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Innovative Issues and Approaches in

Social Sciences

IIASS – VOL. 9, NO. 1, JANUARY 2016

Innovative Issues and Approaches in Social Sciences

Innovative Issues and Approaches in Social Sciences

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Innovative issues and approaches in social sciences

ISSN 1855-0541

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Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

THE TREND OF LOGISTICS OUTSOURCING (3PL) IN

SLOVENIAN ORGANIZATIONS

| 77
Franc Brcar1

Abstract
The purpose of this research study is to determine the current situation
in logistics outsourcing in Slovenian organizations and to determine the
trend of future development. The data was collected using a
questionnaire with 500 largest organizations. The data was analyzed
using frequency statistics and Wilcoxon signed-rank test. The most
important finding was that the level of logistics outsourcing will grow in
Slovenia. The growth will be higher in: (a) production organizations
compared to service ones, (b) large organizations compared to medium-
sized organizations and (c) domestic owned organizations compared to
foreign owned organizations. The results are similar with global trends.
Logistics outsourcing is important for management, namely because of
improved effectiveness and efficiency. The results of the study also are
important for management of logistic suppliers to better prepare them for
future demands.

Key words: 3PL, Third-Party Logistics, Logistics Outsourcing, Logistics,

Business Process Outsourcing

DOI: http://dx.doi.org/10.12959/issn.1855-0541.IIASS-2016-no1-art05

1
PhD Franc Brcar is an assistant professor at Faculty of Industrial Engineering Novo
mesto (franc.brcar (at) fini-unm.si)
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Introduction
The situation on the market is becoming increasingly complex every day.
Organizations i.e. enterprises have to take advantage of all possibilities
to stay competitive. Business process outsourcing (BPO) has
experience tremendous expansion in the last few years. The outsourcing | 78
of logistics (transport) is form of BPO and it is the effect of increased
global competition on markets, deregulation of the transportation
industry, rising customer expectations on superior logistical service,
growing focus on organizations on core competencies, increasing use of
just-in-time (JIT), and development of computers and communication
technologies (Marasco, 2008; Sheffi, 1990). Prognoses for BPO and
logistics outsourcing are positive, further expansion is expected. The
growth forecast for outsourcing logistics between 2009 and 2022 is 17%
(Deepen, Goldsby, Knemeyer, & Wallenburg, 2008). Such growth
demands not only from organizations a serious approach and active
involvement, but also from researchers to investigate such phenomena.
The external provision of logistics services is commonly known as 3PL
(Third-Party Logistics), logistics outsourcing or contract logistics.

The research topic of this article is on logistics outsourcing and the

research question is that the level of logistics outsourcing will increase in
Slovenia within the next three years. We are also interested (1) if exist
differences between production and services, (2) between large (more
than 250 employees) and medium-sized organizations (between 50 and
250 employees), and (3) between foreign and locally owned
organizations. The most important finding was that the level of logistics
outsourcing will grow in Slovenia, which corresponds to global trends.
Moreover, production organizations, large organizations and locally
owned organizations forecast a larger growth of logistics outsourcing,
compared with service organizations, medium-sized organizations and
foreign organizations in Slovenia.

The most intensive growth of logistics outsourcing happened in most

developed countries approximately one decade ago. Slovenia is less of
a developed country compared with Western Europe and US in all
business areas, including logistics outsourcing. This is the reason why
research of logistics outsourcing is still quite interesting and important.
This research field is not sufficiently explored. The main goal of the
study is to support top management in decision-making. The results of
the research study will assist top management to be able to make better
decision-making policies about strategic development of logistics
outsourcing within their own organizations. The results of the study also
are interesting for logistics outsourcing suppliers. They will be better
prepared for future buyers’ demands and expectations.
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Literature review
Logistics is one of the core activities i.e. process in an organization.
Supply chain management is important for the normal operation of an
organization, where transfer occurs in material, products as well as
information between/among organizations. We consider a supply chain | 79
as union of producers, third-party logistics providers (3PLs) a distant
market with customers. The presence of 3PLs has direct impact on
supply chain's performance (Cai, Chen, Xiao, Xu, & Yu, 2013). We
distinct thirty-one activities of logistics (Aktas, Agaran, Ulengin, & Onsel,
2011): (1) domestic road transportation; (2) international road
transportation; (3) customs clearance; (4) distribution to customer
warehouse; (5) container transportation; (6) distribution to end-
consumer; (7) air transportation; (8) bonded warehouse; (9) warehouse;
(10) export-import operations; (11) reverse logistics; (12) intermodal
transportation; (13) ro-ro transportation; (14) packaging; (15) labeling;
(16) distribution center; (17) railway transportation; (18) harbor
operations; (19) bulk load transportation; (20) shrink-wrapping; (21)
palleting; (22) cross-docking; (23) shipment consolidation; (24) project
transportation; (25) quality control; (26) product prospects preparation
and printing; (27) e-order fulfillment; (28) vendor managed inventory;
(29) operational reporting; (30) collaborative planning and forecasting;
and (31) light assembly-disassembly. We emphasize fifteen activities
which are most frequently outsourced i.e. most frequently carried out by
external suppliers (Hofer, Knemeyer, & Dresner, 2009): (1)
transportation operations; (2) freight consolidation; (3) final consumer
distribution; (4) freight bill payment; (5) warehousing; (6) reverse
logistics; (7) IT systems; (8) EDI capability; (9) traffic control
(distribution); (10) transportation planning; (11) network/route
optimization; (12) inventory management/control; (13) order
management; (14) cross-docking; and (15) traffic control (supply).

