2.an exploratory

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BIJ
18,3 An exploratory study
of outsourcing 3PL services:
an Australian perspective
342
Shams Rahman
School of Business IT and Logistics, RMIT University, Melbourne, Australia

Abstract
Purpose – Over the last two decades, a large number of studies have been conducted in the field of
outsourcing third-party logistics (3PL) services and the field is growing. The purpose of this paper is to
examine the extent to which 3PL services are outsourced by Australian firms. Specifically, it
investigates the motivation for outsourcing, the average length of 3PL contracts, types of logistics
services used and the impact of the use of outsourcing logistics services on customer satisfaction,
logistics costs and employee morale of the user companies.
Design/methodology/approach – This study is based on a questionnaire survey conducted in
Australia. The sample was drawn from companies listed in Dun & Bradstreet’s 500 largest Australian
firms. Banks and other financial firms, insurance companies and real estate companies were excluded
from the list of firms and a total of 210 firms were identified for this study. Data were collected against
a number of items pertaining to the extent of 3PL use and its impact on performance.
Findings – The results revealed that the most frequently used logistics functions are warehouse
management, order fulfillment and fleet management. The top three factors that motivated the firms
to outsource are cost reduction, reduction in capital investment, and enhanced operational flexibility.
The level of satisfaction with 3PL service providers is high at 86 percent and is reflected in the
indication to continue their use in the future. However, employee morale has been adversely affected in
50 percent of 3PL users.
Originality/value – The paper contributes to the current 3PL practices and the trends in 3PL
services for achieving improved business results.
Keywords Australia, Outsourcing, Warehousing, Fleet management, Order systems,
Operations management
Paper type Research paper

Introduction
The logistics sector in Australia is worth approximately A$60 billion (Frost and
Sullivan, 2005) or approximately 9 percent of Australia’s GDP. This figure is similar to
other developed countries. For example, logistics costs in Japan and the USA account for
around 11 and 9 percent of GDP, respectively (Jones Lang LaSalle, 2007). The
significance of logistics in Australia as an economic activity is obvious when compared
to the economic contributions of other sectors such as construction (5.9 percent), retail
(5.2 percent), tourism (4.5 percent) and education (4.4 percent). Presently, 55.0 percent of
logistics activities are handled in house, while transport logistics companies comprise of
40.0 percent of the industry and the remaining 5.0 percent is performed by non-transport
Benchmarking: An International companies. However, the percentage of outsourcing is likely to increase with logistics
Journal service providers improving their efficiency and productivity through service
Vol. 18 No. 3, 2011
pp. 342-358 integration and incorporation of information technology (IT). Technological
q Emerald Group Publishing Limited enhancements in particular have led to superior information management systems
1463-5771
DOI 10.1108/14635771111153527 which ultimately enable third-party logistics (3PL) enterprises to develop customized

solutions for end-users (Frost and Sullivan, 2005). Table I shows the top 20 3PL service Outsourcing
providers in Australia. These firms belong to different industries which include air, 3PL services
road, rail and water transport, postal service, storage and services to road and water
transport. Based on annual revenue and employment numbers, Qantas is the largest
logistics company in Australia followed by Toll Holdings and the Australian Postal
Corporation.
Over the last two decades, a large number of studies have been conducted in the field 343
of outsourcing 3PL services and the field is still growing (Richardson, 1990a, b; Sheffi,
1990; Bardi and Tracey, 1991; Lieb and Randall, 1996; Dapiran et al., 1996; Boyson et al.,
1999; Bhatnagar et al., 1999; Larson and Gammelgaard, 2001; Arroyo et al., 2006). Recent
studies have identified over 100 refereed papers published between 1990 and 2005
(Jiang and Qureshi, 2006; Selviaridis and Spring, 2007). More recently, Marasco
provided a comprehensive review of 152 3PL articles published between 1989 and 2006
in 33 international journals. In addition to this, several journals have published special
issues on 3PL management (International Journal of Physical Distribution & Logistics
Management, Vol. 36, Nos 7-9, 2006; Human Systems Management, Vol. 24, No. 1, 2006;
International Journal of Production Economics, Vol. 113, No. 1, 2008) which further
indicates the importance of research in outsourcing 3PL services.
The motivation for outsourcing logistics services arises from number of factors.
Studying US companies, Sheffi (1990) suggests that cost savings, the need to concentrate
on core business and improved services are the main reasons for outsourcing. Similar
suggestions were reported by Richardson (1990a, b), Bardi and Tracey (1991), Sink et al.
(1996) and Robinovich et al. (1999). Richardson (1992) and Fantasia (1993) found that
reduction in capital investment in equipment, facilities and human resources,

