LOGISTICS PERFORMANCE: EFFICIENCY, EFFECTIVENESS,

AND DIFFERENTIATION
Introduction;
“The part of supply chain management that plans, implements, and controls the efficient,
effective forward and reverses flow and storage of goods, services and related
information between the point of origin and the point of consumption in order to meet
customers’ requirement. (CSCMP 2011)
Efficiency and effectiveness are two primary goals of an organizational logistic
performance and both of them are mutually exclusive but there is a possible tradeoff
between these two goals as well. Logistic managers can strive to make their organization
either more efficient or more effective hence giving up on one of the two core objectives.
This perspective maintains that “pursuing one or the other to its extreme precludes pursuit
of the other” (Griffis et al. 2004, p. 100).
Another important factor for gaining competitive advantage is differentiation strategy. The
extent to which an organization can differentiate itself from others in the market to gain
competitive advantage is extremely important. Any change in effective, efficiency and
differentiation of logistic performance brings an overall change in the performance of
organization and dictates your position with respect to your competitor in the market. In
order to gain competitive advantage firms need to improve their overall performance
which requires massive expenditure as well.
Logistic of an organization has to be effective, efficient and differentiated at the same time
to improve the overall performance of the organization. The profitability of the logistics
depends upon effective use of the resources while keeping in view the revenue
generating capability of these resources and the extent to which these elements help the
organization to gain market share. Focusing on one while neglecting other can lead to
disruption in overall performance.

Significance
This research contributes towards objective of understanding the performance of logistic
functions and their impact on overall performance of the organization.
It strives to develop theoretically based conceptualizations of efficiency, effectiveness and
differentiation in logistic performance.
It tends to provide the exclusive relationship between efficiency and effectiveness in
terms of competitive advantage of an organization. It also investigates the influence of
logistic performance on organizational performance.
 Literature review
LOGISTICS PERFORMANCE: EFFICIENCY, EFFECTIVENESS, AND
DIFFERENTIATION
The logistics function has long been under pressure to demonstrate its contribution to
organizational performance (Rutner and Langley 2000).Researches have shown that
excellence in performing logistic activities and capabilities is associated with superior
organizational performance. (Lambert and Burduroglo 2000; Lynch, Keller, and Ozment
2000).In order to improve logistics, managers come across various conflict objectives
whether they should strive to efficiency or they should focus on effectiveness. Recent
logistic research suggests that both are mutually exclusive (Griffis et al. 2004). Product
life cycle have shortened, and customers have become demanding due to immense
advancement in technology and globalization, so managers have to strive for more
efficiency and effectiveness to achieve competitive advantage. Mentzer and Konrad
(1991) defined logistics performance as effectiveness and efficiency in performing
Logistic activities. Langley and Holcomb (1992) extended this definition by adding
logistics differentiation as a key element of logistics performance because the value
customers receive from logistics activities also serves as an indicator of logistics
performance.

Summary of articles

Article Author Summary Citation

Co‐creating Atefeh Yazdanparast, Ila

logistics value: Atefeh Different conceptualization of the Manuj, Stephen M.
a service‐ Yazdanparast processes through which logistics Swartz, (2010) "Co‐creating
service creates value to gain logistics value: a service‐
dominant logic
Ila Manuj competitive advantage have been dominant logic
perspective Stephe.M. discussed. logistics service is perspective", The
Swartz therefore defined as the attributes International Journal of
of the process by which the item Logistics Management, Vol.
gets to the user is part of the value 21 Issue: 3, pp.375-403,
of the product (Mentzer et al.,
1997).
Logistics is an important component
of customer service that helps to gain
competitive advantage in
marketplace.
Managers are recognizing that
competitive advantage can be gained
through effectiveness, efficiency and
 differentiation. Creating customer
value and gaining competitive
advantage at a same time is bit
difficult. Logistic can create
competitive advantage and can
deliver value to customer through
efficiency, effectiveness and
differentiation. Efficiency deals with
ability to provide the desired product
to customer at a cost that is
acceptable by the customer.
Effectiveness of a firm is concerned
with the ability to meet customer
requirement in certain critical areas of
performance. Differentiation
manifests itself in its ability of logistics
to create value for the customer
through uniqueness and
distinctiveness of logistical services.
Higher effectiveness and efficiency
and provide opportunities to maintain
co creation value processes.