Business process outsourcing means radical organizational change for

organizations. Careful consideration is necessary before implementation
otherwise the results could be catastrophic. Five reasons for the
implementation of business process outsourcing are (Click & Duening,
2005, p. 48): (1) cost saving; (2) acquiring third-party expertise; (3)
increased market flexibility; (4) improved scalability; and (5) reduced
time to market. Similarly ten arguments for outsourcing are (Brown &
Wilson, 2005, pp. 42–44): (1) accelerate re-engineering benefits; (2)
gain access to world-class capabilities; (3) earn cash back; (4) release
resources for other purpose; (5) reevaluate problematic functions; (6)
improve company focus; (7) make capital funds available; (8) lower
operating costs; (9) minimize risk; and (10) gain access to resources not
available internally. Expectations of outsourcing implementation from
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

management are: (1) focus on core competencies; (2) logistics cost

reduction; (3) imbibe more flexibility in operations; (4) improved
customer services; (5) productivity improvements; (6) access to
emerging technology; (7) access/expansion to unfamiliar market; (8)
diverting capital investment; (9) to increase inventory turn; (10) success | 80
of firms using 3PL services; (11) corporate restructuring; (12) to develop
supply chain partnerships; and (13) improve return of assets (Sahay &
Mohan, 2006).

The implementation of logistics outsourcing is a complex project. We are

talking about outsourcing logistics as a process after implementation,
which is very complex also. Complexes are the relations between
different business partners that are involved. Many authors have pointed
out the risks and problems indicated on an organization's side are (Shi,
2007): (1) cost-saving mirage; (2) lack of process model maturity; and
(3) lack of understanding or consensus of target business model. On the
other hand, the reasons for the failure in the supplier's side are: (1)
competence gap; (2) heavy turnover of key personnel; and (3) weak
security practices or requirements. Finally, the causes for failure also
may be in the relationship between the organization and suppliers: (1)
lack of precise and detailed project specification; (2) language and
culture misalignment; (3) knowledge transfer difficulties; (4) process
calibration difficulties; (5) incompatible pace of technology change; (6)
incompatible architectural style; and (7) loss of continuity due to
employee shuffles. Risks that inhibit the growth of logistics outsourcing
are also (Wang, Chu, Zhou, & Lai, 2008): (1) intense competition on
local market; (2) intense competition of national market; (3) intense
competition of oversea market; (4) low profit margin; (5) lowering
demand of local market; (6) lowering demand of oversea market; (7)
hard keep service quality; (8) unstable service quality of vendor and
sourcing company; (9) increasing cost; (10) lack of qualified logistics
personal; and (11) lack of innovation and unable to use advanced
technology.

Logistics outsourcing means that part of the logistics or the complete

logistics cycle is no longer executed in an organization, it is executed by
an external business partner, i.e. logistics provider. We can eliminate
part of the logistics activity, full activity or the whole logistics cycle as a
business function. We must emphasize that the logistics outsourcing
implementation project is very complex and that many attempts of
implementation ends with failure. The management of relations with
business partners is crucial for success through the whole logistics
outsourcing life-cycle. The support of top management also is crucial for
successful partnerships between buyer (organization) and suppliers
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

(logistics providers) (Chen, Tian, Ellinger, & Daugherty, 2010).

