Key Success Factors,

Performance Metrics,
and Globalization Issues
in the Third-Party Logistics
(3PL) Industry:
A Survey of North
American Service
Providers

Subrata Mitra
Indian Institute of Management Calcutta
subrata@iimcal.ac.in
Prabir K. Bagchi
School of Business,
The George Washington University
bagchi@gwu.edu
This paper reports on a survey of North American third-party logistics (3PL)
service providers. Although current research on 3PL provides valuable
insights into the 3PL industry, it is primarily descriptive in nature and does
not explore the underlying relationships among several factors and key
issues related to the industry. This paper presents an exploratory study of
the North American 3PL industry in terms of the key success factors,
performance metrics, and globalization issues. Respondents to the survey
are categorized based on their ratings of key success factors, and the
differences in perceptions among categories are highlighted. Also, the
factors with respect to which respondents are significantly underperforming
are identified. Importance of the key success factors for various
performance metrics is established through dependency relationships,
which provide a guideline to managers for allocation of scarce resources.
Factors responsible for growing globalization, important issues in
connection with setting up 3PL operations in a foreign country, and growth
strategies adopted by 3PL firms are also analyzed from the point of view of
the respondents. Finally, the contribution to logistics research, implications
of the survey findings for logistics managers, and directions for future
research on 3PL are presented in the concluding section.

Acknowledgments Introduction providers that have a global

Subrata Mitra is grateful to the U.S. Department of State
for providing financial support as a Fulbright Senior
Research Fellow and to the School of Business, The
George Washington University, Washington, DC for
providing academic and infrastructural support for
conducting this research.
Both authors gratefully acknowledge the valuable
comments and suggestions received from
Prof. Philip Wirtz of the School of Business,
The George Washington University,
Prof. Leena Chatterjee of the Indian Institute of
Management Calcutta, anonymous reviewers
of the paper and the Chief Editor
of the Journal that helped us significantly
improve the quality of the paper.
Third-party logistics (3PL) or
logistics outsourcing is growing
around the world as more and
more companies are outsourcing
transportation, warehousing, and
other logistics-related activities. As
companies are becoming more
global in terms of sourcing,
manufacturing, and distribution,
managing supply chains is getting
very complex. 3PL service
presence may help companies
expand geographic reach due to
their familiarity with government
and regulatory structures and
business norms and cultures of
different countries. Companies can
focus on their core competencies
and outsource noncore activities
such as logistics to 3PL service
providers, paving the way to
improved cycle time, delivery
performance, and thereby

Supply Chain Forum An International Journal Vol. 9 - N1 - 2008 42 www.supplychain-forum.com

customer satisfaction. 3PL service
providers enjoy economies of scale
as a result of consolidation of
shipments originating from
different sources, which might have
been difficult for individual
companies to achieve and may
therefore result in a substantial
amount of cost savings. Also, by
outsourcing logistics, companies
can get rid of the related assets and
invest the released capital
elsewhere productively. In addition
to the core logistics services, 3PL
service providers are now offering
a gamut of value-added services
such as customs clearance, freight
forwarding, contract manufacturing,
order processing, packaging and
labeling, distribution, after-sales
support, and reverse logistics,
presenting companies with a one-
stop solution to all their logistical
needs.
The annual logistics cost in the
world is estimated to be $3.5
trillion. For any country, the annual
logistics cost varies between 9%
and 20% of the GDP, the figure for
the United States being about 9%.
The size of the world 3PL market is
about $300 billion, that is, 10% of
the world logistics cost. The U.S.
3PL market is the largest in the
world, capturing about one-third of
the world market. In 2005, it was
worth $103.7 billion (Foster and
Armstrong, 2006). However,
considering the fact that the 3PL
market in the United States is about
10% of its annual logistics cost,
there is still immense potential for
growth of 3PL in the United States
in particular, and in the world in
general.
Besides the professional market
research firms, there is also
considerable interest among
academicians in 3PL research.
During the last decade, many
survey-based papers have been
published in academic journals to
measure 3PL usage in different
countries. Views from both users
and service providers have been
taken into account to identify the
major issues, industry dynamics,
current status, and future
prospects of the 3PL industry.
Although most of these papers
provide extremely valuable insights
Supply Chain Forum An International Journal
into the 3PL industry, they are
primarily descriptive in nature and
do not explore the underlying
relationships among several factors
and key issues. For example, among
a set of factors known as the key
success factors in the 3PL industry,
how they are ranked against each
other or whether the perception of
importance of these factors is
uniform across all the players of
the industry, irrespective of their
sizes and scales of operation, are
some of the questions that remain
unanswered in these studies. Also,
the relationships among the
performance metrics and the key
success factors have not been
explored statistically, leaving the
question open as to which factors
are significant with regard to which
metrics.
The U.S. 3PL market
is the largest in the
world, capturing
about one-third
of the world market.
The same concern may be raised
with respect to globalization.
