Asia Pacific Journal of Marketing and Logistics

3PLSP scale for co-operative dairies in Indian context

Tejas R. Shah Mahendra Sharma

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Tejas R. Shah Mahendra Sharma, (2012),"3PLSP scale for co-operative dairies in Indian context", Asia
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3PLSP scale for co-operative

dairies in Indian context

3PLSP scale

Tejas R. Shah
Shri Chimanbhai Patel Institute of Management and Research,
Ahmedabad, India, and

Mahendra Sharma
V.M. Patel Institute of Management, Ganpat University, Gujarat, India

515
Received 14 November 2011
Revised 2 February 2012
Accepted 9 March 2012

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Abstract
Purpose The purpose of this paper is to develop a scale for measuring benefits of third party
logistics service providers for co-operative dairies in an Indian context. The objective is to measure
benefits of third party logistics service providers for co-operative dairies.
Design/methodology/approach A standard scale development research procedure recommended
by experts was followed. First, the literature review of studies to measure benefits of third party logistics
was undertaken. Later, Delphi method was used. Interviews were conducted of experts and customers
for understanding and generating items for measuring benefits of third party logistics service providers
for co-operative dairies. A survey was then undertaken first for development of the scale and later for
validation purpose.
Findings A reliable and valid scale is developed to measure the five dimensions of benefits of using
3PLSPs for co-operative dairies: responsiveness, accuracy, customization of service, inventory
handling and order processing and information sharing.
Research limitations/implications This scale is developed to outsource logistics functions at
operational levels in the context of co-operative dairies in India. So, this scale can be tested for
co-operative dairies of countries other than India. The scale can also be tested where outsourcing of
logistics activities is done at operational level, other than co-operative dairies.
Practical implications The proposed scale can be used as a diagnostic tool to identify important
benefits to consider in outsourcing operational function of logistics management to 3PLSPs in
co-operative dairies.
Originality/value Most relevant studies about benefits of third party logistics service providers do
not have stable factor structure, especially for co-operative dairies. The new scale fills the gap of the
absence of a validated scale to measure benefits of 3PLSPs for co-operative dairies at operational level.
Keywords Co-operative dairies, Third party logistics service providers, India, Outsourcing,
Management strategy, Distribution management
Paper type Research paper

Introduction
India is the largest producer of milk in the world with 112.5 million tone productions in
the year 2009-2010. The per capita availability of milk in India is 263 grams per day
(source: NDDB, www.nddb.org/). Dairy co-operatives have played an important role in
the development of the Indian dairy sector by linking smallholder dairy producers with
the markets and providing fair-cost and quality inputs and services to the producers.
In India, co-operative dairies procure about 14 per cent of the national marketable
surplus and nearly 8 per cent of total rural milk producing households covering around
21 per cent of the countrys villages and 18 per cent of rural milk producing households
(Sharma and Thaker, 2010).

Asia Pacific Journal of Marketing and

Logistics
Vol. 24 No. 3, 2012
pp. 515-532
q Emerald Group Publishing Limited
1355-5855
DOI 10.1108/13555851211237948

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Gujarat is the pioneer state in development of co-operative structure for dairies.

