Logistics as a strategic role for the creation of Customer Value

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Authors: Tutor:

Examiner:

Subject:

Level and semester:

Logistics as a strategic role for the creation of Customer Value

Berky Kong,

Growth Through Innovation and International Marketing

Mae Fong Choe,

Growth Through Innovation and International Marketing

Professor Joachim Timlon

Hans Jansson

Business Administration

Master's Level, Spring 2011

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Abstract

The purpose of this thesis is to explain the linkage between logistics and customer value. The focus is on how customer value can be created through logistics services. The thesis also explains how value is created in the internal logistics context.

Today, logistics plays an important role in an organization which indirectly contributes to growth and profitability. Logistics service providers are striving to provide outstanding logistics services to their customers. This thesis seeks to identify the elements of logistics services and attempts to analyze and evaluate whether these services can create value to internal customers.

The research project is conducted as a single-case study with Electrolux Laundry System (ELS). This study aims at explaining the linkage between the Logistics Centre in Ljungby (LCL), the logistics service provider of the company and the value LCL can create for their customers (internal), the Sales Companies. Finding the gap between the perceptions and expectations of the customers is also another objective of this study.

Based on the theoretical framework developed for the purpose of explaining the above linkage, a survey with questionnaires was designed to collect empirical data for analysis. 23 respondents from LCL and 4 Sales Companies were interviewed.

The key conclusion of this study is that logistics plays a strategic role in an organization when customer value is created through customer accommodation, value co-creation and customer integration. Superior logistics services generate customer value through achieving efficiency, effectiveness and differentiation/relevancy which can lead to competitive advantage for the organization.

As a result of the case study, a proposition is made:

“If customer value is to be achieved, then customer success has to be attained.”

Keywords: logistics, logistics services, logistics capabilities, customer value, service quality, customer accommodation, customer service, customer satisfaction, customer success, value co-creation, customer integration.

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Kong, Berky and Choe, Mae Fong Page 2 Acknowledgements

We would like to express our sincere gratitude and appreciation to those who have helped and contributed to the process of completing this master thesis.

Foremost, we are grateful to Electrolux Professional Laundry Systems for the opportunity to engage in this research for the company.

We would like to thank the interviewees from Electrolux Professional Laundry System, in particular the Logistics Centre in Ljungby (LCL), Sweden and the 4 Sales Companies in the UK, France, Germany and Norway for their interest, time and willingness to participate in the questionnaires. We would especially like to thank Janne Ljungman and Peter Nilsson from LCL, the key informants for our case study whose contributions were most informative and valuable to the design of the questionnaire as well as the findings for our thesis. We cherish the hospitality shown to us during our company visit to Ljungby. We have been honored and motivated to develop an insightful research.

We are most grateful to our supervisor, Dr. Joachim Timlon, for providing valuable guidance throughout the process. The debates had and the consensus reached contributed heavily to our development and thought styles to complete the thesis at the master’s level. As a veteran consultant, his analytical and structural capabilities benefited us in terms of formulating the framework and structure of the thesis. Also, his excellent relationship with our case company’s senior executives facilitated the questionnaire design and data collection process.

We would also like to express our gratitude to Professor Hans Jansson whose seasoned experience and devotion to academic researches contributed to our learning and discussions in the methodology seminars and throughout the program. We are thankful to Dr. Jansson for the prompt and precise advice on the research.

We would also like to thank PhD students Mikael Hilmersson, for providing advice and discussion on quantitative analysis and Niklas Åkerman, whose digital tape recorder had been indispensible to us throughout the whole data collection process.

Last but not least, special mention has to be made to our friends and classmates whose active debate, discussions and encouragement have assisted with the progress and completion of our thesis.

It has been a wonderful and pleasant journey.

Kalmar, Sweden, 24 May 2011 Berky Kong and Mae Fong Choe

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Kong, Berky and Choe, Mae Fong Page 3 List of abbreviations

ELS Electrolux Laundry Systems LCL Logistics Centre Ljungby, Sweden

G-D Goods-dominant

S-D Service-dominant

UK United Kingdom

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Kong, Berky and Choe, Mae Fong Page 4

List of Figures

Figure 1 Research Overview ... 15

Figure 2 Thesis Outline ... 16

Figure 3 Systematic combining (Dubois and Gadde, 2002) ... 20

Figure 4 Convergence of evidence of current case study ... 23

Figure 5 Chain of evidence for the case study ... 26

Figure 6 Empirical findings and analysis structure ... 28

Figure 7 Research Model (Kong and Choe, 2011) ... 36

Figure 8 Logistics system and examples of relevant activities... 38

Figure 9 Logistics as a key function in an integrated supply chain (Bowersox, Closs and Cooper, 2010) 40 Figure 10 Internal perspective of the logistics system. The own organization is the starting point (Jonsson 2008) ... 42

Figure 11 Continuum of the different levels of customer-driven service (Ellinger et al, 1997) ... 43

Figure 12 The service quality model (Parasuraman, et al, 1985) ... 47 Figure 13 Logistics value co-creation process in three phases (Yazdanparast, Manuj and Swartz, 2010) 53

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Kong, Berky and Choe, Mae Fong Page 9 Figure 14 Logistics service value co-creation process with 3 phases and 12 propositions

(Yazdanparast, Manuj and Swartz, 2010) ... 54

Figure 15 Influencers of Relationship Design in the Learning phase (Yazdanparast, Manuj and Swartz, 2010) ... 55

Figure 16 Design and implementation of value creating solution in the Innovation and execution phase (Yazdanparast, Manuj and Swartz, 2010) ... 56

Figure 17 Characteristics of service provided and Customer/Provider benefits in the Outcome phase (Yazdanparast, Manuj and Swartz, 2010) ... 57

Figure 18 Logistics capabilities within the concept of Customer Integration (Bowersox, Closs, and Stank (1999) ... 58

