Influential factors and performance of logistics outsourcing ... - umexpert

Rev Manag Sci DOI 10.1007/s11846-015-0180-x ORIGINAL PAPER

Influential factors and performance of logistics outsourcing practices: an evidence of malaysian companies Suhaiza Zailani1 • Mohd Rizaimy Shaharudin2 Khairul Razmi3 • Mohammad Iranmanesh1

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Received: 16 December 2014 / Accepted: 13 September 2015 Springer-Verlag Berlin Heidelberg 2015

Abstract Despite the growing trend of logistics outsourcing, there are very limited sources of literature on logistics outsourcing, especially in determining the relationship between factors influencing outsourcing and the extent of logistics outsourcing practices. In this study, we tap into the field of strategic management to help clarify the mechanisms underlying the links between factors influencing, logistics outsourcing practices and outsourcing performance. A model based on the resource based view illustrates the hypothetical connections among these variables. The data gathered from the survey were analysed using SmartPLS software. A response rate of 21 % out of the 486 firms selected was achieved and fixed as the empirical data for this study. The results of this study provide support that superior performance is correlated to the resources of the firm. The analysis shows that lack of human and physical asset capabilities, as well as transaction uncertainty influence the extent of different logistics outsourcing practices. The four logistics outsourcing practices under study were found to have a positive relationship with logistics outsourcing performance, particularly strategic focus. This study shows that although theoretically firms aim at cost reduction by employing a logistics & Suhaiza Zailani [email protected] Mohd Rizaimy Shaharudin [email protected] Khairul Razmi [email protected] Mohammad Iranmanesh [email protected] 1

Faculty Business and Accountancy, University Malaya, 50230 Kuala Lumpur, Malaysia

2

Universiti Teknologi MARA Kedah, 08400 Merbok, Kedah, Malaysia

3

Graduate School of Business, University Science Malaysia, 44992 Gelugor, Penang, Malaysia

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outsourcing strategy but not proven in this study because the financial benefit was only positively contributed by one of the four logistics outsourcing practices under study. Besides that, the results from this study also support that most firms outsource their non-core activities of the logistics practices to respond to the transaction uncertainty that their business experiences. Keywords

Logistics Practices Outsourcing Factors Performance

Mathematics Subject Classification

90B06

1 Introduction Companies strive to utilize the organization’s competitive advantage to improve their market and profitability (Handfield 2006). During the early years, many companies own manage and directly control their assets, but later, diversification takes place to enhance their corporate base and utilize to full advantage the economies of scale. Doing the right thing is becoming more important than doing everything, therefore, organizations are becoming better focused and more specialized (Srabotic and Ruzzier 2012). Organizations tend to protect their profitability by diversifying, and, to improve flexibility and creativity, most companies establish strategic decisions to focus on the firm’s core business in order to identify processes that are critical to make outsourcing decisions. According to Corbett (2004), outsourcing is a management tool that is used to move an organization away from the traditional vertically integrated, self-sufficient structure; one that is increasingly ineffective in today’s hyper-competitive, performancedriven environment. Through outsourcing, the organization moves towards a business structure through which it is able to make more focused investments in the areas that provide its unique competitive advantage. As stated by Mullin (1996), outsourcing has only been officially considered as a prominent business strategy since 1989. Many organizations are not totally self-sustained and would usually outsource certain functions for which they do not own internal competencies. Outsourcing can be defined as the strategic utilization of external resources to carry out activities that were traditionally performed by internal employees and resources and are also termed as facilities management (Handfield 2006). In an outsourcing strategy, a company contracts out certain tasks to service providers with dedicated expert capabilities. According to McIvor et al. (2008), outsourcing is regarded as an important strategy for cost reduction and performance improvement. Outsourcing is also an important approach for organizations to manage demand uncertainty by absorbing the advantages of economies of scale in logistics service providers in a range of business areas. Ha¨to¨nen and Eriksson (2009), who described outsourcing as a shift of activities and processes originally performed internally to an external party, explained that outsourcing can be performed using local or international arrangements. Jiang and Qureshi (2006) cited that it has been estimated that about 40 % of the global logistics is outsourced. Cheong (2004) wrote that logistics has been an

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important part of every economy and every business entity. On average, logistics cost about 12 % of the World’s GDP. In Singapore, the cost of logistics accounts for about 11 % of its GDP. The worldwide trend in globalization has influenced many companies to outsource their logistics function to logistics service provider companies in order to focus on their competitive advantage. Razzaque and Sheng (1998) argued that management’s lack of confidence in an outside company to deliver service at as high a level as the company employees is a major issue, as firms are worried that service providers may not possess sufficient capabilities to perform a function. Difficulty to assess the savings to be gained through outsourcing creates additional problems. Firms should not solely focus on the cost issue but also consider how logistics service providers can help their business become sustainable through the development of a symbiotic relationship (Banomyong and Supatn 2011). As suggested by Rao and Young (1994), leading companies have already identified opportunities for efficiency by sourcing globally for an increase in market share and revenue through entry into overseas markets. Global distribution, being more complex, has become a necessary logistics function for many companies. According to Rahman (2011), the first comprehensive study on the extent of use of third party logistics services was conducted by Lieb (1992) to identify the extent of logistics outsourcing among American manufacturers, the benefit sought, impact of logistics outsourcing on logistics cost, customer satisfaction and the trends of use of third party logistics over time and across geographical locations. In addition, Sohal et al. (2002) and Bhatnagar et al. (1999) conducted similar studies but in the Australian and Singaporean context and reported that most users of third party logistics services are satisfied and intend to continue their usage of logistics outsourcing services in future. Arroyo et al. (2006) studied logistics practices in Mexican firms and compared them to those in Europe and the USA. They found that Mexican firms aim for customer service and intend to concentrate on core functions. Meanwhile, firms in Europe and USA put a tactical focus on integrated functions when using logistics outsourcing. In addition, Lieb and Miller (2002) interviewed chief logistics executives of Fortune 500 manufacturers about their use of logistics outsourcing. It was concluded that users are generally satisfied with the benefit of logistics outsourcing services for their companies, especially in the areas of logistics costs, logistics service levels and customer service. A few studies were conducted in developing economies, which investigated the extent and usage of logistics services from the user’s perspective. Sohail and Sohal (2003) investigated and concluded from an analysis of 124 firms that most of these users are satisfied with the service providers and have seen positive developments within the organizations. Hsiao et al. (2010), in their case study analysis, pointed out that companies outsourced logistics services because they do not own suitable transport vehicles, which is one of the factors lacking in the firm’s physical assets. There are companies that do not possess suitable transportation means to facilitate their logistics operations and outsourcing is a business strategy that provides a way out. This is supported by Kremic et al. (2006) who mentioned that the greater the asset, the less of a candidate the function is for outsourcing. Transport vehicles are basically a general and less specific asset, thus making it an easy choice to be outsourced by most firms.

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Kremic et al. (2006) also quoted Green (2000) in describing the lack of human resources as another strategic aspect that is considered in an outsourcing decision. Firms that face challenges with the need for skills and knowledge will be influenced to outsource their functions to gain world class capabilities from the logistics service providers. As stated by Kremic et al. (2006), there may be cases when the best alternative for an organization is to acquire the needed skills from outside sources. Green (2000) stressed that a function is more likely to be outsourced if there is a lack of internal human resources to perform it. There is a need to gain insight into the key factors that influence the adoption of logistics outsourcing so that others can learn from their experiences. Different authors (Ellram 1995; Lambert et al. 1999; Tate 1996; Greaver 1999; Cohen and Young 2006) ascribe different influential factors. As outsourcing has a considerable impact on a company’s competitiveness over time, companies should have a comprehensive vision in managing the factors that influence the outsourcing practices. Without an understanding of the factors involved and affected in the adoption, measuring the success of outsourcing is not possible. Despite the growing trend of logistics outsourcing, there are very limited sources of literature on logistics outsourcing in Malaysia. Maelah et al. (2010) mentioned that there are limited studies on outsourcing. Hence, it is crucial in the Malaysian context to understand the extent of logistics outsourcing in this country and the relevant trends. In this study, we examine additional information to the existing body of knowledge that will evaluate the factors for logistics outsourcing that contribute to the outsourcing performance and help improve the dismal situation of outsourcing in the logistics sector in Malaysia. Thus, in this paper, we conceptualize a new second-order construct on influential factors contributing towards logistics outsourcing practices. In the following section, we provide a rationale for the importance of the logistics outsourcing practices. Next, we summarize the relevant literature and conceptualize the factors that influence logistics outsourcing practices. We develop a set of hypotheses to test our theory, explain the research method, and test the hypotheses in a survey-based study concerning the outsourcing of logistics functions. Finally, we present the results, conclusions and limitations of this study.

2 Literature review 2.1 Logistics outsourcing Logistics outsourcing is very often synonymously referred to as third party logistics service, as discussed by Cho et al. (2008). Researchers also refer to logistics as contract logistics, 3PL (third party logistics) and external logistics-services. The external provision of logistics services is considered as an on-going trend among manufacturers, distributors and retailers towards outsourcing their logistics functions. According to Razzaque and Sheng (1998), the need to develop sustainable competitive advantage, as well as the growing pressure for good customer service and strategically focusing on core businesses and re-engineering has resulted in the evolution of logistics outsourcing. As discussed by Juga et al. (2010), a global

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logistics survey by Langley and Capgemini (2009) indicated that 80 % of companies outsourced part of their logistics activities. One of the most critical motivators for employing third-party logistics providers is the ability of logistics service providers to provide interested firms with expert knowledge and experience that would be challenging for clients to acquire or more costly to perform internally. Knemeyer and Murphy (2005) mentioned that nearly all the manuscripts discussing logistics service providers focused on either 3PL user or 3PL provider perspectives. They also observed that the evolution of academic literature lacked a uniform or standardized definition for third party logistics. Selviaridis and Spring (2007) argued that different terms, such as logistics outsourcing, logistics alliances, third party logistics, contract logistics and contract distribution, had been widely used to illustrate the organizational practice to contract out a certain fraction of the logistics functions that were previously carried out internally. The different definitions were used to discuss different issues in the outsourcing arrangement including the services offered, outsourcing relationship, outsourcing performance, extent of logistics outsourcing and their role in the supply chain. Around 67 % of the studies done examined issues from the perspective of either the firm or logistics providers, as discussed by Selviaridis and Spring (2007). The decision to outsource logistics activities is made based on several internal and external considerations. As discussed by Rao and Young (1994), the centrality of the logistics function, risk control, cost trade-offs, information technologies and relationship with service providers are among the criteria. Another four categories of consideration in outsourcing logistics functions are economic viability, market issues, resources availability and the extent of supplier dependence (Damme and Amstel 1996). As stressed by Bolumole (2000), the logistics outsourcing decision is also driven by two major factors—resources and capability. Capability is derived from a bulk of the firm resources, which are organized to achieve the objectives of the respective business processes or functions (Stalk et al. 1992). The ability to exploit the right resources and turn into high capabilities can increase the firm competitive advantage, by showing distinctive capabilities better than their competitors (Peteraf 1993). Hence, firms with lack of resources and capabilities may outsource certain processes or functions in order to optimize the performance and increase the firm’s competitiveness. The Outsourcing Institute listed ten reasons why companies outsource. Among others, the list includes obtaining resources that are not available internally, gain access to the world class capabilities and share the risk. In relation to this, the unavailability of internal resources was cited as another factor that reflects a firm’s lack of human assets, which will influence them to outsource. The purpose of gaining the access to the international capability level reflects the intention of companies to access a certain set of physical assets that are not available within their organization. Lastly, firms also intend to share risk by utilizing an outsourcing strategy due to the many uncertainties that they are facing in this rapidly changing global market. Logistics outsourcing can also be explained from the dimension of the relationship between the firm and service provider. Cho et al. (2008) defined logistics outsourcing as a relationship between a firm and logistics service provider,

