Logistics strategy-revisited

This research addresses the roles of three logistics strategies in achieving logistics effectiveness, explores the interaction among these three strategies, and discusses the role of logistics strategy in managing conflicting challenges inherent in logistics. This article is organized into five sections. The following section reviews the literature and develops hypotheses. Next, the methodology section describes the data collection process. Third, the data analysis and results are described. The fourth section discusses the findings and relates them to the literature. Finally, the conclusions section provides additional insights into logistics strategy and discusses the implications of the research for logistics practitioners, teachers, and researchers.

SELECTED RESEARCH RELEVANT TO LOGISTICS STRATEGY

Issues of logistics strategy and organization have been discussed in the literature for at least 40 years. Brewer and Rosenzweig (1961) identified the interdependencies of the material flow process, the problem of optimizing individual functions at the expense of the overall system, and the lack of organizational coordination among logistics functions. They recommended that overall logistics optimization could be accomplished by assigning the various logistics functions to one executive. The unification of logistics activities under one organization was discussed by Bowersox (1974) as a process where logistics organizations evolve through three stages. Additional responsibilities are added to the logistics organization at each stage. While the stages paradigm received some support in the literature, subsequent research concluded that it did not offer an adequate explanation of how advanced logistics organizations develop and operate (Bowersox and Daugherty 1987), that it was independent of logistics strategy (McGinnis and Kohn 1990), and there is substantial doubt that it explains the development of advanced logistics organizations (McGinnis and Kohn 1990).

A second concept for examining logistics strategy is the value chain (Porter 1985). The value chain provides a framework for examining interdependencies within logistics; between logistics and other areas of the firm; and between the firm, its suppliers, and customers. Sources of competitive advantage (cost advantage, differentiation, or a combination of both) are identified by examination of the company's five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and four support activities (procurement, technology development, human resource management, and firm infrastructure). Two studies demonstrate that the value chain offers potential for the discussion and research of logistics strategy (McGinnis and Kohn 1988, 1990).

Earlier work in organizational theory provides a framework for the conflicting challenges that logistics strategies face. Thompson (1967) recognizes that most organizations seek to reduce uncertainty in the short-run in order to perform well on technological measures of performance. Simultaneously, most organizations strive for freedom from commitment to increase the organization's flexibility in an uncertain environment. These conflicting goals result in a "paradox of administration" where administration must constantly mediate between short-run and long-run imperatives, seeking to simultaneously reduce uncertainty and search for flexibility in order to satisfy an array of conflicting goals. An implication of Thompson's work is that logistics managers must constantly balance a need to perform well on hard measures of performance, while responding to a constantly changing environment. For example, logistics managers may strive to simultaneously meet quantitative cost and service goals; respond to changing needs of suppliers, internal customers, and channel members; and insure that logistics helps the organization achieve its long-run strategic objectives.

Shapiro and Heskett (1985) offer two insights that address the "paradox of administration" as it applies to logistics strategy. The first identifies four perspectives that must be constantly managed and balanced in logistics strategy. They are internal (focused on efficiency), interfunctional (focused on intraorganizational interactions), channel (maximizing the benefit of suppliers and channel partners), and strategic (maximizing competitive advantage). The second recognizes four sets of inherent conflicts in logistics strategy, called "The Two Faces of Logistics." They are: tactical versus strategic, short-term versus long-term, quantitative versus qualitative, and detailed versus broad.

Bowersox and Daugherty identified three strategic orientations and their effect on logistics strategy. They are summarized as follows:

1. Process Strategy: Traditional logistics activities are managed as a value-added system. Emphasis is on achieving maximum efficiency, the primary goal is to control costs, and the focus is on rationalizing complex activities into an efficient value-added system.

2. Market Strategy: A limited number of traditional logistics activities are managed across business units. Emphasis is on achieving synergy from coordinated physical distribution, the primary goal is to serve common customers from various business units, and the focus is on reducing the complexity faced by customers.

3. Information Strategy (also called Channel Strategy): A diverse group of traditional logistics activities, together with other activities, are managed as a channel system. Emphasis is on the coordination and control of dealer and distributor networks and the focus is on achieving interorganizational coordination and collaboration through logistics and information management.