Figure 19 The internal logistics service gap model (Kong and Choe, 2011) ... 60

Figure 20 Theoretical Framework Model (Kong and Choe, 2011) ... 62

Figure 21 Overview of theory chapter ... 63

Figure 22 Electrolux Laundry Systems Manufacturing Plants ... 64

Figure 23 Scope of empirical study for Electrolux Professional Laundry Systems ... 65

Figure 24 Electrolux Laundry Systems Focused Customer Segments ... 69

Figure 25 Comparison of empirical findings on LCL's strategic role between LCL and the Sales Companies 70 Figure 26 Service Levels ... 71

Figure 27 Comparison of Empirical findings on value creation between LCL and the Sales Companies 74 Figure 28 LCL’s strategic role in the logistics system with a focus on “order to delivery” and “distribution” ... 91

Figure 29 The Strategic Role of Logistics in an Organization ... 96

Figure 30 The internal logistics service gap model for LCL and the Sales Companies (Kong and Choe, 2011) 97 Figure 31 LCL’s level of Customer Accommodation (modified from Ellinger et al, 1997) (Kong & Choe, 2011) 100 Figure 32 The Value Creation Model (Kong and Choe, 2011) ... 101

Figure 33 Value Proposition (Bowersox, Closs and Cooper, 2010) ... 101

Figure 34 Logistics service value co-creation process with 3 phases and 12 propositions (Vargo and Lusch, 2008) ... 104

Figure 35 Logistics capabilities within the concept of Customer Integration (Bowersox, Closs, and Stank (1999) ... 106

Figure 36 The internal logistics service gap model (Kong and Choe, 2011) ... 111

List of Tables

Table 1 Six sources of Evidence with Strengths and Weaknesses Comparison (modified from Yin, 2009) 21 Table 2 Types of Database ... 25

Table 3 Sampling Ratio by Market ... 29

Table 4 List of Respondents for the Survey ... 30

Table 5 Basic low-end and high-end logistics services examples ... 39

Table 6 Description of Gaps in Service Quality Model (Parasuraman, et al, 1985) ... 47

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Table 7 Evolution of management thought (Bowersox, Closs and Cooper, 2010) ... 48

Table 8 Integrative management value proposition (Bowersox, Closs and Cooper, 2010) ... 51

Table 9 Comparing the differences between the G-D logic and the S-D logic perspectives (Vargo and Lusch, 2008) ... 52

Table 10 Summary of opinions on the strategic role of LCL ... 93

Table 11 Perceived value created by LCL and LCL’s capabilities ... 94

Table 12 Summary of opinions on Value Creation by LCL ... 103

Table 13 List of capabilities and practices that may enable internal logistics service providers to create customer value for internal customers: ... 108

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1.0 INTRODUCTION

In this chapter, the research background with our motives of this thesis will be described. The research questions will then be introduced. The purpose and the delimitations of the research will also be examined.

Finally, the outline of the thesis will be summarized at the end of this chapter.

1.1 Research Background

This is a thesis on logistics and customer value with an attempt to look into both elements from an internal logistics perspective. During the last decades, the role of logistics in organizations has been changed. Prahalad and Hamel (1990) and Stalk et al. (1992) realize that there has been an increasing attention directed towards logistics as a competitive weapon. Despite over two decades of recognition of logistics as a source of competitive differentiation, there has been little effort put into building a theory of the role of logistics in the organization (Mentzer et al., 2004).

The growing importance of logistics for globalization

Logistics is an organizational planning framework for material management, information, service and capital flows. Logistics in the context of the prevalent dynamic business environment also involves complex information that is essential for organizations to function efficiently.

Logistics has been gaining a growing significance in supply chain management because of the ever increasing complexities of modern day business. It can be translated as a competitive strategy adapted by an organization to meet and exceed the expectations of its existing and prospective customers (Beckett, 2005). Well-performed logistics management creates competitiveness and superior performance by improving efficiency and effectiveness to positively affect profits. The influence of logistics on profitability takes place by creating customer value through superior logistics services (Bobbitt, 2004). Christopher (2005) argues that effective logistics can become a major source of competitive advantage in the sense that a position of enduring superiority over competitors in terms of customer preference may be achieved through better logistics management.

In the present business world, logistics plays an important role for an organization focusing on growth and profitability. It also plays on a global stage which is crucial for the phenomenon of globalization.

Globalization of businesses and liberalization of trade has increased the importance of the logistics function in the past few decades. As businesses source raw materials and components globally, and sell their products in global markets, logistics management has been expanding beyond international boundaries. This has increased its complexity which requires strategic ways to manage logistics activities.

The global logistics market generated total revenues of $3,566 billion in 2008, representing a compound annual growth rate (CAGR) of 6% for the period spanning 2004-08. The industry is forecast to grow at a CAGR of 2% for the five-year period 2008-13, to reach $3,895.5 billion by the end of 2013. (Bharat Book, 2010). The forecast growth indicates that businesses are increasingly relying on logistics as a result of globalization which also means that superior logistics may be a key success factor for international businesses to compete against competitors.

Explore gaps in expectations and perceptions of customers and service providers Understanding and achieving service quality has become a priority in industry and academics.

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“A firm can provide logistics service equal to or even better than a competitor’s but still have dissatisfied customers. This may arise from the lack of knowledge of customer expectations, improper standards of performance, performance failure, poor communication or incorrect customer or firm perception of performance.” (Bowersox, Closs and Cooper, 2010).

Traditionally, logistics managers have attempted to assess their performance through an

“operational focus” by relying on internally generated measures and using the measurement of quality to infer customers’ opinions of the provided service (Davis and Mentzer, 2006). In pursuing operational excellence, logistics managers have often overlooked an outward orientation toward customers that calls for competing on superior customer value delivery (Woodruff, 1997).