Relationships with suppliers and capability to develop relationships are
most important for good results in logistics outsourcing (Gadde &
Hulthén, 2009; Hsu & Liou, 2013). Hofer, Knemeyer and Murphi (2012)
emphasize justice – procedural and distributive – as key elements of | 81
logistics outsourcing relationship. Managing logistics outsourcing
relationships is a critical capability for all partners (Chu & Wang, 2012).
Operational information exchange, planning, and extendedness
positively and significantly influence goal achievement and goal
exceedance (Hartmann & de Grahl, 2012). Bajec (2013) suggests a
general model of intelligent logistics outsourcing. We can conclude
based on the results of previous studies that top management support
and relationships management are crucial for the growth of logistics
outsourcing.

Core competences are most important for organizations and

expectations with logistics outsourcing are huge. The forecast is that
logistics outsourcing will continue to grow. Users of logistics outsourcing
consistently report cost reductions in the range of 12-15%, fixed logistics
asset reductions in excess of 20%, and order cycle reductions of 20-
30%; based on the total logistics, 49% is outsourced in North America,
61% in Europe, 57% in Asia Pacific, and 48% in Latin America, with
predictions that these percentages will continue to grow in all regions
over the next few years (Langley & Capgemini, 2008).

Based on aforementioned review the following research hypotheses

were developed:
 Hypothesis 1: The level of logistics outsourcing will increase in
organizations in the next few years.
 Hypothesis 2: The level of logistics outsourcing will increase
more in production organizations in the next few years compared
to service organizations.
 Hypothesis 3: The level of logistics outsourcing will increase
more in large organizations in next few years compared to
medium-sized organizations.
 Hypothesis 4: The level of logistics outsourcing will increase
more in locally owned organizations in next few years compared
to foreign organizations.
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Method
The questionnaire contains five questions that were developed based on
the review of literature. The first two questions are: (1) where logistics
activities are executed now and (2) where logistics activities will be
executed in the future (for example, after 3 years). Both questions have | 82
four different answers: (1) internally in the organization; (2) partly by the
suppliers; (3) fully by the suppliers; or (4) logistics is not important for the
organization. We also asked respondents (1) what is the type of their
organization (production or service), (2) the size of the organization
(large or medium-sized), and (3) who is the owner of the organization
(foreign or local ownership). The research model is represented in
Figure 1 and contains two components: (1) actual i.e. current level of
logistics outsourcing and (2) expected i.e. future level of logistics
outsourcing. We have three control variables (1) type, (2) size, and (3)
ownership. We wanted to determine differences of organizations
according to the control variables.

Figure 1: Research model

1) Type: production / service

2) Size: large / medium-sized
3) Ownership: foreign / local

Current level H1, H2, H3 H4 Future level

of logistics of logistics
outsourcing outsourcing

The questionnaire was distributed to 500 largest organizations in

Slovenia based on: (1) average number of employees in the last fiscal
year, (2) net income, and (3) asset value of the organization. The
sample does not contain mini and micro organizations as smaller
organizations usually do not have a separate department for logistics.
The questionnaires were distributed by standard mail, where the initial
return rate was 19% or n=92 after two months. We were not satisfied
with the response rate, so we resent the questionnaires to those
organizations that did not respond. Finally, we received back 141
questionnaires or n=29%. The sample used for analysis was 141 large
and medium-sized Slovenian organizations. We did not considering
government organizations, hospitals, schools and non-profit
organizations. The data were analyzed by frequency statistics and
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Wilcoxon signed-rank test of two related conditions. All variables are

nominal or ordinal. All hypotheses are directional, so one-tailed tests
were used. Table 1 shows the sample characteristics.

| 83
Table 1: Sample characteristics
Frequency Percent
Service 55 39.3
Type
Production 85 60.7
Medium-sized 74 52.9
Size
Large 66 47.1
Local 111 80.4
Ownership
Foreign 27 19.6

Results and discussion

Logistics can be implemented internally in the organization, partially with
a supplier or suppliers, or completely externally. Organizations which
have not yet begun to outsource logistics have the greatest chance of
growth in this area. Our sample includes 43 organizations with internal
logistics, 37 will remain with current outsourcing activities and 6
organizations plan on implementing mixed logistics. Mixed logistics
activities are carried out by 69 organizations and 3 organizations plan on
fully outsourcing all their logistics activities. External logistics activities
are carried out by 11 organizations and all of these will remain with
external logistical outsourcing. We did not find organizations that plan to
reduce the level of logistics outsourcing. All organizations with full
logistics outsourcing will continue to cooperate with current external
logistics providers. The frequency distribution of the data is shown in
table 2.

