Planning Execution Measurement

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CONVERGENCE OF LOGISTICS PLANNING, EXECUTION AND
MEASUREMENT ON OUTSOURCING
by
A. A. D’AMATO, S. KGOEDI and G. SWANEPOEL
MINOR DISSERTATION
Based on a multidisciplinary research project,
submitted in partial fulfilment of the requirement for the degree
MAGISTER COMMERCII
in
BUSINESS MANAGEMENT
in the
FACULTY OF MANAGEMENT
at the
UNIVERSITY OF JOHANNESBURG
SUPERVISOR: PROF J WALTERS
CO-SUPERVISOR: DR A DROTSKIE
CO-SUPERVISOR: MR P KILBOURN
JANUARY 2013

i
ORIENTATION
The achievement of an M Com Business Management requires that 90 of the
180 credits, registered at Level 9 of the Higher Education Qualification
Framework, be dedicated towards a research project. In complying with this
requirement, the M Com programme employs action-based learning. This
approach enables the Faculty of Management to turn theory and analysis into
valuable action through the integration of management disciplines taught in
the M Com programme (Financial Management, International Management,
Risk Management, Human Resource Management, Marketing Management,
Logistics and Supply Chain Management, Knowledge and Information
Management, Business Information Technology Management). In essence,
the research project contributes to the Faculty’s postgraduate learning
strategy where research projects are structured and supervised by academe
and guided by practitioners in closing the knowing-doing gap.
This minor dissertation, titled Convergence of logistics planning, execution
and measurement on outsourcing, represents such a multidisciplinary
research project, submitted in partial fulfilment of the requirements for the
degree M Com Business Management. The case examined in this minor
dissertation is based on the company IMPERIAL Logistics, one of three
divisions of the IMPERIAL Group – a global logistics and supply chain leader
that delivers excellence in end-to-end logistics and supply chain
management.
Three M Com students (in alphabetical order), A. A. D’Amato, S. Kgoedi and
G. Swanepoel, collaborated as a multidisciplinary team in finding solutions to
a research problem challenging IMPERIAL Logistics. In order to examine the
impact of business management variables on the effectiveness and efficiency
of outsourcing, the University of Johannesburg’s Senate Higher Degree
Committee approved three research topics:

ii
i) A. A. D’Amato
Performance measurement as part of logistics outsourcing
ii) S. Kgoedi
Logistics planning as part of outsourcing
iii) G. Swanepoel
Logistics execution as part of outsourcing
The respective final marks of students participating in a multidisciplinary
research project are calculated as the sum of three weighted assessments:
i) Sixty per cent of the final mark is accounted for by external assessors’
average mark awarded to the minor dissertation;
ii) Thirty per cent of the final mark is accounted for by the mark awarded
for each student’s discipline-based presentation. This mark is the
average awarded by a panel of experts representing the Faculty of
Management’s postgraduate supervisors and IMPERIAL Logistics
project leaders;
iii) Ten per cent of the final mark will be determined through a peer-
evaluation of the team dynamic by the student collaborators.

iii
ACKNOWLEDGEMENTS
The researchers would like to thank the following people:
 Ms. Anne-Marie van Wyk and Mr. Cobus Roussouw from IMPERIAL
Logistics for the opportunity to conduct the research using IMPERIAL
clients and for the necessary support and resources received.
 Prof Jacobus Walters, Dr Adri Drotskie, Mr Peter Kilbourn for the
support and direction provided to the researchers. Without their support
this dissertation would not have been possible.
 The families and workplaces of the researchers involved for their
understanding and patience during the long hours that were needed to
complete this project.

iv
ABSTRACT
Logistics Service Providers are becoming increasingly involved within their
client’s businesses. Beyond just providing vehicles and buildings, logistics
service providers are now also becoming involved with the knowledge-type
work that is connected to the traditional services provided. LSPs are also
becoming better integrators of supply chain functions and are offering an
increasingly vast basket of services to clients that can be configured in a way
that adds value to the client.
The research presented in this paper looks at the theoretical impact that
converged planning and execution functions have on business success as
well as a view of how selected IMPERIAL Logistics client organisations
perceive the impact of increased integration of IMPERIAL Logistics within
their businesses.
The research viewed the integration of planning and execution in two ways:
 The impact of a supply chain partner integrating their business
functions with that of the client organisation.
 The integration of the tasks of planning and execution under a single
arrangement.
The impact of integrated planning and execution functions for the client
organisation was found to be improved long term commitment and alignment
in terms of business operations and relationships, better communication,
more integrated planning and decision making, better usage of systems to
streamline the process as well as a focus on core business whilst supply
chain experts handle their core business, which is planning and executing
supply chain functions.

v
TABLE OF CONTENTS
Orientation.......................................................................................................i
Acknowledgements ......................................................................................iii
Abstract .........................................................................................................iv
List of Figures .............................................................................................viii
List of Tables.................................................................................................ix
List of Abbreviations .....................................................................................x
Chapter 1: Introduction .................................................................................1
1.1 Background to the study..............................................................................................1
1.2 Research Problem.......................................................................................................4
1.3 Research Objectives ...................................................................................................5
1.4 Research Questions....................................................................................................5
1.5 Literature Review ........................................................................................................6
1.5.1 Reasons for favouring the outsourcing option......................................................7
1.5.2 Outsourcing from a strategic perspective ............................................................9
1.5.3 Effects of organisational culture on outsourcing and supply chain partners..........9
1.5.4 Strategic Alliances............................................................................................10
1.5.5 Supply chain relationships ................................................................................10
1.5.6 Best practice in planning and execution ............................................................12
1.5.7 The value of converging planning and execution...............................................13
1.5.8 Performance Management................................................................................13
1.5.9 Mechanisms for measuring planning and execution ..........................................15
1.5.9.1 Balanced scorecard................................................................................15
1.5.9.2 Benchmarking........................................................................................15
1.6 Research Methodology..............................................................................................16
1.7 Conceptual Framework .............................................................................................17
1.8 Limitations of the study..............................................................................................17
1.9 Chapter Outline.........................................................................................................18
1.10 Conclusion ..............................................................................................................19
Chapter 2: Literature Review ......................................................................20
2.1 Introduction...............................................................................................................20
2.2 Logistics outsourcing.................................................................................................21
2.3 The Changing role of the Logistics Service Provider ..................................................23
2.3.1 The ‘replace-ability’ of 3PLs..............................................................................23
2.3.2 The emergence of Lead Logistics Providers (LLPs) ..........................................24
2.3.3 Concept of logistics integration .........................................................................28
2.3.4 A futuristic perspective to supply chain relationships .........................................32
2.4 Cultural factors to consider within the context of converging planning, execution and
measurement.............................................................................................................34
2.4.1 The effects of organisational culture on supply chain partners...........................34
2.5 Strategic influences to consider within the context of converging planning, execution
and measurement......................................................................................................41
2.5.1 Strategic alignment between supply chain partners...........................................41

vi
2.5.2 Strategic alignment within an organisation ........................................................42
2.5.3 Selecting a strategic partner .............................................................................44
2.6 Relationship influences to consider within the context of converging planning, execution
and measurement......................................................................................................45
2.6.1 Relationship influences.....................................................................................45
2.6.2 Strategic alliances ............................................................................................46
2.6.3 Importance of converging strategy and execution..............................................48
2.7 The concept of convergence of logistics planning and execution activities .................50
2.7.1 Relationship Management ................................................................................50
2.7.2 Maintaining planning as an in-house function vs. outsource planning ................52
2.8 Current best practices in converging planning and execution.....................................54
2.9 Performance Management ........................................................................................55
2.9.1 Contracts and SLAs..........................................................................................55
2.9.2 Integrated supply chain processes....................................................................57
2.9.3 Formal Management.........................................................................................58
2.9.4 Sharing Success...............................................................................................59
2.9.5 Performance management of the supply chain partners....................................59
2.9.6 Collaborative Performance Systems .................................................................64
2.9.7 Incentive alignment...........................................................................................66
2.9.8 Balanced Scorecard .........................................................................................67
2.9.9 Benchmarking ..................................................................................................71
2.10 The value at stake in converging planning and execution.........................................72
2.11 Conclusion ..............................................................................................................72
Chapter 3: Research Methodology.............................................................75
3.1 Introduction...............................................................................................................75
3.2 Methodology .............................................................................................................76
3.2.1 Approach..........................................................................................................76
3.2.2 Paradigm..........................................................................................................77
3.2.3 Assumptions.....................................................................................................77
3.2.4 Ethical issues ...................................................................................................78
3.3 Sample design and sampling procedure....................................................................79
3.4 Data collection ..........................................................................................................85
3.5 Data Analysis............................................................................................................90
3.6 Data Validity..............................................................................................................92
3.7 Conclusion................................................................................................................94
Chapter 4: Survey Results ..........................................................................95
4.1 Introduction...............................................................................................................95
4.2 Factors influencing acceptance of LSP services ........................................................96
4.3 Contextual factors .....................................................................................................96
4.3.1 Respondent work role and function...................................................................96
4.3.2 Geographical and industry view ........................................................................98
4.3.3 Company size.................................................................................................101
4.4 Relational factors ....................................................................................................103
4.4.1 The outsourcing relationship...........................................................................103
4.4.2 Continuous improvement initiatives with LSPs ................................................112