Bowersox and Daugherty concluded that the classification typology is not absolute, firms may combine features of more than one type of orientation, and that the variety of strategic orientations suggests that firms seek an array of organizational solutions to satisfy multifaceted business requirements. The research reported in this article focuses on an empirical study of the Bowersox/Daugherty typology using the Kohn and McGinnis (1997) attitudinal scales.

Previous Research on the Bowersox/Daugherty Typology

At least three studies have examined the Bowersox/Daugherty typology. They are Clinton and Closs (1997), Kohn and McGinnis (1997), and McGinnis and Kohn (1993). The following paragraphs review this research and summarize what has been learned. These studies, together with the Bowersox/Daugherty 1987 study, are summarized as Table 1.

Using Bowersox and Daugherty's descriptions of the three strategic orientations, McGinnis and Kohn (1993) developed three attitudinal scales. Process and Market strategies were cluster analyzed to identify three logistics strategies: Intense, Balanced, and Unfocused. The three strategies were a function of the organizational competitive responsiveness and the level of hostility (competitiveness and unpredictability) in the organization's external environment. Two logistics priorities varied among the three strategies. They were Customer Service Commitment and Logistics Coordination Effectiveness. A third logistics priority, Integrated Computer Systems, did not vary among the three strategies. It was concluded that the Bowersox/Daugherty typology was worthy of further research, but that the scales needed further development. Suggestions for further research included further examination of the characteristics of logistics strategies and the linkages of logistics strategies with organizational strategy and with the organization's environment. Table 2 shows the items associated with the three scales of the Bowersox/Daugherty typology using the McGinnis and Kohn (1993) attitudinal scales.

Clinton and Closs studied the Bowersox/Daugherty typology using U.S. and Canadian survey data. Their objectives were to identify which strategies were used in North American firms, identify the determinants of the three logistics strategic orientations, and compare the characteristics of each strategy. They found that the three strategic orientations overlapped, but that there were differences in emphasis for firms employing process, market, and channel (information) strategies. Clinton and Closs found the proportion of firms using process strategy (54.1 %) was greater than expected, given the business environment's focus on customers and supply chains. Fewer firms reported using market (27.7%), channel (9.1%), or other (9.1%) strategies. Clinton and Closs concluded that the process/market/channel typology is promising. They further concluded that future research must focus on the items comprising the typology's underlying constructs.

In a parallel independent study, Kohn and McGinnis (1997) replicated their earlier research to further examine logistics strategies based on the Bowersox/Daugherty typology and variables that affect those strategies. Specifically, this research sought to ascertain: (a) whether process, market, and information strategic orientations were independent or interrelated; (b) if they were not independent, how they interrelated; and (c) how logistics priorities, company competitive responsiveness, and external environmental hostility affect logistics strategy. Factor analysis revealed that most market and information questionnaire items loaded on one factor and the process items loaded on another factor. Based on the scores of these two factors, four logistics strategic orientation categories were identified. They were Intense, Integration (market and information) Intense, Process Intense, and Extense. The four logistics strategic orientations were found to be a function of two logistics priorities (Customer Service Commitment and Logistics Coordination Effectiveness) and Company Competitive Responsiveness. The strategic orientations were independent of one logistics priority (Integrated Computer Effectiveness) and Environmental Hostility. The authors concluded that: (a) two strategic orientations (Integration and Process) describe logistics strategy; (b) both logistics strategic orientations were present, to varying degrees, in all organizations studied; (c) that customer service commitment, effective logistics coordination, and competitive responsiveness affect logistics strategy, and high performance of all three variables is necessary for high performance of both strategic orientations; and (d) that additional research is needed to further evaluate logistics strategic orientation. Kohn and McGinnis (1997) further concluded that the scales used in the study were valid measures when used with logistics managers to study logistics strategy.

RESEARCH QUESTIONS AND DEVELOPMENT OF HYPOTHESES

Based on the review of the previous research on the Bowersox/Daugherty typology and the conceptual insights provided by Porter's value chain, Thompson's paradox of administration, and the perspectives offered by Shapiro and Heskett, the following three research questions were developed. They are:

1. Do the Bowersox/Daugherty logistics strategic orientation forms (process, market, and information) affect logistics strategy effectiveness?

