Category Beginning 0-5 points The writing may need a more clearly articulated thesis and/or appropriate related subordinate ideas. Fuzzy logic may be evident and adequate supporting evidence is lacking. Developing 5-10 points The writing has a clear thesis and related subordinate ideas supported by clear thinking and appropriate evidence. Logical arguments may be one-sided or incomplete. Accomplished 10-15 points The writing has a clearly articulated thesis supported by appropriate evidence and sound logic. Minor gaps in logic and argument may appear. Exemplary 15-20 points The writing has a clearly articulated original thesis and subordinate ideas supported by reliable and relevant evidence based on original research. Organization The writing is noticeably lacking in organization. There is no clear introduction nor conclusion and ideas are neither carefully nor fully developed. Supporting evidence is clearly lacking. 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Language is precise. Sentences are varied but not noticeably so. Active voice is apparent. Thesis and Support Mechanics/Syntax/Grammar The writing exhibits substantial errors in grammar and style so that the basic ideas are lost. Sources are overly quoted and not adequately documented nor cited. The writing could benefit from additional proofreading, as some errors impede the flow of the reading. Sources are documented and cited but need to show greater consistency. The writing may exhibit a few minor errors in grammar or style, but do impair the flow of the reading. Most quoted material is properly documented and cited. The writing is free of grammatical, proofreading, and stylistic errors. All quoted material is properly documented and cited. APA format References and in-text citations are included, but both are formatted incorrectly. Either References or in-text citations are formatted incorrectly, or too much of the content is quoted or paraphrased, resulting in little original work. References and intext citations are included, appropriate and formatted correctly. Enough of the content is created by the student. There are no resources cited. Understanding supply chain interfaces that define collaborative management Assignment: Week 2 Topic Paper Your Name Class, Session, Term Faculty Name Date Question #1 In the paper written by Samaha, Palmatier & Dant (2011) would you necessarily consider conflict, opportunism, and perceived unfairness as avoidable in logistics management? Also how do you think these factors affect relational behaviors? Answer Question #2 As you can all see from the article written by Samaha et.al. (2011) there are several ideas that can be conceptualized and tested. Do you think contract utilization necessarily harms cooperation and flexibility in logistics management? What does Samaha et.al. (2011) think about this? Answer JOURNAL OF BUSINESS LOGISTICS, Vol. 29, No. 1, 2008 . 347 SUPPLY CHAIN INTERFACES: DEFINING ATTRIBUTES AND ATTRIBUTE VALUES FOR COLLABORATIVE LOGISTICS MANAGEMENT by GunnarStefansson University of Iceland, Iceland & Chalmers university of Technology, Sweden and Dawn M. Russell Pennsylvania State University BACKGROUND Supply chain interfaces are areas where information or physical goods are exchanged hetween one trading partner and another - where trading partners "interface" with one another to achieve the successful transfer of goods or information. Interfaces, by their very nature, tend to be unique for each trading partner dyad. i.e. what works for one dyad may not work for another depending on the nature of the goods and information being exchanged Collaborative logistics management (CLM) is one area where interfaces play a key role in achieving success because of the inter-enterprise nature of the processes required for execution. In the logistics arena, and in CLM specifically, three important players in managing supply chain interfaces, and the players studied in this work, are: (I) transportation carriers; (2) logistics service providers (LSPs)- and (3) logistics service intermediaries (LSls). It is the processes of exchanging information and goods among these three players and a buyer-seller trading partner dyad that are the context of this work. Understanding these processes has become more and more important as the trend toward outsourcing transportation and logistics services has strengthened. While outsourcing transportation and logistics services provides opportunity to buyers and sellers to move their information and goods more efïectively and efficiently, it also adds complexity and potential bonleneck areas to the flow of materials and information. Not surprisingly, the bottlenecks tend to be at the interfaces - the areas of "exchange" of either information or goods. In this work we focus on understanding: (1) What interfaces exist? and (2) How can we describe the interfaces so that trading partners can begin to understand one another and build collaborative arrangements to improve supply chain performance? In the balance of this paper we present literature relevant to supply chain interfaces, describe our grounded theory approach to the work, present the results, provide insights for managers, summarize our hndings, and discuss limitations and future research. LITERATURE REVIEW An interface description illustrates the various characteristics of the relationship and the design of the interfaces IS to ensure a correct fit of the different attributes. A design of all products, whether hardware, software, process or service, has an architecture that must be defined and described (Sanchez 2002). if the interface does not have a good fit, the relationship runs the risk of being unsuccessful or ineffective. 348 . STEFANSSON AND RUSSELL The attributes in the interfaces can be tnany and depend on the subject in question. The interfaces between different parties in an interorganizational relationship, between two physical units, such as products on a truck and a load unit, between two or more information systems, or simply between two or more human beings; all have different attributes and must be described in a distinct manner (Arnäs 2007). For product architecture, Sanchez (2000) has described a framework of six different interfaces: (1) attachment, (2) spatial, (3) transfer, (4) control and communication, (5) user, and (6) environmental. While Sanchez delmes several important interfaces between components or activities in product architectures, this work takes a similar approach in defining and describing the attributes in a collaborative logistics management environment. In the context of this work, the interfaces between companies are not only related to handing over responsibility and possession of goods and load units between partners, but include other flows that exist in most logistics arrangements. Four different flows can be identified: • A flow of material which is unidirectional in most cases since any returning material or waste is treated as a separate flow. • A flow of resources such as vehicles or load units, e.g. containers, pallets, etc., which is bidirectional because the units have to go back to the point of departure later on. • A flow of data and information which is bidirectional within and between companies, • Finally, a monetary flow which is unidirectional from receiver to shipper and other parties providing difterent kinds of services. In addition to tbese flows, processes and enabling technologies exist to integrate the parties and activities in logistics arrangements (Akkermans et al. 2003). Much of the discussion on integration of supply chains across enterprises has been associated witb the Supply Chain Management (SCM) debate in recent years (Christopher 1998; Cooper et al. 1997; Kahn and Mentzer 1996; Larson and Rogers 1998; Morash and Clinton 1998; Skjött-Larsen et al. 2003; Stank et al. 2001). SCM involves the integration of processes as Lambert et al. (1998) indicates in his defmition of SCM: "The integration of business processes from end user through original suppliers, that provides products, services, and information that add value for customers. " , The SCM efforts are much more intense as you move downstream in the supply chain and it is not common to have more extended integration than between l" tier or at the most 2"** tier suppliers (Porter 1997; Mattsson 1998; Kok and Wildeman 1999, Skjott-Larsen et al. 2003). Structured arrangement of interfaces together with standardized process descriptions can make the design ofthe arrangement easier. Instead of ad-hoc solutions for each partner, an interface model should preferably be applied because it makes the adoption quicker as the involved parties have a framework to follow. The need for integration ofthe processes in the interface between the parties is one ofthe major issues in SCM when it comes to exchange of information, material and resources seamlessly between the involved parties. The main goal of SCM is not to control different parties throughout the supply chain, but to make collaborative management possible by integration of business processes and activities, and to be capable of monitoring events by effective information exchange and thereby make it possible to deliver value to the customers with less cost to the supply chain as a whole (Christopher 1998). Building up and maintaining relationships between the LSPs and their customers is difficult and requires a lot of administration (Ackennan 1996; Bagchi and Virum 1998; Cooper 1994; Gibson 1993; Sink 1997). One ofthe reasons is that many ofthe customers have different demands and they, like their customers, do things in different ways. Therefore, information exchange regarding how data arc exchanged (technology), what data or information are to be exchanged (contents), what activities are supposed to be carried out by whom, what resources to use, and other processes need to be identified to meet the varying customer demands. One must not forget that when the distribution is outsourced, the interface outward, to the receiver of goods, is transferred from the shipper's own work force to the third-party operator. Therefore, interface integration is a vital JOURNAL OF BUSINESS LOGISTICS, Vol. 29, No. 1,2008 ' , 349 issue for the shipper in order to ensure that an appropriate service level is kept and that the perfonnance towards its customers is satisfactory. Accordingly, having effective tracking and tracing systems for monitoring operation status in place is of great importance. Considering the network approach, according to Gadde et at. (2003) interacting is the most fundamental activity of a company. Linking activities between two companies is valuable because it gives both companies the opportunity to rationalize operations that are important and that extend beyond the ownership boundaries. The conditions for the efficiency and effectiveness are determined by the way activities and resources are related to those in other chains, and this calls for a network perspective (Gadde and Hâkansson 2001 ). The network approach has its departure in that firms operate in context of interconnected business relationships, forming networks (Gadde et al. 2003). A business network can be defined as a set of two or more connected business relationships, in which each exchange relation is between business firms that arc conceptualized as collective actors (Emerson 1981). The function of business relationships can be characterized with three essential components: activities, actors, and resources (Anderson et al. 1994; Hâkansson 1987; Hâkansson and Snehota 1989). Activities are performed by actors who activate resources. Activities link resources to each other and change or exchange resources through use of other resources. Activities performed by two actors can be adapted to each other so that their combined efficiency is improved (Frazier et al. 1988). The business relationships between the firms affect the nature and the outcome of the firms' actions and their potential sources of efficiency and effectiveness (Hâkansson and Snehota 1995). Resources are controlled by actors that have certain knowledge of the resources (Hâkansson 1987). Two different activities can be identified; transformation activities and transaction activities. Transformation activities are carried out within the control of a single actor and change or refine a resource by using another resource, e.g. during some value-added activities in a warehouse or distribution center. Activities carried out between actors are referred as transaction activities. These activities coordinate the dependencies that exist between the different actors' transformation activities (von Corswant2003). METHODOLOGY A grounded theory approach (GTA) was employed for this qualitative study due to the newness of studying supply chain interfaces. It is important to distinguish between GTA, also known as the constant comparative method (Glaser and Strauss 1967; Strauss and Corbin 1990. 1998), and grounded theory itself While a grounded theory, "theory emerging from the data." is the possible outcome of using a grounded theory approach, one might use the grounded theory approach without producing a grounded theory (Bryant 2002). For instance. Mallalieu and Palan (2006) used a grounded theory approach, not to develop new theory, but rather to elaborate on existing ideas to develop a conceptual model of adolescent shopping competence. Thus, for clarity, the term "grounded theory approach" (GTA) is used hereafter as this paper is specifically concerned with the approach, rather than the theory itself. GTA was introduced and developed in the 196O's by Barney Glaser and Anselm Strauss who specifically aimed at developing capacities for generating theory in social sciences (Bryant 2002; Douglas 2003). The objective of GTA IS to produce accurate and useftil results by "grounding" the theory in empirical observations or data (Montano and Dillon 2005) through a systematic approach to data collection and analysis (Van Maanen 1979). A critical cornerstone of GTA, constant comparison (Glaser and Strauss 1967; Locke 2001), allows researchers to discern differences in patterns between comparable units, discover the categories that differentiate the units, and. ultimately, generate hypotheses and theoretical assessments (Mohrman et al. 2003). Specifically, constant comparison allows researchers to analyze data and consolidate them into categories that, in turn, are continually updated and changed as additional data are reviewed (Montano and Dillon 2005). This process of developing emergent categories suggested by the data is known as "coding of data," which continues until no new concepts or categories emerge and the data are considered saturated (Glaser and Strauss 1967). The theory generated can then be verified by respondents, by coworkers of the researcher, by the applicability of the theory to the greater population, or by other means (Tilbury andWalford 1996). \ ^ STEFANSSON AND RUSSELL The aim of coding is to arrive at systematically derived core categories that become the focal concepts that account for most of the variance in these data, thus contributing towards theoretical development (Douglas 2003). Coding involves constant comparisons of data pertaining to individuals, between answers from the same individual, between responses and categories, and between categories, as well as between any other factors that seem relevant to the researcher (Charmaz 2000). It represents the operations of labeling fragments of data through various developmental stages by which data are broken down, conceptualized, and put back together in new ways (Strauss and Corbin 1990, p. 57, cited in Douglas 2003). As coding progresses, theory generation occurs around one or more core categories with evidence of properties of these categories, and so patterns of behavior to be found in the research phenomenon studied (Douglas 2003). Three stages of coding are essential to GTA. Throughout the three stages of GTA coding, the researcher should be asking two formal - not preconceived - questions while constantly comparing incident to incident, and coding and analyzing (Glaser 1992, p. 4, cited in Douglas 2003): (1) what is the chief concern or problem of the people in the substantive area, and what accounts for most of the variation in the problem? and (2) what category or wbat property of what category does this incident indicate? Also, it needs to be remembered that when coding and analyzing data, it is not data themselves that develops conceptual categories and their properties, and so the emergent substantive theory (Douglas 2003). Rather. GTA is often linked to existing substantive theories, particularly in providing direction to developing relevant categories and integrating data (Glaser and Strauss 1967). In this research, we conducted exploratory interviews to better understand the nature of supply chain interfaces and the attributes that need to be defined to address the bottleneck issues at the interfaces. From these interviews, we developed a framework of attributes to be defined at the interfaces. Coding of the data was initially informed by the Sanchez (2000) framework for dissecting product design. Building on Sanchez (2000) and adapting to the CLM environment, the categories that emerged in this work describe issues of relationships that need to be addressed to conduct CLM. A standard, open-ended interview guide was developed from a review of the literature. The guide was pre-tested with academic reviewers and industry practitioners familiar with this area. The interview guide was semi-struetured to allow for flexibility during the interview to explore new issues introduced by participants. Interviews were conducted on-site at the company facility, each lasting approximately two hours. At each company, people with responsibilities in information technology management and/or logistics management were interviewed. Table 1 shows a summary of interview participants by industry, size and functional area. TABLE 1 THE INTERVIEW PARTICIPANTS Logistics X IT* X X X Employees Carrier Turnover' 4 1,600 Third-party Carrier 2,500 20,000 X Third-party LSP/Carrier 250 2,800 X 15 500 X X X X Type Third-party Industrv' Carrier Third-party 40 17,000 Third-party LSP/Carrier 1,100 Third-party LSP 44 Third-party LSP 367 1 500 Third-party LSP 500 4,000 Third-party 1,975 4,700 Third-party LSP LSP 6,000 35,000 X Third-party LSI 9 X Third-party LSI LSP/LSI n.a.^ 2.756 50 1,400 40,100 X Third-party " 640 X X X X X X JOURNAL OF BUSINESS LOGISTICS, VoL 29, No. J, 2008 351 TABLE I (continued) Supplier/Buyer Machinery 8 75 X Supplier/Buyer Machinery 70 250 X Supplier/Buyer Machinery 85 790 X X Supplier/Buyer Machinery 4,000 45,000 X Supplier/Buyer Mechanical X Mechanical 1,200 1,500 11,000 Supplier/Buyer 18,000 X Supplier/Buyer 200,000 222 80,000 Supplier/Buyer Automobile Electronics 2,500 X X Supplier/Buyer Supplier/Buyer Electronics Plastics 40,000 50,000 68 X X Supplier/Buyer Plastics 670 800 X X Supplier/Buyer Fumiture 4,533 36,400 X X Supplier/Buyer Furniture 11,000 76,000 X Supplier/Buyer Paper prod. 3,333 15,000 Supplier/Buyer Clothes 460 4,000 Supplier/Buyer Food 7 50 Supplier/Buyer Food 88 740 X Supplier/Buyer Food 56 530 X Supplier/Buyer Food 100 800 X Supplier/Buyer Pharmac. 15.000 60,000 X 233 X X X X X X X X Which kind of business the company finds itself in, either operation type or main sector. LSP = Logistics Service Provider LSI = Ueistics Service Intermediate. * The total turnover in million Euros. The total quantity of employees in the company, not just the branch in question (if more than one branch). The ftinction of the participating respondent. Logistics manager or IT manager. n.a. = data not available. In the design of our study, we have taken measures to increase construct validity. The first measure is that we have always tried to use multiple sources of evidence. In most of the situations at least two different sources of evidence have been used, e.g. interviews and observations, or interviews and documentation of additional materials, such as company documents, reports, and presentation materials were provided by most of the participants. Another measure that was taken was to send drafts of written reports back to the respondents for review and comment. Finally, relevant literature on interfaces, supply chain collaboration, and logistics management was examined. As indicated by Golicic et al. (2002), multiple data sources, including interviews, company documentation and a literature review, allows for triangulation in the data analysis and lends support for the developing theory in a GTA methodological approach. Participating firms were selected based on their position as leaders in differing aspects of logistics management. This purposive sampling process allowed target companies that would provide similar and contrasting insights to be selected. Leadership was determined through a literature search, trade association presentations and memberships, and identification from industry peers regarding the involvement and capabilities of the selected tlrms. The interviews occurred with more than 47 managers from 33 companies in various industries, both acting as third-party servtce providers and suppliers or buyers of intermediary and fmished goods. This number of interviews is much higher than the 8 respondent minimum suggested by McCraken (1988) and highlights the ability for this exploratory study to provide insights into logistics management. STEFANSSON AND RUSSELL 352 RESULTS " The exploratory interviews resulted in an identification of the interfaces that exist in ordinary logistics business arrangements and how they can be described in terms of attributes of each interface. The characteristics of the interfaces identified have been categorized into two distinct groups: 1. Physical Interfaces, which are interfaces that describe goods and resource flow with process and activity integration. 