Revenue
Company name (m AUS$) Employee number Industry type

Qantas 13,646.70 34,832 Air transport
Toll Holdings 4,901.00 28,000 Road transport
Australian Postal Corporation 4,498.60 34,842 Postal and courier services
Queensland Rail 2,478.83 12,961 Rail transport
Patrick Corporation 2,395.00 8,706 Services to transport
Linfox 1,700.00 NA Road transport
Pacific National 1,475.76 3,966 Rail transport
Virgin Blue 1,416.06 3,851 Air transport
DP World Holdings (Australia) Ltd 1,205.64 NA Services to water transport
TNT Australia 724.86 4,826 Road transport
Scott Group of Companies 689.56 983 Road transport
ANL Container 606.18 271 Water transport
Co-op Bulk Handling 549.79 1,490 Storage
John Swire & Sons 508.53 2,400 Road transport
Star Track Express 504.64 3,064 Road transport
DHL Global Forwarding (Australia) 378.10 656 Services to transport
K & S Corporation 367.50 1,150 Road transport
Adstream Marine 339.20 NA Services to transport
Pure Logistics 257.39 1,103 Road freight transport
1st Fleet 249.00 1,700 Road transport Table I.
Top 20 logistics
Source: Adapted from Game-Lopata (2007) providers in Australia

BIJ and on-time delivery improvement are some of the main reasons for outsourcing. Factors
18,3 such as gaining access to sophisticated technology, flexibility of operations and risk
reduction have been suggested in more recent studies. For instance, Gooley (1997),
van Laarhoven et al. (2000) and Larson and Gammelgaard (2001a, b) found that one of the
main reasons for outsourcing the logistics functions in Europe is to retain flexibility in
logistics operations. Similarly, Bhatnagar et al. (1999) found that along with cost savings
344 and customer satisfaction, flexibility of operations is the main reason for outsourcing in
the context of Singaporean manufacturing firms. Arroyo et al. (2006) reported similar
findings in the context of outsourcing in Mexico. Lynch (2004) and Arroyo et al. (2006)
suggest that along with flexibility of operations, opportunity to reduce risk of
uncertainty is also a major factor for outsourcing logistics services. The main
motivational factors for firms to outsource logistics functions are summarized in Table II.
Table II reveals that in the early and middle 1990s the primary reason for organizations
to turn to outsourcing was to gain competitive advantage through cost savings, whereas
evidence from more recent studies indicate that organizations are focusing more and
more on developing capabilities through outsourcing as a potential source of value
creation and to gain competitive advantage. Hence, the earlier studies suggest that
outsourcing decisions tended to rely more on economic factors and therefore the
transaction cost view (TCV) became the dominant theory used to explain outsourcing
decisions (Williamson, 1979), whereas more recent studies suggest that an
organization’s motivation for outsourcing can be more appropriately explained using
a resource-based view (RBV) rather than TCV. According to Walker and Poppo (1991),
however, a more appropriate approach would be a hybrid relationship which combines
economic aspects of TCV and a relational view of RBV. This view has been supported
by studies suggesting that TCV and RBV are complementary (Hoetker, 2005; Jacobides
and Winter, 2005). Therefore, it is becoming more apparent that an effective
understanding of what motivates outsourcing decisions needs to be investigated from
both transaction cost- and resource-based perspectives. This study examines the extent
to which 3PL services are outsourced by Australian firms. Specifically, it investigates
the motivation for outsourcing, the average length of 3PL contracts, types of logistics
services used and the impact of the use of outsourcing logistics services on customer
satisfaction, logistics costs and employee morale of the user companies.

