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IJPDLM 34,8

Toward a unied theory of logistics

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Received November 2002 Revised September 2003, January 2004 Accepted March 2004

Soonhong Min
Division of Marketing and Supply Chain Management, The University of Oklahoma, Norman, Oklahoma, USA, and

L. Michelle Bobbitt
Department of Marketing, Bradley University, Peoria, Illinois, USA
Keywords Distribution management, Operations and production management, Supply chain management Abstract Despite the growing importance of logistics in corporate strategy and the global economy, the logistics literature reveals little effort to build a unied theory of logistics (i.e. a theory of the role of logistics in the rm). Thus, the purpose of this paper is to move toward a unied theory of logistics within the contexts of the strategic role and capabilities of logistics. Considering the importance of logistics in todays corporate strategy, various theories of the rm are adapted to explain the reasons for logistics activities within the rm. The proposed theory should serve as a conceptual reference point for future theory development and empirical research in logistics.

International Journal of Physical Distribution & Logistics Management Vol. 34 No. 8, 2004 pp. 606-627 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030410557758

Introduction Logistics excellence has become a powerful source of competitive differentiation (Mentzer et al., 2001a). In the 1980s and 1990s, companies began to view logistics as more than simply a source of cost savings and recognize it as a source of enhancing product or service offerings as part of the broader supply chain process to create competitive advantage (Novack et al., 1995; McDufe et al., 2001). Despite the growing importance of logistics in corporate strategy and the global economy, the logistics discipline does not have as rich a heritage of theory development and empirical research as older and more established disciplines such as anthropology, philosophy, psychology, and sociology (Stock, 1997). In fact, much logistics literature and research has been considered largely managerial in nature and lacking a rigorous orientation toward theory development, testing, and application (Mentzer and Kahn, 1995). Specically, logistics researchers have made little effort to build a unied theory of logistics (i.e. a theory of the role of logistics in the rm). Although there have been attempts to build logistics theories (e.g. Pisarodi and Langley, 1990; Bienstock et al., 1998; Cooper et al., 1997), they are limited to particular components of logistics (e.g. customer service, logistics quality, etc.). In addition, it is not clear how any particular theory is related to the foundation of the logistics discipline to understand the strategic nature of logistics. The denition of logistics management, as offered by the Council of Logistics Management (2003), is fairly uniformly accepted:
The authors wish to thank the anonymous IJPD&LM reviewers for their insightful comments.

Logistics management is that part of Supply Chain Management that plans, implements, and controls the efcient, effective forward and reverse ow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer requirements.

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In contrast, numerous denitions of supply chain management (SCM) have been offered, including one by the Council of Logistics Management (CLM), with little agreement on its scope or nature. However, most denitions of SCM again including the one offered by CLM, which states that SCM includes all of the Logistics Management activities . . . (Council of Logistics Management, 2003) recognize that SCM is a broader concept that subsumes logistics management. Therefore, as the logistics discipline continues to mature, and distinguish itself from SCM, research is called for that presents a unied theory of logistics that offers researchers a conceptual reference point for future theory development and empirical research. The purpose of this paper is, thus, to move toward a unied theory of logistics within the contexts of the strategic role and capabilities of logistics. To do so, this paper adopts the CLM denition of logistics. Thus, logistics management is a within-rm function that has cross-function and cross-rm (i.e. boundary-spanning) aspects to it. Considering the importance of logistics in todays corporate strategy and its truly boundary-spanning nature, the starting point for theory building should be the theories of the rm, which attempt to explain the reasons for the existence of the rm and rm functions. The theories of the rm should provide logistics researchers with new insights to enhance the theoretical and pragmatic aspects of the logistics discipline. The theory of the rm serves to provide a way of conceptualizing the business enterprise in order to investigate some phenomena of interest and particularly, issues of competition (Seth and Thomas, 1994). Similarly, a theory of the rm indicates a subset of the substantive areas of endeavor likely to be associated with a companys advantage vis-a-vis other rms (Conner and Prahalad, 1996). However, the primary role of the theories of the rm is to guide theory development within a discipline. It provides the researcher with an ontological framework and a philosophical methodology (Anderson, 1982). In this context, the role and structure of logistics, as a part of a modern rm, should be investigated in the context of the theories of the rm. Theories of the rm Theories of the rm were originally developed to identify why rms exist (Holmstrom and Tirole, 1989). Earlier theories of the rm were rooted in deductive economics and have as their foundation transaction cost theory. Coase (1937) introduced the concept of transaction costs as the factor that determines whether a rm or market contracts exist for the coordination of production. The existence of a rm is based on differences between the transaction costs of market contracts versus those of a rm. If market contracts are characterized by low transaction costs, then division of labor will not be organized within a rm (Stigler, 1968). According to the transaction cost framework, the organization form that develops is the one that most efciently completes transactions and minimizes production costs. Transaction costs are those costs associated with exchange, while production costs are associated with the coordination of various production activities in-house (Das and Teng, 2000).