Gujarat constituted around 7.73 per cent of total milk production in India. The Gujarat is
ranked fifth among the states producing milk in India (source: NBBD, www.nddb.org/).
The present level of per capita availability of milk in Gujarat is much higher at 403 grams
per day (third rank in India), which is well above the per capita availability of milk of
220 grams per day as recommended by Indian Council for Medical Research (Sharma and
Thaker, 2010). The per capita monthly expenditure on milk and milk products in Gujarat
was 22.7 per cent in rural area and 25.3 per cent in urban area as against 15.5 per cent in
rural area and 18.8 per cent in urban area in India for the year 2006-2007 (Sharma and
Thaker, 2010). In Gujarat, there were 13,646 organised district co-operative societies
(DCS) centers in the year 2008-2009, constituting 2,839,000 farmer members out of which
784,000 women members. As against the national average of 8 per cent, the share of milk
procured by co-operatives in Gujarat was much higher at 39 per cent and had increased
significantly during 2000s. The share of Gujarat in total milk procurement by
co-operative dairies in India was the highest at 32.90 per cent, followed by Karnataka
(13.2 per cent) and Maharashtra (13.1 per cent) during the year 2008-2009. Gujarat has
increased its share from 27.6 per cent in the 2001-2002 to 32.9 per cent in 2008-2009
(Sharma and Thaker, 2010).
Gujarat Co-operative Milk Marketing Federation (GCMMF) is the apex body of all
the co-operative dairies in Gujarat. Under GCMMF, 13 co-operative dairies are
operating with 19 dairy plants in Gujarat. Total milk procurement by GCMMF was
3,050,000 tonnes in the year 2008-2009, which constituted 36.37 per cent approximately
of the total milk production in Gujarat. The total average daily milk handling capacity
of GCMMF stood at 11,220 tonnes, while the total daily milk collection was 8,400 tonnes
for the year 2008-2009. GCMMF is operating with 13,328 co-operative societies with
around 2.79 million producer members (source: GCMMF, www.amul.com/).
The co-operative structure aims at following features (Figure 1):
.
decentralized milk production by the small milk producers;
.
milk procurement by the village-level dairy co-operative societies;
.
centralized milk processing by the district-level unions; and
.
marketing of milk and milk products by the state-level federation
(source: GCMMF, www.amul.com).
Logistics issues in milk and milk products
Milk and other dairy products are highly perishable. Significant logistics problems
arise both in collection of the milk from farm and the distribution of varieties of milk
products to retailers and customers (Butler et al., 2005). Milk and milk products are
affected by temperature variation, humidity, other environmental conditions and
transportation time. Therefore, it is extremely important that transportation time,
handling, storage and other requirements are well planned in order to maintain the
product characteristics till they reach to the customers. Customer service management
requires logistic management flexibility at supply, production and distribution levels
(Gotzamani et al., 2010). In co-operative dairy environment, increasing levels of product
variety and customization and the ability to respond to customer orders in a timely
fashion can provide a critical competitive advantage (Reichhart and Holweg, 2007).
Co-operative dairies are indicating that responsiveness and flexibility are the keys

3PLSP scale
3P
Services

Suppliers

Procurement

GCMMF

Unions

517

Price
3POL

Distributor

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Milk

Customers
or
Consumers

3PIL
VDCS
Retailer

Entities in Supply Chain

Demand

Coordination and Planning

activities

Material flow of Milk and Dairy

Products

3PIL - Third party in-bound logistics

Support Services

3POL - Third party out-bound

logistics

Primary/Major influencing factors

VDCS Village dairy co-operative

society

Source: Chandra and Tirupati (2002)

to responding to markets, which are rapidly changing and require a range of products
and services for customers (Cunningham, 1996). Most of co-operative dairies operating
in India have contractual relationships with third party logistics service providers
(3PLSPs). The outsourcing decision is influenced by firms (co-operative dairies)
perception of 3PLSPs abilities, the way in which 3PLSPs job functions are defined and
their capabilities are perceived, based on the firms (co-operative dairies) underlying
reasons for outsourcing (Banomyong and Supatn, 2011). The nature of the outsourcing
contract and firms perception of 3PLSPs role is largely driven by the underlying
factors which influence the original decision to outsource.
Two different approaches are well defined in literature to outsource logistics
activities: transaction cost theory (TCT) and resource based view (RBV) (Zacharia et al.,
2011). TCT has been seen as fundamental to the outsourcing principle. TCT focuses on
the costs of completing transactions. The use of TCT depends upon three main
attributes in outsourcing decision: asset specificity, uncertainty and frequency of
transactions (Bourlakis and Melewar, 2011). RBV studies the firms internal strengths
and weaknesses. It focuses on firms core competencies and competitive advantages
(Hsiao et al., 2010). TCT suggests that the role of 3PLSP is limited to operational issues