By analyzing the perceptions and expectations, organizations can add to the traditionally measured set of operational service attributes and build upon their understanding of customer needs and requirements to improve service quality. (Mentzer, Flint and Kent, 1999)

It is essential for organizations to have measurement tools for gauging its service performance.

Performance measurement is critical to the success of almost any organization because it creates understanding, moulds behaviour and leads to competitive results. World-class performance requires superior process measurement both within the firm and across organizational boundaries (Fawcett and Cooper, 1998). It is particularly important for internal logistics service units because the non-competitive nature of the relationship between internal parties may hinder their motivation in providing above average services to counterparts in the organization. To develop a competency scale for the internal logistics service unit, an effective service quality benchmarking model is particularly useful.

Additionally, assessing customers’ perceptions and expectations is also motivated by the objective of reducing environmental uncertainty. Environmental uncertainty affects business strategies and tactics, thus affecting logistics, management and marketing strategies. This uncertainty is related to the dynamic nature of customer desires. Service providers who uncover the unique ways in which their customers view their world and the specific change forces on which they are focusing on are more likely to be able to design customized logistics solutions that best meet the customer's changing desires than those who provide standardized logistics solutions. Focusing on customers’

changing desires rather than competitors’ offerings would more likely lead to the development of effective logistics solutions to meet the specific customers’ changes. (Flint and Mentzer, 2000)

Change is inevitable and may involve logistics. Customers change what they value from suppliers making it crucial for suppliers in competitively dynamic industries to find ways to retain strategically important business customers. Customer value strategies require a deep understanding of how and why changes occur and involves anticipating and responding to changes in customers' desired value as well as changes in desired consequences. (Flint and Mentzer, 2000)

There are several benchmarking tools suggested by previous researches to measure customer service quality such as Parasuraman’s SERVQUAL (1991) which is used to gauge the service quality for external customers. Additionally, there are logistics capabilities models such as the Grey assessment model. However, there are few tools available for analyzing the internal customer

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Kong, Berky and Choe, Mae Fong Page 13 satisfaction for logistics services within an organization. Thus, one of the motives for this research is to develop a modified benchmarking model which is particularly adapted to the logistics context as well as to measure internal customer satisfaction.

Explain linkage between customer value and logistics from a contemporary perspective As a consequence of increasing globalization, the competition among organizations is growing and therefore new ways of winning growth and profitability have to be adopted in the new business climate. As mentioned above, logistics has a growing significance in influencing the performance of organizations and therefore traditional logistics service offerings are inadequate to compete in the marketplace.

Traditional logistics services tend to be passive, routine, and standardized which may sometimes mean “one size fits all”. Logistics in the old days only focused on operational excellence which suggested that providers offer logistics services and the customers buy them (Vargo and Lusch, 2008). Contemporary logistics services are more proactive, interactive, and particularly, customer- oriented. Service providers nowadays are developing services that customers want and their key objective is value-adding and continuing the positive relationship with the customers (Vargo and Lusch, 2008). Rewarding mutual win-win benefits are generated through the tight relationship between providers and customers which may eventually create value for both parties. Based on the perspective of Service-Dominant logic, value is defined and co-created by customers rather than being embedded in the output (Vargo and Lusch, 2008). So such perspective suggests that

“customers and providers co-create value”. One of the motives of this thesis is to explain the linkage between logistics and customer value.

Gap in literature for internal logistics

An extensive investigation on literature in relation to the thesis topic shows that there is limited previous literature or studies conducted to cover internal logistics services for internal customers, who are the employees along the supply chain within the same organization. Most of the available research results are based on external logistics service providers with external customers or end- customers. There exists a significant gap in theories on logistics services and customer value in the internal logistics. Thus, we are also interested in finding out whether the existing theories for external logistics can be applied to the internal logistics setting.

In conclusion, there is room for exploration of the ways to achieve customer value through the creation of logistics value especially in the internal logistics setting. Understanding customer needs and requirements is a basis for developing value. To achieve this, an exploration of customer expectations and perceptions is necessary. Through the comparison of case study empirical findings and the selected theories, it will be meaningful to contribute some generalized recommendations that logistics managers can adopt with the aim of creating customer value through logistics.

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Research sub-question 1

What is the strategic role of logistics in an organization?

Research sub-question 2

How are customers accommodated through logistics services?

Main Research Question

How can an organization strategically use logistics to create customer value?

Research sub-question 3

How is value created?

1.2 Research Questions

Based on the research background mentioned above, logistics plays an indispensible role in an organization, indirectly contributing to growth and profitability. Logistics service providers are actively seeking ways to capture the opportunities of the growing logistics demand due to globalization of businesses. In order to understand the perceived service quality by the customers, logistics service providers attempt to assess the customers’ perception and expectation in order to identify the improvements that can be made to serve customers better. In addition, contemporary logistics management is getting more customer-focused in order to create higher value for both customers and providers.

In light of the above rationale, we have developed the following research questions that both we and the logistics service providers are interested in.

The main research question leads to the following three sub-questions:

This research sub-question 1 will explain the importance of logistics for an organization in the dynamic business environment. We would also like to justify the selection of this topic as the research focus.

This research sub-question 2 looks into the ways that logistics service providers can become more customer focused. This question will be addressed by established theories and gauging tools that will help service providers to ascertain their service quality level from the perspective of the customers.

Answering this question will be beneficial for providers to better understand the customers and identify areas for improvement.

The purpose of the third sub-question is to identify ways to add value or create value for both product/service providers and customers. Answering this question can inspire logistics service

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Logistics as a strategic role for the creation of customer value

How can an organization strategically use logistics to create customer value?

What is the strategic role of logistics in an organization?

How are customers accommodated through

logistics services?

How is value created?