Questions such as why there is an
increasing trend for globalization of
3PL services or how the factors
specific to a foreign country rank
against each other with respect to
setting up 3PL operations in
that country and whether there
are differences among service
providers in terms of perception of
the importance of these factors
have remained unanswered. This
paper reports an exploratory study
of the North American 3PL industry
from the perspectives of service
providers and tries to address the
described issues through statistical
data analysis. The authors
endeavor to identify significant
underlying relationships among
various factors and issues in the
North American 3PL industry and
put them into the perspective of
the existing literature to further
enrich the knowledge in this
evolving field and help practicing
Vol. 9 - N1 - 2008 43
managers make better informed
decisions in terms of allocation of
scarce resources.
The organization of the paper is as
follows. The literature review is
presented in the next section,
followed by research objectives
and methodology. Thereafter, an
analysis of the survey results is
presented, followed by conclusion
that includes contributions to
research, implications for managers,
and suggested directions for future
research on 3PL.
Literature review
In this section, literature reviews on
surveys of 3PL users and service
providers are presented, followed
by a summary of current industry
dynamics gleaned from the
literature.
Surveys of 3PL users
Literature on 3PL usage in different
countries from the perspectives of
users is abundant. Countries and
regions for which 3PL usage has
been surveyed are North America
(Lieb and Bentz, 2005a; Langley et
al., 2006), North America and
Europe (Lieb et al., 1993), Mexico
(Arroyo et al., 2006), South Africa
(Cilliers and Nagel, 1994), Australia
(Dapiran et al., 1996), Australia and
New Zealand (Mollenkopf and
Dapiran, 2005), Korea (Kim, 1996),
Singapore (Bhatnagar et al., 1999),
India (Sahay and Mohan, 2004),
Saudi Arabia (Sohail and Al-Abdali,
2005), United Arab Emirates (Sohail
et al., 2005), and Turkey (Aktas and
Ulengin, 2005). 3PL usage in North
America is tracked in two annual
surveys (Lieb et al. and Langley et
al.) repeated since 1996: Lieb and
Randall (1996), Lieb and Peluso
(1999), Lieb and Miller (2000), Lieb
and Kendrick (2002), Lieb and
Bentz (2004, 2005a), and Langley
(1996, 1997), Langley et al. (1998,
1999, 2000, 2001, 2002, 2003, 2004,
2005, 2006). Although the former
set of surveys has been published
in academic journals, the latter is
available only in the form of
reports.
In these surveys on 3PL usage,
the logistics managers of
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manufacturing firms are asked to
respond to issues such as reasons
for outsourcing; outsourced
activities and percentage of
outsourcing; allocation of logistics
budgets for outsourcing; impact of
outsourcing on cost, service level,
customer satisfaction, and
employees; experience in
collaboration with 3PL service
providers; expectations; and future
plans. All these surveys indicate
growing needs for outsourcing,
both in terms of the number and
volume of activities outsourced,
higher allocation of logistics
budgets, and longer and deeper
collaboration with 3PL service
providers. As far as the effects of
outsourcing are concerned, most of
the firms have been either positive
or very positive about cost
reduction, improvement of service
levels, and customer satisfaction.
The only negative effect identified
has been the loss of employee
morale probably due to a shift of
power and control and impending
downsizing of the logistical
workforce. 3PL users expect
service providers to broaden their
range of service offerings so that
they may be able to provide one-
stop solutions to all the users'
logistical needs. Also, service
providers are expected to globalize
and support their clients'
operations in foreign countries.
Global companies prefer to deal
with fewer service providers for
convenience.
Surveys of 3PL service
providers
Although literature on the 3PL
industry from the point of view of
users is abundant, literature from
the perspectives of service
providers is relatively scarce.
There is only one set of repeated
annual surveys of North American
3PL service providers (Lieb and
Randall, 1999; Lieb and Kendrick,
2003; Lieb and Bentz, 2005b), and
they have been conducted in
conjunction with the other periodic
surveys of North American 3PL
users mentioned previously to get
viewpoints from both sides on the
state of the industry in North
America. In these surveys, the
CEOs of about top 25 North
Supply Chain Forum An International Journal
American 3PL service providers
were asked to respond to a variety
of issues, including the evolution of
the 3PL industry, the industry's
service offerings, the selling of
third-party services, the current
dynamics, and the future prospects
of the industry. In 2004, the scope
of the survey was extended to
include the European and Asia-
Pacific 3PL markets (Lieb, 2005).
3PL usage is growing very fast in
China and other Southeast Asian
nations due to a shift of
manufacturing base in these
regions and increasing volumes of
imports from these regions to the
developed countries. A survey of
Indian 3PL service providers
(Mitra, 2006) found the logistics
market in India very promising,
currently growing at over 20% per
year. Though the estimated size of
the Indian market is still miniscule
(about $1 billion) compared to the
U.S. logistics market, and the
market is still concentrated (about
20% of the respondents to the
survey accounted for nearly 90% of
the total revenue generated by all
the respondents), there is immense
potential for growth as the Indian
GDP is increasing consistently at
over 9% compared to the world
GDP growth rate of 3% and a lot of
consolidation activities are taking
place as more and more global 3PL
service providers are expanding
their presence in the market
through direct investments,
acquisitions, and alliances. The
main roadblocks identified by the
respondents to the growth of 3PL in
India were the lack of trust and
awareness among Indian
manufacturers and a poor physical
and communications infrastructure.
