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Developing a
Developing a decision-making decision-making
framework for levels of logistics framework
outsourcing in food supply
395
chain networks
Received July 2008
H.I. Hsiao Revised January 2010
Graduate Institute of Management, National Taiwan Normal University, Accepted February 2010
Taipei, Taiwan, Republic of China
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 identified: asset specificity, 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 specifically for the food industry.
Keywords Outsourcing, Distribution management, Food industry, Decision making
Paper type Research paper
International Journal of Physical
Introduction Distribution & Logistics Management
Vol. 40 No. 5, 2010
There are a number of changes in agri-food industry that initiate a re-orientation pp. 395-414
q Emerald Group Publishing Limited
of food companies regarding their roles, activities and strategies. For example, 0960-0035
demand and supply are no longer restricted to nations or regions but have become DOI 10.1108/09600031011052840
IJPDLM international processes. Furthermore, product assortments have expanded significantly
40,5 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
396 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 first 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 identified 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 first define
logistics outsourcing and levels of activities that can be outsourced.

Definitions
Logistics outsourcing
Many definitions 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 definition 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 specific costs
over some identifiable time horizon.
Logistics process and four levels of activities Developing a
Logistics is defined as the process of planning, implementing and controlling the decision-making
efficient, cost-effective flow and storage of raw materials, in-process inventory, finished
goods and related information from point of origin to point of consumption for the framework
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 397
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.

Lieb and Randall Millen et al. Wilding and Juriado

(1996)a (1997)b (2004)c
Category of logistics activity (%) (%) (%)

1st level: execution activities

Fleet management 22 53 51
Shipment consolidation 33 42 –
(ocean)Carrier selection 33 33 –
Transport – – 74
Rate negotiation 22 11 –
Logistics IS 29 22 –
Warehouse management 36 47 –
Storage – – 60
Product returns 11 33 –
Order fulfilment 9 33 –
Order processing 6 16 –
2nd level: value-added activities
Product assembly and installation 11 13 –
Re-labelling and re-packaging – – 40
Final product customisation – – 37
3rd level: planning level
Inventory replenishment and forecasting 6 – –
4th level: strategic planning level
Road carrier selection and site selection – – – Table I.
Category of logistics
Notes: aSample: 500 largest manufacturers in the USA identified by Fortune magazine; bsample: activity and the most
500 largest firms in Australia in 1994 identified by Business Review Weekly magazine (excluding often outsourced
financial, banking, real estate and insurance organizations); csample: 52 consumer goods companies in activities during
European countries 1996-2004
IJPDLM Sub-activities of transportation management include route planning and
40,5 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
398 network management. When activities at this level are outsourced, the LSP takes
care of the logistics network design and orchestrates the logistics flow 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 identified 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 findings.

(1) Transaction cost theory ( TCT )

The first stream of outsourcing approaches is based on Williamson’s TCT (Williamson,
1985). The concept of “transaction cost” which drives the governance structure was first
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 difficulties. The theory and empirical studies in
Table II claim that transaction difficulties and associated cost increase when
transactions are characterized by three main attributes: asset specificity, uncertainty
and frequency of the transaction.

( 2 ) Resource-based view
Discussions on RBV of the firm begin with Wernerfelt’s (1984) “A resource-based view of
the firm”, by analyzing firms from the resource side rather than from the product side.
Following Wernerfelt’s article, Barney (1991) proposes a framework, called the RBV of
the firm to study a firm’s internal strengths and weaknesses. Assumptions of the RBV
are heterogeneous and immobility. Firm resources are controlled by a firm and that
enable the firm to conceive and implement strategies designed to improve its efficiency
and effectiveness (Barney, 2007). As the RBV of the firm developed, scholars have
 Key dependent
Reference Sample Key independent variable(s) variable(s) Key findings

TCT
Anderson (1985) 159 sales managers Transaction specificity Salesman Transaction specificity and difficulty of
in electronic Difficulty of evaluating performance outsourcing evaluating performance are related to the use of
manufacturing Environmental unpredictability in-house sales force
industry
Robertson and 264 R&D directors Asset specificity R&D outsourcing The greater the specificity of existing assets, the
Gatignon (1998) across a broad Technological uncertainties more likely that the firm will develop technology
spectrum US Behavioural uncertainties internally rather than establish a technology
industries alliance
The greater the ability to measure an
innovation’s performance increase, the more
likely alliances are formed
Aubert et al. 630 IS executives Asset specificity IT outsourcing Uncertainty and measurement problems play a
(2004) Uncertainty key role in the IT-outsourcing decision
Business skills, and technical skills
RBV
Quinn and Conceptual research Core competence Outsourcing A firm should develop a few well-selected core
Hilmer (1994) competencies of significance to customers in
which the company can be best-in-world, and
strategically outsource many other activities
where it cannot be best
Teng et al. (1995) 118 companies Perceived discrepancy between IS outsourcing When the quality of general IS support falls short
desired and actual level of of expectations, the organization will exhibit a
performance noticeably stronger tendency to outsource
(continued)
attributes and predictions

decision-making
outsourcing approaches,

Developing a
Summary of key

framework
on make-or-buy

Table II.

