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3PLSP scale for co-operative dairies in Indian context


Tejas R. Shah
Shri Chimanbhai Patel Institute of Management and Research, Ahmedabad, India, and

3PLSP scale

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Received 14 November 2011 Revised 2 February 2012 Accepted 9 March 2012

Mahendra Sharma
V.M. Patel Institute of Management, Ganpat University, Gujarat, India
Abstract
Purpose The purpose of this paper is to develop a scale for measuring benets of third party logistics service providers for co-operative dairies in an Indian context. The objective is to measure benets of third party logistics service providers for co-operative dairies. Design/methodology/approach A standard scale development research procedure recommended by experts was followed. First, the literature review of studies to measure benets of third party logistics was undertaken. Later, Delphi method was used. Interviews were conducted of experts and customers for understanding and generating items for measuring benets of third party logistics service providers for co-operative dairies. A survey was then undertaken rst for development of the scale and later for validation purpose. Findings A reliable and valid scale is developed to measure the ve dimensions of benets of using 3PLSPs for co-operative dairies: responsiveness, accuracy, customization of service, inventory handling and order processing and information sharing. Research limitations/implications This scale is developed to outsource logistics functions at operational levels in the context of co-operative dairies in India. So, this scale can be tested for co-operative dairies of countries other than India. The scale can also be tested where outsourcing of logistics activities is done at operational level, other than co-operative dairies. Practical implications The proposed scale can be used as a diagnostic tool to identify important benets to consider in outsourcing operational function of logistics management to 3PLSPs in co-operative dairies. Originality/value Most relevant studies about benets of third party logistics service providers do not have stable factor structure, especially for co-operative dairies. The new scale lls the gap of the absence of a validated scale to measure benets of 3PLSPs for co-operative dairies at operational level. Keywords Co-operative dairies, Third party logistics service providers, India, Outsourcing, Management strategy, Distribution management Paper type Research paper

Introduction India is the largest producer of milk in the world with 112.5 million tone productions in the year 2009-2010. The per capita availability of milk in India is 263 grams per day (source: NDDB, www.nddb.org/). Dairy co-operatives have played an important role in the development of the Indian dairy sector by linking smallholder dairy producers with the markets and providing fair-cost and quality inputs and services to the producers. In India, co-operative dairies procure about 14 per cent of the national marketable surplus and nearly 8 per cent of total rural milk producing households covering around 21 per cent of the countrys villages and 18 per cent of rural milk producing households (Sharma and Thaker, 2010).

Asia Pacic Journal of Marketing and Logistics Vol. 24 No. 3, 2012 pp. 515-532 q Emerald Group Publishing Limited 1355-5855 DOI 10.1108/13555851211237948

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Gujarat is the pioneer state in development of co-operative structure for dairies. Gujarat constituted around 7.73 per cent of total milk production in India. The Gujarat is ranked fth among the states producing milk in India (source: NBBD, www.nddb.org/). The present level of per capita availability of milk in Gujarat is much higher at 403 grams per day (third rank in India), which is well above the per capita availability of milk of 220 grams per day as recommended by Indian Council for Medical Research (Sharma and Thaker, 2010). The per capita monthly expenditure on milk and milk products in Gujarat was 22.7 per cent in rural area and 25.3 per cent in urban area as against 15.5 per cent in rural area and 18.8 per cent in urban area in India for the year 2006-2007 (Sharma and Thaker, 2010). In Gujarat, there were 13,646 organised district co-operative societies (DCS) centers in the year 2008-2009, constituting 2,839,000 farmer members out of which 784,000 women members. As against the national average of 8 per cent, the share of milk procured by co-operatives in Gujarat was much higher at 39 per cent and had increased signicantly during 2000s. The share of Gujarat in total milk procurement by co-operative dairies in India was the highest at 32.90 per cent, followed by Karnataka (13.2 per cent) and Maharashtra (13.1 per cent) during the year 2008-2009. Gujarat has increased its share from 27.6 per cent in the 2001-2002 to 32.9 per cent in 2008-2009 (Sharma and Thaker, 2010). Gujarat Co-operative Milk Marketing Federation (GCMMF) is the apex body of all the co-operative dairies in Gujarat. Under GCMMF, 13 co-operative dairies are operating with 19 dairy plants in Gujarat. Total milk procurement by GCMMF was 3,050,000 tonnes in the year 2008-2009, which constituted 36.37 per cent approximately of the total milk production in Gujarat. The total average daily milk handling capacity of GCMMF stood at 11,220 tonnes, while the total daily milk collection was 8,400 tonnes for the year 2008-2009. GCMMF is operating with 13,328 co-operative societies with around 2.79 million producer members (source: GCMMF, www.amul.com/). The co-operative structure aims at following features (Figure 1): . decentralized milk production by the small milk producers; . milk procurement by the village-level dairy co-operative societies; . centralized milk processing by the district-level unions; and . marketing of milk and milk products by the state-level federation (source: GCMMF, www.amul.com). Logistics issues in milk and milk products Milk and other dairy products are highly perishable. Signicant logistics problems arise both in collection of the milk from farm and the distribution of varieties of milk products to retailers and customers (Butler et al., 2005). Milk and milk products are affected by temperature variation, humidity, other environmental conditions and transportation time. Therefore, it is extremely important that transportation time, handling, storage and other requirements are well planned in order to maintain the product characteristics till they reach to the customers. Customer service management requires logistic management exibility at supply, production and distribution levels (Gotzamani et al., 2010). In co-operative dairy environment, increasing levels of product variety and customization and the ability to respond to customer orders in a timely fashion can provide a critical competitive advantage (Reichhart and Holweg, 2007). Co-operative dairies are indicating that responsiveness and exibility are the keys