Figure 1.
The demand-supply
linkages in logistics of
co-operative dairies

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as the firms focus is on cost function. As per RBV, 3PLSP is seen as a strategic partner
where outsourcing decision is made due to resource considerations and core
competencies.
The use of 3PLSP can be at operational or strategic level (Selviaridis and Spring, 2007;
Zacharia et al., 2011). This research concentrates on the operational relationships
between 3PLSPs and firms. The study includes the development of scale, which
describes the important criteria to consider while outsourcing the selected logistics
functions to 3PLSP at operational level. The study is conducted in context of
co-operative dairies in India, where 3PLSPs have been used at operational level only.
The co-operative dairies are covering its large market with use of 3PLSPs in its
transportation at supply and distribution levels. The effort has been made to develop
valid and reliable scale for selection of 3PLSPs at operational level.
Third party logistics service provider
A growing trend towards outsourcing of logistics activities in a wide variety of
industrial sectors has led to an emergence of large companies that have the capabilities
to offer sophisticated logistics solutions, known as logistics service providers
(Selviaridis et al., 2008). The outsourcing of logistics to 3PLSPs has become an
increasingly powerful trend in modern era (Qureshi et al., 2008).
Various terms have been used interchangeably to describe the organizational practice
of contracting out part of or all logistics activities like third party logistics (3PL), logistics
outsourcing, logistics alliances and contract logistics (Ratten, 2004). Different researchers
have defined 3PLSPs differently. The third party normally takes the possession of goods
but does not take title and provides its services for a price (McGinnis et al., 1995). Langley
et al. (1999) defined 3PLSP as a company that provides multiple logistics services for its
customers, whereby the 3PL provider is external to the customer company and is
compensated for its services. Logistics outsourcing is a process that involves the use of
external logistics companies to perform activities that have traditionally been performed
within an organisation (Wang et al., 2006), where the shipper and logistics company enter
into an agreement for delivering services at specific costs over some identifiable time
horizon (Hsiao et al., 2010). According to Chen (2008) 3PLSP deals with the logistics of the
delivery of inputs from suppliers to the manufacturing plant and/or the delivery of
finished goods to various demand centres. Tian et al. (2010) explained that 3PLSP is
specialist provider of a wide range of logistics activities and is well-recognized as key
enablers of its customers service-related competitive advantages. 3PLSP is a firm in
supply chain process that brings products and services to end customers thereby forming
a logistics triad among seller, buyer and 3PLSP (Gotzamani et al., 2010). Banomyong and
Supatn (2011) mentioned that 3PLSP is an outside company that performs some or all of a
firms logistics activities. 3PLSP is the management, control and delivery of logistics
activities on behalf of a shipper by an external provider.
3PL activities are based on formal contractual relations (Selviaridis et al., 2008;
Large et al., 2011). 3PLSP is associated with the offering of multiple, bundled services,
rather than just isolated transport or warehousing functions. The role of 3PLSP has
changed from initially offering transportation services to offering a broad array of
bundled services that includes warehousing, inventory management, packaging,
cross docking and technology management (Zacharia et al., 2011).

The principle behind 3PL is to concentrate on core activities and rely on experts
(3PLSPs) for other critical activities. In doing so, companies can direct scarce resources for
developing core competence and outsource critical activities like logistics on expert third
party providers for whom logistics is the core activity (Hofer et al., 2009; Salleh and
Dali, 2010; Liu et al., 2010; Zacharia et al., 2011). The level of analysis of 3PLSP research can
be studied at three levels: the firm, the dyad and the network (Selviaridis and Spring, 2007).

3PLSP scale

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519
Outsourcing of logistics function
The decision to outsource logistics activities depends on number of internal and external
considerations. Several factors such as centrality of logistics function, risk and control,
cost/service trade-offs, information technologies and relationships with 3PLSP are
affecting the decision. Product related (e.g. special handling needs), process related
(e.g. cycle times) and network related (e.g. locations served) drivers are believed to have an
indirect influence in the outsourcing decision (Rao and Young, 1994). McGinnis et al. (1995)
found that the logistics strategy is affected by competitive responsiveness, external
environmental hostility and environmental dynamism. Daugherty and Droge (1997)
linked the logistics outsourcing decision with the shippers organizational structure.
Organizations that have decentralized line activities at the business level are expected to
outsource more in comparison to shippers that organize theirs centrally. Hong (2004)
discussed determinants of outsourcing in terms of shipper firms characteristics. Rahman
(2011) found that outsourcing contracts can be analyzed from three perspectives: user,
service provider and user-service provider. Hsiao et al. (2011) mentioned that the
outsourcing of logistics activities is dependent on supply chain complexity. Bourlakis and
Melewar (2011) found that the selection of 3PLSP is depended on the market environment,
the clients needs, regulatory environment and competitiveness of 3PLSPs.
Benefits and costs of using 3PLSP
van Damme and Ploos van Amstel (1996) explained that the do or buy decision is
affected by evaluation of cost/service trade-offs. Cost associated with performing
logistics activities in-house and investment in capital assets is traded-off against
service provider fees. The decision process of outsourcing is based on an evaluation of
the costs and benefits of outsourcing (Hong, 2004; Hofer et al., 2009). The major reasons
cited for usage of 3PLSP services include cost reduction (27 per cent), strategic
reasons (26 per cent), process effectiveness (24 per cent) and lack of internal capability
(11 per cent) (Sahay and Mohan, 2003).
Lau and Zhang (2006) found economic, strategic and environmental benefits while using
3PLSPs. Three kinds of benefits can occur using 3PL: strategy, finance and operations
related (Selviaridis and Spring, 2007). Outsourcing of non-strategic activities enables
organizations to focus on core competence and exploit external logistical expertise (Sink
and Langley, 1997). The relationship with 3PLSP increases efficiency and effectiveness in
performance without investing in assets and new capabilities (Persson and Virum, 2001).
The contract logisticians convert a fixed cost into variable cost for users (Hsiao et al., 2011).
Postponement is another benefit, which enhances the ability of the firm to compete on time
while remaining cost competitive (Bhatnagar and Viswanathan, 2000). 3PLSP users can
enhance their flexibility with regard to market (investment) and demand (volume
flexibility). In an era of increased competition, globalization and the need for reduced order
cycle time and inventory levels, the firms can be more responsive to market situations