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which has customized services with a broader range of services characterized by a strategic and longer term relationship. From the legislative perspective, logistics outsourcing is explained as a process whereby the firms and logistics service provider reach an agreement for identified functions at defined costs within an identified period of time (La Londe and Cooper 1988). Bagchi and Virum (1996) added that the business environment, competitiveness, pressure for cost reduction and need to restructure the supply chain are popular motives for building a relationship with logistics service providers. The intensified globalization of business has been considered as the key rationale for logistics outsourcing (Sahay and Mohan 2006). Cho et al. (2008) stated that the logistics services outsourcing is part of a popular trend observed among manufacturers, distributors and retailers. It is also a notable trend for firms to outsource their entire supply chains to a single 3PL or a few 3PLs. Selviaridis and Spring (2007) also mentioned that it is a growing trend to outsource logistics activities in a wide variety of industrial sectors, as reported by Transport Intelligence, 2004. According to Go¨l and Çatay (2007), outsourcing logistics functions to third-party logistics (3PL) providers has been a source of competitive advantage for most companies. As part of the benefits of employing logistics outsourcing strategies, most companies aim for higher flexibility, efficient operations, improvement in customer service levels, and a narrower focus on their core businesses activities. Researchers have also explained logistics outsourcing from various dimensions. As described by Hsiao et al. (2011), the process of logistics outsourcing usually involves the use of external logistics companies to perform activities that have traditionally been performed within a firm. The third party is always referred to as the logistics company or logistics service provider to denote the firm that operates the logistics activities. Sahay and Mohan (2006) contended that firms have options either to perform the logistics function in house or outsource the function and buy the service, and that there is a growing trend of outsourcing the logistics functions to third party logistics service providers. Hsiao et al. (2011) also categorized logistics outsourcing into four levels— execution activities (first level), value-added activities (second level), planning level (third level) and planning and strategic activities (fourth level). The first wave of logistics outsourcing started with traditional logistics functions like transportation and warehousing being outsourced. The second wave started with the arrival of companies like DHL and TNT, which provided services across geographical locations. The third wave began with companies from information technology, management consultancy and financial services working together with logistics service providers. The partnership created potential development that includes supply chain management and introduced a new service called supply chain solution, also known as fourth party logistics (4PL). All firms have an option to perform the logistics operations using their own assets or outsource a part or all logistics functions to logistics service providers, as discussed by Razzaque and Sheng (1998), and Bourlakis and Melewar (2011). Muller (1993) categorized logistics service providers into three types: asset-based vendors, which focus on the provision of physical logistics assets; management-based vendors, which focus on the provision of logistics management services through information technology

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systems; and integrated suppliers, which manage the physical assets and are able to work strategically with other suppliers. As suggested by Matopoulos and Papadopoulou (2010) the logistics service provider market has been affected considerably by information and communication technology. The logistics service provider market has been very dynamic and has evolved over the decades to follow the pace of customers and fulfil the constantly changing expectations. 2.2 Logistics outsourcing practices Firms can strategize the best interests of their organization in respect of whether to outsource whole logistics functions or selectively outsource certain logistics practices based on business justifications. Many authors discussed several categories of logistics outsourcing practices from different terms and functions. Wilding and Juriado (2004) mentioned that firms within the European consumer goods industry use both in-house and contract logistics, with transportation and storage being the most-often outsourced services. There are firms that still perform part of the logistics functions in-house and outsource the other portion to logistics service providers. Evidence shows that firms outsource services in a package (for example warehousing and inventory control) by combining functions that share the same transactional aspects and information flows (Selviaridis and Spring 2007). This is believed to achieve a cost reduction and better logistics management by a focal team that coordinates the logistics activities as a centralized function. Among the common logistics functions offered by service providers, as mentioned by Go¨l and Çatay (2007), are inventory management, IT services and the installation of products in addition to the distribution and transportation services. Among the popular outsourced functions are warehousing, transportation and distribution, however, logistics service providers may expand their offerings with supplementary services, for example, traditional transportation firms might also offer inventory management services (Go¨l and C ¸ atay 2007). Hsiao et al. (2011) suggested that logistics outsourcing can be classified into four levels of logistics activities, as follows: transportation (level 1), packaging (level 2), transportation management (level 3), and distribution network management (level 4). According to Hilletofth and Hilmola (2010), other logistics outsourced functions include procurement, inventory management, fleet management, warehousing, and distribution. Rao and Young (1994) listed planning, administrative, equipment related, handling, pre- or post-production, warehousing and transportation as among the logistics services outsourced. This is supported by Cho et al. (2008) who included outbound transportation, freight bill auditing/payment, warehousing, inbound transportation, and freight consolidation/distribution as the most frequently outsourced services. Other major outsourced activities include cross-docking, minor manufacturing activities, product marketing/labelling/packaging, product returns, traffic management/fleet operations, and information technology. Hsiao et al. (2011) identified five logistics activities in his study—transportation, packaging, transportation management, and inventory management and distribution network design. From the perspective of India, Sahay and Mohan (2006) suggested that more than 50 % of the organizations have already outsourced logistics

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activities, such as outbound transportation (55.7 %), inbound transportation (52.2 %) and custom clearing and forwarding (51.5 %). Other logistics activities outsourced are import and export management (34.5 %), outbound warehousing (33.9 %), inbound warehousing (29.5 %), labelling and packing (29 %), fleet management and consolidation (28.6 %), order picking (27 %) and inventory management (23.5 %). Sohail and Sohal (2003) noted that considerable research has been conducted to identify the future of logistics services. Lieb et al. (1993) compared the experience between US and European manufacturers in employing logistics outsourcing services. The study concluded that European firms showed significantly greater commitment and allocated a bigger share for logistics expenditure to their logistics service providers compared to their US counterparts. Dapiran et al. (1996) reviewed the usage of logistics outsourcing services by large Australian firms and found that the usage of logistics outsourcing services by Australian firms is greater than that of US firms, with more than 20 % of the firms describing their commitment to logistics outsourcing services as extensive, and 25 % of the firms allocating more than 50 % of their expenditure allocation to contract providers. Fleet management, warehouse management, and shipment consolidation were the most frequently outsourced logistics services. Setthakaset and Basnet (2005) identified transportation, packaging, warehousing, inventory management, information system and custom formalities as among the logistics outsourcing practices. This is also supported by Gudehus and Kotzab (2010) who listed transport services, handling services, warehousing services, special services, compounded logistics services and integrated system services as the logistics practices outsourced to logistics service providers. Razzaque and Sheng (1998) listed transportation, distribution, warehousing, inventory management, order processing and material handling as logistics outsourcing functions in their investigation. From the local perspective, Sohail and Sohal (2003) observed, as published in the News Strait Times (1998), that another notable trend in the third party logistics industry in Malaysia is that most of the local logistics service provider companies specialize in freight forwarding, container haulage, warehouse operation or conventional truckers and operate with minimal linkage to other components in the logistics chain. Table 1 summarizes the different dimensions of logistics outsourcing practices as proposed by several researchers. As we can see in Table 1, the main logistics outsourcing practices discussed and mentioned by different authors in their studies were transportation, warehouse, packaging and handling, and inventory management. These four practices are known for the common services sought and provided by the third party logistics, as evident in the past study from different countries across the globe. Based on this, therefore, these four functions are selected as the focus of the logistics outsourcing practices in this study. 2.3 Theory The important theory used as a base for this study is the resource-based view (RBV). Discussions on the RBV of firms began with Wernefelt (1984) who discussed the

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Influential factors and performance of logistics outsourcing… Table 1 Dimensions of logistics outsourcing practices No

Author

Dimensions of logistics outsourcing practices

Category

1

Solakivi et al. (2013)

Transportation services (domestic transportation, international transportation, reverse logistics, reverse logistics and freight forwarding)

Transportation, warehouse, inventory management

Information processing (order processing, invoicing, logistics IT-systems) Materials management and value-added services (warehousing, inventory management and product customization) 2

Min, DeMond and Joo (2013)

Asset based transportation, non-asset based transportation, warehousing, freight forwarding, packaging, freight management, staffing, network

Transportation, warehouse, packaging

3

Rahman (2011)

Warehouse management, order fulfilment, transport management, shipment consolidation, order processing, product returns, transportation selection, product assembly

Warehouse, transportation

4

Hsiao et al. (2011)

Four levels of logistics activities, as follows: transportation (level 1), packaging (level 2), transportation management (level 3), and distribution network management (level 4)

Transportation, warehouse, packaging

5

Hsiao et al. (2011)

Transportation, packaging, transportation management, inventory management and distribution network design

Transportation, packaging, inventory management

6

Hilletofth and Hilmola (2010)

Procurement, inventory management, fleet management, warehousing, and distribution

Inventory management, warehouse

7

Gudehus and Kotzab (2010)

Transport services, handling services, warehousing services, special services, compounded logistics services and integrated system services

Transportation, handling, warehouse

8

Go¨l and C ¸ atay (2007)

Warehousing, transportation and distribution

Transportation, warehouse

9

Cho et al. (2008)

Outbound transportation, freight bill auditing/payment, warehousing, inbound transportation, and freight consolidation/ distribution


10

Sahay and Mohan (2006)

Outbound transportation, inbound transportation and custom clearing and forwarding

Transportation

11

Wilding and Juriado (2004)

Transportation and storage


12

Razzaque and Sheng (1998)

