rank-sum test, or Wilcoxon-Mann-Whitney test)
test and Kruskal-Wallis one-way analysis of variance were used to compare the
difference between firms with emphasizing on LCM and those without. Non-parametric
methods are often referred to as distribution free methods as they do not rely on
assumptions that the data are drawn from a given probability distribution.
Non-parametric methods are widely used for studying populations that take on a
ranked order (such as movie reviews receiving one to four stars). The use of The status and
non-parametric methods may be necessary when data has a ranking but no clear development
numerical interpretation, such as when assessing preferences.
In statistics, the Kruskal-Wallis one-way analysis of variance by ranks (named after of LCM
William Kruskal and W. Allen Wallis) is a non-parametric method for testing equality
of population medians among groups. Intuitively, it is identical to a one-way analysis
of variance with the data replaced by their ranks. It is an extension of the MWW U-test 663
to three or more groups.
In statistics, the MWW U-test is a non-parametric test for assessing whether two
samples of observations come from the same distribution. It is one of the best-known
non-parametric significance tests. It was proposed initially by Wilcoxon (1945), for
equal sample sizes, and extended to arbitrary sample sizes and in other ways by Mann
and Whitney (1947). MWW is virtually identical to performing an ordinary parametric
two-sample t-test on the data after ranking over the combined samples. The null
hypothesis in the MWW test is that the two samples are drawn from a single
population, and therefore that their probability distributions are equal. It requires the
two samples to be independent, and the observations to be ordinal or continuous
measurements, which is consistent with our data.

4.1 Factors of strategy and culture

Concerning and emphasizing on LCM or perceived importance of LCM can objectively
be represented by setting up logistics costs measure and analysis system (Gooley,
1995). For this research, organizations emphasizing on LCM are defined as those firms
that have logistics cost measures and analysis system. Organizations without
emphasizing on LCM are defined as those firms without logistics cost measures and
analysis system. According to the survey data, firms which have LCM system occupy
for 55.6 percent and firms without logistics cost evaluation system occupy for
44.4 percent. Multi-independent samples non-parametric test was conducted to
compare each classification with others. It is interesting to note that perceived
importance of LCM are not significantly different across industry type, business type
and sales revenue. It means whether firms set up LCM system or not dose not
significantly influenced by external factors like industry type, business type and sales
income (Table II). Further more, we examine whether the two group firms have
significant mean difference by strategic and culture factors (Table III). If the significant
level is above 0.05, it means population variance of different groups is not significantly
different. Three scale items of measure for factors of strategy and culture were “the
ratio of logistics costs to sales income” “LCM enhanced competency of firms”
“the logistics cost analysis is regularly reported” A five-point Likert response format
for each item was used (1 – very unimportant, not very unobvious, and strongly

Independent variable x2 df p

Industry type 12.921 8 0.1164

Business type 1.028 3 0.7945
Sales income scale 5.692 4 0.2233 Table II.
Difference in
Notes: *Significant at p , 0.05; Kruskal-Wallis test emphasizing on LCM
BIJ
MWW test
16,5 Mean of enterprises not
Mean of enterprises emphasizing emphasizing on cost
Strategic and culture factors on cost management management

Importance of logistics cost as

664 to sales income 3.30 3.57 * *
Impact of LCM on competency 4.03 3.65 * *
The logistics cost analysis is
regularly reported 3.27 2.09 * * *
Table III.
Difference in strategy and Notes: *p , 0.10, * *p , 0.05, * * *p , 0.01; a five-point Likert response format for each item was
culture factors of two utilized (1 – very unimportant, not very unobvious, strongly; 5 – very important, very obvious,
group firms strongly agree)

disagree; 2 – unimportant, unobvious, disagree; 3 – not sure, not sure, and not sure;
4 – important, obvious, agree; 5 – very important, very obvious, and strongly agree).
By non-parametric x 2 test, we find firms emphasizing on LCM have a greater
recognition of the value of LCM in improving competency and a higher reporting level
of logistics cost analysis. And also they have smaller ratio of logistics cost to sales
income than those without emphasizing on LCM.