3PLSP scale
3P Services GCMMF

Suppliers

Procurement Price

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3POL Customers or Consumers

Milk VDCS

Distributor 3PIL

Retailer

Demand

Entities in Supply Chain Material flow of Milk and Dairy Products Support Services Primary/Major influencing factors

Coordination and Planning activities 3PIL - Third party in-bound logistics 3POL - Third party out-bound logistics VDCS Village dairy co-operative society

Source: Chandra and Tirupati (2002)

Figure 1. The demand-supply linkages in logistics of co-operative dairies

to responding to markets, which are rapidly changing and require a range of products and services for customers (Cunningham, 1996). Most of co-operative dairies operating in India have contractual relationships with third party logistics service providers (3PLSPs). The outsourcing decision is inuenced by rms (co-operative dairies) perception of 3PLSPs abilities, the way in which 3PLSPs job functions are dened and their capabilities are perceived, based on the rms (co-operative dairies) underlying reasons for outsourcing (Banomyong and Supatn, 2011). The nature of the outsourcing contract and rms perception of 3PLSPs role is largely driven by the underlying factors which inuence the original decision to outsource. Two different approaches are well dened in literature to outsource logistics activities: transaction cost theory (TCT) and resource based view (RBV) (Zacharia et al., 2011). TCT has been seen as fundamental to the outsourcing principle. TCT focuses on the costs of completing transactions. The use of TCT depends upon three main attributes in outsourcing decision: asset specicity, uncertainty and frequency of transactions (Bourlakis and Melewar, 2011). RBV studies the rms internal strengths and weaknesses. It focuses on rms core competencies and competitive advantages (Hsiao et al., 2010). TCT suggests that the role of 3PLSP is limited to operational issues

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as the rms focus is on cost function. As per RBV, 3PLSP is seen as a strategic partner where outsourcing decision is made due to resource considerations and core competencies. The use of 3PLSP can be at operational or strategic level (Selviaridis and Spring, 2007; Zacharia et al., 2011). This research concentrates on the operational relationships between 3PLSPs and rms. The study includes the development of scale, which describes the important criteria to consider while outsourcing the selected logistics functions to 3PLSP at operational level. The study is conducted in context of co-operative dairies in India, where 3PLSPs have been used at operational level only. The co-operative dairies are covering its large market with use of 3PLSPs in its transportation at supply and distribution levels. The effort has been made to develop valid and reliable scale for selection of 3PLSPs at operational level. Third party logistics service provider A growing trend towards outsourcing of logistics activities in a wide variety of industrial sectors has led to an emergence of large companies that have the capabilities to offer sophisticated logistics solutions, known as logistics service providers (Selviaridis et al., 2008). The outsourcing of logistics to 3PLSPs has become an increasingly powerful trend in modern era (Qureshi et al., 2008). Various terms have been used interchangeably to describe the organizational practice of contracting out part of or all logistics activities like third party logistics (3PL), logistics outsourcing, logistics alliances and contract logistics (Ratten, 2004). Different researchers have dened 3PLSPs differently. The third party normally takes the possession of goods but does not take title and provides its services for a price (McGinnis et al., 1995). Langley et al. (1999) dened 3PLSP as a company that provides multiple logistics services for its customers, whereby the 3PL provider is external to the customer company and is compensated for its services. Logistics outsourcing is a process that involves the use of external logistics companies to perform activities that have traditionally been performed within an organisation (Wang et al., 2006), where the shipper and logistics company enter into an agreement for delivering services at specic costs over some identiable time horizon (Hsiao et al., 2010). According to Chen (2008) 3PLSP deals with the logistics of the delivery of inputs from suppliers to the manufacturing plant and/or the delivery of nished goods to various demand centres. Tian et al. (2010) explained that 3PLSP is specialist provider of a wide range of logistics activities and is well-recognized as key enablers of its customers service-related competitive advantages. 3PLSP is a rm in supply chain process that brings products and services to end customers thereby forming a logistics triad among seller, buyer and 3PLSP (Gotzamani et al., 2010). Banomyong and Supatn (2011) mentioned that 3PLSP is an outside company that performs some or all of a rms logistics activities. 3PLSP is the management, control and delivery of logistics activities on behalf of a shipper by an external provider. 3PL activities are based on formal contractual relations (Selviaridis et al., 2008; Large et al., 2011). 3PLSP is associated with the offering of multiple, bundled services, rather than just isolated transport or warehousing functions. The role of 3PLSP has changed from initially offering transportation services to offering a broad array of bundled services that includes warehousing, inventory management, packaging, cross docking and technology management (Zacharia et al., 2011).