vii
4.5 Strategic Factors.....................................................................................................117
4.6 Outsourcing Practises .............................................................................................120
4.7 Convergence of Planning and Execution .................................................................128
4.7.1 Tools used to align planning and execution.....................................................128
4.7.2 Tools to measure planning and execution.......................................................132
4.8 Value at stake .........................................................................................................134
4.8.1 How much value?...........................................................................................134
4.8.2 What is the Value? .........................................................................................135
4.9 Future Scenario.......................................................................................................141
4.10 Conclusion ............................................................................................................141
Chapter 5: Summary, Conclusions and Recommendations ..................143
5.1 Background.............................................................................................................143
5.2 Objective of the study..............................................................................................143
5.3 Research methodology............................................................................................144
5.4 Topics covered in the study.....................................................................................144
5.5 Research Findings ..................................................................................................144
5.5.1 Objective 1: Establishment of the current status of IMPERIAL Logistics’
business relationships with client organisations in terms of outsourcing .........150
5.5.2 Objective 2: Evaluating the impact of integrated planning and execution .........153
5.5.3 Objective 3: Identification of Best Practices and Continuous Improvement
mechanisms and methodologies in converging planning and execution .........154
5.5.4 Objective 4: Recommendations for business sustainability and strategic
alignment between IMPERIAL Logistics and strategic partnering organisations160
5.6 Recommendations for IMPERIAL Logistics..............................................................167
5.7 Suggested Further Research...................................................................................168
5.8 Main Objective and conclusion: Understanding the impact of the convergence of
logistics planning, execution and measurement on outsourcing ................................169
References .................................................................................................172
Appendix A: IMPERIAL Logistics Organogram.......................................180
Appendix B: Letter to client organisations for participation in survey.181
Appendix C: Letter of informed consent .................................................182
Appendix D: Online Questionnaire...........................................................184
Appendix E: Survey Population................................................................193
Appendix F: 16th
Annual Third Party Logistics Study Outsourcing
Table.....................................................................................................194
Appendix G: Link to 16th Annual Third Party Logistics Study
Outsourcing (2012)..............................................................................195

viii
LIST OF FIGURES
Figure 1.1: Conceptual framework.......................................................................................17
Figure 2.1: Conceptual framework for approach to research study.......................................20
Figure 2.2: Traditional 3PL model infrastructure...................................................................24
Figure 2.3: LLP model infrastructure....................................................................................25
Figure 2.4: Strategic Supply Chain Relationship Organisational Culture and Performance
Model (SCOCAP) ........................................................................................................37
Figure 2.5: The Eight Components of the Strategy and Execution Process ..........................48
Figure 2.6: Respondents’ logistics functions outsourced ......................................................51
Figure 3.1: Research Methodology Framework....................................................................76
Figure 3.2: Sampling procedure...........................................................................................84
Figure 4.1: Survey Results Overview...................................................................................95
Figure 4.2: Main Job Function of Respondents....................................................................97
Figure 4.3: Main Job Role of Respondents ..........................................................................98
Figure 4.4 Location of client organisation activity .................................................................99
Figure 4.5: Primary industry of respondent company .........................................................100
Figure 4.6: Company size in terms of number of employees ..............................................101
Figure 4.7: Company size in terms of annual revenue........................................................102
Figure 4.8: Outsourcing relationship responsibility .............................................................104
Figure 4.9: Frequency of relationship review......................................................................105
Figure 4.10a: Closeness of outsourcing relationship ..........................................................108
Figure 4.10b: Relationship closeness as an indicator of expected benefits for LSP
providing both planning and execution activities.........................................................109
Figure 4.11: Communication regarding daily Operations....................................................110
Figure 4.12: Measurement Responsibility ..........................................................................111
Table 4.2: Respondents who foresee a moderate benefit vs CI used .................................113
Figure 4.13a: Existence of a supply chain strategy at the client organisation......................117
Figure 4.13b: Strategy development – inclusion of LSP .....................................................118
Figure 4.14: Comparison of strategy vs frequency of relationship evaluation......................119
Figure 4.15: Core competencies identified.........................................................................120
Figure 4.16: IMPERIAL Logistics involvement in outsourced function.................................123
Figure 4.17: Outsourced supply chain competencies .........................................................125
Figure 4.18: Current benefits experienced from outsourced relationships...........................128
Figure 4.19: Attitude towards LSP providing Planning and Execution Functions.................134
Figure 4.20: Current Importance of Supply Chain Functions to Business Success .............139
Figure 4.21: Future Importance of Supply Chain Functions to Business Success...............140

ix
LIST OF TABLES
Table 2.1: Services Provided by LSPs.................................................................................26
Table 2.2: Services used by clients of LSPs.........................................................................27
Table 3.1: Overall Response Rate of Survey .......................................................................91
Table 3.2: Survey Activity ....................................................................................................91
Table 3.3: Response Rate by Industry .................................................................................92
Table 3.4: Comparison of services outsourced as suggested by the 16th
Annual Third
Party Logistics Study versus the services suggested to be outsourced as per the
research study .............................................................................................................93
Table 3.5: Rank comparison between researchers’ rank and the 16th
Annual Third Party
Logistics Study rank.....................................................................................................94
Table 4.1: Respondents who foresee a huge benefit vs CI used ........................................113
Table 4.2: Respondents who foresee a moderate benefit vs CI used .................................113
Table 4.3: Respondents who foresee a slight benefit vs CI used........................................114
Table 4.4: Respondents who foresee a benefit but do not know the degree of it vs CI used114
Table 4.5: Respondents who foresee no benefit vs CI used...............................................115
Table 4.6: Choice Rank of Core competency by industry ...................................................122
Table 4.7: Categorisation of Supply Chain function as planning or execution .....................125
Table 4.8: Respondents who foresee a huge benefit vs alignment tools used ....................129
Table 4.9: Respondents who foresee a moderate benefit vs alignment tools used .............130
Table 4.10: Respondents who foresee a slight benefit vs alignment tools used ..................130
Table 4.11: Respondents who foresee a benefit but do not know the degree vs alignment
tools used..................................................................................................................131
Table 4.12: Respondents who do not foresee a benefit vs alignment tools used.................132
Table 4.13: Respondents who foresee a huge benefit vs measurement tools used ............132
Table 4.14: Respondents who foresee a moderate benefit vs measurement tools used .....132
Table 4.15: Respondents who foresee a slight benefit vs measurement tools used............133
Table 4.16: Respondents who foresee a benefit but do not know the degree yet vs
measurement tools used............................................................................................133
Table 4.17: Respondents who foresee no benefit vs measurement tools used ...................134
Table 4.18: Respondents who foresee a huge benefit vs benefits expected.......................136
Table 4.19: Respondents who foresee a moderate benefit vs benefits expected ................136
Table 4.20: Respondents who foresee a slight benefit vs benefits expected.......................137
Table 4.21: Respondents who believe there is a benefit but do not know to what degree
yet vs benefits expected.............................................................................................137
Table 5.1 Summary of Key finding related to main objective ..............................................145
Table 5.2 Summary of Key finding related to Objective 1 ...................................................146

x
LIST OF ABBREVIATIONS
3PLs Third party logistics providers
4PL Fourth Party Logistics Provider
BPO Business Process Optimisation
CFP Continuous-replenishment planning
CI Continuous Improvement
CPFR Collaborative planning, forecasting and replenishment
CSMP Council of Supply Chain Management Professionals
DCs Distribution Centres
ECR Efficient consumer response
EDI Electronic data interchange
FCL Full Container Load
FMCG Fast Moving Consumer Goods
ILRS IMPERIAL Logistics Refrigerated Services
IRB Institutional Review Boards
IT Information Technology
JIT Just-in-time
KSF Key Success Factors
LCL Less-than-Container Load
LIC Logistics Integration Centre
LLP Lead Logistics Provider
LSP Logistics Service Provider
S&OP Sales and Operations Planning
SCOCAP Strategic Supply Chain Relationship Organisational Culture and
Performance Model
SCOR Supply Chain Operations Reference Model
SLA Service Level Agreement
SOPs Standard Operating procedures
Statcon Statistical Consultation Service of the University of Johannesburg
VMI Vendor-managed inventory
WWSC Woolworths Supply Chain