Transportation, distribution, warehousing, inventory management, order processing and material handling

Transportation, warehouse, inventory management

13

Rao and Young (1994)

Planning, administrative, equipment related, handling, pre- or post-production, warehousing and transportation

Administrative, handling, warehouse, transportation

14

Setthakaset and Basnet (2005)

Transportation, packaging, warehousing, inventory management, information system and custom formalities

Transportation, packaging, warehouse

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resource-based view of firm by analysing firms from the resource perspective compared to other aspects. Barney (1991) then proposed the RBV framework to study a firm’s internal strengths and weaknesses. The important assumptions of the RBV are heterogeneous and immobility whereby a firm’s resources are presumed to be controlled by a firm to allow it to be able to execute business strategies to boost its performance. Since then, scholars have discussed boundary choices, core competencies and competitive advantages from the firm’s resources perspective. Hsiao et al. (2010) identified two main determinant factors for outsourcing: core competencies and the value of human assets for specific business activities. According to Dekkers (2011) and Wernefelt (1984), the RBV defined resources as tangible and intangible assets that are rooted half-permanent to a firm. Barney (1991), however, moved the emphasis from the organizational view to the firm’s goal of reducing the uncertainty and dependency on other organizations to reduce the risk for its survival. Ettlie and Sethuraman (2002) strongly related the RBV to outsourcing, while Holcomb and Hitt (2007) combined the RBV with TCT to arrive at a proposition for outsourcing. This is supported by McIvor et al. (2008), who combined the same theories for his case studies analysis in outsourcing. Logistics outsourcing has been investigated from different perspectives due to its multidisciplinary nature, in which the transaction cost view and resource-based view are the major approaches that have been used (Hsiao et al. 2010). Logistics practices at different levels are outsourced for different reasons and the assessment of different practices requires evaluations from different theories, such as transaction cost and the resource-based view. There is a pool of literature that contends that TCT and the RBV complement each other and that a single view alone is unable to perfectly elaborate a make or buy decision, as highlighted by Poppo and Zenger (1998), Arnold (2000), Madhok (2002), and Holcomb and Hitt (2007). The transaction cost theory (TCT), on the other hand, views the relationship between service providers and firms through a governance model that allows economic transactions to take place as discussed by Ruben et al. (2007), and Hoyt and Huq (2000). This theory states that the formation of the organization, as well as the designated model is caused by the impact of the transaction cost, which includes time, money, human resources, risk needed to gather information, contract issues, negotiation matters and others. Human factors, such as bounded rationality and opportunism, environmental factors and information issues also lead to transaction costs. Therefore, the relationship between firms and the service provider is closely integrated due to the cost considerations (Shaharudin et al. 2014). Wagner and Sutter (2012) further emphasized that the competitive market today demands that firms and service providers sustain their relationship based on the transaction cost for them to improve product quality and innovation, and enhance competitiveness to increase market gains. A transaction is characterized by the frequency of transaction, asset specificity, demand uncertainty, limited rationality and opportunistic behaviour, which would determine the most efficient governance model. Many researchers accepted this reasoning and the application of transaction cost economics to outsourcing has many followers (Shelanski and Klein 1995). According to Dekkers (2011), Geyskens et al. (2006) provided evidence for this theory from their investigations

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of other primary studies and concluded that make or buy decisions are mostly related to uncertainty. The application of the transaction cost theory to outsourcing implies that uncertainty in demand, low assets and frequency of transactions would affect the governance model. In particular, transactions uncertainty might have an impact on control mechanisms and performance management in manufacturing. Although asset specificity contributes to taking outsourcing decisions, it might also cause dependencies in the firm-service provider relationship. 2.4 Factors influencing outsourcing of logistics The factors influencing the outsourcing of logistics are the reason why firms engage with logistics service providers. Logistics service provider companies are responsible for the efficient and effective handling of a firm’s goods and services with the aim of achieving best cost (Bourlakis and Melewar 2011). As suggested by Bourlakis and Melewar (2011), managing operations has become very challenging for most corporations considering the vast range of logistics functions, complexity of large range of products and involvement of large investment required for logistics operations. Firms can carry out the logistics operations using their own assets or opt to outsource a portion or the complete logistics operation to a specialized firm, which translates into official responsibility and commitment to provide these logistics services (Razzaque and Sheng 1998). Gattorna et al. (1991) mentioned that the aspects that influence the outsourcing decision can be classified into control aspects and physical aspects. Control aspects involve requirements relating to exclusivity of service, range of managerial activities, continuity of relationship, ability for performance measurement, cost control, financial security, customer service and others. Physical aspects include operational flexibility, ability to cope with a wide range of physical activities, ability to maximize level of service, geographical coverage for service, product specialization and others. Minahan (1995) pointed out that firms that intend to outsource logistics services should examine physical assets and skills and also how these skills support their operations. Outsourcing decisions are also based on service related considerations including the competencies of service providers and operational flexibility, which depend on the market environment and client needs. Various authors have explored different requirements and expectations concerning logistics outsourcing services. According to Large et al. (2011), standardized and efficient procedures are important to establish an efficient relationship between firms and service provider companies. Common facilities owned by service providers will enable the efficient use for several customers and thus offer the opportunity to reduce the volatility of warehouse utilization rates and generate economies of scale. Knemeyer and Murphy (2004), however, argued that customer specific investments do not impact on the customers’ perceptions of the service providers’ relationship. The ability of customer adaptation and general ability to solve problems are deemed as key characteristics of logistics service providers. Williamson (1996) defined asset specificity as ‘‘indicates a specialized investment that cannot be redeployed to alternative uses or by alternative users except at a loss of productive value’’. He categorized asset specificity into four types—site

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specificity, physical asset specificity, human asset specificity and dedicated asset specificity. Interestingly, Razzaque and Sheng (1998) declared that logistics system quality actually equates to service quality. This argument explains that the perceived quality of the logistics functions outsourced depends on the quality of services provided by the service provider companies since firms do not possess the required assets required to perform the logistics activities. As indicated by Cheong (2004), it was found that the most important selection criterion for third party logistics providers was that their core competencies are able to address the lack of assets of the firms. Robertson and Gatignon (1998) classified assets into human assets and physical assets. Human assets are characterized by the capability of a firm to provide skills, experience and knowledge while physical assets are described by the level of capability of equipment and infrastructure required for logistics functions. Both human assets and physical assets are important influencing factors for logistics outsourcing decision making. Xu (2009) chose to discuss asset specificity from three dimensions, as suggested from the transaction cost theory perspective: (1) objects with low assets specificity and low exchange frequency, (2) objects with high assets specificity, low degree of uncertainty and high exchange frequency, and (3) objects with high assets specificity, high degree of uncertainty and high exchange frequency. Category (1) refers to firms and service providers that exchange little information before the transaction and involves common goods and services. Category (2) refers to transactions between firms and LSPs that involve a considerable exchange of information about specific goods or services involving larger investments and usually a longer contract. Category (3) represents the most complex situation involving specific goods or services and where a high level of uncertainty causes increasing outsourcing complexity and negotiation costs. Two of the logistics outsourcing influencing factors focused upon in this study— physical assets and human assets—are important requirements needed by logistics service provider companies in order to offer excellent logistics outsourcing services to fill the capability gaps of their clients. However, the extent of logistics outsourcing practices may be affected by transaction uncertainty, as illustrated by many authors who discussed in length the role of transaction uncertainty, which negatively affects the extent of logistics outsourcing. As highlighted by Hsiao et al. (2011), two main factors that affect transaction costs in logistics outsourcing are asset specificity and transaction uncertainty. The presence of firm-specific assets encourage firms to maintain certain functions in-house while the higher the performance measuring certainty, the more likely a firm will outsource the function. This study will explore how the current human and physical capabilities of firms influence the extent of logistics outsourcing practices. The effects of transaction uncertainty on the extent of logistics outsourcing practices will also be investigated along with the other two influencing factors. There is an increasing trend of shorter contracts in the logistics service provider market, which could be linked to the prevailing uncertainty and economic volatility of the global market (Rahman 2011). Kersten et al. (2007) listed other concerns causing transaction uncertainty in logistics outsourcing as the loss of control,

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growing dependence on service providers, loss of logistics expertise and loss of direct customer contact. However, the logistics outsourcing task is subject to transaction uncertainty from different perspectives. This is supported by Xu (2009), who defined uncertainty in outsourcing as environmental uncertainty and behavioural uncertainty due to the ever-changing market environment and lack of communication. Environmental uncertainty refers to unanticipated changes in circumstances surrounding an exchange. Xu (2009) described this uncertainty as hard to measure because indicators for environmental uncertainty are difficult to find. Behavioural uncertainty occurs due to the potential distortion of information due to some strategic purposes. A complex transaction with a greater degree of uncertainty will require more contingencies and more contingencies causes a more challenging situation and is costly to establish and materialize the contracts. Hsiao et al. (2011) contended that outsourcing decisions are influenced by existing assets, such as dedicated equipment or current investments in employees’ logistical planning skills and others. Existing facilities, such as physical assets like warehouse or transportation modes will influence firms’ decisions whether or not to outsource logistics activities to external service providers. Firms’ current investments in employees’ skills and development is part of the human asset considerations that will be taken into account to make outsourcing decisions concerning a function. His findings were in line with Anderson and Schmitteln (1984), Robertson and Gatignon (1998) and Aubert et al. (2004). They argued that logistics specific assets involve investments in human and physical capital, which will lose value if they are redeployed in other uses. Logistics outsourcing decisions are related to asset specificity, core closeness and supply chain complexity (Hsiao et al. 2011). It has been proposed that the lower the current investment by a firm in logistics assets, the higher the likelihood that the activity is outsourced. Firms which have few or minimum physical assets tend to outsource the logistics function to service providers as they currently do not hold any huge fixed cost for physical assets. Outsourcing is usually supported by many factors at different organizational levels, as concurred by Assaf et al. (2011). A decision to outsource should usually consider many issues, such as scale of economy, firms’ expertise, strategy, need for cost savings, accountability with greater control of operating costs, shifting from fixed into variable costs and quality factors. Firms that wish to outsource will need to consider the factors above including their current expertise to ensure that the logistics outsourcing decision would be able to fulfil their needs and improve their business performance. Assaf also stated that from the survey of 900 firms by Ketler and Willems (1999) to determine the factors that affect the outsourcing decision, three crucial factors were identified—cost savings associated with outsourcing, access to increased knowledge and expertise associated with specialty contractors, and the availability and quality of vendors. Kremic et al. (2006) determined that among the factors to be considered when an organization contemplates on outsourcing decision are the relative costs of performing the function, how core is the function to the organization, long term strategy and the environmental factors. Assaf et al. (2011) further classified that factors influencing the decision to outsource can be classified under six main