The principle behind 3PL is to concentrate on core activities and rely on experts (3PLSPs) for other critical activities. In doing so, companies can direct scarce resources for developing core competence and outsource critical activities like logistics on expert third party providers for whom logistics is the core activity (Hofer et al., 2009; Salleh and Dali, 2010; Liu et al., 2010; Zacharia et al., 2011). The level of analysis of 3PLSP research can be studied at three levels: the rm, the dyad and the network (Selviaridis and Spring, 2007). Outsourcing of logistics function The decision to outsource logistics activities depends on number of internal and external considerations. Several factors such as centrality of logistics function, risk and control, cost/service trade-offs, information technologies and relationships with 3PLSP are affecting the decision. Product related (e.g. special handling needs), process related (e.g. cycle times) and network related (e.g. locations served) drivers are believed to have an indirect inuence in the outsourcing decision (Rao and Young, 1994). McGinnis et al. (1995) found that the logistics strategy is affected by competitive responsiveness, external environmental hostility and environmental dynamism. Daugherty and Droge (1997) linked the logistics outsourcing decision with the shippers organizational structure. Organizations that have decentralized line activities at the business level are expected to outsource more in comparison to shippers that organize theirs centrally. Hong (2004) discussed determinants of outsourcing in terms of shipper rms characteristics. Rahman (2011) found that outsourcing contracts can be analyzed from three perspectives: user, service provider and user-service provider. Hsiao et al. (2011) mentioned that the outsourcing of logistics activities is dependent on supply chain complexity. Bourlakis and Melewar (2011) found that the selection of 3PLSP is depended on the market environment, the clients needs, regulatory environment and competitiveness of 3PLSPs. Benets and costs of using 3PLSP van Damme and Ploos van Amstel (1996) explained that the do or buy decision is affected by evaluation of cost/service trade-offs. Cost associated with performing logistics activities in-house and investment in capital assets is traded-off against service provider fees. The decision process of outsourcing is based on an evaluation of the costs and benets of outsourcing (Hong, 2004; Hofer et al., 2009). The major reasons cited for usage of 3PLSP services include cost reduction (27 per cent), strategic reasons (26 per cent), process effectiveness (24 per cent) and lack of internal capability (11 per cent) (Sahay and Mohan, 2003). Lau and Zhang (2006) found economic, strategic and environmental benets while using 3PLSPs. Three kinds of benets can occur using 3PL: strategy, nance and operations related (Selviaridis and Spring, 2007). Outsourcing of non-strategic activities enables organizations to focus on core competence and exploit external logistical expertise (Sink and Langley, 1997). The relationship with 3PLSP increases efciency and effectiveness in performance without investing in assets and new capabilities (Persson and Virum, 2001). The contract logisticians convert a xed cost into variable cost for users (Hsiao et al., 2011). Postponement is another benet, which enhances the ability of the rm to compete on time while remaining cost competitive (Bhatnagar and Viswanathan, 2000). 3PLSP users can enhance their exibility with regard to market (investment) and demand (volume exibility). In an era of increased competition, globalization and the need for reduced order cycle time and inventory levels, the rms can be more responsive to market situations

