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This is to certify that the

dissertation entitled

LOCAL MARKET PRESENCE:
A PRELIMINARY INVESTIGATION

presented by

ANN RENEE' CROOKS COOPER

has been accepted towards fulfillment
of the requirements for

PH. D. degree in TRANSPORTATION-
DISTRIBUTION

 

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Date NOVEMBER 6, 1995

MS U i: an Affirmative Action/Equal Opportunity Institution

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MSU loAn Nfirmoflvo Action/Equal Opportunity InotItqun
, WIN-9.1

LOCAL MARKET PRESENCE:
A PRELIMINARY INVESTIGATION
By

Ann Reneé Crooks Cooper

A DISSERTATION
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Marketing and Logistics

1995

ABSTRACT

LOCAL MARKET PRESENCE:
A PRELIMINARY INVESTIGATION

By
Ann Reneé Crooks Cooper

Local market presence is a logistics strategy which integrates the vendor-
customer relationship and provides value-added benefits to the distribution channel in a
cost-effective manner. Local market presence creates a perception Of physical proximity
and develops a relational proximity with the vendor. This research examines how
customers perceive local market presence and its relative importance. More specifically,
the research objectives are to identify the impact of local market presence on the vendor-
customer relationship, determine the importance of local market presence factors in
vendor selection and logistics service quality, and develop managerial guidelines for
defining and implementing a local market presence strategy.

A mail questionnaire was sent to selected persons responsible for purchasing
uncoated paper for printing firms within the United States. Seventy-seven responses
were received and analyzed. Multiple regression and factor analysis were the primary
statistical procedures used to identify the benefits of a local market presence.

Dependent variables were drawn from previous customer service research and
measured perceived dimensions of time and distance. These variables identified the
benefits and importance of a local market presence strategy in vendor selection and

logistics service quality.

Additional dependent variables considered the vendor-customer relationship

based upon the vendor’s degree Of local market presence.

Independent variables include the importance Of local market presence benefits

and strategy, local market presence perception, and the preference to patronize a vendor.

The major research findings were:

1)

2)

3)
4)

5)

The key elements of a local market presence are divided into three
benefit categories: a) availability of product in a timely and reliable
manner, b) vendor accessibility and interaction convenience; and

c) geographic location and proximity.

Vendor-customer relationships differ in areas such as trust, cooperation,
and information sharing based upon the degree of the vendor’s local
market presence.

Delivery time is most critical to local market presence perceptions.
Local market presence is a highly desired logistics strategy.

The perception of a local market presence can be enhanced without
committing additional resources to physical facilities through careful

attention to the design Of product delivery and communication systems.

Copyright by
Ann Reneé Crooks Cooper

1995

DEDICATION

To Michael--Your smile each morning
makes the day worthwhile.
It reminds me that
“Every day is springtime.”

vi

ACKNOWLEDGMENTS

I would like to thank the members of my dissertation committee--Dr. David J.
Closs, Dr. Donald J. Bowersox, Dr. Roger J. Calatone, and Dr. Robert W. Nason--for
their considerable assistance and insightful guidance during the research process. Their
integral contributions to this research are sincerely appreciated.

A special note of gratitude is given to Dr. Closs, who served as chairman of the
committee, for taking the extra time and effort to work with me. At times it is difficult to
determine who faces the greater frustrations, the student or the chairman. Thanks for

your patience and persistence.

Il.

TABLE OF CONTENTS

 

Page

LIST OF TABLES ................................................................................................................... xi
LIST OF FIGURES ................................................................................................................. xii
CHAPTER I: INTRODUCTION ............................................................................................. I
INTRODUCTION ..................................................................................................................... I
LOGISTICS DEFINITION AND ROLE ........................................................................... I
THE LOCAL MARKET PRESENCE STRATEGY ......................................................... 5
BACKGROUND ....................................................................................................................... 6
THE ROLE OF CUSTOMER SERVICE .......................................................................... 6
THE ROLE OF A DISTRIBUTION CENTER ............................................................... l3
FUNCTIONS PERFORMED BY A DISTRIBUTION CENTER ........................... l3
TRENDS IMPACTING THE DISTRIBUTION CENTER ...................................... I5
RESEARCH MODEL ............................................................................................................. l7
RESEARCH OBJECTIVES ................................................................................................... 25
RESEARCH QUESTIONS ..................................................................................................... 26
SCOPE OF RESEARCH ........................................................................................................ 28
PAPER INDUSTRY ........................................................................................................ 28
CONTRIBUTIONS: MARKETING THEORY AND MANAGEMENT PRACTICE. 31
RESEARCH ORGANIZATION ............................................................................................. 32
CHAPTER II: LITERATURE REVIEW ............................................................................... 34
INTRODUCTION ................................................................................................................... 34
SPATIAL ECONOMICS/LOCATION ANALYSIS .............................................................. 37
THE LOCATION DECISION: ITS IMPORTANCE AND COMPLEXITY ................. 37
THE IMPORTANCE OF THE LOCATION DECISION ........................................ 37

THE COMPLEXITY SURROUNDING THE LOCATION DECISION ................ 38
HISTORICAL FOUNDATIONS OF SPATIAL ECONOMIC THEORY ...................... 41
RATIONAL ECONOMIC DETERMINANTS OF LOCATION ............................ 41
DEMAND GIVEN . ...................................................................... 45
VARIABLES UTILIZED IN TRADITIONAL LOCATION ANALYSIS ..................... 46

vii

viii

Page
CUSTOMER SERVICE INFLUENCES ON LOCATION .................................................... 51
SERVICE OUTPUTS OF A DISTRIBUTION SYSTEM .............................................. 52
CUSTOMER SERVICE ELEMENTS MEASURING TIME AND DISTANCE ........... 55
TIME ELEMENTS ................................................................................................... 55
DISTANCE ELEMENTS ......................................................................................... 60
CUSTOMER EXPECTATIONS OF TIME AND DISTANCE SERVICE ELEMENTS65
DELIVERY RELIABILITY EXPECTED ............................................................... 65
TIME AS A DISCRIMINATING FACTOR ............................................................ 66
DISTANCE/PROXIMITY CRITICAL TO CUSTOMER SERVICE ...................... 67
ADVANTAGES OF LOCAL MARKET PRESENCE ............................................ 68

CUSTOMER SERVICE ELEMENTS MEASURING PRODUCT AVAILABILITY,
PRODUCT SUPPORT, AND MARKETING GOODWILL .......................................... 70
PRODUCT AVAILABILITY .................................................................................. 71
PRODUCT SUPPORT ............................................................................................. 71
MARKETING GOODWILL .................................................................................... 71
RATIONALIZATION: DISTRIBUTION AND LOCAL MARKET PRESENCE ....... 81
CONSOLIDATION OF DISTRIBUTION NETWORKS ........................................ 81
RATIONALES DISCOURAGING CONSOLIDATION ........................................ 82
SERVICE QUALITY ............................................................................................................. 85
DEFINITION AND OUTPUT OF A LOGISTICS SERVICE DELIVERY SYSTEM .. 86
SERVICE QUALITY MEASUREMENT ....................................................................... 91
DIFFICULTIES OF SERVICE QUALITY MEASUREMENT .............................. 91
MEASUREMENT CRITERIA DIFFER PER CUSTOMER GROUP ..................... 98
A CLASSIFICATION OF A LOGISTICS SERVICE DELIVERY SYSTEM ........ 98
SYNTHESIS ......................................................................................................................... 101
CONCLUSION ..................................................................................................................... 105
III. CHAPTER III: RESEARCH DESIGN AND HYPOTHESES ............................................ 106
INTRODUCTION ................................................................................................................. 106
RESEARCH OVERVIEW .................................................................................................... 106
RESEARCH OBJECTIVES .......................................................................................... 107
OPERATIONAL DEFINITIONS .................................................................................. 108
FRAMEWORK FOR DATA COLLECTION ...................................................................... 108
MARKET SEGMENTS ................................................................................................. 108
ROLLED PAPER MARKET SEGMENT .............................................................. 1 IO
UNCOATED PAPER MARKET SEGMENT ........................................................ l 1 l
INTERVIEWS AND QUESTIONNAIRE DEVELOPMENT ...................................... ll 1
MAIL SURVEY ............................................................................................................ I 13
SAMPLE AND SAMPLE SIZE .................................................................................... l 13
RESPONSE RATE ........................................................................................................ 114
NONRESPONSE BIAS ................................................................................................. 115
RESEARCH QUESTIONS AND ANALYSIS APPROACH .............................................. 116
MARKET PRESENCE ELEMENTS AND RELATIVE IMPORTANCE ................... 119
LOCAL MARKET PRESENCE IMPACT ON CUSTOMER PERCEPTIONS ........... 120

RELATIVE IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS ........... 123

ix

Page
COMPARISON OF MARKET SEGMENTS ................................................................ 124
MANAGEMENT GUIDELINES .................................................................................. 125
CONCLUSION ..................................................................................................................... 127
IV. STATISTICAL ANALYSIS ................................................................................................. 128
INTRODUCTION ................................................................................................................. 128
RESPONSE RATE AND NONRESPONSE BIAS .............................................................. 128
RESPONSE RATE ........................................................................................................ 128
NONRESPONSE BIAS ................................................................................................. I30
RESEARCH QUESTIONS AND STATISTICAL ANALYSIS .......................................... 13]
MARKET PRESENCE ELEMENTS AND RELATIVE IMPORTANCE ................... 131
KEY LOCAL MARKET PRESENCE ELEMENTS (QIA) .................................. 131
RELATIVE IMPORTANCE OF LOCAL MARKET PRESENCE ELEMENTS
(QlB) ...................................................................................................................... 138
LOCAL MARKET PRESENCE IMPACT ON CUSTOMER PERCEPTIONS ........... 145
RELATIONSHIP WITH A LOCAL MARKET PRESENCE VENDOR (Q2A)... 146
PHYSICAL DISTANCE VERSUS DELIVERY TIME (Q28) ............................. 152
RELATIVE IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS ........... 153
LOCAL MARKET PRESENCE FACTORS (Q3A) .............................................. 154
IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS IN VENDOR
SELECTION PROCESS (Q3B) ............................................................................. 159
IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS IN LOGISTICS
SERVICE QUALITY (Q3C) .................................................................................. 165
COMPARISON OF MARKET SEGMENTS ................................................................ 169
MANAGEMENT GUIDELINES .................................................................................. 171
ATTRACTIVENESS OF LOCAL MARKET PRESENCE (QSA) ....................... 171
CUSTOMER TRADE-OFFS (QSB) ...................................................................... 172
THE IMPACT OF LOCAL MARKET PRESENCE ON MARKET SHARE
(QSC) ...................................................................................................................... 174
NECESSITY OF A PHYSICAL FACILITY COMMITMENT (QSD) ................. 176
CONCLUSION ..................................................................................................................... 177
V. CHAPTER V: CONCLUSIONS AND IMPLICATIONS ................................................... 181
INTRODUCTION ................................................................................................................. 1 8 1
THEORETICAL CONTRIBUTIONS .................................................................................. 181
HISTORICAL POSITIONING OF RESEARCH .......................................................... 181
SUGGESTIONS FOR DEFINITION CHANGES ........................................................ I86
THEORETICAL SYNTHESIS ...................................................................................... 188
MANAGERIAL IMPLICATIONS ....................................................................................... 191
GENERAL IMPLICATIONS ........................................................................................ 191
PHYSICAL PROXIMITY REQUIREMENTS ...................................................... 191
VENDOR RELATIONSHIP .................................................................................. 194

SEGMENTATION ................................................................................................. I 95

Page

PRICE PREMIUM .................................................................................................. 196
CONCLUSION ....................................................................................................... 197
IMPLICATIONS FOR THE PAPER INDUSTRY ....................................................... I99
SEGMENTATION ................................................................................................. 200
PERCEPTIONS ...................................................................................................... 201
INTERNAL COST EVALUATION ...................................................................... 203
PRODUCT DELIVERY SYSTEM ........................................................................ 203
CUSTOMER COMMUNICATION SYSTEM ...................................................... 204
LIMITATIONS ..................................................................................................................... 204
DIRECTIONS FOR FUTURE RESEARCH ........................................................................ 206
APPENDIX .................................................................................................................................. 209

BIBLIOGRAPHY ........................................................................................................................ 214

CHAPTER I: INTRODUCTION

INTRODUCTION

This research investigated the concept of a local market presence and its role in
marketing and logistics strategy development and implementation. Local market presence is
the staging of inventory and/or the maintenance of a customer contact point within a local
market. Prior to discussing the research model, the definition and role of logistics are
reviewed and a local market presence strategy is introduced. The roles of customer service
and distribution centers are reviewed to establish a foundation for the introduction and
development of the research model. The model positions local market presence within an
overall marketing and logistics strategy. This chapter presents the research objectives,
questions, scope, and limitations. The chapter also outlines contributions of this research to

marketing theory and management practice.

LOGISTICS DEFINITION AND ROLE

Logistics activities support the firm's marketing strategy. Figure 1.] presents a
conceptual framework of the marketing and logistics interface (Rinehart, et al., 1989). The
firm's marketing and logistics activities are tied together through channel system issues of
institutions and behavior. These activities constitute the place element of the marketing mix
and the facilities used for logistics activities. The firm jointly considers marketing and
logistics activities to develop a unified customer service strategy based upon its

characteristics, competitors, and customers. "This strategy is implemented by the firm to

2

 

MARKET ENVIRONMENT

 

ORGANIZATIONAL CONTROL

Product\ /\Inventory

Price Place Facilities /\+ Transportation
\ Pro otion /

\Order Processing/

Customer Service Strategy

 

 

 

 

 

 

Customer Expectations #- Transaction

Perception of Customer Service Customer Service Perfonnance

 

 

 

 

 

 

 

+
Customer Satisfaction/Dissatisfaction

 

 

 

Figure 1.1 Relationship of Logistics to Marketing Strategy (Rinehart, et al., 1989)

initiate interaction with the customer. It leads to the completion of the transaction and the
resulting service provided by the firm which is necessary to create the possession utility"
(Rinehart, et al., 1989: 68). Logistics operationalizes the marketing strategy element of
providing service to customers. The prominence of customer service within the firm's
competitive strategy is operationalized through the logistics objectives and activities as the

firm interacts with customers.

3

Logistics performs a broad array of activities that integrates the firm functions to
effectively serve customers. Specifically, the Council of Logistics Management defines
logistics as:

the process of planning, implementing, and controlling the
efficient, effective flow and storage of goods, services, and
related information from point-of-origin to point-of-con-

sumption for the purpose of conforming to customer re-
quirements (Council of Logistics Management, 1992).

These activities include but are not limited to forecasting and order management,
transportation, inventory, warehousing, and customer service. These activities are
configured to support the strategic and tactical logistical Objectives of the firm.

The strategic logistical Objective of the firm is to create a sustainable competitive
advantage. The present research investigated the use Of a local market presence strategy as a
method of tailoring logistics services to individual customers and creating a sustainable
competitive advantage. Specifically, this research considered the ability of logistics,
operationalized through a local market presence, to stimulate the firm’s demand and operate
as a revenue center.

A logistics department or division is appropriately evaluated as a revenue center.
"Revenue centers exist in order to organize marketing activities. Typically, a revenue center
acquires finished goods from a manufacturing division and is responsible for selling and
distributing these goods" (Kaplan, 1982: 437). A revenue center is the appropriate unit for
managerial evaluation as logistics has no control over product manufacture or sales.

Whereas, a profit center has managerial discretion in product manufacture (selection,

4

quantity, and quality), pricing, selling, and distribution decisions (Kaplan, 1982). In profit
centers, "managers must make product-mix decisions and determine how production
resources are to be allocated among the various products. They are then in a position to
optimize the performance Of their centers by making trade-offs among price, volume,
quantity, and costs" (Kaplan, 1982: 439). The responsibilities of a logistics department or
division are confined tO product distribution, making a revenue center the more appropriate
managerial evaluation unit. The Objective of a revenue center is to maximize the
contribution margin in conjunction with sales revenue. "If evaluated solely on sales revenue,
managers may be motivated to cut prices to increase total sales, spend excessive amounts on
advertising and promotion, or promote low-profit products. Each of these actions could
increase total sales revenue but decrease overall corporate profitability" (Kaplan, 1982:
437)

Logistics activities and resources combine to create time and place utility for a
particular product. Consequently, the tactical objective of the logistics organization is to
ensure that the right quantity Of the right product is available in the right condition at the
right place, time, and cost as defined by the customer. Each logistics component must be
designed and implemented congruent with this Objective if customer needs and expectations
are to be met in a cost-efficient and service-effective manner. The logistics activities are the
interface through which the distribution component of the marketing strategy is ultimately

experienced by customers.

5

THE LOCAL MARKET PRESENCE STRATEGY

Local market presence is the staging of inventory and/or the maintenance of a
customer contact point within a firm's local markets. A customer contact point is a
geographic location leased or owned by the vendor where the customer may physically meet
with a representative of the vendor (e.g., sales office, cross-dock facility). The local market
is defined by the customer's perceptions. The present research investigated the role and
benefits of a local market presence strategy from the perspective of the customer’s vendor
selection and service quality evaluations.

Despite the potential of more cost-efficient and service-effective distribution systems
offered by advanced transportation and communications capabilities, some firms choose to
maintain or expand their local market presence. For example, the customer service
commitment of the Grainger Division of W.W. Grainger illustrates a local market presence
strategy when it states: "With a firm commitment to providing local service, the Grainger
Division has established a comprehensive network of branch locations. Today, there is at
least one branch in every state and within a 20 minute drive for a large percentage of
customers" (W .W. Grainger, Inc., 1991: VI). This research investigated the considerations,
benefits, and risks associated with the decision to pursue local market presence as a key
component of a firm's logistics strategy.

The following section discusses the roles of customer service and distribution centers
within the firm's logistics strategy. This develops the foundation for the discussion of the

research model.

. ,1” :-..—

6

BACKGROUND

Customer satisfaction and customer service are increasingly important to firms as
they attempt to secure competitive advantage. "Today, in an era of shrinking product life
cycles, proliferating product lines, shifting distribution chains, and changing technology,
mastery of logistics has become an essential ingredient of competitive success" (Sharman,
1984: 71). Although this statement was written a decade ago, its validity remains. Effective
implementation of a logistics strategy addressing customer needs and expectations is
essential to secure and maintain a competitive advantage.

A discussion of the role of customer service in the vendor-customer relationship and

the considerations for a local market presence strategy are presented.

THE ROLE OF CUSTOMER SERVICE

Customer service has increasingly captured management attention as:

1) Product life cycles have shortened, decreasing any competitive
advantage resulting from product differentiation;

2) Global competition for domestic markets has intensified;

3) Global supply lines have become prevalent; and

4) Information processing technology has rapidly advanced,

allowing greater accuracy in a broader range of management
decisions (LaLonde, et al., 1988).

Customer service has increased in sophistication and importance as:

1) Technology is bringing customer service on-line and making
it proactive;
2) Performance below minimum standards may result in punitive

actions; while performance above the expected level may not
result in increased market share;

3) A significant amount of change in logistics systems is customer-
driven;

7

4) Customer service performance is being negotiated between
vendor and customer, potentially resulting in "tailored" customer
service for an individual customer; and

5) Customer service is an important way of strategically differen-
tiating the product or service for many firms (LaLonde, et al., 1988).

Vendors are sensitive to the service desires of the customer, realizing that the customer is
more apt to decrease or discontinue purchasing if these desires are ignored. However,
greater attention to the customer’s service desires may suggest more costly distribution
systems. The evolution of the customer service concept and the friction between customer
service and distribution efficiency are examined.

Many firms are refocusing their activities to acknowledge and service the needs and
desires of the customer, enhancing the role of customer service within their organizations.
The definition of customer service has evolved from a listing of performed functions (e.g.,
order entry) and/or performance standards (e. g., deliver 95% of orders in 5 days) to a process
that takes place between the buyer, seller, and a third party. "Many forces, including an
emerging buyer/seller relationship which emphasizes closeness and understanding, increased
communication and information, organizational specialization, and alternative
production/distribution techniques have in part instigated this evolution" (Rinehart, et al.,
1989: 63).

Customer service is permeating the entire organization within those firms on the
cutting edge and is enhancing channel effectiveness. According to LaLonde, Cooper, and
Noordewier, customer service is "an important process which spans the fimctional

relationships inside the firm and integrates the relationship with the suppliers and customers

8

outside the firm" (1988: 5). "Customer service is a pervasive, boundary-spanning activity
that takes place from within and beyond the firm. The key to creating a unified perspective
is integration from within the firm and between the firm and the other channel members"
(Rinehart, et al., 1989: 64). According to Langley and Holcomb (1992), (s)trategic
logistics distinguishes itself:

. . .through its ability to coordinate, as well as integrate, a

number of interdependent activities in a simultaneous fashion

across major functional areas, thereby providing various addi-

tional dimensions and ways in which logistics can create fiIrther

customer value. Within this context, customer value is enhan-

ced by adopting a total channel perspective of the logistics

function. The integration of attributes such as customization,

flexibility, innovation, and responsiveness results in highly

valued and expected levels of service that become the new stan-
dard for competitive advantage (8).

As this integration across functional areas within the firm and between the firm and other
channel members occurs, "(c)ustomer service is a process for providing significant value-
added benefits to the supply chain in a cost effective way" (LaLonde, et al., 1988: 5).

The firm's perception of its role is shifting from that of a single entity within a supply
chain to a member of an "extended enterprise" coordinating efforts to effectively meet
customer needs in a cost-efficient manner. The extended enterprise is shown in Figure 1.2.
The supply chain incorporates customers, service suppliers, and material suppliers. The
prior relationship between channel members was adversarial; the present relationship favors
cooperation. According to Langley (1986), logisticians are recognizing the opportunity to

manage relationships between suppliers, customers, and third-party members of the channel.

F—F—m -w——__- .___...
- - l '-
il

'l

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:1 Customer

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if Suppliers “ ii Suppliers

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Figure 1.2 The Extended Enterprise (Bowersox and Cooper, 1992)

"Supply chain management encompasses the planning and execution of internal and external
logistics activities as a single process that transcends procurement, manufacturing, and
finished-product distribution. . .It is a comprehensive concept of logistics which captures the
objectives of functional integration and strategic deployment as a single managerial process"

(Bowersox and F rayer, 1994: 2.6).

Managed channel relationships highlight the interaction occurring between
marketing and logistics as the transaction process unfolds. The firm's understanding of and
response to customer service expectations and perceptions are central to successful managed
relationships. "The idea of managed relationships between suppliers and customers is based
on the expectations of supplier performance by the purchasing firm and differing levels Of

customer service provided by the selling firm. This tie between the expectations created and

10

the service provided illustrates the interaction which takes place between marketing and
logistics" (Rinehart, et al., 1989: 64). Marketing creates expectations within the purchasing
firm; these expectations are fulfilled or unmet based upon the logistics service provided by
the selling firm. The marketing and logistics of the selling firm directly impact the inbound
logistics of the purchasing firm, and subsequently, indirectly impact its outbound logistics
and the service provided to its customers. Therefore, the attractiveness of managed channel
relationships is enhanced as the purchasing firm considers the implications for its own
customer service policies. "The rationale for development of the extended enterprise is to
coordinate the overall value-added process in an effort to improve product and service
quality while achieving superior financial performance for that industry" (Bowersox and
Cooper, 1992: 308). The supply chain members are attempting "to combine and coordinate
the activities Of all parties involved in the value-added process" (Bowersox and Cooper,
1992: 308) with the goal of satisfying customer expectations. "The focus of supply chain
management is customer success. . .In essence, the supply chain seeks total integration of the
exchange process in an effort to achieve maximum operational efficiency and effectiveness"
(Bowersox and Frayer, 1994: 2.6).

As the relationships of vendors and customers are integrated within the supply chain,
significant value-added benefits are provided through customer service. "Customer value
can be created through product availability, timeliness and consistency of delivery and ease
of placing orders, and other elements of customer service" (Langley and Holcomb, 1992: 1).

These benefits are derivative of numerous strategies tied to customer expectations. For

ll

example, customers may place a high value on timely and accurate information concerning
inventory availability and order status. The supply chain may share information concerning
inventory availability and delivery quantities and dates with one another and compile this
information in a form relevant and accessible to the customer. Likewise, if the customer
values the benefits accruing from a local market presence, the supply chain may be
configured to provide this presence, satisfying customer expectations.

Local market presence provides benefits categorized as product availability, product
support, and marketing goodwill. Product availability ensures the customer of prompt
product delivery at the time and location he desires. Its focus is to keep the customer's
operations functioning normally. Product support assures the customer of prompt service
should the product malfunction or other assistance be required. Its focus is to return the
customer's operations to normal functioning as quickly as possible. Marketing goodwill
provides the customer with a "warm, fuzzy" feeling of goodwill towards the vendor. Its
focus is to develop a bond between the vendor and customer as they work together to
improve the effectiveness and efficiency of the supply chain. Through the provision of
these benefit categories, local market presence is one logistics strategy available to integrate
the relationships between vendors and customers, enhancing the effectiveness of the supply
chain and creating a sustainable competitive advantage. "The strategic potential of logistics
lies in the ability to offer selected customers enhanced and unique services beyond the basic

services provided all customers of the enterprise" (Bowersox and Frayer, 1994: 2.8).

12

High customer service has become the goal of corporate America in the 19903 as
firms attempt to strategically differentiate themselves from the competition (Hart, et al.,
1990; Daugherty, et al., 1992; LaLonde, et al., 1988). Firms are using a number of tactics to
differentiate their customer service offerings. For example, firms are scrambling to provide
more timely service to customers demanding shorter order cycle times. Simultaneously,
more firms are being squeezed by lower profits, causing distribution systems to be subjected
to greater scrutiny and rationalization than in previous years. One result of this
rationalization process is that some firms have chosen to reduce the number of distribution
facilities and consolidate service areas. Other firms are adding customized distribution
centers which specialize in providing specific services to particular customers. Generally,
the number of distribution centers in a given logistics system is contracting as the area
serviced by a distribution center is expanding (Arthur Andersen, 1992). These various
defensive tactics will lack long-term effectiveness if they are not derived from a logistics
strategy congruent with customer needs and expectations. Only then will strategic
differentiation through customer service be sustainable.

The geographic locations of distribution centers and customer contact points are
central to a local market presence strategy. Given the trend of downsizing distribution
systems to reduce costs, it is important to examine the functions performed by a distribution

center and the trends impacting it.

13

THE ROLE OF A DISTRIBUTION CENTER

This section discusses warehouse and distribution center functions and trends
impacting their development.
Functions Performed by a Distribution Center

A distribution center serves a variety of functions which may be succinctly
summarized as availability (Jenkins, 1990) or movement and storage (Bowersox, et al.,
1986). Alternatively, these functions may be elaborately delineated.

Ackerman (1990) presents six functions of a distribution center:

1 ) Stockpiling,

2) Product Mixing,
3) Production Logistics,

4) Consolidation,
5) Distribution, and
6) Customer Service.

A distribution center may serve a stockpiling function so as to accommodate production
overflows, particularly when the product is characterized by seasonal production and level
demand or level production and seasonal demand. A distribution center may provide a
product mixing fimction as a full product line is constructed from products manufactured at
several locations and inventoried at the distribution center. Production logistics may be
accomplished at a distribution center by storing semi-finished products. A distribution
center may perform consolidation as it gathers products to be shipped to a final destination,
staging those products closer to the market. Conversely, the distribution function may be

provided by a distribution center.

14

Like consolidation, (distribution) is justified primarily by the
freight savings achieved in higher volume shipments.
Distribution involves the push of finished products by the manu-
facturer to the market, whereas consolidation involves the pull

of supplies by the customer. . .Both consolidation and distribution
provide service improvements by positioning merchandise at a
convenient location. Both involve cost tradeoffs that balance
warehousing expense against transportation savings. Both
provide improved time and place utility for inventories
(Ackerman, 1990: 21, 22).

