Customer-specific adaptation byproviders and their perceptionof 3PL-relationship success

Rudolf O. Large, Nikolai Kramer and Rahel Katharina HartmannDepartment of Business Logistics, University of Stuttgart, Stuttgart, Germany

Abstract

Purpose – The purpose of this paper is to investigate whether there is an impact, from a provider’sperspective, of customer-specific adaptations by third-party logistics (3PL) providers on the success of3PL-relationships.

Design/methodology/approach – A document analysis is presented and hypotheses are developedbased on research in 3PL, relationship marketing and transaction cost theory. Structural equationmodelling and causal analysis with partial least square were used to test the hypotheses.

Findings – This study provides evidence that customer-specific adaptation by providers is animportant prerequisite to 3PL-performance. Furthermore, according to the transaction cost theory, theresults express the importance of providers’ adaptation to maintain 3PL-relationships.

Research limitations/implications – Further research should compare customers’ perceptions ofpartner-specific adaptations and 3PL-relationship success with the results of this study.

Originality/value – The paper shows that 3PL-providers should adapt their systems and proceduresto customers’ specific requirements, to ensure high-relationship performance. Satisfied customersshould promote the providers’ adaptations, because these adaptations enhance the probability ofcontract renewal and reduce the risk of providers’ unexpected termination of the contract.

KeywordsLogistics management, Supply chain management, Adaptability, Third-party logistics (3PL),Customer-specific adaptations, Relationship performance, Satisfaction, Loyalty

Paper type Research paper

IntroductionLogistics service providers have encountered growing competitive pressuresthroughout the last decade (Persson and Virum, 2001; Yeung et al., 2006). Especially,in recent years the traditional transportation market has faced a dramatic slowdown(Klaus et al., 2009), marked by stagnating or shrinking volumes. This has led toovercapacity, and low margins in turn increasing problems with returns and financing(Klaus et al., 2009). Within this challenging environment logistics service providers tendto additionally suffer from a high degree of replaceability as their traditional servicesare simple and not customized. Therefore, logistics service providers need to focus on astrategic reorientation towards differentiation and encourage service innovation inorder to reach a higher degree of customer orientation and offer more complex andcustomer-specific services (Panayides, 2004; Ellinger et al., 2008). Transforming into athird-party logistics (3PL) service provider that offers a bundle of customized logisticsservices (Rabinovich et al., 1999; Maltz and Ellram, 2000) provides opportunities to entera growing market with higher margins, than obtainable in the traditional transportationmarket (Lai, 2004; Klaus et al., 2009).

In comparison to traditional transport and warehousing services, 3PL “are morecomplex, encompass a broader number of functions, and are characterized by longer-term,

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International Journal of PhysicalDistribution & Logistics ManagementVol. 41 No. 9, 2011pp. 822-838q Emerald Group Publishing Limited0960-0035DOI 10.1108/09600031111175807

more mutually beneficial relationships” (Africk and Calkins, 1994). Hertz andAlfredsson (2003) emphasize the importance of the ability to solve problems and theability to undergo customer adaptations. Both characteristics are used to differentiatebetween 3PL-providers and traditional logistics firms. Furthermore, Hertz and Alfredssondevelop a typology of 3PL-providers based on these characteristics. These businessmodels of 3PL are essentially based on the creation of customer-specific services andhence on adaptations by providers. Such a creation of specificity in logistical servicesleads to a deeper integration and decreases the providers’ replaceability.

While there are various characteristics of 3PL-service providers, Hertz andAlfredsson (2003) point to specific adaptation as a key capability. Specific adaptationsto customers’ systems and procedures as well as extensive monitoring and reportingresponsibilities are natural in 3PL-relationships. 3PL contracts can include detailedstipulations concerning a provider’s responsibilities (van Hoek, 2000) and many3PL-providers complain about one-sided adaptation to customers’ systems andprocedures (Lieb and Bentz, 2005). For example, the customer insists on a specificlocation, demands specific procedures, expects the usage of their equipment or requiresthe provider to report a specific set of key performance indicators. Following thesecircumstances the research question of this paper emerges as follows:

RQ1. Is there any influence of 3PL-providers’ customer-specific adaptations on theirperception of the success of a specific business relationship and if indicated,how strong is this relationship?

Analysis draws upon literature on 3PL, transaction cost theory and relationshipmarketing to deduce constructs covering the wide-ranging concept of relationship successand to analyze the role of customer-specific adaptations in the 3PL-service industry.In addition, studies of tender documents have been conducted to identify the requireddegree of customer-specific adaptations. Both sources – literature and documents – wereused to create a set of hypotheses, because hypotheses tend to be more stable and reliabledue to their consideration of different categories of sources (Ellram, 1996). A sample of3PL-providers was drawn to collect data on relationship success and customer-specificadaptations. Structural equation modelling (SEM) was applied to test the hypotheses.