1
CHAPTER 1: INTRODUCTION
1.1 Background to the study
Outsourcing is a viable business strategy because turning non-core functions
over to external suppliers enables companies to leverage their resources,
spread risks and concentrate on issues critical to survival and future growth.
One way of extending the logistics organisation beyond the boundaries of the
company is through the use of a third party service provider or contract
logistics services. Services commonly offered by Third party logistics
providers (3PLs) in the logistics industry include transportation and
warehousing. 3PLs offer expertise and/or assets for the benefit of distributors
and shippers. It is becoming common to see 3PLs take over an entire supply
chain function on behalf of their clients.
Increasingly, logistics companies are offering opportunities for businesses to
outsource a range of supply chain functions and responsibilities traditionally
performed in-house. Business Process Optimisation (BPO) involves the
subcontracting of operations and responsibilities of specific business functions
or processes to a specialised service provider. BPO service offerings include
supply chain planning, procurement, international logistics and supply chain
engineering. Typical in-house activities such as forecasting, inventory
planning and demand planning are now offered by 3PLs. The inclusion of
these additional services has been in response to the need to gain greater
efficiency across the end-to-end supply chain, thus reducing overall costs.
The term Lead Logistics Provider (LLP) is frequently used in the logistics
industry. At its most basic level, an LLP is a non-asset based 3PL but there is
an emerging field of logistics providers who oversee and manage a portfolio of
warehousing and transportation providers from a higher level. In South Africa,
a few major players in the Logistics Service Provider (LSP) industry, a term
wider than LLP, are starting to structure themselves in order to add more
value to their clients by increasing their service offerings. One of these

2
companies is IMPERIAL Logistics which is a multi-faceted business that is
split into the following key divisions (http://www.imperial.co.za/):
 Transport – IMPERIAL Logistics provides transport services in
accordance with clients’ requirements. Modes of transportation include:
o Air – transport services are provided by chartering aircraft for goods
such as hazardous cargo, pharmaceuticals, high tech electronics
and general cargo;
o Sea/waterways – IMPERIAL Logistics offers Full Container Load
(FCL) and Less-than-Container Load (LCL) shipments by sea. The
network extends from Europe to India, the USA and the Far East;
o Rail – IMPERIAL Logistics offers rail services management from
loading to offloading points, facilitation of access to rail networks,
system solutions for infrastructure and asset optimisation, loading
and offloading supervision, comprehensive daily tracking reports,
and forward planning;
o Road – IMPERIAL Logistics provides a comprehensive service
offering including primary and secondary transport of bulk, break
bulk and general cargo, refrigerated transport, tanker transport of
hazardous, non-hazardous and specialised products, container
transport, tipper transport, local courier and truck rental services.
 Warehousing – With a warehousing capacity in excess of 750 000m² in
southern Africa and a total international storage capacity in excess of
2 240 000m², IMPERIAL Logistics provides clients with customised and
cost effective warehousing and distribution solutions in southern Africa
and Europe. The company has dedicated or shared warehousing
services that include bondage, terminal management, container
handling, enterprise web enablement and pallet management.
 International Logistics – IMPERIAL Logistics provides widespread
freight forwarding, customs clearance and custom brokerage services

3
and has offices and agent representatives in key centres of southern
Africa as well as global associations.
 Supply chain management – IMPERIAL Logistics provides a variety of
supply chain management services such as:
o Business Process Outsourcing which is an outsourcing method of
contracting operations and responsibilities of processes or specific
business functions such as supply chain planning, procurement,
international logistics and engineering supply chain to a specialised
service provider;
o Consulting and advisory services that are aimed at supply chain
strategy formulation and facilitation, operations improvement,
technology integration and people alignment;
o Advanced IT solutions which combine engineering expertise with
information technology and systems capabilities to assist clients to rid
their supply chains of excess inventory and endeavour to reduce the
cost of supply and to improve service levels by coordinating supply,
production and distribution to exactly match output with demand.
Many of the operating companies within the group execute logistics functions
for their clients (such as warehousing and transportation), whilst many clients
instruct their 3PLs on the Sales and Operations Planning (S&OP) plans that
they have developed internally (i.e., they have not conducted joint planning
with the LSP). In response to the opportunity to increase integration between
the LSP and the client, IMPERIAL Logistics has recently acquired or
expanded the capabilities within its companies in order to increase service
offerings in areas such as freight forwarding and clearing, business process
outsourcing, pragmatic consulting, advanced information technology and
special services.
As a result of these new capabilities, IMPERIAL Logistics is conducting
exclusive planning services for various clients, for example, Pick n Pay utilise
BROCO (a division of IMPERIAL Logistics offering logistics solutions within
the fast-moving consumer goods industry) for exclusive planning and

4
IMPERIAL Logistics Refrigerated Services (ILRS) offers exclusive execution
of transportation for Woolworths (Pty) Ltd.
1.2 Research Problem
In order to obtain a better understanding of the benefits, risks, costs and value
of the changing role of the LSP, shifting focus from a company providing
transport or warehousing services only to a company that utilises information
to conduct planning and execution for its clients, IMPERIAL Logistics and the
University of Johannesburg are collaborating, via this research project, to
improve their understanding of such opportunities that exist in the logistics
industry.
Traditionally, outsourcing of the logistics function has been mainly for the
distribution of goods. However, critical inputs to the successful execution of
the outsourced function such as forecasting, planning and performance
measurements are controlled by clients and are not openly shared with the
LSP. This has often led to the misalignment of execution of operations
between the client and the service provider. The LSP therefore, in duplication,
performs the same functions as the client for example both the client and LSP
perform planning functions.
The misalignment is also exacerbated by a lack of shared vision, a lack of
shared strategy and fragmented measurements of performance. Companies
are striving to reduce outsourcing costs and require world-class service but
are failing to share critical information with their service providers. Alignment
of business operations between the client and the LSP will enhance
information sharing, assist in uncovering synergies between the partners and
ensure that concerted efforts of both partners are aimed at the objectives of
the strategic relationship.
The research problem therefore is determining the value and impact of the
convergence of logistics planning, execution and measurement on
outsourcing.

5
1.3 Research Objectives
The primary objective of the research study is:
 to understand the impact of the convergence of logistics planning,
execution and measurement on outsourcing.
The secondary objectives of the research study will be focused around the
following dimensions:
 Objective 1: The establishment of the current status of IMPERIAL
Logistics’ business relationships with client organisations in terms of
outsourcing;
 Objective 2: Evaluating the impact of integrated planning and
execution;
 Objective 3: Identification of best practices and continuous
improvement mechanisms and methodologies in converging planning
and execution;
 Objective 4: Recommendations for business sustainability and strategic
alignment between IMPERIAL Logistics and strategic partnering
organisations.
1.4 Research Questions
With the refinement of the research objectives, the main research question
posed is:
 What is the impact of the convergence of logistics planning, execution
and measurement on outsourcing?
The following sub-questions will be addressed:
 What are the current industry best practices in terms of specific
continuous improvement initiatives that can be implemented between
supply chain partners?

6
 What is the importance of strategic alignment within the context of
outsourcing partnerships?
 What is the importance of strategic alignment within the context of the
business and supply chain strategy?
 Which mechanisms can be implemented in realising effectiveness in
converging planning and execution?
 Which mechanisms can be implemented in measuring planning and
execution?
 What are the recommendations for business sustainability and
strategic alignment between partnering organisations?
1.5 Literature Review
The multidimensional nature of the main research question requires a
literature review that provides an understanding of the base concepts of
logistics outsourcing, planning, execution, and the changing role of the LSP.
This includes cultural factors, strategic influences, relationship influences,
performance management and the ultimate convergence of these aspects.
In a study conducted by Cranfield University (2010), it was found that a supply
chain’s impact on the overall business performance has become a focus area
in terms of costs and value creation (low cost or differentiation competitive
strategy). It is evident that in the majority of industries, supply chains, as
opposed to organisations, compete for a distinct competitive advantage
(Wilding, Waller, Rossi, Geldard, Mayhew & Cigolini, 2010; Zikmund & Babin,
2007; Metcalfe, 2010). Identifying inefficiencies in the business units, such as
transport and distribution centres (DCs) , assists in driving the continuous
improvement approach and the selected competitive strategy. Tan (2000)
indicates that the goal of focusing on continuous improvement is the
achievement of a distinct competitive advantage in the retail and supply chain
environment as well as healthy financial results. Organisations, therefore,
strive to streamline in-house processes and outsource functions that 3PLs
can perform cost-effectively.