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based on effective logistics alliances. Other benefits include reduction in inventory levels,
order cycle time, lead-times and improvement in customer service (Bhatnagar and
Viswanathan, 2000; Ratten, 2004). The use of 3PLSP leads to variety of benefits including
improved market performance, competitive advantage, higher levels of customer service
and improved cost-effectiveness between the shipper and the carrier (Cochran and
Ramanujam, 2006). Gotzamani et al. (2010) found that the use of 3PLSP leads to better
quality management, which ultimately leads to improved financial performance.
The multiple customers can be approached, which spreads logistics costs among wide
number of customers, which provides the benefit of economies of scale (Hsiao et al., 2011).
Thai et al. (2011) explain that the use of 3PLSP brings benefits in terms of skilled logistics
professionals.
The recent literature has defined the major benefits of using 3PLSPs in logistics
management of firm like on time delivery, correct delivery, cost consideration, inventory
accuracy, quality of services, flexibility, customization, shipments in terms of value/
volume, communication system, sensitive information sharing, quick response, customer
complaint, total order cycle time, fill rate and use of technology (Mentzer et al., 2001;
Lai, 2004; Wilding and Juriado, 2004; Panayides, 2007; Rafiq and Jaafar, 2007; Qureshi et al.,
2008; Selviaridis et al., 2008; Chen, 2008; Kundhamraks and Hanaoka, 2008; Kannan, 2009;
Hartmann and Grahal, 2011; Large et al., 2011; Rahman, 2011).
One of the reasons given for limiting the extent of outsourcing the strategic level
activities is the retailers perception of the risks of outsourcing, the most commonly cited
was the increased dependence on service providers (Bolumole, 2001). One of the most
obvious risks associated with using 3PLSP is loss of control over the logistics function and
loss of in-house capability and customer contact. So generally companies employ mixed
strategy regarding logistics and retain important logistics activities (e.g. order
management) in-house (Wilding and Juriado, 2004). The lack of responsiveness to
customer needs is also one of the important problems in logistics outsourcing (van Damme
and Ploos van Amstel, 1996). The cost reduction is not clearly found out due to unrealistic
fee structures of service providers (Ackerman, 1996). Cost saving evaluation can be
difficult due to the shippers lack of awareness of internal logistics costs. Other problems
associated with 3PLSP are inferior service performance, disruption to inbound flows,
inadequate provider expertise, inadequate employee quality, sustained time and effort
spent on logistics, loss of customer feedback and inability of 3PL providers to deal with
special product needs and emergency circumstances (Svensson, 2001). Certain difficulties
like lack of understanding of clients supply chain needs, lack of adequate expertise in
specific products and markets, unrealistic customer expectations, inadequate description
of services and service levels, lack of logistics cost awareness by the client and lack of 3PL
innovation are impediments for designing and implementing 3PLSP (Ackerman, 1996).
Need for developing a scale to measure 3PLSP benefits for co-operative
dairies
The benefits of using 3PLSP are contextual in nature. The past literature describes the
important benefits to consider while selecting 3PLSP, but it lacks the development of
valid and reliable measurement for selection of 3PLSP, especially when it is used at
operational level. Thus, the testing and validation is required before one can accept any
one factor structure as the factor structure underlying the construct of the benefits of
3PLSP at operational level. This study fills this gap by systematically defining and

measuring the important benefits to consider in 3PLSPs at operational level. This

study is conducted in the context of co-operative dairies in India, where the most of the
operational functions of logistics management at supply and demand level are
performed by 3PLSPs.