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based on effective logistics alliances. Other benets include reduction in inventory levels, order cycle time, lead-times and improvement in customer service (Bhatnagar and Viswanathan, 2000; Ratten, 2004). The use of 3PLSP leads to variety of benets including improved market performance, competitive advantage, higher levels of customer service and improved cost-effectiveness between the shipper and the carrier (Cochran and Ramanujam, 2006). Gotzamani et al. (2010) found that the use of 3PLSP leads to better quality management, which ultimately leads to improved nancial performance. The multiple customers can be approached, which spreads logistics costs among wide number of customers, which provides the benet of economies of scale (Hsiao et al., 2011). Thai et al. (2011) explain that the use of 3PLSP brings benets in terms of skilled logistics professionals. The recent literature has dened the major benets of using 3PLSPs in logistics management of rm like on time delivery, correct delivery, cost consideration, inventory accuracy, quality of services, exibility, customization, shipments in terms of value/ volume, communication system, sensitive information sharing, quick response, customer complaint, total order cycle time, ll rate and use of technology (Mentzer et al., 2001; Lai, 2004; Wilding and Juriado, 2004; Panayides, 2007; Raq and Jaafar, 2007; Qureshi et al., 2008; Selviaridis et al., 2008; Chen, 2008; Kundhamraks and Hanaoka, 2008; Kannan, 2009; Hartmann and Grahal, 2011; Large et al., 2011; Rahman, 2011). One of the reasons given for limiting the extent of outsourcing the strategic level activities is the retailers perception of the risks of outsourcing, the most commonly cited was the increased dependence on service providers (Bolumole, 2001). One of the most obvious risks associated with using 3PLSP is loss of control over the logistics function and loss of in-house capability and customer contact. So generally companies employ mixed strategy regarding logistics and retain important logistics activities (e.g. order management) in-house (Wilding and Juriado, 2004). The lack of responsiveness to customer needs is also one of the important problems in logistics outsourcing (van Damme and Ploos van Amstel, 1996). The cost reduction is not clearly found out due to unrealistic fee structures of service providers (Ackerman, 1996). Cost saving evaluation can be difcult due to the shippers lack of awareness of internal logistics costs. Other problems associated with 3PLSP are inferior service performance, disruption to inbound ows, inadequate provider expertise, inadequate employee quality, sustained time and effort spent on logistics, loss of customer feedback and inability of 3PL providers to deal with special product needs and emergency circumstances (Svensson, 2001). Certain difculties like lack of understanding of clients supply chain needs, lack of adequate expertise in specic products and markets, unrealistic customer expectations, inadequate description of services and service levels, lack of logistics cost awareness by the client and lack of 3PL innovation are impediments for designing and implementing 3PLSP (Ackerman, 1996). Need for developing a scale to measure 3PLSP benets for co-operative dairies The benets of using 3PLSP are contextual in nature. The past literature describes the important benets to consider while selecting 3PLSP, but it lacks the development of valid and reliable measurement for selection of 3PLSP, especially when it is used at operational level. Thus, the testing and validation is required before one can accept any one factor structure as the factor structure underlying the construct of the benets of 3PLSP at operational level. This study lls this gap by systematically dening and

measuring the important benets to consider in 3PLSPs at operational level. This study is conducted in the context of co-operative dairies in India, where the most of the operational functions of logistics management at supply and demand level are performed by 3PLSPs. Objectives of study The objectives of the study are to determine the dimensions used in judging the benets of 3PLSPs at operational level, to develop a tool for measuring benets of 3PLSPs for co-operative dairies, to test validity and reliability of new scale and nally to suggest measures for improving quality of benets of using 3PLSPs for co-operative dairies. Research methodology This research consisted of a series of steps towards developing a measure to assess benets of using 3PLSPs for co-operative dairies. Schawb (1980) suggested three stages of scale development. They are: (1) item generation which involves selecting items from previous studies; (2) scale development which deals with deciding the manner in which items are combined to form scales; and (3) scale evaluation which refers to testing the psychometric properties of the scale. Exploratory study item generation stage This stage involved identifying and dening the benets of using 3PLSP in logistics management. Step 1. Denition of the 3PL Based on detailed literature review, it can be inferred that the 3PLSP is associated with the offering of multiple, bundled services, rather than just isolated transport or warehousing functions and is based on formal contractual relations. Step 2. Identication of benets of using 3PLSP The benets of using 3PLSP were taken from previous studies undertaken for measuring benets of using 3PLSPs and reported in research journals. Step 3. Generation of items representing the dimensions Item generation procedure involved two steps: one, statements or items taken from previous studies undertaken for assessing benets of 3PLSPs and two, semi-structured interview (Delphi method). Based on comparison by reading, repetitive items/statements were excluded from the list and rened list items/statements were prepared which would be adopted for scale construction purpose. Based on this list, a questionnaire was prepared for semi-structured study. Delphi method. In the rst phase, the questionnaire was administered to ten experts in the co-operative dairies and two experts in the academic world. Their views were taken as to whether a particular item belongs to benets of using 3PLSPs or not. Also the views of other eight 3PLSPs of co-operative dairies were contacted. Their suggestions were taken on new statements, which were not in questionnaire and which