7
1.5.1 Reasons for favouring the outsourcing option
Organisations often choose to outsource logistics functions due to the
organisations’ core competency not being logistics. An important factor in
deciding to outsource is based on ‘the interest in reducing asset investment to
improve asset productivity’ (Langley, Coyle, Gibson, Novack & Bardi, 2009:
606).
The third-party logistics organisation is defined as ‘an external supplier that
performs all or part of a company’s logistics functions’ (Langley et al, 2009:
119). 3PLs include suppliers of warehousing, distribution, financial services
and transportation. These services benefit large organisations that require a
formal contract or Service Level Agreement (SLA) defining the terms and
conditions of the agreement with the 3PL.
Successful execution of the outsourced distribution function is dependent on
the following factors, as indicated by Razzaque and Sheng (1998: 100):
 Top management who must be driving the decision to outsource;
 Communication between clients and the logistics service provider;
 Internal communication between affected departments; and
 Mutual trust and respect between the partners.
Knemeyer and Murphy (2005) state that the benefits of outsourcing are
customer retention, customer referrals, the ability to recover from unexpected
operational disruptions and operational performance improvements. These
benefits will be further examined in chapter 2.
Organisations focus their efforts on providing service offerings that meet the
needs of a dynamic and demanding client base. 3PL outsourcing ‘involves the
use of external companies to perform some or all of the firm’s logistics
activities’ (Li, Li, Jin, Wang, Wang & Yang, 2012: 1799). A pertinent factor in
deciding to outsource relates to ‘the interest in reducing asset investment to
improve asset productivity’ (Langley et al, 2009: 606). There are two types of
logistics outsourcing which form the basis of the research study, namely,

8
planning and execution. The research in chapter 2 expands on the
convergence of planning and execution into an integrated service offering.
Because logistics planning is normally deemed to be an in-house function,
organisations often identify it as a critical internal function and wish to retain
control over it. Organisations consider LSPs to be experts only in logistics and
supply chain management and perceive them to be unfamiliar with the core
business activities of their client organisations.
There are, however, advantages to involving LSPs in the logistics planning
function of an organisation. Long term partnerships are created whereby
communication, risks and rewards are openly shared between supply chain
partners. Organisations that include 3PLs in logistics planning capitalise on
opportunities for creating sustainable competitive advantages which can
improve organisational performance. Fabbe-Costes, Jahre and Roussat
(2009) explain that the reason LSPs assist in improving performance of a
client’s supply chain is due to their ability to collaborate vertically with supply
chain partners and horizontally with other LSPs. In addition, LSPs are experts
in logistics and supply chain management and are able to assist in supply
chain integration.
Due to the increasing demands on organisations to remain competitive, the
use of outsourcing is likely to increase in the future as 3PLs provide improved
efficiencies through service integration and incorporation of information
technology (Rahman, 2011). Because organisations operate in a competitive
environment, they have adopted a strategic viewpoint to outsourcing while
3PLs have begun to focus on a strategic outlook to service differentiation and
innovation (Large, Kramer & Hartmann, 2011). Fabbe-Costes et al (2008)
state that organisations do not only outsource the traditional supply chain
functions but have also opted to outsource logistics management functions
which include planning functions.
If the planning and execution functions are outsourced to two different 3PLs,
the client must act as an integrator between these two organisations. This

9
may result in negative consequences, namely, duplicated planning which
must be carried out by both 3LPs. Because of this, the overall utilisation of
LSPs has increased and the type of relationship between the client
organisation and the 3PL has evolved (Bask, 2001).
1.5.2 Outsourcing from a strategic perspective
In order to take full advantage of 3PLs, mutually beneficial projects must be
created which invite collaboration between supply chain partners. A distinct
competitive advantage for supply chain partners can be created by
maintaining a constant watch for future challenges and opportunities and the
construction of collaborative plans to exploit these opportunities.
Lukassen and Wallenburg (2010) indicate that strategic partnerships and
outsourcing have increased in scope and complexity. An obstacle to their
success remains the construction of SLAs that encapsulate performance
expectations and continuous improvement requirements. Contracts must, in
addition to supervising the relationship between supply chain partners, include
specific performance measurement criteria and associated incentives. In this
way, the SLA can act as an effective enabler of strategy realisation.
1.5.3 Effects of organisational culture on outsourcing and supply chain
partners
Organisational culture plays a paramount role in ensuring the effectiveness of
strategic relationships. Cadden, Humphreys and McHugh (2010) state that an
incompatible organisational culture between partners in a strategic
relationship may act as a major obstacle in the achievement of performance
standards. Misalignment in terms of organisational values and principles
between supply chain partners can result in adverse outcomes which are
detrimental to the strategic relationship. In order to obtain cultural fit, Cadden
et al (2010: 43) refer to ‘shared values, beliefs and behaviour patterns which
permeate within and between each supply chain partner organisation resulting
in mutually desired performance outcomes’. Cultural fit between supply chain

10
partners can therefore assist in the success of partnering organisations’
strategies.
1.5.4 Strategic Alliances
Xungping, Guanghua and Yong (2011) indicates that in the 21st century,
organisations began to focus on strategic and collaborative partnerships
between supply chain members. These relationships were based on mutually
beneficial win-win relationships characterised by the sharing of rewards and
risks. Strategic alignment and strategic fit between partners is imperative in
strategic alliances between supply chain partners. There are eight
components in executing strategy that will be discussed in depth in chapter 2.
These components include resources, policies and procedures, best
practices, information and operating systems, rewards and incentives,
corporate culture, competencies, capabilities and leadership.
1.5.5 Supply chain relationships
There are various benefits identified in the creation of supply chain
relationships. Lambert, Emmelhainz and Gardner (1996) indicate that
executives are developing supply chain partnerships in an attempt to reduce
costs, improve service and gain competitive advantage. Golicic and Mentzer
(2006) state that organisations have identified the value in building long term
relationships with supply chain partners because the gains of longer term
relationships far exceed those of shorter term relationships.
There is a shift from the financial benefits of a relationship to an additional
focus being placed on relational factors in terms of strategic relationships.
There is an increasing acknowledgement that organisations need to build and
manage closer, longer-term relationships with suppliers and clients (Golicic &
Mentzer, 2006). In line with the elements that constitute the convergence of
planning and execution, Gardner, Cooper and Noordewier (1994) suggest that
the relationship between the client and the 3PL or LSP has the following five
behavioural dimensions:

11
 Extendedness: Referring to frequency of information exchange
between client and service provider;
 Operational information exchange: In line with the discussion around
performance measurement, this is a dimension that allows for
meaningful performance information to be shared between the parties,
so that improvements can be made to the service continually;
 Mutual operating controls: This means that the relationship between
service provider and client is more than merely transactional, it
becomes a long term partnership. Also, business processes do not
remain within the boundaries of just one company and the movement
from the planning phase of logistics operations to execution becomes
seamless;
 Shared benefits and burdens: The entities in the relationship share
risks and rewards;
 Planning: According to Gardner et al (1994), planning integrated the
operations of two organisations. In 2012, eighteen years after this
statement was made, the researchers have seen planning activities for
both organisations being conducted by one organisation entirely. In
some cases, the organisation has outsourced both the planning and
the execution functions to different organisations, in which case the
client acts as an integrator between the two. Nevertheless, planning is
still an important relational element for a logistics service provider and
its client.
Mutually beneficial and long-term collaborative relationships result in
organisations performing better together than separately. The outcome is that
both organisations benefit from the partnership with no compromise on
aspects regarded important to either organisation (Jones & George, 2009).
Organisations worldwide select supply chain partners based on experience
and a comprehensive knowledge of the context in which the prospective
partners operate (The Week, 2008). Partnering organisations function as a
whole with the similar objective of providing excellent service to the final
client. The future success of the strategic relationship is associated with the

12
ability of the partnering organisations to collectively discover ‘continuous and
breakthrough improvement’ opportunities in the marketplace (Langley et al,
2009: 115).
1.5.6 Best practice in planning and execution
Various tools will be further discussed in chapter 2 that assist with integration
of supply chain activities. Collaboration is a best practice in support of supply
chain integration. Simatupang and Sridharan (2008) define supply chain
collaboration as a collaborative commitment by two chain members to
maintain alignment of their businesses through strategic objectives. Barratt
and Oliveira (2001: 266) further state that ‘supply chain collaboration occurs
when two or more companies share the responsibility of exchanging common
planning, management, execution, and performance measurement
information’. The attainment of a synchronised supply chain is achieved when
supply chain partners involved in a strategic supply relationship collaborate in
terms of planning and execution. Traditional strategies of supply chain
collaboration focused on bargaining power to reduce prices and increase
profits but this has shifted to integrated solutions that focus on serving the
end-customer with higher customer service levels whilst realising higher
profits.
For organisations to develop and maintain successful supply chain
collaborations, Simatupang and Sridharan (2008) suggest the sharing of the
following key elements:
 There must be a well-defined collaborative performance system that
clearly articulates performance measures and targets to be achieved
by the supply chain partners;
 Information sharing which plays a significant role in collaborative
planning, processes, control and performance;
 Decision synchronisation that empowers supply chain partners with
authority to recommend and make appropriate decisions that impact
positively on the direction and performance of the supply chain;

13
 Incentive alignment that influences a positive behaviour and high
performance culture;
 Innovative supply chain processes that facilitate the non-destructive
and efficient flow of goods, services and information.
It is clear that the sharing of various aspects between supply chain partners is
mandatory for effective collaboration in obtaining successful convergence in
planning and execution.
1.5.7 The value of converging planning and execution
LSPs must constantly adapt service and product offerings to the needs of
partnering organisations. Product and service offerings of 3PLs must
continuously be improved and extended in order to provide comprehensive
client solutions. To compete successfully and gain market share, LSPs must
include offerings that outperform those of their competitors. In this case,
partnering client organisations may outsource additional supply chain
functions to the LSP with the most comprehensive service range.
1.5.8 Performance Management
In converging planning and execution, performance measurement must be
incorporated. SLAs and contracts form an integral part of performance
management. Included in the SLA may be terms and conditions with
associated performance requirements and deliverables. Brown and George
(2012) suggest a formal relationship management plan between strategic
partners to assist with the management of processes and business
interactions. The successful measurement and management of strategic
relationships is crucial to the success of future supply chains.
In attempts to continuously improve, it is mandatory that business activities
are measured. Measuring performance is certainly not a recent event (Coyle,
Bardi & Langley, 2003). Physical distribution and logistics concepts have been
based on the systems theory with a focus on total cost analysis (Coyle et al,
2003). In analysing third-party partnering firms, client organisations must