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Objectives of study
The objectives of the study are to determine the dimensions used in judging the benefits
of 3PLSPs at operational level, to develop a tool for measuring benefits of 3PLSPs for
co-operative dairies, to test validity and reliability of new scale and finally to suggest
measures for improving quality of benefits of using 3PLSPs for co-operative dairies.
Research methodology
This research consisted of a series of steps towards developing a measure to assess
benefits of using 3PLSPs for co-operative dairies. Schawb (1980) suggested three
stages of scale development. They are:
(1) item generation which involves selecting items from previous studies;
(2) scale development which deals with deciding the manner in which items are
combined to form scales; and
(3) scale evaluation which refers to testing the psychometric properties of the scale.
Exploratory study item generation stage
This stage involved identifying and defining the benefits of using 3PLSP in logistics
management.
Step 1. Definition of the 3PL
Based on detailed literature review, it can be inferred that the 3PLSP is associated with
the offering of multiple, bundled services, rather than just isolated transport or
warehousing functions and is based on formal contractual relations.
Step 2. Identification of benefits of using 3PLSP
The benefits of using 3PLSP were taken from previous studies undertaken for
measuring benefits of using 3PLSPs and reported in research journals.
Step 3. Generation of items representing the dimensions
Item generation procedure involved two steps: one, statements or items taken from
previous studies undertaken for assessing benefits of 3PLSPs and two, semi-structured
interview (Delphi method).
Based on comparison by reading, repetitive items/statements were excluded from
the list and refined list items/statements were prepared which would be adopted for
scale construction purpose. Based on this list, a questionnaire was prepared for
semi-structured study.
Delphi method. In the first phase, the questionnaire was administered to ten experts
in the co-operative dairies and two experts in the academic world. Their views were
taken as to whether a particular item belongs to benefits of using 3PLSPs or not.
Also the views of other eight 3PLSPs of co-operative dairies were contacted. Their
suggestions were taken on new statements, which were not in questionnaire and which

3PLSP scale

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were important benefits of using 3PLSPs. Based on the responses of above

20 respondents, items were selected for further study.
Step 4. Survey questionnaire for data collection
Based on the responses of respondents, a questionnaire was prepared which constituted
statements measuring different items of benefits of 3PLSPs for co-operative dairies. This
questionnaire was pre-tested on 12 participants in co-operative dairies.
Descriptive study data collection for scale development
The data from a sample of 100 respondents was collected. The sampling unit included,
top and middle level executives, working at various supply chain level, in purchase and
procurement department, production department and marketing and distribution
department of various co-operative dairies in Gujarat. The convenience sampling
method was used for the study. The personal contact method was used to fill up the
questionnaire from respondents.
Data analysis scale development
The procedure used for the scale development involved the use of factor analysis and
the calculation of Cronbach alpha to generate the factor structure. Data analysis was
done using statistical package for social sciences 16.0 version.
The factor analysis method was used to find out various dimensions of scale. The
Bartletts test of sphericity and Kaiser-Meyer-Olkin measure of sampling adequacy
tests were performed before factor analysis, which showed the appropriateness of the
correlation matrix for factor analysis at each stage.
The process followed for scale development is as follows:
.
Stage 1. Initially 24 items were subjected to factor analysis using principal axis
factoring procedure. The obtained factor solution was subjected to varimax
rotation. The eigen value was considered as 1 and the items which had factor
loadings less than 0.40 on any factor were dropped. The same criterion was
applied at all the subsequent factor analysis stages for dropping items. The factor
analysis at first stage resulted in six dimensions. Four items were removed from
24 total items during factor loadings. The Cronbach alpha was calculated to
measure reliability of proposed constructs. Another statistics was calculated for
each item the value of alpha if that item was removed. Using this statistics, the
items, which improved alpha if they were dropped, were dropped and the alpha
was calculated for the dimension again. Another two items were dropped based on
these measures. The same criterion was applied at the subsequent Cronbach alpha
stages for dropping items (Hair et al., 2009).
.
Stage 2. In this stage the remaining 18 items from the first stage were subjected
to factor analysis, Cronbach alpha and value of alpha for each item if that item is
removed. At this stage, the criterion resulted in the dropping of three more items
from total 18 items. One item was removed due to low loadings (less than 0.40)
and other two items due to low value of alpha for each of those items.
The remaining 15 factors were taken to the next stage.
.
Stage 3. Again at this stage, the factor loading and the value of Cronbach alpha and
alpha if item is dropped were calculated for remaining 15 factors obtained