399
 Table II.

400

40,5
IJPDLM
Key dependent
Reference Sample Key independent variable(s) variable(s) Key findings

Poppo and 152 computer Valuable knowledge and Information service Firms internalize and maintain internally those
Zenger (1998) executives capabilities activities in which their superior capabilities
enable efficient production
Insinga and Conceptual research Core competence Outsourcing Keep core competence in-house and outsource
Werle (2000) non-core activities because a core activity is an
activity with the potential to yield competitive
advantage
Arnold (2000) Conceptual research Core competence Outsourcing Only the goods and services which are
considered to be core competencies should be
produced internally
Leiblein and 117 semiconductor Sourcing experience Production A firm’s past experiences affects firm’s vertical
Miller (2003) manufacturers outsourcing boundary choices
Safizadeh et al. 108 financial service Degree of customization Financial service The greater the degree of customization offered
(2008) companies service offered by a service process, the more likely that, on
average, the process maintains its primary back-
office activities in-house
(continued)
 Key dependent
Reference Sample Key independent variable(s) variable(s) Key findings

SCM perspectives
Rao and Young Cases in wide range Logistics complexity (product Handling activities Logistics complexity is produced principally due
(1994) of industries complexity; market complexity; Warehousing to large volume and variety of logistic
process complexity and network Activities transactions. When logistics complexity
complexity) Transportation increases, the likelihood of outsourcing increases
activities
Van Damme and Conceptual Demand fluctuation Logistics A firm considers to outsource the logistics to an
Van Amstel Frequency of delivery outsourcing external logistics provider when the demand of
(1996) activities is varying
Wilding and 50 consumer good Operational flexibility Transport Consumer goods companies choose to outsource
Juriado (2004) companies in UK, Cost reduction Additional primarily in order to benefit from the
Germany and Expansion to new markets storage during competencies of LSPs (skills and flexibility) and
France peak periods to reduce costs. Avoiding investment seems to be
Fleet management particularly important in this capital-intensive
Relabeling sector
Repacking
Other perspective: economic of scale
Poppo and 152 computer Scale of internal demand Information An increase in the scale of internal demand for an
Zenger (1998) executives service activity increases the likelihood of vertical
integration

decision-making
Developing a
framework
Table II.

401
IJPDLM started a serial of discussions on boundary choices, core competencies and competitive
40,5 advantages. Table II presents some of these studies; it identifies two main determinant
factors for outsourcing: core competences and value of human assets for specific
business activities.

(3) SCM theory

402 The term “SCM” was first 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 firms 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 firms 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 influenced by a firm’s
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 confidentiality, 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?”
“If not outsourced, why did you not outsource the activity?” “How was the logistics Developing a
performance influenced by an outsourcing decision?” “What are the current decision-making
performances regarding flexibility, reliability and cost?”.
framework
(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 403
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 sufficient 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 first 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 difficulties,
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 flexibility 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,
IJPDLM each factory processes 80 million tons of milk in average with around 300 to 400
40,5 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 2’s own DC. To
deal with such a complex situation, an LSP is contracted for the outbound transportation
404 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 won’t 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 efficiency was optimised. However, the
new proposed delivery times to retailers were not accepted by these customers, limiting
the efficiency 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 company’s 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
fluctuated significantly; 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 specific 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 efficiency maximization.
 Plans for the future. So far, the outsourcing programme was quite successful and Developing a
satisfactory; for instance, on-time delivery increased to 93 per cent and logistics cost decision-making
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. framework
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 findings 405
are compatible with the theoretical findings in Stage 1. Based on these findings, 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 specificity 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.

Reasons for outsourcing

Example: transportation, cutting, packaging,
transportation management
Reasons for not sourcing
Example: warehousing, inventory management, Having many years of experiences knowing how
transportation management, distribution network to find cheap carriers (asset specificity – TCT)
design, etc.
Do not own any transport vehicle from the
company’s start (asset specificity – 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 fluctuation, serving many international
customers, etc. (supply chain complexity – SCM)
Cost pressure – price war between retailers
(other perspectives)
Lack of professional knowledge (other
perspectives)
The activity can be operated by our own logistics
department (asset specificity – TCT)
The activity is very dedicated for own products
(asset specificity – 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, flexibility were the Table III.
competitive priorities (logistics strategy – SCM) Summary of case results
IJPDLM Levels of logistics outsourcing
Asset specificity
40,5
3rd level: inventory management, transportation
Measuring uncertainty management

406 Core closeness 2nd level: value-added activities

Supply chain complexity 1st level: transportation, warehousing

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

Asset specificity
Our case results suggest including asset specificity into the framework because the
cases indicate that a logistics outsourcing decision is influenced by existing assets such
as dedicated facilities or current investments in employees’ logistical planning skills, etc.
This finding is in accordance with literature (Anderson and Schmitteln, 1984; Robertson
and Gatignon, 1998; Aubert et al., 2004). The argument is as follows: logistics-specific
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 specificity of a specific logistics activity, the more likely
that a food firm 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 difficulties
associated with monitoring the contractual performance of exchange partners. This
finding is compatible with previous research that identifies 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 “inefficient” (i.e. less profitable 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 firm will keep this activity
in-house rather than outsource it.