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categories—strategic, economic, management, technological, function characteristics and quality. The strategic factors that influence the outsourcing decision include the lack of internal resources for a service and the desire to access world class capabilities. Firms outsource a function when they realize that they lack a resource in certain expert areas that can be filled by engaging service providers to perform the function externally. Organizations may be particularly impacted by a lack of resources and the best alternative to solve this is to acquire the needed resources from an external provider (Kremic et al. 2006). Assaf et al. (2011) concurred that a function is more likely to be outsourced if there is a lack of internal resources to perform it. The resources available from service providers would help in performing the functions and controlling all aspects of these functions. Assaf et al. (2011) further emphasized that the need for specialized management is a management factor that would affect the outsourcing decision. Greaver (1999) stated that a lack of specialized and skilled staff to manage certain activities usually forces organizations to seek for another solution, such as outsourcing. As proposed by Kremic et al. (2006), if a service is complex or integrated or when there is no qualified management staff, firms may obtain appropriate equipment from the service provider. Quelin and Duhamel (2003) highlighted that outsourcing is an effective way to gain flexibility in an organization through the better use of internal resources including consolidation and decentralization. Another cause highlighted by Assaf et al. (2011) that would influence a firm whether or not to outsource is the function-characteristics factor. The complexity of a function, for example, encourages a firm to look for more options, such as engaging an external service provider to perform the function. Function integration will stimulate firms to look for a service provider because a highly integrated service will have more interaction and more effective communication is needed to sustain the service (Kremic et al. 2006), and, furthermore, the structure of a function will impact the decision to outsource. Lack of equipment, tools and certain assets to operate a facility is another factor that influences the decision to outsource. Zailani et al. (2012) mentioned that the main measure for any tool is the ability to improve the performance of a designated task and whether it can be justified with dollar values, because suitable tools are able to achieve the time reduction needed to accomplish a defined purpose. Table 2 summarizes the different dimensions of logistics factors that influence outsourcing, as suggested by different researchers. In summary, most researchers listed three major components as the key factors that influence the extent of logistics outsourcing practices. The dimensions are then categorized into these three categories—lack of human assets, lack of physical assets and transaction uncertainty, as applied by Cheng and Tongzon (2009). 2.5 Logistics outsourcing performance Utilization of third party logistics services is a strategic decision, and, therefore, it is necessary to justify the impact it has on business performance (Sahay and Mohan 2006). It is very important to have the ability to measure the performance of an outsourcing assignment so that firms are able to evaluate the appropriateness of their outsourcing strategy. As mentioned by Cho et al. (2008), studies found that logistics

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Influential factors and performance of logistics outsourcing… Table 2 Dimensions of logistics factors that influence outsourcing No

Author

Dimensions of logistics factors that influence outsourcing

Category

1

Rajesh et al. (2013)

Technological capability

Physical assets

Solakivi et al. (2013)

Need for flexibility, cost saving and improving customer service

Human assets

3

Bourlakis and Melewar (2011)

Lack of efficient and effective handling of a firm’s goods and services

Human assets

4

Large et al. (2011)

Standardized and efficient procedures, common facilities

Physical assets

5

Hsiao et al. (2011)

Uncertainty defined as predictability of changes is a source of complexity

Transaction uncertainty

6

Hsiao et al. (2011)

Among sources of complexity in the supply chain are procurement uncertainty, production uncertainty, demand uncertainty and distribution uncertainty


7

Rahman (2011)

Shorter contracts due to uncertainty and economic volatility


8

Rahman (2011)

Top concerns on uncertainty are uncertainty about cultural fit, potential loss of direct control of logistics activities and uncertainty about service capability of LSPs


9

Xu (2009)

Environmental uncertainty and behavioural uncertainty due to ever-changing market environment and lack of communication


10

Gudehus and Kotzab (2010)

Competence, IT systems, resources and personnel qualification

Human asset

11

Kersten et al. (2007)

Concerns causing loss of control, growing dependence on LSPs, loss of logistics expertise and loss of direct customer contact


12

Knemeyer and Murphy (2004)

Ability of customer adaptation and general ability to solve problems

Human assets

13

Cheong (2004)

Most important selection criterion for third party logistics providers was core competencies that refer to asset availability

Human assets

Delivery performance and quality of service

Human assets 2

Physical assets

Physical assets

Physical assets

14

Razzaque and Sheng (1998)

Level of knowledge and experience in handling and maintaining equipment, facilities and physical operations

Human assets

15

Williamson (1996)

Categorized asset specificity into four types—site specificity, physical asset specificity, human asset specificity and dedicated asset specificity

Human assets

Physical assets and skills and also how these skills support their operations, competencies of LSP and operational flexibility

Human assets

16

Minahan (1995)

Physical assets Physical assets

17

Muller (1993)

Asset-based that focuses on the provision of physical assets to dedicated firms by using their own vehicles and warehouse

Physical assets

18

Gattorna et al. (1991)

Control aspects and physical aspects

Human assets Physical assets

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S. Zailani et al.

practices affect performance with regards to revenue improvement and cost reduction. Many studies (Knemeyer et al. 2003; Langley et al. 1999; Lieb and Randall 1999; Sink and Langley 1997; Maltz 1994), as cited by Cho et al. (2008), have shown that logistics outsourcing has resulted in reducing cost and improving customer service. A firm’s performance data are rarely published, and, therefore, it is very challenging to obtain accurate and reliable performance data. Cho et al. (2008) explained that for his research he used perceptual performance measures related to financial and marketing issues, namely, profitability, sales growth and overall performance. As suggested by Sahay and Mohan (2006), typically, firms start with the outsourcing of a few logistics functions followed by moving over to activities that have more impact on logistics operations success and then increase the application of logistics outsourcing services with justified impact on overall business performance. Logistics service providers are able to stimulate an organization to produce significant achievement, from the operational performance and logistics cost reduction perspectives. Logistics competency using outsourcing strategy will definitely be a key distinguishing factor in the competitive market. Sahay and Mohan (2006) observed that excellent logistics performance would demand a tradeoff between the need to pull down overall supply chain inventory and reduce lead times, while simultaneously achieving economies of scale and enhancing customer service for improved business performance. The capability of logistics service provider companies makes it possible for them to maintain this trade-off by turning fixed costs into variable costs for companies using their services. Among the logistics outsourcing performance measurements used by Sahay and Mohan (2006) are logistics system performance, customer satisfaction, employee morale and financial improvement indicators. Among the financial improvement indicators are improvement in sales revenue, working capital improvement, reduction in capital assets, lower production cost, reduced labour cost, increased return on assets and logistics cost reduction. Dawson and Shaw (1990), according to Bourlakis and Melewar (2011) argued that in logistics operations, as a generalization, outsourcing is likely to replace internal organization when the performance outcome can be easily and accurately assessed. This is supported by Gattorna et al. (1991) and also stressed by Bourlakis and Melewar (2011) in that one of the aspects that influence the decision to buy logistics services is the ability of performance measurement. Among the selection criteria towards using a logistics service provider company are operational performance, delivery performance, financial performance and others. Past research (for example, Lieb and Bentz 2005) highlighted issues in the usage of third party logistics including the need for further performance improvement. The association between logistics outsourcing and performance in customer satisfaction was explored by Razzaque and Sheng (1998). They also highlighted that outsourcing is a specific detailed contractual relationship dependent on the supplier meeting the buyer’s defined performance goals. Bourlakis and Melewar (2011) further suggested that if the set goals and criteria are met then customer satisfaction is achieved and firms could start engaging in long-term relationships. According to Wilding and Juriado (2004), most companies use a certain kind of formalized performance measurement of which the most popular

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performance measurement criteria include delivery timeliness (most popular), cost, overall quality, inventory management, picking accuracy, responsiveness, responsiveness and flexibility. Bourlakis and Melewar (2011), quoting Laarhoven et al. (2000), explained that the use of written contracts in most outsourcing relationships include detailed analysis of the logistics activities required and the specific performance targets to meet. Setthakaset and Basnet (2005) cited Beamon (1999) who presented a framework for measuring the performance of a general supply chain, which includes the measurement of resource usage, supply chain outcomes and flexibility. A construct developed by Lai et al. (2002) to measure transport logistics performance includes service effectiveness and efficiency measures. Setthakaset and Basnet (2005) also quoted the research of Bhatnagar et al. (1999) who concluded that Singapore companies are satisfied with the performance of logistics service provider’s and believe that LSP had been a positive development within their organizations. Among the major benefits realized were cost reductions and improved quality of service. As declared by Setthakaset and Basnet (2005), many firms are employing new logistics techniques to improve their productivity and performance, and logistics operations have started to play an important role in achieving them. Partner-specific adaptation by logistics service providers exerts a positive influence on performance and customer loyalty, as proposed by Large et al. (2011). Large et al. (2011) defined outsourcing performance, as proposed by Deepen et al. (2008), as the degree of goal accomplishment in a third-party logistics relationship. Knemeyer and Murphy (2004) defined logistics outsourcing performance as perceived performance improvements that the logistics outsourcing relationship has managed to produce for the user. This includes a reduction in logistics cost and cycle times, more efficient handling of exceptions and enhanced system responsiveness. Stank et al. (2003) identified three dimensions of logistics performance— operational performance, relational performance and cost performance. According to Wanke et al. (2008), cost and service performance monitoring concerns the systematic control of logistics functions for continuous improvement. The systematic application of performance indicators linked to costs and customer service has proven to lead to a better understanding of the logistics function and positively affects system flexibility. According to the European survey, the majority of users consider the overall performance of logistics service providers as satisfactory and deem it likely that they will continue subscribing to the services (Juga et al. 2010). Stank et al. (1999) suggest that two dimensions of service performance, operational and relational, are relevant in an industrial service context. Juga et al. (2010), however, admitted that, generally, the complex nature of logistics service providers’ arrangements makes it difficult to assess outsourcing performance. Different authors defined many dimensions performance. Parashkevova (2007) proposed four aspects of performance measurement of logistics outsourcing—strategic focus, operative ability, financial benefit and the possibility of improving all activities in the organization. The first three aspects were chosen as the variables to be focused on under the logistics outsourcing performance based on the literature review, which shows that many previous researchers also discussed the outsourcing performance from the three