Motivational factor Author

Economic
Cost savings/reduction/capital Richardson (1990), Sheffi (1990), Bardi and Tracey (1991), Lieb
investment reduction and Randall (1996), Dapiran et al. (1996), Gooley (1997),
Boyson et al. (1999), Bhatnagar et al. (1999), Larson and
Gammelgaard (2001a, b) and Sahay and Mohan (2006)
Capability building/enhancement
Concentrate on core business Sheffi (1990), Boyson et al. (1999), Bhatnagar et al. (1999),
Larson and Gammelgaard (2001a, b), Sahay and Mohan (2006)
and Arroyo et al. (2006)
Flexibility of operations Gooley (1997), Bhatnagar et al. (1999), van Laarhoven (2000),
Table II. Larson and Gammelgaard (2001a, b) and Arroyo et al. (2006)
Motivation for Access to sophisticated technology Bhatnagar et al. (1999) and Arroyo et al. (2006)
outsourcing 3PL services Reduce risk Lynch (2004) and Arroyo et al. (2006)

Literature review Outsourcing
Published research in outsourcing 3PL functions has focused on a range of issues. 3PL services
This body of literature can be broadly analyzed from three perspectives: a logistics
service user perspective, a logistics service provider perspective and a user-provider
perspective.

345
Users’ perspective
The vast majority of the 3PL studies have been conducted from the users’ perspective.
The first comprehensive survey of the extent of use of 3PL services was conducted by
Lieb (1992). This study surveyed large American manufacturers to identify the extent
to which companies outsource their logistics services, the specific 3PL services used,
the benefits experienced from outsourcing logistics services, the impact of 3PL services
on logistics costs, customer satisfaction and the trends of use of 3PL services over time
and across nations. Sohal et al. (2002) and Bhatnagar et al. (1999) also conducted similar
studies in the Australian and Singaporean contexts, respectively. They found that
most users of 3PL services are satisfied with their providers and are likely to increase
their usage of contact logistics in the future.
Arroyo et al. (2006) investigated the status of logistics practices in Mexican firms as
compared with logistics activities in Europe and the USA. The results indicate that
generally Mexican firms aim for customer service and concentration on core functions
while firms in Europe and the USA focus more on tactical and integrated functions
when using 3PL. Some studies in this category compared the usage of logistics services
amongst two or more geographical regions/countries (Lieb et al., 1993). Lieb and Miller
(2002) surveyed the chief logistics executives of Fortune 500 manufacturers concerning
their use of 3PL. They concluded that users are generally satisfied with the impact of
3PL services on their companies, and are most satisfied with the impact on logistics
costs, logistics service levels and customer service.
There have been a few studies in developing economies which investigate the extent
and usage of logistics services from a users’ perspective. For instance, Sohail et al.
(2004) and Cilliers and Nagel (1994) studied logistics services in Ghana and South
Africa, respectively, and found that such services are more or less operational in nature
rather than tactical or integrated systems. Sohail and Sohal (2003) studied 124 firms in
Malaysia and conclude that most of the users are satisfied with their logistics service
providers and that the industry is growing. In an analysis of outsourcing logistics
services in India, Sahay and Mohan (2006) noted that the most important factors that
motivate Indian firms to outsource are cost reduction, focus on core competencies and
improved customer services. Hong and Chin (2004) suggested that compared to the
developed nations, China’s logistics market is still in its infancy and may have to adopt
different strategies for its development. Recently, Wang et al. investigated the impact
of IT on the financial performance of 3PL in China and found that greater IT uptake
can offer 3PL companies better financial performance. Zhou et al. (2008) identified
factors that significantly affect the operational efficiency of Chinese 3PLs and proposed
ways to improve the competitiveness of 3PLs. Recently, Hsiao et al. (2010) investigated
the impact of outsourced logistics functions on service performance within the
food processing industry in The Netherlands and Taiwan, and concluded that
outsourcing has no direct impact on service performance.