Finally, a distribution center may perform a customer service fimction. "(A)t times a

warehouse stock is justified only by the demands Of the customer, which may be far from

fi'ivolous" (Ackerman, 1990: 22).

Stock and Lambert (1987) include the following objectives within the role of a

distribution center:

1)
2)
3)
4)
5)
6)
7)

8)

Achieve transportation economies;

Achieve production economies;

Take advantage of quantity purchase discounts;

Maintain a source of supply;

Support the firm's customer service policies;

Meet changing market conditions;

Overcome the time and space differentials that exist between
vendors and customers; and

Accomplish least total cost logistics commensurate with a
desired level of customer service.

A distribution center may perform a variety of functions dependent upon

management objectives and the needs Of the customers served. Trends in distribution center

operation should reflect evolving customer expectations and management objectives. These

trends influence the fiinctions Of a distribution center and their performance.

15

Trends Impacting the Distribution Center

As competition has intensified and customer satisfaction has become paramount to a
firm's success, the distribution center has evolved and will continue to do so in response to
these pressures. Numerous trends impacting the functions and Operations of the distribution

center have been identified by Jenkins (1990) and Arthur Anderson (1992).

Jenkins (1990) has identified seven trends within warehousing:

1) Less inventory: There is a greater emphasis on flowthrough
rather than storage;
2) High-velocity inventories: Orders are smaller and more frequent,

prompting an increase in consolidated and pooled shipments.
Greater accuracy is required;
3) Higher quality;

4) More responsive service;

5) Better equipment and facilities;

6) Greater utilization of bar coding; and
7) Improved communications.

Arthur Andersen (1992) surveyed a broad cross-section of industry experts,

generating a list of trends within wholesaling. These trends are:

l) Customer's power to dictate terms and conditions of purchase is
increasing;
2) Alternative channels are growing at a faster rate than tradi-

tional merchant wholesaler-distributors, resulting in a loss in
market share to alternative channels;

3) Completeness and reliability of deliveries will continue to be
the most important factor in customer satisfaction according to
distributors;

4) Greater utilization of strategic alliances and partnerships so that

products and transactions flow faster and more efficiently through
the channel;

5) Consolidation among wholesale distribution firms;
6) Wholesalers-distributors intend to cover larger geographic areas;
7) Wholesaler-distributor inventories as a percent of total assets

will decrease due to more efficient purchasing and inventory
management;

l6

8) Wholesalers-distributors are expected to focus on increased
penetration of existing customer bases;
9) Increasing number of distribution centers stocking more limited
lines; and
10) Increase in number of "stockless warehouses" to address local
customer needs.

Six of these trends are of particular interest in the examination of the role and utility of a
local market presence: 1) the increasing power of the customer; 2) the greater management
of channel relationships facilitating the speed and efficiency of products and transactions
within the channel; 3) the larger geographic areas serviced by a distribution center; 4) the
increased penetration of existing customer bases; 5) the increasing number of DCs stocking
more limited lines; and 6) the increase in the number of stockless warehouses to address
local customer needs.

These trends highlight the importance of investigating the role of local market
presence in the customer's assessment of a vendor's customer service strategy: Vendors are
attempting to service customers from fewer distribution centers at greater geographical
distances as customers are gaining bargaining power and demanding higher service
standards. At the same time, marketers cite local presence as a key element of competitive
strategy. It is important to investigate these differing trends to Obtain a realistic perspective

on the value of a local market presence strategy.

l7

RESEARCH MODEL

This section introduces, develops, and discusses the research model.

The research model is the firm's logistics process and the customer's perception of it.
Figure 1.3 illustrates the model. The logistics service concept incorporates the corporate
customer service philosophy. It guides the development Of the logistics service delivery
system. The logistics service delivery system operationalizes the logistics service concept,
integrating order processing, warehousing, inventory, transportation, and customer service
functions to meet customer needs. The integrated logistics functions result in the service

level experienced by the customer.

Vendor

‘31 Logistics
{3 Service
SI

   
 
  
  

Concept

3 Logistics
1 Service
l

  
  
 
  

I Delivery Sys.
\

3i Logistics

1‘} Service Level
II I
l

Figure 1.3 Research Model

—_.__——3..-———————.____..____.__._._.—_.____._______.—_-____

Customer

'{3 Service Level

 
 
   

I,

3‘ Expected
3 Logistics
33 Service Level

   
 
     
 

Vendor
3)" Selection
Process

   

1 Logistics
El Service
1 Quality

 
 
     
      
   

3 Perceived

Logistics

\

  

It

18

Customer service evolves through at least three stages as it becomes an integral part
of the marketing mix (Bowersox and Closs, 1992). These stages are shown in Figure 1.4.
Initially, service means meeting industry standards, focusing on variables such as order fill
rate, backorder level, and order cycle time. This basic service is acceptable to customers
concerned with stable order cycles and adequate product supply. The vendor establishes
internally generated standards and measures actual performance against those standards.
Table 1.1 presents examples Of customer service measures associated with this and
subsequent levels.

Stage Two evolves as customers become dissatisfied with Stage One performance
and establish service standards which vendors must meet. Quality principles are applied to
all basic processes and focus on service failures. "Customer satisfaction goes beyond basic

service and ensures that customers receive desired benefits from logistical performance"

6%
,3 ~ "'1

/" I“. if
z’wnfim _ ,E; ?\

M

/ Customer 9K a.

Success ‘

i. , - V’s.

/ ‘ bit
/Customer Satisfaction‘i. “‘5,
[I \‘ 1:7

//

 

  

 

 

  

 

/
1
l
;
/

I/ Customer Service

.\\‘
‘\

(.7, 7.- .i .__ __.___I- 4____ __ _—___-

Figure 1.4 Hierarchy of Customer Service Standards (Bowersox and Closs, 1992)

19

Table 1.1 Customer Service Measures of Hierarchy Stages

 

1: Customer Service Internal Customer Service Standards: Fill Rate, Cycle Time,
Picking Accuracy, Backorder Level, and other quantitative
measures.

2: Customer Satisfaction Customer-Established Service Standards: Fill Rate, Cycle
Time, Product Quality, Service Failures, Information Flows,
and other quantitative and qualitative measures.

3: Customer Success Value-Added Logistics: Quality Enhancement, Packaging
Assortment, Rapid Response, Transportation Coordination,
Flexible Invoicing, and other value-added logistics.

 

(Bowersox and Frayer, 1994: 2.13). In addition to customer requirements regarding fill rate,
cycle time, product quality, service failures, and other quantitative measures, customer-
generated service levels also include qualitative measures such as information flows. Some
customers require vendor performance to be evaluated against a near-zero-defect
performance level.

Select vendors are creating a service niche with key customers in Stage Three. First,
customers are segmented into groups which justify superior service based on purchase
commitments. Second, resources are allocated to assure satisfaction among key customer
groups. The goal is to delight these select customers, achieving 100 percent performance. In
addition to providing basic service and customer satisfaction, logistics service is evaluated
on its ability to aid the customer in achieving his objectives.

The focus is the success of a customer's basic business. The

logic is simple--if you are a primary supplier to a customer
who is able to grow above industry average, your growth in

20

turn will outstrip competition.

Thus, among leading edge firms, attention focuses on
doing whatever necessary to help key customers gain overall
competitiveness. Such extensive customer commitment
embodies all aspects of a supplier's performance from research
and development to promotional strategy. Distribution
performance can enhance customer success. Logistical
performance can be leveraged to a new level of competency
(Bowersox and Closs, 1992: 218).

Measures evaluating customer success include sales, market share, profit margin, and ROI.
Customer success is enhanced through value-added logistics such as quality enhancement,
packaging assortment, rapid response, transportation coordination, and flexible invoicing
(Bowersox and Closs, 1992).

(B)y offering services that make customers successful, the

firm can help ensure long-term survival and profitability for

the entire supply chain. It should be noted that customer

success is not a general strategy, which can or should be made

available to all customers. It should be targeted toward selected

customers with whom the enterprise can establish strategic and

operational synergies through an extended relationship.

Customer success strategies are one part of a complete logistics
service package" (Bowersox and F rayer, 1994: 2.13, 2.14).

The firm must competently meet customer service standards at Stages One and Two before
it can secure a competitive advantage at Stage Three. This competitive advantage can be
leveraged "if such outstanding performance is integrated into a customer's supply chain in a
way that eliminates waste, duplication, and variance" (Bowersox and Closs, 1992: 219).

The logistics service level is evaluated based upon this evolving hierarchy of
customer service standards. Figure 1.5 presents the research model of the customer service

stage. The logistics service concept at this stage is the provision of basic logistics service.

21

Vendor Customer

 

Logistics Service Concept:
Provision of Basic Logistics
Service

 

Expected
Logistics Service
Level

 

 

 

Logistics Service Delivery
System: Cost-to-Service
Tradeoffs

Logistics Service Vendor Selection
Quality Process

 

 

     
   
   
 

Perceived
Logistics Service
Level

 

Logistics Service Level:
Time and Distance
Integration

 

 

Figure 1.5 Research Model: Customer Service Stage

22

The logistics service delivery system is developed from an economic perspective as
management trades OfT the costs of performing logistics functions with the customer service
level provided. These tradeoffs consider the time and distance required to reach customers,
resulting in a level of inventory commitment. The logistics service level reflects this
inventory commitment level and is experienced by customers.

As the firm focuses on meeting service standards established by customers, evolution
to Stage Two occurs. Figure 1.6 presents the research model of the customer satisfaction
stage. The logistics service concept focuses on providing customer satisfaction. Cost-to-
service tradeoffs determine the configuration of the logistics service delivery system from an
economic perspective. The logistics service level reflects the customer performance service
standards established. "While satisfaction is a much better performance focus, it tends to
ignore the greater goals of the overall channel environment" (Bowersox and Frayer, 1994:
2.13).

Customer success is becoming a primary logistics goal within leading edge firms
operating at Stage Three (Bowersox and Frayer, 1994). Figure 1.7 presents the
corresponding research model. The logistics service concept emphasizes enhancement of
the customer's success. The logistics service delivery system is developed by maximizing
the contribution margin received from each individual customer's logistics service level
package. The logistics service level is experienced by the customer as product availability,

product support, and marketing goodwill.

23

Vendor Customer

 

Logistics Service Concept:
Provision of Customer
Satisfaction

 

Expected
Logistics Service
Level

 

 

[

Logistics Service Delivery
System: Cost-to-Service
Tradeoffs

 

 

   
    

Logistics Service Vendor Selection
Quality Process

 

 

 

     
   
   
 

Perceived
Logistics Service
Level

 

Logistics Service Level:
Customer Performance

 

Standards

 

——-—-———- __---—_—-——___—._——— — .—
_ _ _——_————_————————-————————_—_—
—-————————————---_——_—

Figure 1.6 Research Model: Customer Satisfaction Stage

24

Vendor Customer

 

Logistics Service Concept:
Enhancement of Customer's
Success

 

      
   
   
 
 

Expected
Logistics Service
Level

 

 

 

     
   
   

Logistics Service Delivery
System: Contribution
Margin Maximization

Vendor Selection
Process

Logistics Service
Quality

  

 

  
   
   
 

Perceived
Logistics Service
Level

 

Logistics Service Level:
Product Availability. Product
Support, and Marketing
Goodwill

 

 

Figure 1.7 Research Model: Customer Success Stage

25

The customer perceives the logistics service level and compares this perception to his
logistics service level expectations. This comparison results in an assessment of logistics
service quality and influences the selection of a vendor for future purchase situations.

The present research focused on the logistics service level perceptions relating to
local market presence and their importance. It characterized customer perceptions of the
vendor-customer relationship in the presence and absence of a local market presence.
Finally, the research examined the role of customer perceptions Of local market presence in

selecting a vendor and evaluating logistics service quality.

RESEARCH OBJECTIVES

This research investigated a local market presence strategy. The investigation
developed an operational definition, refined the definition through management surveys,
compared various elements of local market presence, and suggested management guidelines
for implementing a local market presence strategy. The five specific research objectives

were:

I) To define local market presence from the customer's perspective
and determine the relative importance of its key elements;

2) To identify the impact that local market presence has upon the
customer's perception of his relationship with the vendor;

3) To determine the importance of local market presence factors in
vendor selection and logistics service quality;

4) To determine how purchase volume influences the relative impor-
tance of local market presence benefits; and

5)

26

To develop managerial guidelines for defining and implementing
a local market presence strategy.

RESEARCH QUESTIONS

The proposed research answered the following research questions which are outlined

in Figure 1.8. Table 1.2 pairs these question groupings with the research model components

which they measure.

A.

Local Market Presence Elements and Relative Importance

1. What are the key elements of local market presence?

2. What is the relative importance of the various elements
comprising local market presence?

Local Market Presence Impact on Customer Perceptions

1. How does the customer describe his relationship with
a vendor pursuing a local market presence strategy?
2. How do physical distance and delivery time contribute

to the customer's perception of local market presence?

The Importance of Local Market Presence Factors in Vendor
Selection and Logistics Service Quality

1. What are the factors of local market presence?

2. What is the relative importance of local market
presence factors in the vendor selection process?

3. What is the relative importance of local market

presence factors in determining logistics service quality?

Comparison of Market Segments

1. What impact does the percentage of total purchases accoun-
ted for by this product class have upon the relative impor-
tance of the local market presence benefits?

Management Guidelines

1. Is local market presence attractive to a significant
group of customers?

2. Are customers willing to pay a premium to receive the

benefits of local market presence?
3. Will local market presence increase market share?

27

4. Can the benefits of local market presence be achieved
short of locating a facility in close proximity to customers?

 

Market Segment Comparison

 

Local Market
Presence Elements
and Relative
Importance

 

 

 

 

  
 
    
 
     
       
      
 

Local Market
Presence Impact on
Customer
Perceptions

 

 

 

 

1

Management
Guidelines

The Importance of Local
Market Presence Factors
in Vendor Selection and

Logistics Service Quality

 

Figure 1.8 Research Questions

28

Table 1.2 Research Questions and the Research Model Components Measured

1,. Al.‘_'~’,.* .4, .7 , ., g, . ,4. , ... .\—> 11" *~-'i,_rnarq-,-y-1w

. .‘i 3 v .: ' , , g .. fl ‘ ,‘Q, ‘.;~‘«‘-'/ .- ,: 3;: ‘W . {‘fi'qjéé‘gqfigfv? t. _ , ' .{h _,.,_.r‘>.‘ ’ .V .7 . _ Q r’, .7 .— .‘ ‘ ,_._. «av-‘1, 5-7 . i" '. "‘5'"?! c
.. : 3 I - ' . . - . - ' ‘ - , ,_ . . . ~ . t - . . .t. ; g j '5 ~ - - - - . ~
8 ‘ 3 I i ' l 9! i1 .v l I f f I", i .’ , i .h P . . v. . I .1 :... f! i :K r . - ":' 1": . j . .- ' ', .' - r

..,..w. ."' .. 1.... ,.:'.- : ,'.(' ..,,';.’4 ,z ‘
-.r an; .1 :VL-rzevtv.‘ 152-4.4% xiv. aux-1.. {int-1 1:.

Group A: Local Market Presence Elements Logistics Service Level
and Relative Importance

Group B: Local Market Presence Impact on Perceived Logistics Service Level
Customer Perceptions

Group C: The Importance of Local Market Vendor Selection Process and Logistics
Presence Factors in Vendor Selection and Service Quality
Logistics Service Quality

Group D: Comparison of Market Segments Logistics Service Quality

Group E: Management Guidelines

 

SCOPE OF RESEARCH

It was the intent of this research to evaluate and compare the use of local market
presence as a component of marketing strategy across two market segments within the paper
industry. This industry is very competitive and quite sensitive to customer service

differences. This research focused on paper.

PAPER INDUSTRY

U.S. paper companies continued to experience overcapacity and weak pricing
through much Of 1993 (Standard & Poor's, 1993). The economic outlook is improved for
1994; however, "financial results depend largely on product mix, since each grade of paper

has its own markets and its own supply and demand situation" (Standard & Poor's, 1993:

29

BS6). Fixed costs have increased as a percentage of total costs. Consequently, each
incremental ton of output increases profits by spreading high overhead costs across a greater
production volume. Excess production is inventoried, temporarily transforming a portion of
fixed costs into an asset. Companies are forced "to produce paper that might not be
profitable based on operating costs alone; the machine was too expensive to let it sit idle"
(Standard & Poor's, 1993: BS7). Pressure exists to improve market shares which would
allow greater capacity utilization and improve net profit margins. A marketing strategy
incorporating local market presence may improve market share, decreasing fixed costs per
production unit and lowering inventory to stock.
The marketplace for paper products is increasingly sophisticated due to

improvements in office technology.

The proliferation and ongoing evolution of office equipment

has spawned a variety of new copy machines and printers,

including those sophisticated enough for color graphics and

desktop publishing. These machines require an array of differ-

ent papers and often have narrow tolerances for variations in

paper content or quality. . .paper companies have had to rise to

the challenge of meeting the exacting standards for numerous,

specialized market niches, while remaining flexible enough to

ride with any changes in those specifications. The upshoot: there

are more paper products on the market than ever before, and the

life cycle of the average product is considerably shorter (Standard
& Poor's, 1993: B90).

Over 500 new product entries have been introduced since 1992 when over 500 types of
paper were available (HOW, 1994). Each product entry is described by its grade, basic
weights, range and quantity Of colors, finishes, cotton content, flocking, recycled content,

pH, availability of matching envelopes, and production capabilities. Table 1.3 presents a

3O

sampling of paper grades and their common uses and characteristics. Additional grades
include index, tag, bristol, newsprint, and lightweight papers (Horton, 1994).

In this market, customers are looking for assurances that the

next batch of paper they order will be the same as the last.

Paper quality must be consistent in order to ensure that it will
function properly on a particular customer's equipment. Paper

is exposed to varying temperatures and moisture levels during
shipment and storage, which must be taken in to consideration.

It is then subjected to pressure and heat when it passes through

a copier, laser printer, printing press. . .If the paper. . .twists, curls,
crumples, or tears, it can jam the copier, (or) splay printed paper
everywhere (Standard & Poor's, 1993: B90).

Consequently, paper is quite complex in terms of its user features and functional evaluation.

Table 1.3 Paper Grades: Common Uses and Characteristics

 
      

Bond ' " ‘
erasable.
Coated High-Quality Printing Ink applied evenly; Smooth,
glossly coating.
Text Announcements, Booklets, Many textures and colors.
Brochures
Book Trade Books, General Less expensive than text;
Printing Available in wider range of
weights and bulks.
Offset Offset Printing Sizing added to resist
moisture in offset printing.
Cover Covers Heavier weights and many

textures; Durable;
Withstands scoring, folding,
embossing, and diecutting.

31

The research surveyed customers who are served by distributors in the paper
industry. The survey focused on the person responsible for purchasing uncoated paper as
identified by customer. Each respondent was asked his perception and evaluation of the

local market presence strategy used by his vendors.

CONTRIBUTIONS: MARKETING THEORY AND MANAGEMENT PRACTICE

The competitive environment in which US. firms operate has changed dramatically
in the last thirty years, expanding to a global marketplace where service differentiation rather
than product differentiation defines a vendor's competitive advantage. Customers are not
only expecting, but demanding quality products supported by high quality services. Vendors
are scrambling to tailor their service offerings to match the expectations and desires of their
customers as they attempt to delight those customers and build a customer franchise.

As customer expectations and demands have increased, heightened financial
pressures have prompted a more exhaustive rationalization of distribution networks, forcing
vendors to close some distribution centers and increase the market areas served by others.
However, in the wake of these elements of change, some vendors are committed to pursuing
local market presence strategies to the delight of their customers.

Pockets of customers are voicing a desire for greater local market presence on the
part of their vendors. This research examined how selected paper customers perceive local

market presence and its relative importance.

32

Historically, research has investigated various location decisions from a spatial
economic theoretical perspective, grounding its analysis in concrete measures of time, space
or distance, and cost. It was generally assumed that a firm’s demand was static with respect
to location. This logic implies that altering the location of inventories or a customer contact
point would have no effect upon a firm’s demand. However, Observation of the market
appears to contradict this assumption in certain instances. Many marketers argue that local
market presence can actually increase a firm’s demand. This research contributes to
marketing theory by examining how location impacts a firm’s demand through local market
presence. In addition, this research contributes to location theory by illustrating how
customer perceptions may be incorporated into the location decision.

Management guidelines for firms attempting to enhance customer perceptions of
local market presence are suggested. This research identified how a perception of local
market presence facilitates the purchase transaction and the relationship between the
customer and vendor. It investigated the strategy of local market presence from the
customer's perspective and established its relevance and importance to segments of
customers. This research outlined a method of enhancing customer success in market

segments desiring to be served via a local market presence strategy.

RESEARCH ORGANIZATION

The remainder of this research is organized into Chapters Two, Three, Four, and

Five. Chapter Two examines the relevant research streams of spatial economics/location

33

analysis, customer service influences on location, and service quality. Chapter Three
presents an overview of the research methodology, reviewing research objectives, presenting
operational definitions, and outlining data collection. It discusses the research questions and
identifies the analytical methods applied. Chapter Four presents the research results. It
presents each research question, the statistical analysis, and an interpretation of the results.

Chapter Five presents the research conclusions and implications. It discusses the theoretical

contributions and managerial implications. Finally, it outlines future research directions.

CHAPTER II: LITERATURE REVIEW

INTRODUCTION

Chapter Two presents and synthesizes the research streams relevant to the
investigation of the role and utility of local market presence in the service quality evaluation
and vendor selection process. Appropriate research streams include spatial
economics/location analysis, customer service influences on location, and service quality
formation. These research streams, as they relate to local market presence, influence the
service quality evaluation and the vendor selection process of the customer.

The research model is comprised of two basic parts: 1) The logistics process
designed and implemented by the vendor; and 2) the customer perceptions of this logistics
process and subsequent assessment of logistics service quality and vendor selection process.
The customer success research model is depicted in Figure 2.1.

The customer success stage of the research model is derived from a perceptual as
well as an economic basis. This stage recognizes the importance to the customer of the
logistics process in addition to the logistics outputs received. Consequently, the logistics
service concept espoused by the vendor focuses on enhancing the customer's success as
defined by the customer.

This logistics service concept drives the design Of the logistics service delivery
system. At the customer service and customer satisfaction stages this system is designed

based on tradeoffs between logistics costs and customer service levels. The vendor

34

35

Vendor Customer

 

Logistics Service Concept:
Enhancement of Customer's
Success

 

      
   
   
   

Expected
Logistics Service
Level

 

 

 

    
   
   

Logistics Service Delivery
System: Contribution
Margin Maximization

Vendor Selection
Recess

Logistics Service
Quality

  

 

Perceived
Logistics Service
Level

  
   
   
 

 

 

 
  

  
     
   

Logistics Service Level:
Product Availability, Product
Support, and Marketing
Goodwill

 

Figure 2.1 Research Model: Customer Success Stage

36

minimizes the costs of providing a specified level of service. However, the vendor's
perspective is changed at the customer success stage. Once the vendor decides to work with
a customer to facilitate his success, the design of the logistics service delivery system is
driven by the maximization of the contribution margin associated with that customer. As the
vendor establishes the logistics service level and designs the logistics system to deliver that
service, he analyzes the relevant costs and the resulting revenues to determine the
contribution margin associated with a particular level Of service. The relevant costs are those
which are variable with sales to a particular customer and those non-variable costs which
would be eliminated if the customer is eliminated (Lambert, 1992). If the contribution
margin increases, the proposed service level is provided; if the contribution margin is not
improved, the proposed service is not provided. Evaluating the contribution margin
recognizes that logistics policies impact revenues through market share and margin increases
and, therefore, market demand (Lambert, 1992).

The logistics service level as experienced through a local market presence provides
the customer with product availability, product support, and marketing goodwill. These are
experienced by the customer and internalized as perceptions of the logistics service level.
The customer's perceptions are compared to his expectations of the logistics service level so
that the customer forms an assessment of logistics service quality. This assessment
influences his future selection of a vendor to fulfill his product and service needs.

Each of the research streams relevant to the research model is discussed in turn,
beginning with spatial economics/location analysis as it provides the historical context for

the geographic layout of distribution sites and establishes their importance.

37
SPATIAL ECONOMICS/LOCATION ANALYSIS

This section examines the importance and complexity surrounding the location
decision. The historical foundations of spatial economics theory are presented and the
contributions of the present research to this literature stream are identified. Finally, the

variables traditionally utilized in location analysis are specified.

THE LOCATION DECISION: ITS IMPORTANCE AND COMPLEXITY
The importance of location is examined, highlighting the need to critically
investigate and evaluate the variables affecting the location decision. The distribution costs
affected by the location decision are presented. Finally, the complexity surrounding the
location decision and the variables which may impact the stability of this decision are
discussed.
The Importance of the Location Decision
The location of distribution centers plays a critical role in the delivery of customer
service to a firm's internal and/or external customers. These locations determine the speed
and cost with which customers may be served (Glaskowsky, et al., 1992). Distribution
center locations are integral to the success of a firm's logistics service delivery system.
The choice of locations for Distribution Centers (DCs) is among
the most critical elements of logistics system design. Both the
cost of the system and the level of customer service that can be
provided are significantly affected by the number, size, and loca-

tions of the DCs and by the decisions on which customers to serve
from each DC (customer allocation) (Perl and Daskin, 1984: 92).

38

Consequently, significant effort should be expended to thoroughly investigate the variables
affecting the location decision so that the most appropriate site is selected.

The selection of distribution sites affects distribution costs based on geographic
proximity to customers and regional cost differences. These distribution costs include
transportation, warehousing, inventory carrying, lot quantity, and order processing and
information (Stock and Lambert, 1987). Distribution site selection has a direct impact on the
effectiveness and efficiency of the logistics service delivery system. This impact is formally
analyzed as the vendor makes tradeoffs between these distribution costs and the customer
service level provided. These tradeoffs are shown in Figure 2.2.

Cost-tO-service tradeoffs determine the configuration of the logistics service delivery
system at the customer service and customer satisfaction stages of the research model.
These tradeoffs are still important at the customer success stage; however, they are tempered
by the revenues which may be stimulated by the logistics service level.

The Complexity Surrounding the Location Decision

Location decisions have grown increasingly complex in recent decades as "many
firms have greatly expanded their markets geographically, expanded their product lines to
include much larger numbers of SKUs (many thousands in some cases), and have responded
to strong competitive pressures to locate inventory so as to provide even higher levels of
customer service" (Glaskowsky, et al., 1992: 482). In addition to these internal actions,
external pressure has complicated the firm's location decision. Transportation-rate locational

advantages and disadvantages for many firms, both absolutely and with respect to competi-

39

 

F

. Location Determinants:
Spatial Economics/
: Location Analysis

 

 

Distribution System Tradeoffs
Adapted from Stock and Lambert, 1987

 

Transportation 5 Customer
Costs 3 Service Level

“ v v
b’ . >
./"‘- 3 1 -~ w-
/
/ ‘
3 Warehousing 3 Inventory

    
  
 

 

 

\ Costs _‘ Carrying Costs
V V
P
O 4:
, Order A A
Processing and 3 Lot Quantity
' lnforrnation ‘ ._ Costs
\
Costs .

 

 

 

Figure 2.2 Influence Of Location Determinants on Distribution System Tradeoffs

40

tion, have been altered by deregulation (Glaskowsky, et al., 1992). Geographical market
expansion, product proliferation, increasingly higher demands on customer service, and
changing transportation locational advantages have wrecked havoc on former distribution
site rationales.

The distribution site selection decision is complicated further by the intercorrelation
of the site selection variables. Altering the value of one of these variables is likely to impact
the value of another, resulting in a chain of events which disrupts the rationalization of a
distribution site scheme. For example, the market boundary is a function Of production and
transportation costs. Consequently,

decreases in transportation costs in relation to competition
allow a firm to expand its market territory. Increased sales
allow more production at a given location. This may offer
economies of scale in the production operation. These
economies, in turn, may allow a company to expand further
the market territory served from the plant. In cases such as
this, transport cost advantages can create a self-reinforcing
chain of events (Glaskowsky, et al., 1992: 490).