2. Information Interfaces, which describe information flow and data and information content together with information technology integration. We have identified 14 interfaces, 10 information interfaces and four physical interfaces among shipper, receiver, transportation carrier, logistics service provider (LSP). and logistics service intermediate (LSI). These interfaces are indicated by an "X" on the collaborative logistics management (CLM) model shown in Figure 1 (Stefansson 2006). The CLM framework is used as a model on which to show the interfaces as it is a generally accepted depiction of logistics business arrangements. FIGURE 1 THE COLLABORATIVE LOGISTICS MANAGEMENT MODEL Loglstcs Service Intermediate . Material flow - Information flow Interface — The exploratory interviews further revealed four attributes which apply to information interfaces and two attributes which apply to physical interfaces. These attributes are important to identify and understand because they are the elements which drive the execution of the transition, i.e., they are the elements that drive how the transition is planned and managed. In this section we describe the attributes of an infonnation interface and the attributes of a physical interface. JOURNAL OF BUSINESS LOGISTICS, VoL 29, No. I, 2008 Information Interface Attributes 353 . * An infonnation interface is where infonnation meets information. At an interface, information can be combined or simply exchanged, or shared unidirectionally. The four attributes for infonnation interfaces are: (I) media; (2) transfer; (3) data and infonnation; and (4) user attributes. To describe these attributes, metaphors from ordinary logistics management can give some insights. The media attribute is the road, i.e. the infrastructure on which the communication happens or the link over which communication occurs, e.g., phone, Internet. The transfer attribute in the vehicle traveling on the road that transports the message, e.g., electronic data interchange (EDI) message, fax, etc. The data and information attribute is the load on the vehicle i.e. content ofthe message such as ASN, order' confirmation, invoice, etc. The user attribute is the final package ofthe load, i.e. how the infonnation is presented for the user, e.g., on a monitor, on a paper document, etc. \.Media attributes are typically some combination of direct telephone, mobile phone lines, Intemet protocol connections, wireless connections, paper and pen, etc. Less technologically advanced actors are typically using direct telephone and paper and pen, and more advanced have migrated to the Internet. All have phone lines and all have paper and pen. The use of Intemet varies and the purpose differ; most of the companies are using intemet to distribute information on the company and the services or products provided while only approximately one fourth ofthe respondents are using Internet for data exchange between parties, such as EDI over Intemet and similar. I 2. Transfer attributes include web interlaces that can be imported to another application, EDIFACT or ANSI 12 standards for EDI messages, eXtensive Mark-up Language (XML) to envelope a message, direct database interface, e-mail, fax, etc. While it is possible to use XML over a telephone line, we expect in future studies to find that companies are typically using XML over an Intemet connection. EDI, on the other hand, is commonly used over a telephone line in these situations. ^.Data and information attributes are specific to the collaboration anangenient. These attributes are the content that is exchanged, which, but its very nature, is unique to the two parties involved. For example, an order is a specific communication of need for a specific product from a specific vendor, a specific' quantity with packaging instructions, ship instructions, origin-destination points and more. While these data elements may be standard, the content is unique. For instance, EDIFACT is the standard of data elements for a message sent using EDI transfer attribute, but the selection of data fields to be included in the message is unique and does not follow any standards although some industry specific guidelines exists, e.g., the automobile industry using the ODETTE subset of fields for their messages. 4. User attributes identified in this work are computer screen showing an Internet page, specific application screen or a mainframe screen, an email message in an email application in addition to paper documents. For the sake of efficiency, in situations where the volume of transactions is high, the more appropriate value is a computer screen vs. paper because message that is received quicker allows quicker respond and high volume electronic files are easier to archive. Regarding the attributes ofthe information interface, the goal is to fit the data and infonnation exchange to the appropriate collaboration anangement. Low involvement needs different values for the attributes compared to the high-involvement collaboration anangement. The above attributes of the infonnation interface tumed out to be sufficient for describing a relation between different parties, regardless of how advanced they were in terms of technology or how close in terms of degree of collaboration and quantity of transactions that were needed to keep the business arrangement enduring. Physical Interface Attributes , .1 • A physical interface is where finished good product in the supply chain is transfened from one ready position to another, e.g. from shipper to carrier, from easier to receiver, from LSP to canier, etc. The two attributes for physical interlaces are (1) attachment, and (2) activity. STEFANSSON AND RUSSELL 354 1. Attachment as a physical attribute refers to the level to which the material handling unit fits the load unit. The purpose of this attribute is to ensure that the right equipment is used for a specific assignment and highest efficiency can be reached as the appropriate tools are available that fit the arrangement. Examples are a courier picking-up an envelope, a fork lift picking-up a pallet, a tractor picking-up a trailer, etc. 2. Activity as a physical attribute refers to the activities that are supposed to be carried out in the instance of an attachment, e.g., delivery of the envelope, loading of the truck, securing of the trailer. The activity is stated in terms of the end goal and here the terminology is vital as some defmitions are associated with perception that does not have to fit. Delivery to a store is an example of activity that can vary greatly in scope, •reverything from dropping a package outside a store to unpacking, price tagging and putting into final location in a self- all which can be enveloped in a process of delivering to a store. Regarding the attributes of the physical interfaces, the key is to specify every activity that needs to take place from point-of-origin to point-of-consumption and work through any potential bottlenecks that may be caused to create a seamless flow of goods. Reconciling who will carry out each activity will avoid conflict around the potential bottleneck areas. . I y Scenarios of Attribute Appiication • - • i •' To provide application scenarios of how the attributes of the interfaces can be defmed, some examples from our empirical study are included below. . i •i Scenario I. A Carrier Arrangement In a carrier arrangement example, the goods are transported from a shipper to a receiver in a one-way transportation arrangement. The interfaces manifested in this scenario are shown in Table 2. TABLE 2 .. THE ATTRIBUTES FOR AN INTERFACE BETWEEN A CARRIER AND A SHIPPER Attributes: Media Transfer Data and information User Attachment Activity Values: Direct telephone line into the carrier systems, through Value-added Network, Internet connection, and paper. Web interface, ANSI X12 versions of EDI, XML, FTP for direct file exchange. E-mail, and fax. Shipping parameters (Consignor address, timing, consignee address, timing). Shipping documents (Bill of Lading), truck location. Internet and paper documents. A pallet interface as well as non-standardized items in a trailer. Often a trailer has been standing at the customer site and the contents are not known to the carrier in advance. Load trailer at consignor site, generate shipping documents, transport, unload trailer and deliver product at consignee site. The scenario reports an arrangement that is rather advanced in its nature where state of the art technology is used for data exchange, navigation for track and trace information, etc. Much less advanced arrangements were explored as well where the carrier operation was based on a single owner, single driver, single truck operation where resources and knowledge for advanced information and communication technology (ICT) implementation were limited and often not needed as most of the assignments were carried out only few times a year for each specific customer and only in a arms-length relationship arrangement. JOURNAL OF BUSINESS LOGISTICS, Vol. 29, No. 1, 2008 Scenario 2: A Logistics Service Provider Arrangement • 355 .1 ' In this example, a contracted carrier operates the outbound transportation to a terminal, where cross-docking activity takes place before further transportation to the final destination is done by a second carrier. The studied setup included three infortïiation interfaces. The information interfaces studied are from the shipper towards the LSP, from the LSP towards the receiver and the LSP towards the carrier. The latter interface, which takes care of the outbound (from shipper) transportation, need not be the same as the interface towards the inbound carrier (to receiver) as the shipment has arrived to a cross-docking terminal and a new carrier is likely involved in the transportation to the receiver. Logistics and transportation services are booked by customers through the internet. Regular customers have access to an Extranet site where one can make bookings, follow up shipments through a Track and Trace service, look at invoices, etc. It is also possible to send a booking through EDI, a service frequently used by large customers! Further, it is possible to connect to the LSP s system directly from the customers' ERP system through EDI or XML messages, and to do a "real-time" data exchange through thai interface. Table 3 shows, for this LSP arrangement, the interface attributes between shipper and the LSP. No physical interface (i.e., attachment or activity) exists between these two actors as the physical movement is outsourced to the contract carrier and not done by the LSP. TABLE 3 THE ATTRIBUTES FOR AN INTERFACE BETWEEN A SHIPPER AND A LSP Attributes: Media Transfer Data and information User Values: Direct telephone line into the LSP systems or Internet connection, and paper. Web interface. EDIFACT versions of EDI. XML, E-mail, and fax. Shipping parameters (Consignor address, timing, consignee address, timing). Shipping documents (Bill of Lading) On-line., Internet and paper documents. The