4.2 Cost management approaches

Similarly, we conduct nonparametric test to examine the perceived importance of
logistics cost measure tools and analysis system in implementation of LCM by
industry type, business type, and sales income scale, respectively (Table IV). We find
that perceived recognition of the lack of logistics cost measure tools and analysis
system resulting in inefficiency of LCM is not significantly different across industry
type and sales income scale. They all recognized the lack of logistics cost measuring
program is a barrier of LCM regardless of business scale and industry type. But
non-parametric x 2 test of business type reveals that agreement degree to this issue has
significant difference ( p , 0.05). Mean value of manufacturing firms, manufacturing
and distributing firms, distributing firms, and logistics service providers is 3.91, 4.47,
4.34 and 3.77, respectively. Obviously, distributing firms have a higher degree of
awareness to this issue. There might be two main reasons for this. On one hand,
logistics cost is a determinant of financial performance, since logistics costs account for
a relatively high portion of the total cost for distributing firms. This finding is
consistent with La Londe (1998) who found that activity based classification (ABC)
analysis is more applied in marketing channel (16 percent) and sales management
(14 percent). On the other hand, distribution activities are involved with lots of direct

Independent variable x2 df p
Table IV.
Perceived recognition of Industry type 12.337 8 0.1368
the lack of logistics cost Business type 9.385 3 0.0246 *
measure tools and Sales income scale 2.078 4 0.7214
analysis system resulting
in inefficiency of LCM Notes: *Significant at p , 0.05; Kruskal-Wallis test
and indirect operational activities, which made cost analysis more complicated and The status and
difficult. development
We use multi-choice item to examine which kind of costing approaches is adopted.
We find that 2.38 percent firms adopt direct product profitability analysis; 29.4 percent of LCM
firms adopt target-costing analysis; 34.9 percent firms adopt activity-based analysis
system; 2.4 percent firms adopt total cost of ownership; and other 54 percent firms still
adopt traditional accounting system. The cost measure approaches adopted by the two 665
groups of the firm are shown in Table V. We find that in firms with emphasizing
on LCM, activity-based costing analysis system is more likely to be employed
(46.4 percent) than those without (20.2 percent), which proves that activity-based
analysis system is an effective approach to control and manage logistics cost (Binshan
et al., 2001). Activity-based costing analysis as the preferred costing technique since it
logically allocates all costs to activities, which can then be meaningfully allocated to
cost objects (Binshan et al., 2001). In any case, modern manufacturing and logistics
operations now consume resources in a very different manner from their predecessors
of just a few decades ago in which operations were more focused, less automated, and
more labor intensive. Activity-based costing analysis does not replace traditional
accounting systems and records; activity-based analysis merely attempts to define
further the data aggregated in traditional accounts into a more advantageous
decision-making form for managers. Activity-based analysis traces the consumption of
resources back to the consuming activity and then traces those activities to particular
cost objects such as specific products, territories, customers, or departments of the
corporation (Brac, 2000).

4.3 Professional logistics personnel

Professional LCM personnel in the study refers to the person who have college education
background majored in logistics management and have at least one-year working
experience in logistics-related jobs. It is interesting to note that the lack of logistics
personnel is considered as a major issue preventing the effectiveness of LCM regardless
of industry type and sales revenue scale. But non-parameter x 2 test by business type
reveals that perceived recognition to this problem has significant difference ( p , 0.05).
Mean value of manufacturing firms, manufacturing and distributing firms, distributing
firms, and logistics service providers is 3.66, 4.44, 4.03 and 4.21, respectively.