Market areas are also impacted as population migrations occur. Artman and Clancy
(1990) linked the increase or decrease in distribution centers within a geographic region in
part to population migration.

Given the intercorrelation of site selection variables and dynamic sales patterns and
market areas, an assessment of a firm's distribution scheme is likely to suggest the closure of
specific distribution sites and the establishment of others. "(T)he resulting combination of

tapering cost/distance factors and changing multiple manufacturing/inventory locations can

produce extremely complex movement patterns" (Glaskowsky, et al., 1992: 490).

41

Consequently, location decisions are not formed in a static environment. A myriad
of dynamic variables impact this extremely complex decision, which if poorly made is often

very costly to correct.

HISTORICAL FOUNDATIONS OF SPATIAL ECONOMIC THEORY

Investigations into the rationales underlying location patterns began to appear in the
early eighteenth century. Table 2.1 presents an overview of the assumptions, variables, and
contributions of many of the prominent theorists within this research stream. Theorists list
and categorize variables determining location. These variables include transportation costs,
the locations Of raw materials and markets, and the availability of capital, labor, and energy
sources. Two similarities exist throughout a majority of spatial economics research:
1) Location variables or determinants are rational and economic in nature and 2) demand is
assumed to be given.
Rational Economic Determinants of Location

A common characteristic of each determinant is its rational economic nature.
Location is quantitatively expressed as a function of various input costs and the resultant
product price. Thus, each of these analyses is a simplification of reality, examining only the
supply side of the equation in rational economic terms and ignoring the impact of location on

customer perceptions of the logistics service level.

42

Table 2.1 Prominent Contributors to Spatial Economic Theory

 

 

 

Materials, Consumer Markets): 7
- Minimum Transportation Point

= ft'l‘ransportation Costs);
Transportation Costs =

_ [(Weight, Distance)

Theorist ' Assumptions Variables ‘ Contribution

I Cantillon, 1725 Social organization is subordin- , Price Differentials = [(Distance Develops a general explanation

ated to fertility of land. or Transportation Costs. Com- of the functioning of the econo-
' parative Costs, lnterregional ln- mic system integrating the
equality of Revenue) spatial factor.

' Stella", 1767 Manufactures serve a national Location = f(Energy and Raw Spatial effects on location of

market. Material Sources, Low Wages population and manufactures,
and Subsistence Prices, Trans- Development of urban areas and
port Routes) transportation routes, and Divi-
sion of labor between urban and
rural areas.

‘ Condillac, 1 776 - — Scarcity of goods varies with
location; Location becomes
central to theory of value and

I trade.

you Thane“, 1826 Continuous. isolated plain uni- Optimal Location of Agricul- Marginalist theory of price

‘ _ form in fertility and transport tural Activities = [(Rent); applied to location of

facilities. City in center of plain. Rent = [(Relative Price; production.
Single market price for each Relative Prices = [(Transporta-
product. tion Costs);

Transportation Costs =

f(Weight, Distance to Market)

Roscher, 1865 "" If Division of Labor is poorly Attempts to develop an
developed: Location = [(Loca- inductive theory encompassing
tion of Consumption the natural factors of location.
If Division of Labor Developed:

Location = f(Raw Materials,
Power Sources, Capital, Cli-
mate, Other Advantageous
Factors)
-' Schaffle, 1873 ' Thunen’s basic hypothesis: If Labor is the predominant Systematizes Roscher’s analysis.
. Essential factor in model is factor of Production: Location = Classifies industries and factors
distance from the market. [(Location of Labor); of production according to
Otherwise: Location = f(Loca- centralizing or decentralizing
tion of Raw Materials, Capital, tendencies.
Labor. and Energy Sources)
' Launhardt, 1882 - Optimum Location Point = . Analyzes firm rather than
{ [(Transportation Costs, Raw industrial sector. Defines

optimum location point and

‘ minimum transportation point.
. Analyzes the size of market

areas and the supply to each.

 

 

Table 2.1 (cont’d).

If transportation costs are high.
they determine location.
Otherwise, another factor will
determine location.

Locations of raw materials and
of consumption; Immo-

bility and unlimited supply of
labor at fixed wages; Transport-

- ability of raw materials; Isolated
country which is homogeneous
as to physical conditions, techno-
logical development, political
authority, and race; Perfect
competition.

Prices known and determinant
in influence on market size.

Level of technology given; Con-
tinuity of space; All locations
fixed except that of one enter-
prise.

, Markets viewed as surfaces;
‘ Relates theory of spatial eco-
nomies to monopolistic competi-
lion.

. Demand rigidity which allows
for the coexistence of several
. , . prices and the maintenance of a

' stable equilibrium; Buyers char-

acterized by inelastic demand:
Buyers are uniformly distribu-
ted; Zero cost; Constant rate of
transportation per unit.

43

 

 

Contribution

 

, Introduces the posibih-Jof
, estimating in monetary terms the

advantages of location;
Relationship between the cost of
transportation and the distance
to market.

Anslym those industries where
one factor plays a dominant role.

Projects pure economic: into
spatial theory. Mechanical
theory of location for a closed
system. least-cost theory.

Analyzes the general equilibrium
of a spatial model.

Demonstrates that the boundary
between the market areas of two
competitive sellers (A and B)
separated by a given distance
the locus of points for which
transportation cost (A) + price
(A) = transom-lion cost (3) +
Price (3).

Introduces microeeonomics an-
alysis methods into location
theory-primary substitution.

Attempts to model the totality of
the spatial structure of the eco-
nomic process. Introduces time
into spatial economic theory.

Determines optimal price, out-
put, and location of each seller;
Demonstrates that locational
equilibrium implies the concen-
tration of sellers at one point.

 

 

Table'2.l (cont’d).

Assumptions

Advantageo Ill foricompetitovr ' 7’

be located in close proximity to
one another; Uneven population
distribution; Variable market
length.

Range of Good - Maximum Dis-
tance a Dispersed Population
willing to cover in order to pro-
cure a good supplied at a
commercial center.

Labor is a fixed factor: Local
difl'erences in economic condi-
tions. technology and demand
variability; Inelastic consumer
demand; Variation in
transportation rates due to
volume, distance, nature of
gooth shipped, volume of
shipment, formal and informal
contracts. and supply and
demand.

1 Given: Demand, location of raw
materials, location of markets,
factory price, avenge
production cost, rural and city
population, freight rate, number
of products, and total surface
area; Monopolistic competition
characterizes economy.

 

 

Contribution

 

' Locational equilibrium implies

the concentration of sellers at
one point.

Adopts a deductive method to
formulate a theory of location of
retail outlets and urban institu-
tions; Hierarchy of commercial
centers and goods available at
each center.

Initiates the integration of
location theory into modern
price theory framework.

Provides first generalization of
location problem—Framework of
a general theory of spatial
interdependence of units in
economic system.

Elaborates a general equilibrium
theory of location —spatial inter-
relationships of an
interdependent economic system.
First modern and systematic
integration of various earlier
theories into a unified analytic
structure. Significant
methodological progress in
spatial analyst made as cornb-
tently ties abstract analysis to
reality.

Develops model of relationship
between spatial demand and
marginal revenue. Synthesizes
theoretical contributions of
predecessors and links them to
practical studies. Introduces
time into location analysis.

 

 

45

Table 2.1 (cont’d).

 

 

 

Assumptions Contribution

  

 

Attempts to synthesize Weber‘s
least-cost theory and Losch’s
greatest profit or market area
theory.

Site selection offers monopolis-

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 

maximum price consumer will
pay for product; Exclude
distortive types of man-made
forces (cg, freight rate zones.
discriminatory pricing. tax
incentives, state and federal
laws); Freight costs are
proportional to distance;
Negative sloping demand curve;
Marginal costs of production
are constant.

Completes Losch‘s model of a
general theory of location based
upon substitution principle.

Assumes uncertainty as to the
behavior of other firms (loca—
tions), the environment state
(production decision problems).
-, and the techniques of produc-
tion.

Introduces uncertainty into spatial
models.

 

 

 

Demand Given

Another notable abstraction made by these prominent contributors to spatial
economic theory involves the determinants of the market demand level. Generally, each
theorist assumes demand to be given. According to Losch (1967), demand may influence
location through price which impacts the geographic location of the market; however,
location never directly stimulates nor discourages demand. Greenhut (1956) is among the
first to note the variable nature of demand.

Most reflections on plant location overemphasized the loca-
tional importance of the transport and processing cost factors.
This failure has been noted and fought by recent writers, so that
no longer is the Weberian assumption of a given price and con-

stant demand a valid one for locational analysis. Rather, the
demand has become a variable, dependent upon freight costs,

46

contacts, and the location of other producers. Site-selection
offers monopolistic advantages (279).

It is now generally accepted that location or a local market presence may stimulate a firm’s
demand levels (Canning, 1982; C loss and Thompson, 1992).

The site selection variables have multiplied over the years, adding to the many facets
considered in the location decision. These variables are presented in the following

discussion.

VARIABLES UTILIZED IN TRADITIONAL LOCATION ANALYSIS

Examination of inventory, transportation, customer service, and various other factors
have resulted in numerous studies and model configurations which have attempted to capture
the essence of the facility location decision confronting the researcher. Theoretically, facility
locations should be configured so that each location yields an identical marginal return
(Lilien and Kotler, 1983). However, other decision variables ofien impose themselves upon
the analytical process, convoluting an economically rational solution and creating a network
of locations that in retrospect may be difficult to justify through an economic analysis.

Numerous factors are considered in the physical facility location decision for
finished products. These include the transportation charges associated with inbound and
outbound products; market factors such as the importance of product availability and the
impact of stockouts upon sales and customer loyalty; government industrial policy to
facilitate regional development through investment grants, tax breaks, rent rebatements, or
other incentive vehicles; and idiosyncrasies of a particular business such as seasonal

demand. Table 2.2 provides a list of site selection variables and identifies the source

47

mentioning each. This is not an exhaustive listing, but merely illustrates the variety of
variables employed in location analysis.

After the relevant site selection variables are identified and information concerning
each is gathered, the various costs associated with each location are quantified. However, as
certain market costs (e.g., stockout costs, increased sales due to improved customer service)
are difficult to quantify, they are ofien ignored in location models. Management proceeds to
select the location with the lowest total cost or selects by trading-off attribute levels
characterizing particular locations to reach the most satisficing alternative.

A number of computer models have been developed to aid in the location decision.
Facility location models have addressed the following decision categories:

1) number of inventory stocking facilities,

2) location of these facilities,

3) the supply of these facilities, and

4) the demand points each facility should serve
(Mentzer and Schuster, 1982; Ballou and Masters, 1993). As the early spatial economic
theorists assumed demand to be given, contemporary location modeling has generally
assumed that demand is given and unstimulated by facility location.

The present research addresses two abstractions from reality characterizing research
streams of past spatial economics/location analyses: 1) Location is determined by rational

economic variables without reference to the impact of location on customer perceptions of

the logistic service level, and 2) Location does not stimulate demand.

48

Table 2.2 Site Selection Variables

 

Variable

Stock and
Lambert, I 98 7

Bowersox, et al.,
I 986

Jenkins, 1990

Glaskowsky,
et al., I 992

Artman and
Clancqv, I 990

 

Markets

X

 

Customer
Needs

X

 

Location of
raw materials,
component
parts, and sub-
assemwa

 

Labor Rates/
Supply

 

Transportation
Services

 

Taxes

 

Security

 

Legal Concerns

 

Local Factors/
Community
Resources

 

Land Cost/
Quality

 

Availability of
Resources

 

Procurement
Costs

 

Setup Costs

 

Operating
Expenses

 

Room for
Expansion

 

Land—Physical
Characteristics

 

 

 

 

 

 

 

 

Table 2.2 (cont’d).

49

 

Variable

Stock and
Lambert, I 987

Bowersox, et al.,
I 986

Jenkins, 1 990

Glaskowsky, et
al., 1992

Artman
and
C lancey,
I 990

 

Main Objective
of Warehouse

 

Real Estate
Considerations

 

Physical
Proximity to
Customers

 

Proximity to
Other Ware-
houses

 

Facility Cost and
Value

 

Company
Image-High or
Low Profile

 

Vehicle Access

 

Location Risks

 

J-I-T Require-
ments

 

State Incentives
/Laws

 

 

Union
Environments

 

 

 

 

 

 

 

50

As spatial economics research evolves, a greater number of variables are considered
and those variables become increasingly complex. Location models are more closely
reflecting reality. The present research pushes spatial economic research closer to reality by
examining the impact of location on customer perceptions of the logistics service level. This
assumes that demand is stimulated by location. The impact of location on customer
perceptions and demand is examined through a locai market presence strategy. Figure 2.3

illustrates the contribution of the present research to the spatial economic/location analysis

 

 

 

 

 

 

 

 

 

 

literature.
z '1': ”$11.13)": ,
/von Thunen ‘2, \
‘~.=.'-~-’
/L _ __ _._.@,*A _ "T; /A«t
V, .
Weber "
AT :. i: _.._ M”... “T f‘
, Losch
f-" t" “’1." L..:.£:Z..:“j"” .7 ' a" LS: ”IL
Isard
,xPresent Research: Introduction of N
// Factors to Location Decision
/,
x/
//::“._L_;.__._ A- ._ -_ A .____-L -7:u__
// o
/ Reality
/

Figure 2.3 Contribution of Present Research to Spatial Economic Literature

51

This discussion of spatial economics/location analysis has examined the importance
of the location decision within the logistics service delivery system and the complexity
surrounding this decision. The historical evolution of the location decision and the variables
utilized were presented. Having laid an economic foundation of spatial economics/location

analysis, the following section discusses the customer service influences on location.

CUSTOMER SERVICE INFLUENCES ON LOCATION

This section presents the customer service influences on location. First, the service
outputs of a distribution system are identified to provide a framework to examine the
customer desires which may be satisfied by the logistics service delivery system. Second,
the customer service elements measuring time and distance as identified in previous research
are presented. This review establishes the manner and extent that these service outputs have
been previously investigated. Third, customer expectations with respect to time and distance
are examined. Fourth, previously identified customer service elements measuring product
availability, product support, and marketing goodwill are reviewed. This shifts the
orientation of the research 180 degrees from the firm's perspective to the customer's
perspective: Customer service elements measuring time and distance focus on the outputs of
the logistics service delivery system. Those elements related to product availability, product
support, and marketing goodwill focus on the benefits received by the customer from the
logistics service delivery system. Finally, the rationalization of distribution networks and
local market presence are discussed to expose current rationales influencing management

decisions regarding geographic proximity.

52
SERVICE OUTPUTS OF A DISTRIBUTION SYSTEM

Bucklin (1972) delineates the service outputs of a distribution system as lot size,
waiting time, market decentralization, and product variety. Lot size enables the customer to
purchase small quantities of a product. Waiting time represents any delay following
purchase which occurs before the customer may actually possess the product. Market
decentralization is the proximity of the products to the customer and the associated
convenience. Finally, product variety represents the product combinations that most closely
match the customer's desired assortments. The service outputs of a distribution system
resulting from various cost-to-service tradeoffs are shown in Figure 2.4.

The service outputs of importance in the present research are waiting time and
market decentralization as shown in Figure 2.5. Researchers have frequently combined
these two outputs representing time and distance into a customer service element
representing time such as order cycle time. Prior to the tremendous technological advances
which have occurred in the transportation and communication areas, the combining of these
two service outputs into one customer service element probably resulted in little harm.
When the transportation of products was characterized by waterways and rails, distance and
time were relatively synonymous. If a product required delivery in two days, that time
requirement dictated the distance that the product could be shipped or, in other terms, the
degree of market decentralization required of the vendor. However, advances in
transportation and communication technology have made possible the delivery of many
products anywhere in the continental United States within a 24-hour period and to many

parts of the world within three business days (UPS, 1992). Time and distance are no longer

53

 

Distribution System Tradeoffs
Adapted from Stock and Lambert, 1987

 

/ Warehousing
Costs

‘\

 

  
   
 

[ Transportation
Costs

Y

Q:

>"

J Customer
Service Level

5

 

 

Order
Processing and
Information

Costs

 

\ Costs
\

4 .~—\

Inventory

‘ Carrying Costs

4“ v

A I |
Lot Quantity

 

 

 

Bucklin’s Service Outputs

 

 

1 Lot Size
1

 

 

.— N ,. 4

 

it“

i Waiting
i Time

.1.

i 9 Market”

‘— Decentrali-

 

i zation

.t - EAL . ‘
i

 

Product
Variety

I—f.-“‘.-—~l_ -

 

 

 

Figure 2.4 Service Outputs of a Distribution System

 

54

 

JBucklin’s Service Outputs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

i’ . . i Market 7
i Lot Size Waiting . Decentrali- Product
Time . Variety
ii zation

H Time Distance

 

Figure 2.5 Service Outputs Relevant to Local Market Presence

synonymous. It can no longer be assumed that because a vendor has met customer

requirements for order cycle time or another customer service element representing time that
requirements regarding market decentralization or distance between the vendor and customer
have also been met. For example, the customer's desires for convenient local pick-up,

emergency inventory availability, immediate product support, or other desires necessitating

geographic proximity may not be met.

The service outputs of a distribution system have been identified. The next section

presents the customer service elements utilized in vendor selection and logistics service

evaluations which are identified in the literature and measure time and distance.

 

55
CUSTOMER SERVICE ELEMENTS MEASURING TIME AND DISTANCE

Time and distance are the two service outputs of a distribution system which
influence the perception of local market presence as shown in Figure 2.6. This section
examines the customer service elements measuring time and distance which have been
identified in previous empirical research. These customer service elements are compared to

the vendor selection criteria relating to time and distance.

 

 

 

 

 

Local Market
___.;~a‘ Presence
Perception

i .

 

 

Fw— _ -__ .__ , . . 7

ii

 

3 Distance

'1
J
|

E
i-
1

Figure 2.6 Time and Distance Influences on Local Market Presence Perceptions

Time Elements

Time elements are critical in the measurement of customer service as evidenced by
numerous empirical research studies. Table 2.3 provides an extensive listing of research

studies measuring customer service via order cycle time, delivery time, consistency or

Table 2.3 Previous Empirical Research: Customer Service Time Elements

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citation Order Cycle Delivery Lead lime Delivery Ability to Ability to
Time Time Consistency/ Frequency Expedite Receive
Variability Orders Orders
Electronic-
ally
Hutchison X X X
and Stolle,
1968
Stephenson X X
and Willett,
1968
Perreault, X X X
1973
Perreault X X X
and Russ,
1977
Wilson, 1974 X X
LaLonde X X X
and Zinszer,
1976
Gilmour, X X X
1977
LaLonde X X X
and Levy,
1977
Levy, 1978 X X X
Marr, 1980 X X
Tucker, X X
1980
Gilmou r, X X
1982
Christopher, X X X
1983
Sterling, X X X X X X

1985

 

 

 

 

 

 

 

 

57

 

 

 

 

Table 2.3 (cont’d).

C itaa'on Order Cycle Delivery Lead Time Delivery Ability to Ability to
Time Time C onsistency/ Frequency Expedite Receive

Variability Orders Orders
Electronic-
ally

Jackson, et X X

al., 1986

Lambert X X X

and

Harrington,

1989

 

 

 

 

 

 

 

variability in lead time, frequency of delivery, ability to rush or expedite orders, and/or
ability to receive orders electronically.

A survey of previous empirical research regarding vendor selection criteria also
reveals the importance of time elements in the vendor-customer relationship. Table 2.4
provides a listing of research studies examining the time elements of order cycle time, ability
to deliver quickly, reliable delivery, frequent delivery service, and/or delivery capability.

A comparison of the time elements considered in these two research streams is
presented in Figure 2.7. Many of these elements or criteria representing time are similar.
However, the emphasis on a particular element or criteria differs within the two research
streams based upon its frequency of mention. Greater emphasis is placed upon order cycle
time, consistency or variability in lead time, and ability to rush or expedite orders within the
customer service research. Alternatively, reliable delivery receives the greatest emphasis in

the vendor selection research.

 

Table 2.4 Previous Empirical Research: T ime-Related Vendor Selection Criteria

 

 

 

 

 

 

 

 

 

 

 

 

Citation Order Cycle Ability to Reliable Frequent Delivery

Time Deliver Quickly Delivery Delivery Capability
Service

Duncan (in X X

Lee and

Dobler, 1965)

Dickson, 1966 X

Wind, et al., X

1968

Banville and

Dornoff, 1973

Cunningham X X

and White,

1973

Kiser, et al., X X X

1974

Wieters, 1976 X

Dempsey, 1978 X

Farmer, 1985 X X X

Heinritz, et al., X

1991

 

 

 

 

 

 

 

59

    
  
    

  

Delivery
Frequency

/' Order Cycle
Time

      
    
  
    
 

\

\

      
   
 

Customer
Service
Elements

Lead Time
j Consistency/
Variability

,/Abilityto

Expedite
Orders

i
f
I
/

       
    
 
    

   

'\

 

.\

    
   

Abilityto

Receive / . .

Orders i Delivery Time
Electronically \

  
   
   
    
  

  
   
     
 
   
 

Reliable

Delivery
Capability

/Delivery

Frequency

Delivery

,/
Order Cycle
Time

Vendor
Selection
Criteria

  
    
   
 
   
 

,‘f

,/ Ability to
Expedite
Orders

Figure 2.7 A Comparison of Elements and Criteria Representing Time

60

Distance Elements

Distance elements receive very limited attention within customer service research as
revealed by Table 2.5. Both elements measure an aspect of ordering, which may be viewed
as a type of accessibility.

Vendor selection research places a greater emphasis on distance elements as shown
in Table 2.6, measuring distance in terms of geographic location, close proximity, and
accessibility of the seller.

A comparison of the customer service and vendor selection research streams reveals
little similarity and is presented in Figure 2.8. The vendor selection research stream focuses
upon geographic location, proximity, and seller accessibility. The customer service research
stream focuses upon a limited aspect of accessibility.

Figures 2.9 and 2.10 aggregate those customer service elements and vendor selection
criteria modifying the time or distance construct which have been previously measured and

reported in the literature.

Table 2.5 Previous Empirical Research: Distance-Related Customer Service Elements

 

 

 

 

Citation Ordering Convenience Order Processing Personnel Located in Market
Area

Gilmour, 1982 X

Lambert and Harrington, X

1989

 

 

 

 

61

Table 2.6 Previous Empirical Research: Distance-Related Vendor Selection Criteria

 

Citation Geographic Location Located in Close Proximity Accessibility: of Seller

 

Duncan (in Lee and x
Dobler, 1965)

 

Dickson, 1966 X

 

Wind, et al., 1968 X

 

Banville and Dronoff, X
1973

 

Cunningham and White,
1973

 

Kiser, et al., 1974 X

 

Wieters, 1976 X

 

Dempsey, 1978 X

 

Farmer, 1985

 

 

Heinritz, et al., 1991 X

 

 

 

 

 

62

If".

   
    
    
    

/

/* Order
1 Processing in
‘ Market Area

 
   

Ordering
Convenience

  

Customer
Service
Elements

\
\

/’/ \\

a”

     
  
   
 
   
 

   
   
  
  
    
 

/ //
/ -
Logited m ,:"Accessibility of
0,56, ‘, Seller
Proxrmity

Vendor
Selection
Criteria

Geographic
Location

Figure 2.8 A Comparison of Elements and Criteria Representing Distance

63

     
   
 
  
 
  

    
  
 

    
   
 

, ’éonsisten /
.I’ Order Cycle / . .. cy
Time Variability in
Lead Time
/ ‘\ /’ \
5 Delivery Time ’ Time " £3.32;
\ q Y
Ability to ,/ Ab'mYm
. .1 Receive
Expedite
Orders
Orders x .
\ Electronically
. \ / \‘A\
, Ordering t Order .
. . Processrng in
_ Convenience

Market Area

Distance

Figure 2.9 Previously Measured and Reported Customer Service Elements

64

 
  

/

/
r

   

Reliable
\ Delivery

    

Order Cycle
Time

      
   
  
 

   

Delivery
Capability

Delivery
Frequency

   
     
   
 
   
 

/’1

d..-

/1‘\

Ability to
Expedne
Orders

      

,1" , \ , K“\
/ ./
Located m Accessibility of
Close
Seller

   

Proximity

  
   

/.."

1” Geographic
1‘ Locafion

  

Figure 2.10 Previously Measured and Reported Vendor Selection Criteria

65
CUSTOMER EXPECTATIONS OF TIME AND DISTANCE SERVICE ELEMENTS

A discussion of customer expectations regarding time and distance and the
ramifications for logistics strategy is presented. First, expectations regarding delivery
reliability are investigated. Second, the potential to create a competitive advantage based
upon time is discussed. Third, the importance of proximity in providing customer service is
addressed. Finally, the advantages of local market presence from the customer's perspective
are presented.

Delivery Reliability Expected

Traditionally, speed of delivery was not excessively emphasized in the distance and
time factors of location decisions (Glaskowsky, et al., 1992). It was sufficient that a delivery
be dependable. However, dependability or reliability is no longer enough to excite the
customer. Reliability has not deteriorated in importance to the customer, neither does it
guarantee a satisfied customer; rather, it is now expected. Reliable product delivery is part
of the service a firm is suppose to provide. Research by Parasuraman, Berry, and Zeithaml:

suggests that although reliability is the most important dimen-
sion in meeting customer expectations, the process dimensions
(especially assurance, responsiveness, and empathy) are most
important in exceeding customer expectations. . .In effect, com-
panies are supposed to be accurate and dependable and provide
the service they promised to provide. . .With the process dimen-
sions, however, the opportunity is present to surprise customers
with uncommon swifiness, grace, courtesy, competence, commit-

ment, or understanding, and go beyond what is expected (1991:
41, 42).

66

Performance must rise above the level that the customer believes he is due if the firm hopes
to delight the customer and begin to build a customer franchise through enhancing a
customer's success.

The customer is discriminating between vendors based upon their ability to deliver
with "uncommon swifiness." This element of time is providing the opportunity for a vendor
to create a competitive advantage.

Time as a Discriminating Factor

Competitive market pressures are prompting customer demands for shorter delivery
times. The speed of product delivery is a discriminating factor in vendor selection as the
customer attempts to provide his own customers with a superior product and service
package. Consequently, the time factor is emerging as a strategic variable in the vendor's
location decision. How quickly and accurately can customer needs and desires be met from
this location?

Many customers are currently pushing fast delivery time to its limit by requiring
vendors to deliver on a just-in-time basis. This necessitates the use of premium
transportation, a "pipeline" of goods in transit to the customer, or warehousing goods in
close proximity to customer locations (Glaskowsky, et al., 1992). Premium transportation
serves as a substitute for facility proximity to customers in terms of satisfying customer
delivery lead time requirements (Robinson and Satterfield, 1990). However, premium
transportation is usually not economically viable for the delivery of significant quantities.
This leaves simultaneous in-transit shipments and locating a distribution center in proximity

to customer receiving as viable options to a just-in-time vendor.

67

Consequently, as time elements become a discriminating factor in vendor selection,
location becomes critical to the successful execution of a customer service strategy designed
to fulfill customer expectations and desires. Location's critical role in the provision of
customer service is examined next.

Distance/Proximity Critical to Customer Service

The customer service provided by a firm is highly dependent upon its distribution
network. "Location is a major factor in determining how quickly and at what costs
customer orders can be filled" (Glaskowsky, et al., 1992: 482). Market access or proximity
has a direct impact on the level of customer service provided, determining delivery time and
cost. Therefore, the level of desired customer service should be considered in the
distribution center location decision. "Delivery time to customers directly affects where to

locate the warehouse. The following factors affect delivery time.