However, it was also pointed out
that Indian firms are gradually
realizing the benefits of
outsourcing and the government is
taking steps in the right
direction, slowly but steadily,
for development of a strong
infrastructure.
Summary of 3PL industry
dynamics
The previously mentioned surveys
point to a number of issues that
service providers have to address,
such as pricing pressures, high
Vol. 9 - N1 - 2008 44
costs of operations and low returns
on investments, hiring and
retaining talents, pressure from
clients to broaden the range
of service offerings and
internationalize operations,
demand for customized solutions
and more value-added services, in
addition to infrastructural
bottlenecks and government
regulations. Service providers
complain that clients expect them
to have the latest software,
databases, and ERP packages and
invest in new technologies such as
RFID and satellite-based real-time
tracking systems. Clients perceive
that these investments are part of
the basic service package and often
do not want to match the same with
increased payments for these
additional services. Pressure from
clients to broaden the range
of service offerings and
internationalize operations has
forced service providers to look for
suitable alliances, mergers, and
acquisitions that help fill the gaps
in service offerings, industry
verticals, geographic areas served,
and achieve economies of scale and
enhance service providers'
capability to support international
operations. Currently, the world
3PL market is going through a
consolidation phase. Tibbett &
Britten Group of North America
was acquired by Exel PLC in August
2004, and Deutsche Post World Net,
parent company of DHL, took over
Exel in December 2005. Bax Global
was taken over by Deutsche Bahn,
parent company of Schenker, in
November 2005, A. P. Mller
acquired P&O Nedlloyd in February
2006, and TNT Logistics was sold to
Apollo Management L. P. in
November 2006. Recent trends in
the 3PL industry indicate that to be
successful, service providers have
to differentiate themselves from
their competitors in terms of
offering value-added services,
focus on key customer accounts
that have the potential to generate
high profitability for the long term,
enter into suitable alliances to
complement the range of services
offered and geographic areas
served, and sell 3PL services to
clients' suppliers and customers,
thus leading to complete supply
chain integration.
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The literature on 3PL makes a
substantial contribution to the field
of logistics research in terms of
providing an overview of, and
insight into, the industry, its
dynamics, problems, and
prospects, and identifying variables
relevant to the industry. However,
the findings are mainly descriptive
and there has been little effort to
bring out causal relationships
among variables. Hence, though
the surveys are very informative,
the results and findings are not
statistically validated, and any
inference or conclusion drawn that
is based on results not statistically
validated would end up in serious
theoretical incongruity. The
objective of this research is to
bridge this gap by taking off from
the point where these studies end
and exploring relationships among
variables that have already been
identified by the extant literature.
Thus, the inferences and
implications drawn from this study
will be based on statistical
validation and hence theoretically
acceptable by the academic
community. The contribution of the
extant literature to this study
provides relevant industry
variables, enabling this study to
contribute information on
establishing relationships among
these variables to the field of
logistics research and thereby
facilitating informed decision
making by logistics managers. The
research objectives and research
Figure 1
Representation of research questions on the key success factors, globalization,
and growth strategies in 3PL
Supply Chain Forum An International Journal
questions addressed in this study,
in particular, are explained in more
detail in the next section.
Research objectives
Although the literature on 3PL
identifies the important dynamics
of the industry, the previously
mentioned studies do not
adequately explore the underlying
relationships among variables. The
analytical approach in most of the
existing papers is descriptive in
nature, such as averages, rankings,
percentages, and correlations, and
very few papers employ advanced
multivariate data analysis (Maloni
and Carter, 2006). The authors felt
that proper statistical analysis of
survey data building causal
relationships among variables
identified in the extant literature
would be more appropriate to put
into perspective the value of
survey findings, and hence decided
to conduct an exploratory study of
the North American 3PL industry.
The importance of statistical
analysis of survey data has also
been echoed by Ashenbaum et al.
(2005), who have done a meta-
analysis of the data obtained from
the two repeated annual surveys
(Lieb et al. and Langley et al.) of
North American 3PL users to
predict the 3PL usage growth rate
and growth rates of third-party
transportation and warehousing
services, the two most outsourced
logistics activities. Mentzer and
Vol. 9 - N1 - 2008 45
Kahn (1995), too, stressed the
importance of more advanced data
analysis to improve sensitivity to
detect significant findings of
logistics survey research.
The broad objectives of this paper
are twofold: (1) to identify the most
important issues in the North
American 3PL industry and (2)
to explore the underlying
relationships among the significant
variables related to these issues to
help logistics managers make
better informed decisions. In
particular, the following research
questions have been addressed in
this study:
1. (a) What is the relative
importance of the key
success factors as perceived
by senior managers of the
providers of third-party
logistics?
(b) Are there differences in
perceptions of the key
success factors among
senior managers of various
types of 3PL firms?
(c) Are there any gaps between
expectations and
achievements with respect to
the key success factors?
(d) What is the relative
importance of the factors for
globalization of 3PL services?
(e) Which are the successful
growth strategies and what is
their relative importance?
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 Figure 2
Representation of research questions on the dependency relationships between the performance
metrics and key success factors
2. How are the performance metrics
related to the key success factors?