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Williamson (1981; 1985) identied three characteristics of transactions asset specicity, uncertainty, and the number of input sources that determine when rms or markets prevail. Market contracting is more efcient when assets are non-specic to any particular transaction. Similarly, when small numbers of sources and imperfect information are not signicant, market contracts dominate over rms. Therefore, the greater the asset specicity, uncertainty (imperfect information), and likelihood of a few input sources, the greater the rationale for the organization of rms. While many economic theories were developed to explain a rms existence, many believed these theories did not adequately provide a rationale for a rms existence (Cyert and March, 1963). Therefore, behavioral theories were introduced in an attempt to overcome some of the limitations associated with the economic theories. Since neither view completely explains rm existence, researchers have suggested the economic and behavioral views are complementary (Foss, 1996). To gain a greater understanding of the major principles and assumptions associated with the theories of the rm, the theories of the rm most relevant to the development of a unied theory of logistics from both views are presented in Tables I and II.
Overarching assumption the primary objective of the rm, the primary rationale for rms to exist, is to maximize prot Basic premise Assumptions Goal is to maximize prots. Suggests rms exist to acquire and utilize resources to produce a good. The rm is viewed in terms of the production function the converting of labor and capital into goods and services Perfect competition in the market, the rms ability to obtain perfect and complete information, freely available production resources that are innitely divisible and mobile across uses (Anderson, 1982; Conner, 1991; Cyert and March, 1963; Simon, 1955), and does not consider the degrees of risk associated with different investment alternatives (Anderson, 1982) Does not acknowledge owner monitoring costs of managers

Theory Neoclassical model

Market value model

Agency cost model

Table I. Economic theories of the rm

The objective of the rm which exists in a perfectly competitive capital market is to consider the risk differences among investment alternatives to maximize present market value or the price of the rms stock (Anderson, 1982; Fama and Miller, 1972; Seth and Thomas, 1994) A modication of the market value model, whose objective is still to achieve economic value maximization. Suggests an agency relationship exists between stockholders and managers in which managers are given authority to make decisions to perform specied services (Jenson and Meckling, 1976)

Recognizes the different interests of owners and managers and that may pursue self-interests (Anderson, 1982). Thus, the model proposes stockholders incur monitoring costs to minimize the possibility of poor management decisions

Overarching assumption the neoclassical objective of prot maximization is questionable, based on observations of managerial behavior (Anderson, 1982) Theory Basic premise Assumptions Behavioral model Firms exist to achieve satisfactory, rather than maximum, prots. Adopts a coalitional perspective where various subunits of the organization make decisions regarding different problems at different points in time (Cyert and March, 1963) Goal is to maximize prots. Firms exist to acquire and utilize resources to produce. The rm is viewed in terms of the production function the converting of labor and capital into goods and services (Penrose, 1959). The focus is on the skill and luck in acquiring and utilizing resources to achieve above-normal earnings, which is a reason for the organization of the rm, even in the absence of opportunism (Conner, 1991) A rm should select the strategy that takes into account the relationship between its resources and environmental opportunities in the generation of rents (dened as the return in excess of a resource owners alternative use costs) (Mahoney, 1995, p. 91) Stakeholders of the organization determine the objectives of the rm. Since different stakeholders have different goals, it is necessary to resolve conict through bargaining Organizations adapt their objectives based on the constraints imposed on the organization by the various stakeholders and environmental coalitions (stockholders, creditors, and suppliers) (Pfeffer and Salancik, 1978). The objective of the rm is to survive through maintaining support and obtaining resources through external coalitions (Anderson, 1982) Rents result from accumulating and utilizing heterogeneous resources better than competitors, achieved through government protection, scarce resource ownership, and entrepreneurial insights in an uncertain environment (Mahoney, 1995). Rent is based on how the rm uses its core competencies (unique resources and relationships) (Penrose, 1959; Rumelt, 1984) Cooperation through joint effort or exchange yields gains that can be shared by the cooperating parties. Firms and markets perform three tasks: (1) create awareness of the gains that can be achieved through cooperation, (2) prevent parties from bargaining to increase their own gains, and (3) enforce agreed-upon terms (Hennart, 1994) Knowledge-based transaction costs can exist even in the absence of opportunistic behavior. Non-opportunistic parties may not agree or arrive at a course of action due to differences in knowledge rather than due to serving self-interests Since rents can be derived from both behavioral and cognitive logic, they are interrelated and necessary for sustainable competitive advantage There is a tendency for each functional area to pursue its own objectives, thereby constraining the objectives of other departments. As a result, the objectives of the rm are negotiated among the various functional units, often with some units having more inuence due to the ability to provide important resources

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Resource dependence model

Resourcebased theory

Comparative institutional theory

Firms obtain rents even if some assumptions of the resource-based view are not met (Hennart, 1994). Rents are based on returns on assets and management skill at coordinating interactions with other resource owners. Firms reduce costs by organizing both internal and external transactions cheaper than competitors Firms may exist due to knowledge-based transaction costs (Conner and Prahalad, 1996)

Knowledgebased theory

ResourceManagers mental models (in addition to learning theory rm resources) are sources of rm heterogeneity (Mahoney, 1995) Constituencybased theory Incorporates the functional areas of the rm as the unit of analysis in attempting to understand the various goals that may arise within an organization (Anderson, 1982). Each functional area (such as logistics) is viewed as a specialist that provides unique resources to the rm

Table II. Behavioral theories of the rm

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Toward a unied theory of logistics Based on insights from the theories of the rm (Tables I and II), we adapt different elements of each theory of the rm for a better understanding of the strategic role of logistics. Theoretical propositions, based upon this nascent unied theory of logistics (illustrated in Figure 1), are also offered.