* The required times to meet the warehouse company's service objectives.

* The availability and costs of transportation to make possible these required
times.

* The travel distance to customers.

* The actual travel time to customers"

(Jenkins, 1990: 69, 70). Consequently, given the requisite time to stage and load an order
and the availability of transportation, the shorter the travel distance and actual travel time to
the customer, the shorter the delivery time.

According to Stafford (1980), access to a firm's markets is usually the most critical

location factor. This access or proximity is critical to the provision of superior customer

68

service. "The principle of proximity states that the specialized intermediary should be
located close to the marketplace. Close proximity provides better positioning to render final
assortments in a manner most satisfactory and timely to market demand" (Bowersox, et al.,
1986: 506). It is anticipated that proximity or local market presence has the potential to
significantly impact market demand.
Advantages of Local Market Presence

The numerous advantages of local market presence are described and presented from
the customer's perspective. The subsequent benefits accruing to the vendor are also
identified.
Advantages to the Customer

Lee and Dobler (1965) enumerate the advantages from a customer's perspective of

local market presence:

I) Closer cooperation exists between the vendor and customer;

2) Lower risk is associated with delivery dates because transportation
is a minor factor in delivery;

3) Lower prices may result from consolidated transportation and
insurance charges;

4) Shorter lead times may allow reductions in inventory;

5) Greater probability exists that rush orders will be filled faster;

6) Disputes are usually more easily resolved; and

7) Implied social responsibilities to the community are fulfilled.

Jenkins (1990) identifies two main reasons prompting local market presence.

The two main reasons to locate close to the customers served
are psychological and physical. Customers generally "feel"
that if a supplier is close by they are better off to deal with it
rather than other suppliers that are more distant. The physical
part of this is that it is normally the shortest distance between
need and supply that results in the least travel time. . .A major
factor that should not be overlooked is whether customers want
to make their own pickups. This will involve taking into con-

69

sideration the customer's as well as the warehouse's travel
distances and times (70).

The customer service desires fulfilled by local market presence are not merely a shorter

delivery time; they also include psychological needs (e.g., security and understanding). A

vendor in close proximity may represent assurance of assistance if the product malfimctions,

assurance of emergency product supply, or an understanding of the customer's business.

Benefits Accruing to the Vendor

The fillfillment of the customer's physical and psychological needs by a vendor

establishing local market presence will favorably impact that vendor's market demand.

Greenhut (1956) conceptualizes location as a function of demand, cost, and personal

considerations. Demand factors include:

1)
2)
3)

4)
5)
6)

the shape of the demand curve for the specified product;
the location of competitors;

the significance of proximity, type of service, and speed of
service and customer prejudices;

the relationship between personal contacts and sales;

the extent of the market area; and

the competitiveness of the industry in location and price.

The cost factors include:

1)
2)
3)
4)

those costs associated with the land (e.g., taxes, cost of capital);
labor and management costs;

the cost of materials and equipment; and

transportation costs.

Finally, the factors of personal considerations include:

1)
2)
3)

the importance of psychic income;
environmental preferences; and
the security motive.

70

Greenhut recognizes the significance of proximity, the level and speed of service, and
customer prejudices or desires regarding proximity and service as factors influencing the
demand level which in turn is one of the determinants of location. Greenhut also identifies
the psychological component of location by specifying the impact of customer prejudices
and motives of security upon the location decision.

The customer reaps various benefits arising from local market presence. Likewise,
the vendor will often experience an increase in the firm’s market demand and may achieve a
higher degree of market penetration. Thus, an appropriately situated distribution center or
customer contact point should improve customer service and market share. This higher
degree of market penetration in conjunction with a price reflecting the provision of higher
customer service may be sufficient to offset the higher costs of establishing a local market

presence.

CUSTOMER SERVICE ELEMENTS MEASURING PRODUCT AVAILABILITY,
PRODUCT SUPPORT, AND MARKETING GOODWILL

Product availability, product support, and marketing goodwill are hypothesized
factors of benefits received by the customer from a logistics service delivery system. These
benefits result in customer perceptions of the processes and outputs of this system, providing
the opportunity for the vendor to establish himself as an integral component of a customer's
success. The focus expands from the outputs of the logistics service delivery system to

include the logistics processes that are integral to customer perceptions of logistics service

quality.

71

The empirical research measuring aspects of product availability, product support,
and marketing goodwill are reviewed.
Product Availability

A survey of previous empirical research regarding customer service elements of
product availability is presented in Table 2.7. These elements are divided into categories of
timeliness, accuracy, and inventory status as shown in Figure 2.1 1. Product availability from
the customer's perspective requires timeliness, accuracy, and sufficient inventory in product
deliveries; otherwise, the customer's operations will not continue to function normally.
Product Support

A survey of the literature regarding customer service elements of product support is
presented in Table 2.8. Figure 2.12 divides these elements into categories of technical
expertise, timeliness, and user friendliness. Product support from the customer's perspective
requires technical expertise, timeliness, and user friendliness ifhis operations are to return to
normal functioning as quickly as possible.
Marketing Goodwill

A survey of previous empirical research regarding customer service elements of
marketing goodwill is presented in Table 2.9. These elements are divided into categories of
assistance/convenience, infonnation/communication, customer requests, and long-term
relationship as shown in Figure 2.13. If the customer is to develop a bond with a vendor, the
vendor must provide assistance and information, communicate, respond to individual

customer requests, and establish an environment where long-term relationships can thrive.

72

Table 2.7 Previous Research of Customer Service Product Availability Elements

 

C astorner
Service
Product
Amdab’ ility
Element

Hatchison
and Stolle,
I 968

Stephenson
and Willem
l 968

Perreault.
I 9 73

Perreault and
Russ, I 974

C anningham
and Roberts,
1 9 74

Wilson, I 974

LaLonde and
Zinszer, l 9 76

 

Order
Assembly/
Time

 

Delivery
Time

 

Lead Time
Variability

 

Ability to
Meet
Promised
Delivery Date

 

Delivery
Frequency

 

Ability to
Expedite
Orders

 

Order
Processing]
Picking
Accuracy

 

Inventory
Reliability/
Availability

 

Fill Rate

 

Order
Complete-
ness

 

Inventory
Status
Information
Available

 

 

Condition of
Order on
Arrival

 

 

 

 

 

 

 

 

 

Table 2.7 (cont’d).

73

 

Customer
Service
Product
Availabiliot
Element

Gilmour, I977

LaLonde and
Levy. I977

Lay. I978

Marr. I 980

Tucker. I 980

Christopher,
I 983

Sterling, I 985

 

Order
Assembly/
Time

 

Delivery Time

 

Lead Time
Variability

 

Ability to
Meet
Promised
Delivery Date

 

Delivery
Frequency

 

Ability to

Expedite
Orders

 

Order
Processing]
Picking
Accuracy

 

Inventory
Reliability/
Availability

 

Fill Rate

 

Order
Completeness

 

Inventory
Status
Information

 

 

Condition of
Order on
Arrival

 

 

 

 

 

 

 

 

 

74

9'06er iséembiymine '—

 

.fj ‘___,,

_ Beliviery time. I Timeliness '—

 

Lead Time Variability l.—

 

i_l 7 Delivery Date

)1—

_7 Delivery Fire‘quenicyi I

 

 

._f egpediié aide};

l

WProcess'lng/Plcltinqv '_7 7 _Accllracy7 7 W l,_ Order Condition —]

 

 

ilnrver—ltoriy Availability fl Inventory Status 7 I I
7 Fill Rate 7"

 

Figure 2.11 Product Availability Categories

Order Completeness I

 

Information Availability]

 

Table 2.8 Previous Research of Customer Service Product Support Elements

 

 

 

 

 

 

 

 

 

Customer Service Product Support Elements LaLonde and Zinszer, 1 9 76 Sterling, I 985
Repair Service X

Repair Parts Availability X X
Availability of Obsolete Replacement Parts X

Timely Response to Assistance Requests X
Technical Advice X

Ability to Inspect/Diagnose Problem Areas X

Ease, Simplicity, and Time Required to Set Up Product X

 

 

 

 

75

'9 Rep—air Service ' V'iéciifiicél é'xp'éniéé HI—7E _ Diaries}; Ability— I

 

 

 

if HT-ecAhngaliAdvi—se

 

iTirnel'lniess‘ '___,,[ ‘T'lrhelvaesponse— I

Parts Availability“? 9

 

Obsolete Felted

 

‘iEaseleme Requiredi}_ Uiser Friendliness I

Figure 2.12 Product Support Categories

76

Table 2.9 Previous Research of Customer Service Marketing Goodwill Elements

 

Customer
Service
Marketing
Goodwill
Elements

Hutchison
and Stolle.
I 968

Stephenson
and Willen,
I 968

Perreault,
I 9 73

Perreault and
Russ, I 9 74

Cunningham
and Roberts.
I 9 74

Wilson, I 9 74

LaLonde and
Zinszer, I 976

 

Assistance by
Mfr. in
Order Prep.

 

Order Prep.
Convenience!
Efficiency

 

Assistance
from Mfr. in
Handling
Carrier Loss
and Damage
Claims

 

Proper
Carton
Identification

 

Procedures
for Returned
Merchandise

 

Mfr.‘s Wil-
Iingness to
Accept Re-
turns of Pro-
duct Dam-
aged and/or
Shipped in
Error

 

Order Pro-
gross/Status

Information

 

Advance
Information-
Shipping
Delays

 

Advance
Information-
Order
Deletions and
Substitutions

 

 

Communica-
tion Channel/
Action Re
Complaints

 

 

 

 

 

 

 

 

 

Table 2.9 (cont’d).

77

 

Customer
Service
Markedng
Goodwill
Elements

Hutchison
and Stolle,
I 968

Stephenson
and Willett,
I 968

Perreault,
I 9 73

Perreault and
Russ, I 974

Cunningham
and Roberts,
I 974

Wilson, I 9 74

LaLonde and
Zinszer, I 976

 

Analyze/Cor-
rect Reasons
for Com-
plaints/
Returns

 

Ability of
Customer to
Select
Carrier

 

Ability to
Meet Specific
and/ or
Unique
Customer
Service and
Delivery
Needs of
Individual
Customers

 

Adherence to
Special
Packaging
Instructions

 

Adherence to
Special
Shipping
Instructions

 

Long-term
Contractual
Relationship
Available

 

 

 

 

 

 

 

 

 

 

 

 

L_
Pm;

(an
‘ Idm
R
‘ (an

Illr
i

“ll.
1 “ ill:
3 in?
i Rnu
‘ Pnic
Dam
i and.
hip
1 Erin

k

i Unit
3W.

\

‘ “If!“

E
[Blur
‘hlpi

Dig:

Ti;
[Dior
Um?
“fin;
i MN

\

Table 2.9 (cont’d).

78

 

Customer
Service
Markedng
Goodwill
Elements

Gilmour, I977

LaLonde and
Levy, I 977

Levy, I 978

Marr, I 980

Tucker, I 980

C hristopher.
I 983

Sterling. I985

 

Assistance by
Mfr. in Order
Preparation

 

Order Prep.
Convenience!
Efficiency

 

Assistance
from Mfr. in
Handling
Carrier Loss
and Damage
Claims

 

Proper
Carton
Identification

 

Procedures
for Returned
Merchandise

 

Mfr.’s
Willingness to
Accept
Returns of
Product
Damaged
and/or
Shipped in
Error

 

Order Pro-
grass/Status
Information

 

Advance
Information—
Shipping
Delays

 

 

Advance
Information—
Order
Deletions and
Substitutions

 

 

 

 

 

 

 

 

 

Table 2.9 (cont’d).

79

 

Customer
Service
Markea'ng
Goodwill
Elements

Gilmour, I977

LaLonde and
Levy, I 9 77

Lay, 197s

Marr, I 980

Tucker, I 980

Christopher,
I 983

Sterling, I985

 

Communica-
tion C hannel/
Action Re
Complaints

 

Analyze!
Correct
Reasons for
Complaints/
Returns

 

Ability of
Customer to
Select Carrier

 

Ability to
Meet Specific
and! or
Unique
Customer
Service and
Delivery
Needs of
Individual
Customers

 

Adherence to
Special
Packaging
Instructions

 

Adherence to
Special
Shipping
Instructions

 

 

Long-term
Contractual
Relationship
Available

 

 

 

 

 

 

 

 

 

80

r _.“_.__ flufi. _.a-,,.,_ _,_A ya
Order Preparation '— __l Proper Carton ID I
l

 

 

,__.. *__ i _ i....__ 7..., ,___ _..__ ____ _‘. ____

1 Order Convenience l___ Assistance l___l Return Procedures I

 

 

 

 

 

 

 

 

 

 

f‘cai’r’ier Lossfiaainage H. hl‘fielu‘rFAESpiéhE; I
. L

I ’ oié'e} Status ' i i {—ciofiil’a—ihi—Réédifiiiéfi I
7 "is‘li'iiSpiii‘gfoé'i—éysm I— _T' ‘9 Inf—orm—ation __ ’— iwcb—r’reciivJAc‘iio}? I

 

 

 

 

,_Del—etion.s/_Sdbsthut;s '—

 

 

 

 

 

 

 

9 'ichér‘Seie—ciidfi '9 1 TusBiiiéTRelest: '_ azikégin? ’7 I
A usages? _ _ sniping _ I

Long-term Contract .

hRela—tions—h; I

 

 

Figure 2.13 Marketing Goodwill Categories

81

The present research defined the impact of product availability, product support, and

marketing goodwill on the customer's perception of a local market presence.

RATIONALIZATION: DISTRIBUTION AND LOCAL MARKET PRESENCE
The rationalization of distribution networks prompted by a focus on cost reduction is
examined in the following paragraphs. Vendors are tending to consolidate their operations,
servicing larger geographic markets from fewer distribution centers. The rationales which
attempt to discourage consolidation are also presented.
Consolidation of Distribution Networks
Responding to intensifying pressure to reduce costs and improve return on asset
performance while maintaining high customer service levels, vendors are reducing the size
of their distribution networks.
"Many companies downsize the number of facilities in their
distribution networks as they rationalize the trade-offs between
cost and service. Often, certain locations cannot be justified
because marginal service improvements cannot overcome sig-
nificant fixed and inventory carrying cost penalties. Or, it may
be possible to maintain, or even improve service by spending

more on premium transportation and less on facilities and inven-
tory" (Artman and Clancy, 1990: 18).

Vendors have discovered that a multitude of distribution centers located across the United
States is not necessary to stay competitive; indeed, such an extensive network may
undermine the very competitiveness it hopes to engender. Rather, many vendors are finding
that a few strategically located distribution centers, providing the required services at a

reasonable price, are sufficient to maintain competitiveness.

82

Rationales Discouraging Consolidation

Despite at least a token acknowledgment of this rationalization process, specific
distribution sites may be maintained by a vendor even though it does not appear to be an
economically-sound judgment.

"There may be instances when, for reasons of advertising value,
public relations, or service to a particular customer, it is deter-
mined by management that the company will stage an inventory
in a particular location. . .Customer service policy serves as the
greatest single determinant of the number and location of inven-
tories" (Glaskowsky, et al., 1992: 516).

Once inventories are staged at a particular site it may be quite difficult to relocate
these stocks.

"In addition to the public relations value of having a company
operate a facility in a locality, there are important sales and
promotion considerations. Customers may become familiar
with an inventory location and may be satisfied and accus-
tomed to doing business with the firm there. Further, trans-
portation arrangements may have become stabilized, and car-
riers may have so adjusted their local operations as to give
very good service to a particular existing location. A move to
another location may well require repeating the process of get-
ting one’s operations smoothly integrated with the operations
of servicing agencies (carriers) and customers, all this with an
interim loss of efficiency and customer service" (Glaskowsky,
et al., 1992: 517).

Not wanting to disrupt customers, inertia is often a powerful force preventing greater
rationalization of a vendor's distribution network.

This discussion suggests that intangibles such as marketing goodwill (e.g., security
and understanding) which are difficult or impossible to quantify should be an important

input into the rationalization process. Their exclusion may result in economically-rational

83

distribution networks which fail to excite the customer or compromised distribution

networks which are economically inefficient and marginally effective as they attempt to

appease CUSIOI'ITCI‘S.

In addition to customer service, transportation, and marketing considerations, several

rationales for continued local market presence of inventories have been voiced by

management. Jones and Riley (1987) have identified seven beliefs concerning inventory.

'Ihese beliefs are:

l)

2)

3)

4)

5)

6)

7)

"Sophisticated techniques and organizational discipline will pro-
vide more accurate sales forecasts."

"Japanese techniques, such as Just-In-Time, will all but eliminate
inventory problems."

"Inventory provides the necessary buffer to protect manufacturing
from seasonal and business cycle variations."

"Local presence is a key element of our service--you can't sell from
an empty wagon."

"Distributors, as independent businessmen, provide local availability
and entrepreneurial inventory management."

"Local dealers need to be backed up by readily available regional
stocks."

"Modem information systems and control methods will all but elimi-
nate obsolete and slow-moving inventories."

Three of these beliefs (4, 5, and 6) are used to justify local market presence of inventories.

Subsequently, Jones and Riley expose each as a myth by observing tendencies in reality.

Local Presence Myth #1: "Local presence is a key element of our service--you can't

sell from an empty wagon." Local inventories are typically less extensive and more out-of-

84

balance than centralized inventories. Often the local order entry-to-shipment cycle time is
excessive, evaporating purported time advantages associated with local presence. Local
market inventories usually require higher levels of safety stock due to greater demand
uncertainty at the local market level. Consequently, local inventories are often characterized
by limited offerings, slow response, and imbalanced stocks (Jones and Riley, 1987).

Local Presence Myth #2: "Distributors, as independent businessmen, provide local
availability and entrepreneurial inventory management." Often independent distributors act
primarily as sales agents. As these distributors often lack rudimentary inventory
management skills, inventory control is usually performed by the manufacturer. In addition,
many independent distributors are financially unable to stock a fill] product line,
necessitating an even greater understanding of the needs of the served market segments in
order to properly maintain inventory (Jones and Riley, 1987).

Local Presence Myth #3: "Local dealers need to be backed up by readily available
regional stocks." Large retailers have vertically integrated backwards in many industries so
that by achieving scale economies in warehousing, inventories, and advertising they can
increase their respective market shares. This vertical integration duplicates and overlaps
levels of the manufacturer's supply chain. Therefore, extensive distribution networks
established by manufacturers can often interfere with the business strategy of a large retailer
and fail to efficiently supply smaller retailers (Jones and Riley, 1987).

In the vast majority of instances, Jones and Riley (1987) claim that the arguments
forwarded in favor of local market presence of inventories fail to maintain their integrity

under closer examination.

85

A discussion of customer service influences on location has been presented,
highlighting the interactions between these two components of logistics strategy. Decisions
concerning the level of customer service to provide influence the number and locations of
distribution centers. Consequently, the extent of geographic proximity establishes limits to
customer service levels which may be provided. Location is a potential source of
competitive advantage depending on the importance of product availability, product support,
and marketing goodwill to the customer. A survey of the literature revealed customer
service elements measuring product availability, product support, and marketing goodwill.
The present research investigated customer desires in these three areas, filrthering an
appreciation for the role a local market presence strategy can play in fillfilling these desires.

The following section addresses the logistics service delivery system and its

relationship to local market presence.
SERVICE QUALITY

This section discusses the logistics service delivery system: its definition and output,
service quality measurement, and a classification scheme. Local market presence is one
potential configuration of a logistics service delivery system. Successful execution of any
logistics service delivery system configuration requires coordination of objectives and

operations among the system components.

86
DEFINITION AND OUTPUT OF A LOGISTICS SERVICE DELIVERY SYSTEM

Magrath (1986) expands the components of the marketing mix to include personnel,
physical facilities, and process management when a service such as logistics or customer
service is marketed. These peripheral features of a service comprise the service delivery
system. A logistics service delivery system operationalizes this concept when logistics

services are provided as presented in Figure 2.14.

9 Physical Facilities I

i J i

Personnel : Process Mgmt. I

 

 

 

 

Figure 2.14 Logistical Service Delivery System

Sasser, et al. (1978) have demonstrated the interrelationships between the service
concept, the service delivery system, and the service level. Paraphrasing for the provision of
logistics services, the logistics service concept determines and is defined by the logistics
service delivery system. These two components are utilized by management to create
logistics service levels which are communicated to customers and influence logistics service
level perceptions. These interrelationships are presented in Figure 2.15.

The inventory flow outputs of a logistics service delivery system, which comprise
product availability, are velocity, volume, consistency, and timeliness. These are presented
in Figure 2.16. Velocity is the speed of inventory movement from the vendor to the

customer via vendor, third-party, or customer transportation. Volume is the quantity of

87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vendor .,.., .- _ .. 1
. l L lstical
l Logistical l gm“
Service " 'fl
l“ Concept ’1 Delivery
{l 4 System
iL
[ l
l Logistical
. Service Levels
i
Customer rm 1
ii
i: Logistical
Service Level
l Perceptions

 

 

Figure 2.15 Interrelationships in the Provision of Logistics Service

product which may be moved at one time. Consistency is the variation in the volumes
moved from one time period to another. Lastly, timeliness is the ability of the product to
arrive when it is needed and in the required condition. These inventory flows impact the
customer's perception of local market presence. If a product is received quickly in large
quantities on a frequent basis from a vendor and it arrives when it is needed and in the
required condition, the customer's perception of local market presence will be enhanced.

The other components enhancing a perception of local market presence are product
support and marketing goodwill. These are also presented in Figure 2.16. The greater the
technical expertise and user sensitivity provided by the vendor in a timely manner to return

the customer's work environment to effective, efficient operation, the more favorable the

88

 

 

 

l
l
f
l
l
l

ii "

;i
H

r. .- .x..__... '_._-. __‘.

 

 

 

 

 

 

 

 

 

i
ll Velocity ll Volume EE Consistency Timeliness
l l l l
,1“,
E‘ .. _ gsflaflw famwggflswam,
iE Product E Product E? Marketing
tE Availability El Support E Goodwill
l l
l E l l
J -
ii ‘
,1 Perception of
Local Market
E Presence

~l

 

Figure 2.16 Influences on Local Market Presence Perceptions

customer's perceptions of local market presence. Likewise, the more the customer believes
that the vendor understands the customer's business, is willing to assist the customer in
improving operations, respects and cares for the customer, and is on the customer's team, the
more favorable his local market presence perceptions. These three components, product
availability, product support, and marketing goodwill, interact to support the customer's
perception of local market presence. This perception modifies the customer's logistics
service level perception.

The comparison of the perceived logistics service level to logistics service level
expectations results in an assessment of logistics service quality. This relationship is
depicted in Figure 2.17. Lewis and Booms (1983) define service quality as a measure of
how well the service level delivered matches customer expectations. Zeithaml, et al.
hypothesize that "the quality that a (customer) perceives in a service is a function of the

magnitude and direction of the gap between expected service and perceived service" (1985a:

89

 

2 - .I" J 1 --~. "I

 

 

  

l Logistical l Perceived
i Servlce Level E Logistical
Expectations E, Service Level
EL,

 

 

 

ll 1 y
'_-l Logistical

‘ J: Service Quality i:

 

 

El

Figure 2.17 Determinants of Logistical Service Quality

46). Delivering quality service means conforming to customer expectations on a consistent
basis.

According to Lehtinen (1983), service quality is comprised of process quality and
output quality as shown in Figure 2.18. Logistics process quality is judged by the customer
during the performance of the logistics service; logistics output quality is determined at the
completion of the logistics service.

Rhea and Shrock (1987) present two definitions of physical distribution effectiveness
or logistics service quality. The conceptual definition of physical distribution effectiveness
is the extent to which distribution programs satisfy customers. The operational definition
defines effectiveness as the extent to which product flows and distribution-related
information flows satisfy the customer. As a result, logistics service quality is a function of
the perceived gaps between the actual product flows and the customer's product flow
expectations and between the actual information flows and the customer's information flow

expectations as shown in Figure 2.19. Attempting to increase customer satisfaction with

90

*— . . “.W- ._.—,W
‘ a :7 ' i .

 

 

 

 

 

 

i E!
E L333? ll “9‘8““
EE Quality EE Output Quality
.l 3?

ll

 

 

 

. Service Quality :

-. 1% Logistical

 

Figure 2.18 Components of Logistical Service Quality

 

4......“ 41...“..-Siflkw. .. . 'A

E Actual Product

 

 

 

.E Flows

rl

$‘"”"'Z‘-" ....”me
Fl

Product Flow .j Product Flow

Satisfaction

 

EE' Expectations

 

ii

 

.; . NLTLL'thi... _ .LL'LL... _ .

 

Physical

 

 

 

 

 

 

 

l;
.l .
E Distribution . Sebfilsgizmy
. Effectiveness
l

. Actual EE lnforrnation I

' Information )9 Flow

Flow EE Satisfaction
E ’ii

 

 

 

L4 . “H”?

 

 

 

Flow
Expectations

 

I zen .

 

LL

 

i Information I

Figure 2.19 Operational Definition of Physical Distribution Effectiveness

91

logistics services, the vendor should begin to identify customer expectations relative to
product and information flows. Frequently used measures are the direction, amount, and
variability of resource flows and direction, quality, and frequency of information flows
(Rhea and Shrock, 1987). The present research defined similar measures of product or
inventory flows: velocity, volume, consistency, and timeliness. The design of the logistics
service delivery system should reflect customer needs and desires. The logistics service
level is the output of the logistics service delivery system and the logistics service concept.
lts perception is compared to the customer's logistics service level expectations and an
assessment of logistics service quality results.

The customer's logistics service quality assessment will impact fiiture transactions
with the vendor. Consequently, if significant dissonance occurs between expectations and
perceptions, current logistics services may have to be altered to achieve greater congruence.
However, as these service levels are adjusted, the logistics service delivery system and the

logistics service concept will also be redefined.

SERVICE QUALITY MEASUREMENT

The various difficulties surrounding service quality measurement are discussed and
the differences in measurement criteria among customer groups are addressed.
Difficulties of Service Quality Measurement

Service quality is more difficult to measure and monitor than product quality because
of multiple influences (Zeithaml, et al., l985b). These difficulties/influences include the

service characteristics, communication gaps within the vendor-customer relationship, service

92

proliferation and complexity, the degree of individualized service provided by the vendor,
and the vendor's emphasis on short-term results.
Service Characteristics
Several characteristics differentiate services from products. Services tend to be

intangible. Consequently, quality expectations and perceptions may be based more on
subjective than objective factors. The high labor content in the production of many services
increases the heterogeneity within a single service offering of a given vendor. Finally,
typical services are inseparable into production and consumption phases, making it more
difficult to control and inspect quality prior to consumption. The elusiveness of concrete
factors to describe service quality expectations of a standard service, and of a tangible
product which may be examined and consumed outside of the production environment
makes service quality somewhat more difficult to judge.
Communication Gaps Within the Vendor-Customer Relationship

Problems with service quality may result from communication gaps between the vendor
and its customer. The vendor may overpromise concerning what it can do for the customer
or the time frame within which the service will be performed. The vendor may fail to stay in
touch with the customer until a resolution to the problem has been reached. Alternatively,
the customer may not understand the vendor's communications. Or, the vendor may not
listen to the customer. Misunderstandings and misrepresentations in either direction

between the vendor and customer will ultimately affect the customer's perception of service

quality.

