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Developing a decision-making framework for levels of logistics outsourcing in food supply chain networks
H.I. Hsiao
Graduate Institute of Management, National Taiwan Normal University, Taipei, Taiwan, Republic of China

Developing a decision-making framework 395

Received July 2008 Revised January 2010 Accepted February 2010

J.G.A.J. van der Vorst

Logistics, Decision and Information Sciences, Wageningen University, Wageningen, The Netherlands, and

R.G.M. Kemp and S.W.F. (Onno) Omta

Management Studies Group, Wageningen University, Wageningen, The Netherlands
Abstract
Purpose The purpose of this paper is to present a decision-making framework for outsourcing levels of logistics activities. These are: execution level of basic activities (such as transportation, warehousing); value-added activities; planning and control level of activities (such as transportation and inventory management); and strategic decision-making level of activities (distribution network design). Design/methodology/approach The research design comprises three stages. Literature review was undertaken to study outsourcing theories. Successively, case studies on three food manufacturers were conducted resulting in a framework for make-or-buy decision. Finally, an exploratory survey was undertaken to examine the determinant factors for outsourcing the different activities. Findings Results indicate that logistics activities at different levels are outsourced for different reasons. Three main determinant factors are identied: asset specicity, core closeness and supply chain complexity. This implies that the evaluation of outsourcing different activities requires insights of three theories, namely transaction cost, resource-based and supply chain management theory. Research limitations/implications The research and resulting framework are based on three small cases. Furthermore, there are few companies that outsource higher levels of activities, which limits the statistical assessment of the survey results. Practical implications The framework can support the decision-making process for outsourcing different logistics activities in food industry. Originality/value The key contribution of this paper is that it creates a comprehensive framework for outsourcing of both basic and advanced logistics activities specically for the food industry. Keywords Outsourcing, Distribution management, Food industry, Decision making Paper type Research paper

Introduction There are a number of changes in agri-food industry that initiate a re-orientation of food companies regarding their roles, activities and strategies. For example, demand and supply are no longer restricted to nations or regions but have become

International Journal of Physical Distribution & Logistics Management Vol. 40 No. 5, 2010 pp. 395-414 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600031011052840

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international processes. Furthermore, product assortments have expanded signicantly and market requirements on product quality, traceability, delivery services and sustainability are still increasing. To react to these changes, food companies are continuously working on innovations by developing and implementing enhanced quality, logistics and information systems (IS) (Van der Vorst et al., 2005). One of the innovations in logistics is to specialise on core activities and outsource non-core activities to logistics service providers (LSPs). Outsourcing is a fashionable way of solving business problems and there are numerous reports of its increased use (Andersson and Norrman, 2002). Most literatures on logistics outsourcing discuss the use of traditional logistics services such as transportation and warehousing (Lieb, 1992; Lieb et al., 1993; Rao and Young, 1994; Van Damme and Van Amstel, 1996; Wilding and Juriado, 2004), advantages and risks of outsourcing (Razzaque and Sheng, 1998; Norek and Pohlen, 2001; Sohail and Sohal, 2003), or the selection process of LSPs (McGinnis and Kochunny, 1995; Aghazadeh, 2003). However, very little is known about outsourcing advanced logistics services involving logistics planning and control activities; also little research is done on its implications for food supply chain networks. The purpose of this paper is to develop a decision-making framework for outsourcing different levels of logistics activities. This is done by rst identifying the factors that determine the outsourcing decision of logistics activities, then examine if the determinant factors are different for the outsourcing of different logistics activities. The main research questions in this paper are: RQ1. What kind of logistics activities are outsourced by food industry? RQ2. What decision-making criteria are considered by food companies when outsourcing these logistics activities? RQ3. Are the decision-making criteria different between the (levels of) activities? To answer these questions, this research comprises three stages. In stage 1, a literature review on the outsourcing theories and approaches was undertaken to determine relevant factors. In stage 2, exploratory case studies were undertaken in The Netherlands to verify the factors and, possibly, identify or specify other relevant factors that were not mentioned in literature. These two stages result in a preliminary decision-making framework. In stage 3, an exploratory survey was undertaken in The Netherlands to assess the importance of each of the identied factors for each level. Before we discuss the results of the three stages successively and present the decision-making framework for levels of logistics outsourcing, we will rst dene logistics outsourcing and levels of activities that can be outsourced. Denitions Logistics outsourcing Many denitions on logistics outsourcing can be found in literatures (Lieb et al., 1993; Bagchi and Virum, 1996; LaLonde and Cooper, 1998; Berglund et al., 1999). This paper uses a combined denition of Lieb et al. (1993) and LaLonde and Cooper (1998):
Logistics outsourcing is a process that involves the use of external logistics companies to perform activities that have traditionally been performed within an organisation, where the shipper and logistics company enter into an agreement for delivering services at specic costs over some identiable time horizon.