Karim Ahmed The professionalization of logistics Karim Ahmed Helmy

THE IMPACT OF Helmy management, as well as the strong Mohamed Yehia ElMokadem
LOGISTICS Mohamed conviction that logistics contributes to Alaa Abd el Bary Mohi El-
PERFORMANCE Yehia economic wealth and costs savings, Sayeh Arab Academy For
ON ElMokadem have changed the way logistics- Science, Technology and
COMPETITIVE Alaa Abd el related aspects are viewed. Maritime Transport
ADVANTAGE Bary Mohi El- Consequently, the overall importance (AASTMT) Graduate School
Sayeh of logistics is increasing. Thus, of Business
innovative and up-to-date methods
are needed to cope with new
challenges in the field (A. von der
Gracht and Darkow, 2013). Key
factor of logistics is transportation
because it constitutes one third cost
of the logistic system. Logistics
performance is defined as the degree
of efficiency, effectiveness and
differentiation linked with the
accomplishment of logistics activities
(Mentzer et al., 2004). The logistics
function as a whole should strive to
reduce the ratio of resources utilized
 against derived results (efficiency),
accomplish pre-defined goals
(effectiveness), and gain superiority
in comparison with competitors
(differentiation) (Tuan, 2017).A
logistic performance is achieved
through 7R formula when the right
amount of right product is delivered at
the right place in right time with right
information in right condition.
Logistics performance is defined as
the degree of efficiency,
effectiveness, and differentiation
linked with the accomplishment of
logistics activities (Mentzer et al.,
2004). The logistics function as a
whole should strive to reduce the
ratio of resources utilized against
derived results (efficiency),
accomplish pre-defined goals
(effectiveness), and gain superiority
in comparison with competitors
(differentiation) (Tuan, 2017).

Competitiveness is growing day by Rohit Bhatnagar, Chee‐Chong

Role of logistics day in global marketplace. Firms Teo, (2009) "Role of logistics
in enhancing respond to this competitiveness in enhancing competitive
competitive through various business strategies advantage: A value
advantage whose main aim is to create value for chain framework for global
customers. These strategies include supply chains", International
offering a broader product mix to Journal of Physical
customers to fulfil the product variety Distribution & Logistics
needs. It also includes global Management, Vol. 39 Issue:
distribution and global sourcing to 3,
ensure cost effectiveness. Time
based competition to enhance
responsiveness. Porter (1985)
defined the value chain concept as a
crucial tool for analyzing the sources
of competitive advantage. A firm
gains competitive advantage by
understanding the behavior of cost,
existing potential of differentiation
and efficiency in logistic
performance.
 A firm has to do all these activities
cheaply than its competitors to gain
competitive advantage. The role of
linkages within the value to gain
competitive advantage is also
important. Linkage represents the
overall tradeoff between activities to
attain competitiveness, which can be
done in two ways, optimization and
coordination. A firm competing on
cost could improve its cost position
by working with suppliers and
channels to exploit possibilities for
all parties to gain through the
coordination and joint optimization of
their respective value chains to
reduce the final cost of the product.
(Porter 1985).

Logistics – Alan Stainer Kotler suggested the concept of four Alan Stainer, (1997)
a productivity C’s that are convenience, "Logistics ‐ a productivity and
and communication, customer value and performance perspective",
performance cost to the customer. Convenience Supply Chain Management:
perspective and communication embrace An International
logistics whereby customer has the Journal, Vol. 2 Issue:
right product or services at the right
time at the right place. (Kotler 1991,
pp. 24-5) .Porter focused on
customer value and cost to
customer. He demonstrated that
differentiation is in value to the
customer and productivity is relation
to cost to the customer. Low cost
organization can concentrate on
improving productivity through
continuous improvement.
Christopher (1992, pp. 8-10) affirms
that organizations would gain
competitive advantage, through
Logistics, when they seek and
achieve excellence in the “twin
peaks of cost and service
leadership”.
Framework

H1: Logistics effectiveness and logistics efficiency are positively related.

H2: Logistics effectiveness and logistics differentiation are positively related.
H3: Logistics differentiation and logistics efficiency are positively related.
H4: Logistics performance is a second-order formative construct composed of three
dimensions: (a) logistics effectiveness; (b) logistics efficiency; and (c) logistics
differentiation.
H5: High levels of logistics performance are positively associated with high levels of
organizational performance.

This figure depicts that logistic performance comprises of three dimensions, efficiency,
effectiveness and differentiation. It states that second order logistic performance
construct is formative and any change in logistics efficiency, effectiveness and
differentiation might cause changes in overall logistic performance. Previous studies
reveal that increase in efficiency, effectiveness and differentiation variable decreases
expenses, inventory and cash requirements and increases inventory availability, timely
delivery, on-time and damage-free delivery, line item fill rates, and sales which improve
net margin and asset turnover, which improves return on assets and overall firm
performance.

Methodology
Survey methodology is used to address theoretical, methodological and managerial
issues raised to test hypothesis.
Data has been collected in a nationwide survey using a list obtained from council of supply
chain management professionals. The target respondents were the firm’s mid and top-
level logistics professionals because they have higher degree of knowledge of all logistics
area and the overall organizational performance.
In sampling frame 105 random managers were selected among 530 managers of firm
who were email linked to web survey based to pretest, validate and revise the adapted
and newly developed measures. 84 respondents completed the survey and the response
rate was 80%. For final survey 336 out of remaining 425 respondents completed the
revised survey. The respondents held the title that suited the criteria and had average of
7 seven years of experience in their department. The respondents had an average of 92
direct and in direct report.
7-point Likert measurement scale procedure was adopted. The process of reviewing, pilot
testing, and revising the survey with eight subject matter experts and nine logistic
managers was conducted and it provided the basis of pretest survey. The result was 29
items followed by 4 items for global reach construct used to test common method bias.
The second order logistic performance was formative and formed by index represented
by three order dimensions i.e. Effectiveness, efficiency and differentiation. Three reflex
items Q1, Q2 and Q3 were additionally included.