93
Zeithaml, et al. (1985a, 1985c) have designed a service quality model, Figure 2.20,

which traces the provision of the service from the vendor's perceptions of customer
expectations through delivery of the designed service to the customer who evaluates it based
upon expectations formed from numerous influences. The model also identifies
discrepancies which may exist regarding vendor perceptions of service quality and the tasks
associated with service delivery, resulting in misguided efforts in the design of the service
and/or in the service delivery system. As illustrated in Figure 2.20, "a set of key
discrepancies or gaps exists regarding executive perceptions of service quality and the tasks
associated with service delivery to (customers). These gaps can be major hurdles in
attempting to deliver a service which (customers) would perceive as being of high quality"
(Zeithaml, et al., 1985a: 44). The first discrepancy or gap is between customer expectations
and the vendor's perceptions of those expectations. "In essence, service (vendors) may not
always understand what features connote high quality to (customers) in advance, what
features a service must have in order to meet (customer) needs, and what levels of
performance on these features are needed to deliver high quality service" (Zeithaml, et al.,
1985a: 44). The vendor may misdirect its efforts and miss opportunities if it fails to
understand the service features desired by the customer and the quality level demanded.
A gap may also exist between vendor perceptions and service quality specifications.

Several influences may contribute to the development of this gap. The vendor may be less

H

than totally committed to service quality. In addition, . .resource constraints, market
conditions, and/or (vendor) indifference, (plus other factors) may result in a discrepancy

between (vendor) perceptions of (customer) expectations and the actual specifications

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94

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Figure 2.20 Conceptual Model of Service Quality (Zeithaml, et al., 1985)

95

established for a service. This discrepancy is predicted to affect quality perceptions of
(customers)" (Zeithaml, et al., 1985a: 45).

A third discrepancy suggested by the model may arise between service quality
specifications and service delivery. The source of this gap may be attributable to the
heterogeneity of services derived from the relatively high personal content of services.

Discrepancies between service delivery and external communications may constitute a
fourth gap. Zeithaml, et al. (l985a) describe how reducing this gap may enhance customers'
perceptions of service quality. "Making customers aware of not readily apparent service
related standards. . .could improve service quality perceptions. (Customers) who are aware
that a (vendor) is taking concrete steps to serve their best interests are likely to perceive a
delivered service in a more favorable way" (Zeithaml, et al., 1985a: 46). External
communications with subsequent reinforcement from service delivery can improve
customers' assessments of a vendor's level of service quality. This is accomplished as a
vendor uses this tool to shape perceptions. However, the long-term success of the vendor
requires supportive follow-up, lest customers become disenchanted with the vendor's ability
to adequately fulfill its promises. Appropriately utilized, external communication can be a
potent tool in the marketing of services. "In short, external communications can affect not
only (customer) expectations about a service but also (customer) perceptions of the delivered
service. Alternatively, discrepancies between service delivery and external communications
«in the form of exaggerated promises and/or the absence of information about service
delivery aspects intended to serve (customers) well--can affect (customer) perceptions of

service quality" (Zeithaml, et al., 19853: 46). In addition, educating customers through

96

external communications can help bridge the gap between expected service and perceived
service as "more knowledgeable customers are likely to make better decisions, leading to
greater satisfaction" (Zeithaml, et al., 1985b: 50). Thus, a vendor can improve perceptions
of its service quality by providing the customer with information enabling him to select a
service level congruent with his expectations.

The final gap which may exist is between the service expected by the customer and his
perceptions of the service received. Zeithaml, et al. (19853) propose that this gap is a
fiinction of the four prior discrepancies such that the magnitude and direction of each gap
will have an impact on service quality.

Service Proliferation and Complexity

The third influence which causes service quality to be more difficult to measure and
monitor is that service proliferation and complexity may influence service quality if the
vendor does not have sufficient capacity to handle the changes. "Clearly, new products are
vital to a (vendor's) long-term success. However, our research underscores the importance
of service (vendors) being prepared to provide the service before marketing it. New service
--or enhanced existing services--offer both additional marketing opportunity and additional
opportunity for things to go wrong. Too much newness can do more harm than good"
(Zeithaml, et al., 1985b: 49). A service inadequately supported will in all likelihood be
perceived as of lower quality. This negative perception may spill over to other contracted

services from the vendor, lowering the customer's overall quality assessment.

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97
Degree of Individualized Service

A vendor which begins to view its customers as statistics may experience a decline in its
actual and perceived service quality. Individualized service may be a critical success factor
for a service vendor. "When a service (vendor) has many customers, there is a tendency to
view them as statistics, foregoing the opportunities that are sometimes present to
individualize the service. However, many customers desire a personalized and tailored
approach to the service" (Zeithaml, et al., 1985b: 49). This lack of personalized service will
tend to erode the perception of high service quality. On the other hand, a number of factors
may contribute to a decline in actual service quality and indirectly influence the customer's
perceptions. "Repetitive tasks, more problems to solve than staff to solve them, sheer size
and magnitude of operations, improper selection, training, compensation, and supervision of
service workers--all contribute to a service insensitivity" (Zeithaml, et al., 1985b: 49). This
insensitivity affects the actual quality level of performed services.

Emphasis on Short-term Results
Too much emphasis on short-term results may encourage lower service quality
assessments from customers. Although the vendor may win in the short-run as evidenced in
financial reports and/or market share, it will lose in the long-run if it prioritizes short-term
results over those factors determining service quality.
How a vendor addresses these influences upon actual and perceived service quality
significantly impacts its ability to adequately meet its customers' needs and remain

economically viable in the long-run.

98

Measurement Criteria Differ Per Customer Group

LaLonde and Zinszer (1976) show that different industries value the various
components of customer service differently. In addition, several target markets may exist
within an industry which base evaluations of logistics service quality on different criteria.
Consequently, some customers will highly value specified time dimensions of the
distribution system's service outputs and place a lower value on distance dimensions. Other
customers will derive value from both distance and time outputs. Another group of
customers will value other configurations of the logistics service outputs.

Rhea and Shrock (1987) state that a vendor's operations are designed to serve
different purposes for different customer groups. Gilmour (1982) concludes that vendors
could "reduce customer service costs and/or improve the level of customer service provided
by recognizing differential customer service requirements for individual customer segments"
(44). Consequently, the relevant indicators of operational effectiveness or logistics service
quality will often differ among customer groups.

A Classification of a Logistics Service Delivery System

A classification scheme of service delivery systems is presented. Many of the
principles governing operations are applicable to logistics services and facilitate the
operationalization of meeting customer needs and desires in an effective, efficient manner.

Chase (1978) classifies individual services based upon the extent of contact between
the customer and vendor. The level of contact influences such system design decisions as
facility location and layout, the design of the product and process, scheduling, quality

control, and forecasting. Chase recommends realigning present operations to reduce

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99

unnecessary direct customer contact as efficiencies are offered by low-contact operations.
The customer contact that remains can be enhanced, providing a higher quality service with
less expenditure of manpower. In addition, parts of the service operation may be relocated
to lower facility costs. However, if a vendor is attempting to increase its service quality by
redesigning the delivery system into low-contact and high-contact operations, it must also
concern itself with managing demand.

Northcrafi and Chase (1985) suggest that service industries control demand at the
point of service delivery to increase service production and delivery efficiency as shown in
Figure 2.21. This is accomplished by matching service demands and service operation
resources. First, the vendor identifies the delivery modes, the services offered, and the
customer types. Second, delivery modes are matched to the offered services and the
customers are segmented by the services desired. Finally, the vendor channels the customer
to the delivery mode that best meets his requirements. Efficiency is achieved as service
delivery and production are matched to the minimally qualified service resource.

Accurate and timely information is integral to the performance of the logistics
fiinction, both as an input into the system and as an output. Mills and Turk (1986) state that
because information is the raw material of service organizations, how it is processed will
have a direct bearing on productivity. The production of complex services involves more
face-to-face contact between the service provider and the customer because there is a greater
need to process information, especially information which may be ambiguous or uncertain
and suggests a variety of solutions. In this situation, the vendor must create structures and

climates that encourage interaction between the customer and service provider. Conversely,

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

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Figure 2.21 The Processes of Managing Demand at Service Delivery Point

it is possible to predict and plan task activities and establish systems in the production of
simple services. Here the vendor needs to restrict, limit, or control face-to-face contact
between the service provider and customer because such exchanges have the potential to
disrupt the system flows. Although the provision of logistical services may not always
necessitate face-to-face contact, other intimate communication/information links may be
desired.

Along a similar vein, Chase (1981) has classified services based upon the customer
contact time relative to the service creation time. A service may be either a pure service, a
mixed service, or quasi-manufacturing. The potential facility efficiency is a function of 1 -
(customer contact time/service creation time). Thus, the closer a service is to quasi-
manufacturing, the more efficient the facility. Chase suggests the following procedure to

increase a facility's efficiency. First, identify those points in the service system where

101

decoupling is possible and desirable. Tradeoffs between the cost savings from operations
improvement and marketing losses resulting from the changes in the nature of the services
provided may have to be made. Second, contact reduction strategies should be employed
where appropriate. Third, contact enhancement strategies should be utilized where
appropriate. Finally, traditional efficiency improvement techniques should be used to
improve low contact operations. These techniques enable the logistics service delivery
system to meet customer expectations more effectively and efficiently.

Identification of the importance of logistics service output dimensions for a given
vendor-customer relationship enables the vendor to enhance that relationship by designing
logistics services which adequately meet the customer's needs and desires.

Key to local market presence is determining the extent and nature of vendor contact
desired by the customer. The operationalization of these desires requires a logistics service
delivery system and logistics service concept which will meet customer needs and enhance
the relationship between customer and vendor. The vendor may select specific logistics
fimctions to exhibit local market presence and, conversely, gain scale economies in logistics

functions provided on a decentralized basis.

SYNTHESIS

This chapter discussed the research streams relevant to the investigation of the role
and utility of local market presence in the vendor selection process and service quality

evaluation. The research synthesizes the interrelationships of these streams as follows.

102

First, customers experience the logistics process as well as logistics outputs in their
interactions with the logistics service delivery system. These experiences are internalized as
perceptions. These perceptions directly impact logistics service quality evaluations, which
in turn impact market demand and, consequently, market revenues.

Second, location directly impacts the effectiveness and efficiency of the logistics
service delivery system, enhancing the vendor's ability to favorably impact a customer's
success. The greater this effectiveness and efficiency, the more favorable customer
experiences, perceptions, and logistics service quality evaluations. Thus, location indirectly
impacts market demand and revenues.

Third, vendors have traditionally designed their distribution systems in terms of
physical capabilities relative to distance and time. As it became possible to service
customers in equal or less time from more distant locations, distribution systems were
rationalized and warehouses/distribution centers were often eliminated. However, such
rationalization often ignored any psychological benefits received by the customer, assuming
purchase decisions and logistic service quality evaluations to be based upon concrete
economic variables. Contrarily, psychological benefits may be the discriminating factor
among identical vendors with identical products and customer service levels.

Fourth, previous research examining the impact of location upon market demand is
limited to physical logistics service outputs. However, the customer's psychological desires
regarding his logistics experiences are fiJlfilled to a greater or lesser extent as he interacts
with a vendor's logistics process. The impact of these subjective process components upon

the perceived logistics service level, logistics service quality, and vendor selection criteria

103

are examined in the present research. The results reveal how a distribution system may be
configured to more effectively and efficiently meet customer needs regarding local market
presence, highlighting opportunities for the vendor to work together with customers to
increase their success in the marketplace.

Fifth, customer segments within an industry evaluate logistics service quality on
different criteria. In addition, customer groups represent differing levels of value to the
vendor. Therefore, the vendor should structure its distribution system to offer different
levels of service to customer groups in accordance with the value generated. The vendor
may desire to demarket to unprofitable customer groups, while enhancing its service menu to
select groups representing higher profits and the opportunity for future growth.

Sixth, local market presence is not a panacea for dissatisfied customers, anemic
market share, or lackluster customer loyalty. It may provide the opportunity to enhance the
effectiveness of a coherent marketing and logistics strategy which anticipates customers'
desires and is genuinely interested in facilitating customer success.

Seventh, the present research drew upon the customer service and service quality
literature streams. Its application was the logistics process experienced by customers and a
method, local market presence, of enhancing the effectiveness of the distribution system as it
facilitates customer success.

Numerous customer service and service quality studies are reported based upon case
studies, experimental designs, and survey research methods. For example, Zeithaml, Berry,
and Parasuraman's (1993, 1986) service quality models are based upon case studies. A large

number of customer service studies are based on survey methods (e.g., Christopher, 1983;

104

Gilmour, 1982; Lambert and Harrington, 1989; Levy, 1981). A seminal customer service
study conducted by LaLonde and Zinszer (1976) reports the relative importance of service
attributes by industry based upon survey data.

The present research was exploratory as little has been reported regarding local
market presence. However, due to the anchoring of this research within the customer service
and service quality literatures and the respective development of each, a survey approach
was used.

Eighth, a definition of local market presence was suggested based upon references to
"local presence" or "market presence" in the literature. This research examined and refined
this definition.

Definitions of product availability and product support are presented from a
customer rather than a vendor perspective. Each deviates from traditional usage and is used
to represent a benefit component experienced by the customer.

This research synthesized several distinct areas of inquiry, introducing and affirming
the application of customer perceptions to location analysis. Traditionally, location was
driven by the economics of demand and technological capabilities; however, these factors no
longer establish the definitive rules governing the location of distribution facilities.
Introducing customer perceptions to the facility location decision enables the vendor to
create a competitive advantage and enhance the success of select customers. Although this
potential exists, minimal research is available which details customer perceptions of location

and customer service elements as they relate to location. The present research filled this

void.

105
CONCLUSION

This chapter presented and synthesized the research streams relevant to the
investigation of the role and utility of local market presence in the service quality evaluation
and vendor selection process. These research streams include spatial economics/location
analysis, customer service influences on location, and service quality formation.

The customer success stage of the research model incorporates perceptual and
economic bases. The logistics process and outputs of the logistics service delivery system
comprise the logistics service level. The customer perceives this service level and these
perceptions impact his assessment of logistics service quality and vendor selection process.
The logistics service level may be experienced through the product availability, product
support, and marketing goodwill factors of a local market presence. This research
investigated the potential of utilizing a local market presence to secure a competitive
advantage and facilitate customer success.

The research model provided a framework to guide this investigation and suggested
relationships between the components. However, the testing of the model is reserved for

future research.

CHAPTER III: RESEARCH DESIGN AND HYPOTHESES

INTRODUCTION

This chapter presents an overview of the research methodology. The first section
reviews research objectives and presents operational definitions. The second section outlines
the sampling process and data collection. Finally, the third section describes the research

questions and identifies the statistical techniques which were applied.

RESEARCH OVERVIEW

This research examined logistics service from the customer's perspective. It
recognized the importance of the customer's evaluation of logistics service quality as well as
the logistics process. The logistics process includes psychological attributes which are
perceived by customers. The vendor's location influences these perceptions. The location of
distribution sites is an integral factor in the effectiveness and efficiency of the vendor's
logistics service delivery system and, consequently, his market share. With a goal of
improving effectiveness of logistics delivery service, this research examined the perceived
benefits attributed by the customer to a local market presence.

This research investigated the strategy of local market presence. A local market
presence strategy is a configuration of customer service elements supporting a distribution
facility or customer contact point located within a vendor's local market. These elements are

categorized into local market presence components (e.g., product availability, product

106

107

support, and marketing goodwill). They provide specific logistical benefits to customers
such as delivery frequency, response to assistance requests, and order status information.

Ideally, these customer service elements are strategically configured to enhance the
customer's success.

The research evaluated this definition of local market presence and examined its
components. The research measured the impact of local market presence on the customer-
vendor relationship, the customer’s vendor selection process, and customer evaluations of
logistics service quality. The research investigated the influence of paper purchases (as a
proportion of total purchases) on the relative importance of local market presence elements.
Finally, the research developed managerial guidelines to aid in strategic implementation of a

local market presence strategy and suggested opportunities for future research.

RESEARCH OBJECTIVES
To review, the research objectives were:

1) To define local market presence from the customer's perspective
and determine the relative importance of its key elements;

2) To identify the impact that local market presence has upon the
customer's perception of his relationship with the vendor;

3) To determine the importance of local market presence factors in
vendor selection and logistics service quality;

4) To determine how purchase volume influences the relative impor-
tance of local market presence benefits; and

5) To develop managerial guidelines for defining and implementing
a local market presence strategy.

108
OPERATIONAL DEFINITIONS
Operational definitions interpret theoretical propositions and link them to observable
entities or events in the real world (Hunt, 1983). "(T)he requirement that theories be
empirically testable shall be construed as being satisfied when a theory is capable (at least in
principle) of generating predictive-type statements (hypotheses) whose descriptive terms
have empirical referents, thus ensuring that the statements are amenable to a direct
confrontation with real—world data" (Hunt, 1983: 248). The empirical referents or
operational definitions are presented in Table 3.1
This section provided an overview of the research, reviewing the research objectives

and defining operational variables. The next section outlines data collection.

FRAMEWORK FOR DATA COLLECTION

This section addresses the components of the data collection framework, their
sequence, and the targeted market segments. It discusses the development of the
questionnaire. Data was collected through a mail survey. Related issues of sample and

sample size, response rate, and nonresponse bias are discussed.

MARKET SEGMENTS

This research investigated local market presence in the context of the rolled and

uncoated paper market segments.

Table 3.1 Operational Definitions

 
 

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109

yyyy

   

An element that describes a potential benefit of local

market presence based upon the customer’s beliefs. Fach
is measured on a 5-point Likert scale anchored by
“Strongly Agree” and “Strongly Disagree.”

 

Importance of Local Market Presence Benefit

The importance of a local market presence benefit to the
customer’s business operations. Each is measured on a 5-
point Likert scale anchored by “Strongly Agree” and
“Strongly Disagree.”

 

Local Market Presence Importance

The importance of local market presence to the success of
the customer’s firm. It is measured on a 5-point Likert
scale anchored by “Strongly Agree” and “Strongly
Disagree.”

 

Perception of Local Market Presence

A customer’s perception that a vendor provides the
logistical benefits associated with a local market presence.
It is measured on a 5-point Likert scale anchored by
“Strongly Agree” and “Strongly Disagree.”

 

Evaluation of the Vendor-Customer Relationship

Attributes which describe interactions between a customer
and vendor such as trust, cooperation, and helpfulness.
Each is measured on a 5-point Likert scale anchored by
“Strongly Agree” and “Strongly Disagree.”

 

Importance of Physical Distance

The importance of a customer service element to local
market presence. This element is a measure of physical
distance. It is measured on a 5-point Likert scale
anchored by “Very Important” and “Not Very Important.”

 

Importance of Delivery Time

The importance of a customer service element to local
market presence. This element is a measure of delivery
time. It is measured on a 5-point Likert scale anchored by
“Very Important” and “Not Very Important.”

 

 

Vendor Selection Criteria

An evaluation of the importance of local market presence
elements in selecting a vendor. Each is measured on a 5-
point Likert scale anchored by “Very Important” and “Not
Very Important.”

 

 

110

Table 3.1 (cont’d).

 

Preference to Patronize a Vendor An evaluation of the customer’s preference to purchase uncoated
paper products fi'om a vendor with a local market presence. It is
measured on a 5-point Likert scale anchored by “Strongly

Agree” and “Strongly Disagree.”

 

Logistics Service Quality Attributes An evaluation of the importance of local market presence
elements in assessing a vendor’s logistics service quality. Each
is measured on a 5-point Likert scale anchored by “Very
Important” and “Not Very Important.”

 

 

Importance of Customer Service Variables The importance of five customer service variables (local market
presence, price, delivery consistency, fill rate, and order cycle
time) to a customer’s loyalty to a vendor of uncoated paper
products. Each variable is measured on a 5-point Likert scale
anchored by “Strongly Agree” and “Strongly Disagree.”

 

Rolled Paper Market Segment
Rolls of paper are used in the web offset printing of labels, magazines, and catalogs.

Approximately eighty-five percent of rolls are distributed through a direct channel from the
manufacturer to the customer who receives truckloads of paper rolls. The customer typically

utilizes good production planning and forecasting procedures, alleviating the need for
emergency shipments to meet unexpected demand. The remaining fifteen percent of paper
rolls are distributed through distributors. These distributors enhance their value added
services by cutting the paper rolls to customer specifications and orders, shipping sheets of
paper to customers. These customers order in large quantities due to their ability to forecast
demand and efficiently plan production. Emergency shipments of paper are seldom

required. As a result, local market presence is not an issue within the rolled paper market

 

111

segment. Consequently, the rolled paper market segment was dropped from further analysis
in the present research.
Uncoated Paper Market Segment

Sheets of uncoated paper are used for a variety of printing purposes, including
Xerox, covers, brochures, and announcements. Uncoated paper is distributed primarily
through distributors. The customer generally requires a just-in-time inventory, receiving
emergency shipments in one to two hours. Demand is difficult to forecast, making
production scheduling and inventory planning difficult. Local market presence is an
important issue within this market segment, providing the customer with security and

assurance of product availability through emergency shipments.

INTERVIEWS AND QUESTIONNAIRE DEVELOPMENT

Preliminary qualitative research collected information through in-depth interviews
with individuals associated with the paper industry. The interview guide is provided as
Table 3.2. Information gathered from these interviews directed the questionnaire
development.

The original intention was to pre-test the questionnaire with a small group of persons
responsible for purchasing paper within printing firms. However, paper distributors were
unwilling to provide access to their customer mailing lists as they desired not to sensitize
customers to the local market presence issue. The data collection process was undertaken as
detailed in the following section. Time pressures of completing the research and the time
associated with questionnaire return did not allow for an initial mailing serving as a pre-test

and a subsequent mailing to generate responses for the regular statistical analysis.

l 12
Table 3.2 Personal Interview Guide

1. Market Segments
A. Roll Only Paper Products
1. Product Description: Labels
2. Product Sophistication (printing):
3. Customer Description
a. Industry:
b. Expenditure Type (percentage of purchases):
B. Uncoated Paper Products
1. Product Description: Xerox, text and cover
2. Product Sophistication (printing):
3. Customer Description
3. Industry:
b. Expenditure Type (percentage of purchases):

11. Distribution System Structure: Relationship Dynamics
A. Roll Only Paper Products:
Manufacturer, Customer
B. Uncoated Paper Products:
Manufacturer, Merchant _, Customer

111. Elements of Local Market Presence
A. Roll Only Paper Products:
B. Uncoated Paper Products:

IV. Importance of Time and Distance in Local Market Presence
A. Roll Only Paper Products:
B. Uncoated Paper Products:

V. Attractiveness of Local Market Presence: Willingness to pay a price premium;
Impact on market share/customer loyalty.
A. Roll Only Paper Products:
B. Uncoated Paper Products:

113
MAIL SURVEY
A mail survey was used to solicit input from persons responsible for purchasing
uncoated paper. This input addressed the relative importance of local market presence
elements across two purchase volume situations and one market segment within the paper

industry.

SAMPLE AND SAMPLE SIZE

Printers were selected from two types of sources: compact disc telephone directories
and an industry association membership list. The telephone directories were from
"Selectphone" by Prophone and "PhoneDisc USA" by Digital Directory Assistance. Printers
were selected by the Standard Industrial Code (SIC) for commercial printing not classified
elsewhere (2759). The population of this group is estimated at 55,000. Printers were also
selected from the membership list of the National Association of Quick Printers. The
population of this association is estimated at 4,000.

The sample was drawn by systematically selecting every twelfth listing. However,
as there was little response from instant printers, the sampling process was adjusted to select
a smaller percentage of these printers. This adjustment was accomplished by selecting the
next appropriate printer on the list.

Telephone calls were placed to each potential respondent which requested
participation and offered to mail or fax the questionnaire. A cover letter explaining the
research and requesting participation was sent with the questionnaire to each potential

respondent agreeing to participate.

114

Follow-up with non-respondents consisted of a second cover letter and another copy
of the questionnaire. These were mailed approximately four weeks after the last phone calls

were completed.

RESPONSE RATE

Initially, it was estimated that 125 completed questionnaires were needed to provide
statistical reliability and validity within the various measures. The two primary methods of
data analysis are multiple regression and factor analysis. According to Hair, et al. (1992),
there are several rules of thumb regarding sample size within multiple regression analysis.
These range “from 10 to 15 observations per predictor to an absolute minimum of 4
observations per predictor” (46). Observations in or beneath the lower range deem an
adjusted R2 to be the appropriate measure of the coefficient of determination. The maximum
number of possible predictor variables in any multiple regression model is 30, resulting in
sample sizes of 300 to 450. However, the highest number of predictor variables included in
any regression model is 20, suggesting sample sizes of 200 to 300. A minimum of four
observations per predictor variables indicates a sample size of 80.

A general, conservative rule regarding sample size in factor analysis is “there should
be four or five times as many observations as there are variables to be analyzed” (Hair, et al.,
1992: 227). Thirty variables are the maximum included in the analysis, suggesting a sample
size of 120 to 150. The researcher may be forced to accept an observations-to-variables of
2:1, or sixty observations. “When dealing with smaller sample sizes and a lower ratio, the

analyst should interpret any findings cautiously” (Hair, etal., 1992: 227).

115

The coefficient of variation was computed for a sampling of twelve variables from
approximately fifty—five questionnaires, resulting in a value of 0.33 (standard deviation =
1.00; mean = 3.00). Based upon a relative allowable error of 10 percent, a 95 percent level
of confidence indicates an approximate sample size of 42; a 99 percent level of confidence
indicates an approximate sample size of 72. Consequently, sample size requirements were

revised downward to a range of 70 to 75.

NONRESPONSE BIAS
Nonresponse bias is always a concern in mail surveys. "The seriousness of
nonresponse error is magnified by the fact that the direction of the error is often unknown
and. . .it is difficult to estimate the actual magnitude of the error" (Green and Tull, 1978:
111)
A number of techniques are available to improve response rates.
The best methods to get high response rates include advance
letters or telephone calls, first-class outgoing mail and hand-
stamped return envelopes, monetary incentives, personalization
of material for nonsensitive issues, assurance of confidentiality
for sensitive issues, noncommercial sponsorship, incorporation
of the cover letter into the questionnaire, follow-up question-

naires/letters, and the addition of a handwritten postscript urging
reply (Lambert and Harrington, 1990: 6).

The present study utilized advance telephone calls, first-class outgoing mail and hand-
stamped return envelopes, personalization of materials, assurance of confidentiality,
noncommercial sponsorship, incorporation of the cover letter into the questionnaire, and a

follow-up letter and questionnaire to encourage a healthy response rate.

116

Lambert and Harrington (1990) recommend the following procedure when budget
and time constraints exist. Based upon their experience with customer service research
using a mail survey methodology, they suggest that researchers balance budget and time
constraints with a desire to eliminate nonresponse bias by "budgeting and planning for two
mailings of the questionnaire, followed by a third mailing to a sample of the
nonrespondents" (20). The mailing to nonrespondents is a condensed questionnaire focusing
on key variables as identified from the analysis of the first two groups of questionnaires.
"Use an appropriate experimental design to determine if there is a significant difference
between the respondent population. . .and the nonrespondent population. . .If there is a
significant difference, the investigator should at least address the bias. . .in any research
conclusions. It would of course be more appropriate to adjust the estimate of population

parameters in recognition of the nonresponse bias" (Lambert and Han'ington, 1990: 21).

RESEARCH QUESTIONS AND ANALYSIS APPROACH

First, each research question is stated and the rationale for its inclusion is presented.
Second, the statistical technique testing its validity is presented. The specific research
question categories include: 1) local market presence elements and their relative
importance; 2) the impact of local market presence on customer perceptions; 3) the relative
importance of local market presence factors in vendor selection and the evaluation of
logistics service quality; 4) a comparison of market segments; and 5) managerial guidelines.

Figure 3.] identifies the relationship of each variable to the research.

117

Research Question Group A
Local Market Presence Elements and Relative Importance

E:

l- Identification
of Local Market

Presence l

Local Market
Presence
Benefit

 

Importance of
Elements

i“:

 

flux

 

 

x71.

Importance of
Local Market
Presence

Strategy

Research Question Group 8
Local Market Presence Impact on Customer Perceptions

 

E Evaluation of

’ Vendor-
Customer

Relationship

 

 

 

Iii

 

 

 

\.
L w—- .- M ,1 .‘u ‘.'v I
i.