BIJ Providers’ perspective
18,3 Relatively, little attention has been paid to the service providers’ perspective. Leahy et al.
(1995) surveyed 37 US 3PL firms and found that they provided both asset-based
dedicated services and non-asset-based management services. While surveying 16 CEOs
of large 3PL providers operating in Europe, Peters et al. (1998) concluded that the most
frequently provided services are logistics information system, order processing, product
346 returns, warehousing and consolidation, and repacking and relabelling.
Larson and Gammelgaard (2001a) studied Danish logistics firms including air, rail
and truck transportation providers, warehousing companies, freight forwarders and
3PL providers and concluded that the Danish logistics providers tend to be niche firms,
focusing on the internal market and providing services mainly to the food and beverage
industry. Sum and Teo (1999) investigated the different strategic postures of 3PL
providers in Singapore. By analysing technological issues and operations objectives of
providers, Sum and Teo (1999) proposed plans for different strategic types. Lai and
Cheng (2003) assessed the supply chain performance by service providers in transport
logistics in Hong Kong. The results provided insights on how managers might better
understand their supply chain performance in transport logistics and how to benchmark
areas for performance improvement. Yeung et al. (2006) and Wang et al. (2006) studied
logistics providers in Hong Kong and China, respectively. Surveying a total of 105 3PL
providers in China, Wang et al. (2006) reported on current and future business objectives,
operations priorities, business performance and concerns of the 3PL providers. The
findings of this study provide valuable insights for 3PL providers, educators and
government policy makers. Recently, using a CEOs’ perspectives of ten logistics
companies, Lieb provided an insight into the dynamics of 3PL in the Asia-Pacific region.

Users’-providers’ perspective
Only a limited number of studies have examined outsourcing logistics services from
both users’ and providers’ perspectives simultaneously. One of those rare studies is by
Daugherty et al. (1996). They investigated US manufacturers’ perceptions regarding
their international logistics service providers’ capabilities and found that the suppliers
had performed well in the areas of responsiveness and flexibility. However,
Daugherty et al. (1996) recommended that their service needs to improve in areas
such as:
.
ability to adjust operations to meet unforeseen needs;
. calling in advance to advise of shipment or delivery problems; and
.
recommending alternative actions when difficulties arise.

These issues point to the fact that users and providers are required to work closely
together and tailor services whenever possible. Further, differences between
high-performance logistics providers and those perceived as providing lower levels
of performance are identified and discussed. While studying 3PL services, Murphy and
Poist (2000) found a high degree of agreement between users and providers in terms of
what they saw to be key factors in successful 3PL relationships and each party’s
satisfaction with existing 3PL relationships.
Knemeyer and Murphy (2005) investigated 388 users of outsourced logistics
services and 31 providers of logistics services using relationship marketing elements
and performance outcome constructs. Comparisons indicate that there are statistically

significant differences between the two parties across 12 of the 13 constructs which Outsourcing
shows a marked contrast to Murphy and Poist (2000)’s findings. literature related to 3PL services
different perspectives of 3PL is summarized in Table III.
Our study investigates the outsourcing 3PL services from the users’ perspective.
Using a sample drawn from Australia’s top 500 companies, our study investigates the
extent to which outsourced logistics services are used, the motivations for outsourcing,
the type of services used, the impact of the use of outsourcing services on customer 347
satisfaction, costs and the employee morale of user companies. Previously, two studies
were conducted on 3PL practices in Australia (Dapiran et al., 1996; Sohal et al., 2002).
Dapiran et al. (1996) presented the first survey results of 3PL services usage by Australian
firms. Overall, the results suggested that Australian companies are comparable to US
firms in terms of the usage of 3PL services. Fleet management, warehouse management
and shipment consolidation were the most frequently outsourced logistics services.
Sohal et al. (2002) replicated the study by Dapiran et al. (1996). The results indicated
notable differences between the two surveys. A significantly higher number of firms were
found to be using 3PL companies for international purposes and were signing longer
contracts with their 3PL service providers. To assess the trend or changes in 3PL
practices over time in Australia, the results of our study are compared with the results of
two previous studies.
The rest of the paper is organized as follows. The next section of the paper
summarises the research methodology. The subsequent sections present the results of
the study and provide a discussion of the findings of this study. The paper concludes
with a discussion of the implications of the findings and limitations of this study.

Research methodology
In this study, the survey instrument developed by Lieb (1992) was used with minor
modifications. Two earlier studies conducted in the context of Australia (Dapiran et al.,
1996; Sohal et al., 2002) also used a similar instrument. The sample was drawn from
companies listed in Dunn & Bradstreet’s 500 largest Australian firms. Banks and other
financial firms, insurance companies and real estate companies were excluded from