Logistics process and four levels of activities Logistics is dened as the process of planning, implementing and controlling the efcient, cost-effective ow and storage of raw materials, in-process inventory, nished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements (Van Goor et al., 2003). A logistics process consists of any activity or group of activities that takes one or more inputs (human assets, equipment, facilities, information and material), transforms and adds value to them, and then provides output (e.g. logistic services) to one or more customers. Table I summarises the most often outsourced logistics activities by large manufacturers. Accordingly, we decompose a logistics process into four levels: . 1st level. refers to the execution level of basic activities, such as transportation and warehousing. Table I indicates that activities at this level are outsourced to a large degree in larger companies. . 2nd level. refers to value-added activities. Examples in food industry are cutting, mixing or packing. Table I indicates that these activities are outsourced especially in food industry. . 3rd level. refers to the planning and control level. Activities that can be outsourced at this level are inventory and transportation management. Sub-activities of inventory management are sales forecasting, stock control and event control.

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Category of logistics activity 1st level: execution activities Fleet management Shipment consolidation (ocean)Carrier selection Transport Rate negotiation Logistics IS Warehouse management Storage Product returns Order fullment Order processing 2nd level: value-added activities Product assembly and installation Re-labelling and re-packaging Final product customisation 3rd level: planning level Inventory replenishment and forecasting 4th level: strategic planning level Road carrier selection and site selection

Lieb and Randall (1996)a (%) 22 33 33 22 29 36 11 9 6 11 6

Millen et al. (1997)b (%) 53 42 33 11 22 47 33 33 16 13

Wilding and Juriado (2004)c (%) 51 74 60 40 37 Table I. Category of logistics activity and the most often outsourced activities during 1996-2004

Notes: aSample: 500 largest manufacturers in the USA identied by Fortune magazine; bsample: 500 largest rms in Australia in 1994 identied by Business Review Weekly magazine (excluding nancial, banking, real estate and insurance organizations); csample: 52 consumer goods companies in European countries

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Sub-activities of transportation management include route planning and scheduling and event control. Table I indicates that activities at this level are less common to be outsourced than the previous levels. 4th level. At the top level of logistics activities to be outsourced is the distribution network design. This is the strategic decision-making level in which decisions are made concerning road carrier selection, location and site analysis and logistics network management. When activities at this level are outsourced, the LSP takes care of the logistics network design and orchestrates the logistics ow of the network (Van der Vorst et al., 2007). So far, few studies have included these activities in the investigation.

Literature review: outsourcing approaches (stage 1) In-house or outsourcing (make or buy) decisions have been investigated from different perspectives due to its multidisciplinary nature. The literature review identied four major approaches: (1) transaction cost view; (2) resource-based view (RBV); (3) supply chain management (SCM) theory; and (4) other approaches. Here, we discuss these theories in general, including historical development, assumptions and predictions on make-or-buy. Table II summarizes the key ndings. (1) Transaction cost theory ( TCT ) The rst stream of outsourcing approaches is based on Williamsons TCT (Williamson, 1985). The concept of transaction cost which drives the governance structure was rst developed by Coase (1937). Williamson (1985) made great progress by elaborating and operationalizing the concept. For the last 20 years, many researchers on boundary choice have been directed by the transaction cost concept especially regarding production processes or IS (Anderson, 1985; Robertson and Gatignon, 1998; Aubert et al., 2004). TCT at its core, focuses on the costs of completing transactions by one institutional mode rather than another (Williamson, 1975). The transaction, a transfer of a good or service, is the unit of analysis. The primary assumptions are bounded rationality and opportunism which cause transactional difculties. The theory and empirical studies in Table II claim that transaction difculties and associated cost increase when transactions are characterized by three main attributes: asset specicity, uncertainty and frequency of the transaction. ( 2 ) Resource-based view Discussions on RBV of the rm begin with Wernerfelts (1984) A resource-based view of the rm, by analyzing rms from the resource side rather than from the product side. Following Wernerfelts article, Barney (1991) proposes a framework, called the RBV of the rm to study a rms internal strengths and weaknesses. Assumptions of the RBV are heterogeneous and immobility. Firm resources are controlled by a rm and that enable the rm to conceive and implement strategies designed to improve its efciency and effectiveness (Barney, 2007). As the RBV of the rm developed, scholars have

Reference Transaction specicity Difculty of evaluating performance Environmental unpredictability Asset specicity Technological uncertainties Behavioural uncertainties R&D outsourcing Salesman outsourcing

Sample

Key independent variable(s)