exploratory interviews of the LSP arrangements revealed that there is redundancy in terms of tbe values of the infonnation attributes, especially for the media and transfer attributes. The data and information attributes as well as the user attributes do differ, mainly due to the fact that the data content needs arc different, collaboration arrangements are of various types in addition to the variation in company demand on user interface. In both of the scenarios described here, and in any CLM arrangement, tbe attributes for the two types of interfaces of the CLM model, information interface and physical interface, need to be established in the collaboration agreement The attributes can be service-specific and execution-re liant when it comes to the service operation. Services can have different attachment attributes and activity attributes and even data and information attributes. Data content is an important issue and the collaborating partners have to agree upon what data and information to share and when. The media, tran.sfer and user attributes can, however, be the same for many services and are maybe unchanged for a specific shipper although several services are provided. By preparing the logistics collaboration and describing the services and the interfaces in advance, expensive ad-hoc solutions and operation disturbances can potentially be avoided. MANAGERIAL IMPLICATIONS The contribution of this work to managerial practice is founded in the fact that standardized sets of interface attributes can be applied when designing and negotiating third-party services for specific logistics assignments. Each service or group of services requires different activities to be carried out and various interface attributes to be 356 STEFANSSON AND RUSSELL defmed. The framework describes issues in the business relationships between the parties and can affect the outcome of the actions taken and their potential sources of efficiency and effectiveness. The challenges and opportunities of data integrity, referred to here as the data and information attribute, are also surfaced in this work. While there may exist a standard means of transferring data and information, it is the correctness and completeness of the data and information that creates a meaningful message for the receiver. Decisions are made based upon the data and information attribute. The quality of decisions is impacted by the quality of the data. If the data is wrong, it is difficuh to make a right decision. This work also surfaces the issues of technology standards. Many of the values of the media and transfer attributes can be standardized and in many cases standards already exist. Standards exist to allow information to flow seamlessly across organizations. The question becomes one of breadth of coverage and cost. Can an organization bear the cost of complying with multiple technology standards to support multiple trading partner relationships? The decision is often driven by the nature of the relationship defined by volume of transactions, time horizon of order stream, binding nature or the contract, length of relationship, and other relevant factors. Finally, managers need to recognize that relationships, in and of themselves, are a resource. A network of relationships is an even more powerful resource. The relationships need to be understood for managers to understand the nature and relative power of their decision-support resources. The exploratory interviews also revealed that money can be put into technology resources, but the technology resources are useless if you do not get the contact (i.e., the message) correct. SUMMARY In this work we identify 14 supply chain interfaces in the CLM mode! and show how these interfaces play a role as buyers, receivers, carriers, LSPs, and LSIs all work together to achieve efficient supply chain management. We further defme the attributes associated with each of these interfaces and show scenarios from our empirical study where the values of the attributes are defined. Identification of the interfaces and definition of the attributes is intended for use as a language that academics and practitioners can employ to recognize the roles of the involved parties and the attributes of the links between them, thus increasing efficiency and reducing bottlenecks at the supply chain interfaces in a CLM arrangement. Finally, we suggest that these standardized sets of interfaces and interface attributes can be applied when designing and negotiating third-party services for specific logistics assignments. LIMITATIONS AND FUTURE RESEARCH This work is limited in that in this study we were able to identify only the physical and informational interfaces. There are likely additional organizational considerations associated with collaborative arrangements, and possibly even specific organizational interfaces, which need to be considered as we continue this stream of research. J NOTES Ackerman, Kenneth B. (1996), "Pitfalls in Logistics Partnerships," Intemational Joumal of Physical Distribution and Logistics Management, Vol. 26. No. 3, pp. 35-37. Akkermans, Henk A., Paul Bogerd, Enver Yücesan. and Luk N. van Wassenhove (2003). "The Impact of ERP on Supply Chain Management: Exploratory Findings From a European Delphi Study," European Joumal of Operational Research, Vol. 146, No. 2, pp. 284-301. 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JOURNAL OF BUSINESS LOGISTICS, Vol. 29, No. I, 2008 359 ABOUTTHE AUTHORS Gunnar Stefansson (Ph.D. Chalmers University of Technology) is an Associate Professor at the Dept. of Industrial Engineering at University of Iceland, and the Dept. of Technology Management and Economics at Chalmers University of Technology in Sweden. Dr. Stefansson focuses on collaborative logistics management and management of information technology and has published in International Journal of Technology Management, European Journal of Operation Research, International Journal of Physical Distribution and Logistics Management, and Journal of Business Logistics. Dawn M. RusseH (Ph.D. Northwestem University) is an Assistant Professor in the Department of Supply Chain and Infonnation Systems at The Pennsylvania State University. Dr. Russell focuses on infonnation management and collaboration in supply chains and has published in Transportation Journal. The International Journal of Logistics Management, International Journal of Physical Distribution and Logistics Management, and Journal of Supply Chain Management. WHAT DRIVES THE CHOICE OF A THIRD-PARTY LOGISTICS PROVIDER? Edward J Anderson; Tim Coltman; Timothy M Devinney; Byron Keating Journal of Supply Chain Management; Apr 2011; 47, 2; ABI/INFORM Global pg. 97 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 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Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. PETER J.H. LUKASSEN CARL MARCUS WALLENBURG Pricing Third-Party Logistics Services: Integrating Insights from the Logistics and Industrial Services Literature Abstract As the logistics services outsourced by companies increase in scope and complexity, the challenge of designing appropriate contracts grows. Here, the price model, which determines the remuneration, takes a central position. In practice, however, the agreed-upon contracts often fail to govern the relationship and set wrong or misleading incentives for either or both of the involved parties. In order to provide a conceptual basis and to identify promising avenues for future research in the increasingly important field of pricing third-party logistics services, this article provides a comprehensive review of the existing literature on logistics and industrial service pricing using a refined version of the established Industrial Marketing and Purchasing (IMP) group relationship management framework. For more than two decades the logistics services industry has exhibited tremendous growth (Maloni and Carter 2006). Especially since the 1990s this development was paralleled by an increasing academic interest in third-party logistics (3PL). With the majority of academic articles on 3PL, however, following a descriptive approach (Selviaridis and Spring 2007), this field is still in its early stage of development (Marasco 2008). While the increase of theory testing articles (Sachan and Datta 2005) indicates a beginning maturation (Colquitt and Zapata-Phelan 2007; Boyd et al. 2005), deficits in the theoretical foundation of 3PL research still exist (Marasco 2008; Selviaridis and Spring 2007; Mentzer et al. 2004). Recently, three extensive reviews of logistics literature related to 3PL have been published: Maloni and Carter (2006), Selviardis and Spring (2007), and Marasco (2008). All stress the potential importance of contractual arrangements and incentives in logistics outMr. Lukassen is research fellow, Kuehne-Center for Logistics Management, WHU — Otto Beisheim School of Management, 56179 Vallendar, Germany; e-mail lukassen@whu.edu. Mr. Wallenburg is professor of logistics and Kuehne-Foundation Chair of International Logistics Networks, Technische Universität Berlin, 10623 Berlin, Germany; e-mail wallenburg@tuberlin.de. sourcing as well as the need for further research in this area. Maloni and Carter (2006) emphasize studies on logistics contracts being underrepresented. Selviardis and Spring (2007) call for more work on the question of whether contracts are an important element of relationship management or just a necessary formality, and Marasco (2008) claims that bonding elements, necessary for the preservation and development of sustainable logistics relationships, require closer examination. This need for further research is substantiated by the empirical observation that users and providers of logistics services lack the know-how how to design purposeful agreements and pricing structures. The agreed-upon contractual arrangements often fail to govern the relationship and set wrong or misleading incentives (Halldorsson and Skjoett-Larsen 2006). Considering contractual arrangements to define the legal frame of 3PL relations, pricing represents its economic “heart” and will be the focal point of the following analysis. According to Williamson (1979; 1991), contracts are an important instrument of relational governance. One of their central elements and, thus, of major importance is the agreed-on price model; others include the service specifications. In long-term arrangements, as present in 3PL relationships (Lieb and Bentz 2005a), a 2010 PRICING 3PL SERVICES well fitted price model sets the path for further relational development and success. In contrast, an inappropriate price model may impede further prospering of the relationship as the service provider may only undertake the most necessary changes and improvements to its services and not consider specific investments that are mainly beneficial to the customer. Therefore, knowledge about 3PL pricing is not only relevant to service providers, but also to the customers – especially since customers heavily influence the structure of price models through the tendering process and by issuing detailed and specific requests for proposal (RFPs) and requests for quotation (RFQs). The three aforementioned literature reviews, due to their broad scope, do not provide detailed insights into the existing body of knowledge regarding the pricing of 3PL services. In order to facilitate future research on 3PL pricing, it is necessary to consolidate previous studies – especially from the fields of logistics and marketing – and to identify promising avenues for further theoretical development. This is the aim of this article. With this aim in mind, the nature of 3PL services will be discussed first. In order to carve out their distinguishing characteristics, the scope of examination is narrowed gradually, beginning with basic services via industrial services and finally 3PL services. Then the methodology and framework used is described, and relevant literature is identified and reviewed, providing a synthesis of the field of logistics and industrial services pricing. The manuscript closes with a discussion of implications and directions for further research. CHARACTERIZING THIRD-PARTY LOGISTICS Characteristics of Industrial Services 3PL services are a subset of services in general and industrial services in particular. Services are described by Zeithaml et al. (1985) as being (1) intangible, (2) inseparable, (3) heterogeneous, and (4) perishable. Compared to services in general, industrial services exhibit several additional characteristics that distinguish them from other services, especially consumer services. According to Morris and Fuller (1989), industrial services are non-convenience products, customized to the specific needs of the customer, thus requiring a formal 25 and extensive provider selection process in order to assure the service provider’s capability to perform accordingly. Moreover, industrial services are often provided at the location of the customer, performed to goods (e.g., in logistics transporting, handling, and storing objects) rather than to people, and based heavily on human resources and their specific knowledge involving costly service-specific equipment (Morris and Fuller 1989). Finally, industrial service relationships tend to be long-term and continuous, showing a more predictable demand pattern than consumer services. Revisiting the initially cited four service characteristics, there are additional typical specifications relevant for industrial services: (1) intangibility does not only complicate service comparisons but requires an intense exante supplier selection process, (2) inseparability does not only imply the customer but especially its assets to be integral part of the service production, (3) heterogeneity does not only result in service performance that varies due to differing customer attributes, but also due to prerequisite service-specific equipment and know-how, and finally (4) perishability does not only refer to a discrete capacity allocation problem but also – due to the long-term nature of the relationship – to a continuous capacity dedication and planning problem. While this complicates the analysis on the one hand, demand is more predictable on the other hand. Definition and Particularities of 3PL As a next step, common definitions of 3PL are analyzed to identify the specificities of 3PL. Here, different views can be identified that reach from broad to narrow (Deepen et al. 2008; Marasco 2008). The first conceptualization depicts a broad view of 3PL. It encompasses simple “traditional” transportation, warehousing services, and more complex multi-service bundles (Lieb 1992) as well as respective contract durations ranging from short-term agreements to long-term relationships (Bask 2001). Second, a narrower view associates 3PL with the provision of comprehensive logistics services (Sink et al. 1996) on the basis of a longer-term relationship (e.g., Berglund et al. 1999; Murphy and Poist 1998; Skjoett-Larsen 2000; Knemeyer and Murphy 2005). 26 TRANSPORTATION JOURNAL™ Observing the market for logistics services, the first perception of 3PL includes all service offerings that range from basic logistics, like freight forwarding, courier, express, and postal services, to the provision of complex services bundles and logistics solutions. In the more narrow view, only the second, more complex services belong to 3PL. This latter notion of 3PL, specifically the one of Berglund et al. (1999), is applied in the following. Otherwise 3PL would include all outsourced logistics and would, in this way, not differ from the more general term logistics services. Based on this definition, a further refinement of the services characteristics is proposed for 3PL – especially regarding the third element of heterogeneity. In contrast to other industrial services, like auditing or operations and maintenance services, 3PL comprise the management and execution of multiple services. This implies high complexity and customer specificity of the service bundle. While this requires a larger part of the associated investments to be not only specific to the service but also to the individual customer, it allows for greater price differentiation too. Along this line, 3PL services are especially heterogeneous industrial services, where both the service and price components can be customized. This refined characterization serves as a guideline when evaluating whether certain service pricing articles may be relevant for 3PL services and therefore should be included in the subsequently conducted literature review. METHODOLOGY Consistent with, for example, Marasco 2008, Spens and Kovács 2006, Li and Cavusgil 1995, and Krippendorff 1980, we apply content analysis to consolidate the existing knowledge regarding pricing of 3PL. Content analysis aims for a reliable, objective, systematic, and quantitative study of existing publications (Ellinger et al. 2003; Krippendorff 1980) and allows for the investigation of implicit assumptions as well as explicit statements of texts (Krippendorff 1980). Thus, it represents a promising method for reviewing literature (Cullinane and Toy 2000). In order to conduct a content analysis, two steps are required: sampling and categorization (Li and Cavusgil 1995). Spring Sampling In an initial step, articles that contribute to the domain of logistics service pricing have to be identified. Given the diversity of available publications, appropriate limits have to be applied in the search. First, only literature penned in the English language and published or frequently referenced in academic journals was considered to account for quality and traceability. Next, the scrutinized literature was limited to two areas: (1) logistics articles dealing with pricing and contracting issues (this area will be referred to as “logistics pricing”) and (2) due to the proximity of 3PL services and other industrial services, articles that address industrial service pricing (this area will be termed ‘industrial service pricing’). Concerning the year of publication, all electronically available literature until the end of 2007 was included. Keeping in mind that pricing research is still comparatively weak (Hinterhuber 2004; Malhotra 1996), especially with respect to services (Bolton and Myers 2003) and industrial goods (Noble and Gruca 1999), no starting date was specified and no journal preselection applied. For the first area (logistics pricing) the keywords “Third Party Logistics” or “Logistics Outsourcing” and “Contract” or “Price” or “Pricing” were applied to titles, abstracts, and author-supplied keywords using the EBSCO database. The resulting thirty-one academic publications were scrutinized as to whether they contribute to the analysis of logistics pricing, which resulted in the omission of thirteen articles. In the next step the references of the remaining eighteen articles, as well as the most recent literature reviews on logistics from Maloni and Carter (2006), Selviaridis and Spring (2007), and Marasco (2008), were searched for further articles potentially addressing logistics pricing. This revealed another nine academic articles, as well as five studies, to be included in the present literature review. Thus, in total, thirty-two publications were considered from the logistics pricing domain (see Appendix 1). Likewise, for the second area (industrial service pricing), a keyword search was conducted in the titles, abstracts, and author-supplied keywords of articles in the EBSCO database using “Service(s) Price” or “Service(s) Pricing,” revealing 170 academic articles. In order to identify those articles relevant for the question of 2010 PRICING 3PL SERVICES 3PL pricing, the characteristics of 3PL services previously described were applied to each of them. Based on this, articles focusing solely on spot transactions (e.g., Chao and Wilson 1987; Crew et al. 1990; Yano and Newman 2007), on retail services (e.g., Hoffman et al. 2002; Rabinovich and Bailey 2004), or on services non-specific to an individual relationship (e.g., Morris and Fuller 1989; Essegaier et al. 2002) were excluded. Moreover, an intense search for relevant cross-references was conducted. This resulted in a total of twenty-nine articles, which were included in the present literature analysis (see Appendix 2). Literature Classification For the classification of the literature according to methodological research orientation we follow the approach taken by Croom et al. (2000) and Selviaridis and Spring (2007), which distinguishes between conceptual and empirical work on a first dimension and descriptive and prescriptive work on a second dimension. It becomes apparent that the research orientation differs widely between the two areas of literature (see Figure 1). 81 percent, and thus the clear majority of logistics pricing publications, are empirical, while only 31 percent of the articles on industrial service pricing are empirical and thus the majority conceptual. Also 81 percent of studies on pricing in logistics are confined to describe the phenomenon, whereas the majority of articles on industrial service pricing offer explanatory norms. This lack of conceptual as well as prescriptive work on logistics pricing is no surprise, as logistics research in general is still primarily descriptive: 69 percent of all logistics articles and 80 percent of the specific literature on 3PL are descriptive in nature (Selviaridis and Spring 2007; Marasco 2008). However, it is surprising to note that the conceptual work on logistics pricing primarily – in five out of six cases – is prescriptive. This is in contrast to the general conceptual literature on logistics and supply chain management which by Croom et al. (2000) and Selviaridis and Spring (2007) is found to be predominantly descriptive. In this respect, the methodological approach in the logistics pricing literature is closer to industrial service pricing literature, where the major part (90 percent) of conceptual work is prescriptive. 