Orientation of the
Perspective study Author

User 3PL practices and Richardson (1990a, b), Sheffi (1990), Bardi and Tracey (1991),
perspective trend Lieb (1992), Lieb et al. (1993), Dapiran et al. (1996), Gooley
(1997), Boyson et al. (1999), Bhatnagar et al. (1999),
Robinovich et al. (1999), Larson and Gammelgaard (2001a),
Sohail and Sohal (2003), Wilding and Juriado (2004), Hong and
Chin (2004), Lieb and Bentz (2005), Sahay and Mohan (2006),
Wang et al. (2006), Zhou et al. (2008) and Hsiao et al. (2010)
Comparison of 3PL Lieb et al. (1993), Lieb and Randall (1996), van Laarhoven
practices and trend (2000), Sohal et al. (2002) and Arroyo et al. (2006)
Provider Leahy et al. (1995), Peters et al. (1998), Lieb and Randall (1996),
perspective Sum and Teo (1999), Larson and Gammelgaard (2001b), Lai Table III.
and Cheng (2003), Yeung et al. (2006) and Wang et al. (2006) A summary of three
User-provider Daugherty et al. (1996), Murphy and Poist (2000) and perspectives of 3PL
perspective Knemeyer and Murphy (2005) literature

BIJ the list of firms and a total of 210 firms were identified for this study. This selection was
18,3 made in line with those of the previous two studies which allowed us to compare the
findings of our study with the results of the previous studies. Logistics/operations
managers from the selected companies were identified and sent copies of survey
questionnaires, together with a cover letter and a pre-paid reply envelope. In order to
maximize the response rate and to avoid non-response bias affecting the transferability
348 of the findings, the following procedure was used. First, companies listed in the database
of participants were contacted by telephone. The names of the relevant managers and
their current contact details were then obtained. Where possible, an attempt was made to
speak to the relevant manager about the aim and the content of the survey.
Approximately, two to three weeks after the mail out a reminder call was made to the
relevant managers. Those who had not responded were encouraged to do so and those
who had not received the package were sent a second copy. The survey resulted in
38 responses. Two responses were unusable because of missing data. The remaining
36 responses were considered usable resulting in a response rate of 18 percent. The
response rates in similar studies ranged between 12 and 22 percent (Bhatnagar et al.,
1999; Lieb and Bentz, 2005). This study follows the research framework shown in
Figure 1.

Presentation and discussion of results
Demographic profile
The participating firms were distributed over a large number of industries including
automotive, computer, telecommunications, food and beverage, publishing and printing,
pharmaceuticals and chemicals industries. About 22 percent of the organizations were
automotive companies, followed by 15 percent pharmaceuticals and 13 percent
chemicals companies (Figure 2).
Figure 3 shows the distribution of employees in the surveyed firms. A large
proportion of the companies (39 percent) had between 101 and 500 employees. About
30 percent of the companies had over 1,000 employees and about one-quarter of the
companies had between 501 and 1,000 employees. This shows that a vast majority

Characteristics of
the responding firms
Motivation for outsourcing 3PL
• Industry type • Cost reduction
• Employment characteristics • Reduction in capital investment
• Service coverage • Enhance flexibility
• Access to new technology
Level at which decision for using 3PL • Access to techniques and
expertise Future usage of 3PL providers
providers is taken
• Access to new market • Overall satisfaction with 3PL
• Local level • Focus on core business • Level of commitment to use
• Division level 3PL services
• Corporate level • Increase usage of 3PL services
Impact of usage of 3PL providers

Extent of current usage of 3PL • Internal logistics system
performance
• Number of 3PL providers used • Employee morale
• Logistics services outsourced • Employee retrenchment
• Length of experience with 3PL • Logistics cost
Figure 1. providers
Schematic diagram of • Percentage allocation of logistics
research framework budget to 3PL service providers

Others Outsourcing
9%
3PL services
Publishing and
printing
4%
Automotive
22%
Telecommunications
349
8%

Computer
Pharmaceutical 9%
15%
Food and beverage
9% Figure 2.
Chemicals Classification of
13% Medical equipment respondents by industry
11%

1-100
6%

Over 1,000
30%

101-500
39%

Figure 3.
Employment
characteristics of
501-1,000 responding firms
25%

of the firms who participated in this study are large firms (over 100 employees). This is
consistent with other published 3PL studies (Boyson et al., 1999; Lieb and Randall, 1996).
About 55 percent of the firms who participated in this study operate globally and
one-quarter of the firms operate in the Australasian region. The rest of the firms
operate at national, state and intrastate level (Figure 4).