2. If process, market, and information strategic orientations affect logistics strategy effectiveness, are the findings consistent with the insights of Porter, Shapiro and Heskett, and Thompson?

3. If process, market, and information strategic orientations affect logistics strategy effectiveness, what are the implications for logistics and supply chain management practitioners, teachers, and researchers?

The research reported in this manuscript uses previously developed scales to ascertain the affect of the Bowersox/Daugherty typology on logistics effectiveness. The three independent variables are shown in Table 2 (Kohn and McGinnis 1997). The dependent variable selected for the model is the scale "Logistics Coordination Effectiveness" (see Table 3). The authors believed that this scale provides a good proxy for measuring logistics strategy outcomes, that it has adequate validity and reliability when used with logistics managers in U.S. manufacturing firms (Kohn and McGinnis 1997), and had been used in previous studies with the independent variables. While the previously cited research suggests that the dimensions of the Bowersox/Daugherty typology may not be independent, none of the previously reported research established definitive relationships among the three strategic orientations, nor among these strategic orientations and logistics effectiveness. As a result, Process, Market, and Information strategic orientations were treated as independent variables for purposes of analysis, and the following three hypotheses were developed.

Hypothesis 1: Process Strategic Orientation is positively associated with Logistics Coordination Effectiveness.

Hypothesis 2: Market Strategic Orientation is positively associated with Logistics Coordination Effectiveness.

Hypothesis 3: Information Strategic Orientation is positively associated with Logistics Coordination Effectiveness.

The balance of the paper is divided into four sections. The next section discusses the research methodology. The second section presents the data analysis and results. The third section discusses the findings in the context of the literature reviewed. The final section discusses the conclusions and their implications for logistics practitioners, teachers, and researchers.

METHODOLOGY

In April 1999 the authors sent a four-page, 36-item, questionnaire and cover letter to 732 randomly selected logistics managers working in U.S. manufacturing firms. The subjects were selected from the membership list of the same large national logistics organization previously used in studies conducted in 1989, 1990, and 1994. A pre-notification letter was sent one week before the mailing and a follow-up letter was sent one week after the questionnaire. Eighteen questionnaires were returned for a net mailing of 714. A total of 172 (23.5% of the gross mailing, 24.1% of the net mailing) usable questionnaires were returned by the response cut-off date.

Contingency table analysis and Chi-square analysis were used to compare the distribution of 170 respondent ZIP Codes (obtained from the identified respondents' addresses and the postmark of anonymous respondents) to the ZIP Codes of the sample. Results indicated that the respondents were geographically representative of the population sampled. This finding was consistent with three previous studies using similar questionnaires with the same population. It was concluded that the respondents were representative of logistics managers in U.S. manufacturing firms.

DATA ANALYSIS AND RESULTS

Data analysis was conducted in three steps. First, a factor analysis was conducted to ascertain whether the nine questionnaire items in Table 2 were separate constructs. Previously cited research summarized in Table 1 discussed combinations among process, market, and information strategic orientations (Bowersox and Daugherty 1987), empirically identified overlaps among them (Clinton and Closs 1997), and found that nine questionnaire items associated with them loaded on only two factors (McGinnis and Kohn 1993). These findings suggested that it would be presumptuous not to ascertain whether process, market, and information strategies overlapped before proceeding with data analysis. The analysis was conducted using SPSS 10.0 for Windows. Principal extraction method was principal components. A varimax rotation was performed on two factors whose eigenvalues were greater than one. As shown in Table 4, two factors accounted for 49.7% of the variance in the nine items. Five items loaded on (correlated with) Factor I at 0.50 or higher and a sixth loaded at 0.494. The coefficient of reliability of this factor was 0.703. Since Factor 1 was comprised of items from Process Strategy and Information Strategy, it was named "Process and Information Strategic Orientation." Three items loaded on Factor 2. The coefficient of reliability for this factor was 0.741. Because all three items were from the Market Strategy scale, Factor 2 was named "Market Strategic Orientation." The two factors are shown as Table 4.