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from stage 2. At the end of two-stage scale purification process involving factor
analysis, Cronbach alpha and alpha if one item is dropped, a 3PLSP scale of 15-items
with five dimensions is developed. Factor analysis output, at this stage, showed that
both Kaiser-Meyer-Olkin measure of sampling adequacy had the value of 0.658 and
Bartlett test of sphericity had the x 2 value of 508.943, with 105 degrees of freedom
(df) and significance value of 0.000, which proved the appropriateness of the
correlation matrix for factor analysis. The five dimensions are responsiveness,
accuracy, customization, inventory handling and order fulfillment and information
sharing, as shown in Table II. The reliability of these five factors was checked using
Cronbach alpha measurement. As shown in Table III, the Cronbach alpha values of
all five factors were above 0.6, which was sufficient to prove their reliability for
further analysis. This scale is validated in the next stage.
Scale validation
This stage of analysis consisted of scale validation process and checking reliability and
validity of the 3PLSP scale. A sample of 101 respondents was drawn which was used for
scale development and a second sample of 100 respondents was drawn subsequently for
validation. Aagja and Garg (2010) mentioned three broad criteria used to validate a scale.
First, the factor loadings of the two samples should show similar pattern, second, the
reliability values for both the stages must be same and third, the percentage of variance
explained by the various factors should be similar in the two samples.
The same factor loading procedure was adopted as followed during scale
construction stage. The results of the factors loadings during scale construction stage
and scale validation stage are mentioned in Table I. The results showed that the number
of factors was constrained to five. The structure of factor loadings in the two samples
was similar and had no major difference in loading values, thus satisfying the first
criterion. Factor loadings for different items to respective factors for both scale
construction and scale validation stages were found to be similar. This satisfies the first
criterion for scale validation.
These five factors were then taken for reliability analysis using Cronbach alpha
measurement. The comparison of coefficient alpha scores for both scale construction
and scale validation stage are shown in Table II. The Cronbach alpha values for all the
five dimensions were more or less similar, indicating good validity for these five
factors. This satisfies the second criterion for scale validation.
The third criterion for testing the validity of the five factor scale was to compare
eigen values of the factor analysis output for scale construction stage and scale
validation stage. Table III gives the eigen values for all five factors in the pattern
matrix. It can be observed that the eigen values and percentage of variances for both
the stages were almost similar and also validated the five factor structure.
Thus, on the basis of scale construction and scale validation stages, a 15-items scale
with five dimensions was developed. The dimensions were responsiveness (four items),
accuracy (four items), customization of service (two items), inventory handling and
order processing (three items) and information sharing (two items).
Validity testing of the proposed scale
Different validity, namely, face, content, convergent, discriminant and nomological, are used
to validate the proposed scale (OLeary-Kelly and Vokurka, 1998; Sureshchander et al., 2002).

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Table I.
Comparative factor
loadings for two stages

Dimensions

Scale construction factor analysis

Responsiveness (factor 1)
Quick response
Flexibility
Handling of customer complaints
Total order cycle time
Accuracy (factor 2)
Cost consideration
On time delivery
Use of technology
Correct delivery
Customization of service (factor 3)
Quality of services
Customization of services
Inventory handling and order fulfillment (factor 4)
Inventory accuracy
Shipments in terms of value/volume
Fill rates
Information sharing (factor 5)
Communication system
Sensitive information sharing

Dimensions

Table II.
Reliability analysis
Cronbach alpha

Table III.
Comparison of output
of pattern matrices

0.847
0.784
0.667
0.615

0.823
0.761
0.673
0.690

0.843
0.657
0.616
0.549

0.776
0.614
0.636
0.449

0.843
0.730

0.815
0.747

0.814
0.812
0.654

0.827
0.794
0.674

0.866
0.625

0.851
0.615

Scale construction

Responsiveness
Accuracy
Customization of service

0.613
0.720
(Only two variables)

Inventory handling and order fulfillment

Information sharing

0.712
(Only two variables)

Sample

Scale validation
factor analysis

0.556
0.730
(Only two
variables)
0.727
(Only two
variables)

Factor 4: inventory
handling and order
fulfillment

Factor 5:
information
sharing

1.908

1.350

1.183

1.720

1.293

1.216

12.721

9.001

7.887

11.469

8.620

8.104

Factor 1:
Factor 2:
Factor 3:
responsiveness accuracy customizationofservice

Eigen values
Scale
construction
3.154
2.837
Scale
validation
3.225
2.990
Percentage of variance explained
Scale
construction
21.029
18.914
Scale
validation
21.498
19.934

Scale
validation

Face validity
A the items included in the research were identified from the literature, their selection
is reasonable, thereby ensuring the face validity of the instrument.

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Content validity
The present instrument was developed based on a detailed analysis of the conceptual
and empirical literature. Moreover, the content validity of the instrument was ensured
through a review by experts from both academia and practitioners in the field.

3PLSP scale

525

Convergent validity
As suggested by Kaplan and Sacuzzo (1993), Sureshchander et al. (2002) and Kumar
(2005), to obtain convergent validity, the 3PLSP scale should have high correlation
with other measures of the same construct. For this purpose, the other measure was a
single statement measuring overall service quality of third partly logistics service
provider, represented by item B1 in the questionnaire. As shown in Table IV, the
correlation coefficient for single item measure service quality with the new scale and its
dimensions was statistically significant at 0.05 level. It means convergent validity was
ensured in the new scale. Convergent validity was also assessed by calculating one
way analysis of variance (Wong et al., 2001; Bahia and Nantel, 2000). The overall
service quality was taken as an independent factor in ANOVA analysis. Table V
shows that the association between overall service quality and the proposed scale and
its five dimensions were significant at 0.05 level. It meant that group differences were
significant. This also reflected a good convergent validity.
Discriminant validity
As suggested by Kumar (2005), 3PLSP scale should have low correlation with the
measures of the constructs with which the scale constructs should not be associated.
For this purpose, the other variable was a single item measure of dairy discontent,
represented by item B2 in the questionnaire. As evidenced from Table IV, the
correlations of dairy discontent with overall scale and five dimensions were very low
and insignificant at 0.05 level; indicating higher level of discriminant validity for