Logistics Efficiency, Logistics Effectiveness, and Logistics Differentiation measures were

adapted from Bobbitt (2004) and Smith (2000). Organizational Performance measures
were adopted from Matsuno, Mentzer, and Özsomer (2002). Subjective scales were used
since it provided a larger available sample size than if objective measures were
requested. Previous research demonstrates that managerial assessments are consistent
with external secondary data (Kannan and Tan 2006; Tan et al. 1999; Venkatraman and
Ramanujam 1986) and objective internal performance (Dess and Robinson 1984, 1987;
Slater and Narver 1994). In addition, though the survey participants were assured
anonymity, 44 respondents voluntarily provided their firm names, which were also
available in the Compustat database. We compared four objective indicators obtained
via Compustat (either directly or computed) for those 44 firms with the Likert-scale
measures, which resulted in a positive, significant correlation (p < .01) of 0.69 for ROI,0.64
for ROA, 0.57 for return on sales, and 0.67 for sales growth.
Amos in measurement model and procedural model was used to derive the results and
Amos in structural method was used to analyze the relationship among the dimensions.
In testing formative constructs covariance-based methods were appropriate.

Key Findings
 The results support the hypothesis H1, H2 and H3.
 The result of structural model shoes that contrary to neither-nor does relationship,
a positive correlation occur between effectiveness, efficiency and differentiation of
logistics in the firm.
 Also a positive relationship exists between a firm’s logistics performance and its
effectiveness, logistic performance and efficiency and logistic performance and
differentiation. (Fugate, Mentzer & Stank).
 The standard estimate relationship between logistic performance and logistic
effectiveness is 0.18 (standardized estimate), logistics performance and logistics
efficiency (standardized estimate = 0.29), and logistics performance and logistics
differentiation (standardized estimate = 0.59).
 It means that rise in effectiveness, efficiency or differentiation will increase overall
logistics performance. Study shows that logistics is second-order construct which
comprises of effectiveness, efficiency and differentiation.
 H4 shows that there is a substantial relationship between the logistics performance
and organizational performance.
 Results provided support for H4a-c that logistics performance is a second-order
construct formed by logistics efficiency, effectiveness, and differentiation. Lastly,
logistics performance has an expected significant positive relationship on
organizational performance (standardized estimate = 0.51, p < 0.001), which
provides support for H5.

Conclusions

This research contributes to better understanding of logistics and interrelation among its
dimensions of efficiency, effectiveness and differentiation. The impact of these
dimensions on logistics and on overall performance of the firm have been discussed. This
theory is applicable both theoretically and on managerial level.
This paper concludes that a co relation exists among the efficiency and effectiveness and
pursuing one does not preclude the pursuit of other rather they both reinforce each other.
Logistics performance does not need to tradeoff between the efficiency, effectiveness
and differentiation rather they all can be perused simultaneously.
It suggests that managers should strive to find approaches to break through these
tradeoffs. The results provide the empirical support for operationalizing logistics
performance as performed by logistics performance, construct and its dimensions.
Recommendations

Recommendations of the study are to test the performance impact of logistic

phenomenon of interest in future research. Future researchers can consider applying the
second-order formative logistics performance construct as an outcome variable in their
research. It emphasizes that the managers should systematically search and monitor
logistics results of various other firm in the respective industry and compare the logistic
performance of their firms with the competitors.

Future research can apply Griffis et al.’s (2004) model to determine needs of individual
logistics professionals and their collective impact overall logistics function. While this
research is based on multiple manufacturing industries by using survey methodology,
future research could apply other research approaches to focus on single industries or
firms.( Fugate and Mentzer).

References

 Fugate, B. S., Mentzer, J. T. and Stank, T. P. (2010), LOGISTICS

PERFORMANCE: EFFICIENCY, EFFECTIVENESS, AND DIFFERENTIATION.
Journal of Business Logistics,

 Rohit Bhatnagar, Chee‐Chong Teo, (2009) "Role of logistics in enhancing

competitive advantage: A value chain framework for global supply chains",
International Journal of Physical Distribution & Logistics Management, Vol. 39
Issue: 3,

 Alan Stainer, (1997) "Logistics ‐ a productivity and performance perspective",

Supply Chain Management: An International Journal, Vol. 2 Issue

 Atefeh Yazdanparast, Ila Manuj, Stephen M. Swartz, (2010) "Co‐creating

logistics value: a service‐dominant logic perspective", The International
Journal of Logistics Management, Vol. 21 Issue: 3, pp.375-403,