Table 2: Current and future frequencies

Current Future Frequency
Internal 37
Internal Mixed 6
External 0
Internal 0
Mixed Mixed 66
External 3
Internal 0
External Mixed 0
External 11
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Table 3 shows the results of frequency statistics of current and future

level of logistics outsourcing for all organizations, for organizations
separated by type, size and ownership. As we can see the level of
internal logistics will decrease in all instances. Upon examination of all
organizations, internal logistics activity is currently at 30.5% and is | 84
predicted to decrease to 26.2% in the future. Mixed logistics activities
will increase in all cases, except for foreign organizations that will remain
at 37%. Full external logistics will also increase in all cases except in
medium-sized organizations. Total logistics outsourcing will rest at 9.1%
among these organizations. Service organizations (29.1%), medium-
sized organizations (18.2%) and foreign organizations (18.5%) more
frequently do not have logistics outsourcing compared to production
organizations (1.2%), large organizations (6.8%), and locally owned
organizations (10.8%). Hypothesis 1: the level of logistics outsourcing
will increase in organizations in next few years is confirmed with these
results.

Table 3: Frequency statistic of current and future level of logistics

outsourcing
Interna Mixed External NA
Organization Implementation
l [%] [%] [%] [%]
C 30.5 48.9 7.8 12.8
All
F 26.2 51.1 9.9 12.8
C 29.1 38.2 3.6 29.1
Service
F 25.5 40.0 5.5 29.1
C 31.8 56.5 10.6 1.2
Production
F 27.1 58.8 12.9 1.2
C 25.8 47.0 9.1 18.2
Medium-sized
F 22.7 50.0 9.1 18.2
C 35.1 51.4 6.8 6.8
Large
F 29.7 52.7 10.8 6.8
C 33.3 52.3 3.6 10.8
Local
F 28.8 55.0 5.4 10.8
C 22.2 37.0 22.2 18.5
Foreign
F 18.5 37.0 25.9 18.5
Notes. C: Current, F: Future, NA: Not applicable.

We can say based on the results of this study that logistics outsourcing
will growth in the future, i.e. in the next three years. All organizations
predict growth in logistics outsourcing. Outsourcing as organizational
change is without a doubt a very important organizational approach. The
confirmation of the first hypothesis is similar to global growth of logistics
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

outsourcing in the global market (Langley & Capgemini, 2009; 2010;

Selviaridis & Spring, 2007). A similar trend is expected in Turkey in the
next three years (Aktas & Ulengin, 2005).

We can conclude that the behavior of Slovenian organizations is similar | 85

to global trends. The growth of globalization, connections among
organizations, and competitiveness on the market force enterprises into
radical organizational changes. Without a doubt, the level of logistics
outsourcing will augment the future. This also means new business
opportunities for logistics providers. The results of this study are
important for suppliers for future decision-making policies regarding
business expansion. The suppliers’ top management has to rethink its
global position, organizational restructuring and how to deliver solid
value propositions to increasingly demanding customers (Lieb & Lieb,
2010). And finally, such market situation is positive for brand new
logistics suppliers. The suppliers with “orientation to customer” and
diversity of supply encourage expansion of logistics outsourcing (Tian,
Ellinger, & Chen, 2010).

Similar results were given using Wilcoxon signed ranks test (see Table
4). Majority of ranks are equal, some are positive, and none are
negative. The prediction for all organizations is growth or remaining
stagnant. The differences of Wilcoxon signed ranks tests between future
and current levels with service organizations, middle-sized
organizations, and foreign owned organizations are not statistically
significant. The results cannot be generalized to the whole population.