Overall
scale
Convergent validity
Service
quality
0.739 *
Discriminant validity
Dairy
discontent 20.016
Nomological validity
Logistics
flexibility
0.797 *

Customization
Responsiveness Accuracy
of service

0.518 *
0.053
0.520 *

Note: Significant at: *0.05 level

0.435 *
2 0.016
0.412 *

0.524 *
0.041
0.549 *

Inventory handling
and order
Information
fulfillment
sharing

0.398 *
20.113
0.494 *

0.293 *
0.135
0.347 *

Table IV.
Validity comparisons
(correlation coefficients)

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the scale. The low values of correlations among different constructs of the proposed
scale, as shown in Table VI, also proved the convergent validity.
Nomological validity
It is based on investigation of constructs and measures in terms of formal hypothesis
derived from theory. The correlation coefficients for single item measure of logistics
flexibility improvement with new scale and its dimensions were statistically significant
at 0.05 level, as shown in Table IV. It ensured the nomological validity in the new scale.
Nomological validity was also assessed using one way ANOVA (Bahia and Nantel, 2000;
Aagja and Garg, 2010). The association among the different levels of logistics flexibility
improvement (high, medium and low) and the overall scale and its five dimensions were
significant at 0.05 level. It meant that group differences were significant. It also
contributed to nomological validity of the new scale (Table VII).

Dependent variable
Table V.
One way ANOVA
for assessing convergent
validity independent
variable service quality
(one item)

Overall scale
Responsiveness
Accuracy
Customization
Inventory handling and order fulfillment
Information sharing

Sum of squares df Mean square

7.471
14.491
5.567
8.798
3.661
8.909

2
2
2
2
2
2

3.736
7.246
2.784
4.399
1.833
4.455

Significant
(probability)

59.012
20.255
11.542
19.152
5.569
9.272

0.000
0.000
0.000
0.000
0.005
0.005

Constructs

Table VI.
Discriminant validity
based on correlations
among constructs

Accuracy responsiveness
Accuracy customization
Accuracy information sharing
Accuracy inventory handling and order fulfillment
Responsiveness customization
Responsiveness information sharing
Responsiveness inventory handling and order fulfillment
Customization information sharing
Customization inventory handling and order fulfillment
Information sharing inventory handling and order fulfillment

Dependent variable
Table VII.
One way ANOVA for
assessing nomological
validity independent
variable logistics
flexibility (one item)

Estimate

Overall scale
Responsiveness
Accuracy
Customization
Inventory handling and order fulfillment
Information sharing

0.249
0.206
0.216
0.041
0.256
0.003
0.025
0.311
0.121
0.354

Sum of squares df Mean square

8.686
14.593
5.042
9.619
4.775
13.652

2
2
2
2
2
2

4.343
7.296
2.521
4.809
2.387
6.825

Significant
(probability)

85.309
10.277
20.456
21.731
7.523
15.798

0.000
0.000
0.000
0.000
0.001
0.000

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Theoretical contribution and managerial implications