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Internal considerations of the rm Research into various functional business areas, including logistics, can be advanced through the theories of the rm by understanding how the goals and resources of the organization drive rm behavior. The goals of the rm drive rm activities, as well as direct the behavior of management and other stakeholders of the rm. The prot maximization goal in early economic theories evolved into the achievement of satisfactory prots in later theories of the rm. This transition occurred as newer theories began to focus on the internal aspects of the rm. In addition to the focus on protability, multiple goals might exist across various functions (logistics, marketing, production, nance, etc.) that may include inventory optimization, sales and market share, production, and prot. The goals of the rm can also be inuenced by external factors such as competitors, stockholders, suppliers, customers, and industry structure. Dening the goals of the rm becomes more complex as these groups place different demands on the rm. In such circumstances, economic theories suggest that goals are adjusted through an authority structure, where management or owners establish the goals. Firm goals are determined through a bargaining process, and inconsistent goals may arise due to changing constraints imposed on the rm by stakeholders (Cyert and March, 1992). As

Figure 1. A unied theory of logistics

such, the stakeholders of the organization not only affect the goals of the organization, but also the degree to which the goals are obtained. Considering that rst, resource heterogeneity exists among different rms and functions, both of which are determinants of a rms survival (cf. Dowling and Pfeffer, 1975), and second, the customers value perception plays a decisive role in a rms nancial performance (Drucker, 1954), one goal of the rm may be the continuous creation of customer value to satisfy end users (Drucker, 1954; Olavarrieta and Ellinger, 1997). As resource-based theories argue, capabilities within a network of rms often complement rms internal resources (Langlois, 1992). Consequently, rms engage in collaborative relationships to add value or reduce cost in inter-rm exchanges (Anderson, 1995). For example, Buchanan (1992) found that the best performing categories from the perspective of a buying rm were not those in which the rm held power over the suppliers, but rather those in which the rm and suppliers were mutually dependent to serve their ultimate customers better. Under such circumstances, a rm is more likely to work with suppliers that deliver value (Cannon and Homburg, 2001). Reichheld and Sasser (1990), Hallowell (1996), and Cannon and Homburg (2001) found creating customer value also helps the supplier rms bottom line: the economic worth of retaining customers over time is much higher than replacing them. Hallowell (1996) also reported that customer loyalty is related to protability in the banking industry. In addition, Cannon and Homburg (2001) found a supplier that enhances customer value increases its share of customer at the expense of suppliers who do not provide such benets. Beyond nancial benets, neither prot nor the rms survival can last long by manipulating customers as competition increases. Consequently, market offerings are abundant: customers want to deal with a rm that is responsive to all their needs (Woodruff and Gardial, 1996). Thus, success in the market place rests on a rms ability to attract, satisfy, and retain its customers by creating customer value (Johnson 1998). Accordingly, Bowersox et al. (2000) argued the goal of integrated logistics, both inside and outside a rm within a supply chain, is to enhance end-customer value. The strategic perspective of the rm considers the rm an entity that makes proactive decisions to optimally utilize its unique specialized resources (Seth and Thomas, 1994). Heterogeneity of resources (in particular, logistics resources (Olavarrieta and Ellinger, 1997)) serves as a source of competitive advantage for rms since they are not completely imitable by competing rms. These barriers to imitation explain not only a rms ability to sustain rents but also the differences among rms within an industry (Mahoney, 1995; Rumelt, 1991). Resources can be tangible (e.g. plants, equipment, raw materials, distribution centers, and logistics networks of these plants and distribution centers) or intangible (e.g. relationships, corporate culture, management skills, logistics expertise, and customer loyalty). One intangible resource frequently discussed in the theories of the rm is knowledge. Firms have different technological and organizational knowledge bases, which determine how resources are utilized to create products/services. The rm develops a collective memory of past problems and solutions and develops behavioral rules and standard operating procedures to use when facing environmental changes (Cyert and March, 1963). As a resource, knowledge (including logistics expertise (Olavarrieta and Ellinger, 1997)) can help a rm create competitive advantage. Firm

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specic knowledge is difcult to transfer to another rm, even if an employee from one rm transfers to another. One reason is any particular employee will only contain partial knowledge about the rm. In addition, other rms may not possess the same resources or processes to take advantage of the knowledge. Thus, the knowledge the collective rm gains through experience is unique to that rm and can be used as a competitive weapon. This includes competitive advantage through the management of superior logistics knowledge. In summary, one goal of the rm is the continuous creation of customer value to satisfy end-users (Drucker, 1954). In fact, neither above-normal prots, nor the rm itself, can last long by simply manipulating end-users. Thus, prots and the resulting long-term survival are a reward rather than the goal of the rm. The rm consists of multiple stakeholders and coalitions that constantly provide the necessary resources (including logistics capabilities) to achieve this customer value goal of the rm, but also meditate its importance as a rm goal, based upon the individual stakeholders goals and the rms management of those goals. Creating customer value requires inter-functional coordination and, as a result, the boundaries between functions become blurred (Min and Mentzer, 2000). Therefore, collaboration, rather than conict, should be the norm between functions in rms that seek competitive advantage. Likewise, the boundaries between rms become indistinct as rms engage in inter-rm cooperation with supply chain partners. In this sense, the rm is not a substitute for the market. Instead, markets are complementing structures to accomplish the goals of the rm. This discussion leads to the initial propositions of a unied theory of logistics: P1. P2. P3. P4. The competitive advantage goal of the rm is to continuously create customer value to satisfy end users. Prots are earned as rewards for the rms efforts to create customer satisfaction. Long-term protability and satised customers leads to rm survival. Collaboration between each function inside the rm and between each rm in a supply chain is necessary to convert stakeholder goals into rm competitive advantage. The management of the overall resources of the rm leads to distinctive logistics capabilities. The relationship between logistics capabilities and rm competitive advantage is mediated by the management of stakeholder goals.

P5. P6.