Table 4: Wilcoxon signed ranks test between current and future level
of logistics outsourcing
Future Negativ Positive Wilcoxon test
Ties Total
vs. e ranks ranks
[n] [n] Za p
Current [n] [n]
All 0 9 114 123 –3.00 < 0.01
Service 0 3 36 39 –1.73 > 0.05
Production 0 6 78 84 –2.45 < 0.05
Medium-sized 0 2 52 54 –1.41 > 0.05
Large 0 7 62 69 –2.65 < 0.01
Local 0 7 92 99 –2.65 < 0.01
Foreign 0 2 20 22 –1.41 > 0.05
Notes. Negative ranks: future < current; positive ranks: future >
current; ties: future = current; a: based on negative ranks.
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

Production organizations will increase level of logistics outsourcing in the

future. The difference between current and future level is significant.
Growth is evident for service organizations, but Wilcoxon signed ranks
test is not significant. Hypothesis 2: the level of logistics outsourcing will | 86
increase more in the production organizations in the next few years
compared to service organizations is supported. Two reasons exist for
this distinction. First, the market forces production organizations into
such organizational changes more than service organizations; and
second, production organizations accept logistics outsourcing as
business opportunities more than service organizations. This conclusion
is supported by the fact that production enterprises have higher level of
internal logistics activities than service organizations; for production
organizations logistics activities is normally essential. And finally, service
organizations more often do not have logistics or logistics is less
important for their operations.

Comparing medium-sized and large organizations the findings are

similar. Large organizations achieve higher level of logistics outsourcing,
whereas medium-sized organizations more often do not implement
logistics in their value chain. The importance of logistics is greater for
larger organizations and will act more aggressively in the future
compared to medium-sized organizations. Hypothesis 3: the level of
logistics outsourcing will increase more in large organizations in the next
few years compared to medium-sized organizations is confirmed. The
reason for higher level of logistics outsourcing in large organizations are
due to organizational structures, which contain more complex logistics
processes and more interactions between buyers and supplier and/or
because of higher costs of 3PL (Hong, Chin, & Liu, 2004).

Foreign owned organizations reach higher level of logistics outsourcing

compared to domestic organizations. This is the reason why logistics
activities in local organizations will increase more compared to foreign
organizations. Hypothesis 4: the level of logistics outsourcing will
increase more with locally owned organizations in the next few years
compared to foreign organizations is confirmed. A similar but more
prominent situation is in Turkey, where 95% of foreign organizations use
logistics outsourcing (Aktas & Ulengin, 2005). Mexican organizations
with mixed ownerships more often implement logistics outsourcing
because of connections to international organizations and transfer of
experiences into domestic organizations (Arroyo, Gayan & de Boer,
2006). Similar reasons for logistics outsourcing are for Slovenian foreign
or mixed owned organizations. The domestic owned organizations have
to implement logistics outsourcing more frequently in the future, because
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

of positive experiences. Slovenian organizations more often choose

domestic suppliers, because market is traditionally very closed, which is
domestic oriented.

Conclusion | 87
The level of logistics outsourcing will increase in Slovenian organizations
in the next three years. Production organizations will increase logistics
outsourcing more than services organization; large organizations more
than medium-sized organizations; and domestic owned organizations
more than foreign owned organizations. Nationally, logistics outsourcing
will grow in the future – in the next three years.

Slovenian economy is in transition. The development gap with EU is two

decades or more. Research in organizational sciences is necessary to
reduce this gap and research of logistics outsourcing has not been
investigated sufficiently. This research study is the first of such type in
the Slovenian area. Top management must search for new business
opportunities to increase efficiency and effectiveness of their
organizations. The rate of growth in services, medium-sized
organizations, and foreign owned organizations is not significant. This is
an opportunity for future organizational development. The results from
this study are important for top management of logistics suppliers. They
can prepare future strategy in accordance with expected future growth.
They have to plan expansion of business and most importantly offer new
services. Global logistics providers will expand and will offer new
services as well.

The focus of the research study is the trend of logistics outsourcing and
differences among organizations according to type, size, and ownership.
Further research should examine the determinants that stimulate
logistics outsourcing and to examine reasons why there are differences
among organizations based on type, size, and ownership form.
Examining causes is interesting for future decision-making about
logistics outsourcing and for any other organizational changes. The
comparisons between and among different economies is always
interesting, especially among countries that are in the stage of transition
and with neighboring countries. We can easily avoid risks during
strategic organizational changes. In addition, it would be interesting to
examine the optimal level of logistics outsourcing. Additional research
can also propose a model of optimal logistics outsourcing that are based
on advantages and disadvantages, i.e. savings and costs, between
internal and external operations.
Innovative Issues and Approaches in Social Sciences, Vol. 9, No. 1

The limitations of the research study also vary. We did not include in our
sample mini or micro organizations which also are important players in
the logistics arena. The geographic area, Slovenia, also is a limitation.
We investigated logistics as a whole and we did not investigate
individual logistic activities. The implementation of logistics outsourcing | 88
per partes is a common approach, so research of individual activities
also is important.

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