LiteratureThe following literature studies focus on 3PL, transaction cost theory and relationshipmarketing. In general, there is a lack of theoretical foundations in research of 3PL(Selviaridis and Spring, 2007). Most of the previous studies have focused on outsourcingand have, therefore, taken customers’ perspective on 3PL-relationships (Lieb andKendrick, 2002). Relationship marketing was chosen, because general insights intothe nature of supplier-customer relationships can be transferred to the topic of 3PL-relationships. Transaction cost theory deals with the effects of specific investments onthe efficiency of business transactions. Therefore, a better understanding of the impactof adaptations on provider-specific assets can be expected. As a prerequisite, thedefinition of what constitutes success in 3PL-relationships should be discussed in detail.

Providers’ perception of 3PL-successIn general, success could be understood as the degree of goal accomplishment in3PL-relationships. As accepted in marketing science, success is conceptualized

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in a broader sense covering the performance of the relationship as well as thesatisfaction and the loyalty of the business partners (Oliver, 1997). In this research, eachof these constructs is configured from a provider’s point of view. Consequently, thisresearch focuses equally on the relationship performance as perceived by the provideras well as on the provider’s loyalty to and satisfaction with the 3PL-relationship.

Most of the previous research focused on customers’ perceptions of 3PL-performance(Knemeyer and Murphy, 2005). From a customer perspective Knemeyer and Murphy(2004) define 3PL-performance as the “perceived performance improvements that thelogistics outsourcing relationship has provided the user”. Performance improvementsinclude, e.g. reduced logistics costs, reduced cycle times, more efficient handling ofexceptions and improved system responsiveness (Knemeyer and Murphy, 2004;Sinkovics and Roath, 2004). These factors are inadequate to define performance from theproviders’ perspective. At first glance, the logistics service providers’ performancecould be measured in terms of growth in market share, growth in return on investmentand growth in annual sales (Sum and Teo, 1999; Ellinger et al., 2008). On closerexamination, these indicators are also not suitable, for this research paper as it focuseson specific 3PL-relationships and their performance rather than business performanceof a logistics service provider in general. Therefore, a broader measurement of“perceived relationship performance”, covering the overall perception of the providerinstead of general figures of business performance is necessary. Consequently, in thisresearch a reflective four-item scale of Stank et al. (1996) was modified and used tomeasure the outcomes of a specific business relationship as perceived by the provider:

(1) My firms association with this customer has been a highly successful one(PERF1).

(2) This customer leaves a lot to be desired from an overall standpoint (PERF2).

(3) If I have to give this customer an appraisal for the past year, it would beoutstanding (PERF3).

(4) Overall, I would characterize the results of my firm’s relationship with thiscustomer as having exceeded our expectations (PERF4).

Previous literature focuses on customer evaluation of satisfaction with logisticspartnerships (Gibson et al., 2002). Accordingly, Stank et al. (2003) for instance describecustomer satisfaction in 3PL-relationships as a customer’s contentedness with theoverall relationship with their provider. In the context of logistical partnershipsGibson et al. (2002) emphasize the importance of satisfaction of both partners in order togenerate a sustainable relationship. In general, it can be assumed that providers’satisfaction depends on their expectations vs the degree of actual goal achievement.Considering providers’ motivations for entering the 3PL-market, higher margins andcustomer retention rates are assumed to be important factors influencing providersatisfaction. Hofmann (2009) points to the importance of efficient operational processesand punctual payments for providers to be satisfied. Additional factors indicatingprovider satisfaction with 3PL-relationship can be considered. Gibson et al. (2002) forexample prove that the level of trust, the total cost, and the flexibility of shipper-carrierpartnerships are important indicators that characterize the degree of providersatisfaction. Therefore, to operationalize provider satisfaction, a formative scale thatcovers the totality of these indicators could be applied. In contrast, provider satisfaction

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much like customer satisfaction is a latent variable or in other words an intrinsicconstruct. It was concluded that direct measurement with formative scales is notappropriate and hence a modified combination of proven reflective satisfaction scales,common in relationship marketing and logistics was employed in this research (Cannonand Perreault, 1999; Daugherty et al., 1998):

. Our firm regrets the decision to do business with this customer (SAT1, reverse).

. Overall, we are very satisfied with this customer (SAT2).