MWW test
Enterprises Enterprises not
emphasizing LCM emphasizing LCM
Logistics checks tools adopting (%) adopting (%) p

Direct product profitability 2.9 1.8 0.7460

Target costing 33.3 23.6 0.3560
Total cost of ownership 2.9 1.8 0.7460
Activity-based costing system 46.4 20.2 0.0053 * * *
Traditional accounting system 50.7 58.2 0.1918
Notes: *p , 0.10, * *p , 0.05, * * *p , 0.01; a five-point Likert response format for each item was Table V.
utilized (1 – very unimportant, not very unobvious, strongly; 5 – very important, very obvious, and Difference in logistics
strongly agree) cost measure approaches
BIJ With similar to the perceived importance of LCM approaches, distributing companies
16,5 have a higher degree of agreement to this statement. More importantly, By
paired-samples t-test, we find that logistics service providers have a higher degree of
perceived recognition of lack of qualified logistics personnel than perceived recognition
of lack of logistics costs measure tools ( p ¼ 0.028). This indicates that although logistics
service providers have established logistics costs analysis system for their core business
666 but shortage of professional personnel is still a major issue constraining effective
implementation of LCM (Table VI).

4.4 IT application and support operating process

Information system has achieved significant improvement in recent years. Of the total
126 companies, 24.6 percent adopt customer relationship management system,
42.9 percent adopt logistics management system such as warehouse management
system (WMS) and vendor managed inventory (VMI), 52.4 percent adopt office
automation system, and 14.3 percent adopt material requirements planning (MRP) and
45.6 percent enterprise resource planning (ERP) 36.6 percent distribution requirement
planning (DRP) system. Effective cost management not only depends on investment on
IT application but on the ability of data mining and integrating information. Table VII
shows there is no significant difference in perceived recognition of lack of ability to
mine and integrate information between firms with adopting information system and
those without, which indicates that although firms invest more on improving
information system infrastructure, they do not further mine and integrate data
collected to support decision making in LCM. We also find that perceived recognition
of lack of ability to mine and integrate information is not significantly different by

Variable x2 df p

Industry type 5.125 8 0.6522

Table VI. Business type 9.398 3 0.0244 *
Perceived recognition of Sales income scale 2.086 4 0.6582
the lack of professional
logistics personnel Notes: *Significant at p , 0.05; Kruskal-Wallis test

MWW test
Mean of enterprises Mean of enterprises not
adopting information adopting information
Information system system system p

CRM system 4.07 4.10 0.8510

Logistics management
system 4.04 4.13 0.4875
Table VII. Electronic office system 3.91 4.25 0.1363
Perceived recognition in MRP or ERP system 4.00 4.15 0.5891
lacking of the ability of Notes: *p , 0.10, * *p , 0.05, * * *p , 0.01; a five-point Likert response format for each item was
mining and integrating utilized (1 – very unimportant, not very unobvious, strongly; 5 – very important, very obvious,
information strongly agree)
industry type and sales income scale ( p ¼ 0.4396, 0.4453). But non parametric x 2 test The status and
of business type reveals that agreement degree to this problem has significant development
difference ( p , 0.1). By comparing mean value, mean value of manufacturing firms,
manufacturing and distributing firms, and distributing firms is, and mean value of of LCM
logistics service providers is 3.89, 4.37, 4.21 and 3.86, respectively. Notably, again,
distributing firms have a higher degree of agreement to this statement, which is
consistent with the degree of perceived recognition in lacking of logistic cost measure 667
tool and analysis system.
Perceived recognition of lack of cross-functional team in preventing the effective
implementation of LCM is shown in Table VI. Same to the former three factors that
perceived recognition of lack of cross-functional team is not significantly different by
industry type and sales revenue scale. But agreement degree to this issue has
significant difference across business type ( p , 0.05). Distributing (mean ¼ 4.17) and
logistics service firms (mean ¼ 4.29) have a higher level of perceived recognition to
this. This is because intra and inter-firm collaboration is very important to promote
communication and reduce conflict level in physical distributing process, which is
consistent wit the study result of Gill and Allerheiligen (1996). It is interesting to note
again firms emphasizing on LCM will be more likely to establishing cross-functional
team than firms not ( p ¼ 0.0169) (Table VIII).