Key dependent variable(s) Key ndings

TCT Anderson (1985)

Transaction specicity and difculty of evaluating performance are related to the use of in-house sales force

Robertson and Gatignon (1998)

159 sales managers in electronic manufacturing industry 264 R&D directors across a broad spectrum US industries

Aubert et al. (2004) Outsourcing

630 IS executives

Asset specicity Uncertainty Business skills, and technical skills

IT outsourcing

The greater the specicity of existing assets, the more likely that the rm will develop technology internally rather than establish a technology alliance The greater the ability to measure an innovations performance increase, the more likely alliances are formed Uncertainty and measurement problems play a key role in the IT-outsourcing decision

RBV Quinn and Hilmer (1994)

Conceptual research Core competence

Teng et al. (1995) 118 companies

Perceived discrepancy between desired and actual level of performance

IS outsourcing

A rm should develop a few well-selected core competencies of signicance to customers in which the company can be best-in-world, and strategically outsource many other activities where it cannot be best When the quality of general IS support falls short of expectations, the organization will exhibit a noticeably stronger tendency to outsource (continued)

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Table II. Summary of key outsourcing approaches, attributes and predictions on make-or-buy

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Reference Valuable knowledge and capabilities

Poppo and Zenger (1998)

Insinga and Werle (2000)

Arnold (2000)

Leiblein and Miller (2003) Sazadeh et al. (2008)

Table II. Key independent variable(s) Key dependent variable(s) Key ndings Information service Firms internalize and maintain internally those activities in which their superior capabilities enable efcient production Outsourcing Keep core competence in-house and outsource non-core activities because a core activity is an activity with the potential to yield competitive advantage Outsourcing Only the goods and services which are considered to be core competencies should be produced internally Production A rms past experiences affects rms vertical outsourcing boundary choices Financial service The greater the degree of customization offered by a service process, the more likely that, on average, the process maintains its primary backofce activities in-house (continued)

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Sample

152 computer executives

Conceptual research Core competence

Conceptual research Core competence

117 semiconductor Sourcing experience manufacturers 108 nancial service Degree of customization companies service offered

Reference

Sample

Key independent variable(s)

Key dependent variable(s) Key ndings

SCM perspectives Rao and Young Cases in wide range Logistics complexity (product (1994) of industries complexity; market complexity; process complexity and network complexity) Demand uctuation Frequency of delivery Operational exibility Cost reduction Expansion to new markets Transport Additional storage during peak periods Fleet management Relabeling Repacking Information service Handling activities Warehousing Activities Transportation activities Logistics outsourcing

Logistics complexity is produced principally due to large volume and variety of logistic transactions. When logistics complexity increases, the likelihood of outsourcing increases A rm considers to outsource the logistics to an external logistics provider when the demand of activities is varying Consumer goods companies choose to outsource primarily in order to benet from the competencies of LSPs (skills and exibility) and to reduce costs. Avoiding investment seems to be particularly important in this capital-intensive sector An increase in the scale of internal demand for an activity increases the likelihood of vertical integration

Van Damme and Conceptual Van Amstel (1996) Wilding and 50 consumer good Juriado (2004) companies in UK, Germany and France

Other perspective: economic of scale Poppo and 152 computer Zenger (1998) executives Scale of internal demand

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Table II.

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started a serial of discussions on boundary choices, core competencies and competitive advantages. Table II presents some of these studies; it identies two main determinant factors for outsourcing: core competences and value of human assets for specic business activities. (3) SCM theory The term SCM was rst used by Oliver and Webber in 1982 and was developed from logistics point of view. A number of researchers discuss logistics outsourcing from SCM point of view. Rao and Young (1994) and Van Damme and Van Amstel (1996) suggest that rms consider outsourcing of logistics to an external LSP when logistics complexity is high. Wilding and Juriado (2004) observe that cost reduction is the main motivation for logistics outsourcing. Bolumole (2001) mentions that rms which outsource for operational and cost-based reasons will tend to restrict LSPs involvement to the basic logistics functions. Therefore, an outsourcing decision might be inuenced by a rms supply chain characteristics (e.g. logistics complexity and demand uncertainty) or logistics strategy. (4) Other approaches The majority of the research on make-or-buy decisions use the TCT, RBV and/or SCM perspectives; however, a few studies also mention other approaches. For example, the importance of the external environment (social elements, competition and availability of suppliers) (Canez et al., 2000) or attaining economies of scale in production (Poppo and Zenger, 1998). In brief, our literature review suggests outsourcing approaches in four categories. Table II summarizes key outsourcing approaches and attributes. As can be seen from the table, a variety of dependent variables are studied; for example, sales forces, production, information service, R&D or logistics activities. In the next stage, three exploratory cases are used to verify these factors and possibly identify other factors that impact the outsourcing decision of logistics activities in the food industry. Case studies (stage 2) Three exploratory case studies (Voss et al., 2002) were undertaken in The Netherlands. For purpose of condentiality, the companies are referred to as Company 1, Company 2 and Company 3. These companies were chosen for a number of reasons. Preliminary interviews with managers in these companies revealed they had outsourcing experiences; in particular, they were outsourcing different activities. Furthermore, they produced different types of food products and thus were acting in different environmental networks and circumstances. The combination of the literature review with three case studies should provide us with enough insight to construct the decision-making framework for logistics outsourcing, which can successively be tested in a survey. The prime source of data collection were semi-structured face-to-face in-depth interviews with logistics managers as principle respondent (Lieb, 1992). In each case, descriptions including company background, outsourcing decisions made for logistics activities, motivations, reason of in-house and plans for the future are presented. Key questions for the interviews were: What kinds of logistics activities are being outsourced? If outsourced, why did you decide to outsource the activity?