The growing importance of logistics for globalization

Explore gaps in expectations and perceptions of customers and

service providers

Explain linkage between logistics and customer value from a contemporary perspective

Gap in literature for internal logistics

providers to adopt some useful tactics that can create customer value and serve the customers better.

Figure 1 Research Overview

1.3 Purpose

The overall purpose of this thesis is to explain the linkage between logistics and customer value. The following steps will be adopted in the thesis to fulfill the aforesaid purpose:

• To identify the elements of internal logistics services and to analyze and evaluate if these services can strategically be used to create value

• To develop a framework for how internal logistics services can create value for internal customers

• To propose managerial recommendations for logistics service providers to create customer value

Research

Topic

Research Main Question

Research

Sub-Questions

Motivations

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1.4 Delimitations Nature of Customer

Some of the theories chosen were based on research findings relevant to “external customers”

meaning that service providers and customers are from different organizations. However, our case company has a setup where they only serve “internal customers”, i.e. the Sales Companies. So our empirical findings and analysis will be based on a service provider serving internal customers of the same organization. Customers of the internal customer will mean “end-customers” in this thesis.

Restricted to manufacturing industry

Although the theoretical framework of this thesis was developed based on generic industries, the empirical findings, analysis and strategic recommendations were oriented towards the case company which is in the manufacturing industry. The research results may therefore not necessary be applicable in other non-manufacturing industries.

Logistics services vary among companies

The composition of logistics services tend to be varied from organization to organization. Therefore the research results in logistics context may not be valid for some companies with different logistics setup.

Figure 2 Thesis Outline

•Introduction

Chapter 1 •Methodology

Chapter 2 •Theoretical Framework

Chapter 3 •Empirical Findings

Chpater 4

•Analysis

Chapter 5 •Conclusions

Chapter 6 •Managerial Recommendations

Chapter 7 •Future Research

Chapter 8

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2.0 METHODOLOGY

This chapter aims to describe our research methods through a discussion of alternative methodology and the motivations for our choices. Reliability and validity are incorporated in this chapter to provide an evaluation of the trustworthiness of our research. Finally, we illustrate the conduct of our research in a research model.

2.1 Scientific Approach

According to Yin (2003), there are three prime approaches for conducting research: exploratory, descriptive and explanatory. The explanatory approach is used to explain the linkage between the interacting factors and the analysis of the results of these factors. This is an explanatory case study seeking to explain the linkage between logistics and customer value from a contemporary perspective. The research process began with the exploratory approach to initially identify and define the research problems. We have applied this approach by studying theoretical literature that explained the relevant research problems to have a better understanding of the assigned thesis project. Validating of theory predictions and principles was done to build and elaborate those theories and then enrich the theories’ predictions and principle.

While the exploratory approach seeks to gain a deeper understanding, the explanatory approach is used to clarify complex subjects, explain the cause and effect when it answers questions and correlations. As it explains how things occur, the explanatory case study can be appropriate when the research area and the amount of knowledge have become comprehensive. This type of research demands that there is adequate knowledge within the research area in order to derive theoretical assumptions into practice.

2.2 Research Type

There are two main research types: quantitative and qualitative. Creswell (2003) claims that the quantitative research is an approach in which the investigator primarily uses positivist claims for developing knowledge and employs inquiry strategies such as experiments and surveys, and collects data on predetermined instruments that yield statistical data. The researcher is required to use closed-ended questioning and focuses on numeric data.

The qualitative research is primarily based on the investigator’s participatory perspective. It uses strategies of inquiry such as narratives, phenomenology, ground theory studies or case studies. The researcher collects open-ended, emerging data with the primary intent of developing themes from the data. Norman (2005) defines qualitative research as a situated activity that locates the observer in the world, meaning that the researcher is able to generate both subjective and objective information from the research area. It involves the studied use and collection of a variety of empirical materials from case studies and interviews that describe the routine and problematic moments and meanings in individuals' perceptions. Moreover, Merriam (1998) also claims qualitative research is an approach that focuses on the process and phenomenon as a whole and the meaning interpreted by the researcher's perception.

Our research was based on a combination of qualitative and quantitative methods. We sought to quantify the data we collected from the research study to measure and confirm the gaps in the

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Kong, Berky and Choe, Mae Fong Page 18 perceptions and expectations of the service providers and customers. For our quantitative method, we have employed simple calculations of averages and did not involve the usage of statistical tools or programs.

At the same time, using a qualitative research allowed us to obtain more in-depth insights from individual evaluations of the current situation through the interviews in ELS. This is so that we would be able to create a deep understanding of a specific case and the linkage between various factors such as relationship characteristics and flows of information.

2.3 Research Method

According to Yin (2009), there are five types of research methods being Experiments, Surveys, Archival analysis, History and Case study. When choosing a research method, Yin (2009) states that the decision should be based on three conditions: types of research questions, extent of control over actual behavioral events and the degree of focus on contemporary events as opposed to historical events. Each type of research method has its own characteristics, advantages and drawbacks.

The role of case study has been defined by Yin (2009) as:

• To explain the presumed causal relations in real-life involvements which are too complicated for the survey or experimental strategies.

• To describe an involvement and the real-life context in which it took place.

• To illustrate particular topics within an evaluation in a descriptive way.

• To enlighten particular circumstances in which the involvement being evaluated has vague and multiple set of outcomes.

In our research study, we sought to investigate and explain a contemporary set of events, i.e.

Logistics Service as a strategic driver of customer value, over which we, as investigators, have no control. The case study is an empirical inquiry which is real and specific. It is also an “explanatory case study” as we were motivated to explain the theories within a real-life context. The case study method is important for us to gain a holistic view of how actors such as the logistics service provider and its customers (particularly internal customers from the same organization as the service providers) interact to create value in the case company. In addition, our research questions largely focus on 'how' questions within the main research question: ‘How can an organization strategically use logistics to create customer value’. This is one of the main conditions for choosing the case study method (Yin, 2009).