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were important benets of using 3PLSPs. Based on the responses of above 20 respondents, items were selected for further study. Step 4. Survey questionnaire for data collection Based on the responses of respondents, a questionnaire was prepared which constituted statements measuring different items of benets of 3PLSPs for co-operative dairies. This questionnaire was pre-tested on 12 participants in co-operative dairies. Descriptive study data collection for scale development The data from a sample of 100 respondents was collected. The sampling unit included, top and middle level executives, working at various supply chain level, in purchase and procurement department, production department and marketing and distribution department of various co-operative dairies in Gujarat. The convenience sampling method was used for the study. The personal contact method was used to ll up the questionnaire from respondents. Data analysis scale development The procedure used for the scale development involved the use of factor analysis and the calculation of Cronbach alpha to generate the factor structure. Data analysis was done using statistical package for social sciences 16.0 version. The factor analysis method was used to nd out various dimensions of scale. The Bartletts test of sphericity and Kaiser-Meyer-Olkin measure of sampling adequacy tests were performed before factor analysis, which showed the appropriateness of the correlation matrix for factor analysis at each stage. The process followed for scale development is as follows: . Stage 1. Initially 24 items were subjected to factor analysis using principal axis factoring procedure. The obtained factor solution was subjected to varimax rotation. The eigen value was considered as 1 and the items which had factor loadings less than 0.40 on any factor were dropped. The same criterion was applied at all the subsequent factor analysis stages for dropping items. The factor analysis at rst stage resulted in six dimensions. Four items were removed from 24 total items during factor loadings. The Cronbach alpha was calculated to measure reliability of proposed constructs. Another statistics was calculated for each item the value of alpha if that item was removed. Using this statistics, the items, which improved alpha if they were dropped, were dropped and the alpha was calculated for the dimension again. Another two items were dropped based on these measures. The same criterion was applied at the subsequent Cronbach alpha stages for dropping items (Hair et al., 2009). . Stage 2. In this stage the remaining 18 items from the rst stage were subjected to factor analysis, Cronbach alpha and value of alpha for each item if that item is removed. At this stage, the criterion resulted in the dropping of three more items from total 18 items. One item was removed due to low loadings (less than 0.40) and other two items due to low value of alpha for each of those items. The remaining 15 factors were taken to the next stage. . Stage 3. Again at this stage, the factor loading and the value of Cronbach alpha and alpha if item is dropped were calculated for remaining 15 factors obtained

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from stage 2. At the end of two-stage scale purication process involving factor analysis, Cronbach alpha and alpha if one item is dropped, a 3PLSP scale of 15-items with ve dimensions is developed. Factor analysis output, at this stage, showed that both Kaiser-Meyer-Olkin measure of sampling adequacy had the value of 0.658 and Bartlett test of sphericity had the x 2 value of 508.943, with 105 degrees of freedom (df) and signicance value of 0.000, which proved the appropriateness of the correlation matrix for factor analysis. The ve dimensions are responsiveness, accuracy, customization, inventory handling and order fulllment and information sharing, as shown in Table II. The reliability of these ve factors was checked using Cronbach alpha measurement. As shown in Table III, the Cronbach alpha values of all ve factors were above 0.6, which was sufcient to prove their reliability for further analysis. This scale is validated in the next stage. Scale validation This stage of analysis consisted of scale validation process and checking reliability and validity of the 3PLSP scale. A sample of 101 respondents was drawn which was used for scale development and a second sample of 100 respondents was drawn subsequently for validation. Aagja and Garg (2010) mentioned three broad criteria used to validate a scale. First, the factor loadings of the two samples should show similar pattern, second, the reliability values for both the stages must be same and third, the percentage of variance explained by the various factors should be similar in the two samples. The same factor loading procedure was adopted as followed during scale construction stage. The results of the factors loadings during scale construction stage and scale validation stage are mentioned in Table I. The results showed that the number of factors was constrained to ve. The structure of factor loadings in the two samples was similar and had no major difference in loading values, thus satisfying the rst criterion. Factor loadings for different items to respective factors for both scale construction and scale validation stages were found to be similar. This satises the rst criterion for scale validation. These ve factors were then taken for reliability analysis using Cronbach alpha measurement. The comparison of coefcient alpha scores for both scale construction and scale validation stage are shown in Table II. The Cronbach alpha values for all the ve dimensions were more or less similar, indicating good validity for these ve factors. This satises the second criterion for scale validation. The third criterion for testing the validity of the ve factor scale was to compare eigen values of the factor analysis output for scale construction stage and scale validation stage. Table III gives the eigen values for all ve factors in the pattern matrix. It can be observed that the eigen values and percentage of variances for both the stages were almost similar and also validated the ve factor structure. Thus, on the basis of scale construction and scale validation stages, a 15-items scale with ve dimensions was developed. The dimensions were responsiveness (four items), accuracy (four items), customization of service (two items), inventory handling and order processing (three items) and information sharing (two items). Validity testing of the proposed scale Different validity, namely, face, content, convergent, discriminant and nomological, are used to validate the proposed scale (OLeary-Kelly and Vokurka, 1998; Sureshchander et al., 2002).