As a result of the factor analysis, two of the three hypotheses were condensed. The final two hypotheses were:

Hypothesis 1: Process and Information Strategic Orientation is positively associated with Logistics Coordination Effectiveness.

Hypothesis 2: Market Strategic Orientation is positively associated with Logistics Coordination Effectiveness.

In the second step of the analysis, composite scores were calculated, by averaging the items for each variable for each respondent, for the dependent variable (Logistics Coordination Effectiveness) and the two independent variables (Process and Information Strategic Orientation and Market Strategic Orientation). These scores were used for the third step of the analysis. The final analysis consisted of step-wise multiple regression. One hundred and sixty-eight subjects (four were excluded due to missing data) were included in this analysis. Examination of the variable correlation matrix, tolerance, variance inflation factors, and variance proportions did not indicate a problem with multicollinearity. The coefficients of the independent variables in the final equation were significant at

Results

Examination of Table 4 reveals that items from process and information strategies loaded on a common factor, Process and Information Strategic Orientation, and the items from market strategy loaded on one factor, Market Strategic Orientation. As shown in the Appendix in the 1994 study, items from market and information strategies loaded on a common factor, Logistics Integration Strategic Orientation, and the items from process strategy loaded on one factor, Process Strategic Orientation. The dynamic nature of the factor loadings between 1994 and 1999 is consistent with earlier observations. Bowersox and Daugherty observed that firms may use a combination of strategies to satisfy complex business requirements. Clinton and Closs found that a strong overlap of channel (information) strategy with process and market strategies might mean that information strategy may often be confused with other strategies. Further examination of the factor loadings between the 1994 and 1999 data reported in this manuscript suggests that overlaps between information strategy, on one hand, and process and market strategies, on the other hand, are dynamic. This means that information strategy may overlap with market strategy (1994 data shown in the Appendix), process and market strategies (Clinton and Closs 1997), or process strategy (in the current study).

The causes of overlap among process, market, and information strategies have been addressed in the cited literature: Bowersox and Daugherty (1987) concluded that firms use a combination of strategies to satisfy complex business requirements; McGinnis and Kohn (1993) noted that logistics strategy is associated with both environmental challenge and business competitive responsiveness; Clinton and Closs (1997) observed that all three strategies have a common problem of managing a logistics program, each with a different emphasis; and Kohn and McGinnis (1997) found that logistics strategy is associated with business competitive responsiveness. Overall, it appears that environmental challenge and organizational strategy contribute to the dynamic nature of the overlap of information strategy with process strategy and market strategy reported in this research.

Examination of Table 5 reveals that both revised hypotheses were supported. All signs were positive, indicating that increased emphasis on either Process and Information or Market Strategic Orientations increases the level of Logistics Coordination Effectiveness. The coefficient of determination for the final model was 0.472 (when the subjects were divided into two groups the coefficients of determination changed little). That over 45% of the variance in the dependent variable is explained by the independent variables is noteworthy, given that a wide range of quantitative and qualitative activities contribute to Logistics Coordination Effectiveness. They include coordination with customers, suppliers, maintaining working relationships with other organizational departments, and coordinating logistics with the overall strategic planning process.

Examination of the results reveals that the majority of variance in both step-wise regression analyses was explained by variables that included process strategy. In the 1994 data (see Table A-2) Process Strategic Orientation explained 25.9% of the variance in the dependent variable, while the addition of the variable Logistics Integration Strategic Orientation (market and information items) to the equation increased the explained variance to 32.8%. Similarly, in the 1999 data (see Table 5) Logistics Efficiency and Control Strategic Orientation (process and information items) explained 42.5% of the variance in the dependent variable, while the addition of Market Strategic Orientation increased the explained variance to 47.2%. These results suggest that the dominant component of logistics effectiveness, overall, is process strategy. This suggests that achieving maximum efficiency, controlling costs, and rationalizing complex activities is crucial to logistics coordination effectiveness. While market strategy (reducing the complexity faced by customers through programs that coordinate physical distribution among business units) and information strategy (coordination and control of dealers and distributors through programs that facilitate inter-organizational coordination and collaboration) contribute to logistics coordination effectiveness, it appears that their role is less crucial from the perspective of logistics managers.