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If not outsourced, why did you not outsource the activity? How was the logistics performance inuenced by an outsourcing decision? What are the current performances regarding exibility, reliability and cost?. (1) Company 1 Founded in 1980, Company 1 began as a milk producer for calves. In 2006, Company 1 had more than 160 employees and had reached e25 million turnover. The corporate policies were to be professional in veal and animal fodders. The logistics strategies aimed for speed and on-time delivery at low cost. Decisions of and motivations for outsourcing. Transportation and value-added activities were being outsourced when this research was taken. Company 1 is situated in the centrum of The Netherlands. Every week it processes 5,500 calves into a 100 of product varieties, which are distributed to its 800 customers in The Netherlands and Southern Europe. Time and food quality are critical for the company. To ensure speed and on-time delivery, it had outsourced cutting and packaging activities to local packaging houses. Besides, a number of local road carriers were hired to execute transport activities. According to the manager, the reasons for transportation outsourcing are the lack of own vehicles and sufcient skills to operate transport activities at the start of business. Reasons for not outsourcing. Warehousing, transportation management and inventory management and other logistics activities are kept in house; each for its own reason. Warehousing is not outsourced because meat products are very perishable and can only be stored in a warehouse for a few days before they are delivered. Regarding transportation management, the factory director explained: Hiring a logistics company to control all our transportations is not an option for us, because tendering transportation services for each market individual results in better prices. Moreover, time and effort could not be reduced if we outsource this activity. As for inventory management, the company has its own logistics department doing the job. Overall, these activities are important because food quality and on time delivery are the competitive priorities. Company 1 cannot afford loosing business in case LSPs have problems. Plans for the future. Company 1 is facing two main challenges: the rst is an increasing competition in Italian and Spanish markets which have forced them to expand to Eastern Europe markets. Another challenge is the time pressures from customers. Nowadays, more and more customers place orders in the last minute, but still request the same delivery performance. Nevertheless, even faced with such difculties, Company 1 shows no plan to outsource other logistics activities in the near future. (2) Company 2 Company 2, founded in 1911, is a dairy company engaged in dairy drinks, buttermilk and yoghurt production. The main activities are production, sales and marketing of fresh diary products in The Netherlands. In 2006, there are more than 5,000 employees and turnover was e600 million. The ambition of Company 2 is to be a provider of high-quality fresh dairy products. Low cost and high exibility are the main logistics objectives. Decisions of and motivations for outsourcing. Company 2 is very experienced in logistics outsourcing. The transportation activity has been outsourced for nine years. Company 2 owns three factories and one distribution centre (DC). Every year,