14
consider the total cost concept. Costs associated with outsourcing must be
analysed in terms of the impact on the total supply chain. Costs must be
determined in terms of elements such as transportation, procurement,
inventory and service levels. The partnership between organisations should
result in the lowest total cost and hence contribute to a sustainable
competitive advantage.
Measuring and standardising organisational performance is a complex
process as organisations vary in the ways that they take measurements which
makes the evaluation process extensive (Jayne, 2004). Robust performance
management techniques are required in measuring supply chain performance
(Blanchard, 2009). These measures must facilitate in increasing holistic
visibility in terms of performance of supply chain activities within the supply
chain and identifying key success factors for the partnership. The
measurement process must also incorporate factors paramount to continued
competitive advantage in a highly competitive business environment, hence
the term ‘measure what you’re managing’ (Blanchard, 2009: 44).
Coyle et al (2003) state that individual metrics and the performance standard
must be amended as the environment changes. This is particularly
appropriate for the competitive and fast changing retail environment.
Performance metrics may be amended due to the improvement of metrics that
measure the role of relationships in the supply chain environment (Coyle et al,
2003) ensuring that focus is placed on continuous improvement.
Regarding strategic partnering and performance management, the most
important guideline to measuring performance is that ‘the metrics must be
consistent with overall business strategy’ (Coyle et al, 2003: 487). Key
Success Factors (KSF) can be measured within a business scorecard. Within
the transport environment, these KSFs are metrics that will contribute to the
achievement of the overall organisational strategy. Within the SLA, client
requirements are taken into consideration and each individual metric
contributes to the meeting or exceeding of client demands.

15
A performance metric must focus on measuring the process and not one
specific function in supply chain management. The objective is to ensure
process improvement in business operations. With the intent to improve
business operations, IMPERIAL Logistics has commenced auditing various
business operations with strategic partners. The initial stage of the audits
includes the description of the organisational strategic focus. Requirements in
terms of operational excellence for IMPERIAL Refrigerated Logistics Services
(ILRS) are, for instance, defined in the Woolworths Supply Chain (WWSC)
audit requirements. ILRS is therefore viewed as a strategic partner, key
service provider and entity of WWSC.
Measures are focused on proactive management, synergy, business
continuity, growth and sustainability of partnering organisations. This is
analogous to the concept ‘partnershipping’ (Stock & Lambert, 2001: 366), a
philosophy that is integrated throughout both WWSC and ILRS and is
entrenched in all daily functions.
1.5.9 Mechanisms for measuring planning and execution
1.5.9.1 Balanced scorecard
The balanced scorecard presents an innovative approach to organisational
performance management when considering strategic alignment. The
balanced scorecard can assist organisations and strategic partners in
monitoring and managing performance in achieving strategy. Concerns about
the implementation of the balanced scorecard lie in the lack of accountability.
This will be discussed further in chapter 2.
1.5.9.2 Benchmarking
Benchmarking can be utilised for measuring planning and execution.
Benchmarking can prove to be highly effective when measures utilised are
standard across a specific industry. Organisations are therefore able to
compare their performances with the performances of industry leaders.
Performance gaps can then be identified and action plans implemented to
improve performance. The drawback is that the organisation which is

16
benchmarked against will constantly be the leader – and the organisation
conducting the benchmarking exercise will always be the follower.
The mechanisms utilised by organisations in measuring the convergence of
planning and execution will be further discussed in chapter 2. It is however
evident that significant benefits can be realised in the event that supply chain
partners converge logistics planning, execution and measurement of supply
chain functions.
1.6 Research Methodology
The research will be undertaken from a multidisciplinary approach because
the researchers of this study have experience in strategy and various areas
within supply chain management.
According to Zikmund and Babin (2007), research design is a master plan that
specifies the methods and procedures for collecting and analysing the
necessary information. For this minor dissertation, an empirical focus will be
adopted using first-hand data collected by means of surveys administered to
selected clients within the IMPERIAL Logistics group of companies. In
addition, relevant examples will be drawn upon to understand best practise
and actual real life implications. These will represent the starting point from
which relevant questions can be drafted and applied to survey IMPERIAL
Logistics’ companies and their clients.
The surveys that will be conducted in the research study represent one of the
most common types of research. In survey research, the researcher selects a
sample of respondents from a population and administers a standardised
questionnaire to them (Barribeau, Butler, Corney, Doney, Gault, Gordon,
Fetzer, Klein, Ackerson Rogers, Stein, Steiner, Urschel, Waggoner &
Palmquist, 2005). By providing the respondents with standardised
questionnaires, the measuring of results will allow for accurate comparisons
between survey groups.

17
Surveys will be disseminated electronically, following which the data will be
collected, scrutinised and interpreted and conclusions drawn in chapter 5 of
this research paper.
A detailed discussion on the research methodology is included in chapter 3.
1.7 Conceptual Framework
Figure 1.1: Conceptual framework
Source: Researchers’ own
1.8 Limitations of the study
Limitations of this research study may be revealed if IMPERIAL Logistics’
clients supply responses that they believe are deemed preferable and
favourable to the company but are not necessarily the raw truth. Survey
responses are also mainly dependent on the experience of IMPERIAL
Logistics’ clients and may not be applicable to the entire industry.
The sample size of seventy-six companies taking part in the research study
may be seen as a limitation in drawing general conclusions about the industry.
However, as indicated by Huang, Jianwei and Feng (2009), in the broader
field of study, inferences can be drawn from a smaller sample size in expert
and specialised areas.
It is recognised that a link exists in terms of one of the researchers being
employed by a client of IMPERIAL Logistics and therefore electronic
questionnaires will be utilised to eliminate potential contamination of survey
results.

18
From an ethical stance, letters of consent will be handed to all respondents
and participants taking part in the research. Aspects incorporated in the letter
include:
 The purpose of the research;
 Written consent obtained from all individuals;
 Confidentiality of information;
 Voluntary participation in the research study.
In addition, a letter of consent will be required from IMPERIAL Logistics to
permit information regarding the organisation to be published.
1.9 Chapter Outline
Chapter 1
Chapter 1 provides an overview of the dissertation. It provides a background
to the study, the problem statement, the objectives of the study, the
description of the literature review, the research methodology to be adopted
and the limitations of the study.
Chapter 2
In this chapter, a detailed literature review is provided. The literature review
focuses on business strategy and the alignment of strategies. Organisational
culture and its impact on outsourcing is highlighted. The effects of change
management is discussed. Converging planning and execution is discussed in
detail followed by performance measurement. The chapter ends with a
discussion on mechanisms for measuring planning and execution.
Chapter 3
Chapter 3 provides details on the research methodology selected and
information on the sampling procedure that was followed, data collection, data
analysis and data validity.

19
Chapter 4
This chapter focuses on analysing and interpreting the data collected.
Attention is given to how the results address the research questions, it
assesses how the research questions were answered and provides a
comparison of the results with the literature analysis.
Chapter 5
The research findings, the conclusion and a list of recommendations are
documented in this chapter.
1.10 Conclusion
This chapter commenced with a background to the study and to IMPERIAL
Logistics, the company which provides the focus of the study. The primary
and secondary research objectives were discussed and will be the core focus
of the research study. A brief introduction was given to the literature around
the impact of converging logistics planning, execution and measurement on
outsourcing. Points of discussion in this section included outsourcing,
organisational culture, strategic alliances, supply chain relationships, and
performance management.
Chapter 2 presents the literature review for the research study.