Decisions for outsourcing 3PL services
Motivating factors for outsourcing. Respondents were asked to rank the top three factors
that had motivated them to outsource 3PL logistics services. Over three-quarter
(78 percent) indicated that logistics cost reduction is an important factor in outsourcing.
About 70 percent of the respondents want to use the 3PL providers so that they can
reduce the capital investment. About 66 percent of the respondents are also seeking to
enhance flexibility by using 3PL service providers. Other factors of importance in order

BIJ State
Regional/intrastate
2%
18,3 4%

National
14%

350
Global
55%
Figure 4.
Classification of Australasia
responding firms based on 25%
the geographic coverage of
operation

of importance included access to new markets (48 percent) and a need for managers to
concentrate on core competencies of the company (46 percent) (Figure 5). Previous
studies regarding outsourcing 3PL services in Australian did not investigate the factors
that would impact on outsourcing decisions.
Organizational level at which decisions regarding outsourcing 3PL services are made.
The surveyed firms were asked to indicate the organizational level at which the strategic
decision to use outsourced logistics services originated within their companies.
In 65 percent of cases, this decision was undertaken at the corporate level (Table IV).
This finding represents a sharp departure (significant at a 0.05 level based on a x 2 test)

Cost reduction 78

Reduction in capital investment 70

Enhance operational flexibility 66

Access to new technology 54

Access to upto date techniques and expertise 52

Access to new market 48

Focus on core business 46
Figure 5.
Motivation for 3PL 0 10 20 30 40 50 60 70 80 90
Percentage of respondents

Organisational level Percentage of respondents
Table IV.
Organisational level at Local level 13
which the decisions for Divisional level 22
3PL services are made Corporate level 65

from previous Australian studies (Sohal et al., 2002), where the corresponding figures Outsourcing
were 38 and 51 percent, respectively. These results indicate that decisions as to whether 3PL services
to use outsourced logistics functions are becoming the realm of corporate decision
making, rather than at the divisional or local level.

Extent of usage of 3PL services
Usage of 3PL providers. The survey revealed that 66 percent of the respondents use 351
outsourced logistics services from one or more 3PL providers. Of those companies
currently outsourcing, about three quarters (74 percent) indicated that their companies
use the services of more than one contract 3PL provider. Compared to an earlier study of
3PL practices in Australia (Dapiran et al., 1996), the present study showed a slight
increase (from 61 to 66 percent) in the extent of the use of 3PL services. However,
this increase is not as significant as in the case of the USA where the use of 3PL services
increased from 65 to 83 percent between 1991 and 2003. This could reflect the expansion
of service offerings by 3PL providers to users, an increase in specialised 3PL services or
the competitive nature of Australian companies. This increase supports an earlier
theoretical proposition by Fuller et al. (1993). They suggested that one important reason
for the growth of 3PL services is that companies compete in a number of businesses and
industries that are logistically distinct due to varied customer needs.
The choice to retain more than one 3PL provider may reflect the caution of Australian
businesses in retaining “fall back” 3PL in the event of uncertainties. The use of multiple
contractors may also reflect the specialised nature of logistics providers in Australia.
The providers may specialise in only one or two functions such as transport and
warehousing and not in other functions that the user may require. This feature is quite
understandable given the small industry syndrome in Australia compared with those of
the USA and Europe.
The respondents were asked to indicate if their current contracts were less than one
year, between one to three years or over three years in duration. The results showed that
of the respondents who used 3PL contracts, 61 percent had been using them for more
than three years (Table V). This result is consistent with the findings of the Dapiran et al.
(1996) and Sohal et al. (2002) studies. However, compared to the previous two studies, the
present study reveals a significantly larger percentage (significant at 0.05 level based on
a x 2 test) of respondents using 3PL contacts for less than one year (26 percent compared
to only 0 percent). This observation was not reflected in previous Australian studies.
The Range of outsourced logistics services used. The typical user of 3PL services
employs an extensive range of services reflecting their engagement of several logistics
services. The respondents indicated that the most frequently used logistic functions
were: warehouse management (64 percent), order fulfillment (59 percent), fleet
management (41 percent), product returns (27 percent), shipment consolidation
(27 percent) and order processing (Figure 6). There appears to be a sharp increase in the
use of warehouse management and order fulfillment compared with the previous