FINDINGS

The results confirm that the Bowersox/Daugherty typology provides a useful framework for studying logistics strategy. Rather than being comprised of three discrete dimensions, the results indicate that logistics strategy is a blend of process (optimized efficiency), market (reducing complexity faced by channel members), and information (channel) strategies. It is important to recognize that the three strategies are dynamic. For example, factor analysis of the 1994 data identified two strategic orientations: one blended market and information strategies and the other was process strategy. In the 1999 study, factor analysis identified two different strategic orientations: one blended process and information strategies and the other was market strategy. In both datasets, the majority of the dependent variable's (logistics coordination effectiveness) variation was explained by an independent variable that included process strategy. In U.S. manufacturing firms, logistics effectiveness is a function of: (a) cost efficiency, then (b) processes that meet customer needs, and (c) coordination of the channel. Information strategy (channel coordination) apparently overlaps with the other strategies by facilitating control over costs and inventories (process strategy), facilitating coordination and complexity reduction for channel members (market strategy), or both.

The findings also are consistent with the value chain (Porter 1985). The regression model supports logistics' contributions to inbound logistics, operations, outbound logistics, marketing and sales, and service. The results are not in conflict with the value chain's support activities (procurement, technology development, human resource, and firm infrastructure).

The findings fit well with Thompson's (1967) work regarding conflicting goals (short-term efficiency versus long-term flexibility) of the paradox of administration. In general, process strategy focuses on efficiency, market strategy focuses on flexibility, and information strategy focuses on integrating efficiency and flexibility. While the blend of specific logistics strategies may vary, it appears that efficiency optimization (process strategy) is a crucial component of logistics strategy effectiveness. Market strategy and information strategy provide intra- and inter-organizational linkages that complete the total logistics strategy.

Finally, the findings fit well with the insights of Shapiro and Heskett (1985). Their focus on efficiency is addressed by process strategy and their focus on channels is reflected in market and information strategies. Intra-organizational and inter-organizational interactions are facilitated by process, market, and information strategies. The focus on competitive advantage is emphasized in process (cost), market (meaningful differentiation), and information (both cost and meaningful differentiation). Finally, "The Two Faces of Logistics" are implicitly recognized in the Bowersox/Daugherty typology.

CONCLUSIONS

Process, market, and information contribute to logistics strategy effectiveness. According to the results of the two regression analyses, process strategy explains more of the variance in logistics coordination effectiveness than the other two strategies in U.S. manufacturing firms. This suggests that the primary thrust of logistics strategy is maximum efficiency. In addition, the regression analyses reveal market strategy (reducing complexity faced by customers) contributes to logistics strategy efficiency. Information (channel coordination) strategy's role is to facilitate the two other strategies. What this means for logistics practitioners is that logistics strategy must be efficient and must be able to meet the customer and channel needs of the organization's strategy. For example, an organization that faces competitive threats from competitors or customers regarding logistics system responsiveness will need to place greater emphasis on market strategies enhanced with information strategies. In another competitive environment, an organization that faces aggressive price competition will need to emphasize process strategies enhanced with information strategies. It should be noted that greater emphasis on one dimension of logistics strategy (such as efficiency) does not imply that the other dimensions (market responsiveness, channel coordination) can be neglected. Rather, most logistics strategies will attempt to simultaneously manage the conflicts among cost effectiveness, market responsiveness, and inter- and intra-organizational coordination by maintaining a dynamic balance through juggling the conflicting priorities while constantly seeking innovations that enhance them all.

There are three implications for those teaching logistics. First, the components of logistics strategy can be summarized as process, market, and information. At the principles level, these concepts can help students better understand the nature of logistics. At the intermediate level, logistics instructors can then begin to explore the challenges faced when logistics managers have to simultaneously achieve efficiency and responsiveness. For example, what tradeoffs are necessary if cost efficiency must be achieved without reducing market responsiveness? What tradeoffs are necessary if logistics system responsiveness must be achieved without sacrificing cost efficiency? Finally, at the advanced level, logistics instructors are faced with the challenges of managing a dynamic blend of process, market, and information strategies within the overall strategies of the organization. At this stage, the instructor and his/her students may be faced with multiple logistics strategies that must simultaneously respond to an array of cost competitive, responsiveness competitive, and cost/responsiveness competitive market segments. The Bowersox/Daugherty typology offers a framework that enables students at the principles, intermediate, and advanced levels to conceptualize, grasp, and apply logistics concepts within a reasoned framework.