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dimensions—strategic focus (prioritize type of business), operative ability (ability of firms to achieve lower production cost and better quality of delivery) and financial benefit. As proposed by Wanke et al. (2008), performance is classified into many sub-classes, such as improvement in delivery reliability, customer service, responsiveness and geographical coverage, increase in sales growth, reduction total cost and improvement in net annual profit. Table 3 summarizes the different dimensions of logistics outsourcing performance, as proposed by different authors. On the whole, most researchers describe logistics outsourcing performance from three perspectives—strategic focus, operative ability and financial benefit. The dimensions are then grouped into the three dimensions of logistics outsourcing performance that will be focused upon in this study, as supported by Cheng and Tongzon (2009). The theoretical framework of the study is shown in Fig. 1. 2.6 Hypothesis development Razzaque and Sheng (1998) suggested that, usually, firms that do not possess the required assets to perform the logistics activities will depend on logistics service providers to provide good quality logistics services. This was supported by Cheong (2004) who reported that one of the most eminent selection criteria for firms is to choose logistics service providers that have the capability to address the lack of assets of the firms. As emphasized by Hsiao et al. (2011), the outsourcing decision is also influenced by the existing assets in firms, such as dedicated facilities that are the physical assets of the firms. In this context, a number of previous study have revealed on the predominant of companies in outsourcing outbound activities in comparative to the inbound functions to the extent that outbound activities received 52 % contract than inbound with 5 % only. This clearly shows that LSP has gained the importance, as matter of facts that the major causes of the outsourcing is extremely related to the companies’ lower possession in the logistical assets (Vivaldini and Pires 2013). The arguments above support the hypothesis that low physical assets in firms would positively affect the extent of logistics outsourcing practices. Hence, this leads to the hypothesis: H1 Low physical assets positively affect the extent of logistics outsourcing practices. Hsiao et al. (2011) asserted that the decision to outsource a logistics practice is also influenced by the current investment in employees planning skills and others. This was supported by Anderson and Schmitteln (1984), Robertson and Gatignon (1998), and Aubert et al. (2004) who argued about the value loss on investments in human and physical capital if they are redeployed for other purposes. Kremic et al. (2006) clarified that firms will outsource a function when they realize that they lack expert resources and that the gap can be filled by employing logistics service providers to perform the function. Greaver (1999) affirmed that the lack of designated staff to manage certain activities usually results in firms seeking for a solution, such as outsourcing. This was endorsed by Assaf et al. (2011), who echoed that a selected function has a higher chance to be a candidate for outsourcing when the firm is facing a lack of internal resources to execute the particular function. As such, firms with the strong resource (human assets) are most likely to conduct the

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Influential factors and performance of logistics outsourcing… Table 3 Dimensions of logistics outsourcing performance No

Author

Dimensions of logistics outsourcing performance

Category

1

Min (2013)

Improved customer service, contribute to better rates, on-time invoicing, effective communication with customers

Operative ability

Cost-related performance, corecompetence related performance

Financial benefit

2

Brewer (2013)

Financial benefit

Strategic focus 3

Bourlakis and Melewar (2011)

Operational performance, delivery performance, financial performance

Operative ability Financial benefit

4

Wanke et al. (2008)

Cost and continuous improvement

Financial benefit

5

Wanke et al. (2008)

Improvement in delivery reliability, customer service, responsiveness and geographical coverage, increase in sales growth, reduction in total cost and improvement net annual profits

Financial benefit Operative ability

6

Cho et al. (2008)

Reduce cost and increase customer services

Financial benefit

7

Parashkevova (2007)

Strategic focus, operative ability, financial benefit and possibility of improving all activities

Strategic focus Financial benefit

8


Logistics system performance, customer satisfaction, employee morale and financial improvement indicators

Financial benefit, operative ability

9


Improvement in sales revenue, working capital improvement, capital asset reduction, production cost reduction, labour cost reduction, return on assets improvement and logistics cost reduction

Financial benefit Strategic focus Operative ability

10

Wilding and Juriado (2004)

Delivery timeliness (most popular), cost, overall quality, inventory management, picking accuracy, responsiveness, responsiveness and flexibility

Operative ability

11

Knemeyer and Murphy (2004)

Reduced logistics cost, reduced cycle times, more efficient handling of exceptions and improved system responsiveness

Financial benefit Strategic focus

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S. Zailani et al. Table 3 continued No

Author

Dimensions of logistics outsourcing performance

Category

12

Stank et al. (2003)

Operational performance, relational performance and cost performance

Operative ability Financial benefit

13

Knemeyer et al. (2003), Langley et al. (1999), Lieb and Randall (1999), Sink and Langley (1997), Maltz (1994)

Revenue improvement and cost reduction

Financial benefit

14

Beamon (1999)

Measurement of resource usage, supply chain outcomes and flexibility

Strategic focus Operative ability

Influencing Factors

Low Human Asset Specificity

Logiscs Outsourcing Pracces

Logiscs Outsourcing Performance

Transportaon Strategic Focus Warehouse

Low Physical Asset Specificity

High Transacon Uncertainty

Packaging and Handling

Inventory Management

Operave Ability

Financial Benefit

Fig. 1 Framework of the study

activity internally, whereas the low resource (human assets) capability are highly potential for outsourcing (Brewer 2013). These arguments support the hypothesis that low human assets will positively affect the extent of logistics outsourcing practices. Hence, this leads to the hypothesis: H1 Low human assets positively affect the extent of logistics outsourcing practices. As mentioned by Rahman (2011), the decision to continue outsource logistics practices is linked to uncertainty and economic volatility in the global market. Kersten et al. (2007) further discussed a list of uncertainties that affect the extent of logistics outsourcing practices including supply chain complexity. Hsiao et al. (2011) elaborated that greater supply chain complexity is a reflection of the

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increased level of uncertainty encountered by firms, which would encourage them to outsource the logistics functions. From the theoretical perspective, TCT provides the basis of understanding that within the uncertainty of the transaction environment, customers tend to shield from the unpredictable risk in order to minimize the ambiguity in the result through the choice of logistics outsourcing decision (Rajesh et al. 2013). This clearly supports the hypothesis that high transaction uncertainty would have a positive effect on logistics outsourcing practices. Hence, this leads to the hypothesis: H1 High transaction uncertainty positively affects the extent of logistics outsourcing practices. Hilletofth and Hilmola (2010) discussed transportation outsourcing as part of the supply chain strategy of a firm that leads to better performance. Rao and Young (1994) mentioned transportation outsourcing as being among the logistics practices outsourced to benefit the firms while discussing the factors influencing the decision to outsource. This is supported by Cho et al. (2008) who reported transportation as one of the traditional logistics functions outsourced to improve a firm’s logistics outsourcing performance. Furthermore, in a case study exploring the factors that influence the transportation outsourcing of express delivery company in Taiwan, Lee et al. (2012) discovered that the outsourcing to a proficient transportation company can result of the higher efficiency in an organization’s internal and external functions through operating capital usage flexibilities and higher quality of customer service level. These explanations support the hypothesis that a high extent of transportation outsourcing practices would positively affect logistics outsourcing performance. Hence, this leads to the hypothesis: H2 A high extent of transportation outsourcing practices would have a positive effect on logistics outsourcing performance. Warehouse services is one of the logistics functions discussed by Cho et al. (2008) while reporting on logistics outsourcing and firm performance in the e-commerce market. Zhang (2007) quoted warehouse services as one of the logistics function outsourced by firms to improve firm performance. This is because no all companies are having the expertise and experience in dealing with warehouse operations and management, on which the LSPs are good in the logistics specific skills. In relation with the warehouse consolidation service offerings by LSPs, many manufacturers benefit from the high performance of outsourcing in terms of achieving precision in inventory, consistencies and prompt delivery and service responsiveness, that are important to not only local but also to the international customers as well (Rahman and Wu 2011). In this context, the reported discussion support the hypothesis that a high extent of warehouse services outsourcing would have a positive effect on logistics outsourcing performance as follows: H2 A high extent of warehouse outsourcing practices would have a positive effect on logistics outsourcing performance. Hsiao et al. (2011) stated in his report on logistics outsourcing activities in Taiwanese and Dutch industries that packaging and handling are among the major

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S. Zailani et al.

logistics functions outsourced to achieve improved firm performance. Sahay and Mohan (2006) reported that 29 % of his respondents outsourced packaging services as part of the firm’s strategies for their business improvement. The whole idea of packaging such as size, shape and material has the extreme effects towards the product handling and transportation. The right packaging can minimize the materials usage, optimization of the space in the warehouse and transport vehicle and also reduce the number of handling Ho et al. (2009). These advantages can be obtained from the LSPs that precede the packaging of products in unit load prior to consolidation for better handling and cost saving. These statements support the hypothesis that a high extent of packaging and handling outsourcing practices would have a positive effect on logistics outsourcing performance. Hence, this leads to the hypothesis: H2 A high extent of packaging and handling outsourcing practices would have a positive effect on logistics outsourcing performance. Sahay and Mohan (2006) stated that 23.5 % of his respondents outsourced inventory management to gain better performance. Hilletofth and Hilmola (2010) cited inventory management as one example of the logistics functions outsourced while reporting on the role of logistics outsourcing in the supply chain strategy. Go¨l and C ¸ atay (2007) also supported that inventory management is one of the common functions outsourced by firms to reap benefits from logistics outsourcing. In relation to this, Sahay (2003) stressed that the outsourcing to LSPs in the customer distribution centre can result in the economic usage of facilities, labour and equipment. This is because the information system for the incoming inventory by the LSP is capable of effective control the volume to avoid the excess stock and optimize the storage capacity (Sahay 2003). Hence, the findings support the hypothesis that a high extent of inventory management outsourcing practices would positively affect logistics outsourcing performance, as below: H2 A high extent of inventory management outsourcing practices would have a positive effect on logistics outsourcing performance.

3 Methodology 3.1 Research design The units of analysis identified for this study are electrical and electronics firms in Malaysia. According to MIDA (2011), the electrical and electronics firms in Malaysia can be categorized into four sections—consumer electronics, electronics components, industrial electronics and electrical. As recorded by MIDA (2011), the electrical and electronics industry in Malaysia is leading in the manufacturing sector and contributes 31 % to manufacturing output, 48.7 % for exports and 33.7 % for employment. This data reflects the importance of electrical and electronics firms in generating economic growth in Malaysia.