Contract length (years) Percentage of respondents

,1 26 Table V.
1 to # 3 13 Average length of 3PL
.3 to # 5 61 contracts

BIJ Warehouse management 64
18,3 Order fulfillment 59
Fleet management 41
Shipment consolidation 27
Order processing 27
352
Product returns 27
Carrier selection 23
Figure 6.
Percentages of respondents Product assembly/installation 9
outsourcing the various
logistics functions 0 10 20 30 40 50 60 70

Australian studies (Sohal et al., 2002; Dapiran et al., 1996). Fleet management has fallen
but the relationship between fleet management and shipment consolidation has
remained consistent. Interestingly, the recent US survey (Lieb and Bentz, 2005) shows
respondents indicating that the most frequently used 3PL services were: freight
payment services 72 percent, shipment consolidation 66 percent, direct transportation
services 62 percent and warehouse management 60 percent.
The US study by Lieb and Bentz (2005) show that of all 3PL services outsourced,
warehouse management had yielded the greatest cost benefits, followed by rate
negotiations, shipment consolidation, freight payment services and direct
transportation services. A similar study of Singaporean companies has shown that
there is a very high degree of commitment to the usage of 3PL services (76 percent) and
the most frequently used contract logistics service was shipment consolidation
(55 percent) (Bhatnagar et al., 1999).

Impact of 3PL services
Commitment for future use. Respondents were asked to indicate the level of
commitment they have towards the usage of 3PL. About 87 percent of the respondents,
currently using the services of 3PL providers, indicated that their commitment was
“moderate” or “extensive” (Table VI). Such a high level of commitment is also reflected in
the percentage of the total logistics budget allocated to the 3PL providers as a proportion
of the total cost of logistics services. About 44 percent of respondents allocated between
41 and 100 percent of their total logistics budget to 3PL service providers. This figure
indicates a rather high level of commitment towards the usage of 3PL (Table VII).
Level of satisfaction with 3PL providers. About 86 percent of respondents claimed that
they were satisfied or very satisfied with using 3PL providers (Table VIII). Compared to
the finding of an earlier study (Dapiran et al., 1996), it appears levels of satisfaction have

Extent of commitment %

Very limited 4
Table VI. Limited 9
Extent of commitment to Moderate 39
use 3PL service providers Extensive 48

dropped (from 96 to 86 percent). The results also suggest that satisfaction at the “very Outsourcing
satisfied” level has dropped and the overall level of dissatisfaction has increased. 3PL services
However, Lieb and Kendrick (2003) have observed that an important indication of the
satisfaction of a firm with 3PL services can be found in plans for future usage of such
services. This information was captured by asking: “How would you modify your
company’s use of contract logistics companies if given complete responsibility for the
decision?” Of the companies that responded, 81 percent indicated they would moderately 353
or substantially increase their use of 3PL services (Table IX). This finding is comparable
with the finding of the earlier study (84 percent) (Dapiran et al., 1996).
The organizational impacts of using 3PL service providers. Historically, the negative
impact that accompanies a decision to use a 3PL provider relates to the downsizing of the
logistics workforce of the user. About 55 percent of participants in this study indicated
that the use of 3PL service providers had allowed their organization to reduce the
number of full-time logistics positions. It showed that 80 percent of the users reduced up
to 20 percent of their full-time logistics staff at their firms (Table X). This figure is higher
than the figure found in the Dapiran et al. (1996) study. However, a statistical test did
not reveal significant difference between these results. In one-fifth of the firms, over
40 percent of logistics staff were let go. This is larger than similar earlier studies in
Australia had found (Sohal et al., 2002; Dapiran et al., 1996).
This study reaffirms a consistent consensus that the major positive impact from
using 3PL services relates to internal logistics system performance (86 percent) and

Percent age of respondents
Percentage allocation of total logistics budget for Very
3PL services Extensive Moderate Limited limited Total

0-20 7.5 15.0 3.5 0.0 26.0
21-40 5.0 21.0 4.0 0.0 30.0 Table VII.
41-60 0.0 7.0 6.0 0.0 13.0 Percentage allocation
61-80 3.5 3.0 11.5 0.0 17.0 of total logistics budget
81-100 0.0 5.0 9.0 0.0 14.0 for 3PL services

Level of satisfaction Percentage of respondents

Very satisfied 18
Satisfied 64 Table VIII.
Neutral 0 Level of satisfaction with
Dissatisfied 14 3PL providers’ services

Future use of contract logistics Percentage of respondents

Substantially increase use 10
Moderately increase use 71 Table IX.
Moderately decrease use 14 Future use of 3PL
Substantially decrease use 5 services

BIJ logistics costs (82 percent). However, employee morale has been adversely affected in
18,3 50 percent of users (Table XI). This is not unexpected given the reduction in internal
logistics staff which accompanies outsourcing. The study shows that most users
perceive a very positive impact from system performance, but this may be indicative
that performance measures are anecdotal rather than objective.

