Short‐run vs long‐run trade‐offs in outsourcing relationships

Abstract

Purpose The purpose of this paper is to report on a study of a shipper's dilemma as a customer. Shippers desire both lower costs and good service levels, and this dilemma may lead in the long run to a trade‐off consideration between staying loyal to existing service providers and seeking cost reductions from competing providers. Design/methodology/approach A model was devised from the literature exploring how a shipper's propensity to switch logistics service providers may be affected by perceptions of service elements and logistics cost reductions. The model was tested with survey data from 235 Finnish industrial firms and analysed using structural equation modelling. Findings Findings indicate that in the short‐run trade‐offs do not exist, but there may be a propensity to trade‐off in the long run. Further, quality of service is a more important factor for customers than participating in tight price competition. Research limitations/implications The data were collected from one country and further studies are required to test these research propositions in other countries and contexts. Practical implications Logistics service providers should concentrate more on service quality and refrain from tight price competition to gain and reinforce customer loyalty. Further, shippers should also adopt a long perspective regarding strategy and refrain from short‐run, cost reduction seeking behaviour. Originality/value This study integrates several factors as drivers of outsourcing relationship continuity and/or change and presents a fresh collection of data for analysis.

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