5. Conclusion and future research

This paper reports current managerial practice of LCM in Mainland China. We test six
hypotheses about LCM of Chinese firms under the condition of transitional economy
and all hypotheses are supported. Theoretically speaking, this paper extends theories
of LCM in China and identifies main issues preventing the implementation of LCM.
This paper is an exploratory study to promote effectiveness of LCM in China. The
practical implications and conclusion of this study are as follows (Table IX).
First, LCM has achieved significant improvement in recent years. An increasing
number of companies are establishing LCM system and institutional reporting system.
There might be two reasons for this: on one hand, Chinese Government has push LCM
stepping forward these years; on the other hand, in the fierce competitive markets,
firms utilize LCM as an effective way to reduce potential cost for improving
performance and enhancing competency.
Second, although more and more enterprises recognize the importance of LCM, there
is few effective LCM tools and analysis system, especially in distributing firms. How to
identify the components of logistics cost, how to collect and calculate cost data are still
problems to be further explored. Related research on logistics cost measure and budget,
especially application of these approaches, are very necessary and important.

Variable x2 df p

Industry type 7.457 8 0.4882

Business type 8.260 3 0.0409 * Table VIII.
Sales income scale 6.031 4 0.1968 Perceived recognition of
lack of cross-functional
Notes: *Significant at p , 0.05; Kruskal-Wallis test team
BIJ
Factor Hypotheses Supported?
16,5
Strategy and cultural factors of LCM H1 Firms emphasizing on LCM have a lower Yes
ratio of logistics costs to sales income and a
higher perceived value of LCM enhancing
competency than those not emphasizing on
668 LCM
H2 Firms emphasizing on LCM have a higher Yes
reporting level of LCM than those not
emphasizing on LCM
Management techniques and H3 Currently, a major issue preventing Yes
operational factors of LCM implementation of LCM is lack of effective
logistics costs measure tools and analysis
system. Firms emphasizing on LCM are more
likely to adopt activity-based costing system
besides the traditional accounting system
than those not emphasizing on LCM
H4 A major issue preventing effective LCM is Yes
the lack of professional LCM personnel
IT application and support process H5 Although Chinese companies input a large Yes
of LCM amount of resources into IT application, a
major issue preventing effective LCM is the
lack of information integratin
H6 A major issue preventing effective LCM is Yes
Table IX. the lack of cross-functional team of intra-
Summary of hypotheses organization and inter-organization based on
testing results business process

Third, all respondents expressed their concern for the lack of qualified logistics
personnel, even if in logistics service providers, which is consistent with the finding of
Zhou et al. (2008). Therefore, allocating resources for employee training is imperative
for the effective implementation of LCM in future. Government and educational
institutions need provide more resources and offer more logistics courses to foster the
logistics industry.
Forth, although China companies input a large amount of resources into IT
application, information integrating is still a major issue preventing effective LCM.
To activate the function of information system is not only to utilize currently
available IT or invest on infrastructure of information system but also to enhance the
ability of integrated management through information system. Our finding is
consistent with the study result of Elliot. In addition, LCM is based on business
process. Therefore, it is critical to organize cross-functional teams of intra and
inter-organization.
Unavoidable, there are several limitations in this study, and it is the directions for
future research. First, although the sample covers industry of various kinds and
includes main firms of those industry, the generalization of the conclusion is still
limited due to sample size selection. In future research, larger sample should be used to
test the hypotheses above. Second, this study only analyzes the status quo of Chinese
company LCM base on the survey data. Future studies are encouraged to deeply
explore internal and external operational management factors affecting LCM.
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Further reading
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distribution leads the way”, International Journal of Physical Distribution & Logistics
Management, Vol. 26 No. 5.
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Corresponding author
Hua Song can be contacted at: songhua69@263.net; songhua@ruc.edu.cn

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