. We are very pleased with this customer’s compensation (SAT3).

. Our firm is not completely happy with this customer (SAT4, reverse).

. If we had to do it all over again, we would still work for this customer (SAT5).

. We are delighted with our overall business relationship with them (SAT6).

. We wish more of our customers were like this one (SAT7).

. It is a pleasure to deal with this customer (SAT8).

. There is always one problem or another with this customer (SAT9, reverse).

Loyalty is a valuable concept reflecting the long-term success of a relationship(Daugherty et al., 1998). Since customer loyalty is one of the central constructs inconsumer marketing, there are countless approaches to loyalty operationalization(Bandyopadhyay and Martell, 2007). Oliver (1997, p. 392) defines customer loyalty as:

[. . .] a deeply held commitment to rebuy or repatronize a preferred product or serviceconsistently in the future, despite situational influences and marketing efforts having thepotential to cause switching behavior.

In the 3PL-industry, customer loyalty stands for the commitment of the customer tomaintain the relationship and if necessary to renew the contract. In a broader senseloyalty points out the mutual relatedness between the provider and the customer.Therefore, loyalty reflects the commitment of both partners. Consequently, provider’sloyalty covers the commitment of the provider to continue and support the businessrelationship to the customer. Along the lines of common loyalty scales in the logisticsbusiness (Daugherty et al., 1998; partly based on Morgan and Hunt, 1994) an adaptedreflective scale of providers’ loyalty was built for this research:

. The relationship that my firm has with this customer is something we are verycommitted to (LOY1).

. The relationship that my firm has with this one is something we intend tomaintain indefinitely (LOY2).

. The relationship that my firm has with this customer deserves our maximumeffort to maintain (LOY3).

. Maintaining a long-term relationship with this customer is very important to myfirm (LOY4).

Customer-specific adaptations by the providerAs shown above, 3PL consist of recurrent, complex services based on a long-termcontract between a provider and a customer. For such settings, the transaction cost theorypredicts the existence of specific investments by the provider (Williamson, 1979, 2008).

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The transaction cost theory highlights specific investments as a decisive factor on thelevel of transaction costs and the business relationship contract. Therefore, transactioncost theory is of vital importance to gain a better understanding of 3PL-relationships(Maloni and Carter, 2006). Asset specificity indicates “a specialized investment thatcannot be redeployed to alternative uses or by alternative users except at a loss ofproductive value” (Williamson, 1996, p. 377). Transaction-specific assets invested by theprovider enable the usage of efficient processes and procedures to generate third-partyservices (Williamson, 1996). Furthermore, asset specificity is a precondition to meet thespecific requirements of the customer and to efficiently support recurrent transactions(Williamson, 1984, 1985). Williamson distinguishes at least four important types of assetspecificity: site specificity, physical asset specificity, human asset specificity anddedicated asset specificity (Williamson, 1984, 1991).

Following Williamson (1985) 3PL contracts can be characterized by a recurrentfrequency and a high level of asset specificity. Table I displays the relationship amongfrequency of exchange, asset specificity and logistics contract characteristics. Detailedand long-term agreements (hybrid contracting) like third-party contracts are necessaryto safeguard these specific investments and to reduce the risk of opportunism(Williamson, 2008). Additionally, if the frequency of service transactions is low it isdifficult to recoup investments made in the 3PL-relationship. Therefore, 3PL contractsare not appropriate for transactions with an occasional frequency. van Hoek (2000)proved that customer-specific 3PL arrangements including services such as finalassembly, display building or special warehousing activities are positively related to theexistence of detailed contracts. In conclusion, transaction cost theory predicts intensiveinvestments by 3PL-providers as a prerequisite to meet the customer’s requirements andto realize high-relationship performance.

Generally, relationship marketing has emphasized the importance of behavioraladaptations by sellers to customers’ systems and procedures. Cannon and Perreault(1999) developed a typology of customer-supplier relationships from a variety ofcharacteristics which can be regarded as “relationship connectors”. These relationshipconnectors are: information exchange, operational linkages, legal bonds, cooperativenorms, adaptations by sellers, and adaptations by buyers. Based on relationshipmarketing, partner-specific adaptations can be regarded as important characteristics ofclose relationships. Two types of relationships with extensive adaptations were detectedby Canon and Perreault (1999). The first one is the “customer is king” type whichinvolves intensive adaptations only by the seller. The second type of relationship is“mutually adaptive” which requires adaptations by both the seller and the supplier.

Ellinger et al. (2008) generally emphasize the importance of customer orientation oflogistics service provider. The business model of 3PL is essentially based on thecreation of customer-specific services and hence on adaptations by the provider.