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each factory processes 80 million tons of milk in average with around 300 to 400 varieties. Although demand is quite stable for the whole year, varying distribution channels has made distribution management very complex. For example, fresh milks are requested direct distribution to retailer shops or DCs every day within 24 hours lead-time, while other milk-based drinks are distributed via Company 2s own DC. To deal with such a complex situation, an LSP is contracted for the outbound transportation activities as this logistics activity has limited added values to the company. Reasons for not outsourcing. Other logistics activities have been rarely outsourced, such as warehousing or packaging. The logistics manager explained that Warehousing is not outsourced because our production heavily depends on warehousing. In addition, warehousing is a very dedicated activity because of the very perishable products. Packaging and mixing are rarely outsourced because recipe and know-how are involved in these activities. Therefore, this activity wont be easily outsourced even if it is cheaper when done by outside companies. Plans for the future. In an attempt to cut more cost, Company 2 has decided to outsource route planning (transportation management) as well. When it is outsourced, the LSP became responsible for the planning of all distribution times to the customers, but planned in such a way that its own logistical efciency was optimised. However, the new proposed delivery times to retailers were not accepted by these customers, limiting the efciency and cost effectiveness of the LSP. Therefore, this activity was taken back in house again. The logistics manager stated that for the coming three years no other activities will be considered for outsourcing. (3) Company 3 Company 3 produces keepable food products which can be stored at ambient temperatures. The main activities of Company 3 are production, sales and marketing of long-life dairy products, as well as branded fruit juices and fruit-based drinks. It has about 5,000 employees with e600 million turnover. The main objective is to manufacture and market dairy and fruit-based products in such a way to create value that can be sustained in the long run for customers, shareholders, employees and business partners. Logistics, from the companys point of view, did not add much value to it. Decisions of and motivations for outsourcing. Outbound transport and transportation management were outsourced. Company 3 owned three factories and one DC. Each year, the three factories produced around 500,000 pallets to its 250 customers in Dutch, Belgium and German markets. Demand for their products uctuated signicantly; for example, juice products sometimes had high peak demand in summer. To deal with such situation, a long-life food specialized LSP was contracted to operate both the tactical and operational planning for Company 3. The main reasons for hiring the LSP were its specic competences and assets for ambient food logistics, and cost reduction. An increased price competition between retailers had incurred losses to us over the past few years, the logistics manager explained. Therefore, cost reductions were necessary. In 1994, a new contract was signed, indicating that the LSP started taking over transportation management activities for Company 3. Since then, every three to six months, the LSP presented a distribution schedule to Company 3 on volume, time and distributions by planning its own resources and equipments for efciency maximization.

Plans for the future. So far, the outsourcing programme was quite successful and satisfactory; for instance, on-time delivery increased to 93 per cent and logistics cost were reduced. Although the price war between supermarkets is still a pressure, Company 3 so far has no further plan to outsource other logistics activities. In brief, the responses from the interview data gathered from the participants exemplify relationships between activities and outsourcing motivations. Table III summarizes reasons for both outsourcing and not outsourcing. Most of these ndings are compatible with the theoretical ndings in Stage 1. Based on these ndings, we create an outsourcing decision-making framework. Construction of the decision-making framework The literature and the exploratory cases demonstrate examples of outsourcing considerations. This helps us construct a preliminary decision-making framework which presents key determinants for logistics outsourcing in food industry, shown in Figure 1. Asset specicity and measuring uncertainty are the attributes of TCT; core closeness is the attribute of RBV; supply chain complexity and logistics strategy are based on SCM. Five propositions are formulated concerning the determinants and its predictions on outsourcing decisions. Performances are assumed to improve if outsourcing decisions are made.

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Reasons for outsourcing Example: transportation, cutting, packaging, transportation management

Do not own any transport vehicle from the companys start (asset specicity TCT) The activity is less important to company (not the core business RBV) Logistics does add much value to company (low valuable RBV) Cost reduction (logistics strategy SCM) Complicated logistics requirements, such as demand uctuation, serving many international customers, etc. (supply chain complexity SCM) Cost pressure price war between retailers (other perspectives) Lack of professional knowledge (other perspectives)

Reasons for not sourcing Example: warehousing, inventory management, Having many years of experiences knowing how transportation management, distribution network to nd cheap carriers (asset specicity TCT) The activity can be operated by our own logistics design, etc. department (asset specicity TCT) The activity is very dedicated for own products (asset specicity TCT) Time and effort cannot be reduced (transaction uncertainty TCT) Outsourcing these activities will damage our core business (important to core business RBV) Food quality, speed, exibility were the competitive priorities (logistics strategy SCM)

Table III. Summary of case results

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Asset specificity

Levels of logistics outsourcing 3rd level: inventory management, transportation management

Measuring uncertainty

406

Core closeness

2nd level: value-added activities

Supply chain complexity

1st level: transportation, warehousing

Figure 1. A preliminary decision-making framework for levels of logistics outsourcing in FSCN

Logistics strategy Performance

Asset specicity Our case results suggest including asset specicity into the framework because the cases indicate that a logistics outsourcing decision is inuenced by existing assets such as dedicated facilities or current investments in employees logistical planning skills, etc. This nding is in accordance with literature (Anderson and Schmitteln, 1984; Robertson and Gatignon, 1998; Aubert et al., 2004). The argument is as follows: logistics-specic assets involve investments in human and physical capital which will loose value if they are redeployed in other uses. Thus, the following proposition is formulated: P1. The higher the asset specicity of a specic logistics activity, the more likely that a food rm will keep this activity in-house rather than outsource it.