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The population of this study refers to the electrical and electronics firms in Malaysia registered with the Electrical and Electronics Association of Malaysia. ‘‘Firm’’ refers to companies as well as individual units within the companies. The sampling frame was obtained from the Electrical and Electronics Association of Malaysia (EEAM). This source provided a sampling frame of 486 electrical and electronics firms located in Malaysia. The most suitable respondents would be the managers from the various departments, such as supply chain, procurement, purchasing, contract manufacturer management and planning as they are knowledgeable concerning the outsourcing arrangement in the organization and have wide views on this topic with their vast experience. A total of 486 companies were contacted through electronic email asking for their participation in this survey by answering the questions online. Out of 486 firms surveyed, 102 (21 %) respondents filled up and returned the survey with complete information to be used for subsequent statistical analysis. 3.2 Survey instrument To attain a set of reliable primary data, this study used a questionnaire to collect information from respondents concerning the determined units of analysis. Sekaran and Bougie (2010) defined a questionnaire as a set of pre-formulated questions for the corresponding respondents to answer, and that it is an efficient way of data collection providing that the researchers accurately comprehend the requirements and measurement method for the variables under study. As stated in the literature review, there is a wide range of logistics practices outsourced by companies to logistics service providers. Out of the various types of logistics practices available, four main categories were selected as the focus in this study—transportation, warehouse, packaging and handling, and inventory management. The extent of logistics outsourcing practices are measured by 18 items using a 5-point rating scale from 0 = not applicable to 5 = very high extent, as shown in Table 4. The items for logistics practices were adapted from Aktas and Ulengin (2005), Rahman (2011), Hilletofth and Hilmola (2010), Cheng and Tongzon (2009), Saghir (2004), Selviaridis and Spring (2007), Go¨l and C ¸ atay (2007), Sahay and Mohan (2006), Hilletofth and Hilmola (2010), and Hsiao et al. (2011). From the literature search, three main categories of influencing factors are measured in this study—lack of human assets, lack of physical assets and high transaction uncertainty—using a 5-point rating scale from 0 = strongly disagree to 5 = strongly agree. Logistics factors that influence outsourcing are measured by 22 items and Table 5 lists the items adapted from Bourlakis and Melewar (2011), Razzaque and Sheng (1998), Hsiao et al. (2011), Rahman (2011) and Gudehus and Kotzab (2010). Items for lack of human assets and lack of physical assets are coded negatively to reflect the inverse relationship of these variable factors influencing the extent of logistics outsourcing performance. There are many logistics outsourcing performance measures listed by various authors and three main measures are selected for study – strategic focus, operative ability and financial benefit. The three dimensions are measured using a 5 point rating scale from 0 = strongly disagree to

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S. Zailani et al. Table 4 Items for logistics outsourcing practices Item number

Items

Sources

Transportation Q1.1

Domestic transportation services

Q1.2

International transportation services

Q1.3

Transportation planning and management

Q1.4

Hazardous material transport

Q1.5

Temperature controlled transport

Aktas and Ulengin (2005), Rahman (2011)

Warehouse Q2.1

Networked tracking system

Q2.2

Traceability of on hand quantity

Q2.3

Stock distribution based on FIFO practice

Q2.4

Monitor stock level based on minimum quantity

Q2.5

Record of location for product and lot

Hilletofth and Hilmola (2010), Cheng and Tongzon (2009)

Packaging and handling Q3.1

Packaging information and protection design

Q3.2

Primary packaging (packaging that end customer receives)

Q3.3

Secondary packaging (packaging that contain several primary packages)

Q3.4

Coordinated packaging system of preparing goods

Q3.5

Ergonomics (weight, shape, material and handling)

Saghir (2004)

Inventory management Q4.1

Inventory tracking system

Q4.2

Skilled staffs to manage inventory

Q4.3

Inventory turn-over rate improvement

Selviaridis and Spring (2007), Go¨l and C ¸ atay (2007), Sahay and Mohan (2006), Hilletofth and Hilmola (2010), Hsiao et al. (2011)

5 = strongly agree. Table 6 lists 17 items to measure logistics outsourcing performance adapted from Cheng and Tongzon (2009) and Parashkevova (2007). 3.3 Data collection procedures This study utilized self-administrated questionnaires for collection of data from managers from supply chain, procurement, purchasing, contract manufacturer management and planning of electrical and electronics firms in Malaysia. The questionnaires were distributed through postage as well as hand distribution to increase the support of responses from the respective respondents, since the response rate of the mailing questionnaires are typically low in Malaysia. A cross sectional study is applied with the data collection ceased after three months after its commencement.

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Influential factors and performance of logistics outsourcing… Table 5 Items for logistics outsourcing influencing factors Item number

Items

Sources

Human asset specificity Q1.1

My company does not possess the relevant skills to perform logistics functions

Q1.2

My company does not have knowledgeable logistics staff with technical know-how

Q1.3

My company does not have the relevant knowledge on customs and infrastructure of destination countries

Q1.4

My company does not have the knowledge in handling and maintaining equipment, facilities, and physical operations

Q1.5

My company does not have the experience in handling and maintaining equipment, facilities, and physical operations

Q1.6

My company does not have vast relevant experience in logistics business

Q1.7

My company does not have experience of workforce, employees and managers for logistics function

Q1.8

My company does not have competence of workforce, employees and managers for logistics function

Bourlakis and Melewar (2011), Razzaque and Sheng (1998), Gudehus and Kotzab (2010)

Physical asset specificity Q2.1

My company does not possess the required trucks and transportation means for logistics operations

Q2.2

My company does not possess the needed warehouse to run logistics operations

Q2.3

My company does not possess the required information system to run logistics operation

Q2.4

My company unable to demonstrate operational flexibility in performing logistics functions

Q2.5

My company unable to demonstrate ability to cope with vast range of physical activities involving logistics operations

Q2.6

My company unable to demonstrate ability to maximize level of service related to logistics operations

Q2.7

My company unable to provide a wide geographical coverage for logistics operations

Q2.8

My company unable to provide a wide product/market specialization of logistics services

Bourlakis and Melewar (2011), Razzaque and Sheng (1998)

Transaction uncertainty Q3.1

My company faces uncertainty in procurement function

Q3.2

My company faces uncertainty in demand

Q3.3

My company faces uncertainty in production

Hsiao et al. (2011), Rahman (2011)

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S. Zailani et al. Table 6 Items for logistics outsourcing performance Item number

Items

Sources

Strategic focus Q1.1

My company is able to concentrate on core competence areas

Q1.2

My company is able to prioritize types of business and operations

Q1.3

My company is able to rationalize resources allocation in distinctive advantage areas

Cheng and Tongzon (2009), Parashkevova (2007)

Operative ability Q2.1

Reduce inventory level

Q2.2

Reduce order-to-delivery lead time

Q2.3

Increase quality of logistics functions

Q2.4

Expand production flexibility

Q2.5

Access to best logistics technologies and experience

Q2.6

Increase competitiveness by responding quickly to client needs

Q2.7

Improvement in delivery reliability

Q2.8

Improvement in customer service

Q2.9

Improvement in geographical coverage for distribution


Financial benefit Q3.1

Lower cost of production

Q3.2

Accelerate capital turnover

Q3.3

Cost reduction due to economies of scale

Q3.4

Increase sales growth

Q3.5

Improve net annual profit relative to performance goal


3.4 Data analysis This study used the partial least squares (PLS) technique of structural equation modelling using SmartPLS Version 3.0 to test the research model. This technique was selected owing to the exploratory nature of the study (Hair et al. 2011). SPSS version 22.0 was used to conduct dessciptive analysis and to test non-response bias. As recommended by Hair et al. (2013), this study applied a two-step approach for data analysis. In the first step, the measurement model was analysed. In the second step, the structural relationships among the latent constructs were assessed (see Zailani et al. 2015a). This approach was used to determine the reliability and validity of the measures before the structural relationship of the model was tested.

4 Findings 4.1 Non-response bias The non-response bias test is carried out to assess whether there is no significance difference between the early and late waves of the returned survey. In this context,

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Influential factors and performance of logistics outsourcing… Table 7 Measurement model evaluation Construct

Number of items

Factor loadings

AVE

CR

Human asset specificity

8

0.811–0.895

0.728

0.955

Physical asset specificity

8

0.622–0.906

0.618

0.927


6

0.785–0.911

0.715

0.937

Transportation

5

0.639–0.886

0.606

0.883

Warehouse

5

0.699–0.914

0.678

0.912

Packaging and handling

5

0.827–0.902

0.756

0.939

Inventory management

3

0.803–0.872

0.713

0.881

Strategic focus

3

0.845–0.891

0.751

0.901

Operative ability

7

0.776–0.913

0.706

0.944

Financial benefit

5

0.821–0.922

0.765

0.942

CR composite reliability, AV5E average variance extracted

the early and late waves of the returned survey are compared using independent t test for all variables of the study. The comparison is made based on the assumption that the last waves of the returned survey were the representative of the late respondents and encompass similar characteristics with the non-respondents, as suggested by Armstrong and Overton (1977); Lambert and Harrington (1990). In relation of this, this study has divided a total of 102 survey respondents into early (n = 45, 44.1 %) and late (n = 57, 55.9 %) based on the wave of the response. By using independent t-test analysis, the comparison is made to identify any significant difference of the mean values of the ten constructs of the study. The results of the comparison between early and late responses signified of the insignificant results of all variables at the 5 % significance level, thus suggesting that the non-response bias was not present and not a problem in this study. 4.2 Profile of respondents From Table 7, it is found that male respondents comprised 72.5 % and female respondents 27.5 %. Most respondents are 25–34 years old (47.1 %) and 35–44 years old (47.1 %) with only 5.9 % in the 45–54 year old group. Most of them hold bachelor’s degree (72.5 %) and master degree (21.6 %), while 5.9 % had certificate/diploma level education. The questionnaires were distributed to individuals holding key management positions, such as supply chain managers, manufacturing managers, logistics managers, materials managers, purchasing managers, and procurement managers in the various electrical and electronics (E&E) industries in Malaysia. Referring to Table 7, 42.2 % of the respondents are engineers, 33.3 % are supply chain/manufacturing/logistics/materials/purchasing/procurement managers, 9.8 % are executives, 7.8 % are operations support personnel, 4.9 % are planners and 2 % are business analysts. These percentages are expected since they are involved in the logistics outsourcing activities. The education background and the positions they hold in their organizations show that they hold relevant posts to

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logistics outsourcing activities. This is important to ensure that the respondents are clear concerning the questionnaire questions on logistics outsourcing practices, have knowledge in this area and are able to provide reliable answers to contribute to this study. 4.3 Profile of respondent firms The breakdown tabulated in Table 8 shows that the Electrical and Electronics (E&E) companies that participated in this study comprise 45.1 % from industrial electronics, 29.4 % from electrical products, 11.8 % from consumer electronics and 13.7 % from others. These responding companies are generally involved in logistics outsourcing practices. For company ownership status, this item was grouped into four categories with 7.8 % of the responding firms classified as Malaysian, 13.7 % were non-Malaysian (wholly owned by foreigners) whereas 68.6 % were majority non-Malaysian owned (classified as such when non-Malaysian hold more than 50 % of equity capital), and 9.8 % were found to be majority Malaysian owned companies (with Malaysians holding more than 50 % of the equity capital). Data analysis shows that 43.1 % of the responding firms had been running the business for more than 15 years, with 25.5 % between 11–15 years and 29.4 % for 6–10 years. Only 2.0 % had been in business for a period of less than 5 years. For supply chain position, most respondents are the final product manufacturer (78.4 %), 1st tier supplier (17.6 %) and 2nd tier supplier (3.9 %). Of the responding firms, 41.2 % comprise more than 2001 employees, while 27.5 % have 1001–2000