20
CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
This chapter provides insight into contemporary logistics planning and
execution, and their convergence. The researchers found this to be a
relatively recent concept which has a wide variety of variations offered by
LSPs. The majority of the literature that exists on the subject is international
and has been applied to the South African context in this study which focuses
on companies that generally do business within the borders of South Africa or
in the rest of Africa.
The following figure illustrates the approach that has been taken for the
literature research:
Figure 2.1: Conceptual framework for approach to research study
To provide a general context to this study, a brief overview of logistics
outsourcing as a concept will be discussed with a focus on specific points that
are directly related to planning and execution activities rather than the very
general and wide field of logistics outsourcing. This will include the internal
changes of LSPs as well as the three elements contributing to the evolution of

21
the LSP from a simple 3PL into a dynamic all-encompassing logistics service
provider.
There are two types of logistics outsourcing that form the basis of this study,
planning and execution. These will be defined and the merits of outsourcing
these specific functions will be discussed. Then, the literature that describes
the current status of the convergence of these two elements into a single,
integrated service offering, the current applications and the potential value of
convergence are presented.
2.2 Logistics outsourcing
In search of increased efficiency, organisations explore various options to
outsource. 3PL outsourcing ‘involves the use of external companies to
perform some or all of the firm’s logistics activities’ (Li et al, 2012: 1799). In
efforts to meet the needs of a global and demanding customer base,
organisations are focusing on core competencies and outsourcing non-core
business. Logistics has a major impact on costs and service within a supply
chain. Logistics outsourcing has been developing rapidly since the 1990s and
currently there are many variations and adaptations (Li et al, 2012).
Organisations often choose to outsource logistics functions due to the
organisation’s core competency not being a logistics function. An important
factor in deciding to outsource is based on ‘the interest in reducing asset
investment to improve asset productivity’ (Langley et al, 2009: 606).
As indicated in chapter 1, Razzaque and Sheng (1998) have determined that
the successful execution of the outsourced distribution function is dependent
on the following factors:
 Top management support
 Effective internal and external communication
 Shared trust and respect between the partners
Knemeyer and Murphy (2005) stated the benefits of outsourcing as:

22
 Retention – this is attained by achieving customer’s needs beyond their
expectations
 Referrals – this is where the customer campaigns by recommending
the service provider to others which results in additional business for
the service provider
 Service recovery – this refers to the ability of the service provider to
recover from unexpected operational disruptions
 Operational performance improvements – this refers to the value that
the outsourcing function has provided in terms of process efficiencies.
Rahman (2011) indicates that the reasons to outsource include cost
reduction, reduction in capital investment, enhanced operational flexibility,
access to new technology, access to up-to-date techniques and expertise,
access to new markets and the opportunity to focus on core business.
Overall, the benefits of outsourcing can lead to reduced costs or increased
revenue.
In a study conducted by Cranfield University (2010), it was found that a supply
chains’ impact on the business performance has received additional focus in
attaining a competitive advantage. Outsourcing of functions represents a
means in creating this competitive advantage.
By focusing on continuous improvement throughout the holistic and extended
supply chain, opportunities exist for increasing efficiency and reducing
distribution costs. If continuous improvement is to be entrenched throughout
both partnering organisations, strategic partnerships and leadership
capabilities are required (Keller, 2009).
Outsourcing is likely to increase as 3PLs provide improved efficiencies
through service integration and the incorporation of information technology
(Rahman, 2011) which can enable 3PLs to develop customised customer-
centric solutions, the reduction of logistics costs and the acquiring of
operational support. The greatest benefits of outsourcing are to allow the
outsourcing company to concentrate on core competencies, increasing

23
efficiency, improving performance, reduction of transport costs and
restructuring supply chains (Li, et al, 2012). The motivation for outsourcing
logistics includes cost savings, the need to focus on core business operations
and improved services, gaining access to sophisticated technology, flexibility
of operations and risk reductions (Rahman, 2011).
In summary, IMPERIAL Logistics, acting as an external supplier conducting
logistics functions on behalf of its clients, can provide benefits of outsourcing
non-core business activities that will result in improved asset productivity and
a reduction in costs.
The following sections will focus on outsourcing of execution and planning
activities.
2.3 The Changing role of the Logistics Service Provider
2.3.1 The ‘replace-ability’ of 3PLs
3PLs suffer a high degree of replace-ability as services are generally
simplistic and not customised to market requirements. In order to be
competitive, 3PLs need to focus on a strategic outlook to service
differentiation and innovation (Large et al, 2011). This means that service
offerings must be adapted constantly to be relevant to a continually changing
market.
Because 3PLs are ‘replace-able’, it is important for LSPs to move toward a
service offering that allows them to be the expert in their field and not simply a
provider of a service that anyone can do. McCue (2012) says that the most
value is realised when a 3PL is viewed as a partner, when needs are clearly
identified, and when open channels of communication are established.
In determining the current status of outsourcing relationships and suggesting
recommendations for strategic alignment between IMPERIAL Logistics and its
strategic partnering organisations, 3PLs must adopt a strategic focus to
outsourcing and differentiate service offerings in building strategic
partnerships with clients.

24
2.3.2 The emergence of Lead Logistics Providers (LLPs)
The discussion regarding the changing roles within planning and execution in
supply chains would be incomplete without a discussion of the concept of
LLPs. Barrows (2009) defines LLPs as service providers that manage the full
scope of logistics services for a company, combining and coordinating the
services of multiple logistics service providers. The LLP serves as the single
point of contact between its client and the logistics providers that execute the
client's supply chain. Barrows (2009) also mentions that the LLP usually has
full responsibility for the performance of service providers under contract. This
relates to the concept of a Logistics Integration Centre (LIC) that IMPERIAL
Logistics is currently marketing to a number of its clients.
The following two figures represent the changing role of the logistics service
provider:
Figure 2.2: Traditional 3PL model infrastructure
Figure 2.2 shows the ‘compartmentalisation’ of the traditional 3PL. This model
is still common, where a logistics company only provides a specific service to
its client, but does not go beyond this to provide ‘knowledge’, or an integrated
service.

25
Figure 2.3: LLP model infrastructure
Figure 2.3 shows the integration function that LLPs typically perform. The LLP
acts as the ‘mediator’ between different functions to ensure that these
functions operate in harmony with each other, so that the system as a whole
produces better value than the individual functions operating in isolation would
produce. The concept of integrating functions is also applicable in the case
where there is a supplementary function needed to support the primary task.
Such an example could be the execution of outbound road transportation, and
the planning and scheduling of the vehicles and resources needed to fulfil this
task.
Currently, LSPs provide a vast array of services, as can be seen below in
Table 2.1. ‘Knowledge’ functions such as transportation planning and
management are starting to appear as 63% of LSPs offer this as a service.
The integration of more than one of these functions by one service provider
begins to move an LSP into the realm of the LLP, and into a more
customised, client-specific service.

26
Table 2.1: Services Provided by LSPs
Source: 16
th
Annual Third-Party Logistics Study (2012)
Outsourced Logistics Service offered by
LSP
Provider
Percentages
(Percentage that offer
the service)
Domestic Transportation 83%
Warehousing 81%
International Transportation 70%
Inventory Management 66%
Order Management and Fulfilment 65%
Customer Service 64%
Transportation Planning and Management 63%
Cross-docking 62%
Product Labeling, Packaging, Assembly,
Kitting
62%
Freight Forwarding 58%
Customs Brokerage 50%
Reverse Logistics 56%
IT Services 51%
Supply Chain Consulting 51%
LLP Services 42%
Service Parts Logistics 38%
Freight bill auditing and Payment 34%
Green Logistics Services 31%
Fleet Management 26%

27
Table 2.2: Services used by clients of LSPs
Source: 16
th
Annual Third-Party Logistics Study (2012)
According to Langley and Capgemini (2012), LLPs do not rank highly as a
service that is used by shippers (clients) to enhance their supply chains (only
9% of respondents use LLPs). The emergence, however, of transportation
planning and management (used by 23% of shippers worldwide and provided
by 63% of LSPs) could ultimately lead to shippers making use of LLPs as their
supply chains mature.
Gardner et al (1994) describe the use of planning as a logistics outsourcing
function to enable the integration of operations between the client and its LSP.
As mentioned in chapter 1, in some cases, the client has outsourced both the
planning and the execution functions to different firms, in which case, the
client acts as an integrator between the two. This often results in adverse side
effects such as duplicated planning performed by each firm and misaligned
Outsourced Logistics Service used
by Shippers (client organisations)
All
Regions
North
America
Europe
Asia
Pacific
Latin
America
International Transportation 78% 66% 91% 77% 84%
Domestic Transportation 71% 65% 77% 74% 69%
Warehousing 62% 65% 61% 65% 63%
Freight Forwarding 57% 52% 54% 64% 65%
Customs Brokerage 48% 49% 43% 56% 45%
Reverse Logistics 27% 25% 28% 33% 22%
Cross-docking 26% 29% 28% 25% 22%
Product Labeling, Packaging,
Assembly, Kitting
24% 19% 28% 24% 26%
Transportation Planning and
Management
23% 24% 27% 21% 16%
Inventory Management 21% 20% 16% 27% 25%
Freight bill auditing and Payment 17% 35% 12% 11% 8%
IT Services 15% 15% 14% 13% 16%
Order Management and Fulfilment 14% 19% 10% 15% 14%
Service Parts Logistics 14% 10% 14% 19% 10%
Customer Service 11% 9% 7% 14% 16%
Supply Chain Consulting 11% 15% 7% 13% 9%
Fleet Management 10% 8% 9% 14% 9%
LLP Services 9% 7% 10% 13% 4%
Green Logistics Services 4% 3% 3% 6% 4%
User Percentages (Percentage that use the service)