“The objective of employing a case study is to expand and generalize theories – analytic generalization” (Yin, 2009)

Dubois and Gadde (2002) argue that case studies provide unique means of developing theory by utilizing in-depth insights of empirical phenomena and their contexts. Case studies involve the detailed examination of the phenomenon within its real-life context. The aim is to provide depth of analysis, which includes not only the phenomenon itself but also the context in which it is located.

According to Yin (2009) the case study methods give attention to the intertwining of phenomenon and context, however he does stress that such detailed examination can be applied only within the specified boundaries of the case. Merriam (1998) also argues that case study is designed to gain in- depth understanding and can accommodate a variety of disciplinary perspectives. Furthermore, Yin

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Kong, Berky and Choe, Mae Fong Page 19 (2009) claims that the unique strength of case studies is the possibility of handling many varieties of evidence such as documents and interviews.

“Case study research method is to understand a real-life phenomenon in depth which encompassed important contextual conditions because they were highly pertinent to the phenomenon of the study.” (Yin and Davis, 2007)

Naturally, there are downsides in the case study design. Gummesson (2002) criticises case studies as lacking statistical reliability and validity and only able to be used to generate hypotheses but not test them. Additionally, generalizations cannot be made from case studies. However, Fisher (2004) argues that case studies lose representativeness but not necessarily generalizability, while Yin (2009) states that case studies can be used to generalize about theoretical propositions but not to generalize about populations or universes.

We consider the case study as an adequate approach for our research strategy. Using this research method is suitable for increasing the understanding of the internal customer satisfaction levels, customers’ expectations and perceptions so that management strategies may be developed to create customer value. Results obtained from this research may also be applied to other manufacturing firms in the logistics context.

2.4 Research Approach

A research approach is defined as the path of conscious scientific reasoning (Peirce, 1931). In order to construct our research process framework, we have applied the abductive approach which is a combination of the inductive and deductive approaches which together form the basis for discovering hypothetical patterns during the research process. The inductive approach is a theory development process guided by the real-life observations of the research phenomenon. This approach was applied during the analysis of our findings. The deductive approach started from the established theory and generalization and was used when explaining a specific case or event based on the theory (Dubois and Gadde, 2002). The approach was applied in the formation of the theoretical framework and in drawing conclusions and recommendations.

Dubois and Gadde (2002) state that the abductive approach allows researchers to move between empirical data and theoretical models. At the start of the research project, we carried out a panoptic and extensive search covering articles, journals and books to shortlist suitable theoretical concepts related to Logistics Service, (Internal) Customer Orientation, Value Creation and Strategy. We have subsequently combined the theories to develop our research model to solve the problems derived from the investigation of our case company. During the research process, we had continually acquired new knowledge by going back and forth between the empirical data and the theoretical models. Thus, the abductive approach enabled us to continually reinterpret empirical data and the theoretical framework to discover new approaches to thoroughly investigate the current situation of our case company.

Dubois and Gadde (2002) explain “Systematic combining” as a process where theoretical framework, empirical fieldwork and case analysis evolve simultaneously and it is particularly useful for further

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Kong, Berky and Choe, Mae Fong Page 20 developing existing theories. They further elaborate systematic combining as a process where new empirical findings lead to the addition of new theory to the research at the same time as new theoretical findings influence the direction of the research. The framework would be changed as the analysis and interpretation continues and this would then influence issues that can be further covered in the research. This idea is based on a standpoint that to be able to understand theory it is necessary to compare it with reality and vice versa. This process as a whole means that the theoretical framework can be expanded or changed as the work goes on. Dubois and Gadde (2002) propose a model describing the basic components in systematic combining.

Figure 3 Systematic combining (Dubois and Gadde, 2002)

This methodology includes two processes: “Matching” and “Direction and Redirection”. Matching is the process of going back and forth between the framework, data sources and analyses. This implies that the researchers go from one type of research activity to another and between empirical observations and theory, enabling the expansion of the understanding of both theory and empirical phenomena (Dubois and Gadde, 2002). Matching results in the development of the theoretical framework in parallel with collecting information from the real world and is an approach based on abductive rationales. On the other hand, direction and redirection is a critical process which enables researchers to discover new spectra and ideas concerning the research problem which helps them to verify and adjust their focus. This is an important step to achieve matching (Dubois and Gadde, 2002).

In systematic combining the main approach is not to identify all theory beforehand but instead to develop the theoretical concept in parallel with the collection of empirical data (Dubois and Gadde, 2002). The advantage of applying systematic combining is that it is a flexible methodology to identify unanticipated issues that may be further discovered during the research process, allowing researchers the flexibility to add new models or concepts when needed. Throughout the work with research and collection of data as well as when conceptualizing the problem, we have employed systematic combining to go back and forth between theory and empirical findings to adjust the theoretical framework. We have been able to find interesting features of Customer Service and Customer Value by using previous theoretical findings as a basis.

2.5 Case Study Design

Yin (2009) claims there are four types of case study design as below:- Matching

Direction & Redirection The empirical world

Framework

The case

Theory

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• Single case with holistic nature

• Single case with embedded nature

• Multiple cases with holistic nature

• Multiple cases with embedded nature

According to Yin’s (2009) definition, our case study is a single case design as we studied one specific company, namely Electrolux Laundry Systems. A case study can be furthermore divided into embedded and holistic. In an embedded case study, the analysis is concerned with more than one unit. Our single case is embedded, since we have been studying different units within the company.

Sample units in our single case comprise the logistics centre in Ljungby (Sweden) and the four local sales companies in the United Kingdom, Germany, France and Norway. These multiple sample units are primary data sources that are capable of giving answers to the research questions. Therefore, this study has been identified as a single case embedded design.