Table 8 Discriminant validity 1

2

3

4

5

6

7

8

9

1. Human asset specificity

0.853

2. Physical asset specificity

0.298

0.786

3. Transaction uncertainty

0.323

0.269

0.846

4. Transportation

0.211

0.547

0.511

0.778

5. Warehouse

0.711

0.058

0.663

0.188

0.823

6. Packaging and handling

0.687

0.071

0.723

0.195

0.147

0.869

7. Inventory management

0.759

0.489

0.476

0.211

0.276

0.412

0.844

8. Strategic focus

0.311

0.412

0.387

0.287

0.418

0.677

0.598

0.867

9. Operative ability

0.387

0.317

0.315

0.231

0.769

-0.023

0.056

0.163

0.840

10. Financial benefit

0.411

0.369

0.289

0.089

0.255

0.784

-0.011

0.159

0.201

123

10

0.876


employees, 17.6 % have 501–1000 employees and 5.9 % have 251–500 employees. Only 7.8 % of respondents have less than 250 employees. 4.4 Reasons for adopting logistics outsourcing In Table 9, most of the respondents adopt logistics outsourcing to reduce and control operating costs (82.4 %), better operation flexibility (52.9 %), improve company focus on core competence of business (49.0 %) and increase efficiency of outsourced logistics functions (37.3 %); 84 respondents confirmed that their organizations outsourced logistics functions to reduce and control operating costs. This is a clear endorsement of the literature review on why firms outsource, which revealed that most companies use outsourcing strategy to achieve cost reduction.

Table 9 Path coefficients and hypothesis testing H

Relationship

H1

Influencing factors ? extent of outsourcing practices

Coefficient

t value

Remarks Partially accepted

H1.a

Human assets ? transportation

0.048

0.363

Rejected

H1.b

Human assets ? warehouse

0.595

6.147

Accepted

H1.c

Human assets ? packaging and handling

0.507

4.690

Accepted

H1.d

Human assets ? inventory management

0.736

8.382

Accepted

H1.e

Physical assets ? transportation

0.375

3.485

Accepted

H1.f

Physical assets ? warehouse

-0.024

0.253

Rejected

H1.g

Physical assets ? packaging and handling

-0.008

0.135

Rejected

H1.h

Physical assets ? inventory management

0.294

3.487

Accepted

H1.i

Transaction uncertainty ? transportation

0.137

1.493

Rejected

H1.j

Transaction uncertainty ? warehouse

0.380

2.715

Accepted

H1.k

Transaction uncertainty ? packaging and handling

0.428

3.562

Accepted

H1.l

Transaction uncertainty ? inventory management

0.185

2.737

H2

Extent of outsourcing practices ? logistic outsourcing performance

Accepted Partially accepted

H2.a

Transportation ? strategic focus

0.145

1.567

Rejected

H2.b

Transportation ? operative ability

0.141

2.033

Accepted

H2.c

Transportation ? financial benefit

0.027

0.348

Rejected

H2.d

Warehouse ? strategic focus

0.209

3.095

Accepted

H2.e

Warehouse ? operative ability

0.847

14.408

Accepted

H2.f

Warehouse ? financial benefit

0.149

1.489

Rejected

H2.g

Inventory management ? strategic focus

0.421

4.861

Accepted

H2.h

Inventory management ? operative ability

-0.058

0.877

Rejected

H2.i

Inventory management ? financial benefit

-0.081

1.071

Rejected

H2.j

Packing and handling ? strategic focus

0.525

5.678

Accepted

H2.k

Packing and handling ? operative ability

-0.067

1.037

Rejected

H2.l

Packing and handling ? financial benefit

0.709

7.558

Accepted

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4.5 Measurement model results The reliability and validity of the reflective constructs were assessed. Composite reliability (CR) was assessed in connection with internal reliability, which is similar to Cronbach’s alpha. Table 7 shows that the CR of all of the constructs were above 0.7, which satisfied the rule of thumb proposed by Hair et al. (2013). Hair et al. (2010) suggested the acceptance of items with loadings of at least 0.6. Individual item reliability was reasonably judged, because the loadings associated with each scale were all greater than 0.6. Convergent validity was evaluated using average variance extracted (AVE). The AVEs of all of the constructs were above 0.5, denoting a satisfactory degree of convergent validity (Fornell and Larcker 1981). Two approaches were used to assess the discriminant validity of the constructs. First, the cross loadings of indicators were examined, in which no indicator loads were higher than any opposing construct (Hair et al. 2012). Second, according to the Fornell and Larcker (1981) criterion, the square root of AVE for each construct should exceed the intercorrelations of the construct with other model constructs (Table 8). Both analyses confirmed the discriminant validity of all constructs. 4.6 Structural model assessment The measurement model had satisfactory results. Thereafter, the structural model was assessed. The accuracy of the predictions made using this model was determined through the explained variance portion. The model can account for 52.3, 42.6, 56.8, 41.5, 51.4, 43.9, and 48.8 % of the variances in transportation, warehouse, packaging and handling, inventory management, strategic focus, operative ability, and financial benefit, respectively. In addition to estimating R2 magnitude, the predictive relevance evaluation measure developed by Stone (1974) and Geisser (1975) was incorporated as another tool to determine model fit. Thus, the capability of the model to estimate clear indicators of underlying constructs can be assessed. Stone–Geisser Q2 (cross-validated redundancy) value was calculated to measure predictive relevance according to a blindfolding process performed in PLS. As guided by Chin (2010), the model displays predictive relevance if the value of Q2 is greater than zero. The current research, the values of the predictive capability (Q2) for all exogenous variables are found greater than zero; Logistics Outsourcing Practices (Transportation = 0.101, Warehouse = 0.112, Packaging and Handling = 0.211, Inventory Management = 0.133) Logistics Outsourcing Performance (Strategic Focus = 0.132, Operative Ability = 0.145, Financial Benefit = 0.168). Thus, the model exhibited acceptable fit and high predictive relevance. Non-parametric bootstrapping was applied (Wetzels et al. 2009) with 2000 replications to test the structural model. Table 9 presents the structural model that resulted from the PLS analysis. There is a positive and insignificant path leading from human assets to transportation (path coefficient = 0.048, p [ 0.05). The path from human assets to warehouse is positive and significant (path coefficient = 0.595, p \ 0.05). The results show a positive path association from human assets to packing and handling (path coefficient = 0.507, p \ 0.05). The indicator

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for the path leading from human assets to inventory management is positive and significant (path coefficient = 0.736, p \ 0.05). The results support H1.b, H1.c and H1.d while H1.a is rejected. The path coefficient from physical assets to transportation is positive and significant (path coefficient = 0.375, p \ 0.05). Physical assets have a negative and insignificant path to warehouse (path coefficient = -0.024, p [ 0.05) and the path of physical assets is negative and insignificant to packing and handling (path coefficient = -0.008, p [ 0.05). There is a positive and significant path leading from physical assets to inventory management (path coefficient = 0.048, p [ 0.05). The path leading from transaction uncertainty to transportation is positive and insignificant (path coefficient = 0.137, p [ 0.05). As predicted, the findings support H1.e and H1.h, but reject H1.f and H1.g. The results of the bootstrapping resampling technique show that the path leading from transaction uncertainty to warehouse is significant (path coefficient = 0.380, p \ 0.05). The findings also support a positive and significant path from transaction uncertainty to packing and handling (path coefficient = 0.428, p \ 0.05). A positive and significant path links transaction uncertainty to inventory management (path coefficient = 0.185, p \ 0.05). The findings support H1.j, H1.k, and H1.l.

5 Discussion This study aims to identify the antecedents and outcomes of logistics outsourcing practices among Electrical and Electronics (E&E) firms in Malaysia. The study is designed to investigate the key factors that influence firms to outsource logistics practices, and, at the same time, evaluate the impact of the extent of logistics outsourcing practices on logistics outsourcing performance. The survey data were obtained from the Electrical and Electronics Association of Malaysia (EEAM) by using a structured email questionnaire directed to the managers in each firm, followed by several reminder emails. The response rate achieved from the survey was 21 %. Industrial electronic firms (45.1 %) ranked number one among the responding firms, followed by Electrical Products firms (29.4 %) and Consumer electronics (11.8 %). In addition, 82.3 % of the responding firms are majority nonMalaysian owned and non-Malaysian companies. Furthermore, 86.3 % of responding firms are companies with more than 500 employees and 68.6 % of the firms have been in business for more than 10 years. This study has assessed the key factors that influence the extent of logistics outsourcing practices and how the extents of these practices affect logistics outsourcing performance. Four logistics outsourcing practices were the focus under this study—transportation, warehousing, packaging and handling and inventory management. Among the researchers who identified the four practices in their studies were Zhang (2007), Go¨l and C ¸ atay (2007), and Selviaridis and Spring (2007). Three factors were studied to determine whether or not they influence the extent of logistics outsourcing practices—lack of human assets, lack of physical assets and transaction uncertainty as elaborated upon extensively by Xu (2009). Three measures were focused on to study the effects of extent of logistics