For logistics researchers, the findings of this research offer several insights and challenges. First, the Bowersox/Daugherty typology can be used for examining logistics strategy in U.S. manufacturing firms. It is consistent with a wide range of previous writing by Porter (1985), Shapiro and Heskett (1985), and Thompson (1967). In addition, a chain of empirical research by McGinnis and Kohn, by Clinton and Closs, and the current study have supported the typology as a framework for describing, explaining, and examining logistics strategy. Finally, the typology offers a framework for future research into logistics strategy. Three issues that have not been answered include:

1. To what extent can logistics strategy outside of U.S. manufacturing be described by the Bowersox/Daugherty typology? In particular, are the roles of process, market, and information strategies similar? Or, are these strategies not relevant in channel intermediaries, retailers, service providers, and not-for-profit organizations?

2. In what situations are process, market, or information strategies likely to be of greater importance? The analyses presented in this manuscript suggest that process strategy contributes a greater level of explained variance than market strategy. Under what circumstances (if any) is market strategy more important?

3. The role of information strategy as a facilitator of logistics strategy is not thoroughly understood. The results of this research indicate that it facilitates process or market strategy. Are there situations where information strategy drives logistics strategy in manufacturing or non-manufacturing organizations?

The research presented here amplifies previous findings to emphasize that the three dimensions of the Bowersox/Daugherty typology are: (a) interdependent and (b) dynamic. The authors do not expect that future research will identify an optimum blend of process, market, and information strategies. Rather, future research may identify the interactions among process, market, and information strategies; how these strategies contribute to organizational objectives; how these strategies are blended within an organization to meet the needs of multiple customer segments; and how these strategies contribute to logistics strategy in non-manufacturing organizations.

NOTES

Bowersox, Donald J. (1974), Logistical Management, 2nd Ed. New York: Macmillan Publishing Co., Chapter 14.

Bowersox, Donald J. and Patricia J. Daugherty (1987), "Emerging Patterns of Logistical Organization," Journal ofBusiness Logistics, Vol. 8, No. 1, pp. 46-60.

Brewer, Stanley H. and James Rosenzweig (1961), "Rhochrematics and Organizational Adjustments," California Management Review, Vol. 3, No. 3, pp. 52-71.

Clinton, Steven R. and David J. Closs (1997), "Logistics Strategy: Does it Exist?" Journal of Business Logistics, Vol. 18, No. 1, pp. 19-44.

Kohn, Jonathan W. and MichaelA. McGinnis (1997), "Advanced Logistics Organization Structures: Revisited," Journal ofBusiness Logistics, Vol. 18, No. 2, pp. 147-162.

McGinnis, Michael A. and Jonathan W. Kohn (1988), Warehousing, Competitive Advantage, and Competitive Strategy," Journal ofBusiness Logistics, Vol. 9, No. 2, pp. 32-54.

McGinnis, Michael A. and Jonathan W. Kohn (1990), "AFactor Analytic Study of Logistics Strategy, Journal of Business Logistics, Vol. 11, No. 2, pp. 41-63.

McGinnis, Michael A. and Jonathan W. Kohn (1993), "Logistics Strategy, Organizational Environment, and Time Competitiveness," Journal ofBusiness Logistics, Vol. 14, No. 2, pp. 1-23.

Porter, Michael E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press, Chapter 2.

Shapiro, Roy D. and James D. Heskett (1985), Logistics Strategy: Cases and Concepts, St. Paul, MN: West Publishing Company, pp. 16-20.

Thompson, James D. (1967), Organizations in Action, New York: McGraw-Hill Book Company, Chapter 11.

Michael A. McGinnis

Penn State New Kensington

Jonathan W. Kohn

Shippensburg University

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