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Dimensions

Scale construction factor analysis 0.847 0.784 0.667 0.615 0.843 0.657 0.616 0.549 0.843 0.730 0.814 0.812 0.654 0.866 0.625

Scale validation factor analysis 0.823 0.761 0.673 0.690 0.776 0.614 0.636 0.449 0.815 0.747 0.827 0.794 0.674 0.851 0.615

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Table I. Comparative factor loadings for two stages

Responsiveness (factor 1) Quick response Flexibility Handling of customer complaints Total order cycle time Accuracy (factor 2) Cost consideration On time delivery Use of technology Correct delivery Customization of service (factor 3) Quality of services Customization of services Inventory handling and order fulllment (factor 4) Inventory accuracy Shipments in terms of value/volume Fill rates Information sharing (factor 5) Communication system Sensitive information sharing

Dimensions Responsiveness Accuracy Customization of service Table II. Reliability analysis Cronbach alpha Inventory handling and order fulllment Information sharing

Scale construction 0.613 0.720 (Only two variables) 0.712 (Only two variables)

Scale validation 0.556 0.730 (Only two variables) 0.727 (Only two variables)

Sample

Factor 1: Factor 2: Factor 3: responsiveness accuracy customizationofservice

Factor 4: inventory handling and order fulllment

Factor 5: information sharing

Table III. Comparison of output of pattern matrices

Eigen values Scale construction 3.154 2.837 Scale validation 3.225 2.990 Percentage of variance explained Scale construction 21.029 18.914 Scale validation 21.498 19.934

1.908 1.720 12.721 11.469

1.350 1.293 9.001 8.620

1.183 1.216 7.887 8.104

Face validity A the items included in the research were identied from the literature, their selection is reasonable, thereby ensuring the face validity of the instrument. Content validity The present instrument was developed based on a detailed analysis of the conceptual and empirical literature. Moreover, the content validity of the instrument was ensured through a review by experts from both academia and practitioners in the eld. Convergent validity As suggested by Kaplan and Sacuzzo (1993), Sureshchander et al. (2002) and Kumar (2005), to obtain convergent validity, the 3PLSP scale should have high correlation with other measures of the same construct. For this purpose, the other measure was a single statement measuring overall service quality of third partly logistics service provider, represented by item B1 in the questionnaire. As shown in Table IV, the correlation coefcient for single item measure service quality with the new scale and its dimensions was statistically signicant at 0.05 level. It means convergent validity was ensured in the new scale. Convergent validity was also assessed by calculating one way analysis of variance (Wong et al., 2001; Bahia and Nantel, 2000). The overall service quality was taken as an independent factor in ANOVA analysis. Table V shows that the association between overall service quality and the proposed scale and its ve dimensions were signicant at 0.05 level. It meant that group differences were signicant. This also reected a good convergent validity. Discriminant validity As suggested by Kumar (2005), 3PLSP scale should have low correlation with the measures of the constructs with which the scale constructs should not be associated. For this purpose, the other variable was a single item measure of dairy discontent, represented by item B2 in the questionnaire. As evidenced from Table IV, the correlations of dairy discontent with overall scale and ve dimensions were very low and insignicant at 0.05 level; indicating higher level of discriminant validity for
Inventory handling and order Information fulllment sharing

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Overall scale Convergent validity Service quality 0.739 * Discriminant validity Dairy discontent 2 0.016 Nomological validity Logistics exibility 0.797 *

Customization Responsiveness Accuracy of service

0.518 * 0.053 0.520 *

0.435 * 2 0.016 0.412 *

0.524 * 0.041 0.549 *

0.398 * 2 0.113 0.494 *

0.293 * 0.135 0.347 * Table IV. Validity comparisons (correlation coefcients)