According to Lipset, Trow, and Coleman (1956), single case study aims at “generalization” and not

“particularization” analysis. That also coincides with the aim of our research.

2.6 Data Collection

Data collection includes primary and secondary data or a combination of both. In our research we have collected the combination of primary and secondary data to complement and validate each other.

Merriam (1998) states there are three techniques of collecting data in qualitative research:

interviewing, observation and document analysis. Yin (2009) further expands those data collection techniques by suggesting that there are six commonly used sources of evidence in case study researches which are compared in terms of their strengths and weaknesses as shown in Table 1 below.

Table 1 Six sources of Evidence with Strengths and Weaknesses Comparison (modified from Yin, 2009)

Source of evidence Strengths Weaknesses

Documentation Stable – can be reviewed repeatedly

Unobtrusive – not generated for the purpose of case study Exact – contains exact names, references, and details of an event Broad coverage – long span of time, many events, and many settings

Retrievability – can be low; biased selectivity if collection is incomplete Reporting bias – reflects (unknown) bias of author

Access – may be deliberately blocked

Direct Observation Reality – covers events in real time Contextual – covers context of event

Time consuming

Selectivity – unless broad coverage Reflexivity – event may proceed differently because it is being observed

Cost – involves costly manpower for long working hours

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Kong, Berky and Choe, Mae Fong Page 22 Interviews Targeted – focus directly on case

study topic

Insightful – provide perceived causal inferences

Construct bias - due to poorly designed questions

Response bias - Inaccuracies due to poor recall

Reflexivity - interviewee gives what interviewer wants to hear

Archival Records Same as above for documentation

Precise and quantitative Same as above for documentation Accessibility due to privacy reasons Participant-

Observation Same as above for direct observations

Insightful - into interpersonal behavior and motives

Same as above for direct observations Bias - due to investigator' s

manipulation of events Physical Artifacts Insightful into cultural features

Insightful into technical operations Selectivity Availability

2.6.1 Three principles of data collection

Yin (2009) advocates that a good case study should follow the three principles of data collection:

• Using multiple sources of evidence

• Creating a case study database

• Maintaining a chain of evidence 2.6.1.1 Multiple sources of evidence

Our research adopted three out of the six different sources of evidence classified by Yin (2009) as depicted in Table 1 above. The major advantage of using multiple sources of evidence in our case study is to develop converging lines of inquiry which is a process of triangulation and corroboration.

Therefore our case study findings or conclusion is likely to be more convincing and accurate if it is based on several different sources of information, following a corroboratory approach. See Figure 4 below for the Convergence of Evidence of our Case Study.

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Fact

Documentation

Direct Observation Interviews

-focused -structured -semi-structured

Figure 4 Convergence of evidence of current case study

Documentation

Yin (2009) argues that documents play an explicit role in any data collection in doing case studies.

We have used documentation sources such as relevant internal presentations and reports of the case company which contained useful company-specific information such as sales turnover and headcounts for the past 5 years. These were helpful for further analysis. We also gained updated information about the case company from these documents, such as the organizational structure, business nature and functional roles and responsibilities.

Direct Observation

Casual primary data collection was conducted through direct observation at the warehouse and the backoffice aimed at understanding the operational flow, work environment, technology adopted and corporate culture. Photographs were taken at the warehouse as records. These were very good background information for the benefit of designing a more context-specific survey for primary data collection which can increase the construct and internal validity of the case study.

Interviews

The core of primary data was collected through qualitative interviews to investigate the environments, perceptions and expectations of the internal service providers and internal customers.

These were semi-structured as we were prepared for input from respondents giving further information and new ideas beyond the interview pre-set questions.

Interviews (Face-to-face)

For our research, primary data was mainly collected through qualitative interviews conducted with the logistics management and backoffice staff from Electrolux Professional Laundry Systems’

Logistics Centre in Ljungby (LCL) and the sales companies in the UK, Norway, Germany and France.

Merriam (1998) states that this method allows researchers to respond to the situation at hand and to be aware of new ideas on the topic. Interviews were conducted by phone and face-to-face

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Kong, Berky and Choe, Mae Fong Page 24 meetings in conjunction with follow-up communication by emails. These semi-structured interviews allowed us to obtain more in-depth insights from the respondents.

Primary data was also collected through a survey with questionnaires which comprised structured statements to which the respondents were required to rate the extent of their agreement. We have used a Likert scale of 1 to 7, with an additional scale of “0” representing “I do not know”. In some of the questions, respondents were requested to rate the level of agreement in percentage scales or rate the relative importance of several items.

Although we were pursuing a consistent line of inquiry through structured statements, our actual stream of questions in the interview was likely to be fluid rather than rigid (H. J. Rubin & Rubin, 1995). Relevant but unstructured questions were asked during the structured interviews to explore the respondents’ personal experience and opinions, particularly on contextual examples.

The questionnaires also included sections which were open-ended and subjective. It is important for a researcher to manage the flow of the interview (Fisher, 2004) and probing is a crucial technique.

We used the probing technique during the interviews to ask for more details and clarifications continuously (Merriam, 1998). Fisher (2004) also claims the researcher can control an interview through probing an idea expressed earlier in the interview and also before the last utterance. We also used the probing technique to obtain more concrete examples following a prior question. This allowed for more information to be collected by going deeper into the question. For example, the question “What is the strategic role of LCL within the supply chain of Electrolux Laundry Systems?”

was followed with the following questions:-

“To what extent has LCL fulfilled this strategic role?”

“Please give examples of what LCL has done well in the past 2 years.”

“What do you think LCL should have done differently in the past 2 years?”

This allowed the respondent to elaborate on the topic of the strategic role of LCL in a subjective manner while still being guided by the parameters of the questions asked.