Environmental considerations The rm is confronted with many environmental factors that affect its goals, behaviors, and decisions. Organizations must respond to changes in the environment, just as they must adapt to changing stakeholder demands, through learning and organization memory (Cyert and March, 1963; Knudsen, 1995). While there are many environmental factors an organization encounters, there are two factors of signicant interest to most rms: technology and global competition. Organizational processes such as manufacturing, order processing, and inventory management can become

more effective and efcient as an organization adopts new technology. Firms can achieve a competitive advantage through capitalizing on differences in resources and capabilities (including logistics capabilities). In fact, Conner and Prahalad (1996) suggest a rms existence depends on how it performs relative to other rms and whether it can achieve a sustainable competitive advantage. Logistics is often technology driven. Further, the more global the competition in an industry, the more critical logistics capabilities are to rm success. P7. Environmental intensity and volatility affects the importance of logistics capabilities in accomplishing rm goals.

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Logistics capabilities and competitive advantage Early logistics literature focused on the economic theories of the rm i.e. cost control and its contribution to the bottom line. Thus, total cost analysis was an important performance measure (cf. Stock and Lambert, 2001). The role of logistics during this period is reected in Druckers (1962) statement that logistics was one of the last real frontiers of opportunity for organizations to improve their corporate efciency. The goal of logistics was, thus, to optimize the number, size, and geographical arrangement of plant and warehouse facilities, select transportation methods, and control distribution costs. Consequently, logistics has done an excellent job of managing and moving inventory the operational aspects of logistics (Mentzer et al., 1999). Starting in the 1980 s, rms viewed time as a source of competitive advantage, based upon the observation that rms competing effectively on time tend to excel at improving quality, understanding evolving customer needs, exploiting emerging markets, entering new businesses, and generating new ideas and incorporating them into innovations (Stalk et al., 1992). Thus, rms started to focus on eliminating waste in the form of time, effort, defective units, and inventory in manufacturing-distribution systems (Larsen and Lusch, 1990; Schonberger and El Ansary, 1984; Schultz, 1985). In erce time and quality-based competition, logistics capabilities become critical. In fact, many rms particularly those operating in commodity or convenience goods markets succeed as a result of their logistics systems, rather than their marketing strategies (Christopher, 1994; Bowersox et al., 1995; Mentzer and Williams, 2001). Therefore, creating customer value is possible by focusing on logistics customer service (Langley and Holcomb, 1992; Morash et al., 1996a; Manrodt et al., 1997). Beyond the efciency function, logistics capabilities are a source of competitive advantage (cf. Zhao et al., 2001; Lynch et al., 2000; Bowersox et al., 1999; Olavarrieta and Ellinger, 1997; Morash et al., 1996a,b; Bowersox and Closs, 1996; the Global Logistics Research Team, 1995). Day and Wensley (1988) dened superior skills as the distinctive capabilities of personnel that set them apart from the personnel of competing rms, and superior resources as more tangible requirements for advantage (e.g. physical facilities, wide distribution channels, and brand name) that enable a rm to exercise its capabilities. Superior skills and resources, taken together, represent the ability of a rm to surpass its competitors in the marketplace (Day and Wensley, 1988). Customer value consists of economic values such as protability, and lowest total cost and market value including assortment and convenience, both of which satisfy customers current and future requirements (Bowersox et al., 2000). Logistics capabilities, thus, contribute to a rms competitiveness through creating economic (cost leadership) and market-based (differentiation) values.

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P8. P9.

Logistics capabilities help rms achieve the cost leadership component of competitive advantage through efciency (cost and capital reduction). Logistics capabilities help rms achieve the differentiation component of competitive advantage through effectiveness (customer service).

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The nature of logistics capabilities Logistics capabilities can be categorized into demand-management interface capabilities supply-management interface capabilities, and information management capabilities (Morash et al., 1996a,b; Zhao et al., 2001; Bowersox et al., 1999; the Global Logistics Research Team, 1995), all of which require internal and external coordination capabilities. The demand-management interface capabilities of logistics (e.g. customer service and logistics quality) provide product or service differentiation and service enhancement for lasting distinctiveness with customers (Bowersox et al., 1999; Morash et al., 1996a). These capabilities are also called customer-focused (Zhao et al., 2001), valued-added (Lynch et al., 2000), or customer integration capabilities (Bowersox et al., 1999). These capabilities help a rm target a given customer base, and meet or exceed their expectations by providing unique value-added activities (Lynch et al., 2000; Bowersox et al., 1999; the Global Logistics Research Team, 1995). Customer service capability includes exibility (i.e. adapting to unexpected operational circumstances) and responsiveness (i.e. the accommodation of unique and/or unplanned customer requirements) in satisfying changing customer requirements and demands (Bowersox et al., 1999; Schary, 1979; Schary and Skjoett-Larson, 1979; Christopher, 1994). Logistics quality is a component of overall customer service (Mentzer et al., 2001a), is dened as the ability to distribute products or materials in conformance with customer requirements and standards (Morash et al., 1996a), and consists of four dimensions: timeliness, availability, delivery quality, and related communication with customers. These dimensions combine with broader service quality processes, as well as other attributes such as price and product quality, to better explain industrial customers purchasing patterns (Bienstock et al., 1998; Emerson and Grimm, 1996; Mentzer et al., 1989; 1999; 2001a). When the dimensions of the demand side of logistics capabilities are mixed in a unique way over time to fend off competitors, the rm has a core competency and innovative ways of competing in the market (Olavarrieta and Ellinger, 1997). Demand-management interface capabilities can be explained with the resource dependence and constituency-based theories of the rm (cf. Anderson, 1982; Olavarrieta and Ellinger, 1997). According to the resource-based approach, the rms eventual goal is to obtain above-normal returns via either a distinctive product in the eyes of buyers (e.g. the rms product must offer consumers a different and attractive attribute/price relationship, in comparison to substitutes), or low-cost products, that are otherwise identical to competitive offerings (Porter, 1985; Day and Wensley, 1988; Conner, 1991). Day and Wensley (1988) implied that a perception of superior service, which ultimately leads to customer satisfaction, might be gained by various logistics activities such as faster delivery of orders, choice of technology, shipping methods, or order handling activities. Lambert and Stock (1993) also argued that logistics can differentiate product-service offerings because distribution can be

