Running head: JOURNAL ARTICLE REVIEW 3 1

Journal Article Review 3

Liberty University
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Journal Article Review 3

What Drives the Choice of a Third-Party Logistics Provider?

To completely understand supply chain management, one must fully understand the

concept of logistics and the processes it encompasses. Logistics consists of the functions within

the complete flow of material; these functions include the planning, controlling, warehousing,

processing, shipping, and distribution of the finalized production efforts (Young, 2019, p. 396).

Supply chain management already focuses on various internal and external components of

production efforts, and at times, organizations my determine that it is less costly to outsource

conduits of logistics to third-party providers. In this paper, the article will be reviewed and

summarized to communicate how the article aligns with supply chain management theory. A

brief background on the issue of third-party logistics suppliers will be discussed along within

managerial implications of outsourcing these conduits.

Statement of Authors Purpose

With supply chain management, managers can effectively monitor their internal

processes along with the conduits of the logistics to ensure that the processes are meeting both

the organizations and the consumers expectations. With the increase in competition within

various markets, organizations are focusing their internal efforts on specialized productions and

outsourcing specific activities to Third-Party Logistics (3PL) providers (Anderson, Coltman,

Devinney, & Keating, 2011). In the article “What Drives the Choice of a Third-Party Logistics

Provider” (2011), the authors discuss the various facets involved in the organizations decision to

utilize a 3PL. The authors main purpose is to identify and communicate the major challenges

associated with the utilization of a 3PL and what factors are the most significant in determining

the most appropriate 3PL.

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Because the 3PL directly impacts the creation of value through production efforts,

organizations must first determine which activities to outsource and then determine which 3PL

best aligns with their needs (Anderson et al., 2011). The article first, seeks to determine which

factors are the most influential in determining which 3PL to use once the organization has

determined which activities to outsource. Organizations each have a differentiated set of needs

and expectations that they must consider when determining which 3PL to use; therefore, the

authors implement a discrete choice stated preference model to determine the dynamics of a

logistics supplier that management deemed most pertinent (Anderson et al., 2011).

Based off the initial list of 21 factors previously determined by Coleman (2011), the

authors implement their preference model to determine the 10 most influential attributes that

contribute to the variation in determining which 3PL to use (as cited in Anderson et al., 2011).

From these initial 21 factors, the authors determine the 10 based off the responses from the

surveyed managers. The purpose of this methodology was to determine an effective response to

their initial research question. Anderson et al. (2011) determined that “reliable performance,

delivery speed, customer interaction, track and trace, service recovery, supply chain flexibility,

professionalism, proactive innovation, supply chain capacity, and relationship orientation” were

the top 10 influential factors in determining the most appropriate 3PL.

Another purpose of the article is to communicate the challenges associated with utilizing

a 3PL. The authors conclude that, one of the major issues with outsourcing activities to a 3PL is

the inability of 3PL’s to determine the specific values that “customers place on their different

service offerings so that they can then focus on delivering the right service to the right customer

segment” (Anderson et al., 2011). This focus is to communicate the potential issues or negative

effects utilizing a 3PL may have in creating value or meeting the specific needs of the customer.
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Application of Supply Chain Management Relative to Article

The focus on supply chain management is to create value through their production efforts

while maintaining efficient, effective, and cost-saving production efforts. To ensure the efforts of

the most efficient and the most financially sound option, management needs to understand the

facets of logistics and how each activity impacts the total value created for both the organization

and the consumer. For many organizations, there are various issues associated with warehousing,

or storage.

Warehousing stows the organizations inventory and involves managing the product

supply and consumer demand; “because the value of strategic storage was not well understood,

warehouses were often considered necessary evils that added costs to the distribution process”

(Young, 2019, p. 124). Organizations endured heavy costs associated with warehouse efforts

until a strategic option to reduce warehouse costs and dwell time was established. Distribution

centers were introduced as a strategic response to the issues associated with warehousing, and

this was adopted by various organizations as part of their logistics strategy (Young, 2019, p.

124). This was considered a logistic, cost-savings strategy.

With logistics, the introduction of distribution centers resulted in organizations being able

to create “product assortments for customer shipments”, and this resulted in a reduction in the

logistical costs and a reduction in the slow-moving products because organizations are now able

to a reduced quantity (Young, 2019, p. 125). Because of the introduction of distribution centers,

organizations can outsource this component of logistics to reduce costs, increase efficiencies, and

reduce the dwell time. The economic benefit of strategic warehousing occurs when the costs of

logistics decreases results in a decrease in transportation cost and reduction in the total cost of
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productions (Young, 2019, p. 125). Beyond the idea of organizational costs savings, the economy

benefits from outsourcing the logistics activity of warehousing.

With logistics and warehousing, outsourcing this activity can result in an increase in the

responsiveness to consumer demands through spot stocking and full-line stocking which would

reduce the required number of suppliers within the supply chain (Young, 2019, p. 130). By

utilizing a 3PL for warehousing, organizations are saving time and money while increasing their

abilities to meet the changing consumer demands. With supply chain management theory, the

utilization of 3PL’s for distribution centers and strategic warehousing to reduce the costs

associated with logistics decreases the total costs associated with the entire supply chain.

Another relevant topic pertaining to supply chain management and a 3PL are the

activities associated with packaging and handling. The main concern of logistics deals with the

industrial package design; because packaging and handling decisions impact the efficiency and

productivity of an organizations logistic operations, organizations must determine the most cost

effective way to achieve these activities without reducing the value created (Wang, Gunasekaran,

Ngai, & Papadopoulos, 2016). By utilizing the appropriate 3PL, an organization can reduce the

logistics costs associated with fulfilling these tasks internally.