27 Research on service pricing, and more specifically on industrial service pricing, has a longer history than the specialized logistics pricing research. The first article identified in this area is Beard and Hoyle (1976), fourteen years before Bowersox (1990) wrote about pricing issue in logistics outsourcing relationships for the first time. However, looking at the number of published articles (see Figure 2), research on industrial service pricing also did not receive much attention for a long time. Only recently there seems to be increasing interest in the topic, especially in the work of Avlonitis and Indounas, who alone have contributed six of the last twelve articles on industrial service pricing (Avlonitis and Indounas 2005a; 2005b; 2006; 2007a; 2007b; Avlonitis et al. 2005). Nevertheless, the further theoretical development of industrial service pricing is impeded by the wide dispersion of the articles in primarily second-tier journals. The twenty-nine industrial service pricing articles have been published in twenty different journals. Only seven journals yield more than one article, and only one of these, the Journal of Service Marketing, with four studies, more than two articles. In contrast, logistics research profits from a stronger focus within dedicated journals (Zsidisin et al. 2007; Carter 2002; Fawcett et al. 1995). Out of the thirty-two logistics publications, twenty-eight have been published in fourteen different academic journals, much more than half (57 percent) in three of the most renowned logistics outlets (Carter 2002): seven in the International Journal of Physical Distribution and Logistics Management, six in the Journal of Business Logistics, and three in the Transportation Journal. The remaining four publications are the self-published studies of Langley et al. (2003; 2004; 2005; 2007). From a methodological point of view, there are also major differences between the reviewed logistics and service pricing articles. While only five out of the thirty-two logistics studies take a theory-driven approach to logistics pricing, 62 percent (eighteen out of twentynine) of service pricing articles do. Additionally, the two literature streams differ in choice of theories applied. Four of the five theorydriven logistics articles refer to general economic theories: Transaction Cost Theory, 28 TRANSPORTATION JOURNAL™ Spring Figure 1. Classification of Reviewed Literature (32 Logistics Pricing Articles and 29 Industrial Service Pricing Articles) Figure 2. Publication Dates of Reviewed Logistics and Industrial Services Pricing Studies Principal-Agent Theory, Resource-Base View, and Game Theory. The remaining article – Maltz and Ellram (1997) – is based on a Total Cost of Relationship approach developed by the authors. In contrast, service pricing literature lacks this inclination for economics theories and utilizes different pricing approaches and mechanisms (see Appendix 3). Categorization To categorize the existing service pricing literature (see Figure 3) we use Marasco’s (2008) relationship framework and conceptualization, which builds on the framework of the Industrial Marketing and Purchasing (IMP) group. In total, Marasco (2008) distinguishes four main aspects – process, context, structure 2010 PRICING 3PL SERVICES 29 Figure 3. Categories Underlying the Content Analysis and outcome – that are essential for any relationship. While we follow this division in general, we adjust Marasco’s view of the process phase (Marasco 2008) to account for the specific problem of designing price models. Although price level and the imposed costs are some of the most important criteria for outsourcing decisions and service provider selection (Lieb and Bentz 2005b; Wilding and Juriado 2004; Boyson et al. 1999), pricing is not only a matter of price level (Kotler and Keller 2006). It is also a matter of designing purposeful incentives structures which are able to govern the further development of the relationship. The composition of the price model specifies how much the service provider gets paid and under which conditions. Due to the specificity of 3PL services, reaching an agreement both on the elements and the level of the price model requires pre-relationship negotiations and will influence the later set-up (e.g., level of proprietary service solutions, the usage of dedicated or shared assets, and initial investments of the service provider) of the service. Once the relationship is agreed upon, the negotiated price model has to be implemented. During the ongoing relationship, the price model serves as a governance mechanism and influences the behavior of both the service provider and the customer. For example, if bonuses and penalties are included the service provider is likely to adapt the service level to a level where own profits are at a maximum. To cover this interrelationship, price model governance is introduced as a second process-related category to complement the first category (price model composition) of our framework. Context as the third category relates to the specific relational context the 3PL relationship is embedded in. This includes all external as well as internal factors which are independent from the individual exchange relationship. The external context comprises the economic, technological, and regulatory environment, while the internal context comprises the organization, business models, and attitude, i.e., risk aversion, of the customer and the service provider – as far as they are non-dependent on the specific service encounter. This context can be assumed to have a non-trivial influence on the pricing process. Structure is the fourth category. It relates to the structure of the relationship and comprises its technical as well as behavioral set-up as far as it is dependent of the specific relationship situation and the partners involved in this relationship. A first structural element is the scope of the service rendered within the exchange relationship. Considering potentially different scopes of the services (Berglund et al. 1999), contracts will be more or less complex, longtermed, or detailed (Hakannsson and Snehota 1995). Further structural elements include (mutual) dependence of the partners and behavioral aspects, like commitment or accumulated trust, 30 TRANSPORTATION JOURNAL™ Spring Table 1. Categorization of Reviewed Logistics and Pricing Literature Logistics pricing articles Content category 1 2 2 3 4 Composition Governance Context Structure Outcome Number of articles Share of articles 28 4 6 7 4 88% 13% 19% 22% 13% e.g., through previous collaboration. These elements will influence the outsourcing arrangement (Marasco 2008) and, therefore, possibly also the price model design. Following Marasco (2008), relationship outcome is the fifth and last category within our conceptual framework. Obviously, price model design is only a relevant element of logistics relationships if it actually affects the outcome of the relationship. Such effects may be observable both with regards to efficiency and effectiveness. Thus a comprehensive evaluation of price model design calls for the inclusion of the outcome dimension. Examining the reviewed articles regarding the aforementioned categories, again, a remarkable difference between logistics pricing and industrial services pricing articles can be observed (see Table 1). Almost all (88 percent) reviewed logistics articles consider the composition of 3PL compensation, while only 34 percent of the industrial services articles investigate this topic. Also governance aspects of pricing are almost twice as often covered by logistics articles. In contrast to this, 62 percent of the selected industrial services studies cover the relationship context – almost four times the percentage of the reviewed logistics pricing articles with only 16 percent. Moreover, 66 percent of industrial services articles are concerned with relationship structure and its implication for pricing, while this is only the case for 22 percent of selected logistics articles. Finally, with 24 percent, the outcome dimension is considered substantially more often in articles on industrial service pricing. Industrial services pricing articles Number of Share of articles articles 10 2 18 19 7 34% 7% 62% 66% 24% Composition In total, twenty-eight of the thirty-two articles on logistics pricing refer to the composition of price agreements. One series of exploratory empirical studies that uses one standard framework of 3PL usage of Lieb (1992) starts in 1992 and successively covers all continents (Bhatnagar et al. 1999; Dapiran et al. 1996; Lieb et al. 1993; Lieb and Randall 1996; Lieb and Randall 1999a; Lieb and Randall 1999b; Millen et al. 1997; Peters et al. 1998; Sohail and Sohal 2003; Sohail et al. 2004; Sohail and Al-Abdali 2005; Sohal et al. 2002). These studies investigate current 3PL practices. This includes reporting the degree to which actual 3PL relationships are based upon signed contracts and whether the agreements include ex ante variable components in the form of performance-based bonuses or penalties. In general, the use of outcome-based bonuses and penalties seems to have increased over the years. This trend first started in the U.S. (Lieb 1992) and Europe (Lieb et al. 1993) and moved with some delay to Asia (Millen et al. 1997; Bhatnagar et al. 1999) and to Africa (Sohail et al. 2004; Sohail and Al-Abdali 2005) before eventually reaching the saturation point, as observed for the U.S. by Lieb and Randall (1999b) with regards to the use of bonuses (down from use in 65 percent of all relations studied to 52 percent) as well as penalties (down from use in 51% percent of all relations to 49 percent). For Europe the initial trend is ascertained by van Laarhoven et al. (2000) and for the U.S. by Crum and Allen (1997). Langley and colleagues (2003; 2004; 2005; 2007) achieve more detailed results with their 2010 PRICING 3PL SERVICES annual surveys on global 3PL usage. They show that the usage of risk- and reward-sharing agreements have decreased over the last years, while cost-based contracts, often in practice referred to as cost-plus, which relate the remuneration to the actual inputs made by the service provider, and transactions-based fees have gained in importance and are utilized more. While the popularity of cost-based agreements is also shown by Jaafar and Rafiq (2005) in a survey of firms from the UK, the descriptive article of Lambert et al. (1999) highlights the importance of risk and reward sharing in building strong logistics relationships. Concerning the choice between cost- and outcome-based 3PL remuneration, there are different propositions. While Lieb and Bentz (2004) note that managers with outsourcing experience advise first-time users of 3PL services to avoid cost-based contracts, Fernie (1999) identifies that in the practical application simpler logistics services are compensated based on outcome and more complex ones based on costs – independent of outsourcing experience. Considering the reviewed prescriptive work, Maltz and Ellram (1997), based on a total cost of relationship approach, generally promote outcome-based compensation. In contrast, Richardson (1993) proposes to use cost-based contracts in situations of high technical uncertainty, e.g., in start-up phases or new markets. Bowersox (1990) recommends basing this decision on the relative risk aversion of the partners, and van Hoek (2000), who applies transaction cost theory, suggests using detailed, fixed price contracts, and restraining from ex ante variable components with complex services. Logan (2000), who uses a multi-theory approach, shows this matter to be ambivalent as she posits that the service provider should aim for long-term outcome-based contracts while customers should demand open book, cost-plus agreements. Further, Lim (2000), based on game theory, shows that a small baseremuneration combined with high bonuses and penalties reveals the true capabilities of the service provider. While the many articles applying the framework of Lieb (1992) and the studies of Langley et al. (2003; 2004; 2005; 2007) offer no recommendation or explanation concerning price 31 composition, the articles going beyond these cited above focus on specific elements of 3PL contracts and result in varying and often contradictious conclusions. For example, 3PL services in dynamic businesses are often complex, yet, following Richardson (1993), compensation should be cost-based, while according to van Hoek (2000), compensation should be fixed. These contradictions obviously stem from the different theoretical and methodological approaches taken. Therefore, a broader but also more in-depth investigation into 3PL price agreements is necessary to provide a comprehensive understanding of relevant pricing components and guide practice in the appropriate application. Examining the ten industrial service pricing articles that relate to price composition, the aforementioned importance of cost-based pricing is affirmed. Indeed, Avlonitis and Indounas (2005a, 2006) and Zeithaml et al. (1985) find cost-based pricing to be the most used pricing design by service firms. Based on a review of interdisciplinary articles, Schlissel and Chasin (1991) recommend the combination of time-based rates to cover for spending that is not specific to the individual service provided and cost-based rates for costs only incurred due to the specificity of the service request. Similarly, Lovelock and Gummesson (2004) propose time-based compensation for rental and access relationships like 3PL in order to reflect their intermediate position between market and hierarchy. For services that require input from both partners and some inputs that are substitutable, Löbler et al. (2006) advise the use of costbased over outcome-based compensation. This may be illustrated with the following example: To manage the customer’s outbound logistics, the logistics service provider may require volume forecasts from its customer, yet the required warehouse workers may be employed by either of the firms. Consistent with this notion, the use of cost-based compensation is generally recommended as it increases transparency as to whether services are performed profitably (Beard and Hoyle 1976). Kim et al. (2007), similar to Bowersox (1990), refer to the risk transfer, which also is inherent in 3PL services, and recommend remuneration to be more outcome-based the more the customer is 32 TRANSPORTATION JOURNAL™ risk averse compared to its service provider and more cost-based the less the customer is risk adverse. The reason for this can be seen in two facts: (1) risk premiums are lower when risks are carried by parties that are less risk adverse and (2) cost-based contracts shift risks from the provider to the customer while outcome-based contracts transfer risks in the opposite direction. Differently, Docters et al. (2004) suggest that all service relationship contracts should include risk sharing, insurance, or warranties to cover for potential non-performance costs. In summary, as was the case with the logistics pricing literature, the industrial service pricing literature lacks a comprehensive and consistent evaluation of price model composition. While both logistics and service pricing literatures note the predominance of cost-based compensation, there is no agreement on which determinants are and should be considered for the choice and design of price models. From a methodological point of view, the theorycomparative article of Logan (2000) as well as the Performance Contracting approach of Kim (2007) and industrial pricing concept of Forman and Hunt (2005) offer an especially promising basis and multiple links for further research. Governance With only six articles (four on logistics and two on industrial services) considering how price models govern 3PL relationships, this is the least examined of the five categories – especially as most of the six publications only peripherally touch this aspect of pricing. For logistics pricing literature, risk and reward sharing (Lambert et al. 1999) and bonuses and penalties (Andersson and Norrman 2002) are seen as an integral part of relational governance. It is stressed that not only outcomebased compensation but also cost-based rates may establish incentives that influence the behavior of the logistics service provider (Logan 2000). Yet, it should be considered that price models not only offer the potential to support the relationship, but may also be a source of conflict between the two parties involved (Halldorsson and Skjoett-Larsen 2006). In the industrial services literature, payment equity, the perceived fairness of the price paid for the purchased services, is emphasized by Spring Bolton and Lemon (1999). It influences not only the customer’s service satisfaction, but also customer willingness to use the respective service in the future (Bolton and Lemon 1999). Expressed differently, price should not only be thought of as part of a single transaction point, because the price model balances the interests of both relational partners and in this way secures customer loyalty (Cram 1996). With respect to possible incentives through variable remuneration, the existing literature underestimates governance-related impacts of price models on logistics service relationships. Overall, the literature does not provide a clear description of the governance function of price models, nor does it offer a thorough explanation of its effects on relationship development and success. Further analysis might profit from a thorough application of Transaction-Cost Theory (e.g., Halldorsson and Skjoett-Larsen 2006) or the Payment Equity Concept (Bolton and Lemon 1999). Context Only six out of the thirty-two reviewed logistics publications consider the relational context of pricing design. This influence is shown in general in the recent case study article of Halldorsson and Skjoett-Larsen (2006). More specifically, Maltz and Ellram (1997) point out that the demand for logistics services is a derived demand, determined externally and influenced by the market success of the logistics customer. The derived nature of the 3PL service combined with the complexity of the service – a structural aspect of the relationship – leads to inflation measurement costs when a pure costbased remuneration is chosen and in turn favors a more outcome-based pricing. More generally, Logan (2000) mentions that technological progress as well as (de)regulation drives sophistication and complexity of logistics services, which in turn calls for a more sophisticated price model design. In contrast, when focusing on customer experience, Lieb and Bentz (2004), based on managers’ opinions and experience, advise inexperienced customers to avoid cost-based pricing. Regarding customer attitude, Bowersox (1990) emphasizes that the distribution of risk aversion between the partners (equal opposed to higher with LSP or with customer) influences optimal remuneration, while Boyson et al. (1999) further specify the 2010 PRICING 3PL SERVICES argument highlighting that risk-adverse customers have a stronger preference for detailed and explicitly outlined contracts. Within the industrial service pricing literature, context represents the second-most often considered category of the five. In particular environmental characteristics are frequently regarded as influencing pricing (Tung and Capella 1997; Hinterhuber 2004; Forman and Hunt 2005; Taher and El Basha 2006; Avlonitis and Indounas 2007a). More specifically, competition amongst logistics service providers is shown to foster market-based pricing (Avlonitis and Indounas 2005a) and decrease shortterm profit maximization in favor of more longterm- and service-quality-related objectives (Avlonitis and Indounas 2005b). Additionally, LSP competition reduces the extent to which cost-based pricing is used in practice (Avlonitis and Indounas 2006). Similarly, a relatively high risk aversion of the customer compared to the service provider disfavors cost-orientation, and should lead to outcome-orientation of compensation (Kim et al. 2007). Yet, a limited availability of alternative service providers, i.e., absence of LSP competition, allows for the inclusion of price premiums and higher prices (Arnold et al. 1989). For cases where service demand is at least partially predictable and separable into more than one unit, which is the case with logistics services, Lovelock (1984) and Berman (2005) suggest pricing should depend on the availability of necessary service capacities. Given high uncertainty about adaptation need, Hiller and Tollison (1978) highlight cost-based compensation to be the appropriate compensation basis. Taking a different vantage point on future uncertainty, Docters et al. (2004) focus on probability, as well as associated cost of service non-performance. Here, the inclusion of risksharing elements is suggested in case of costly and / or frequent service failures. In general, the industrial service literature indicates a much higher affinity to either costplus or customer-oriented pricing (Cram 1996) than found with retail services. In this regard, Avolonitis et al. (2005) show that LSPs when pricing their services should concentrate more on increasing their asset utilization and customer retention (Avlonitis and Indounas 2007b). 