Lateral coordination in a logistics outsourcing relationship

lateral coordination in a logistics outsourcing relationship

Request PDF on ResearchGate | Lateral coordination in a logistics outsourcing relationship | This paper studies the coordination of activities. Huiskonen, Janne & Pirttila, Timo, "Lateral coordination in a logistics outsourcing relationship," International Journal of Production Economics, Elsevier. Publications · Projects · Persons · Organisation. A1 Journal article (refereed), original research. Lateral coordination in a logistics outsourcing relationship.

With respect to the agricultural sector, where similar players operate, these intermediaries——who mainly operate in the suburbs of Italian major cities——are much more independent in their actions and perform a function similar to dealers in illegal drug markets. A local newspaper reported: The boss managed five hundred people without having any direct role in the cooperative, where workers providing warehousing activities were exploited and oppressed.

An important reason why the informal brokers of workforce are key players of the shadow management system is their capacity to balance the presence of legal and illegal workers within warehouses and cooperatives.

In other words, the informal brokers create a ring fence allowing illegal activities within workplaces and, at the same time, afford formal compliance to labor, tax, and social insurance rules. Such fine-tuning of illegal and legal activities is particularly relevant in the treatment of formal workers.

Although the presence of formal employees is a necessary condition to prevent government controls and preserve the exploitation mechanism, also formal workers are exploited under the shadow management system. In particular, they perceive a salary that is formally in line with the minimum allowed by the national labor regulations sometimes even more than the minimumbut the relational contract they have to accept in order to work forces them to return back a substantial part of their salary.

This mechanism has the dual function a of reducing the cost of formal manpower and b of collecting criminal money to fund illegal operations by the shadow management system.

lateral coordination in a logistics outsourcing relationship

These criminal funds are firstly used to place illegal workers in the organization of the atypical cooperatives providing warehouse activities. Accordingly, being illegal manpower employed in the logistics sites of the same cooperative, their very low remuneration contributes to drastically reduce the cost of labor and increase the margin of profit coming from labor exploitation.

The illegal situation——which poor and migrant workers e. This power is used, of course, to squeeze wage and nonwage work conditions, with the only limit of the physical subsistence of manpower. A representative of one of the most influential trade unions in logistics reported: Warehouses are places where workers undergo terrible injustices. However, they remain silent fearing to lose their job, their residency permit, or both. This is not possible because these workers have to return to their family of origin the money they got on loan for sending them abroad in search of a better life.

Criminal money is also used to finance several other illegal activities in different sectors e. These findings highlight the intimate connection between labor exploitation in logistics outsourcing and the most widespread forms of corruption that are unfortunately very much diffused.

Finally, it is worth to provide additional details on the implementation of the relational contracts that are crucial to the very effectiveness of the shadow management system. In particular, we analyze the specific techniques that are employed by the informal brokers to control and constrain workers. These are the following ones: The threat of job loss, which must be credible to be fully effective. Its credibility actually derives from the abundance of unemployed workforce.

In this respect, it is worth highlighting that the inflow of new immigrants plays an essential role to keep the exploitation system effective. Indeed, it makes the threat of job loss credible and, by increasing competition among workers, also squeezes salaries toward the level of subsistence. An employee of a cooperative said: It is not allowed to be sick and to be less productive because otherwise the —thousand of people from Bangladesh needing a job will replace you.

lateral coordination in a logistics outsourcing relationship

A welfare to exploited work, which relies on the provision of a wide range of social and assistance services by informal brokers to formal and illegal workers, such as legal and administrative assistance in immigration procedures, housing, health services, microcredit, etc. Indeed, leaving that system would mean to lose all the connected social services that would be impossible to obtain from someone else than the informal broker. This mechanism is even more effective in the case of illegal workers, who do not have any regular residency permit and, therefore, cannot access any public assistance scheme.

Public funding in Italy is clearly insufficient to provide effective social assistance services. On top of this, the Italian public social services are quite fragmented and, therefore, unable to secure effective social protection. The fragmentation of social service provision, as well as the ineffectiveness of public-private intervention in the social field, has been told by many interviewees to be the main limit for competing with the welfare system provided by the informal brokers of manpower.

As a worker reported: The role of the informal brokers of labor has deleterious effects on trade unions functioning as well. The control over a huge amount of workers operating in warehousing activities puts brokers in the condition to influence the way trade unions operate. Accordingly, the control power exerted by the informal intermediaries ends up emptying trade unions of their role of labor protection. A representative of a trade union noticed: He holds in his pocket the banking payment cards of formal workers, in order to have the maximum degree of flexibility in taking back the money paid to them.

Lateral coordination in a logistics outsourcing relationship

A general model summarizing our findings is reported below Figure 3. We saw that cooperatives providing these services may, quite easily, be part of a wider shadow management system that bases its business model on clever blend of legal and illegal activities aiming at labor exploitation, tax and social insurance evasion, and corruption.