Performance measuring uncertainty Literature and case results also suggest to include performance measurement uncertainty into the framework. One of the in-house reasons is that time and effort cannot be reduced. This time and effort problem might relate to transaction uncertainty, in particular, the behavior uncertainties. Behavior uncertainty deals with the difculties associated with monitoring the contractual performance of exchange partners. This nding is compatible with previous research that identies the importance of transaction uncertainty on outsourcing decisions (Poppo and Zenger, 1998; Robertson and Gatignon, 1998). Therefore, we argue that when performances cannot be easily assessed, outsourcing can be inefcient (i.e. less protable than in-house). The contracting costs are higher when writing an incentive compatible contract under a complex performance assessment. Thus, we formulate the following proposition: P2. The higher the performance measuring uncertainty when outsourcing a logistics activity, the more likely that a food rm will keep this activity in-house rather than outsource it.

Core activity or not? In this paper, we focus on a logistics activitys core closeness instead of core competence (Rao and Young, 1994; Franceschini et al., 2003), because the core business

of food manufacturers is most often production and research and development, not logistics. Our initial nding from cases indicates that an outsourcing decision might depend on an activitys value to core business (core closeness). This nding is consistent with previous research that discusses the value of human assets on outsourcing decisions (Teng et al., 1995; Conner and Prahalad, 1996; Poppo and Zenger, 1998). Each logistics activity has human assets related with it, indicating a rms general and specic knowledge on how to do things, for instance, transportation requires driving skills. Therefore, we argue that rms internalize and maintain internally those activities in which their superior capabilities or knowledge enable efcient logistical performance. Accordingly, we formulate the following proposition: P3. The closer a logistics activity to the core business, the less likely that a food rm will outsource that activity.

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Supply chain complexity Our case results indicate that supply chain complexities (for instance, number of products, demand prediction, number of international customers and distribution channel variety) cause planning and control problems to rms and inuences rms performances (Milgate, 2001). Literature suggests that when rms want to increase performances, rms can redesign chain structures (Van der Vorst and Beulens, 2002), and shift part of the complexity out-of-door (Wang and Von Tunzelmann, 2000). Therefore, we argue that supply chain complexity is positively related with an outsourcing decision because a supply chain with a high degree of complexity might require a LSP to render the managerial complexity. Therefore, we formulate the following proposition: P4. The higher the supply chain complexity, the more likely a food rm will outsource a logistics activity.

Logistics strategy The cases indicate that cost reduction is one of the outsourcing considerations, and companies with food quality, speed or exibility priorities prefer to keep an activity in-house. This result partly ts with previous studies. Bolumole (2001) mentions that outsourcing of basic logistics functions is based on operational and cost-based reasons; Al-kaabi et al. (2007) study outsourcing of maintenance, repair and overhaul in airline industry and concluded that the low-cost airlines and new airline entrants preferred outsourcing of all maintenance, repair and overhaul activities. However, companies with food quality or exibility priorities prefer to keep an activity in-house because they worry logistics companies have limited knowledge of food quality management or lack of exibility. Therefore, we suggest including logistics strategy into the framework, and propose: P5. A rm with low cost strategy is more likely to outsource a logistics activity than a rm with exibility or food quality strategy.

Survey (stage 3) The literature review and case results created a conceptual framework, but it does not provide quantitative insight in the relevance of each variable for the outsourcing decision of each level of activities. The objective of this stage is to test if activities at

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different levels are outsourced for different reasons. This part discusses ndings in relation to our RQ3. Research method An exploratory survey was undertaken in this stage (Forza, 2002). To analyze the outsourcing decisions, three different activities at different levels were chosen: transportation (1st), packaging (2nd) and transportation management (3rd). These three activities were selected because they were also outsourced in the cases. Companys name and address were obtained from the Dutch Chamber of Commerce (www.kvk.nl). We send a questionnaire to all companies with 40 employees or more, 385 companies in total. Of these 385 questionnaire, 57 were returned by postal service due to wrong addresses, relocation and bancrupcy of termination of the activities. A total of 76 responses was received of which 14 had missing data and were judged unusable. Finally, the sample size was 62, resulting in a respond rate of 19 per cent. Table IV shows the respondents prole (number of employees, number of plants and sectors). There are 28 respondents in the category of less than 50 employees representing the largest group (45 per cent); the second largest group are the 150- , 250 employees (26 per cent). In terms of plant number, the majority of respondents own one plant (53 per cent). Besides, these companies range widely in sectors. Most respondents are in the other group (38 per cent), second largest group are in the meat products (20 per cent). Measures and analysis. The variables in the survey include: make-or-buy choices, asset specicity, performance measurement uncertainty, core closeness, logistics strategy and supply chain complexity. Measures of these variables are described