In other words, given a
performance metric, which key
success factors affect it
significantly?
Figures 1 and 2 diagrammatically
represent the research questions
addressed in the paper.
Research methodology
There were two sources of data for
research: primary and secondary.
The primary sources were the 3PL
service providers and data collection
was effected through a mail survey
and telephone interviews. The
secondary sources were published
reports, journal articles, and the
Internet. Keeping in mind the
difficulty in attaining an adequate
response rate in mail surveys, the
questionnaire was limited to 14
questions and two pages, a copy of
which is enclosed in the appendix for
reference. A 5-point Likert scale
where 1 represents very low and
5 represents very high was used
to measure all variables except the
growth strategies, which the
respondents would rank against each
other from 1 to 4.
To identify potential respondents,
directories of 3PL service providers
available on the following websites
were referred to: www.glscs.com,
www.inboundlogistics.com and
www.leonardsguide.com. A list of 320
Supply Chain Forum An International Journal
service providers was prepared and
each of them was sent a
questionnaire along with a cover
letter, addressed to the CEO, and a
self-addressed envelope. Two to
three weeks after sending out the
questionnaire, e-mail reminders were
sent along with the cover letter and
the questionnaire as attachments.
Some of the letters dispatched could
not be delivered and were returned
to the source because of change of
address or unknown recipient,
leaving the effective number of
supposedly delivered mails to 300.
During a period of two months after
sending out the first batch of mail, 40
filled-out questionnaires were
received through postal mails, e-
mails, and faxes, resulting in an
effective response rate of 13.33%.
Given the high frequency at which
managers receive such
questionnaires from various
research organizations, this is an
acceptable response rate. The
possibility of existence of
nonresponse bias in survey data was
also tested by the method of sample. The average revenue of the
extrapolation (Armstrong and firms was $841.42 million and the
Overton, 1977) and was found
nonexistent. Finally, the survey data
was collated in Microsoft Excel and
analyzed using SAS1 and the
statistical functions available in
Excel. Details of the analysis are
presented in the next section. A
selected number of respondents
were contacted in the end to validate
some of the survey findings.
Vol. 9 - N1 - 2008 46
Analysis of survey results
The survey data was analyzed under
the following headings: profile of the
respondents, key success factors,
performance metrics, globalization
issues, and growth strategies.
Profile of the respondents
In this subsection, a brief
demographic profile of the
respondents is provided. Among
the 40 respondents, 34 are
headquartered in the United States, 2
in Canada, 3 in Europe, and 1 in Asia.
Hence 36, or 90%, of the respondents
are headquartered in North America.
Thirty-eight of 40 respondents
reported 3PL revenues in 2005. For
the two firms that did not provide
the same information, data was
supplemented from secondary
sources. Revenues of the respondent
firms in 2005 ranged from $2 million
to $14 billion, representing very
small to very large firms in the
median revenue was $50 million in
2005. Revenues of 6 firms were in
excess of $1 billion in 2005. These are
global revenue figures and not
earned in North America alone.
Twenty-five, or 60%, of the
1. Statistical Analysis Software developed by SAS
Institute, Inc.
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respondents have operations in the
United States (9 respondents) or
North America (16 respondents) only
and 15 have operations in at least
one region outside of North America,
earning between 20% and 90% of
their global revenues from North
America. Based on the data provided
by the 38 respondents, it was found
that the contribution of the North
American 3PL market to the gross
revenue of these firms in 2005 was
$13.14 billion or about 12.67% of the
size of the North American 3PL
market in 2005. Had we incorporated
estimated figures for the two firms
that did not respond to this
particular question, the gross
revenue would have been well over
15%. The correlation between
revenues and the extent of
globalization2, in terms of the
number of countries of operations
and percentage of revenues earned
outside of North America, was
examined and found to be
statistically significant with a
correlation coefficient of 0.40. The
result is not surprising because it is
common knowledge that as a
company grows in size, it expands
geographic coverage, often going
beyond the home country.
Respondents were also asked
whether they owned or outsourced
assets. Among the 36 responses
received, 7 respondents said that
they owned their assets, 8
respondents said that they fully
outsourced assets, and 21
respondents said that they both
owned and outsourced assets. With
respect to IT investment, only 30
responses were received with an
average investment of approximately
$2 million in 2005. Correlation
between revenues and IT
investments (correlation coefficient
0.98) were found to be extremely
strong, signifying the fact that larger
companies had significantly higher
IT investments. Respondents were
asked about the range of the value-
added services they offered. The
average number of value-added
services offered by the respondents
was 10.38 out of the 20 listed in the
questionnaire. The correlation
coefficient between revenues and the
number of value-added services
offered was found to be 0.45, which is
statistically significant and indicates
Supply Chain Forum An International Journal
Table 1
Cluster number, range of revenue, and population
that as a 3PL firm grows in size, so
does its breadth of service offerings.
Key success factors
Respondents were asked to rate 10
key success factors based on the
perceived importance of these
factors and the firms' achievement
concerning each of these factors.