The first preliminary interview with our case company was conducted in early April 2011 at the logistics centre in Ljungby. A focused interview was conducted with the senior executives of LCL to obtain information on the corporate history, organizational structure and the roles and functions within LCL in the form of open-ended questions and unstructured interview. The relationship between LCL and the sales companies and dealers worldwide was also explained. The recent functional changes within LCL were also explored whereby the order handling team is now sharing a common email address for all incoming emails from customers. The procedure of communicating with customers by the order processing staff had been restructured and the order processing team physically demonstrated the processing of emailed orders or inquiries. All the interview conversations were recorded digitally with the permission of the interviewees. Notes were also taken down during the interviews.

During the focused interview, we projected a blank canvas about the topic to allow the interviewee the opportunity to provide a fresh commentary about it, even though we had already accumulated a certain level of knowledge on the topic. No leading questions were asked in order to serve the corroboratory purpose.

A questionnaire covering our research area had been prepared beforehand and this was also discussed during the preliminary interview. We received answers to a number of questions with

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Kong, Berky and Choe, Mae Fong Page 25 regards to the current logistic strategy and its current targets. However, we received feedback that the questionnaire was too lengthy, not context-specific, and might be too complicated for some of the respondents. As a result, we decided to redesign the questionnaire to be more context-specific by separating the questions for the service perceptions and expectations into sections for Finished Products and Spare Parts respectively and rephrasing some questions to more aptly describe context-specific activities in LCL and ELS to increase the applicability and relevance of the questionnaire. It was also decided that the focus would be within the boundaries of the order handling, stock keeping and distribution processes.

We also discussed the potential list of participants for our survey. To obtain the most suitable knowledge about the research subject, the respondents have been suggested to be country sales managers, administration and back office employees who are receiving services or interact with LCL on a regular basis. Due to time and budget restraints, end customers were not included in the questionnaire and the sentiments of the sales companies were taken to be generally representative of the end customers’.

Some of the knowledgeable interviewees became our key informants and provided us with insights into the research subject and also initiated access to corroboratory sources of evidence. We referred to these key informants on several occasions subsequently, to obtain further information and contacts.

Interviews (by telephone)

After the preliminary meeting, we adjusted the questionnaire to be more context-specific. We subsequently contacted the named respondents in each of the sales companies to organize the individual telephone interviews. These interviews were conducted with the purpose of understanding the local countries’ perceptions and expectations as the customer and recipient of the services provided by LCL and to gain an understanding of their views on the strategic role of logistics and how it creates value. We asked the questions in an unbiased and objective manner so as not to create defensiveness on the part of the respondents. One of the drawbacks of using phone interviews was that interviewees may be pressed for time and hence may rush through to complete the questionnaire. However, we felt that the respondents were attentive throughout the whole interview and they placed an importance on it due to its relevance to the improvement process of the services by LCL.

2.6.1.2 Creating a Case Study Database

Table 2 below shows the empirical database of our case study which has been divided into 4 types:

Table 2 Types of Database

Database type Description

Case study notes Hand-written or transcribed notes taken during interviews and direct observations.

Relevant responses were transcribed into Microsoft WORD and EXEL file formats.

Audio recordings of the interviews captured by a digital voice recorder were used as a supplementary backup for hand-written

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Kong, Berky and Choe, Mae Fong Page 26 notes jotted down on the spot. Retrieval of recording only when hand-written information was incomplete or unclear.

Case study documents Powerpoint presentations and reports from the case company in electronic format.

Tabular materials Survey and other quantitative data collected from the structured interviews.

Input into Microsoft EXEL file format.

Narratives Compiled open-ended answers to the questions in the case study protocol which served as the basis for the case report and analysis.

Source of evidence was cited (i.e. from which interviewee or documentation)

Transcribed responses from the respondents were sent to the corresponding individual respondents by email for further comments and confirmation. Digitized files of the above database have been stored in separate folders of the computer so that data can be retrieved and shared among investigators efficiently for analysis.

2.6.1.3 Maintaining a chain of evidence

To increase the reliability of the information in our case study, we have maintained a chain of evidence. Yin (2009) suggests that the chain of evidence creates a clear cross-referencing to methodological procedures and to the resulting evidence. It also enhances the construct validity and increases the overall quality of our case study. Through the chain of evidence for our case study as shown in Figure 5 below, readers are able to trace the steps from the initial research questions to the research conclusion.

Figure 5 Chain of evidence for the case study

Case Study Questions

Case Study Protocol (Linking Questions to Theory)

Citations to Specific Evidentiary Sources in the Case Study Database Case Study Database

Case Study Report

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2.6.2 Data Sampling

An important aspect when collecting data for the empirical study is where and when the survey should be done, what to survey and whom to survey. In our research, we dealt with sampling. In particular, it was based on non-probability rather than probability sampling. Our non-probability sampling was purposeful which means it was based on the assumption that we wanted to discover, understand and gain insight and therefore must select a sample from which the most can be learnt.

In our research, we were largely dependent on convenience sampling as the interviewees were contacts provided by the main contact person at our case company. We are also restricted to the study of one case company as we were bounded by time and budget constraints. Although it would appear that we ran the risk of information poverty, the employee(s) and/or management representatives selected as the interviewees were expected to be highly representative of the sales companies in the countries observed and were therefore considered to be a typical sample, representing the average person, situation or phenomenon of interest.

We interviewed many respondents from the small teams of Sales Companies which represents a high percentage of the population. In some countries, the three or four individuals interviewed made up a large part of the total number of employees at the Sales Companies, which means that we captured the sentiments of a high percentage of the population.

2.6.3 Empirical Data Structure

The case study survey was conducted through structured and semi-structured questionnaires.