Asset specificityFrequency No Medium High

Occasional Contract of carriage Forwarding contract Forwarding contract/contract ofemployment

Recurrent Contract of carriage/warehousing contract

Forwarding contract/cooperation agreement

Third-party logistics contract/contract of employment

Table I.Asset specificity andlogistics contractcharacteristics

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Specific adaptations to the systems and procedures of the customer as well asextensive monitoring and reporting responsibilities are natural. 3PL contracts caninclude detailed stipulations concerning a provider’s responsibilities (van Hoek, 2000)and many 3PL-providers complain about one-sided adaptations to customer’s systemsand procedures (Lieb and Bentz, 2005). In many cases, the customer insists on a specificlocation, demands specific procedures, expects the usage of his equipment or requiresperiodical reports of specific key performance indicators. Consequently, Hertz andAlfredsson (2003) emphasize the ability of customer adaptations as a crucialcharacteristic of 3PL-providers.

In summary, the construct of providers’ adaptations covers both the investments inspecific assets and the behavioral adaptations by the provider. Therefore, a reflectivescale covering both issues was used to measure the degree of providers’ adaptations.This scale is adapted based on items used by Knemeyer and Murphy (2004) andSharland (1997):

. We have gone out of our way to link us with the customer’s business (PSPEZ1).

. We have tailored our services and procedures to meet the specific needs of thiscustomer (PSPEZ2).

. We would find it difficult to recoup our investments in this customer if therelationship were to end (PSPEZ3).

. We made considerable investments in tools and equipment in our relationshipwith this customer (PSPEZ4).

. Gearing up to deal with the customer required highly specialized tools andequipment (PSPEZ5).

Documents studyOrganizational documents are a source of insights into organizational relationshipsand are an expression of the interactions in terms of problems and behaviors betweendifferent parties (Forster, 1995). Especially since documents as written texts are capable,in a very truthful manner to reveal the reality of business activity (Hodder, 2000). Theapplication of a qualitative research method allowed for a beneficial combination withthe subsequent use of a quantitative approach, from which a broader perspective onthe research phenomena emerged (Frankel et al., 2005). However, analyzing documentsleads to issues with interpretation and subjectiveness (Forster, 1995; Hodder, 2000).

Document studies of tender documents have been conducted to evaluatethe required degree of customer-specific adaptations in the 3PL-business. Altogether15 tender documents (requests for quotation) have been analyzed. Two major European3PL-companies made these documents available to the author. The subject of eightdocuments is customer-specific distribution and warehousing. Seven documents arerequests for physical supply and logistics in manufacturing, e.g. sequencing activitiesand materials handling. Most of the customers belong to the automotive industry.

Typically, a request for quotation consists of a main text of more than 50 pages thatdescribes the basic conditions and the specific customer requirements. Additionally,most of the requests include an extensive appendix. Examples are warehouse layouts,annual demand figures and performance indicators of the existing equipment. Eachdocument describes an individual case and has individual structure and style.

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In accordance, the qualitative method of explorative document analysis was applied(Frankel et al., 2005; Spens and Kovacs, 2006).

The analysis focused on the content of the described documents.Adopting qualitative content analysis as a research method (Ryan and Bernard,2000), the available documents were analyzed systematically and theory-guided andprocessed with the required openness of the researcher (Marasco, 2008; Kohlbacher,2006). The systematic frame of this document study was based on the findings obtainedby discussing transaction cost theory, 3PL-literature and relationship marketing. Indetail, this systematic frame consists of four content categories, as follows: requiredspecificity (site specificity, physical asset specificity, and human asset specificity), theintended procedure of performance evaluation, the expected behavioral adaptation bythe provider and the willingness of the customer to adapt to the provider.

Analyzing the documents, the considerable amount of (required) site specificityis striking. Most customers insist on a specific location or at least stipulate thatthe warehouse must be located in proximity of their own manufacturing facilities.Most customers expect specific investments by the provider such as warehouses,warehousing equipment or computer systems. This highlights that physical assetspecificity is a frequent characteristic of 3PL-relationships. For outsourced tasks, theprovider is typically requested to use the customer’s existing assets. Likewise, humanasset specificity is a recurring requirement throughout. Typically, there is a need foradditional personnel at the desired location, or at least a need for training in order to meetthe specific requirements of the customer. As expected, most customers place specificdemands on the service provider concerning performance measurement and reporting.The vast majority of the documents illustrate the amount one-sided adaptations bythe 3PL-provider.