33 In contrast to logistics publications, literature on industrial service generally acknowledges the great importance of the relational context for pricing services, but still displays a great heterogeneity amongst the utilized approaches and the results derived. From these approaches, most often the discussion focuses on the appropriateness of cost-plus pricing schemes. While the literature provides a comprehensive view on this specific question, it does not provide an integrative assessment of the relationship between context and the appropriate design of price models. From a theoryfocused point of view, the performance contacting (Kim et al. 2007), value-based pricing (Hinterhuber 2004), as well as total cost of relationship (Maltz and Ellram 1997) concepts should be further examined. Structure With respect to relationship structure, logistics publications regard that complexity of the service drives the need for advanced logistics solutions (Andersson and Norrman 2002) and influences the choice between cost and outcome compensation (Fernie 1999; van Hoek 2000). Similarly, both the ex ante uncertainty regarding technical performance (Richardson 1993) and the ex post measurement of this performance (Maltz and Ellram 1997), which is determined by the actual layout of the service, should influence the pricing design of 3PL services. In this regard, Bowersox (1990) motivates the use of bonuses and penalties to cover the risk transfer from the customer to the service provider that is inherent in any 3PL service. Taking a different point of view, Logan (2000) argues that pricing is not only affected by relational trust but also in turn influences relational trust. Taking into account the strong relation between marketing and behavioral sciences, it does not come as a surprise that a large part of the selected industrial service pricing articles posit that behavioral characteristics in a relationship, like mutual trust and confidence (Cram 1996), affect the choice of 3PL compensation (Tung and Capella 1997; Hinterhuber 2004; Taher and El Basha 2006; Avlonitis and Indounas 2007a). Thus, the service provider should try to match its customers’ needs with pricing (Avlonitis and Indounas 2005a; Avlonitis and Indounas 2005b; Groth 1995b). For 34 TRANSPORTATION JOURNAL™ example, in early stages of the service lifecycle, this refers to more quality- or valueoriented pricing (Avlonitis et al. 2005). Considering the technical dimension of the relational structure, Avlonitis and Indounas (2006) highlight that increasing uniqueness, i.e., customerspecificity, of the service makes cost-based remuneration preferential for the LSP as unique services pose higher risks which can be reduced through cost-based contracts. Consistent with this, Forman and Hung (2005) posit technical complexity and Löbler et al. (2006) technical entanglement favor cost-oriented pricing. Given a high degree of fixed costs, prices should consider capacity restrictions (Berman 2005). For customized service offerings (Roth et al. 2006), as well as for large projects (Cannon and Morgan 1990), pricing itself should be based on negotiations to reflect the specificity of the relationship. Further, service providers may realize price premiums if the service is essential to the customer (Hoffman and Arnold 1989), exclusive (Groth 1995a), and non-testable (Arnold et al. 1989). Finally, risks and consequences of non-performance which are due to the chosen service layout may require the inclusion of insurance or risk sharing (Docters et al. 2004). Overall it is apparent that the structuring of the relationship has been analyzed more profoundly by the industrial service pricing literature than by the logistics literature. While there seems to be no consensus how certain behavioral determinants affect the optimal pricing design, technical aspects, like high complexity and specificity, are most commonly associated with cost-based, instead of fixed, compensation. Here, the transaction-cost-based survey study of van Hoek (2000) as well as the modeling assessment of integrated services by Löbler et al. (2006) might be of further methodological interest. Outcome Finally, price model composition affects relational governance and, subsequently, it should also affect relationship outcome. In order to improve performance for both parties, the logistics relationship has to be appropriately established (Lambert et al. 1999) and the price model adjusted to the specifics of the relationship (Halldorsson and Skjoett-Larsen Spring 2006). This ensures a mutually beneficial development and improvement of relationship performance (Andersson and Norrman 2002). On this note, Lim (2000) shows that appropriate remuneration schemes induce truth telling of the service provider and therewith offer Pareto-efficient improvements. The industrial service pricing research shows that model design can be improved in a Pareto-efficient way by considering the relative risk aversion of the relational partners when relationship immanent risks are distributed to the party with lower risk adversity (Kim et al. 2007). Similar to highly customized services, the advantage of negotiated prices is demonstrated by Roth et al. (2006). Regarding the composition of price models, it is not possible to derive general conclusions whether cost-plus or outcome-oriented contracts impose higher total costs, as these costs depend on the uncertainty about future adaptations and cost developments (Hiller and Tollison 1978). For the service provider, capacitydependent pricing, where prices are higher for services that include highly utilized resources, can help to balance demand as well as to increase profits (Lovelock 1984). Last, payment equity, i.e., the relative perceived fairness of the price model, should be considered as it influences not only customer satisfaction but also future service usage (Bolton and Lemon 1999). Taking a different vantage point, past outcomes may also influence actual pricing, as superior performance in the past may be a justification for charging premium prices (Friedman and French 1987). In sum, a consensus seems to exist that (logistics) service pricing affects relational success. Even though existing literature on this topic utilizes various approaches and refers to different patterns, it is limited regarding the scope of factors considered. It can be assumed that significant further research – especially of an empirical nature – is necessary to gain a thorough understanding of the mechanisms that link pricing design to relationship outcomes. Referring to prospective theories, Game Theory (e.g., Lim 2000) as well as Transaction Cost Theory (e.g., Halldorsson and SkjoettLarsen 2006) appear promising. 2010 PRICING 3PL SERVICES IMPLICATIONS AND FUTURE RESEARCH DIRECTIONS In considering the insights from the sixtyone reviewed articles on logistics service pricing and industrial service pricing, several implications can be concluded for future research in this field of relationship management. First, a lack of integrated approaches for pricing decisions can be observed. In this regard, there is no agreement on which determinants are and should be considered for the choice and design of price models. Moreover, significant interdependencies exist between different relational factors within each of the analyzed five segments of the pricing framework, which mostly are not accounted for in the existing literature. For example, van Hoek (2000) identifies the need for more detailed and fixed contracts with increasing complex service offerings. Those complex services, however, are associated with technical performance uncertainty, which, according to Richardson (1993), calls for cost-based remuneration. Further, there are also interdependencies across the five segments that need to be considered as well as major differences in the motives and goals between the customer on the one hand and the service provider on the other hand. These also interact with numerous other factors and thus should be considered in pricing frameworks (Logan 2000). In this context the sole application of a single theory, like transaction cost or agency theory, while beneficial in their focal nature, may be detrimental as they do not comprehensively cover all five dimensions of the pricing framework. Instead, the application of either holistic concepts or multiple complementary theories is advisable. One example of such an approach is Logan (2000), who applies three different theories in her research. Second, even though the present review of pricing literature on logistics services and industrial services shows that both streams face common problems and apply comparable approaches, there are hardly any cross-references between the two. Here, industrial service pricing research might profit from the empirical foundation of the logistics service pricing research, while logistics service pricing research, in turn, might build on the rich conceptual basis of industrial service pricing literature. 35 Third, although cost of service is a major driver for outsourcing as shown by numerous studies, pricing design, which determines the actual level and structure of remuneration, is still perceived as minor in importance, especially within logistics research. The central role price models play in defining and managing logistics relationships is still overlooked in most publications as only few explicitly focus on pricing issues. Only recently, a sprouting of interest in the topic has started to develop, including the works of Logan (2000) and Halldorsson and Skjoett-Larsen (2006). Fourth, the existing literature seems to underestimate the governance function of price models within service relationships as only very few (six) articles relate to this domain. Currently, both a clear description of the governance function and differentiated explanations of its effects on relationship development and success are still missing. Here, operations management research might offer further insights on the coordinative impact of contracts, e.g., revenue sharing (Hsieh and Wu 2009; Xianghua et al. 2005; Cachon and Lariviere 2005), which could be implemented in 3PL relations in terms of sharing cost improvements. While the further theoretical development of logistics service pricing clearly requires a more focused analysis and discussion of the subject, there are two predominant needs for future research. First, the conceptual base should be expanded to incorporate multiple interdependent relational determinants and their implications for the business relationship as a whole. Here, it might be promising to either integrate available concepts from the industrial service pricing literature (e.g., Beard and Hoyle 1976; Hinterhuber 2004; Tung and Capella 1997) or to utilize general theoretical foundations like Transaction Cost Theory, as proposed by Maloni and Carter (2006), or Principal Agent Theory, as done by Logan (2000). Second, although many logistics studies have already touched the domain of price model design, it appears to be fruitful to scrutinize the design and effect of logistics pricing in more detail. So far, the existing literature does not allow for conclusions on the effects and mechanisms of price model design in logistics service relationships. Further theoretical development and empirical analyses could be very promising to gain 36 TRANSPORTATION JOURNAL™ Spring a better understanding of the underlying dynamics of a market which already comprises more than half of all business logistics activities (Langley et al. 2007). 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