With respect to the importance
ratings of these factors given by the
respondents, the objective was to
check whether there was a
significant difference among the
respondents, and if so, whether
these respondents could be
clustered into a certain number of
groups with different characteristics
on some dimension. If possible, we
could then characterize these groups
based on the average importance
ratings given by the group members
for the key success factors. Out of 40
responses, 5 were discarded as
outliers. These outliers were
checked for inconsistency and it was
found that either they were marked
very low for all the factors or they
were supposedly mistakenly marked
on a reverse scale (low for high significant difference among the
and vice versa) that could not be
verified by the authors through
available means. Hence, the
exclusion of these 5 responses was
deemed to be justified. Then treating
respondents and factors as
independent variables and factor
importance ratings as the dependent
variable, a two-way ANOVA without
replication showed significant
differences among both respondents
and factors at the 5% level of
significance, indicating differences in
perceptions of the importance of key
success factors among the
respondents. Next, in order to try to
form groups of respondents, the k-
means nonhierarchical cluster
analysis method available in SAS was
applied to the data with several
Vol. 9 - N1 - 2008 47
possible clusters and different
starting seeds. After several trials, it
was possible to come out with 4
meaningful, stable clusters. Upon
examining the membership of these
clusters, it was found that the
respondents were grouped according
to their 3PL revenues in 2005. Table 1
shows the revenue ranges and
populations of these 4 clusters.
Treating these clusters and factors
as independent variables and
average factor importance ratings for
clusters as the dependent variable, a
two-way ANOVA without replication
showed significant differences
among both the clusters and the
factors at the 5% level of significance,
proving the usefulness of the
clustering results. Also, for each
cluster, with respondents and factors
as independent variables and factor
ratings as the dependent variable, a
two-way ANOVA without replication
showed that the null hypothesis
stating no difference among the
respondents within each cluster
could not be rejected at the 5% level
of significance, and there was a
factors at the same level of
significance, proving validity of the
clustering method. The p-values
corresponding to the differences
among clusters/respondents and
factors for both among- and within-
cluster ANOVA are shown in Table 2.
Because the populations of clusters 3
and 4 were too small to take into
2. The extent of globalization has been defined
here in the following way: If a firm's operations
are limited to the United States only, it is classi-
fied as not-at-all globalized. On the contrary, if
a firm has operations in at least one region
beyond North America and earned at least 25% of
its revenues in 2005 from outside of North
America, it is termed highly globalized. The rest
of the firms are classified as moderately globali-
zed.
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 Table 2
p-values corresponding to the differences among
clusters/respondents and factors
Table 3
Cluster number, range of revenue, population, and ranks
of the key success factors
account for further analysis, it was
decided to combine these two
clusters into one. Thus, three
clusters were formed consisting of
small, small-to-medium, and medium-
to-large 3PL firms, respectively. For
each of these three clusters, average
importance ratings for the factors
were computed and the factors were
ranked accordingly. If there was a tie
between two or more factors, the
sum of the ranks was equally divided
among these factors. If two factors
were at the same level after rank 1,
then their ranks would be 2.5.
Similarly, if three factors were at the
same level after rank 1, their ranks
would be 3, and so on. Table 3 shows
the clusters and the ranks given by
them to the factors based on average
ratings.
Because the cluster populations are
not very large, and all the factors,
Supply Chain Forum An International Journal
irrespective of whether indeed they
are more or less important for the
3PL industry, have been ranked
mostly on the higher side, the
differences among these ranks are
not always statistically significant for
all the factors and hence the
outcomes have to be interpreted
cautiously. However, it is possible to
make some general comments. For
example, investment in information
systems and availability of skilled
logistics professionals are
consistently ranked high by all the
clusters irrespective of their sizes,
and focus on key customer accounts
has been ranked high by small and
medium-to-large firms but ranked
medium by small-to-medium firms.
The importance of internationalizing
operations grows from small to large
firms. Breadth of service offerings
received medium importance, on
average, from all the respondents
Vol. 9 - N1 - 2008 48
and 3PL experience (number of years
of 3PL operations) received medium
importance, on average, from all
except small-to-medium firms, which
rank it first. Focus on specific
industries (or specialization), length
and depth of 3PL relationships, and
integration of supply chains have all
received medium-to-low importance
from all the clusters. Investment in
assets has been consistently ranked
low across all the clusters. It was
checked through t-tests whether the
average ratings of the factors for
each cluster, which were between
average (3) and high (4) ratings,
were significantly (at the 5% level of
significance) different from average
(3), and it was found that
internationalization of operations
and integration of supply chains for
cluster 1 and investment in assets for
cluster 3 did not significantly differ
from the average (3) ratings. This
observation validates the fact that
small firms associate average
importance with internationalization
and integration of supply chains due
to their small scales of operation,
and medium-to-large firms do not
give more than average importance
to investment in assets.
It was also decided to check the gaps
between the importance ratings and
the company ratings based on actual
achievement for the key success
factors and whether these gaps were
statistically significant, either
favorably or unfavorably. To do this
for each respondent and each factor,
the difference between the company
rating and the factor importance
rating was computed, and then for
each factor the average gap was
calculated across the 35 responses. It
was found through z-tests that for
internationalization of operations,
availability of skilled logistics
professionals, and integration of
supply chains, the gaps were
negative and significantly (at the 5%
level of significance) different from
zero, meaning therefore that 3PL
service providers were not able to
fulfill their expectations with respect
to these factors. This is an important
finding and needs some explanation.