HypothesesProvider capability of customer adaptation is a crucial characteristic of 3PL-business(Hertz and Alfredsson, 2003) and thus a requirement of 3PL-business relationships.Customers of 3PL firms expect tailored logistical solutions (Sink et al., 1996).The document study shows that specific adaptations by the provider to the customer’ssystems and procedures seem to be a matter of course. A provider’s capability andwillingness to adapt are also prerequisites to transaction-specific investments made bythat provider. Following transaction cost theory, specific assets improve theperformance of 3PL-relationships, because specific assets enhance the productivity oflogistical activities in comparison to general purpose technology (Williamson, 1996,2008). Consequently, 3PL-providers should understand and recognize the necessity ofspecific adaptations to the customer. These ideas suggest the following hypothesis:

H1. The provider’s perception of 3PL-relationship performance is positivelyinfluenced by the degree of their own specific adaptations.

Transaction cost theory indicates that intensive investments can be construedas means to stabilize business relationships, because “transaction-specific assets can beredeployed to alternative uses and users only at a loss of productive value” (Williamson,2008, p. 8). Providers expect ongoing relationships and a continuous use of their specificinvestments. The higher the degree of specific investments and adaptations the higherare the switching costs and the degree of the provider’s loyalty towards the relationship.

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Asset specificity contributes to the commitment of both parties, resulting in a trustfulrelationship between the partners. Kwon and Suh (2004) proved that supply chainpartners’ investments increase the level of trust between the partners, because theseinvestments are perceived as a signal of commitment. Therefore, the effect of providers’adaptations on the degree of loyalty is assumed as being positive:

H2. The provider’s loyalty is positively influenced by their own specificadaptations.

The positive relationship between performance and customer satisfaction is a widelyrecognized phenomenon in consumer marketing as well as in business-to-businessrelationships (Patterson et al., 1997; Homburg et al., 2002). Similarly, the satisfaction ofthe provider with the business relationship is essential too. A significant level ofprovider satisfaction is a prerequisite to facilitating an enduring effort to provideoutstanding logistical service by the provider. On the other hand, satisfaction is theresult of an ongoing evaluation of the perceived outcome of the 3PL-relationship.Consequently, it can be suggested that a high level of perceived performance exertsa positive influence on the degree of customer satisfaction as well as on the degree ofprovider satisfaction. For that reason a positive relationship between the perceivedperformance and the satisfaction of the provider is assumed:

H3. The provider’s satisfaction is positively influenced by the perceivedrelationship performance.

In a broad sense loyalty indicates the reciprocal relatedness between the customer andthe provider in a 3PL-relationship. Relationship commitment is fundamental to theconcept of loyalty (Daugherty et al., 1998). Provider loyalty therefore stands for thecommitment of the provider to support the ongoing 3PL-relationship. In marketingresearch customer satisfaction is recognized as a main influence on customer loyalty(Luo and Homburg, 2007; Seiders et al., 2005). In a figurative sense a high level ofprovider satisfaction is an important precondition of the willingness to maintain andcontinue the relationship by the provider. This analogy suggests the followinghypothesis:

H4. The provider’s loyalty is positively influenced by the provider’s perceivedsatisfaction.

The influence of specific investments and adaptations on the satisfaction of partners inbusiness relationships is assumed to be contradictory. On one side, 3PL-relationshipsbased on specific investments and adaptations by the provider meet customers’ specialrequirements efficiently. Specific adaptations are thus at the core of the business anda crucial element of 3PL-relationships from the provider’s point of view. Therefore,an indirect positive influence of the degree of adaptations on providers’ satisfactionmediated by the level of performance is reasonable (H1 and H3). In contrast, many3PL-providers complain about one-sided adaptations to customers’ systems andprocedures (Lieb and Bentz, 2005). The providers associate a higher degree ofcustomer-specific adaptations with additional costs and a growing dependence on theircustomers. Consequently, they feel uncomfortable with a high degree of own adaptationsin addition to a substantial amount of asset specificity. To cover this phenomenon

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the suggested model includes a direct negative influence of adaptations on providers’satisfaction. This leads to the last hypothesis:

H5. A provider’s satisfaction with the 3PL-relationship is negatively influencedby his own specific adaptations.

MethodologySEM with partial least squareThe five hypotheses derived in the previous section indicate a closely connected set ofrelationships between the theoretical constructs that form this research. The employedconstructs are not directly observable or measurable. To account for each theoreticalconstruct it is necessary to define the reflective multi-item scales involved (Hair et al.,2009). To meet these two requirements, the model is constructed using SEM. TheSEM approach combines a path model (relationship among the construct) and ameasurement model (set of items for each construct) (Gimenez et al., 2005; Hair et al.,2009). Figure 1 shows the structure of the path model.