Note: Signicant at: *0.05 level

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the scale. The low values of correlations among different constructs of the proposed scale, as shown in Table VI, also proved the convergent validity. Nomological validity It is based on investigation of constructs and measures in terms of formal hypothesis derived from theory. The correlation coefcients for single item measure of logistics exibility improvement with new scale and its dimensions were statistically signicant at 0.05 level, as shown in Table IV. It ensured the nomological validity in the new scale. Nomological validity was also assessed using one way ANOVA (Bahia and Nantel, 2000; Aagja and Garg, 2010). The association among the different levels of logistics exibility improvement (high, medium and low) and the overall scale and its ve dimensions were signicant at 0.05 level. It meant that group differences were signicant. It also contributed to nomological validity of the new scale (Table VII).
Signicant (probability) 0.000 0.000 0.000 0.000 0.005 0.005

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Dependent variable Table V. One way ANOVA for assessing convergent validity independent variable service quality (one item) Overall scale Responsiveness Accuracy Customization Inventory handling and order fulllment Information sharing

Sum of squares df Mean square 7.471 14.491 5.567 8.798 3.661 8.909 2 2 2 2 2 2 3.736 7.246 2.784 4.399 1.833 4.455

F 59.012 20.255 11.542 19.152 5.569 9.272

Constructs Accuracy responsiveness Accuracy customization Accuracy information sharing Accuracy inventory handling and order fulllment Responsiveness customization Responsiveness information sharing Responsiveness inventory handling and order fulllment Customization information sharing Customization inventory handling and order fulllment Information sharing inventory handling and order fulllment

Estimate 0.249 0.206 0.216 0.041 0.256 0.003 0.025 0.311 0.121 0.354

Table VI. Discriminant validity based on correlations among constructs

Dependent variable Table VII. One way ANOVA for assessing nomological validity independent variable logistics exibility (one item) Overall scale Responsiveness Accuracy Customization Inventory handling and order fulllment Information sharing

Sum of squares df Mean square 8.686 14.593 5.042 9.619 4.775 13.652 2 2 2 2 2 2 4.343 7.296 2.521 4.809 2.387 6.825

F 85.309 10.277 20.456 21.731 7.523 15.798

Signicant (probability) 0.000 0.000 0.000 0.000 0.001 0.000

Theoretical contribution and managerial implications A number of studies have been undertaken to assess benets of using 3PLSP in logistics management. The secondary literature suggests that the benets of using 3PLSP are different in different context, industry or rm. The outsourcing decision is inuenced by clients perception of 3PLSPs job functions and capabilities and its underlying reasons for outsourcing. TCT is found to be fundamental in outsourcing logistics functions of co-operative dairies, where the outsourcing is done at operational level with the major objectives of cost reduction and improving quality of services. The present study provides a theoretical contribution by proposing the 3PLSP scale and its factor structure grounded in Indian dairy context to measure benets of using 3PLSPs at operational level. It also adds knowledge to existing literature in terms of identifying important variables to consider while outsourcing logistics functions to 3PLSPs at operational level. The study has undertaken the majority of research steps that are well accepted in scale development literature. The new scale has ve dimensions namely responsiveness (four items), accuracy (four items), customization of service (two items), inventory handling and order processing (three items) and information sharing (two items). The above ndings bring several managerial implications. The logistics system can be more responsive to market situations based on effective use of 3PLSP. It brings the benets in terms of improved ability and exibility to respond quickly and problem solving ability. The use of 3PLSP brings accuracy in logistics system in terms of lower xed and operating costs and ability to deliver products at right time and right place. The use of technology by 3PLSPs in its operation also improves the accuracy of their services. The customization of 3PLSP services is very important in case of perishable dairy products. 3PLSP brings the benet of customization through providing quality services as per dened standards and being exible in response to organizational requirements. Through the use of 3PLSP, multiple customers can be approached, which brings the benets of economies of scale in terms of large volume and value. It also leads to other benets like reduced inventory levels and accurate records and increased ll rates. So, overall it brings the advantage in the form of improved inventory handling and order fulllment. Information sharing is one of the important criteria to choose 3PLSPs in modern era. The 3PLSPs ability to communicate timely, cost effectively and accurately brings benets in terms of accuracy, responsiveness and improved organizational processes. These ndings and implications have also been signied by earlier researchers in their studies (Bhatnagar and Viswanathan, 2000; Mentzer et al., 2001; Ratten, 2004; Lai, 2004; Wilding and Juriado, 2004; Cochran and Ramanujam, 2006; Panayides, 2007; Raq and Jaafar, 2007; Qureshi et al., 2008; Selviaridis et al., 2008; Chen, 2008; Kundhamraks and Hanaoka, 2008; Kannan, 2009; Hartmann and Grahal, 2011; Large et al., 2011; Hsiao et al., 2010; Rahman, 2011). Co-operative dairies can employ these dimensions while assessing the benets of using 3PLSPs in logistics management. This scale is also useful for dairies, which are outsourcing their logistics operational functions, other than co-operative dairies. Thus, administering the 3PLSP scale helps managers in measuring benets of using 3PLSPs and provides them insight for service quality improvement programs. Limitations and future research This study was based on various co-operative dairies in India. A more generalized quantitative study and a detailed qualitative study based on grounded theory can be