.- EE
Importance of I Perception of
. Physical .. Local Market
3 Distance . Presence

 

 

 

 

 

6" A 7"

i
j Importance of
Delivery Time I

 

 

it

Figure 3.1 Relationships of Variables to Research

Research Question Group C

118

The Importance of Local Market Presence Factors in Vendor Selection and

Logistics Service Quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

r

1 Local Market

1 Presence

Factors

1
Vendor I ‘ Preference to
Selection E Patronize a
Factors I Vendor

KEV-"V— .A. '1 E: 4._. 2

: Logistics E'E Local Market

EService Quality :13 Presence

1 Factors I E Importance

E E

Research Question Group D
Comparison of Market Segments

I" " F MAW A -’

EE Importance of 1‘ Paper

. Local Market EE Purchases as

{I Presence fl % of Total

E'E Benefit I E Purchases

 

 

Figure 3.1 (cont’d).

119

Research Question Group E
Management Guidelines

1 I i ._J .

 

 

 

 

 

 

 

 

Attractiveness E Relative
of Local Market Preference for
Presence Select Choice
1 Strategy Sets
E Local Market 1
E Presence :1; Market Share
1 Strategy l E
1 1

 

 

 

Figure 3.1 (cont’d).

MARKET PRESENCE ELEMENTS AND RELATIVE IMPORTANCE
These research questions investigated the relative importance of local market

presence elements.

Q l A: What are the key elements of local market presence?
(What are customers’ beliefs regarding specified logis-
tical benefits and their relationship to local market pres-
ence?)

Q1 B: What is the relative importance of the various elements
comprising local market presence? (How important to

the customer's operations are the logistical benefits associ-
ated with local market presence?)

The objective of these questions was to determine the relative importance of
specified customer service elements in the customer's perception of local market presence.
Identifying elements of higher importance facilitates the improvement of customer
perceptions by indicating to the vendor the most effective means of improving a local market

presence strategy.

120

These questions were addressed through a two-step procedure: 1) Respondents
stated their beliefs concerning potential local market presence benefits and 2) indicated the
importance of each benefit to their business operations. These benefits were derived from
customer service elements evaluated in previous empirical customer service studies and are
presented in Table 3.3. First, respondents were presented with numerous belief statements
regarding customer service elements and their relationship to local market presence. An
example of a belief statement is "Local market presence results in a shorter delivery time."
Respondents indicated the strength of their agreement with each statement on a 5-point
Likert scale.

Second, respondents rated the importance of each logistical benefit to their business
operations. Research question QlB was evaluated via multiple regression analysis. The
metric dependent variable reflected the importance of local market presence to the customer.

The metric independent variables were the importance ratings of the local market presence
elements. "The objective of multiple regression analysis is to use the several independent
variables whose values are known to predict the single dependent value the researcher

wishes to know" (Hair, et al., 1987: 20).

LOCAL MARKET PRESENCE IMPACT ON CUSTOMER PERCEPTIONS
This research question evaluated the impact of local market presence on customer
perceptions of the customer-vendor relationship.

Q2A: How does the customer describe his relationship with a
vendor pursuing a local market presence strategy?

121

Table 3.3 Customer Service Elements

‘-.-7.~.-r.t~«~«’:t:i;~2’;.._'A w... it?» wivirL‘.:~*‘.i"‘fo "N5; . , - s o - e e ”‘ '

"5in

' . :
. . i l - , r . \ .
u‘ . n ---.‘Lr”1-Q'L-‘-dI-.-:.h ‘Ji-ll

  
     

OrdreAs/Tesemblyim ' __ ’ Dlivry W‘ "

e ConsistencyNariability--Lead Time 0 Ability to Meet Promised Delivery Date

0 Delivery Frequency 0 Ability to Rush/Expedite Orders
0 Order Processing/Picking Accuracy 0 Inventory Reliability/Availability
0 Fill Rate 0 Order Completeness

9 Inventory Status Information Available 0 Condition of Order on Arrival

 

 
   

9 Availability of Obsolete Replacement O Timely Response to Assistance Requests
Parts
0 Technical Advice 9 Ability to Inspect/Diagnose Problem
Areas

0 Ease, Simplicity, and Time Required to
Set Up Product

122

Table 3.3 (cont’d).

 

 

  
       

- ' r n a 7, ' ‘ 7" “i , r
-;A- ~ .an

Order Preparation Convenience

5:1
W?
‘i
p
i.
f.

0 Assistance by Manufacturer in Order

Preparation Efficiency
0 Assistance fi'om Manufacturer in 6 Proper Carton Identification
Handling Carrier Loss and Damage
Claims
0 Procedures for Returned Merchandise 0 Manufacturer’s Willingness to Accept
Returns of Product Damaged and/or
Shipped in Error
9 Ability of Customer to Select Carrier 0 Ability to Meet Specific and/or Unique

Customer Service and Delivery Needs
of Individual Customers

0 Adherence to Special Shipping 0 Adherence to Special Packaging
Instructions Instructions
9 Order Progress/ Status Information 0 Advance Information--Order Deletions
and Substitutions
0 Advance Infonnation--Shipping Delays 6 Communication Channel/Action Re
Complaints
0 Analyze/Correct Reasons for 0 Long-term Contractual Relationship
Complaints/Retums Available

 

This question revealed customer perceptions regarding relationships with vendors
pursuing a local market presence. It investigated the possibility that differences in customer-
vendor relationships were due to the presence or absence of a local market presence strategy.

This research question was evaluated through multiple regression analysis. The
metric dependent variable reflected the customer's perceptions of the degree of local market
presence exhibited by the vendor. The metric independent variables were the customer
evaluations of the relationship attributes.

The next research question examined the contribution of distance and time to a
customer's perception of local market presence.

Q28: How do physical distance and delivery time contribute to
the customer's perception of local market presence?

123

This question began to define "local market" from the customer's perspective. It indicated
the feasibility of implementing a local market presence strategy from a more remote
location.

This question was evaluated via rankings of logistical service benefits on their

importance to a local market presence strategy.

RELATIVE IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS

The relative importance of local market presence factors in the vendor selection
decision and the logistics service quality evaluation was addressed in the next three research
questions. Product availability, product support, and marketing goodwill were hypothesized
to be factors of local market presence.

Q3A: What are the factors of local market presence?

Q38: What is the relative importance of local market pres-
ence factors in the vendor selection process?

Q3C : What is the relative importance of local market pres-
ence factors in determining logistics service quality?

The objective of these questions was to identify and measure the relative importance
of local market presence factors in the vendor selection decision and logistics service quality
evaluation. This indicated the priority the vendor should place on a specific component.

Research question Q3A was tested through factor analysis. Factor analysis reduces
and summarizes data, "analyzing the interrelationships among a large number of variables. .
.and then explaining these variables in terms of their common underlying dimensions

(factors)" (Hair, et al., 1987: 235). "(E)ach of the observed (original) variables is considered

124
as a dependent variable that is a function of some underlying, latent, and hypothetical set of
factors (dimensions)" (Hair, et al., 1987: 235).

Factor analysis and multiple regression were utilized to test research questions Q38
and Q3C. Thirty logistics attributes were rated in their importance in vendor selection and
logistics service quality evaluation. These ratings were factor analyzed to reveal the vendor
selection factors and logistics service quality factors, respectively. The independent metric
variables were the vendor selection factors and logistics service quality factors. The
dependent metric variable was the customer's preference to patronize a vendor exhibiting a

local market presence in Q38 and the criticalness of a vendor's local market presence to a

customer's success in Q3C.

COMPARISON OF MARKET SEGMENTS

This research question compared two market segments differing in the percentage of
total purchases accounted for by uncoated paper.

Q4: What impact does the percentage of total purchases ac-
counted for by this product class have upon the rela-
tive importance of the local market presence benefits?

Research question Q4 examined the influence of the percentages of paper purchases
on the relative importance of local market presence benefits. This identified the need to
tailor a local market presence strategy to customers segmented by their paper purchases as a
percentage of total purchases. Each customer was placed in a high or low purchase volume
category as indicated by their paper purchases as a percentage of total purchases (High: 51

percent and above and Low: 50 percent and below).

Multiple discriminant analysis was used to test this research question.

125
Discriminant analysis involves deriving the linear combina-
tion of the two (or more) independent variables that will dis-
criminate best between the a priori defined groups. This is
achieved by the statistical decision rule of maximizing the
between-group variance relative to the within-group vari-
ance; this relationship is expressed as the ratio of between-
group to within-group variance (Hair, et al., 1987: 75).
The categorical dependent variables were the two purchase volume categories. The

metric independent variables were the importance rankings of local market presence

benefits.

MANAGEMENT GUIDELINES

These research questions addressed issues concerning the attractiveness of a local
market presence to customers and vendors and the feasibility of securing the benefits of a
local market presence without establishing a physical facility in close proximity to
customers.

Q5A: ls local market presence attractive to a significant group
of customers?

The objective of this question was to quantify those customers who find local market
presence an attractive distribution alternative. This question was evaluated by assessing
respondents’ agreement with the statement, “A vendor’s local market presence is critical to
the success of my firm.”

QSB: Are customers willing to pay a premium to receive the
benefits of local market presence?

This research question examined the trade-offs made by customers when selecting a

service package that most closely matches their needs and budget.

126

Conjoint analysis was used to evaluate this question. "(T)he purpose of conjoint
analysis is to determine the contributions of variables (and each level of the variables) to the
choice order over combinations of variables that represent realistic choice sets. . .the
prediction is not of an absolute preference but of a relative preference within a defined set"
(Hair, et al., 1987: 41 1). The dependent metric variable was the preference for a particular
choice set. The independent categorical variables were specified levels of price and facility
proximity. Based upon the result of conjoint analysis, market segments may be formed.
"(C)ustomers with similar physical distribution needs can be grouped together, and different
service-cost mixes may be developed for each market segment" (Perreault and Russ, 1973:
126)

Q5C: Will local market presence increase market share?

This question addressed a potential benefit of pursuing a local market presence
strategy from a vendor's perspective.
This research is evaluated by examining the percentage of respondents indicating a
preference to purchase uncoated paper products from a vendor with a local market presence.
In addition, the importance of five variables (local market presence, price, delivery
consistency, fill rate, and order cycle time) in determining vendor loyalty were examined.

Q5D: Can the benefits of local market presence be achieved short
of locating a facility in close proximity to customers?

This research question examined the feasibility of obtaining the benefits of a local
market presence without making a physical facility commitment. The importance of thirteen

logistical service benefits to a local market presence strategy are examined.

127

CONCLUSION

Chapter Three presented an overview of the research, reviewing the research
objectives and presenting the operational definitions. The data collection framework was
presented. Finally, the rationale for the inclusion of each research question and the statistical
techniques were discussed.

Chapter Four presents the findings of the empirical research.

CHAPTER IV: STATISTICAL ANALYSIS

INTRODUCTION
This chapter presents the research results. The first section discusses the response
rate and nonresponse bias. The second section presents the research questions, the

statistical analysis, and an interpretation of the results.

RESPONSE RATE AND NONRESPONSE BIAS

This section addresses the response rate and the resulting sample size. Concerns

regarding nonresponse bias are discussed.

RESPONSE RATE

As discussed in Chapter III, potential respondents were solicited by Standard
Industrial Classification code from compact disc telephone directories and the
membership list of the National Association of Quick Printers. The resulting population
was estimated at 59,000 printers.

Potential respondents were first contacted by telephone to solicit their
participation in the research. As a result, 246 questionnaires were mailed or faxed.
Approximately 55 completed questionnaires were received from this first mailing. A
second mailing resulted in an additional 22 questionnaires. Consequently, 77 useable
questionnaires were received, resulting in a 31.3 percent response rate.

Returns of completed questionnaires were not as high as required by initial

sample size estimates. Therefore, twelve variables were systematically selected; every

128

129

tenth variable was chosen, ignoring the trade-off analysis tables as respondents were
having difficulty with this section. The standard deviations were computed and analyzed
across 56 respondents. The coefficient of variation was estimated at 0.33 (standard
deviation = 1.00, mean = 3.00). The relative allowable error was set at 10 percent. A
95% confidence interval resulted in an approximate sample size of 42; a 99% confidence
interval resulted in an approximation of 72. This analysis suggested that a sample size of
70 to 75 respondents would be adequate to provide reliable estimates.

Table 4.1 presents the twelve variables which were analyzed and the associated
differences in required sample sizes resulting from varying the precision level and the
actual precision levels. Precision estimates were computed based upon a 95 percent
confidence interval. Estimated sample sizes at a 5 and 10 percent precision are provided.
A sample size of 70 to 75 respondents would result in precision between 5 and 10
percent. Finally, the actual standard deviation, sample size, and associated precision
level for each variable is presented. Variables 7 and 9 have the highest precision;
however, these variables were not analyzed in the following research questions. The
average precision for the remaining ten variables was 5.61 percent, indicating that the

actual sample size of 77 was adequate to provide reliable estimates.

130

Table 4.1 Sample Size Estimation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Estimated Est. Sample Est. Sample Actual Actual Precision %
Std. Dev. Size: 10% Size: 5% Std. Dev. Sample Size
Precision Precision
1 0.7852 16 62 0.8083 70 4.8308%
2 1.3001 43 170 1.2918 68 783.28%
3 1.2826 42 165 1.2563 71 7.4547%
4 0.8722 20 77 0.8066 76 4,6259%
5 1.2048 37 146 1.1838 76 6.7896%
6 0.7744 15 60 0.8292 75 4.7874%
7 1.4771 55 219 1.6211 31 9.7053%
8 1.1894 36 142 1.0840 74 6.3008%
9 0.7133 13 51 1.5285 27 9.8051%
10 0.5808 9 34 0.5511 76 3.1607%
11 0.7796 16 61 0.8306 76 4.7636%
12 1.0263 27 106 0.9729 76 5.5799%

 

 

 

 

 

 

 

NONRESPONSE BIAS

Nonresponse bias is always a concern in mail surveys. The present study utilized
a number of techniques suggested by Lambert and Harrington (1990) to improve
response rates. These techniques were: advance telephone calls, first-class outgoing
mail and hand-stamped return envelopes, personalization of materials, assurance of
confidentiality, noncommerciaI sponsorship, and a follow-up letter and questionnaire.

Two factors contributed to nonresponse in the present research. First, a few
questionnaires were returned uncompleted as the firms were not part of the desired
market segment. Some firms were no longer printing as part of their business operations.
Other firms acted primarily as print brokers or farmed out their printing requirements.
These firms were usually not involved in the actual paper purchases.

Second, several returned questionnaires and phone calls indicated that the

potential respondent was unable to complete the questionnaire because he was unfamiliar

 

131

with basic logistics terms such as picking accuracy. In addition, a number of respondents
had difficulty understanding trade-off analysis as indicated by telephone calls for
clarification and skipping that section of the questionnaire.

The variance in printer sophistication appeared to be the greatest factor in any
nonresponse bias. The length of the questionnaire and unfamiliarity with logistics terms

and data gathering techniques probably accounted for a major portion of nonresponse.

RESEARCH QUESTIONS AND STATISTICAL ANALYSIS

First, each research question is stated. Second, the statistical technique testing its
validity and the statistical results are presented. Finally, the statistical results are
discussed and interpreted. The specific research question categories include: 1) local
market presence elements and their relative importance; 2) the impact of local market
presence on customer perceptions; 3) the relative importance of local market presence
factors in vendor selection and the evaluation of logistics service quality; 4) a comparison

of market segments; and 5) managerial implications.

MARKET PRESENCE ELEMENTS AND RELATIVE IMPORTANCE
These research questions identified the key elements of a local market presence
and their relative importance in defining a local market presence strategy and

contributing to the success of a printer's business operations.

Key Local Market Presence Elements (QlA)

QlA: What are the key elements of local market presence?
(What are customers' beliefs regarding specified logis-
tical benefits and their relationship to local market presence?)

132

Research question QlA identified the key elements of a local market presence
from the customer's perspective. Respondents stated their beliefs concerning the
relationship between thirty customer service elements and a local market presence.
These beliefs were measured by a 5-point Likert scale anchored with "Strongly Disagree"
and "Strongly Agree." The scales of ten belief statements were reversed to ensure careful
consideration of each statement. It appeared that a number of respondents failed to
recognize the reversal. The average variance among the thirty variables was 1.23; nine of
the ten statements with reversed scales had a variance exceeding the average.
Consequently, these ten variables required cautious analysis.

Respondents were also offered a "NR" option indicating that a particular element
was not relevant to a local market presence. It appeared that respondents consistently
chose either "NR" or some level of disagreement to indicate that elements were not
important to a local market presence. Low levels of agreement and "NR" responses did
not appear on the same questionnaire. Each type of response received a unique code.

All thirty customer service elements were associated at least somewhat with a
local market presence. Table 4.2 presents these elements and the intensity of
respondents' beliefs that each was a benefit of a local market presence. The elements
generating the strongest beliefs focus on delivery reliability, a short order cycle time, and
a short communication channel with the vendor.

This analysis identified those customer service elements which were benefits of a

local market presence. If a vendor has a local market presence, what type of benefits did

133

Table 4.2 Customer Benefits of a Local Market Presence

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ranking Benefit Mean
(Scale =5)
l The Vendor’s Consistent Ability to Meet Promised Delivery Dates 4.5455
2 A Short Delivery Time 4.4416
3 The Consistent Ability to Expedite Orders 4.2237
4 A Short Order Assembly Time 4.0986
5 Shorter Communication Channel and Quicker Action to Resolve Complaints 4.0548
6 The Vendor’s Increased Willingness to Accept Returns of Product Damaged or 3.8533
Shipped in Error
7 A Timely Response to Assistance Requests 3.8514
8 Efficient Assistance from the Vendor in Handling Carrier Loss and Damage 3.8333
Claims

9 Timely Inventory Status Information 3.8235
10 Efficient Assistance by the Vendor in Order Preparation 3.8000
1 1 High Inventory Availability 3.7867
12 A High Fill Rate 3.7101
13 Timely Order Status Information 3.6986
14 An Improved Ability to Inspect or Diagnose Problem Areas 3.63 89
15 More Accurate Advance Information Concerning Shipping Delays 3.6232
16 Proper Carton Identification 3.5362
17 More Accurate Information Concerning Order Deletions and Substitutions 3.5143
18 High Quality Technical Advice 3.4861
19 Adherence to Special Shipping Instructions 3.4000
20 Adherence to Special Packaging Instructions 3.3824
21 High Variability in Lead Times (scale reversed) 3.1486
22 Low Order Completeness (scale reversed) 2.8551
23 Low Order Processing Accuracy (scale reversed) 2.6857

 

 

 

 

134

 

 

 

 

 

 

 

 

Table 4.2 (cont’d).
Ranking Benefit Mean
(Scale =5)
24 A Decrease in the C ustomer’s Ability to Consistently Select the Carrier (scale 2.5789
reversed)
25 Low Picking Accuracy (scale reversed) 2.4462
26 Inefficient Procedures for Returned Merchandise (scale reversed) 2.3472
27 Low Delivery Frequency (scale reversed) 2.3380
28 Decreased Order Preparation Convenience and Efficiency (scale reversed) 2.2676
29 A Decrease in the Vendor‘s Ability to Meet Specific or Unique Customer 2.1081
Service and Delivery Needs of Individual Customers (scale reversed)
30 The Order Arriving in Poor Condition (scale reversed) 1.7887

 

 

 

 

Scale: 1 = Strongly Disagree, 5 = Strongly Agree

 

the printer associate with this? The importance of these various benefits within a local
market presence strategy will be addressed shortly.

Importance focused on the criticalness of the printer receiving these customer
benefits if the vendor was attempting to provide a local market presence. It began to
define the factors which differentiate this logistics service configuration from other
distribution strategies.

In a separate question, respondents indicated the importance of thirteen logistical
service benefits to a local market presence strategy. Importance was measured on a 5-
point Likert scale anchored by "Not Very Important" and "Very Important." Table 4.3
presents these importance rankings by descending mean order. These rankings were
somewhat similar to the customer benefits of a local market presence presented in Table
4.2. The thirteen logistical service benefits are divided into three categories based on

importance ranking and relationship to a basic underlying construct such as time or

 

I35

distance. The resulting benefit categories are: l) The availability of product in a timely
and reliable manner which was critical within a local market presence strategy; 2) The
accessibility and convenience of interacting with the vendor which was also quite
important; 3) Geographic location and proximity to the customer which was important,
but less so; and 4) Other which included a logistical service benefit which was not
important to a local market presence strategy.

The printing environment is characterized by high fixed costs due to equipment
leases and/or depreciation of large capital investments. These high fixed costs create
pressure to minimize downtime. Printers attempt to minimize their fixed costs per unit of
output by operating at high levels of press capacity utilization. The relatively high
number of printers in a specific market and the desire to minimize press downtime results
in competitive pricing.

Printers generally maintain relatively low inventory levels. It is extremely
difficult to forecast demand accurately given customer profiles and the proliferation of
paper products. Due to high fixed costs and competitive pricing, profit margins are tight.
Consequently, printers attempt to minimize other costs such as inventory carrying costs.
The printer generally orders paper when he receives a print order. The competitive
environment creates pressure on the delivery time of the printed product to the customer.
As a result, the printer requires prompt delivery from the vendor.

Respondents indicated that the timeliness of product delivery was the most
critical benefit of a local market presence. The various "time" benefits were rated as

important to very important. The printer requires the vendor to fill the service gap

136

Table 4.3 Importance of Benefits to a Local Market Presence Strategy

 

Ranking Benefit Mean
$mk=$

 

 

 

Benefit Category: Availability of Product in a Timely and Reliable Manner

 

 

 

 

 

 

 

1 Short Delivery Time 4.5844
2 Reliable Delivery 4.5584
3 Short Order Cycle Time 4.4416
4 Ability to Expedite Orders 4.3377
5 Delivery Capability 4.2987
6 Frequent Delivery 4.2078
7 Low Lead Time Variability 4.1216

 

 

 

Benefit Category: Accessibility and Convenience of Interacting with the Vendor

 

8 Ordering Convenience 4.0260

 

9 Accessibility of Seller 3.8831

 

 

 

Benefit Category: Distance

 

 

 

10 Order Processing Personnel Located in Market Area 3.8158
1 1 Located in Close Proximity 3.7500
12 Geographic Location 3.6623

 

 

 

Benefit Category: Other

 

13 Ability to Receive Orders Electronically 2.8701

 

 

 

 

Scale: 1 = Not Very Important, 5 = Very Important

 

 

137

because he is unable to forecast demand and cost pressures make it difficult for him to
provide width and depth of inventory. The printer relies upon the vendor to provide an
acceptable level of inventory and prompt delivery, allowing him to provide an acceptable
level of customer service to his print customers. The printer's success is highly
dependent upon the service provided by the vendor. Consequently, timely delivery from
vendors is critical.

The accessibility and convenience of interacting with the vendor were important,
though less critical, benefits of a local market presence strategy. First, because the
printer is so dependent upon the vendor for his success, a direct communication channel
becomes very important. This is critical not only in placing orders, but also in checking
on order status and inventory availability. Due to the proliferation of paper products in
recent years, the printer may require more input from the vendor as to the appropriate
paper for a specific job or a substitute for a paper in low stock. Second, due to the tight
service window through which printers serve their customers, it is imperative that their
vendors be accessible and provide a convenient working relationship should orders
require expediting or problems resulting from picking errors or printing problems need to
be resolved.

Finally, the distance benefit category comprised the less important benefits of a
local market presence. This category included order processing personnel located in the
market area, the vendor located in close proximity, and geographic location. These were
rated as important to a local market presence strategy. The proximity of a vendor

provides the printer with a level of security. There may be two facets to this security.

138

First, the printer may pick-up an order if the vendor is unable to expedite shipment or the
printer may return unneeded product resulting from picking errors or unused product
ordered as a margin for error. Second, the printer may believe that the vendor cannot
provide the requisite prompt, reliable service from a more distant location.

The competitive environment forces printers to depend upon their vendors for
prompt delivery of the required product. This tight service window and the proliferation
of paper products encourages the development of a direct communication channel which
allows convenient access to the vendor. The distance benefit category becomes
important in this logistics service configuration as a tangible cue to the vendor's ability to
provide prompt service and to his accessibility. The vendor may be quite capable of
timely, reliable delivery from a more distant location. He may be more accessible to the
printer at a distant location due to advanced communications technologies. However, the
printer may be wary of the vendor's capabilities because cues are less tangible. The
benefits of a local market presence focus on providing a particular service menu of
prompt delivery and vendor accessibility. Geographic proximity creates the perceptual
plausibility of receiving this menu.

The results indicated that the key elements of a local market presence may be
categorized as: 1) product availability in a timely and reliable manner; 2) vendor
accessibility and interaction convenience; and 3) geographic location and proximity. The
key elements are driven by the dynamics of the competitive environment.

Relative Importance of Local Market Presence Elements (QlB)
Q1 B: What is the relative importance of the various elements

comprising local market presence? (How important to
the customer's operations are the logistical benefits

139

associated with local market presence?)

Research question QIB examined the importance of local market presence
benefits to a customer's business operations. Forward stepwise multiple regression
predicted the criticalness of a vendor's local market presence to the success of a
customer's firm. It examined the customer's evaluation of the criticalness of thirty
customer service elements to business operations. The dependent variable was the
respondent's level of agreement with the statement, "A vendor's local market presence is
critical to the success of my firm." The agreement level was measured on a 5-point
Likert scale anchored by "Strongly Disagree" and "Strongly Agree." The independent
variables were the respondents' levels of agreement with statements concerning the
criticalness of thirty local market presence benefits to business operations (e.g., "I believe
that a short order assembly time is critical to my business operations"). Agreement was
measured via a 5-point Likert scale anchored by "Strongly Disagree" and "Strongly
Agree."

Forward stepwise multiple regression selected twenty logistical service attributes
which partially explain the criticalness of a vendor's local market presence to a customer.
These attributes explained approximately 54 percent of the variance within responses at a
statistically significant level (p < .0002). The statistical results are presented in Table
4.4. Fifteen variables were significant at the .05 p-level; seven are significant at the .01
p-level.

The seven variables most significant in predicting the dependent variable based

upon descending beta coefficient values were: 1) picking accuracy; 2) order processing

140

Table 4.4 Forward Stepwise Multiple Regression Results

 

Dependent Variable: A vendor’s local market presence is critical to the success of my firm.
Independent Variables: I believe that is critical to my business operations.

R = .844045 Multiple R2 = .712412 Adjusted R2 = .538117

F(20, 33) = 4.087378 Standard Error of Estimate: .814723

p < .000176 Minimum Pairwise N = 54

 

 

 

 

 

 

 

Variable BETA Standard t(33) p-level Valid N
Error of
BETA

Intercept 2.5867 .0143
Inefficient procedures for returned
merchandise .7402 .1486 4.9807 .0000 62
A short delivery time .5207 .1316 3.9557 .0004 63
Efficient assistance from the vendor in
handling loss and damage claims -.4894 .1300 -3.7641 .0007 61
Low order processing accuracy

-.7854 .2199 ~3.57 l 6 .001 1 62
A high fill rate -.5|65 .1302 -3.9662 .0004 58

 

More accurate advance information
concerning order deletions and substitutions .5024 .1279 3.9287 .0004 61

 

Low picking accuracy
.9973 .2654 3.7569 .0007 61

 

A decrease in the vendor’s ability to meet
specific or unique customer service and -.2992 .1298 -2.3061 .0275 64
delivery needs

 

The vendor's consistent ability to meet
promised delivery dates -.2923 .1259 ~2.32l l .0266 63

 

High quality technical advice

 

 

 

 

 

 

 

 

 

.2345 .1376 1.7043 .0977 61
A timely response to assistance requests

-.2848 .1364 -2.0883 .0446 61
The order arriving in poor condition

-.4166 .1701 -2.4482 .0198 61
Low order completion

-.3238 .1394 -2.3222 .0265 59
Timely inventory status information

.2799 .1 166 2.4002 .0222 61
Adherence to special packaging instructions

-.3034 .1310 —2.3169 .0269 61
Efficient assistance by the vendor in order
preparation -.3206 .1392 -2.3037 .0277 62
A decrease in customer’s ability to consistently
select the carrier .1528 .1246 1.2262 .2288 58
An improved ability to inspect or diagnose
problem areas .2782 .1692 1.6448 .1095 60
Decreased order preparation convenience and
efficiency .2372 .1486 1.5969 .1 198 61

 

 

Timely order status information
.1550 .1306 1.1865 .2439 64

 

 

 

 

 

 

 

141
accuracy; 3) procedures for returned merchandise; 4) delivery time; 5) fill rate; 6)
advance information concerning order deletions and substitutions; and 7) vendor
assistance in handling carrier loss and damage claims. Data was collected for the first
three variables on reversed scales, necessitating cautious analysis as previously
discussed.
Variables Exhibiting a Positive Relationship

Four of the most significant prediction variables exhibited a positive relationship
with the criticalness of a local market presence to a respondent's business operations.
These were: 1) picking accuracy; 2) procedures for returned merchandise; 3) delivery
time; and 4) advance information on order deletions and substitutions.