In today's marketplace, as global
business expands at a fast pace, 3PL
providers find it extremely important
to expand their global reach. They
act as if they are always several steps
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behind the market expansion needs
and always trying to catch up.
These firms believe that supply
chain integration may be able to
help them in catering to the needs
of the ever-expanding global
marketplace, and yet as if the
constraints-business, physical, and
geographical-are holding them
back. Negative gaps in perception
may also imply that the
respondents are either too
ambitious with respect to the factor
importance ratings or too critical of
their own achievements or both.
No factor, however, was found to
have significantly positive gaps.
Performance metrics
Respondents were asked to rate
their company's performance with
respect to 10 metrics. The original
intention was to check for the
dependency relationships among
the performance metrics and the
key success factors as dependent
and independent variables,
Table 4
Significant dependency relationships among the performance metrics and the key success factors
Supply Chain Forum An International Journal
respectively, for different clusters
through multiple linear regressions.
The objective was to see if the
dependency relationships varied
significantly across clusters to
come out with definitive
conclusions. However, because the
cluster populations were not large,
it was not possible to carry out the
same exercise for all the clusters
separately. Regressions were done
for all 35 responses (five outliers
were omitted here, too, to keep
consistency) and separately for 24
responses, excluding cluster 1
(firms earning less than $20 million
of revenues in 2005). The aim was
to check for differences in outputs
for all the firms taken together and
the firms earning at least $20
million in 2005. Table 4 shows the
statistically significant (at the 5%
level of significance) independent
variables for overall significant
regression equations, types of
relationships, and p-values against
each performance metric for the 35
and 24 responses, respectively.
Vol. 9 - N1 - 2008 49
As may be observed from Table 4,
there are a few differences in the
two sets of regression results. With
respect to the year-by-year revenue
growth, internationalization of
operations turns out to be a
significantly positively correlated
independent variable for the
aggregate set, and it does not
appear in the subset, which might
seem surprising as more significant
positive correlation was expected
for firms of relatively larger size.
However, when the data provided
by the firms belonging to cluster 1
were checked, it was found that
almost all of these 11 firms, though
very small in size, were engaged in
customs clearance and freight
forwarding, and have given high
ratings to their firms with respect
to internationalization as well as
revenue growth. The high
correlation between these two
dependent and independent
variables has been reflected in the
regression result.
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The relatively larger firms have a
wider breadth of services and more
integration of supply chains that
are strongly positively correlated
with revenue growth. Although the
very small firms focus on a limited
number of industries due to a lack
of expertise in a wider range of
industries, larger firms focus more
on key customer accounts that
have the potential to generate
substantial revenues for the long
term. One thing noticeable here is
that 3PL experience bears a
significantly negative relationship
with revenue growth for both the
sets. This probably can be
attributed to the fact that as a
company grows the percentage
growth stagnates, or even declines,
although the absolute revenue
growth may still be substantial.
This seems to be a natural
phenomenon across all the
industries and is not specific to the
3PL industry.
With respect to the year-by-year
growth in profits, it was found that
there was no relationship with
internationalization, breadth of
services, industry focus, or
customer focus because these
factors may be responsible for
revenue growth and they also
involve additional expenses. (For
example, internationalization
possibly may lead to direct
investments or acquisitions, or
customer focus may lead to rising
inventory costs as demonstrated
by the negative relationship with
reducing inventory levels in the
subset). The result is that there is
no significant correlation between
these factors and the growth in
profits. However, integration of
supply chains still has a significant
positive correlation with profit
growth in the subset.
Cargo volumes grow with
internationalization across all the
firms, as expected, but it is hard to
explain why inventory levels
decrease with internationalization.
This may be due to the existence of
inventory more in the form of sea
freight with transfer of ownership
than in land transportation modes
and storage, and a shift toward
providing more value-added
services than direct transportation
Supply Chain Forum An International Journal
and warehousing. Another reason
may be that with
internationalization, 3PL firms have
facilities in more markets, making
information management easier
and thus reducing the need for
inventory buffers. It seems firms
also are able to reduce inventory
levels with experience. Experience
even helps firms improve the on-
time delivery performance.
However, for relatively larger firms,
with increasing breadth of services,
the delivery performance seemed
to be compromised.
With respect to acquiring new
customers, availability of skilled
logistics professionals turns out to
be a significantly positive factor for
all the respondents. This seems to
be logical because in service
industries, human resources are an
important factor in addition to
technology. A surprising
observation is the significant
negative relationship between the
breadth of services and the
respondents' perception of the
benefits of expansion of geographic
reach for the subset. When data
provided by the respondents were
checked, it was found that many
firms offered a wide variety of
value-added services, yet they
generated a significant portion of
their revenues from North America.
U.S.-based service providers C. H.