SmartPLS (Ringle et al., 2005) was executed for the analysis of the path model shownin Figure 1. This SEM software package is an application of the partial least square(PLS) method (Chin, 1998; Tenenhaus et al., 2005). In comparison to covariance-basedprocedures the PLS algorithm is advantageous if the model is complex and the samplesize is small (Chin, 1998). Covariance-based SEM procedures such as LISREL or AMOSperform a simultaneous estimation of the totality of the model parameters. Therefore,these procedures require very large samples, especially if the models are complex.According to the recommendations of Bentler and Chou (1987) LISREL or AMOS wouldneed more than 175 cases to analyze the path model shown in Figure 1. In contrast, thePLS estimation is based on a set of distinct multiple regressions. Following therecommendations of Chin and Newsted (1999) the sample size in PLS estimation shouldbe at least ten times either the largest number of formative indicators or the largestnumber of independent variables influencing a dependent variable of the structuralmodel. In this research, the measurement model consists of reflective indicatorsexclusively. It follows that only the second criterion is relevant. The dependent variables

Figure 1.Hypothesized path model

Performance ofthe

Relationship

Adaptationsby the

Provider

Provider’sSatisfaction

Provider’sLoyalty

+H1

+H2

+H3

+H4

–H5

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with the largest number of predictor variables are “loyalty” and “provider satisfaction”.This adds up to two, thus requiring the number of usable cases to be at least 20 as per therecommendation by Chin and Newsted (1999). Accordingly, the sample meets thesample size requirements of PLS. The applied PLS approach is also more suitable forexplorative studies where the level of theoretical knowledge and scale development israther low (Chin, 1998) making PLS the best-fitting and most appropriate approach toanalyzing the data of this study.

Sampling and data collectionTo examine the five hypotheses a two-part questionnaire was designed. The first partof the questionnaire consists of general questions about 3PL. The second part refers toa specific 3PL-relationship of the company. Reflective multi-item scales (Stank et al.,1996; Daugherty et al., 1998; Knemeyer and Murphy, 2004; Sharland, 1997) wereadopted to measure the four constructs involved in this research.

The questionnaire was sent by e-mail to 129 chief executives or sales managersof 3PL-companies. The sample was drawn from a mailing list of the university.Additionally, the logistics newsletter of the German Association of Purchasing andLogistics (BME) was used to enlist additional participants. Altogether 45 responses wereavailable for statistical analysis. In total, 42 of the providers have already established atleast one third-party relationship. Based on the number of questionnaires distributed theresponse rate is 27.9 percent.

Measurement assessmentAn important prerequisite of SEM is an accurate scale purification for each constructindividually. This is particularly important in the case of new or adapted scales. In thisstudy, the path model consists of four latent variables. Thus, a reflective measurementmodel was chosen. The questionnaire includes 22 indicators. SPSS was used in the firstinstance to perform reliability analysis and explorative factor analysis. The evaluationwas undertaken using the criteria provided by Hair et al. (2009). Some items weredropped because of low loadings or insufficient reliability of the scale (PERF4, LOY3,SAT1, SAT5, SAT9, PSPEZ2 and PSPEZ3). After scale purification, measurementassessment showed satisfactory results. Only one loading (PSPEZ1) was still slightlybelow the benchmark value of 0.7. Since this item represents an important facet ofbehavioral adaptation it was not excluded. In total, the calculations showed sufficientdegrees of reliability and validity (Table II).

Finally, SmartPLS was used to evaluate the scales of the model. Common criteria toevaluate reflective measures of PLS path models are the average variance extracted,the composite reliability and the communality (Stone-Geissers Q2) (Chin, 1998). Theresults of these calculations are shown in Table III. Each of the constructs meets therequirements.

The path relationships (standardized regression coefficients) of the hypothesizedmodel were estimated performing SmartPLS 2.0 (Ringle et al., 2005). The bootstrapprocedure (Efron, 1979) was used to obtain t-statistics in order to evaluate thesignificance of the parameters. Each of the estimators is significant at the 5 percentlevel. The results are shown in Table IV and Figure 2.

Each of the hypotheses is supported by the analysis. In support of H1, there isevidence that behavioral adaptations and specific investments by the 3PL-providers

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exert positive influence on the performance of the relationship perceived by the provider.As H2 predicted, the estimation indicates that 3PL-provider’s adaptations also exertpositive influence on the degree of loyalty. H3 and H4 offer positive connections amongrelationship performance, provider satisfaction and loyalty. The data also stronglysupport these hypotheses.