used as the primary reason why a target market will purchase, and distribution can be designed as a unique offering not duplicated by competition. The variants of resource-based theory (especially, knowledge-based theory) view the rm as the creator of a positive and unique productive value through organizational learning (Conner, 1991). Because logistics capabilities are unique skills that are learned, maintained, and even enhanced in time and quality-based competition, logistics capabilities can become a rms core competency. Core competency is essential because the real sources of a rms success are due to rm-specic (idiosyncratic) resources, such as management skills and behavior, attained through collective learning (Prahalad and Hamel, 1990; Conner, 1991). The constituency-based model argues that each functional area is a specialist that provides unique resources to the rm (Anderson, 1982). The logistics function provides distinctive capabilities (i.e. logistics management and coordination skills) along with its resources (i.e. a logistics network of physical nodes and links) to help the rm offer customers unique products (i.e. the combination of tangible products and intangible logistics services), good service quality, and low cost. As a result, the rm can achieve competitive advantage in the market. Schumpeter (1950) theorized that rms are seekers of new ways of competing and, thus, should focus on market dynamics. Schumpeter further argued that competition based upon innovation is more effective than price-based competition. In logistics, for example, postponement (the extent to which production and distribution are delayed to add options or differentiate the product as close as possible to when customer purchases the product) is an innovative approach in which rms achieve not only cost reduction but also product customization (Waller et al., 2000). From the Schumpeterian view, distinctive logistics capabilities based upon organizational learning emerge as valuable factors in the development of customer-oriented corporate strategies aimed at obtaining sustainable competitive advantage through creating customer value. P10. Logistics demand-management interface capabilities are customer-focused, multidimensional (i.e. customer service and logistics quality), longitudinal (i.e. before, during, and after sales), and lead to strategic advantage. Supply-management interface capabilities are operational capabilities that include total cost minimization and efcient logistics processes (Morash et al., 1996a; Lynch et al., 2000). Total cost minimization (also measured as total process optimization) is at the core of supply-management interface capabilities, and is the ability to minimize total system costs so that cross-functional cost tradeoffs are explicitly considered (Morash et al., 1996a). Supply-management interface capabilities are also a rms ability to nd proactive, timely, and creative logistics solutions to situation-, emergency-, or customer-specic problems, as well as the ability to simplify and standardize key logistics activities in various supply chain ows (Lynch et al., 2000). Supply-management interface capabilities are more focused on the traditional view of the logistics function as a fundamental source of cost and capital reduction. However, cost reduction should not be pursued at the expense of customer service. For example, the implementation of time and quality-based concepts including just-in-time (JIT), quick response (QR), and vendor managed inventory (VMI) not only eliminate waste but also increase service velocity. In this context,

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supply-management interface capabilities may be explained by the comparative institutional theory of the rm. Hennart (1994) suggested that rms exist because they organize production at a lower cost by using organizational modes superior to those used by competitors. For example, minimizing the variable costs associated with the movement and storage of goods and minimizing the level of investment in the logistics system (i.e. inventory and facilities) may sometimes be easier within the structure of a rm (internal coordination) than through market transactions (i.e. 3PLs). P11. Logistics supply-management interface capabilities lead to optimization of the total process of logistics activities, which leads to minimization of system-wide total cost, which leads to competitive advantage. Logistics has a unique role in dealing with both upstream (i.e. materials management) and downstream (i.e. physical distribution) ows of goods, services, and related information (Council of Logistics Management, 2003). Thus, logistics has information management capabilities that acquire, analyze, store, and even distribute tactical and strategic information both inside and outside the rm within a supply chain (Zhao et al., 2001; Bowersox et al., 1999). Information management capabilities consist of information technology (i.e. the hardware, software, and computer network and design), information sharing (i.e. the exchange of key technical, nancial, operational, and strategic data), and connectivity (i.e. the exchange of data in a timely, responsive, and usable format) (Zhao et al., 2001). These capabilities meet operational and strategic information needs to balance supply and demand and facilitate supply chain exchanges. For example, lean logistics strategy, in which information replaces inventory, directly results in the elimination of unnecessary investment in old technology and quick response to changing customer needs, both of which contribute to a rms bottom line and long term survival. Organizational learning is a source of sustainable competitive advantage (Crossan et al., 1995; Olavarrieta and Ellinger, 1997). According to the resource-based theories of the rm, one of a rms dynamic capabilities includes information management (or processing) capabilities, i.e. the ability to understand information storage and ow, perform two-way communication among supply chain members, and collectively learn how to coordinate diverse production skills and integrate multiple streams of technology (Mahoney, 1995; Prahalad and Hamel, 1990). In addition, vertical coordination/integration is a viable alternative for obtaining environmental information (Robertson and Gatignon, 1986). P12. Logistics information management capabilities meet the supply chain operational and strategic information needs to balance supply and demand and facilitate supply chain exchanges, which leads to optimization of system-wide capital investment, which leads to competitive advantage. Internal coordination logistics capabilities Logistics capability to provide the interface with other functional areas necessitates logistics work closely with other functions to plan, coordinate, and integrate cross-functional activities (Bowersox et al., 1999; the Global Logistics Research Team, 1995; Morash et al., 1996a). To facilitate synergistic and synchronous operations, logistics together with other functional areas can implement company-wide standardization (i.e. cross-functional policies and procedures), simplication (i.e.