354 Summary and implications
This paper has identified a variety of factors that may impact on the future use of 3PL
services, namely: the extent of use of 3PL service providers, the effect of the usage of
3PL providers and future plans concerning the use of 3PL providers. On the whole, a
majority of respondents have provided positive feedback on each of these factors.
The study’s findings have significant implications for future research. We observe
that a great many users are reducing in-house operations and using 3PL service
providers instead. Many users are contracted to multiple contractors. The main 3PL
services used were warehouse management, fleet management and order fulfillment.
The level of satisfaction with 3PL service providers is high and is reflected in a
commitment to continue their use in the future. Thus, it appears that the use of 3PL
services will continue to grow over the next several years.
The results show that the use of 3PL service providers is increasing in two ways.
First, more firms are beginning to use 3PL services and second, more Australian firms
are using 3PL service providers for more functions along their supply chains, scope and
depth of outsourcing logistic services are increasing. This indicates that the trend has
extended over the past years from an increasing in usage of 3PL services to a greater
depth of usage of services along the supply chain. Other conclusions that can be drawn
from this study are as follows:
.
Decisions to use outsourced logistics functions are becoming the realm of the
corporate decision making, rather than the divisional or local level. The two critical
factors associated with the motivation for outsourcing logistics services found in
this study include cost reduction and capital investment reduction. Similar results
have been reported by many previous studies (Sheffi, 1990; Boyson et al., 1999;
Sahay and Mohan, 2006; Richadson, 1990a, b; Lieb and Randall, 1996). Decisions

Percentage of full-time positions eliminated Percentage of respondents

Table X. 0-20 80
Full-time logistics 21-40 0
employees eliminated 41-60 13
through use of 61-80 7
3PL services 81-100 0

Areas of impact Very negative Negative Positive Very positive

Table XI. Logistics costs 3 15 59 23
Impact of the use of Internal logistics system performance 2 12 71 15
3PL services Employee morale 5 45 39 11

for capital investment and policies for cost reduction are generally taken by the Outsourcing
senior management. Hence, the finding that the decision to use 3PL services has 3PL services
become part of corporate decision making is supported by the current business
trend towards concentration of similar decisions.
. There has been an increase in the extent of the use of 3PL services in Australia. This
increase is more prominent in the use of warehouse-related services which has
increased from 43 to 64 percent. This could reflect the expansion of 355
warehouse-related services offerings by 3PL providers. In addition to classical
warehousing functions such as storage, in the current business environment
warehousing services include cross-docking, product returns and other value-adding
services. This sharp increase in outsourced warehousing-related services may also
be related to the cost of warehouse operations. There is evidence that out of all 3PL
services, outsourced warehousing functions provide the greatest cost-benefits.
.
There is an increasing trend towards using shorter contracts. Compared to the
previous two Australian studies, this study recorded a significantly larger
percentage of respondents using 3PL contacts of less than one-year duration
(26 percent compared to only 0 percent). This development is not restricted to the
Australian 3PL market alone. A similar trend has been reported in the context of
the US 3PL market as well. This could be linked to the prevailing uncertainty and
economic volatility of global markets (Langley and Capgemini, 2009). Conducting
empirical studies in the future in this area is also important.

Limitations
Two limitations of this study need to be highlighted. First, in this study only,
Australia’s top 500 companies were considered for study and they mostly constitute
(94 percent) large firms. Future research should include more small and medium-sized
enterprises and compare their practices with those of large firms. Such a study would
provide valuable insights about the future 3PL requirements of the two categories of
firms. Second, the sample organizations used in this study belonged to four different
states in Australia. Because of the relatively small sample size, it was not possible to
compare the differences which may exist between the states in a meaningful way.
Further research with larger samples is suggested.

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pp. 112-27.

Corresponding author
Shams Rahman can be contacted at: shams.rahman@rmit.edu.au

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