First, picking accuracy was positively related to the criticalness of a local market
presence to a printer's business operations. This service element was important because
the short service window does not usually allow sufficient time for a second corrective
shipment. However, this variable requires very cautious analysis due to the reversed
scale.

Second, procedures for returned merchandise were important in prediction
because of the short service window through which the printer serves his customer and
the proliferation of paper products. The printer may desire to return product for several
reasons: 1) extra product may have been ordered to cover any printing errors; 2) a paper
order may be received too late to meet the final customer's requirements; 3) a substitution
may be unacceptable to the final customer; or 4) the order may have been inaccurately

picked. In addition, ease of shipping may account for the importance of procedures to

142

return merchandise. If part of an order needs to be returned, the printer may be able to
drop it off on the vendor's dock if the vendor is located in close proximity. The short
service window prompts the printer to generously forecast requirements to cover any
printing errors and/or customer changes as time does not usually allow for placement and
delivery of a second order. In addition, product not received in a timely manner may
necessitate a return to the vendor as the printer may not experience consistent demand for
the ordered paper. Consequently, the procedures for returning excess inventory were
critical to a printer's success as he is attempting to minimize his inventory carrying costs.
This variable requires cautious analysis due to its reversed scale.

Third, delivery time was important in predicting the criticalness of a local market
presence to a printer's business operations because of the final customer's service
requirements and the printing environment. Specifically, printers are unable to forecast
demand. This inability combined with their cost structure discourages the stocking of
high inventory levels. The competitive environment requires the printer to provide
quick, reliable order delivery to the final customer.

Finally, advance information on order deletions and substitutions was also
important in prediction. The final customer's service requirements and the product's
nature (i.e., printing to a specific customer's order) accentuate the importance of this
element. If a paper substitution is required, the printer will need approval from the
customer prior to printing. If the substitution is not acceptable, the printer needs

adequate time to locate the required paper or an acceptable substitute from a different

vendon

143

Variables Exhibiting a Negative Relationship

Three of the most significant prediction variables exhibited a negative
relationship with the criticalness of a local market presence to a printer's business
operations. These were: 1) order processing accuracy; 2) fill rate; and 3) vendor
assistance in handling carrier loss and damage claims.

First, order processing accuracy exhibited a negative relationship with the
criticalness of a local market presence. This variable was measured via a reversed scale;
consequently, it required cautious analysis. Although order processing accuracy is
desirable, it is not critical to a printer's success. This relationship is somewhat curious as
order processing accuracy has a direct influence on picking accuracy which exhibited a
positive relationship. This may reflect a number of respondents apparently missing the
scale reversal. Alternatively, printers may not have completely understood the two
concepts. Order processing accuracy may have been interpreted as invoicing accuracy.
This interpretation suggests that if invoicing accuracy requires additional vendor time
and effort which results negatively on expeditious delivery, it is counterproductive to
desired local market presence benefits. This interpretation is feasible given the strength
of the negative relationship versus an indifferent relationship.

Second, fill rate also exhibited a negative relationship with the criticalness of a
local market presence to a printer's business operations. The printer may order extra
product to fulfill minimum order requirements or to avoid placing a second order at a
later time. These extra items are not critical to completing the customer's print order.

Consequently, fill rate may not be critical to the printer's success. The availability of

I44

acceptable substitutes may be more critical than a high fill rate on specific SKUs. The
expeditious delivery of those critical paper products or acceptable substitutes is critical to
his success. Alternatively, printers may have secondary sources of exotic papers which
are more apt to experience low fill rates. Any higher acquisition costs may be passed on
to the customer who insists upon a specific paper rather than accept a less exotic
substitute. This customer is also more willing to wait for the paper to become available.
Consequently, a high fill rate may not be critical to a printer’s business operations.
Finally, vendor assistance in handling carrier loss and damage claims was
negatively related to the criticalness of a local market presence to a printer's business
operations. Respondents indicated that vendor assistance of this type was not critical to
their business operations. However, a number of respondents reported that a local market
presence was critical to the success of their firms. The critical success factors in the
uncoated paper print shop business are quick, reliable delivery; accurate information
concerning substitutions and deletions; and picking accuracy. Product damaged in-transit
may not be a significant problem for respondents indicating that a local market presence
was critical to their business success. These respondents may be selecting their primary
vendors based upon the existence of a local market presence and; consequently, are not
experiencing significant levels of in-transit damage. If these respondents began to
experience a higher level of in-transit damage, the vendor’s assistance in this area would
probably become more critical to their business operations. Respondents indicating that
a local market presence is not critical to their business success are probably using

different criteria to select their primary vendors; these respondents may be experiencing a

145

higher level of in-transit damage and, therefore, it has become more critical to their
business success. In addition, if the vendor is located in close proximity, the printer may
pick up a majority of orders, eliminating any carrier loss and damage claims.
Appropriateness of Statistical Technique

There was some concern over the potential for multicollinearity due to the
number of variables measuring customer service elements. Examination of the standard
errors and redundancy of the regression coefficients indicated that multicollinearity was
not an issue.

The data was evaluated and deemed to be appropriate for multiple regression
analysis.

The relative importance of the logistical benefits associated with a local market
presence were as follows: 1) picking accuracy; 2) order processing accuracy; 3)
procedures for returning merchandise; 4) delivery time; 5) fill rate; 6) accurate advance
information concerning order deletions and substitutions; and 7) assistance with carrier
loss and damage claims. This forward stepwise multiple regression analysis should be
interpreted very cautiously due to the reversed scales. The most important elements of a
local market presence are delivery time and accurate advance information concerning

order deletions and substitutions. The importance of these elements was confirmed by

the analysis of additional research questions.

LOCAL MARKET PRESENCE IMPACT ON CUSTOMER PERCEPTION S

This research question evaluated the impact of a local market presence on

customer perceptions of the customer-vendor relationship.

146
Relationship with a Local Market Presence Vendor (Q2A)

Q2A: How does the customer describe his relationship with
a vendor pursuing a local market presence strategy?

Respondents evaluated their relationships with two self-selected vendors, one who
exhibited a high degree of local market presence and one who exhibited a relatively low
degree of local market presence. Level of agreement was measured on a 5-point Likert
scale anchored by "Strongly Disagree" and "Strongly Agree." A t-test compared the
relationship attribute means for the two types of vendors and the results are presented in
Table 4.5. Each attribute rating of a vendor exhibiting a high degree of local market
presence was statistically different from the rating of the corresponding attribute when a
vendor with a relatively low degree of local market presence was evaluated. Each
relationship attribute was rated more favorably when considering a vendor with a high
degree of local market presence.

Table 4.5 also presents rankings of the attribute means for the two types of
vendors. There was some variation in the attribute order between lists; however, both
lists followed a similar pattern. All vendor relationships, regardless ofthe level ofa local
market presence, were rated more highly on cooperation, trust, and commitment. They
were rated most poorly on participatory planning and goal setting, interdependence, and a
focus on a common goal; shying away from a more integrative channel structure.

Printers view themselves as members of a traditional channel structure.
Characteristics of more integrative channel relationships, such as information sharing,

focusing on a common goal, interdependence, and participatory planning and goal

147

Table 4.5 Comparison of Vendor Relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Local Presence: Existence and Mean t-value p-value
Rank

Cooperation Yes: 1 4.3816 8.8505 .0000
No: 2 3.1711

Trusting Yes: 2 4.2267 8.8869 .0000
No: 3 3.0533

Commitment Yes: 2 4.2267 7.1698 .0000
No: 1 3.1733

Problem-solving Yes: 4 3.9733 6.4550 .0000
No: 6 2.9200

Coordination Yes: 4 3.9733 6.3223 .0000
No: 3 3.0533

Communication Yes: 6 3.9595 5.8894 .0000
No: 5 3.0405

Information Sharing Yes: 7 3.9315 6.2791 .0000
No. 7 2.9178

Focus on Common Goal Yes: 8 3.8933 7.6233 .0000
No: 9 2.7600

Interdependent Yes: 9 3.7671 5.8634 .0000
No: 8 2.8356

Participatory in Planning and Yes: 10 3.0946 4.8066 .0000

Goal Setting No: 10 2.3919

 

 

Scale: 1 = Strongly Disagree, 5 = Strongly Agree

 

setting, are not readily perceived by printers within their channel relationships.

The

 

research did not indicate the attractiveness of these characteristics to printers; however,
cultivating these characteristics could enhance the printer's perception of a local market
presence. Delivery of accurately picked product must still be timely and reliable,
providing the foundation of a local market presence. The characteristics of an integrative
channel provide a complementary depth in the relationship, addressing the printer's desire
for information sharing. If these characteristics are attractive to printers, successful

cultivation will encourage vendor loyalty and enhance vendor market share. The printer

will enjoy a relationship with a vendor more attune and responsive to his needs.

148

Vendor Exhibits High Local Market Presence

Forward stepwise multiple regression was used to evaluate the customer's
relationship with each type of vendor. The various relationship attributes were used to
predict the level of local market presence perceived by the customer. Based upon beta
coefficient values, those attributes most important in predicting a vendor's high degree of
local market presence were: 1) cooperation, 2) problem-solving, 3) information sharing,
and 4) coordination. The regression model accounted for 38.61 percent of the variance in
the dependent variable at a statistically significant level (p<.0000). The results of the
statistical analysis is presented in Table 4.6.

Variables Exhibiting a Positive Relationship

First, cooperation exhibited a positive relationship with a high degree of local

market presence. Printers feel these vendors are much more cooperative and willing to

Table 4.6 Forward Stepwise Multiple Regression Results

 

Dependent Variable: This vendor has a high degree of local market presence.
Independent Variables: Relationship Attributes

R = .666440 Multiple R2 = .444142 Adjusted R2 = .386067

F (7, 67) = 7.6478 Standard Error of Estimate = .49087

p < .00000 N = 7s

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable BETA Standard t(67) p-level Valid N
Error of
BETA

Intercept 4.1503 .0001

Trust -.0721 .1710 -.4216 .6747 76
Information Sharing .3824 .1581 2.4183 .0183 75
Cooperation .5585 .1576 3.5429 .0007 77
Problem-solving -.5281 .1546 -3.4164 .0011 76
Coordination .3598 .1525 2.3602 .0212 76
Communication -.2146 .1674 -1.2820 .2043 76
Interdependence .1470 .1341 1.0965 .2768 76

 

 

149
work with them to make their business a success. These vendors are willing to make the
extra effort to expedite shipments and locate the closest substitutes.

Second, information sharing exhibited a positive relationship with a vendor's high
degree of local market presence. Vendors exhibiting a local market presence were much
more responsive in sharing information (e.g., new product, order deletions and
substitutions) which enables the printer to operate his business more effectively and
efficiently while creating greater satisfaction within the final customer.

Finally, coordination was positively related to a vendor's high degree of local
market presence. This vendor received higher ratings in his efforts to coordinate his
channel activities and goals with those of his customer, the printer. This vendor-
customer relationship is closer to integrating the concept of a managed channel
relationship than vendor-customer relationships where the customer perceives the vendor
to exhibit a low degree of local market presence.

Variable Exhibiting a Negative Relationship

Problem-solving was negatively related to a high degree of local market presence;
however, these vendors were rated higher (3.97 versus 2.92) on this relationship attribute
at a statistically significant level (p < .0000) than vendors described as exhibiting a low
degree of local market presence. Consequently, vendors with a high degree of local
market presence were more interested in working with printers to solve problems and
facilitate the effectiveness and efficiency of the channel. However, problem-solving
exhibited a negative relationship to vendors possessing a high degree of local market

presence as well as to those possessing a low degree of local market presence, as will be

150

presented shortly. The average evaluation for problem-solving and the perception of a
vendor's local market presence was fairly high in the present analysis; however, there
was apparently an inverse relationship between these two variables at the individual
respondent level. Printers may be interpreting problem-solving within a vendor
relationship as an indication of the level of problems which exist. The more problem-
solving activity within the relationship, the more problems that require solving.
Consequently, printers may be indicating that the higher their perception of a vendor's
local market presence, the lower the need for problem-solving within the relationship.
Appropriateness of Statistical Technique

Examination of the standard errors of the regression coefficients indicated that
multicollinearity was not a problem. Multiple regression appeared to be the appropriate
statistical tool to evaluate the data.

The customer described his relationship with a vendor exhibiting a high degree of
local market presence as cooperative, information-sharing, and coordinated, with
minimal problem-solving required.

Vendor Exhibits Low Local Market Presence

Forward stepwise multiple regression revealed that the attributes most important
in predicting a vendor's relatively low degree of local market presence were: I) trust and
2) problem-solving. The regression model accounted for 21.80 percent of the variance in
the dependent variable at a statistically significant level (p < .0004). Due to the low
adjusted R2 value, this multiple regression model did not exhibit strong predictive

powers. Table 4.7 presents the results of the statistical analysis. Trust was the only

151

Table 4.7 Forward Stepwise Multiple Regression Results

 

Dependent Variable: This vendor has a high degree of local market presence.
Independent Variables: Relationship Attributes

R = .511935 Multiple R2 = .262077 Adjusted R2 = .218022

F(4, 67) = 5.9489 Standard Error of Estimate: .98743

p < .00037 N = 72

 

 

 

 

 

 

 

 

 

 

 

 

Variable BETA Standard Error t(67) p-level Valid N
of BETA

Intercept 1.9249 .0585

Trust .5181 .1646 3.1477 .0025 75

Interdependence .2582 .1542 1.6741 .0988 73

Problem-solving -.3941 .1902 -2.0723 .0421 75

Participatory in Planning and

Goal Setting .1458 .1370 1.0642 .291 l 74

 

variable that was significant at the .01 p-level and it exhibited the strongest predictive
power in the regression model.
Variable Exhibiting a Positive Relationship

Trust exhibited a positive relationship with the vendor's low level of local market
presence, indicating that respondents did not characterize this relationship as trusting.
Printers felt a lower level of trust with this vendor. They may feel that the vendor cannot
be trusted to deliver product in a timely manner without persistent prodding.
Alternatively, this vendor may do an unacceptable job of suggesting substitutes for out-
of-stock items. Or, the vendor may not inform the printer of order deletions or
substitutions in a timely and consistent manner.
Variable Exhibiting a Negative Relationship

Problem-solving was negatively related to a low degree of local market presence,
indicating that this relationship was characterized by greater problem-solving. Printers

may encounter more problems in their relationships with vendors exhibiting a low degree

 

152

of local market presence. While problem-solving is often characterized as a positive,
healthy occurrence within a channel relationship, it appeared that printers may view it as
a negative requirement of doing business with specific vendors. They would prefer any
problem-solvin g to be unnecessary because they prefer problems not to arise.

These were printers' perceptions of the vendor-customer relationship. Vendors
may have responded very differently as to their objectives within the channel and their
desires for the vendor-customer relationship. If this is the situation, printers are not
perceiving vendors' intentions and those intentions were ineffective.

Appropriateness of Statistical Technique

Examination of the standard errors of the regression coefficients indicated that
multicollinearity was not a problem.

The data was evaluated and deemed appropriate for multiple regression; however,
the present model failed to adequately explain the variance in the dependent variable.

The customer described his relationship with a vendor exhibiting a low degree of
local market presence as lacking trust and requiring problem-solving.

Physical Distance versus Delivery Time (QZB)

The following research question examined the contribution of distance and time

to a customer's perception of local market presence.

Q2B: How do physical distance and delivery time contribute
to the customer's perception of local market presence?

Respondents evaluated thirteen logistical service benefits on their importance to a

local market presence strategy. The seven highest rankings were given to benefits related

153

to the availability of product in a timely and reliable manner as shown in Table 4.3.
Short delivery time was ranked first in importance. Benefits related to physical distance
were ranked tenth, eleventh, and twelfth in importance.

Delivery time was critical to the successful execution of a local market presence
strategy within this market segment. In addition, it was a critical component contributing
to a printer's successful operation. The competitive structure of the uncoated paper print
industry results in tight margins and low stock inventory levels. These factors accentuate
the importance of vendor delivery time as printers compete on price and delivery time of
the printed product to the final customer.

Physical distance was rated as important to a local market presence strategy.
However, it was a tertiary contributor behind availability of product in a timely and
reliable manner and the accessibility and convenience of interacting with the vendor. If a
vendor is unable to deliver product in a timely, reliable manner, his location is not
particularly relevant.

While physical distance and delivery time both contributed to a customer's
perception of local market presence, delivery time was the most critical factor in that

perception.

RELATIVE IMPORTANCE OF LOCAL MARKET PRESENCE FACTORS
The next three research questions addressed the relative importance of local
market presence factors in the vendor selection decision and the logistics service quality

evaluation.

Lo

Pr

154

Local Market Presence Factors (Q3A)

Q3A: What are the factors of local market presence?

Principal Components Factor Analysis

Principal components factor analysis was used to define the data structure of the
thirty customer service elements. Principal components analysis assumes all variability
of an element should be used in the analysis. It is often the preferred method for data
reduction (Statistica, 1994). A varimax rotation simplified the columns of the factor
matrix, attempting to clearly separate the factors. The statistical analysis results are
presented in Table 4.8. Only those variables with loadings of 0.7 and higher are
provided. Only loadings of 0.7 and higher are listed. Nine factors were extracted,
explaining 74.57 percent of the variance within the data. These factors were extracted
based upon the Kaiser criterion of retaining only those factors with eigenvalues greater
than one. Table 4.9 presents the eigenvalues for these nine factors.
Additional Analysis

The data from thirty customer service elements was analyzed by two additional
methods to verify the results. As ten of the thirty variables were measured via reversed
scales and it appeared that some respondents failed to detect this; analysis of these
variables must be interpreted cautiously. Therefore, the data structure of the importance
ratings of thirteen customer service elements to a local market presence strategy was

analyzed for comparison purposes.

Table 4.8 Principal Components Factor Analysis Results

155

 

Variable

Product
Support
(Factor 1)

Frequency
and Accuracy
in Product
Shipments
(Factor 2)

Timely
Information
and Response
(Factor 3)

Convenience
to Customer
(Factor 4)

Vendor
Delivery
Consistency
(Factor 5)

 

A short order
assembly time

 

The vendor's con.
ability to meet
prom. del. dates

.7759

 

Low delivery
frequency

.7373

 

The con. ability to
expedite orders

.7980

 

Low order proc.
accuracy

.7872

 

Low picking
accuracy

.9020

 

High inventory
availability

 

A high fill rate

 

The order arriving
in poor condition

.8256

 

High quality
technical advice

.7623

 

Decreased order
prep. convenience
and efficiency

.7384

 

Proper carton
identification

.7178

 

A decrease in the
customer’s ability
to consistently
select the carrier

 

Adherence to
special shipping
instructions

 

Adherence to
special packaging
instructions

 

More accurate
advance
information
concerning order
deletions and
substitutions

.8768

 

More accurate
advance
information
concerning
shipping delays

.8760

 

Shorter
communication
channeland
quicker action to
resolve complaints

.7838

 

 

Proportion of Total
Variance
Explained

 

 

.0896

.1030

 

 

 

.0641

 

 

 

Table 4.8 (cont’d).

156

 

Variable Adherence to
Special
Instructions
(Factor 6)

Inventory
Availability
(Factor 7)

Order Assembly
Time
(Factor 8)

Carrier Selection
(Factor 9)

 

A short order assembly
time

.7783

 

The vendor‘s con.
ability to meet prom.
del. dates

 

Low delivery frequency

 

The con. ability to
expedite orders

 

Low order proc.
accuracy

 

Low picking accuracy

 

High inventory
avaflabfluy

.8192

 

A high fill rate

.8056

 

The order arriving in
poor condition

 

High quality technical
advice

 

Decreased order
preparation
convenience and
efficiency

 

Proper carton
identification

 

A decrease in the
customer’s ability to
consistently select the
carrier

.7124

 

Adherence to special .9207
shipping instructions

 

Adherence to special .8736
packaging instructions

 

More accurate advance
information concerning
order deletions and
substitutions

 

More accurate advance
information concerning
shipping delays

 

Shorter communication
channel and quicker
action to resolve
complaints

 

 

Proportion ofTotal .0916
Variance Explained

 

 

.0864

 

.0488

 

.0661

 

 

Ta'

Fat

157

Table 4.9 Eigenvalues

 

 

 

 

 

 

 

 

 

 

Factor Eigenvalue % Total Cumulative Cumulative
Variance Eigenvalue %
1 7.8162 26.0541 7.8162 26.0541
2 3.9628 13.2092 1 1.7790 39.2633
3 2.2755 7.5849 14.0545 46.8482
4 1.5975 5.3251 15.6520 52.1733
5 1.5896 5.2986 17.2416 57.4719
6 1.4944 4.9812 18.7359 62.4531
7 1.4212 4.7373 20.1571 67.1904
8 1.1441 3.8136 21.3012 71.0040
9 1.0696 3.5655 22.3709 74.5695

 

 

 

 

 

 

 

The thirty customer service elements were factor analyzed based upon the
extraction of four factors as indicated by a scree plot of the eigenvalues. This analysis
explained approximately 52 percent of the variance within the data compared with 75
percent when nine factors were extracted. The four factors were more difficult to
interpret individually as well as corporately. Therefore, it seemed most appropriate to
extract nine factors.

The data was also analyzed by principal factors analysis which uses only the
variability in an element that is common to the other elements in data analysis. This
method is preferred when the objective of the analysis is to detect the structure of the
data (Statistica, 1994). The statistical analysis extracted seven factors which explain
61.97 percent of the variability within the data. The results were fairly similar to those
generated by principal components factor analysis.

Principal components factor analysis was used to investigate the data structure

within the thirteen customer service elements. The statistical analysis results are

 

158

presented in Table 4.10. Only those variables with loadings of 0.7 and higher are

provided. Only loadings of 0.7 and higher are listed. A varimax rotation extracted four

Table 4.10 Principal Components Factor Analysis Results

 

Variable

Delivery
Reliability
(Factor 1)

Geographic
Proximity
(Factor 2)

Quick Response
to Product Need
(Factor 3)

Ordering Ease
(Factor 4)

 

Short order cycle
time

.8859

 

Low lead time
variability

.8567

 

Reliable delivery

.8501

 

Delivery capability

.8748

 

Ordering
convenience

.7010

 

Order processing
personnel located
in market area

.8293

 

Geographic
location

 

Located in close
proximity

 

Accessibility of
seller

 

 

Proportion of Total
Variance
Explained

 

.2166

 

 

.1476

 

 

factors, explaining 68.90 percent of the variance within the data. The Kaiser criterion

was used to determine the appropriate number of factors.

A scree plot of eigenvalues indicated that the appropriate number of factors to

extract was four or five, validating the Kaiser method.

Based upon this analysis, the factors of a local market presence strategy were: 1)

delivery reliability, 2) geographic proximity, 3) quick response to product need, and 4)

ordering ease. These factors corresponded to the local market presence benefit categories

presented in the QIA analysis. Those benefit categories were: 1) availability of product

 

159

in a timely and reliable manner, 2) accessibility and convenience of interacting with the
vendor, and 3) distance. As previously discussed, these factors were important in
executing a local market presence strategy.

The thirteen customer service elements were also analyzed by principal factors
analysis. The statistical results extracted three factors which explain 51.88 percent of the
variability within that data. The results were fairly similar to those generated by
principal components factor analysis.

Due to the difficulties in interpreting the analysis of the thirty variables and the
similarities between the results of the various analyses, the analysis of the thirteen
customer service variables was selected for interpretation.

The factors of a local market presence were: 1) delivery reliability, 2) geographic
proximity, 3) quick response to product need, and 4) ordering ease.

Importance of Local Market Presence Factors in Vendor Selection Process (Q38)

The next research question investigated those local market presence factors which
were most important in the vendor selection process.

Q3B: What is the relative importance of local market presence
factors in the vendor selection process?

Principal Components Factor Analysis

Principal components factor analysis defined the data structure of the thirty
vendor selection criteria. A varimax rotation simplified the data into eight factors which
explained 74.67 percent of the variance within the data. These factors were extracted
based upon the Kaiser criterion of retaining only those factors with eigenvalues greater

than one. The statistical analysis results are presented in Table 4.11. Only those

160

Table 4.11 Principal Components Factor Analysis Results

 

Variable

Vendor
Assistance
(Factor 1)

Inventory
Availability
(Factor 2)

Delivery Time/
Reliability
(Factor 3)

Response to
Customer
Requests
(Factor 4)

 

Short delivery time

.8286

 

Consistent ability
to meet promised
delivery dates

.7431

 

High delivery
frequency

 

High inventory
availability

.8708

 

High fill rate

.8459

 

High quality
technical advice

.8260

 

Order preparation
convenience and
efficiency

 

Efficient assistance
in handling carrier
loss and damage
claims

.7192

 

Efficient
procedures for
returned merch.

 

Ability to meet
specific or unique
customer service
and delivery needs

.7144

 

Adherence to
special shipping
instructions

.8011

 

Adherence to
special packaging
instructions

.8667

 

Timely order
status information

.7431

 

Accurate advance
info. concerning
order deletions and
substitutions

 

Accurate advance
info. concerning
order deletions and
substitutions

 

Accurate advance
info. concerning
shipping delays

 

 

Proportion of Total
Variance Exp.

 

.1449

 

.1161

 

.0837

 

.1266

 

 

Table 4.11 (cont’d).

161

 

Variable

Accurate
Information
(Factor 5)

Delivery
Frequency
(Factor 6)

Convenience to
Customer
(Factor 7)

Carrier Selection
(Factor 8)

 

Short delivery time

 

Consistent ability
to meet promised
delivery dates

 

High delivery
frequency

.7498

 

High inventory
availability

 

High fill rate

 

High quality
technical advice

 

Order preparation
convenience and
efficiency

.7577

 

Efficient assistance
in handling carrier
loss and damage
claims

 

Efficient
procedures for
returned merch.

 

Ability to meet
specific or unique
customer service
and delivery needs

 

Adherence to
special shipping
instructions

 

Adherence to
special packaging
instructions

 

Timely order
status information

 

Accurate advance
info. concerning
order deletions and
substitutions

 

Accurate advance
info. concerning
shipping delays

.7104

 

 

Proportion of Total
Variance Exp.

 

.1230

 

.0494

 

.0580

 

.0450

 

 

162
variables with loadings of 0.7 and higher are provided. Only loadings of 0.7 and higher
are listed.

A scree plot of eigenvalues indicated that extracting three factors was most
appropriate. The resulting factor analysis explained approximately 53 percent of the
variance within the data versus almost 75 percent in the extraction based upon the Kaiser
method. The factors were easier to interpret; however, Factor 1 (Problem-solving
Expertise/Response to Customer Requests) measured two similar categories that would
more appropriately be split. Therefore, the analysis was performed based upon an
extraction of four factors. The statistical analysis results are presented in Table 4.12.
Only those variables with loadings of 0.7 and higher are provided. Only loadings of 0.7
and higher are listed.