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Number (n 62) Employees Less than 50 50- , 100 100- , 150 150- , 250 Larger than 250 Plants 1 2 3 4 or larger Sectors Meat Dairy Animal feeds Fruit/vegetables Fish Oils and fats Beverages Othersa 28 13 4 16 1 33 12 6 11 12 8 8 5 2 2 1 23

Percentages 45 21 7 26 2 53 19 10 18 20 13 13 8 3 3 2 38

Table IV. Prole of respondents

Note: aOthers include bread, biscuits, sugar, cocoa, macaroni, coffee, etc

in the Appendix. A t-test was used to compare two population means (the outsourced and in-house groups) on the variables: asset specicity, measuring uncertainty, core closeness and supply chain complexity. The logistic strategy variable was measured by the proportions test. Results Table V presents comparisons between the outsourced and in-house groups on the different activities. The test statistics indicate that transportation outsourcing is inuenced only by asset specicity ( p-value , 0.001). The packaging outsourcing is inuenced by asset specicity ( p-value , 0.001), but also by the complexity caused by number of products produced ( p-value , 0.05), demand uncertainty ( p-value , 0.05) and the average of supply chain complexity ( p-value , 0.05). Transportation management is outsourced under multiple conditions, i.e. asset specicity ( p-value , 0.01), distribution channel variety ( p-value , 0.1) supply chain complexity ( p-value , 0.1) and core closeness ( p-value , 0.01). Logistics strategy does not differ signicantly for the two groups in the three activities, but we observe that cost priority seems higher in the outsource group, particularly in the transportation and packaging activities and seems higher in the in-house group for transportation management. To sum up, the results indicate that different activities are outsourced for different reasons. Discussion and conclusion Much management literature exists on outsourcing of production activities or IS, but there is a gap in literature regarding the outsourcing of the planning level of logistics
1st level Transportation Gih Go (n 45) (n 17) 3.60 6.20 6.16 4.80 4.84 3.50 3.58 4.33 51 18 16 16 6.94 * * * * 5.50 7.00 4.90 4.44 3.00 3.00 3.99 47 29 6 18 2nd level Packaging Go Gih (n 5) (n 57) 2.60 4.80 7.20 6.00 6.20 3.80 4.20 5.25 60 20 20 0 6.84 * * * * 5.98 6.81 4.74 * * 4.61 * * 3.32 3.35 4.15 * * 49 21 12 18 3rd level Transportation management Go Gih (n 22) (n 40) 4.50 5.82 6.60 4.95 5.14 3.67 4.00 4.59 32 27 9 32 5.82 * * * 5.66 7.33 * * 4.78 4.51 3.20 3.10 * 4.04 * 53 25 15 8

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Variables Q1. Asset specicity Q2. Measurement uncertainty Q3. Core closeness Q4. Supply chain complexity Number of products (SKUs) Demand uncertainty Number of international customers Distribution channel variety Avg of supply chain complexity Q5 Logistics strategy Cost (%) Flexibility (%) Food quality (%) Others (%)

Notes: Signicant at: *p , 0.1, * *p , 0.05, * * *p , 0.01, and * * * *p , 0.001 (two-tailed); outcomes of packaging were also conrmed by Kruskal-Wallis test due to the small number in Go, results were the same

Table V. Comparisons of the outsourced group (Go) and in-house group (Gih) on the three levels of logistics activities

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activities especially in food industry. This research takes a rst step in bringing outsourcing research in this context to create a conceptual framework for outsourcing different levels of logistics activities. This paper presents two principle ndings: (1) A logistics outsourcing decision is related to asset specicity, core closeness and supply chain complexity. Our research identies these determinant factors for food industry. We propose that the lower the current investment by the rm in logistics assets, the higher the likelihood that the activity is outsourced (P1). The less close the activity to the core business, the higher the likelihood that an activity is outsourced (P3). Moreover, the higher the supply chain complexity, the higher the likelihood that an activity is outsourced (P4). (2) Logistics activities at different levels are outsourced for different reasons. Evaluation of different activities requires insights in three theories: transaction cost, resource-based and SCM theory. There is a growing body of literature discussing that TCE and RBV are complementary and that each theoretical perspective alone cannot fully explain a make-or-buy decision (Poppo and Zenger, 1998; Arnold, 2000; Madhok, 2002; Holcomb and Hitt, 2007). Interestingly, our preliminary ndings echo these expectations but add that SCM theory especially supply chain complexity should be taken into account as well. To conclude, a conceptual decision-making framework is created for interpreting and analyzing outsourcing considerations of different levels of logistics activities. The framework identies three determinant factors for food industry: asset specicity, core closeness and supply chain complexity. Besides, our outsourcing framework also indicates that logistics activities at different levels are outsourced for different reasons. Performance measurement uncertainty and the logistics strategy might also have an inuence; however, this could not be statistically proven via the survey. There are some limitations in this research. First, we did not test on the Level 4 decision making. It would be interesting to survey companies using 4PLs to establish why and how they decide on outsourcing this activity. Probably, another sampling technique, for instance snowball sampling, should be used to be sure that enough companies are selected that outsource the 4PL-activities. Second, our study focuses on companies in the Dutch food industry. It would be interesting to enlarge the research setting for instance to other countries or industries to see whether our results are supported in this larger setting.