Background on the Issue

Before the heavy competition within these specialized intermediate markets,

organizations outsourced their processes to reduce their costs, increase the speed of delivery, and

convalesce reliability; historically, they based their determination almost exclusively on these

factors (Anderson et al., 2011). The dynamic of this paradigm has changed to encompass

additional aspects influenced by the increase in innovations, differentiation in consumer

demands, and increase in specialization. This paradigm now includes economic exchange
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factors, technology, relational attributes, flexibility, logistics performance, reputation, and

managerial envelopment as part of the process to determine the most appropriate 3PL (Anderson

et al., 2011). As the consumer demands and expectations shift, so do the expectations and

demands of the organization from a 3PL.

Historically, organizations performed most logistics efforts on their own without utilizing

outside efforts to increase efficiencies and reduce costs (Wang et al., 2016). This was before

specialization and the increase in 3PL’s. Organizations historically endured heavy costs

associated with logistics activities and we unable to focus on both creating value and pricing

strategies; therefore, organization endured various degrees of “trial and error” in trying to

determine the most efficient and effective way of organizing the logistics within their supply

chain (Sweeney, Grant, & Mangan, 2018).

Managerial Implications

Supply chain managers are responsible for ensuring that all activities throughout the

supply chain are done in the most effective, efficient, and cost-saving methods. With the

activities associated with logistics, managers are faced with a differentiated set of

responsibilities. With internal productions, managers are responsible for determining which

activities are not adding value and how to reorganize the activities to increase value and

efficiencies within that supply chain. With the notion of outsourcing to 3PL’s, managers are

responsible for determining the costs associated with performing the activities internally and

comparing it to the costs and opportunity costs associated with a 3PL. The first implication

comes with the inability to effectively determine which activities to outsource based on the

financial trajectory.
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Management must first determine which activities they could outsource that would result

in a total cost savings within their supply chain (Anderson et al., 2011). If managers do not have

a full comprehension of the activities and their costs, along with the potential external or

outsourcing options and costs, they cannot effectively determine which activities should be

outsourced to financially benefit the organization. If the manager outsources the wrong activities,

they lose control of those production efforts and could endure higher costs associated with

outsourcing them to a 3PL (Wang et al., 2016). This inability to determine which activities to

outsource could also result in a reduction in quality and value adding activities.

Another managerial implication lies in the determination of which 3PL to enter into a

contract with. Manager must first determine what aspects are the most important when choosing

a 3PL then they must align those requirements with the reputation and abilities of potential

contenders. If the manager does not properly analyze the market and research the potential

3PL’s, they may not choose the most appropriate 3PL to meet their organizational needs which

could result in a reduction in the value created. Without correctly determining the organization’s

needs, the abilities of the 3PL, and the most appropriate 3PL, management is putting the

organization at risk for failure.

A final implication would result from lacking communication between the manager and

the 3PL. Management must be able to effectively communicate the demands and expectations of

both the organization and the consumer to properly inform the 3PL of what is expected of them.

Managers need to make sure that upon entering into a contract with a 3LP, that the 3PL fully

understands what is expected of them and that the word they are producing adds values and

meets the needs of both the organization and the consumers. Managers need to make sure that
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they continue to monitor the efforts of the 3PL and survey the customer based to make sure that

their strategic move creates value and meets the expectations of all involved parties.

Summary

The purpose of the article is to communicate the most influential factors in determining

the most beneficial and appropriate 3PL while also communicating the potential consequences

associated with utilizing a 3PL. Regarding supply chain management and its’ theories, logistics

are the activities that take place within the supply chain and it is up to the discretion of the

manager to determine if utilizing a 3PL is financial beneficial to both the organization and the

consumer. Organizations must determine which activities in the supply chain they want to do

internally, and which activities they would benefit from outsourcing to a 3PL. From this,

managers need to determine their requirements from a 3PL and find the most appropriate

organization to outsource those activities too.

Before the specialization and establishment of specialized 3PL’s, organizations took on

their own processes or outsources processes based off cost, speed of delivery, and reliability. As

innovations and market conditions have changed, organizations have expanded their list of

requirements and demands of a 3PL to incorporate more consumer and economically focused

factors. There are various managerial implications such as the wrong determination of the

activities to outsource, choosing the wrong 3PL, and not effectively communicating the needs

and requirements of the organization to effectively create value that pose implications for

management. In conclusion, outsourcing to a 3PL can result in a reduction in costs and allow an

organization to focus their efforts on their internal, value adding activities. Organizations should

be selective when choosing a 3PL and make sure their organization and consumer needs align

with the abilities of the 3PL.

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References

Anderson, E. J., Coltman, T., Devinney, T. M., & Keating, B. (2011). What drives the choice of

a third-party logistics provider? Journal of Supply Chain Management, 47(2), 97-115.

Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-

com.ezproxy.liberty.edu/docview/864752376?accountid=12085

Sweeney, E., Grant, D. B., & Mangan, J. (2018). Strategic adoption of logistics and supply chain

management. International Journal of Operations and Product Management. Retrieved

from: https://www-emerald-com.ezproxy.liberty.edu/insight/content/doi/10.1108/IJOPM-

05-2016-0258/full/html

Wang, G., Gunasekaran, A., Ngai, E. W., & Papadopoulos, T. (2016). Big data analytics in

logistics and supply chain management: Certain investigations in research and

applications. International Journal of Production Economics, 176(3). Retrieved from:

https://www-sciencedirect-

com.ezproxy.liberty.edu/science/article/pii/S0925527316300056

Young, L. (2019). Supply chain management. New York, NY: McGraw-Hill Education.