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undertaken to understand the evaluation of benets of using 3PLSPs. This study has not used conrmatory factor analysis method to check unidimensionality and validity of the scale. This tool can be used to further improve the validity of this scale. The developed instrument can be checked for validity for co-operative dairies in counties other than India as well as private co-operative dairies in India and also in other countries. This scale can also be tested to rms other than co-operative dairies, to assess the impact of using 3PLSPs in operational logistics functions. Also, a further study can assess the impact of different characteristics of co-operative dairies on benets of using 3PLSPs.

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Thai, V.V., Cahoon, S. and Tran, H.T. (2011), Skill requirements for logistics professionals: ndings and implications, Asia Pacic Journal of Marketing and Logistics, Vol. 23 No. 4, pp. 553-74. Tian, Y., Ellinger, A.E. and Chen, H. (2010), Third-party logistics provider customer orientation and customer rm logistics improvement in China, International Journal of Physical Distribution & Logistics Management, Vol. 40 No. 5, pp. 356-76. van Damme, D.A. and Ploos van Amstel, M.J. (1996), Outsourcing logistics management activities, International Journal of Logistics Management, Vol. 7 No. 2, pp. 85-95. Wang, Q., Zantow, K., Lai, F. and Wang, X. (2006), Strategic postures of third-party logistics providers in China, International Journal of Physical Distribution & Logistics Management, Vol. 36 No. 10, pp. 793-819. Wilding, R. and Juriado, R. (2004), Customer perceptions on logistics outsourcing in the European consumer goods industry, International Journal of Physical Distribution & Logistics Management, Vol. 34 No. 8, pp. 628-44. Wong, G.K.M., Lu, Y. and Yuan, L.L. (2001), SCATTR: an instrument for measuring shopping centre attractiveness, International Journal of Retail & Distribution Management, Vol. 29 No. 2, pp. 76-86. Zacharia, Z.G., Sanders, N.R. and Nix, N.W. (2011), The emerging role of the third-party logistics provider (3PL) as an orchestrator, Journal of Business Logistics, Vol. 32 No. 1, pp. 40-54. (The Appendix follows overleaf.) About the authors Tejas R. Shah is an Assistant Professor with Shri Chimanbhai Patel Institute of Management and Research, Ahmedabad, India. He has around seven years of academic experience of teaching management courses at post graduate level. He has a Doctorate in the Logistics and Supply Chain Management area. He has published research papers in national journals and international conferences. His area of research interests are supply chain and logistics management, sales management, distribution management and consumer behavior. Tejas R. Shah is the corresponding author and can be contacted at: tejasmgmt27@gmail.com Mahendra Sharma is a Dean of the Faculty of Management Studies, and Professor and Head of Department of V.M. Patel Institute of Management, Ganpat University, Mehsana, India. He has over 15 years of teaching experience in management courses. He has published case studies and research papers in national and international journals and national and international conferences. He has a Doctorate in Management. His areas of research interest are sales management, distribution management, consumer behavior, supply chain and logistics management and rural marketing.

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Appendix

Dimension 1 responsiveness Quick response

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Flexibility Handling of customer complaints Total order cycle time Dimension 2 accuracy Cost consideration On time delivery Use of technology Correct delivery Dimension 3 customization of services Quality of services Customization of services Dimension 4 inventory handling and order fulllment Inventory accuracy Shipments in terms of value/volume Fill rates

Ability to respond to organization and retailers or customers when and where required Flexibility to respond to unexpected demand changes Ability to solve complaints of retailers/customers or communicated it to the organization Ability to respond quickly (with minimum time to the customer orders Ability to deliver products cost effectively Ability to deliver products at the required time Extent to which technology is used in operation Ability to deliver products at the right destination Ability to provide services as per predened standards effectively Ability to customize the products and services as per the requirements of organization Ability to maintain accurate inventory records and follow up Ability to handle large shipments in terms of value/volume Proportion of orders that can be met by available inventory Ability to communicate error free, timely and cost effective manner Ability to share common information effectively with customers and organization

Table AI. The scale developed to measure benets of 3PLSP, consists of 15 items

Dimension 5 Information sharing Communication system Sensitive information sharing