Our analysis shed a new, dreadful light on the negative externalities of the twenty-first-century capitalism. To some extent, what we see now reproduces, at the heart of contemporary Europe, the typical working conditions of early stages of industrialization, featuring Europe between the end of the eighteenth and the end of the nineteenth centuries.

A number of research and policy questions arise from our analysis.

The Dark Side of Outsourcing: The Case of Logistics

Though this is an interesting issue for future research and many important details are missing, we can draw here some educated guesses. As our analysis has pointed out, organized crime is likely to be the main provider of two crucial inputs of the shadow management system, namely, illegal financial capital and illegal workers. Criminal organizations have business motives, technical capacity, and global networks to play this role. It is quite likely that these organizations are crucial stakeholders of the shadow management system in connection with informal brokers of manpower.

Another issue is the causal relationship between the functioning of the shadow management system and the severity of social deviance phenomena and crime that feature big cities e. Such extremely bad economic situation fosters petty crime and social deviance, as underlined in interviews by volunteers working in nonprofit associations that support poor and migrant people. The natural policy question that arises by our analysis is what are the ways out?

Our investigation provides some interesting clues in this respect. The first issue is the control of transnational illegal activities.

For instance, it may be expected that shippers with less sophisticated logistics organizations are motivated by cost reduction factors, whereas companies with more sophisticated logistics organizations are driven to outsource in order to improve flexibility or to expand their market coverage. The objective of this paper is to bridge a gap in the literature in terms of clarifying this link by investigating the relationship between the dimensions behind the sophistication of the logistics function of manufacturing shippers and their motivation to outsource logistics activities.

lateral coordination in a logistics outsourcing relationship

It therefore aims to contribute to the literature on logistics outsourcing by linking different sophistication factors to the reasons why shippers seek to outsource their logistics activities. This is done mainly by answering the following research questions: In addition, the paper has considerable relevance for practice, as its results should help providers to segment their customers according to the sophistication and characteristics of their logistics functions by means of a better understanding of what drives different categories of shippers to outsource their logistics activities.

The following section reviews the conceptual background for the research, focusing on the dimensions considered in previous studies to determine logistics sophistication and the motives driving shippers to outsource logistics activities.

Research questions and methodology are detailed in the third section, followed by the presentation and discussion of the results. The concluding section indicates the main contributions of the paper and suggests future issues to promote further understanding of the phenomena. In this model, internal logistics initiatives, here called logistics sophistication, were made up of three dimensions: The degree of organizational formalization of the logistics function relates to the status of the chief logistics executive in the firm's organizational structure.

Lateral coordination in a logistics outsourcing relationship

A higher level of sophistication in the logistics function would in part reflect a relevant position of the chief logistics manager in the top ranks of the firm, which would facilitate the integrated management of logistics activities and more efficient choices in the function's typical tradeoffs Daugherty et al. Finally, cost and service performance monitoring is concerned with the systematic control of logistics activities looking at continuous improvement.

Drivers of the Outsourcing of Logistics Activities There has been extensive research over the past years on the possible drivers of the outsourcing of logistics activities. In order to identify the main drivers of logistics outsourcing, a thorough literature search was conducted of previous studies in the main journal databases such as Proquest, Science Direct, Emerald and Ebsco. Results are shown below in Table 1. As shown in Table 1there seems to be a consensus that the key drivers of the outsourcing of logistics activities by shippers are cost reduction and service improvement, as well as a focus on core activities and flexibility, leading to the identification the first four relevant drivers of logistics activities considered in this study -cost reduction; improved logistics service provided to the customer; focus on core competences; and improved flexibility in logistics operations.

Previous literature, as indicated, also led to the identification of six other relevant drivers included in the study investment reduction; increased control of logistics activities; higher efficiency in execution; know-how for new logistics solutions; enhanced use of information technology; and market expansion.

The survey population consisted of the manufacturing companies included in the Exame Melhores e Maiores list, a Brazilian annual magazine listing similar to Fortune All companies were contacted by telephone in order to verify whether they outsourced logistics activities and were willing to participate in the research and in this case to obtain the name of the person involved with decision making to whom the survey instrument would be sent. Questionnaire items were developed based on previous literature and were initially tested by means of in-depth interviews with three large Brazilian companies and focused on the most important logistics outsourcing process that these companies had experienced.

The resulting document was then screened by five academics and practitioners in order to identify possible problems and inconsistencies. As a result, minor modifications were introduced. A pre-test was conducted with five shippers in order to ensure that the final research instrument would be well understood by target respondents and in order to validate both structure and content. Based on observations from these pilot respondents a few questions were removed from the original questionnaire.

The electronic questionnaire was then sent out by e-mail to a mailing list of shippers that had agreed during the preliminary telephone contacts to participate in the research.

The final sample considered in this study consists of the 93 shippers that returned the questionnaires a response rate of The inexistence of non-response bias was verified by cross-tabulation of the frequency distributions of the responses in terms of industry in the sample against corresponding data from the population.