Robinson, Penske, and Ryder, each
worth a few billion dollars, offer a
full range of services, but generate
85-90% of their revenues from the
North American 3PL market (Foster
and Armstrong, 2006). Naturally,
these companies fare well with
regard to the breadth of service
offerings and not so well as to the
perceived benefits of expansion in
geographic reach, resulting in the
negative relationship between
these two variables. This
observation points to the fact that
the breadth of service offerings is a
necessary but not sufficient
condition for geographic
expansion. On the contrary, one
can also say that geographic
expansion may not always be
needed for revenue expansion.
Expanding geographic reach also
has a significant negative
relationship with investments in
Vol. 9 - N1 - 2008 50
assets for the subset. This again
may be attributed to the fact that
the respondents marked high with
respect to their firms' investments
in assets, and as many as 60% of
them had operations in the United
States or North America only,
representing thereby low
penetration of global markets.
Another explanation could be that
as firms invest more and more in
assets, they have less and less
capital available for direct
investments or acquisitions in
foreign markets. Considering the
fact that the respondents have
consistently given very low
importance to investments in
assets, outsourcing, except for a
few strategic investments, might
have been the preferred approach.
It can be observed from Table 4
that investments in information
systems have turned out to be a
very significantly positive factor for
many performance metrics. This
fact and the consistently high
ranking of this factor by the
respondents point to the
importance of information systems
in the 3PL industry. Surprisingly,
length and depth of 3PL
relationships do not appear in any
of the significant regression
equations. Although relationship
length and depth has been
identified in 3PL literature as an
important factor, this alone would
not be able to carry the firm toward
3PL success. The most important
observation from the regression
results is that internationalization
of operations, availability of skilled
logistics professionals, and
integration of supply chains all
appear in significantly positive
relationships with one or more
performance metrics; however,
with respect to these factors, the
respondents were found to
significantly underperform as
discussed in the previous
subsection, which leads to the fact
that 3PL firms have to seriously try
to improve their company's
achievements against these factors
with direct bearings on their
performance.
In multiple linear regressions, one
dependent variable is taken at a
time, and its relationship with the
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independent variables is observed.
Hence, different independent
variables may turn out to be
important for different dependent
variables, and one independent
variable may bear positive and
negative relationships with two
dependent variables. This
phenomenon prevents one from
understanding the overall
relationship among the dependent
and independent variables.
Therefore, it was decided to
perform canonical correlation
analysis of the data, which would
use all the performance metrics
and key success factors
simultaneously. Using various
combinations of pairs of linear
composites from the criterion
(dependent) and predictor
(independent) variables, a pair was
found to be maximally correlated
and statistically significant at the
5% level of significance for each of
the aggregate set and the subset of
medium-to-large firms. Table 5
shows the canonical correlation
coefficient, F-statistic, p-value, and
significant dependent and
independent variables for each set.
All canonical loadings and cross-
loadings were found to be
significantly positive, indicating
positive relationships among the
dependent and independent
variables. The results were
compared with the regression
Table 5
Significant dependent and independent variables in canonical correlation analysis
Supply Chain Forum An International Journal
results and found to be quite
similar. 3PL experience for both the
sets and customer focus for the
subset did not appear probably
because, as can be seen from the
regression results, they bore both
positive and negative relationships
with different performance metrics.
However, investment in quality
assets did not appear in the subset
because it bore only negative
relationships with geographic
reach, and the objective of
canonical correlation analysis has
been to maximize positive
correlation among the performance
metrics and the key success
factors. Length and depth of 3PL
relationships, as before, did not
appear in either of the sets.
Globalization issues
Respondents were asked to rate the
reasons for globalization and the
factors responsible for starting 3PL
operations in a foreign country
based on their perceptions. Ten
firms did not respond to these
questions stating that they did not
have global operations and hence
were not qualified to respond.
Responses of 30 firms with respect
to the reasons for globalization
were subjected to a two-way
ANOVA without replication, and it
was found that there was no
significant difference among the
Vol. 9 - N1 - 2008 51
respondents at the 5% level of
significance with respect to their
perceptions. The average scores of
the reasons were computed and
ranked accordingly, which is shown
in Table 6.
Off-shore outsourcing of
manufacturing jobs and growth of
3PL in Europe and the Asia-Pacific
region have been cited by the
respondents as the most important
reasons for globalization of 3PL
services. Firms' preferences to deal
with a single-service provider and
pricing pressure and low
profitability in the North American
3PL market also seemed to be
important. However, increased
competition in the domestic market
due to the entry of foreign 3PL
firms received moderate
importance, not significantly
differing from the average (3)
score at the 5% level of significance.
With respect to the factors for
setting up 3PL operations in a
foreign country, the responses
again were subjected to a two-way
ANOVA without replication, and it
was found that there was no
significant difference at the 5% level
of significance among the
respondents with respect to these
factors. Table 7 shows the ranks of
the factors based on their average
scores. As before, in case of ties,
the ranks were divided equally
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 Table 6
Rank of the reasons for globalization
Table 7
Rank of the factors for setting up 3PL operations in a foreign
country
among the factors.
It can be seen from Table 7
that demand for 3PL services,
IT and telecommunications
infrastructure, availability of
logistics professionals, and cultural
integration are ranked very high
by the respondents. Physical
infrastructure and competition
in the foreign 3PL market
are moderately ranked, local
government support is ranked low,
and bureaucratic infrastructure,
tax/tariff structures, and presence
of foreign 3PL firms are ranked very
low.