Construct Indicator Cronbach’s a . 0.7 Loading . 0.7Variance

explained . 50%

Performance of the relationship PERF1 0.70 0.860 65.19PERF2 0.760PERF3 0.798

Loyalty LOY1 0.90 0.911 84.60LOY2 0.929LOY4 0.919

Provider’s satisfaction SAT2 0.90 0.778 68.46SAT3 0.776SAT4 0.801SAT6 0.852SAT7 0.910SAT8 0.840

Adaptation by the provider PSPEZ1 0.76 0.635 69.56PSPEZ4 0.891PSPEZ5 0.943

Note: Calculations with SPSS

Table II.Reliability and validity ofthe measurement model

Average varianceextracted .0.6

Compositereliability .0.7

Stone-Geissers Q2

(communality) . 0Cronbach’sa . 0.7

Specific adaptations by theprovider (PSPEZ) 0.69 0.86 0.69 0.77Performance of therelationship (PERF) 0.65 0.85 0.65 0.73Provider’s satisfaction(SAT) 0.68 0.93 0.68 0.90Provider’s loyalty (LOY) 0.85 0.94 0.85 0.91

Note: Calculations with SmartPLSTable III.Evaluation

PLS path coefficient Bootstrap sample mean SE t-value Significance

PSPEZ ! PERF (H1) 0.40 0.42 0.16 2.471 0.013PSPEZ ! LOY (H2) 0.24 0.23 0.10 2.392 0.017PERF ! SAT (H3) 0.91 0.92 0.05 16.746 0.000SAT ! LOY (H4) 0.62 0.63 0.09 6.869 0.000PSPEZ ! SAT (H5) 20.16 20.17 0.08 2.096 0.036

Note: Calculation with SmartPLSTable IV.Parameter estimation

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Since one’s own adaptations are recognized as an additional effort, there is a directnegative influence (20.162) of specific adaptations by the providers on the level ofsatisfaction as predicted (H5). However, there is a positive indirect effect of the specificadaptations by providers on their satisfaction (0.365) mediated by a very strong impactof performance on satisfaction. Altogether, adaptations exert a positive total influenceon the provider’s satisfaction (0.203).

The coefficients of determinations (R 2) for each dependent construct deliver insightsas to whether the independent variables of the model exert substantial influence on thisconstruct (Chin, 1998). The coefficient of determination of the performance of therelationship is rather small (R 2 ¼ 0.160), because there is only one exogenous variable.The R 2 of the two other endogenous constructs show sufficient (LOY: R 2 ¼ 0.494) andhigh values, respectively, (SAT: R 2 ¼ 0.742).

Discussion and implicationsThis study delivers a better understanding of the nature of providers’ specific adaptationsand the influence of these adaptations on the success of 3PL-relationships from a providers’perspective. The findings have some consequences and helpful managerial implications.

The first implication of this study relates to the importance of providers’ specificadaptations to the relationship performance. The impact of specific adaptationsby the provider on the provider’s perception of performance is positive. Sufficientbehavioral adaptations and transaction-specific investments by providers are crucialfor 3PL-performance. As proposed by Hertz and Alfredsson (2003) adaptations bythe service provider are an essential characteristic of the 3PL-business. Therefore,own adaptations are accepted by the provider as a critical element of 3PL-relationships.Regarding the transaction cost theory the results confirm that asset specificity is aprecondition to realize efficient 3PL-relationships. Furthermore, the results show that theamount of this influence is considerable. Consequently, we suggest that 3PL-providers

Figure 2.Results of the

PLS-estimation

Performance ofthe

Relationship

Adaptationsby the

Provider

Provider’sSatisfaction

Provider’sLoyalty

Notes: Significance at: *p < 0.1, **p < 0.05, ***p < 0.01; standardizedregression coefficients

H1: +0.400**

H2: +0.236**

H3: +0.913***

H4: +0.616***

H5: –0.162**

R2 = 0.49

R2 = 0.16

R2 = 0.74

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should adapt their systems and procedures to customers’ specific requirements to ensurehigh-relationship performance.