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outsourcing practices on logistics outsourcing performance—strategic focus, operative ability and financial benefit—as described by Large et al. (2011), Bhagat et al. (2010), Parashkevova (2007), Sahay and Mohan (2006) and Regan and Wang (2003). The study firstly addressed the first research question, ‘what are the effects of factors influencing outsourcing of logistics on the extent of logistics outsourcing practices? For transportation, only lack of physical assets and transaction uncertainty influence the extent of the outsourcing practices. For warehousing, lack of human assets and transaction uncertainty are the two factors that influence the extent of the practices. As for packaging and handling, the results show that the extent of outsourcing practices is influenced by a lack of human assets and transaction uncertainty. For inventory management, the lack of human and physical assets both influences the extent of inventory management outsourcing practices. The second research question is ‘what are the effects of the extent of logistics outsourcing practices on logistics outsourcing performance?’ The results show that all four logistics outsourcing practices contribute to the strategic focus. The extent of transportation, warehousing and packaging and handling outsourcing practices is positively related to operative ability while only the extent of packaging and handling outsourcing practices contribute positively to financial benefit. The results of hypotheses testing between logistics outsourcing influencing factors and the extent of logistics outsourcing practices show that out of twelve hypotheses, four were rejected and eight were accepted. For the extent of transportation outsourcing practices, the hypothesis that low physical assets would have a positive effect was accepted. This is probably true looking at the type of products manufactured by the responding firms, in that 45.1 % of them manufacture industrial electronics that need efficient transportation services to ship their products to fulfil the domestic and international logistics needs. Domestic transportation services, international transportation services and transportation planning and management were among the items asked in the survey to examine the extent of transportation outsourcing practices. The hypothesis that low human assets would have a positive effect on the extent of transportation outsourcing practices was rejected. This is probably due to the nature of transportation outsourcing services whereby the main concern by firms is the transportation vehicle itself to move the products for distribution. The hypothesis that high transaction uncertainty would have a positive effect on the extent of transportation outsourcing practices was accepted. This is an obvious trend among firms because most organizations are careful about making investment decisions concerning fixed assets, such as transportation vehicles, because of the uncertainties in the market. The hypothesis that low physical assets would have a positive effect on the extent of warehouse outsourcing practices was rejected. The data collected show that 74.5 % of responding firms are producers of industrial electronics and electrical products that probably have their own warehouse as a staging area before shipment. This is important to ensure maintenance of a suitable environment, such as temperature, humidity and electrostatic discharge safe area, to sustain product quality for complex and sophisticated products, such as high

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accuracy test and measurement products that need calibration, and automated machines that are highly sensitive to environmental changes. The hypothesis that low human assets and high transaction uncertainty would have a positive effect on the extent of warehouse outsourcing practices was accepted. This is an empirical explanation that firms outsource warehouse services due to the lack of warehouse management skills and the uncertainties of business environment. Among the survey items asked concerning human assets were firm’s knowledge, skill and experience. For extent of packaging and handling outsourcing practices, the hypothesis stating that low physical assets would have a positive effect was rejected. This is explainable by the nature of the packaging and handling itself, as this service involves very low investment in physical assets or fixed assets. However, the hypothesis that low human assets and high transaction uncertainty would have a positive effect on the extent of packaging and handling outsourcing practices was accepted. This explains that most firms outsource packaging and handling services due to the lack of skilled resources and to minimize uncertainties, and not because of low physical assets. This is aligned with the respondents’ profile, whereby 78.4 % were final product manufacturers and multinational companies, which usually outsource activities to improve company focus on the core competence of the business (49 % of respondents selected this as the reason they adopt logistics outsourcing). For the extent of inventory management outsourcing practices, the hypothesis stating that low physical assets and low human assets would have a positive effect was accepted. However, the hypothesis that high transaction uncertainty would have a positive effect on the extent of inventory management outsourcing practices was rejected. This empirical result suggest that most firms (68.6 % are majority nonMalaysian companies) outsource inventory management services to minimize the impact of uncertainty on their business and not because of low physical and human assets. While 17.6 % of respondents admitted that their firms outsource logistics services to share risks. On the whole, the three factors influencing the extent of logistics outsourcing practices were found to have a different impact on different practices. The lack of physical assets only influences the extent of transportation and inventory management practices. The lack of human assets, however, influences the extent of warehousing, packaging and handling and inventory management of the outsourcing practices. Transaction uncertainty is an important factor that influences the extent of transportation, warehousing and packaging, and handling outsourcing practices. The results of hypotheses testing between the extent of logistics outsourcing practices and logistics outsourcing performance showed that eight out of twelve were accepted and four were rejected. The hypothesis stating that the extent of transportation outsourcing practices would have a positive effect on the strategic focus and operative ability was accepted while the hypothesis for the positive effect on financial benefit was rejected. The results show that many firms did not enjoy any financial advantage from the transportation outsourcing strategy. The hypothesis testing between the extent of warehouse outsourcing practices and logistics outsourcing performance produced a similar result to transportation. Firms only enjoyed strategic focus and operative ability and did not seek to harvest any dollar

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benefit out of warehouse outsourcing practices. The results of hypothesis testing between the extent of packaging and handling outsourcing practices, and logistics outsourcing performance suggested a very encouraging output—positive effect on all three logistics outsourcing performance dimensions including strategic focus, operative ability and financial benefit. This experimental result is a signal that the outsourcing of packaging and handling practices is a good move to achieve strategic focus, improve operative ability and reap financial benefit. The results of hypotheses testing between the extent of inventory management outsourcing practices and logistics outsourcing performance, however, found that only the hypothesis positing a positive effect on strategic focus was accepted while the other two were rejected. The results showed that inventory management outsourcing is not a successful strategy for improving operative ability or gaining financial benefit. Outsourcing such an activity only allows an opportunity for firms to focus strategically on their core business activities. The extent of the four logistics outsourcing practices under study impact logistics outsourcing performance with different trends. The extent of transportation and warehousing outsourcing practices are positively related to strategic focus and operative ability but no positive relationship was found with financial benefit under this study. The results show that the extent of packaging and handling outsourcing practices positively contributes to all three measures of logistics outsourcing performance—strategic focus, operative ability and financial benefit. The extent of inventory management outsourcing practices, however, is only found to have a positive relationship with strategic focus. Three major limitations of this study are outlined, as follows: First, as it is almost impossible to measure the extent of logistics outsourcing practices, a rating scale was used to allow respondents to select the most representative answer for each of the variables under study. Therefore, the results are subject to respondents’ judgment on each of the questions in providing the nearest justification for each of the responses. Second, due to the heavy work load of managers, it is impossible to get a 100 % response from managers to reflect the best answers for each of the questionnaire items to increase the accuracy of the results of this study. Therefore, it is assumed that all respondents answered the questions to the best of supply chain knowledge considering the departments they work in deal with logistics outsourcing directly and indirectly. Third, the measures of logistics outsourcing performance are determined based on firm perspective since the respondents are managers and personnel from the organizations. Therefore, the results may not accurately reflect the total performance from various aspects, such as from the perspective of customers. If a wider time spectrum is available, customer perspectives should be taken into account to reflect customer perceptions of logistics outsourcing performance. This study has identified the key factors that influence the extent of logistics outsourcing practices and how the extent of these practices affects logistics outsourcing performance. First, it is recommended that future research will study how green logistics outsourcing practices behave differently. Babin and Nicholson (2011) reported that social responsibility and environmental considerations in global outsourcing has received minimal attention in academic research. This is relevant in

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today’s challenging environment, which demands sustainable solutions through the application of green practices (Zailani et al. 2015b). The study should also identify influencing factors that motivate firms to adopt green logistics practices and how these practices affect customer perceived performance. Second, with the rapid development of the logistics outsourcing industry, fourth party logistics is now becoming a trend among established firms. Similar studies can be performed by focusing on only firms that adopt 4PL services to investigate if fresh trends are observed, especially concerning the extent of the logistics outsourcing practices and their effectiveness to achieve intended outcomes. Selviaridis and Spring (2007) and Aktas and Ulengin (2005) considered the growth of 4PL service providers in supply chain coordination activities instead of just supply chain operational activities. Third, since this study focus is the variables from the firms’ perspective, it would be very beneficial to understand the determinants and outcomes of logistics outsourcing practices from the perspective of third party logistics service providers. The logistics outsourcing performance can be studied from the logistics service providers’ perspective, such as the outsourcing relationship performance and extended contracts. A qualitative study would also be a good avenue to pursue this study. As mentioned by Knemeyer and Murphy (2005), there has been very little research concerning the activities that might influence the performance of logistics outsourcing relationships. 5.1 Implications This study enriches the available slow growing literature on logistics outsourcing in the Malaysian context. To the best of our knowledge, this study is the first effort to investigate the influencing factors of the extent of logistics outsourcing practices, particularly among electrical and electronics firms in Malaysia. This study also shows that although firms aim at cost reduction by employing a logistics outsourcing strategy, it is theoretically true but not proven in this study because the financial benefit was only positively contributed by one of the four logistics outsourcing practices under study. Maelah et al. (2010) mentioned that there are limited resources in the literature on outsourcing practices in Malaysia. The results from this study support that most firms outsource their non-core activities to respond to the transaction uncertainty that their business experiences. Practically, all four logistics outsourcing practices show that they are the preferred logistics practices to outsource. Electrical and electronics firms should now consider packaging and handling seriously as a good candidate to be outsourced as the results show that packaging and handling managed to affect logistics outsourcing performance positively from the perspective of the strategic focus, operative ability and financial benefit. Packaging and handling was the only logistics outsourcing function that managed to positively affect financial benefit. Wai et al. (2010) suggested that the popularity gained by outsourcing is a result of the rapid market changes that pressured firms for cost reduction, which is supported by Kedia and Lahiri (2007), and Ha¨to¨nen and Eriksson (2009) who stressed that cost reduction had been the main driver for the outsourcing of non-core activities.

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6 Conclusions The results of this study showed that transaction uncertainty and lack of human asset are the two key factors that influence the extent of logistics outsourcing practices employed by electrical and electronics firms in Malaysia. Rahman (2011) found that the influence of transaction uncertainty in outsourcing decisions comprehensively was aligned with Selviaridis and Spring (2007), as supported by Bourlakis and Melewar (2011) and Hsiao et al. (2011). The studies by Setthakaset and Basnet (2005) and Hsiao et al. (2011) endorsed the empirical findings of this research concerning the important influence of human assets on the extent of logistics outsourcing practices. These findings showed that most firms are more concerned with human assets and transaction uncertainty in order to decide the extent of logistics outsourcing practices in their companies. This is potentially due to the nature of the unpredictability of transaction uncertainty and intangible human skill set, and the knowledge needed in operating logistics functions. This research also found that the strategic focus is one of the logistics outsourcing performance dimensions achieved by most responding firms. The logistics outsourcing practices under study—transportation, warehousing, packaging and handling and inventory management showed a positive relationship with strategic focus as investigated by Gadde et al. (2002) and supported by Setthakaset and Basnet (2005), Cho et al. (2008) and Go¨l and Çatay (2007). Outsourcing noncore activities, such as logistics functions, allows firms to focus more on their core business activities, as supported by much of the literature reviewed in the preceding chapter. This study also revealed that packaging and handling is the only logistics outsourcing practice that demonstrated a positive relationship with all three logistics outsourcing performance dimensions—strategic focus, operative ability and financial benefit. This is potentially due to the nature of the function of packaging and handling, which is more structured, tangible and predictable with most firms establishing close engagement between logistics service providers and their manufacturing team to carry out this function more effectively.

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