continuous improvement through benchmarking), compliance (i.e. adherence to established operational and administrative policies and procedures), and structural adaptation (i.e. the network structure and the deployment of necessary resources to its activities) (Bowersox et al., 1999). Strategic logistics distinguishes itself from the traditional, operational perspective through its ability to coordinate and integrate a number of interdependent activities simultaneously across major functional areas, thereby providing various additional dimensions and ways in which logistics can create incremental customer value (Langley and Holcomb, 1992). The boundary-spanning role of logistics capabilities inside a rm can be explained by the behavioral theories of the rm. Pfeffer and Salancik (1978) proposed that a rm consists of internal coalitions of many groups (e.g. departments and functional areas), and, therefore, the functional areas are specialists providing particular resources for the rm. To enhance efciency and effectiveness, each internal group specializes in certain functional areas in negotiating exchanges with external coalitions (such as suppliers, distributors, and customers) that provide uninterrupted ows of resources. Each functional area is constrained by the objectives of other departments, which triggers strategic conicts among functions (Anderson, 1982). Logistics capabilities play a distinctive role in the integrative strategic process, due to the expected benets of improving efciency (cost and capital reduction) and effectiveness (customer service) via two-way communication and information processing (information management) in a strategic context (creating customer value) to obtain competitiveness, all of which are aimed at long-term rm protability and survival. Competitive advantage grows out of the value a rm creates for its buyers that exceeds the rms costs of creating it (Porter, 1985). Logistics capabilities should provide competitively superior customer service at the lowest possible total costs to create customer value (Bowersox and Closs, 1996). Logistics capabilities, thus, put logistics personnel in the unique position to actively coordinate with other functions in pursuing two objectives (i.e. efciency and effectiveness) for attaining the objective of creating customer value. In this context, a rm exists to achieve satisfactory prots (rather than maximum prots) in an attempt to coordinate the efforts of the internal coalition toward the long-term survival of the rm (cf. Seth and Thomas, 1994). In the comparative institutional perspective, Hennart (1994) proposed rents are based on returns on assets and management skill at coordinating interactions with other resource owners. Logistics capabilities that expand the boundary of logistics into the integrative strategic process of a rm to organize production at a lower cost in fact contribute to attaining above-normal returns. Each subset of logistics plays an important role in the inter-functional coordination process of arriving at an integrative corporate strategy. Logistics provides the physical means of delivering inbound resources and outbound goods in the form of transportation and, thus, logistics has an important role in time-sensitive business environments. Furthermore, pipeline visibility made possible by logistics information networks that span suppliers, distributors, and customers also provides essential input to the rms strategic planning process. The supply side of logistics capabilities may be reinforced by the purchasing group that is responsible for introducing new technology, improving quality, reducing costs, and securing the relationship with selective suppliers who are the owners of critical resources. Finally, the demand side of logistics capabilities

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(availability, timeliness, delivery quality, and communication) is critical to satisfy customers because logistics personnel are often a primary customer contact (logistics delivery and/or order processing personnel as customer service specialists). Logistics activities, coupled with operational efciencies and effectiveness, help marketing implement the marketing concept to gain competitive advantage (Stock and Lambert, 2001). P13. Each subset of logistics plays an important role in the inter-functional coordination process of arriving at an integrative corporate strategy, which leads to competitive advantage. External coordination logistics capabilities Mentzer et al. (2001b) dene supply chain management as the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. Mentzer et al. (2001b) further dene supply chain management as encompassing all upstream and downstream ows of products, services, nances, and/or information from a source to a customer. Thus, supply chain management encompasses all logistics ows and functions (a point on which most of the myriad supply chain management denitions seem to agree), but also encompasses additional (e.g. nancial) ows and functions (e.g. all the business functions) not explicitly included in the CLM (2003) denition of logistics management. By expanding logistics beyond the existing company structure to involve suppliers and customers, parties involved in the logistics process obtain benets such as asset productivity, operational effectiveness, cost efciencies, and enhanced customer value, in addition to logistical capabilities (Langley and Holcomb, 1992). Those who adopt a supply chain perspective see logistics as one of the companys most important strategic initiatives (Manrodt et al., 1997). As a result, logistics is one (if not the major) of the contributions to the benets of supply chain management. When there are environmental uncertainties in both upstream and downstream supply chain ows (e.g. technological turbulence and/or supply and demand uctuations), the role of logistics is critical to rapidly change production and reduce inventory and, as a result, total costs. Especially when information is a critical resource in the rm, the importance of logistics increases (Smaros et al., 2003). Conversely, the boundary-spanning capabilities of logistics cannot exist if potential opportunism (i.e. self-interest seeking behavior with guile) (cf. Coase, 1937) prevents collaborative inter-rm relationships among supply chain members. In this context, Mentzer et al. (2001a,b), Bowersox et al. (1999), and Day (1994) proposed the need to forge inter-rm relationships among supply chain partners before working together toward a common goal. Day (1994) proposed that a close buyer-seller relationship that is beyond arms length, called channel linking, becomes a distinctive capability. The boundary-spanning capability of logistics may help rms build strong partnerships. For example, potential opportunism along with uncertainty raises transaction costs (i.e. expenditures associated with an economic exchange) such as bargaining, monitoring, and maladaption costs (Williamson, 1985). By efciently and effectively managing information ows in a supply chain, logistics helps supply chain members reduce transaction costs, increase condence levels among rms and, thus,