As suggested in relationship marketing, the results of this research provideadditional evidence that 3PL-providers’ satisfaction is strongly influenced by thedegree of perceived relationship performance. Since one’s own behavioral adaptationsand specific investments are sensed as an effort, there is a direct negative impactof providers’ adaptations on providers’ satisfaction. In other words, an increase inbehavioral adaptation and higher specific investments by providers lower their levelof satisfaction. This effect expresses the provider’s displeasure over adaptations tocustomer’s systems and procedures. However, there is an indirect effect of specificadaptations by providers on their level of satisfaction mediated by the very strongimpact of performance on satisfaction. This positive indirect effect exceeds the directnegative impact leading to the total influence of providers’ adaptations on providers’satisfaction to be positive. This research illuminates and confirms the contradictorystatements concerning the influencing factors on providers’ satisfaction. On one side,providers are dissatisfied with specific adaptations while on the other they are aware ofthe necessity of such adaptations to enhance relationship performance.

As expected by transaction cost theory, there is evidence that the direct effect ofadaptations by 3PL-providers exerts positive influence on the degree of loyalty, becausethis theory construes specific investments as means to stabilize business relationships.This suggests that customers should promote providers’ adaptations. Furthermore, thedegree of loyalty is positively driven by the satisfaction of the provider, because asatisfied logistics service provider, who perceives a relationship as positive, wants tocontinue this business. Besides the positive effects, providers’ adaptations also causea low indirect negative effect on the degree of customer loyalty mediated by its negativeimpact on satisfaction. Nevertheless, the direct influence plus the positive effectmediated by performance and satisfaction outweigh this indirect negative influence.This result expresses the importance of providers’ adaptation to maintain 3PL-relationships. Satisfied customers should promote the providers’ adaptations, becausethese adaptations enhance the probability of contract renewal and reduce the risk ofproviders’ unexpected termination of the contract.

Summing up, this study provides evidence that from a providers’ perspective thecustomer-specific adaptation of 3PL-providers is an important precondition of3PL-relationship success.

Conclusion, limitations and further researchThis study has delivered first ideas concerning the providers’ adaptations and theirimpact on providers’ perspective of relationship success. The research is based on asound theoretical foundation and suitable qualitative and quantitative methods forevaluation were employed.

First, customer-specific adaptations by 3PL-providers have a considerable influenceon the success of 3PL-relationships. This is indicated by the influence of customer-specific adaptations on relationship performance as well as on provider satisfaction andprovider loyalty as the three examined aspects of relationship success. Second, evidenceis provided, illustrating that 3PL-providers are aware of the importance of their ownpartner-specific adaptations and accept these adaptations for the purpose of relationshipsuccess.

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Third, light is shed on the contradictory statements regarding the relationshipbetween the degree of customer-specific adaptations and provider satisfaction.Even though 3PL-service providers associate dissatisfaction with their customer-specific adaptations, ultimately they recognize a positive influence on satisfaction. Thispositive influence is mediated by relationship performance. Finally, 3PL-providers’loyalty is exposed as being positively influenced by the degree of customer-specificadaptations as well as by the level of satisfaction.

Nevertheless, there are some limitations that make further research necessary. First,this research is based on adapted scales. Further evaluation and improvements of thesescales are necessary. A more general problem is the small sample size. The reason forthis small sample size is the comparatively small number of 3PL firms operating inGermany. Although PLS is a suitable method, larger samples would allow for the useof covariance-based methods like AMOS or LISREL. The most important advantage ofAMOS and LISREL is the availability of goodness-of-fit statistics to evaluate the overallquality of a structural equation model. An appropriate approach to solve the problem ofsmall samples could be the broader collection of providers’ data to include providers fromother countries. Above all, the growing market of 3PL-providers, which already plays animportant role for European countries’ economies, should generally be examined moreclosely using quantitative methods basing research on a strong theoretical foundation.

Finally, this research is focused on providers’ perceptions of partner-specificadaptations and 3PL-relationship success. It is feasible to deduce that customers willhave divergent perceptions and points of view. Consequently, further research shouldcompare customers’ perceptions of partner-specific adaptations and 3PL-relationshipsuccess with the results of this study.

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About the authorsRudolf O. Large is a Professor of Business Logistics at the University of Stuttgart and Head of theBusiness Logistics Department. He received his Doctoral degree from the Technical University ofDarmstadt. His research interests include logistics management, third-party logistics, strategicsupply management, human resource management in logistics and research methodology. Hisresearch has been published in three books, in the International Journal of Physical Distribution& Logistics Management, the Journal of Purchasing and Supply Management, the Journal of SupplyChain Management and in various German journals.

Nikolai Kramer is a Research Assistant at the Department of Business Logistics, Universityof Stuttgart. His research is focused on third-party logistics and logistics service buying.

Rahel Katharina Hartmann is a Research Assistant at the Department of Business Logistics,University of Stuttgart. Her research interests are focused on human resource management inlogistics.

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