Core activity or not?

In this paper, we focus on a logistics activity’s “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, Developing a
not logistics. Our initial finding from cases indicates that an outsourcing decision might decision-making
depend on an activity’s value to core business (core closeness). This finding is consistent
with previous research that discusses the value of human assets on outsourcing framework
decisions (Teng et al., 1995; Conner and Prahalad, 1996; Poppo and Zenger, 1998).
Each logistics activity has human assets related with it, indicating a firm’s general and
specific knowledge on how to do things, for instance, transportation requires driving 407
skills. Therefore, we argue that firms internalize and maintain internally those activities
in which their superior capabilities or knowledge enable efficient logistical performance.
Accordingly, we formulate the following proposition:
P3. The closer a logistics activity to the core business, the less likely that a food
firm will outsource that activity.

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 firms and influences firms’
performances (Milgate, 2001). Literature suggests that when firms want to increase
performances, firms 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 firm 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 flexibility priorities prefer to keep an activity
in-house. This result partly fits 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 flexibility priorities prefer to keep an activity in-house because
they worry logistics companies have limited knowledge of food quality management or
lack of flexibility. Therefore, we suggest including logistics strategy into the
framework, and propose:
P5. A firm with low cost strategy is more likely to outsource a logistics activity
than a firm with flexibility 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
IJPDLM different levels are outsourced for different reasons. This part discusses findings
in relation to our RQ3.
40,5
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:
408 transportation (1st), packaging (2nd) and transportation management (3rd). These three
activities were selected because they were also outsourced in the cases. Company’s 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’ profile (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 specificity, performance measurement uncertainty, core closeness, logistics
strategy and supply chain complexity. Measures of these variables are described

Number (n ¼ 62) Percentages

Employees
Less than 50 28 45
50- , 100 13 21
100- , 150 4 7
150- , 250 16 26
Larger than 250 1 2
Plants
1 33 53
2 12 19
3 6 10
4 or larger 11 18
Sectors
Meat 12 20
Dairy 8 13
Animal feeds 8 13
Fruit/vegetables 5 8
Fish 2 3
Oils and fats 2 3
Beverages 1 2
Othersa 23 38
Table IV.
Profile 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 Developing a
and in-house groups) on the variables: asset specificity, measuring uncertainty, core decision-making
closeness and supply chain complexity. The logistic strategy variable was measured by
the proportions test. framework
Results
Table V presents comparisons between the outsourced and in-house groups on the 409
different activities. The test statistics indicate that transportation outsourcing is
influenced only by asset specificity ( p-value , 0.001). The packaging outsourcing is
influenced by asset specificity ( 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 specificity
( 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 significantly 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 2nd level 3rd level

Transportation
Transportation Packaging management
Go Gih Go Gih Go Gih
Variables (n ¼ 45) (n ¼ 17) (n ¼ 5) (n ¼ 57) (n ¼ 22) (n ¼ 40)

Q1. Asset specificity 3.60 6.94 * * * * 2.60 6.84 * * * * 4.50 5.82 * * *

Q2. Measurement uncertainty 6.20 5.50 4.80 5.98 5.82 5.66
Q3. Core closeness 6.16 7.00 7.20 6.81 6.60 7.33 * *
Q4. Supply chain complexity
Number of products (SKUs) 4.80 4.90 6.00 4.74 * * 4.95 4.78
Demand uncertainty 4.84 4.44 6.20 4.61 * * 5.14 4.51
Number of international
customers 3.50 3.00 3.80 3.32 3.67 3.20
Distribution channel variety 3.58 3.00 4.20 3.35 4.00 3.10 *
Avg of supply chain complexity 4.33 3.99 5.25 4.15 * * 4.59 4.04 *
Q5 Logistics strategy
Cost (%) 51 47 60 49 32 53
Flexibility (%) 18 29 20 21 27 25
Food quality (%) 16 6 20 12 9 15 Table V.
Others (%) 16 18 0 18 32 8 Comparisons of the
outsourced group (Go)
Notes: Significant at: *p , 0.1, * *p , 0.05, * * *p , 0.01, and * * * *p , 0.001 (two-tailed); outcomes and in-house group (Gih)
of packaging were also confirmed by Kruskal-Wallis test due to the small number in Go, results were the on the three levels of
same logistics activities
IJPDLM activities especially in food industry. This research takes a first step in bringing
40,5 outsourcing research in this context to create a conceptual framework for outsourcing
different levels of logistics activities. This paper presents two principle findings:
(1) A logistics outsourcing decision is related to asset specificity, core closeness and
supply chain complexity. Our research identifies these determinant factors for
food industry. We propose that the lower the current investment by the firm in
410 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 findings 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 identifies three determinant factors for food industry: asset specificity,
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
influence; 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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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 specificity. 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, flexibility
and food quality. Respondents were asked to rank the importance of each of the
objectives in percentage with overall sum of 100.

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
IJPDLM 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
40,5 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
414 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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