28
performance measurement. The statement by Gardener et al (1994) is
essentially a precursor to the current LLP concept, and proves that its value
was considered even as early as 1994.
In summary, in understanding the impact of integrated planning and
execution, LLPs need to extend their services to encompass an integrated,
comprehensive and knowledgeable service offering to clients. There are
currently a vast number of services offered by LSPs however, by outsourcing
planning and execution to the same LSP, duplication of activities is
decreased. As a supply chain matures, the use of LLPs becomes more
prevalent.
2.3.3 Concept of logistics integration
Outsourcing is a phenomenon that is increasingly common in businesses all
over the world. The trend has been increasing since the 1980s, resulting in
the greater usage of LSPs (Van Laarhoven, Berglund & Peters, 2000) while
the type of relationship between customer and service provider has also
evolved over time (Bask, 2001).
Bechtel and Jayaram (1997) consider the integration of supply chains to not
only be important from an operational point of view, but also important as a
strategic imperative. It is therefore a key business requirement and should be
viewed as such.
Fabbe-Costes et al (2008) found that companies do not only outsource the
traditional supply chain functions such as warehousing and transportation, but
also the logistics management functions related to the flow of goods and
production activities. Fabbe-Costes et al (2008) also confirm that LSPs have
begun to broaden their service offerings and are, in fact, providing clients with
a more holistic basket of services that are customised to the specific customer
needs.
The effect of increased outsourcing of a broader range of supply chain
functions has led to more and more of a company’s supply chain being

29
located outside the borders of the company. In fact, Fulconis, Saglietto and
Paché (2006) argue that LSPs with a Fourth Party Logistics Provider (4PL)
capability could replace the role that the client currently plays in the design
and management aspect of their supply chains. This is a similar concept to
that of the LLPs that were referred to earlier.
Fabbe-Costes et al (2008: 2) state that
with a trend of supply chain integration on the one hand and more use
of LSPs on the other hand, one would expect literature to be
concerned with the role of LSPs as well as the LSPs being concerned
with the role they might play in the integration of their clients’ supply
chains.
However, Fabbe-Costes et al (2008: 2) go on to state that ‘initial results
emerging from a large review of supply chain integration performance papers
reveal that LSPs seem to be the forgotten actors of supply chain integration’.
These contradicting findings are what led Fabbe-Costes et al (2008) to study
how LSPs support integration and performance of their clients’ supply chains.
Fabbe-Costes et al (2008) considered a number of academic articles for their
research to determine the frequency of certain key phrases and concepts
appearing in the literature. The research shows that, in some cases, LSPs are
integrated members of a customer’s supply chain, and, in other cases, the
LSP is seen simply as a tool that is used by the customer to achieve supply
chain integration. In a few cases, LSPs are seen as potential and proactive
supply chain integration campaigners who believe that the following three
major viewpoints exist for their customers:
 LSPs are important members of the supply chain but must fit into the
client’s structure
 LSPs are simply tools/enablers to assist supply chain integration efforts
 LSPs are a key part of the clients’ business and are actively involved in
improving it and can influence direction.

30
The research undertaken by Fabbe-Costes et al (2008) on academic literature
produced the following results:
 89% consider explicitly or implicitly that LSPs are members of supply
chains
 82% consider explicitly or implicitly that LSPs must integrate with other
actors (other supply chain members)
 37% consider explicitly or implicitly that LSPs are tools used to
integrate supply chains and/or improve performance
 22% consider explicitly or implicitly that LSPs are actors able to
improve supply chain integration
 56% explicitly or implicitly view LSPs as contributing to performance
improvements
 56% explicitly consider that LSPs are members of the clients’ supply
chains and that they must be integrated. However, very few papers
indicate how LSPs are integrated.
Fabbe-Costes et al (2008) deduce that the reason that LSPs are able to
improve performance of a client’s supply chain is because they can
collaborate both vertically with supply chain partners and horizontally with
other LSPs. The expertise and knowledge of the LSP in its particular field
allows it to be used as a ‘tool’ or as an ‘actor’ of supply chain integration.
Fabbe-Costes et al (2008) recognise that LSPs can improve quality, speed,
service levels, costs, performance and contribute to savings and benefits, but
mention that very few of the articles they used in their research actually give
insight into exactly how the LSP contributes to improved performance.
This is confirmed by Stank, Keller and Daugherty (2001) who could not find a
statistical link between supplier integration and logistics performance in their
research. The long term relationship between many clients and their service
providers means that they do not act as a ‘major differentiator’. However, it

31
was generally found that clients with an existing integrated structure tend to
have better performance than their competitors.
Hakansson and Persson (2004) found that one of the LSPs in their study offer
a service to a customer that is an ‘integrated logistics solution’, meaning that
the company is responsible for the design, implementation and operations of
a supply chain. Beyond this, the LSP monitors performance and goes as far
as to improve supply chain performance.
Fabbe-Costes et al (2008) also studied the websites of various European
LSPs and found the following:
 100% guaranteed some form of supply chain optimisation
 90% promise financial savings
 60% promise to create value for their customers
 40% promise growth.
The study by Fabbe-Costes et al (2008) showed that LSPs market
themselves in many different ways, but 80% of them say that they are able to
execute, pilot and design the supply chain. One of the LSPs that was studied
claimed to enable design (planning and high level supply chain
understanding), oversight (measurement) and execution (traditional logistics
operations).
From this, and considering the opinion of Fabbe-Costes et al (2008), it is clear
that LSPs see integrated logistics as an important service offering. The
questions that could thus be asked from this are:
 To what extent should the LSP play the ‘tool’ (more passive) role vs. an
‘actor’ role (more active) and in which circumstances should this occur?
 What supply chain activities are typically seen as the value-creators in
supply chain integration?

32
Mason, Lalwani and Boughton (2007) suggest that in order for an LSP to
create real value for their client, they must fulfil the ‘actor’ role because they
can then be the planner and designer for many supply chains, thus creating
an economy of scale for many clients, resulting in cost savings and flexibility.
Mason et al (2007) say that LSPs must be able to ‘leverage’ their capability in
order to provide value in a greater way than just being the ‘tool’.
In summary, in evaluating logistics integration, although a statistical link
between supplier integration and logistics performance cannot be identified,
where an integrated structure exists, performance is higher than the
competition. LSPs are striving to provide clients with a comprehensive and
customised service offering and view integrated logistics as an important
service offering.
2.3.4 A futuristic perspective to supply chain relationships
A futuristic approach incorporates designing mutually beneficial projects
requiring collaboration and greater benefits to both supply chain partners.
Constant focus remains on future challenges and opportunities and the
construction of collaborative plans to exploit opportunities thus creating a
distinct competitive advantage.
Experience, collaboration and trust built over many years will prove to be
highly valuable in the dynamic environment in which supply chains compete.
Toor (2009) says that valuable partnerships are the groundwork for success
and these partnerships enable organisations to focus on continuous
improvement. Toor (2009) states that, by partnering with others, resources
and capabilities can be optimally utilised on pertinent projects. This enables
partners to prosper by enabling them to focus on their core business and the
development of continuous improvement.
In today’s dynamic environment, the keys to success are creativity and
innovation. Toor (2009: 57) indicates that ‘strategic alliances enable business
to gain competitive advantage through access to a partner’s resources,
including markets, technologies, capital and people’. Stewart, Wu and Hartley

33
(2010) suggest that entrepreneurial abilities can enhance service provider
performance and improve the relationship between the partnering
organisations.
Lukassen and Wallenburg (2010) are of the opinion that strategic alliances
and outsourcing have increased in scope and complexity and that the
challenge remains in compiling contracts or SLAs that encapsulate
performance expectations and continuous improvement. At the moment,
contracts between partnering organisations fail to include these features and
include ambiguous incentives for the organisations in the partnerships.
In world-class supply chain organisations, metrics must contribute to the
achievement of continuous improvement objectives. Al-jawazneh and Ali
Smadi (2011) state that, due to globalisation, organisations have been forced
to improve their levels of competitiveness and adapt to constant change which
is paramount to their survival. Continuous Improvement (CI) ‘is a term that
broadly describes a management philosophy that emphasizes among other
things, the importance of all employees continually seeking out and
eliminating sources of process imperfection’ (Al-jawazneh & Ali Smadi, 2011:
234). Organisations wishing to adopt a CI culture need to focus on process
optimisation and the elimination of non-value adding activities (Al-jawazneh &
Ali Smadi, 2011). In creating a CI culture, reinforcement is required in the form
of organisational structure and processes that assist in learning and
reinforcing new behaviours (Al-jawazneh & Ali Smadi, 2011).
In summary, in establishing the current status of business relationships, it is
important to become aware of the environment in which organisations will
operate in the future. Collaboration between supply chain partners will
become paramount in creating mutually beneficial endeavours. Operating in a
dynamic environment, additional focus must be placed on exploiting
opportunities and creating valuable partnerships centred on creativity and
innovation.