Information on the sample is summarized in Table 2. Nineteen previously identified variables Bowersox et al. The variables, their operationalization and scales are shown in Table 3. In order to extract dimensions of logistics sophistication the observations for the 19 variables collected in the 93 questionnaires were submitted to factor analysis with Varimax standardized rotation.

Results for dimensions are shown in the following section. The comprehensive review of previous studies cf. Table 1 above on the outsourcing of logistics activities led to the identification of ten variables identified as main drivers of the outsourcing of logistics activities. The drivers of logistics outsourcing used for addressing the second research question are characterized in Table 4.

This analysis has advantages over discriminant analysis in the separation of two groups of data to present or not a certain driver as a function of a certain criterion dimension of sophistication of logistics organizationdue to its superior flexibility.

They consist of those with load factors greater than. According to Tabachnik and Fidellonly load factors greater than. In the case of the present analysis, six factors represent different dimensions of sophistication of logistics organization. It was therefore possible to identify the six dimensions indicated in Table 5, corresponding to each of the extracted factors. The dimensions of sophistication calculated on the basis of the standardized variables represent a tested and valid scale for measuring logistics sophistication, as indicated by the variates below: These results are consistent with previous studies for instance, Boyson et al.

More sophisticated concerns, on the other hand, such as logistics control, innovation and improvement in IT technologies, as well as market expansion, are much less frequently mentioned. Results for the logistical regression analysis of the relationship between the dimensions of sophistication of the logistics organization and drivers of the outsourcing of logistics activities are shown in Table 7 below.

Click to enlarge The driver expand markets is explained by organizational formalization, and higher levels of organizational formalization are significantly related to a higher proportion of affirmative answers to this driver. The driver acquire more flexibility in logistics operations is explained by supplier relationships, materials handling and organizational formalization.

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Coefficient signs indicate that shippers with higher levels of organizational formalization in logistics, intensive use of IT in materials handling and less sophistication in their relationship with suppliers are significantly related to a higher proportion of affirmative answers to this driver. As pointed out by Sink and Langleypurchasing services is more complex and uncertain than the acquisition of products.

The sophistication in the logistics organizational formalization seems to indicate that shippers are aware of the flexibility benefits that may be acquired through logistics outsourcing, while at the same time they are still learning to establish the necessary supplier relationships with 3PL providers. The driver bring more know-how for the generation of new logistics solutions is simultaneously explained by materials handling and performance monitoring, with coefficient signs indicating that shippers with intensive use of IT in materials handling and low levels of performance monitoring are significantly related to a higher proportion of affirmative answers to this driver.

The first relationship seems to be quite straightforward, indicating that shippers turn to logistics service providers that can complement their own expertise in significant areas, in particular the increasingly important use of IT solutions. The driver reduce costs is explained by organizational formalization and performance monitoring, with coefficient signs indicating that shippers with low levels of organizational formalization and performance monitoring are significantly related to a higher proportion of affirmative answers to this very basic driver of the outsourcing of logistics activities.

Therefore, the association of this driver with low levels of sophistication, especially in terms of the importance of logistics in the organization and of the degree of performance monitoring, as uncovered here, appears to be justified.

The driver improvement in used IT is explained only by sophistication in materials handling, and the coefficient sign indicates that shippers with intensive use of IT to handle materials are significantly related to a higher proportion of affirmative answers to this driver.

Again, this result is not surprising, as both variables in the materials handling sophistication factor are related to the use of software and decision support systems in logistics activities.

lateral coordination in a logistics outsourcing relationship

The driver reduce investment in assets is explained only by sophistication in scheduling of operations, with a coefficient sign that indicates that shippers with low levels of adoption of IT for scheduling their operations are significantly related to a higher proportion of affirmative answers to this driver.

Even though no readily apparent rationale for this finding can be found in previous literature, it may be an indication that shippers who are not using ERP or routing systems outsource most of their logistics operations and, therefore, are driven by the perspective of reducing investment in assets. These results do not seem to conflict with existing logistics outsourcing literature. They tend to show that shippers with higher levels of logistics organizational formalization, i. This, in turn, may allow them to expand their markets.

On the other hand, as expected, shippers with lower levels of logistics organizational formalization tend to be driven by more basic and frequent logistics concerns, such as cost and asset investment reduction. It is also interesting to observe that sophistication in the use of materials handling information technology seems to lead shippers to outsource logistics activities both to improve the technologies they use and to bring in technology that may represent innovative solutions to their logistics operations in a rapidly expanding market.

Even though both these drivers were not strongly chosen by surveyed shippers, it points to an apparent technology focus in a subset of Brazilian shippers.

lateral coordination in a logistics outsourcing relationship

There is less a clear picture in terms of the relationships of drivers of logistics outsourcing and other components of logistics sophistication. Outsourcing in order to focus on core business, the second most frequently mentioned driver, does not appear to be influenced by any component of logistics sophistication, as well as improvement in logistics service, the fifth most frequently mentioned driver of outsourcing.