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decrease uncertainty. As such, integrated logistics may perform a coordinating function to better manage a supply chain. In summary, as knowledge-based theory (e.g. Prahalad and Hamel, 1990) suggests, to convert the role of logistics into a boundary spanning capability a rm should achieve collaboration among supply chain members. At the same time, the unique role of integrated logistics may create a rms supply chain capability by linking systems and operational interfaces to reduce redundancy, while maintaining operational synchronization. Thus, though separate concepts, the relationships between supply chain management and the boundary-spanning capabilities of logistics are intertwined. Porter (1985) proposes that vertical linkages reect interdependencies between a rms activities and the value chains of suppliers and distributors (i.e. supply chains). Coordinating and jointly optimizing with suppliers (inbound) and customers (outbound) can lower costs and/or enhance differentiation (Porter, 1985). Thus, strategic alliances with suppliers, customers, or intermediaries (e.g. transportation and/or warehousing service providers) leverage the strategic alignment of capabilities to create customer value (Langley and Holcomb, 1992). As such, effective supply chain management requires rms to work together and mutually share information, risks, and rewards to create a competitive advantage (Ellram and Cooper, 1990). The resource-based models and the constituency-based model offer insight into the role of logistics in supply chain management. Pfeffer and Salancik (1978) argued the behavior of organizations reect the coalitional nature of organizations and the manner in which organizations respond to pressures from the environment. They also proposed that many activities of organizations, which are viewed as structures of coordinated behaviors, can be explained by the desire for stable resource exchanges on one hand, and the need for exibility and autonomy on the other. A managed supply chain consists of such parties as labor, stockholders, creditors, suppliers, distributors, customers, government, and various interested publics (cf. Pfeffer and Salancik, 1978). Through cooperation in long-term relationships, a rm ensures the continued supply of critical resources, as well as market demand. Assuring both resources and demand is possible because supply chain management takes place in an extended supply chain that consists of external coalitions or alliances among manufacturers, carriers, and distributors, each of which is a functional specialist (cf. Christopher, 1992; Gentry, 1996; Mentzer et al., 2001). As with internal coalitions (i.e. functional areas of a rm), each rm participating in implementing supply chain management is constrained by the objectives of the others and, thus, successful supply chain management requires agreement on supply chain visions and goals (cf. Mentzer et al., 2001), and the role of logistics within the supply chain. The ultimate goal of supply chain management is the long-term prosperity of the participating parties as well as the supply chain (i.e. an external coalition) (Mentzer et al., 2001). Supernormal prots are acquired from efcient coordination of both internal and external transactions (Hennart, 1994). In other words, a unique capability that is not available inside the rm should be obtained from the market to generate above-normal business performance. Thus, the boundary-spanning capabilities of logistics, which lie at the center of supply chain management, may produce above-normal prots for the rm. In summary, supply chain management places a premium on the adoption of a cross-functional, externally focused view of logistics (cf. Manrodt et al., 1997).

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Therefore, explanations of the role of logistics in supply chain management are possible through the resource-based, constituency-based, and comparative institutional models. Supply chain design, the formation of relevant capabilities into a unied supply chain, is the most fundamental competence of an organization (Fine, 1998) and, therefore, the inuence of the resource-based and constituency-based models is relevant to explain logistics capabilities in supply chain management. P14. Logistics capabilities help rms acquire, analyze, store, and distribute tactical and strategic product/service ow information both inside the rm and across the supply chain for better coordination and collaboration. P15. The boundary-spanning nature of logistics capabilities makes possible coordination of activities inside rms and cooperation of multi-corporate joint activities (i.e. pursuing both efciency and effectiveness) for the purposes of external coordination of supply chain demand and supply ows. Borrowing external logistics capabilities make versus buy A central question of the theories of the rm is whether a rm can more efciently produce inputs in-house or acquire them in the market. The rm is the most effective method of organization if the costs of transactions are less in the rm than in the market. The make or buy decision not only has ramications for the existence of the rm but also for the boundaries (scope) of the rm. Milgrom and Roberts (1988) suggested a continuum of institutional arrangements, with controlled organizational forms on one end and discrete market exchanges on the other. Richardson (1972) suggested coordination of activities occurs through the market, as well as through managerial direction and cooperation with other rms. The rm is viewed as a complex institution with the purpose of mediating collaboration between resource owners (Knudsen, 1995). As rms engage in coordination with suppliers, third party logistics providers, or even competitors, rm boundaries become indistinct. Outsourcing logistics functions to other rms, known as third-party logistics providers (3PLs), has increasingly become a powerful alternative to the traditional, vertically integrated rm. 3PL arrangements are more than simply contracting out cost-inefcient functions (Skjoett-Larsen, 1999). Gentry and Vellenga (1996) argue it is highly unlikely that all of the primary activities in a supply chain inbound and outbound logistics, operations, marketing and sales, and service will be performed by any one rm to maximize customer value. Changing customer demands and regulatory frameworks encourage rms to outsource logistics functions to gain exibility to quickly adjust to the market (e.g. Bahatnagar et al., 1999; Shef, 1990). The scope of 3PL arrangements encompasses a variety of options ranging from narrow (limited to specic activities like transportation) to broad (covering substantive activities in the entire supply chain) (Rohit et al., 1999; Sink and Langley, 1997). For example, 3PLs are willing to perform part or all of the logistics requirements for a buying rm, including transportation, warehousing, order fulllment, information management, light assembly, inventory management, and strategic distribution consultation (Sink et al., 1996; Moore, 1998). The primary reasons for outsourcing logistics functions are to save costs and enhance revenues (Boyson et al., 1999; Shef, 1990; Bowersox, 1990). According to neoclassical price theory, rms are organized to minimize total transaction costs if