Growth strategies
Respondents were asked to rank
their growth strategies, and in this
case also no significant difference
Table 8
Rank of the growth strategies
Supply Chain Forum An International Journal
among the respondents was found
by ANOVA at the 5% level of
significance. Table 8 shows the
ranks of the strategies based on
their average scores.
Table 8 shows that firms give
maximum importance to direct
investments and alliances for
growth and mergers and
acquisitions receive lower
importance.
Conclusion
Although much has been published
in academic and trade journals on
3PL research that provides
valuable insights into the industry,
most of the research is mainly
descriptive in nature, not going
beyond average and percentage
Vol. 9 - N1 - 2008 52
analyses, and as such is unable to
establish statistical significance of
survey findings. The present paper
strives to correct this anomaly by
exploring the key issues and factors
relevant to the industry and their
underlying relationships through
statistical analyses and tests of
significance. The objective has
been to augment the already
existing vast knowledge base on
3PL with the findings of the survey.
The authors expect that empirical
papers on 3PL, from the
perspectives of both users and
service providers, with more
advanced data analysis would
follow.
This survey presents important
findings for logistics managers.
Clearly, internationalization, industry
focus or specialization, investment
in information systems, availability
of skilled professionals, and
integration of supply chains stand
out as the most important factors
for success as a 3PL provider.
Customer focus and breadth of
services were also found to be
important, albeit somewhat less,
determinants of success as a 3PL
provider. Additionally, it is also
clear that the importance of
internationalization and breadth of
services grows as firms grow in
size. Logistics managers can also
see how firms of different sizes rate
the key success factors and
compare the differences in ratings
among nonoverlapping segments.
This would give them an idea as to
how to reposition their firms with
respect to these factors. The
survey also identifies significant
gaps between the expectations and
actual achievements of the firms
with respect to internationalization
of operations, skilled logistics
professionals, and integration
of supply chains, which should
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be seriously considered by
managers. The survey establishes
relationships among the
performance metrics and the key
success factors to identify
significant variables for small and
large firms. Two important
observations in this respect are
that the length and depth of 3PL
relationships are necessary but not
sufficient criteria for success, and
investments in physical assets such
as vehicles, material handling
equipment, and warehouses have
an overall negative impact on
performance. This may provide
a guideline to managers for
allocation of scarce resources. The
survey also provides a guideline as
to how much importance should be
given to the related factors while
setting up 3PL operations in a
foreign country.
The survey intended to bring out
the differences in significant
dependency relationships among
the performance metrics and the
key success factors for different
segments of the 3PL industry.
Though an effort toward this has
been made, the objective could not
be entirely fulfilled due to the lack
of adequate responses. One
possible direction for future
research on 3PL could be to focus
on this issue and case studies may
be taken up to search deeper into
the problem, followed by survey
research (Selviaridis and Spring,
2007). Another very important
direction for future research is a
comparison between 3PL users and
service providers in terms of their
expectations and fulfillments. To
the best of the authors' knowledge,
there has not been a single study so
far that analyzes the 3PL industry
from the perspectives of users and
service providers simultaneously.
The studies available in literature
focus either on users or on service
providers and draw cross-
references to complement the
findings. However, it is felt that a
survey instrument designed to
bring out the gaps between
expectations and achievements of
3PL users and service providers,
respectively, and implemented in a
single study would be more
appropriate to better understand
the dynamics of the 3PL industry.
Supply Chain Forum An International Journal
The same has also been echoed by
Maloni and Carter (2006). The
authors also look forward to
studies comparing 3PL industries
in diverse geographic regions.
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About the authors
Subrata Mitra is Associate Professor of
Operations Management at the Indian
Institute of Management (IIM) Calcutta, India.
He received his B.E. in Electronics and
Telecommunications Engineering and M.E. in
Production Management from Jadavpur
University, Kolkata, India and Fellowship
(Ph.D.) from IIM Calcutta, India. He has
teaching, training, consulting and research
interests in production and inventory control,
logistics and supply chain management,
project management and service operations
management, and has published extensively
in international journals such as European
Journal of Operational Research, Journal of
the Operational Research Society, Asia Pacific
Journal of Operational Research, Omega, etc.
He was awarded the prestigious Fulbright
Senior Research Fellowship by the U.S.
Government to visit the School of Business of
The George Washington University,
Washington, DC for a period of eight months.
Prabir K. Bagchi is a Professor of Operations
and Supply Chain Management and the Senior
Associate Dean of the School of Business,
George Washington University, Washington,
DC. He did B.E. in Mechanical Engineering
from Bengal Engineering and Science
University, India and M. S. and Ph.D. from the
University of Tennessee, Knoxville, USA. His
teaching and research interests are in supply
chain management. He has work experience
in materials management, logistics and
production management in multinational
companies in various countries. He has
consulted for companies in many countries
and has published in highly regarded journals
in logistics and supply chain management. He
has been a visiting professor in prestigious
universities in Australia, Denmark, India,
Norway, and the UK.
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