Food Retail Chain Logistics Network Design

Food Retail Chain Logistics Network Design



Food Retail Chain Logistics Network Design

Introduction

Logistics has assumed major importance in recent decades representing a key strategic function for retail firms (see for example, Bourlakis and Bourlakis, 2001; Fernie, 1998a; Institute of Grocery Distribution, 2001). A major element of that function is the co-operation between logistics members such as between retailers and third-party logistics firms. Our aim is to investigate the relationship between the buyer (the retailer) and the supplier (the third-party logistics firm) of a logistics asset and to determine the way this relationship is influenced by both buyer's and supplier's perceptions of logistics asset specificity. Information technology is considered as a major safeguard and a central co-ordination medium in the management of the food retail chain and the evolution of its role is also analysed. This paper extends early work carried out by Gattorna (1998) and Christy and Grout (1994) by the simultaneous analysis of the concept of the fourth-party logistics network and of the necessary transaction costs-related preconditions that are required for its formation.

Accordingly, the application of network theory into retail logistics is brought forward in an attempt to strengthen the examination of the retailer-third-party logistics firm relationship. The paper is organised as follows. In the next section, the transaction costs and network theories are analysed with the aim to facilitate the understanding of the logistics asset buyer-supplier relationship. The role of the information technology function for the creation of logistics networks in the UK food multiple retail chain is subsequently discussed, followed by an analysis of a buyer-supplier relationship matrix based on different perceptions regarding logistics asset specificity. In the last sections, the managerial implications and potential areas for further research are provided.

Transactions costs analysis, network theory and buyer-supplier relationships

Coase (1937) in his article “The nature of the firm” formed the basis of transaction costs analysis and his seminal work was further advanced by Arrow (1969), Rugman (1981) and Williamson (1975, 1985). In particular, Williamson's (1975, 1985) major contribution was the identification of the elements that the productive activity is based on, and the elements that play a pivotal role in comparative institutional assessment. When the transaction costs of an administered exchange are lower than those of a market exchange, then the market is internalised and firm's efficiency is thereby increased.

These transaction costs can be identified as four separate elements related to transacting (Williamson, 1985). First, search costs contain the information costs to find and assess possible partners. Second, contracting costs are the agreement negotiation costs. Third, monitoring costs are for checking whether each partner meets specific predetermined criteria and obligations. Finally, enforcement costs are the sanctioning costs for a partner which is not meeting specific agreement obligations.

Based on these costs, a retailer can decide whether to “make-internalise” the distribution functions or to “buy” them from other firms (Dawson and Shaw, 1990). More specifically, the retailer will decide on whether transportation is better assigned to third-party logistics firms and on whether warehouses should be contracted ...