Structured questionnaires are in the form of rating the agreement level to standard statements either by using the Likert scale (from 0-7) or percentage scales (from 0-100%) or ranking the importance of listed items. Semi-structured questionnaires are in the form of open-ended questions which is a set of additional questions on top of the structured questionnaires particularly for the respondents at management levels of each market. (Appendices A and B)

Certain respondents could only provide insights on Finished Products or Spares, depending on their areas of responsibility. The response ‘0 = I do not know’ is reflected where the respondent does not handle Spare Parts or Finished Products. This response is also used where the respondent genuinely has no idea.

2.6.4 Sections of Empirical Data

The questionnaires were designed based on the three building blocks of the theoretical framework with the aim of seeking answers to the research questions in a systematic and logical manner.

Therefore the presentation of the empirical data and the corresponding analysis will follow the structure described in Figure 6.

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Kong, Berky and Choe, Mae Fong Page 28 Figure 6 Empirical findings and analysis structure

The theoretical building blocks consist of the Strategic Role of Logistics Services, Customer Accommodation and Value Creation. Empirical findings will be presented according to the different building blocks. As the logistics service provider, the respondents from LCL were mostly able to provide their opinions on both finished products and spare parts. Meanwhile, some of the respondents from the sales companies or LCL’s customers (internal) only handle either Finished Products or Spare Parts and therefore their responses would only reflect their area of responsibilities in their respective markets. “0” would be shown in the empirical data for statements irrelevant to the respondents.

2.6.5 Respondent Profile

The defined population in this study was from the single case company, Electrolux Laundry Systems (ELS). Respondents of the case study survey were sampled from the service provider – the Logistics Center Ljungby (LCL) in Sweden and the customers (internal) - four other pre-determined markets or Sales Companies by LCL which are in the UK, France, Germany and Norway.

Out of all the 19 Sales Company’s which LCL offers logistics services to, these 4 sample Sales Companies are of different sizes and sales turnovers. They are treated as LCL’s internal customers and in both empirical findings and data analysis chapters we have generalized the Sales Companies as “Customers” of LCL.

In each Sales Company, at least one of the respondents was from a management position and the rest of the respondents of the same market were backoffice employees with at least one person

LCL

UK

Finished Products

Spare Parts

France

Finished Products

Spare Parts

Germany

Finished Products

Spare Parts

Norway

Finished Products

Spare Parts Theoretical Building Blocks

Strategic Role of Logistics Services

Efficiency Effectiveness Differentiation /

Relevancy

Customer Accommodation

(Gap Model) Expectations vs

Perceptions Finished Spare Products Parts

Value Creation

Co-creation of value Customer integration

Logistics Capabilities

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Kong, Berky and Choe, Mae Fong Page 29 each responsible for “Finished Products” and “Spare Parts”. This sampling by position and area of responsibility enables the samples to be more representing of the context of the business and therefore brings a more holistic and context-specific survey results.

In Table 3 below, the sampling ratio in percentage by market or country of the Sales Company is presented. LCL has the highest sampling ratio which represents ¼ of the employees in that particular office as respondents to our questionnaire.

Table 3 Sampling Ratio by Market

Sweden (LCL) UK France Germany Norway

Total employees 28 48 32 25 15

Sampled Respondents 7 5 4 4 3

Sampling Ratio 25% 10.4% 12.5% 16% 20%

Table 4 below shows the list of respondents of the case study survey and some of their background characteristics. A total of 23 respondents were sampled from both the logistics service provider and customers. These respondents have been serving their corresponding company ranging from 3 months to 37 years. However, some respondents preferred to combine their responses in a single questionnaire as they represent the same role in the company. For example, two Order Administrators of LCL combined their responses and so we have treated them as one respondent (Respondent E). In Germany, two Order Takers and Logistics Support staff (Respondent B) jointly answered a questionnaire representing the response from Finished Products. Therefore, a total of 21 sets of questionnaire were completed in our empirical data.

Logistics as a strategic role for the creation of Customer Value

Authors: Tutor:

Examiner:

Subject:

Level and semester:

Logistics as a strategic role for the creation of Customer Value

Hans Jansson

Business Administration

Master's Level, Spring 2011

“If customer value is to be achieved, then customer success has to be attained.”

Contents

List of Figures

List of Tables

1.0 INTRODUCTION

1.1 Research Background

Research sub-question 1

What is the strategic role of logistics in an organization?

Research sub-question 2

How are customers accommodated through logistics services?

Main Research Question

How can an organization strategically use logistics to create customer value?

Research sub-question 3

How is value created?

1.2 Research Questions

Logistics as a strategic role for the creation of customer value

How can an organization strategically use logistics to create customer value?

What is the strategic role of logistics in an organization?

How are customers accommodated through

logistics services?

How is value created?

The growing importance of logistics for globalization

Explore gaps in expectations and perceptions of customers and

service providers

Explain linkage between logistics and customer value from a contemporary perspective

Gap in literature for internal logistics

1.3 Purpose

Research

Topic

Research Main Question

Research

Sub-Questions

Motivations

1.4 Delimitations Nature of Customer

Restricted to manufacturing industry

Logistics services vary among companies

•Introduction

Chapter 1

•Methodology

Chapter 2

•Theoretical Framework

Chapter 3

•Empirical Findings

Chpater 4

•Analysis

Chapter 5

•Conclusions

Chapter 6

•Managerial Recommendations

Chapter 7

•Future Research

Chapter 8

2.0 METHODOLOGY

2.1 Scientific Approach

2.2 Research Type

2.3 Research Method

2.4 Research Approach

2.5 Case Study Design

2.6 Data Collection

2.6.1 Three principles of data collection

Fact

Documentation

Direct Observation Interviews

Documentation

Direct Observation

Interviews

Interviews (Face-to-face)

Interviews (by telephone)

2.6.2 Data Sampling

2.6.3 Empirical Data Structure

2.6.4 Sections of Empirical Data