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Van Goor, A.R., Amstel, M.J.P.V. and Amstel, W.P.V. (2003), European Distribution and Supply Chain Logistics, Wolters-Noordhoff, Groningen. Voss, C., Tsikriktsis, N. and Frohlich, M. (2002), Case research in operations management, International Journal of Operation & Production Management, Vol. 22 No. 2, pp. 195-219. Wang, Q. and Von Tunzelmann, N. (2000), Complexity and the functions of the rm: breadth and depth, Research Policy, Vol. 29 Nos 7/8, pp. 805-18. Wernerfelt, B. (1984), A resource-based view of the rm, Strategic Management Journal, Vol. 5 No. 2, pp. 171-80. Wilding, R. and Juriado, R. (2004), Customer perceptions on logistics outsourcing in the European consumer goods industry, International Journal of Physical Distribution & Logistics Management, Vol. 34 No. 8, pp. 628-44. Williamson, O.E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, The Free Press, New York, NY. Williamson, O.E. (1985), The Economic Institutions of Capitalism, The Free Press, New York, NY. Further reading Hertz, S. and Afredsson, M. (2003), Strategic development of the third party logistics providers, Industrial Marketing Management, Vol. 32, pp. 139-79. Appendix. Survey measurements (1) Make-or-buy choices. The outsourcing status was assessed using a two-point scales with two anchors (have outsourced, and have not and will not outsource). (2) Asset specicity. To measure this variable, we use We have invested in special equipments to conduct this activity (Poppo and Zenger, 1998). This item is measured using ten-point scales anchored by strongly disagree and strongly agree. (3) Performance measurement uncertainty. To measure this variable, we use the following statement: We specify precise measures for evaluating the performance of this activity (Robertson and Gatignon, 1998). This item is measured using ten-point scales anchored by strongly disagree and strongly agree. (4) Core closeness. To measure this variable, we use This activity contributes highly to our competitive advantage. This item is measured using ten-point scales anchored by strongly disagree and strongly agree. (5) Supply chain complexity. Four measurement items are obtained from cases results to measure this variable. These items are number of stock keeping units, demand uncertainty, number of international customers, and distribution channel variety Respondents were asked to rank 1 to 7 scales indicating to what extent they agree if these factors complicate the management of logistics processes (1 strongly disagree; 7 strongly agree). (6) Logistics strategy. We measure this variable using two scales anchored by cost, exibility and food quality. Respondents were asked to rank the importance of each of the objectives in percentage with overall sum of 100.

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About the authors H.I. Hsiao (1976) is a post-doctoral researcher in Institute of Management, National Taiwan Normal University. She obtained her Master degree in Food Science at National Taiwan Ocean

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University in Taiwan in 2000; and in 2002, she obtained another Master degree in Maritime Economic and Logistics at Erasmus University in The Netherlands. In 2009, she obtained her Doctor degree in Business Administration at Wageningen University. Her current research interest focuses on SCM and innovation in agri-food industry. H.I. Hsiao is the corresponding author and can be contacted at: hihsiao@ntnu.edu.tw J.G.A.J. van der Vorst is a Professor of Logistics and Operations Research at Wageningen University in The Netherlands. He publishes regularly in international journals on topics as food SCM, performance measurement and traceability in food and agribusiness. His current research focuses on the development of innovative logistics concepts in food supply chain networks and the quantitative modelling and evaluation of such concepts, especially via simulation modelling. R.G.M. Kemp is a Senior Researcher at the Bureau of the Chief Economist of the Netherlands Competition Authority and an Assistant Professor at Wageningen University and Research Centre, The Netherlands. His research focuses on competition issues, growth of SMEs and innovation. S.W.F. (Onno) Omta is Chaired Professor of Management Studies Group at Wageningen University in The Netherlands, and the Editor-in-Chief of The Journal on Chain and Network Science. He graduated in biochemistry and defended his PhD thesis on the management of biomedical research and pharmaceutical innovation at the University of Groningen. He is the author of many articles on innovation management and the author of different books in this area. He has been active as a management consultant for a large variety of (multinational) companies in the area of innovation management. His current research interest encompasses innovation in chains and networks in the agri-food industry.

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