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market contracts lower transaction costs, rms prefer market exchange to internal division of labor (Coase, 1937). Firms expect to reduce total transaction costs by hiring 3PLs (Skjoett-Larsen, 1999). When the asset specicity of logistics services is low (e.g. transportation and warehousing services), manufacturers outsource logistics functions (Aertsen, 1995; Williamson, 1999). When asset specicity is high and market conditions uncertain, manufacturers either internalize logistics operations or enforce detailed legal contracts with 3PLs (Hoeck, 2000; Williamson, 1975). Although the neoclassical price approach provides a valuable theoretical basis to explain many 3PL arrangements, it does not explain the growing number of long-term, committed, strategic partnerships (arrangements that provide nal assembly, packaging, and distribution activities, for example) between buyers and sellers. The comparative institutional approach suggests a way to obtain supernormal prots is to efciently organize better external procurement contracts that are difcult to imitate (cf. Hennart, 1994). An alternative explanation is provided by resource-based views that propose close cooperation with 3PLs is a natural consequence of the fact that rms in a vertical supply chain possess heterogeneous resources and capabilities (Pfeffer and Salancik, 1978; Skjoett-Larsen, 1999). Therefore, it is harder for an individual rm in a supply chain to achieve its business objectives to develop new products and markets due to the lack of resources in the highly competitive business environment (Kotler, 1997). When customer needs vary, rms capabilities should be logistically distinct (Fuller et al., 1993; Mentzer et al., 2001). In this case, 3PLs can perform logistics activities at higher service levels (Murphy and Poist, 2000). Each functional specialist should provide ows of resources from appropriate external coalitions (i.e. 3PLs) (Anderson, 1982). Logistics resources and capabilities are core competencies of 3PLs, but not of many manufacturers, assemblers, technology companies, and retailers (Boyson et al., 1999) and, thus, 3PLs allow the parties involved to focus on their core competencies (Sink et al., 1996; Murphy and Poist, 2000). 3PL arrangements generate core competencies in one or more of the rms supply chain functions that enable the rms to generate rents from a resource advantage (Hitt and Ireland, 1985; Prahalad and Hamel, 1990). P16. Logistics activities are such a vital part in implementing corporate strategy that some rms (i.e. 3PLs) specialize in providing distinctive logistics capabilities to other rms to obtain competitive advantage. Conclusions We have attempted to offer relevant explanations of different aspects of logistics activities based on the theories of the rm. A review of the theories of the rm leads to the conclusion that the role of logistics is to provide the boundary-spanning, demand and supply coordinating, capabilities the rm needs to create customer value to satisfy customers. The logistics contribution to rm competitive advantage is signicant in both efciency (cost leadership) and effectiveness (customer service). Logistics capabilities for competitive advantage include demand-management interface capabilities (customer service and logistics quality), supply-management interface capabilities (low cost supply and distribution), and information management capabilities (information sharing via information technology and connectivity). Logistics capabilities also play an important role in boundary-spanning interfaces

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between internal functional areas and between the focal rm and supply chain partners. Coordinated with the marketing function, logistics can differentiate product and/or service offerings to fulll unique customer requirements (Mentzer et al., 2001). When joined with production, logistics offers cost and investment reductions while maintaining service levels. Logistics capabilities also help the rm cooperate with supply chain partners (i.e. suppliers, distributors, and other intermediaries) in coordinating supply and demand ows to deliver customer value and, in return, in sharing benets. Thus, logistics is an integral part of the larger concept of supply chain management. This attempt should move logistics research toward a unied theory of logistics, and provide benets for both logistics researchers and practitioners. Considering that scholars have not attempted to develop a theory of the rm that accommodates the role of logistics, the existing theories of the rm set a standard for constructing a theory of the rm from the perspective of logistics. Accordingly, we presented a comprehensive view of logistics capabilities within a unied theory of logistics (Figure 1). The proposed theory is important to the logistics discipline as the scope of the discipline expands from operational issues into such strategic issues as customer service, customer value, and relationship management. In particular, the proposed theory should help guide denitional development as scholars explore the differences between logistics and supply chain management. We also provided a theoretical explanation of each capability of logistics, utilizing the existing literature and the existing theories of the rm. Due to the complexity, as well as the diverse characteristics of logistics capabilities, multiple theories of the rms were adapted to offer a complete view of the role of logistics in the strategic process of the rm. This work should serve as a foundation for theory development in logistics that is essential in generalizing logistics phenomena. Thus, the resultant propositions should encompass already extant research in logistics (dening where various theory-development efforts have t into a larger unied theory of logistics), and guide future logistics theory development and testing. Practitioners are offered a holistic, strategic view of how logistics produces competitive advantage, beyond the traditional view of cost reduction and customer service, and widened into a supply chain context. We also point out ways of utilizing the capabilities of logistics within supply chain management as a source of competitive advantage. Although we have presented a unied theory of logistics based upon logistics capabilities, we do not claim the proposed theory is the only framework to understand and further study logistics. In fact, we offer the proposed unied theory as only one way of looking at the logistics discipline. Therefore, future research is strongly encouraged to challenge and/or rene our view of logistics. In addition, how this theory of logistics ts into the larger area of supply chain management needs to be further explored. For the theories of the rm to be fruitful, they must be congruent with the established research tradition of the eld (Laudan, 1977), i.e. logistics. This paper is only a starting point in what we hope will be on-going development of a unied theory of logistics.

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