A number of studies have been undertaken to assess benefits of using 3PLSP in logistics
management. The secondary literature suggests that the benefits of using 3PLSP are
different in different context, industry or firm. The outsourcing decision is influenced by
clients perception of 3PLSPs job functions and capabilities and its underlying reasons
for outsourcing. TCT is found to be fundamental in outsourcing logistics functions of
co-operative dairies, where the outsourcing is done at operational level with the major
objectives of cost reduction and improving quality of services. The present study
provides a theoretical contribution by proposing the 3PLSP scale and its factor structure
grounded in Indian dairy context to measure benefits of using 3PLSPs at operational
level. It also adds knowledge to existing literature in terms of identifying important
variables to consider while outsourcing logistics functions to 3PLSPs at operational
level. The study has undertaken the majority of research steps that are well accepted in
scale development literature. The new scale has five dimensions namely responsiveness
(four items), accuracy (four items), customization of service (two items), inventory
handling and order processing (three items) and information sharing (two items).
The above findings bring several managerial implications. The logistics system can
be more responsive to market situations based on effective use of 3PLSP. It brings the
benefits in terms of improved ability and flexibility to respond quickly and problem
solving ability. The use of 3PLSP brings accuracy in logistics system in terms of lower
fixed and operating costs and ability to deliver products at right time and right place.
The use of technology by 3PLSPs in its operation also improves the accuracy of their
services. The customization of 3PLSP services is very important in case of perishable
dairy products. 3PLSP brings the benefit of customization through providing quality
services as per defined standards and being flexible in response to organizational
requirements. Through the use of 3PLSP, multiple customers can be approached,
which brings the benefits of economies of scale in terms of large volume and value.
It also leads to other benefits like reduced inventory levels and accurate records and
increased fill rates. So, overall it brings the advantage in the form of improved
inventory handling and order fulfillment. Information sharing is one of the important
criteria to choose 3PLSPs in modern era. The 3PLSPs ability to communicate timely,
cost effectively and accurately brings benefits in terms of accuracy, responsiveness
and improved organizational processes. These findings and implications have also
been signified by earlier researchers in their studies (Bhatnagar and Viswanathan,
2000; Mentzer et al., 2001; Ratten, 2004; Lai, 2004; Wilding and Juriado, 2004; Cochran
and Ramanujam, 2006; Panayides, 2007; Rafiq and Jaafar, 2007; Qureshi et al., 2008;
Selviaridis et al., 2008; Chen, 2008; Kundhamraks and Hanaoka, 2008; Kannan, 2009;
Hartmann and Grahal, 2011; Large et al., 2011; Hsiao et al., 2010; Rahman, 2011).
Co-operative dairies can employ these dimensions while assessing the benefits of
using 3PLSPs in logistics management. This scale is also useful for dairies, which are
outsourcing their logistics operational functions, other than co-operative dairies. Thus,
administering the 3PLSP scale helps managers in measuring benefits of using 3PLSPs
and provides them insight for service quality improvement programs.
Limitations and future research
This study was based on various co-operative dairies in India. A more generalized
quantitative study and a detailed qualitative study based on grounded theory can be

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undertaken to understand the evaluation of benefits of using 3PLSPs. This study has
not used confirmatory factor analysis method to check unidimensionality and validity
of the scale. This tool can be used to further improve the validity of this scale.
The developed instrument can be checked for validity for co-operative dairies in
counties other than India as well as private co-operative dairies in India and also in
other countries. This scale can also be tested to firms other than co-operative dairies, to
assess the impact of using 3PLSPs in operational logistics functions. Also, a further
study can assess the impact of different characteristics of co-operative dairies on
benefits of using 3PLSPs.

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(The Appendix follows overleaf.)
About the authors
Tejas R. Shah is an Assistant Professor with Shri Chimanbhai Patel Institute of Management and
Research, Ahmedabad, India. He has around seven years of academic experience of teaching
management courses at post graduate level. He has a Doctorate in the Logistics and Supply Chain
Management area. He has published research papers in national journals and international
conferences. His area of research interests are supply chain and logistics management, sales
management, distribution management and consumer behavior. Tejas R. Shah is the
corresponding author and can be contacted at: tejasmgmt27@gmail.com
Mahendra Sharma is a Dean of the Faculty of Management Studies, and Professor and Head of
Department of V.M. Patel Institute of Management, Ganpat University, Mehsana, India. He has
over 15 years of teaching experience in management courses. He has published case studies and
research papers in national and international journals and national and international conferences.
He has a Doctorate in Management. His areas of research interest are sales management,
distribution management, consumer behavior, supply chain and logistics management and rural
marketing.

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531

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Appendix

Dimension 1 responsiveness
Quick response

532

Flexibility
Handling of customer complaints

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Total order cycle time

Dimension 2 accuracy
Cost consideration
On time delivery
Use of technology
Correct delivery
Dimension 3 customization of services
Quality of services
Customization of services
Dimension 4 inventory handling and order
fulfillment
Inventory accuracy
Shipments in terms of value/volume
Fill rates
Table AI.
The scale developed to
measure benefits of
3PLSP, consists
of 15 items

Dimension 5 Information sharing

Communication system
Sensitive information sharing

Ability to respond to organization and retailers or

customers when and where required
Flexibility to respond to unexpected demand
changes
Ability to solve complaints of retailers/customers
or communicated it to the organization
Ability to respond quickly (with minimum time to
the customer orders
Ability to deliver products cost effectively
Ability to deliver products at the required time
Extent to which technology is used in operation
Ability to deliver products at the right destination
Ability to provide services as per predefined
standards effectively
Ability to customize the products and services as
per the requirements of organization
Ability to maintain accurate inventory records
and follow up
Ability to handle large shipments in terms of
value/volume
Proportion of orders that can be met by available
inventory
Ability to communicate error free, timely and cost
effective manner
Ability to share common information effectively
with customers and organization

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