34
2.4 Cultural factors to consider within the context of
converging planning, execution and measurement
2.4.1 The effects of organisational culture on supply chain partners
Intense competition and a dynamic global market have resulted in companies
recognising the importance of supplier relationships in creating competitive
advantage, enabling survival and motivating growth (Cadden et al, 2010).
Cadden et al (2010) mention that an incompatible organisational culture
between partners in a strategic relationship is a major barrier to the
achievement of the desired performance outcomes of the partners.
Differences in values and principles between the partners can lead to adverse
outcomes of the strategic relationship.
Organisational culture is often overlooked when partners enter into a strategic
relationship. This is mostly because partners place a high priority on strategic
fit and alignment and do not necessarily focus on the compatibility of their
respective cultures. What most organisations do not realise is that
organisational culture determines how the strategic objectives of the
relationship will be achieved. For instance, an organisation with a lean and
high performance culture is likely to push for results and may be unsettled by
a partner whose organisational culture is characterised by bureaucracy and
long approvals schedules.
Cadden et al (2010: 43) define cultural fit as
shared values, beliefs and behaviour patterns which permeate within
and between each supply chain partner organisation resulting in
mutually desired performance outcomes.
The authors argue that culture has an impact on performance outcome
because it changes management’s viewpoint on financial indicators as a
single measure of performance. Lack of strategic focus and of short term
objectives are regarded as shortcomings of financial planning and cost
control. They were considered to be encouraging in weak and inappropriate
strategies and behaviour. However, the dynamics of markets and

35
organisations and the development of information technology have impacted
the traditional performance measurement structures. This has led to the
development of performance measurement models that take into account
multiple stakeholders. The Supply Chain Operations Reference Model
(SCOR) is an example of such a model.
Cadden et al (2010) also argue that the use of performance management as a
stick instead of shared common behaviour amongst supply chain partners is
the reason why strategic supply chain relationships fail to deliver the expected
performance outcomes. Supply chain partners should ensure that an
organisational culture is created that focuses on the behaviours involved in
achieving performance as opposed to the mere outcomes and performance.
In general, the culture should be free of blame, fear and sanctions by
management on the failure of attaining objectives. Continuous performance
improvement will therefore be encouraged by a strong ‘fearless’ culture
amongst the supply chain partners characterised by shared values, beliefs
and norms.
2.4.2 Strategic Supply Chain Relations Organisational Culture and
Performance Model
The following model was developed in the study of Cadden et al (2010) on the
influence of organisational culture on strategic supply chain relationship
performance outcomes. The model consists of eight propositions, as shown in
figure 2.4. The model refers to practices as periodical interactions between
supply chain partners through open communication channels. Relationships
are led by trust between supply chain partners and facilitate collaborative
continuous improvement initiatives to the benefit of both partners. Values form
the basis of strategic supply chain relationships and facilitate the sustainability
of the relationship. Values distinguish an organisation from other
organisations. Strategic supply chain partners must strive to seek and share
common values. As they result in high levels of performance for both
partnering organisations, the sharing of relevant, accurate and timely
information strengthen efforts to attain agreed upon strategic objectives.

36
Supply chain partners therefore view each other as an extension of their
business operations (Cadden et al, 2010).
The shared values influences and facilitates the formation of norms between
strategic supply chain partners. Shared values such as trust and cooperation
develop norms in the form of integrity and openness between both partners.
Norms such as regular social interactions between both partners influence
high level cooperation between strategic supply chain partners. Shared norms
between supply chain partners influence certain behaviours. The shared
behaviour between both partners is mostly manifested through stories and
heroes in both organisations. Common behaviour enhances efforts of
flexibility and responsiveness. In efforts to attain the traditional financial and
operational targets, supply chain performance must extend to encompass
employee satisfaction and employee commitment (Cadden et al, 2010). This
is because employees operationalise the strategic supply chain relationship
and therefore their commitment and satisfaction plays a significant role in
attaining the strategic objectives of the strategic supply chain relationship.

37
Figure 2.4: Strategic Supply Chain Relationship Organisational Culture and Performance
Model (SCOCAP)
Source: Adapted from Cadden, Humphreys and McHugh (2010)
Supply chain partners attempt to create cultural shifts in the form of
establishing trust between supply chain partners and moving from an arm’s
length transaction relationship to a more collaborative relationship
(Braunscheidel, Suresh & Boisnier, 2010: 886). The previously mentioned
authors, Braunscheidel et al (2010) define organisational culture as ‘a set of
shared assumptions and understandings about organisational functioning’.
Others define organisational culture as values and beliefs shared by all in an
organisation, which are mostly driven by senior management.
Four types of corporate cultures have been identified by Braunscheidel et al
(2010):
1 Practices supporting SCOCAP
Examples:
Extensive collaboration and
commitment, multi directional
organisational communication and
information sharing, and trust and co-
operation between partnering
organisations
2 Shared values supporting
SCOCAP
Examples:
Inter and intra organisational
communication and information
sharing between partners
3 Basic norms for SCOCAP
Examples:
Multi-directional communications of
strategic alliance information, and
early involvement between partners on
design issues
4 Behavious and assumptions for
SCOCAP
Examples:
Generation and dissemination of
important strategic relationship
information
SUPPLY CHAIN PERFORMANCE
Financial
Human
Operational
P1 P4
P7
P5/P8
P2
P3
P2b
P2a

38
 The clan culture – with its orientation on internal functioning of an
organisation and concerned with cohesion and morale being its means
and human resource development
 The adhocracy culture – with its orientation on external functioning of
an organisation. Readiness in growing and acquiring resources and
flexibly are the primary objectives
 The market culture – has also an external focus on stability and control.
It utilises planning and goal setting and aims to achieve productivity
and efficiency
 The hierarchy culture – has its focus on the internal functioning of an
organisation and utilises effective information management and
communication in efforts to achieve stability and control.
Braunscheidel, et al (2010) state that organisations with market and
adhocracy cultures will put effort into integrating with key customers and key
suppliers to attain a competitive advantage while the clan and hierarchal
cultures are concerned with teamwork and internal coordination.
In summary, an incompatible culture between supply chain partners will result
in a negative impact on performance. Once cultural fit is obtained between
supply chain partners, the full benefits of integrating planning and execution
can be realised. The focus between partners must be on the behaviours
associated with performance achievement and not the mere performance
outcome. Cultural fit can therefore be regarded as a recommendation for
business sustainability and strategic alignment between IMPERIAL Logistics
and strategic partnering organisations.
In attempts to attain cultural fit between supply chain partners, it may become
necessary to undertake a change management process.
2.4.3 The usage of change management between supply chain partners
Globalisation and increasingly empowered consumers have led to many
organisations being more volatile and consumers becoming more demanding

39
(Barrat, 2004). This means that organisations’ supply chains have to be
cohesive and more responsive. The needs of the end customer are the
priority of the entire supply chain and all concerted efforts and activities
should be directed at providing world-class customer value. These
developments are some of the reasons organisations are continuously
outsourcing certain business functions in efforts to provide superior customer
service and create a competitive advantage. Until recently, it has not been
recognised that change management can play a significant role in the
implementation of an outsourcing relationship. This is because change
management facilitates the smooth transition of a function that was previously
performed in-house to an outsourced partner, and can assist in aligning
culture and strategies between supply chain partners.
The success of change management strategy is dependent on managers
within the organisations because managers are in the best position to be the
drivers of change. It must be noted that culture and power are at the centre of
change in organisations (Thompson & Martin, 2010). Different cultures and
power struggles can affect the change process severely, if not well managed.
Poor communication on the part of management could also lead to adverse
outcomes. It is worth mentioning that change in itself presents risks and
uncertainties (Diefenbach, 2007). For instance, when the change involves the
outsourcing of a business function, there is a business risk of selecting an
incompatible service provider and/or a service provider with poor service
and/or high costs. Uncertainty may be represented by the service providers’
inability to sustain a long-term relationship. For staff members it may be
uncertainty regarding security of employment.
Saka (2003) refers to conflicting interests, resistance and frustration as
barriers to change in an organisation. Saka (2003) further defines change
management as ‘the management of processes though liberal exchange of
knowledge, building of trust and acknowledgement of the heterogeneity in
values, preferences and interest’.

40
The successful implementation of change management is dependent on
those who are in charge of implementing the change, in most circumstances,
this is management. Management must therefore bridge the gap between
itself and the workers by clearly communicating objectives of the change
being initiated and the likely effect on operations and personnel. Saka (2003)
mentions that resistance to change can be reduced through open, reliable
communication, formation of trust and participation in joint activities that
enhance the value of organisational learning at all hierarchical levels.
It is therefore crucial that the organisation ensures that engagements are
carried out continuously with all relevant and affected parties when
outsourcing a business function. The intention of outsourcing must be made
clear and must encourage joint participation in the process in order to benefit
from experienced personnel and to instil a culture of participative learning.
Personnel are then likely to feel valued and that their contribution is
meaningful. This is important for management as personnel at lower levels
are in charge of the day-to-day functioning of the activity and/or service being
considered for outsourcing.
Collaborative planning, execution and performance measurement can be
successful between an organisation and its strategic supply partner as a
result of a well-managed change management encompassing culture of
understanding.
In summary, in realising the full value of converging planning and execution, a
change management process should be initiated between supply chain
partners. Change management can provide much value once the decision is
made to outsource a certain function by facilitating a smooth handover of
activities and creating alignment of organisational cultures. A change
management process is therefore a recommendation in obtaining business
sustainability and strategic alignment between IMPERIAL Logistics and
strategic partnering organisations.

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