Based upon this analysis, the factors of a local market presence which are most
relevant in vendor selection are: 1) inventory availability/picking accuracy (16.79% of
variance explained); 2) problem-solving expertise (16.46%); 3) response to customer
requests (14.98%); and 4) delivery time/reliability (9.96%). These factors are similar to
the first two benefit categories presented in the QlA analysis: Availability of product in
a timely and reliable manner and accessibility and convenience of interacting with the
vendon
Multiple Regression

The factor scores from the varimax rotation presented in Table 4.12 were
regressed against the printer's preference to patronize a vendor with a local market

presence. A forward stepwise multiple regression model was used. The independent

163

variables were the four factor scores derived from the thirty vendor selection criteria.

The dependent variable was the respondent's agreement with the statement, "I prefer to

buy uncoated paper products from a vendor with a local market presence." Responses

were gathered on a 5-point Likert scale anchored by "Strongly Disagree" and "Strongly

A gree."

Table 4.12 Principal Components Factor Analysis Results

 

Variable

Problem-
solving
Expertise
(Factor 1)

Inventory
Availability/
Picking
Accuracy
(Factor 2)

Delivery Time/
Reliability
(Factor 3)

Response to
Customer
Requests
(Factor 4)

 

Short delivery time

.8480

 

Consistent ability to
meet promised delivery
dates

.7206

 

High picking accuracy

.8630

 

High inventory
availability

.7451

 

High fill rate

.7670

 

High quality technical
advice

.8072

 

Ability to inspect or
diagnose problem areas

.7802

 

Efficient assistance in
handling carrier loss and
damage claims

.7489

 

Efficient procedures for
returned merchandise

 

Adherence to special
shipping instructions

.7766

 

Adherence to special
packaging instructions

.7820

 

Timely order status
information

.7493

 

 

Proportion of Variance
Exp.

 

.1646

 

.1679

 

.0996

 

.1498

 

 

164

Table 4.13 Forward Stepwise Multiple Regression Results

 

Dependent Variable: I prefer to buy uncoated paper products from a vendor with a local market
presence.

Independent Variables: Factor scores derived from vendor selection criteria

R = .349455 Multiple R2 = .122119 Adjusted R2 = .109016

F(1, 67) = 9.3201 Standard Error of Estimate: .8905

p < .00325 N = 69

 

 

 

 

 

 

 

 

 

Variable BETA Standard t(65) p-Ievel Valid N
Error of
BETA
Intercept 40.561 1 0.0000
Delivery Time/Reliability (Factor 3) .3495 .1145 3.0529 .0032 69

 

The regression model accounted for 10.90 percent of the variance in the
dependent variable at a statistically significant level (p < .0033). Table 4.13 presents the
results of the statistical analysis.

Variable Exhibiting a Positive Relationship

Delivery time/reliability was the only factor included in the model and it was
statistically significant (p < .0032). This factor was positively related to the printer's
preference to purchase from a vendor with a local market presence. As previously
discussed, delivery reliability was critical to the printer's successful operation.
Consequently, its importance in vendor selection is indicative of the printer's preference
to patronize a local market presence vendor.

Appropriateness of Statistical Technique

Evaluation of the data indicated that it is appropriate for multiple regression.
However, it appeared that a positive linear relationship between one or more unknown
variables and the dependent variable existed which is unexplained by the model. This

was not surprising given the low adjusted R2 value (.11) of the model.

 

165

The local market presence factor most important in the vendor selection process
was delivery time/reliability which encompasses a short delivery time and the ability to
consistently meet promised delivery dates.

Importance of Local Market Presence Factors in Logistics Service Quality (Q3C)

The next research question examined those local market presence factors that
were most important in the customer's assessment of logistics service quality.

Q3C : What is the relative importance of local market presence
factors in determining logistics service quality?

Principal Components Factor Analysis

Principal components factor analysis defined the data structure of the thirty
logistics service quality attributes. A varimax rotation simplified the data into five
factors which explain 73.13 percent of the variance within the data. The statistical
analysis results are presented in Table 4.14. Only those variables with loadings of 0.7
and higher are provided. Only loadings of 0.7 and higher are listed.

Additional Analysis

The data was analyzed via two additional methods to verify the results of the
analysis.

A scree plot of eigenvalues indicated that extracting two or possibly three factors
was most appropriate. The resulting factor analysis explained approximately 60 percent
of the variance within the data versus over 73 percent in the extraction based upon the
Kaiser method. The factors were relatively easy to interpret, representing aspects of: l)
inventory availability and accuracy and 2) technical expertise and customer

responsiveness. Again, the Kaiser extraction method provided a richer description of

166

Table 4.14 Principal Components Factor Analysis Results

 

Variable Short Problem- Picking Delivery Response to

Communica- solving Accuracy Reliability/ Customer

tion Channel Expertise (Factor 3) Time Requests
(Factor 1) (Factor 2) (Factor 4) (Factor 5)

 

Short delivery .7882
time

 

High picking .7403
accuracy

 

Timely .7484
response to
assistance
request

 

Ability to .7890
inspect or
diagnose
problem areas

 

Efficient .8393
assistance in
handling
carrier loss and
damage claims

 

Timely order .7410
status
information

 

Short .73 73
communication
channeland
quick action to
resolve
complaints

 

 

Proportion of .1422 .1853 .1460 .1281 .1297
Total Variance
Explained

 

 

 

 

 

 

factors influencing logistics service quality assessment while explaining a greater
proportion of the total variance.

The data was also analyzed using principal factors analysis, resulting in the
extraction of three factors. The results bore little similarity to the principal components
factor analysis results. In addition, the factors were not as clearly delineated between the

three categories in the principal factors analysis. Therefore, due to greater specificity

 

167

within the factors and the proportion of explained variance, 73.13 percent versus 63.55
percent, the principal components factor analysis was preferred.
Multiple Regression

Forward stepwise multiple regression evaluated the relative importance of the
logistics service quality factors in predicting the criticalness of a local market presence to
the printer's success. The independent variables were the factor scores derived from the
thirty logistics service quality attributes used by a respondent when evaluating a vendor's
logistics service quality. The dependent variable was the respondent's assessment of the
criticalness of a vendor's local market presence to his own firm's success. This
assessment was made via a 5-point Likert scale anchored by "Strongly Disagree" and
"Strongly Agree."

Table 4.15 presents the results of the statistical analysis. The regression model
accounted for 18.96 percent of the variance in the dependent variable at a statistically

significant level (p < .0010).

Table 4.15 Forward Stepwise Multiple Regression Results

 

Dependent Variable: A vendor’s local market presence is critical to the success of my firm.
Independent Variables: Factor scores derived from logistics service quality attributes

R = .466403 Multiple R2 = .217532 Adjusted R2 = .189587

F (2, 56) = 7.7842 Standard Error of Estimate: 1.0783

p < .00104 N = 59

 

 

 

 

 

 

 

 

 

 

Variable BETA Standard t(56) p—level Valid N
Error of
BETA
Intercept 25.7292 .0000
Delivery Reliability/Time (Factor 4) .4021 .1 182 3.4018 .0012 60
Picking Accuracy (Factor 3) .2419 .1182 2.0466 .0454 60

 

 

168
Variable Exhibiting a Positive Relationship

Two factors were included in the model. Delivery reliability/time (Factor 4) and
picking accuracy (Factor 3) were statistically significant (p < .0012 and p < .0454,
respectively). Delivery reliability/time was positively related to the criticalness of a local
market presence to a printer's business operations. The importance of delivery reliability/
time given the short service delivery window characterizing uncoated paper printing has
been previously discussed. Picking accuracy also exhibited a positive relationship to the
criticalness of a local market presence to printers. If the appropriate paper or an
acceptable substitute is not received by a printer, there is generally insufficient time to
correct the situation without violating the promised delivery date of the printed product.
Consequently, delivery reliability/time and picking accuracy were crucial logistics
service quality factors in predicting the criticalness of local market presence to a printer's
business operations.

Appropriateness of Statistical Technique

Examination of the standard errors of the regression coefficients indicated that
multicollinearity was not a problem.

The data seemed to be appropriate for multiple regression; however, it appeared
that a positive linear relationship between one or more unknown variables and the
dependent variable existed which is unexplained by the model. This lack of fit was
evident in the adjusted R2 value of 0.19.

The local market presence factors most important in determining logistics service

quality were delivery reliability/time and picking accuracy.

169

COMPARISON OF MARKET SEGMENTS
This research question compared two market segments based upon the percentage
of total purchases accounted for by uncoated paper.
Q4: What impact does the percentage of total purchases
accounted for by this product class have upon the

relative importance of the local market presence
benefits?

Customers were divided into two groups based upon the percentage of total
purchases accounted for by uncoated paper. Group One included those respondents
indicating that uncoated paper accounted for one to fifty percent of their cost of goods
sold; Group Two included those indicating 51 to 100 percent. T-tests of the means of
each pair of local market presence benefits indicated that the two groups did not respond
differently in evaluating the importance of each benefit to a local market presence strategy
except when evaluating a short delivery time. This benefit was rated 4.75 in importance
by Group One and 4.48 by Group Two. The associated p-level was 0.049156. A short
delivery time was more important to respondents indicating a lower percentage of
uncoated paper within cost of goods sold. The statistical results of the t-test is presented
in Table 4.16.

Forward stepwise multiple discriminant analysis was used to test this research

question. Five variables were included in the statistical analysis. Table 4.17 presents the
results of the statistical analysis. Wilks' Lambda was 0.85, indicating that there was

essentially no discrimination between the two groups in their importance ratings of local

Table 4.16 T-test Results

170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Group 1 Group 2 t-value p-level Group 1 Group 2
Mean Mean Valid N Valid N

(Scale = 5) (Scale = 5)

Short 4.7500 4.4773 2.0020 .0492 28 44

delivery time

Short order 4.6071 4.4091 1.1534 .2527 28 44

cycle time

Ability to 3.0714 2.7500 1.0067 .3175 28 44

receive orders

electronically

Order 3.6667 3.9318 -1.0023 .3197 27 44

processing

personnel

located in

market area

Accessibility 4.0000 3.7500 .9540 .3434 28 44

of seller

Low lead 4.1852 4.1429 .2044 .8387 27 42

time

vanabfluy

Reliable 4 5357 4.5455 - 0534 .9576 28 44

delivery

Delivery 4 2857 4.2727 0588 .9533 28 44

capability

Frequent 4.2500 4.1136 .6325 .5292 28 44

delivery

Ability to 4.4286 4.2500 .8178 .4162 28 44

expedite

orders

Ordering 3.85 71 4.0682 -.8843 .3796 28 44

convenience

Geographic 3.6429 3.6818 - 1335 .8942 28 44

location

Located in 3.8889 3.6591 .8924 3753 27 44

close

proximity

 

 

 

 

 

 

 

 

171

Table 4.17 Forward Stepwise Multiple Discriminant Results

 

Grouping: Uncoated paper as a percentage of total purchases (2 groups)
Number of variables in model: 5 N= 68

Wilks’ Lambda: .85473 Approx. F(5, 62) = 2.1075 p < .0763

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable Wilks’ Partial F-remove p-level Tolerance 1 -
Lambda Lambda (1, 62) Tolerance
Short delivery time .8951 .9549 2.9311 .0919 .8136 .1864
Ordering convenience .9164 .9327 4.4766 .0384 .7713 .2287
Ability to expedite orders .8750 .9768 1.4718 .2297 .6879 .3121
Located in close proximity .8836 .9673 2.0946 .1529 .2773 .7227
Geographic location .8702 .9822 1.1241 .293 l .3030 .6970

 

market presence benefits.

Consequently, the vendor can design systems for product

delivery and customer communications without regard for customer purchase volume.

MANAGEMENT GUIDELINES

These research questions addressed issues concerning the attractiveness of a local

market presence to customers and vendors and the feasibility of securing the benefits of a

local market presence without establishing a physical facility in close proximity to

customers.

Attractiveness of Local Market Presence (QSA)

Q5A: Is local market presence attractive to a significant

group of customers?

Table 4.18 Frequency Distribution

 

A vendor ’5 local market presence is critical to the success of my firm.

 

 

 

 

 

 

 

Value (Scale = 5) Count Cumulative Count Percent Cumulative Percent
l 6 6 7.7922 7.7922

2 6 12 7.7922 15.5844

3 19 31 24.6753 40.2597

4 24 55 31.1688 71.4286

5 20 75 25.9740 97.4026
Missing 2 77 2.5974 100.0000

 

 

 

 

 

 

 

 

172

Respondents indicated their agreement with the following statement: "A vendor's
local market presence is critical to the success of my firm." Table 4.18 presents response
frequency. Over 25 percent of respondents indicated strong agreement with this
statement. Over 30 percent indicated agreement. Thus, 57.14 percent agreed at some
level with this statement. Only 15.58 percent expressed any level of disagreement.
Consequently, a local market presence was attractive to over half of the respondents.
Vendors should segment their customers according to the attractiveness of a local market
presence. If a substantial segment desiring a local market presence emerges, vendors
should configure their distribution systems to enhance customer perceptions of a local
market presence, moving towards a more integrated channel relationship.

Customer Trade-offs (QSB)

The next research question examined the trade-offs made by customers when

selecting a service package that most closely matches their needs and budget.

QSB: Are customers willing to pay a premium to receive the
benefits of local market presence?

Trade-off analysis examined the relationship between price and facility
proximity. Price was evaluated on three levels: 1) 1% above market, 2) market, and 3)
1% below market. Facility proximity was also evaluated on three service levels: 1) 1/2
hour travel time, 2) 3 hours travel time, and 3) 6 hours travel time. Generally,
respondents had difficulty understanding the trade-off process. As a result, the sample
size was smaller (47 versus 77 responses) for this section than for other sections of the

questionnaire.

173

Examination of the data and the trade-off model indicated that a quadratic
estimation of the price and facility proximity variables was most appropriate. This
combination resulted in a fairly conservative model of the trade-off process. The overall
sample part-worth estimates were 8.29 for price and 46.26 for facility proximity,
revealing the utility associated with each attribute. The analysis revealed that price was
rated at 45.03 percent importance. Facility proximity was rated at 54.97 percent
importance, indicating that it had the greatest range of part-worths and, therefore, made
the greatest contribution to the overall utility of the customer’s preference for the service.

This result was inconsistent with the findings presented in Table 4.19 which
ranked price as third in importance in vendor loyalty and local market presence as fifih.
Several factors may have accounted for this conflict. First, respondents were asked to
state their preferences for different service level combinations, not indicate the
importance of these various combinations to a third factor such as vendor loyalty.
Second, respondents were asked to make trade-offs in four different tables. Facility

proximity service levels were traded off with service levels of price, fill rate, delivery

Table 4.19 Importance of Customer Service Elements to Vendor Loyalty

 

 

 

 

 

 

 

 

 

 

 

Customer Service Mean (Scale = 5) p-level
Element
Delivery Consistency 4.5132

.0864
Fill Rate 4.3816

.4769
Price 4.3026

.1746
Order Cycle Time 4.1200

.0166
Local Market Presence 3.7632

 

 

 

 

I74

frequency, or order cycle time. The repetition of facility proximity may have resulted in
respondents focusing on this variable. Third, the discrepancy may be due in part to
terminology, facility proximity in the trade-off tables and local market presence in the
vendor loyalty importance ratings. Respondents did not equate these two terms. Local
market presence appeared to be a broader, more descriptive term than facility proximity.

The results were somewhat inconclusive concerning the willingness to pay a
premium for a local market presence. There is a greater range of utility associated with
facility proximity (travel time) than with price. Consequently, facility proximity is more
important in determining the customer’s overall preference for the logistics service
package. There is a lower range of utility associated with price. This suggests that
customers would not be willing to pay a premium for the facility proximity benefits of a
local market presence. Any abnormal price increases would probably be met with
resistance. However, if physical facilities are undergoing consolidation, resultant cost
savings may be used to offset additional costs of any required improvements in a product
delivery system or customer communications system.
The Impact of Local Market Presence on Market Share (QSC)

The next question addressed a potential increase in the vendor's market share due
to the implementation of a local market presence strategy.

Q5C: Will local market presence increase market share?

Respondents identified their preference in purchasing uncoated paper products

from a vendor with a local market presence. Table 4.20 presents the statistical results.

Over fifty-five percent (58.44) indicated a strong preference. Over eighty percent (83.12)

175

Table 4.20 Frequency Distribution

 

I prefer to buy uncoated paper products from a vendor with a local market presence.

 

 

 

 

 

 

 

 

Value (Scale = 5) Count Cumulative Count Percent Cumulative Percent
1 2 2 2.5974 2.5974

2 1 3 1.2987 3.8961

3 10 13 12.9870 16.8831

4 19 3.. 24.6753 41.5584

5 45 77 58.4416 100.0000
Missing 0 77 0.0000 100.0000

 

 

 

 

 

indicated at least some preference to purchase from such a vendor. Less than five
percent (3.90) expressed at least some negative preference.

Respondents also identified the importance of five customer service elements in
their loyalty to a vendor of uncoated paper products. The results were presented in Table
4.19. All five elements were important to vendor loyalty. However, a local market
presence was less important that the other elements at a statistically significant level
(maximum p < .0166). Therefore, a local market presence had a positive impact on a
vendor's short-term market share. Its influence on long-term market share or vendor
loyalty was less than other customer service elements measured.

There was a clear preference to purchase uncoated paper products from a vendor
exhibiting a local market presence. However, a local market presence did not drive the
repeat purchase decision. The vendor must perform adequately in other areas, such as
delivery consistency, fill rate, price, and order cycle time. With the exception of delivery
consistency, the other areas were not significant components of a local market presence

strategy based upon this research.

 

176
Necessity of a Physical Facility Commitment (QSD)
The final research question examined the feasibility of obtaining the benefits of a
local market presence without making a physical facility commitment.

Q5D: Can the benefits of local market presence be achieved
short of locating a facility in close proximity to customers?

As indicated in Table 4.3, respondents stated that "Located in Close Proximity"
and "Geographic Location" were important to neutral to a local market presence strategy.
They were ranked eleventh and twelfth, respectively, out of thirteen logistical service
benefits. Therefore, it appeared that physical location was not critical to a local market
presence strategy.

Logistical service benefits can be configured to simulate a local market presence,
reducing the need for a physical location close to the customer. There was a hierarchy of
benefits which were important to customers and contributed to a local market presence.
The most critical benefits focused on the availability of product in a timely and reliable
manner. These benefits must be realized before the customer perceived a successful
local market presence strategy and began to practice vendor loyalty.

The second tier of logistical service benefits focused on the accessibility and
convenience of interacting with the vendor. This tier became more critical once product
was consistently available in a timely, reliable manner. This benefit tier enhanced
customer perceptions of a local market presence by focusing on developing the vendor-
customer relationship.

The final tier of logistical service benefits encompassed distance. These benefits

may become more important after the benefits of the first two tiers have been enjoyed.

177

This was a complementary tier; it was incapable of bridging any faults in the logistical
service benefits provided by the first two tiers. While important in providing tangible
security cues to the customer, distance was not the impetus driving a local market
presence strategy and/or vendor loyalty.

The research clearly supported the concept of creating a local market presence
without facility proximity. It will require greater attention to product delivery systems to
facilitate quick response delivery. In addition, customer communication systems should
be designed to provide the customer with access to the vendor, facilitating the ordering
process and providing information concerning product availability, substitutions, and

order deletions.

CONCLUSION

Chapter Four presented the research results, discussing response rate,
nonresponse bias, and the statistical analysis and interpretation of each research question.

The research identified key elements of a local market presence strategy. These
were divided into three benefit categories: 1) availability of product in a timely and
reliable manner; 2) vendor accessibility and interaction convenience; and 3) geographic
location and proximity. The cost and competitive structures of the uncoated paper
printing industry were determinant in defining these benefit categories. By providing
these benefits, uncoated paper vendors have the opportunity to meet the critical needs of
printers. Examples of these needs are: l) prompt delivery; 2) inventory availability; 3)

information regarding order deletions and substitutions; 4) picking accuracy; and 5)

178

procedures for returned merchandise. These needs arise from the inability to forecast
demand, low inventory levels, high fixed costs, and competitive pricing. The geographic
location and proximity of the vendor provide tangible clues to assure the printer of the
vendor’s ability to meet these needs.

The research examined the vendor-customer relationship from the customer’s
perspective. Relationships with vendors exhibiting a high degree of local market
presence were viewed quite differently from those in which the vendor exhibited a low
degree of local market presence. Relationships with the first type of vendor were
described as cooperative, information-sharing, and coordinated, requiring minimal
problem-solving. Conversely, relationships with vendors exhibiting a low degree of local
market presence were described as lacking trust and requiring problem-solving.
Generally, it appeared that printers viewed themselves as members of a traditional
channel structure. Characteristics of more integrative channel relationships (e.g.,
information sharing, focusing on a common goal, interdependence, and participatory
planning and goal setting) were not readily perceived by printers within their channel
relationships. Cultivation of these characteristics should enhance the perception of a
local market presence, encouraging vendor loyalty and enhancing vendor market share.

Both physical distance and delivery time contributed to a customer’s perception
of a local market presence. However, the research revealed that delivery time was the
most critical factor in that perception.

The research identified four factors of a local market presence. They were: 1)

delivery reliability; 2) geographic proximity; 3) quick response to product need; and 4)

179

ordering case. These factors are related to the benefit categories identified and are driven
by the competitive environment.

Four vendor selection factors were identified by the research . However, only the
delivery reliability/time factor was significant in predicting the customer’s preference to
purchase uncoated paper products fi'om a vendor with a local market presence.

Five logistics service quality factors were identified. Delivery reliability/time and
picking accuracy were significant in predicting the customer’s assessment of how critical
3 vendor’s local market presence was to the success of his firm.

The research divided respondents into two groups based upon uncoated paper
purchases as a percentage of total purchases. It was determined that there was essentially
no difference between the two groups in their importance ratings of local market
presence benefits. Segmentation based upon the percentage of uncoated paper purchases
did not result in a meaningful differentiation to guide a local market presence strategy.

The research determined that a local market presence was critical to a majority of
respondents. However, the results indicated that respondents were not willing to pay a
premium for the enhanced services provided by this presence.

Over eighty percent of respondents indicated at least some preference to purchase
uncoated paper from a vendor with a local market presence. This suggested that a local
market presence would have a positive effect on a vendor’s market share. However,
delivery consistency, fill rate, price, and order cycle time were ranked more important
than a local market presence in determining vendor loyalty. A local presence may

encourage a printer to purchase uncoated paper to fulfill a current need, but the vendor

180

must perform satisfactorily on a number of vendor selection variables to convert the
printer to a loyal customer.

Finally, the research suggested that a local market presence could be enhanced
without committing additional resources to physical facilities. This will require greater
attention to product delivery systems to facilitate and ensure quick response delivery.
Customer communication systems should be designed to provide the customer with
vendor accessibility. This access should focus on facilitating the ordering process and
providing accurate information concerning product availability, substitutions, and order
deletions.

Chapter Five presents the managerial implications of the research.

CHAPTER V: CONCLUSIONS AND IMPLICATIONS

INTRODUCTION
Chapter Five presents the conclusions and implications of the research. The first
section discusses the theoretical contributions of the research. The second section
examines managerial implications and the impact of the research on business practice.
The third section outlines limitations relevant to the interpretation of the research

findings. Lastly, the fourth section presents directions for future research.

THEORETICAL CONTRIBUTIONS
This section positions the present research within the spatial economics/location
analysis, customer service, and service quality literature streams. First, the research is
positioned relative to the perspective of past research. Second, suggestions for changes
in the definition of local market presence are presented. Finally, the historical
positioning and definition changes are synthesized to clarify the contributions of the

research.

HISTORICAL POSITIONING OF RESEARCH

This research contributed to marketing theory by examining how location impacts
a firm’s demand through local market presence. Historically, location decisions have
been investigated from a spatial economic theoretical perspective. Analysis has been
based upon concrete measures of time, space or distance, and cost (e.g., von Thunen,

1826; Schaffle, 1873; Weber, 1909; Losch, 1940; and Isard, 1956). Demand was

181

182

generally assumed to be static with respect to customer location; altering the location of
inventories or a customer contact point was inconsequential to demand levels if costs
were unaffected. However, many marketers argued that a local market presence can
actually stimulate the firm’s demand or market share.

In addition to concrete factors of distance, time, and cost, perceptual factors are
critical in the location decision. Specifically, the research identified three benefit
categories which were integral in the customer’s perception of a local market presence.
These categories are customer perceptions of the vendor’s: 1) product availability; 2)
accessibility and interaction convenience; and 3) proximity. These categories are
specific to the uncoated paper printing industry.

Ideally, the vendor considers concrete and perceptual variables in his location
decision. The variables are identified, analyzed, and prioritized to construct a location
strategy. Figure 5.1 presents the concrete and perceptual variables forming the location
strategy. This location strategy should enhance and support the vendor’s overall logistics
strategy. The vendor’s overall logistics strategy will be discussed shortly.

The vendor’s location strategy may assume a variety of forms, for example
distribution centers (DCs) in local markets, regional DCs, or a centralized DC from
which shipments are expedited. The desired location strategy plus additional customer
service strategies form the logistics service level. This service level is experienced by the
customer and internalized as the perceived logistics service level. The customer
compares this perception to the expected logistics service level when he assesses the

logistics service quality. The customer utilizes the logistics service quality assessment,

183

 

 

 

 

   
     

 

  

 

 

  
 

   

  
      
   

 

 

   

 

 

  

Concrete Location Pemszliiilbllzfltlon
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Figure 5.1 Contributions of the Research: Location Factors

price, and other vendor selection variables in the vendor selection process. The
customer’s vendor selection directly impacts the vendor’s market share. These
relationships are presented in Figure 5.2. This figure incorporates the research into the
customer success stage of the research model developed in Chapter I. I

The overall logistics strategy is comprised of the logistics service concept, the
logistics service delivery system, and the logistics service level. The logistics service
delivery system is configured through distribution system tradeoffs (Stock and Lambert,
1987). At the customer success stage of the research model, these tradeoffs seek to
maximize the contribution margin of the logistics service.

The contribution margin of the logistics service is equal to the total utility

received by the customer from the logistics service level less the cost of providing this

184

level of service. In other words, the total utility received by the customer is equal to the
monetary value he places on receiving this level of service. The total utility generated
from the logistics service level is equal to the utility received from the various
distribution components, specifically, transportation, warehousing, order processing and
information, lot quantity, inventory availability, and customer service level. The
customer values various distribution tradeoff configurations differently, reflecting the
utility he receives from each. Various industries and market segments within those
industries value various configurations differently (LaLonde and Zinszer, 1976; Rhea and
Schrock, 1987). The vendor may enhance his distribution effectiveness and customer
loyalty by configuring his distribution systems to reflect these differing logistic service
utilities (Gilmour, 1982; Bowersox and Closs, 1992; and Bowersox and Frayer, 1994).

The contribution margin of the logistics service received by a specific market
segment may be maximized by selecting the distribution system configuration which
provides these customers with the highest level of utility relative to the associated cost of
providing the service.

Ideally, the logistics service concept, the logistics service delivery system,
and the logistics service level are synchronized into a coherent logistics strategy
which effectively and efficiently presents the customer with a logistics service
package which meets his needs and accomplishes the vendor’s objectives. The
vendor may utilize primary, secondary, or even tertiary logistics strategies within

a particular market segment.

185

 

 

 

 

 

 

  

 

   
 
 

 

   
 
 

 

 

  
 

 

 
 

 

 
   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vendor
Logistics Customer
Service Concept
Expected Logistics
Service Level
Concrete
Location
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Location Strategy Logistics Service
Quality
Perceptual
Location
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a a 95 5 Perceived Logistics
Service Level
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Customer Service
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Logistics Service Logistics Service
Delivery System Level
Vendor Selection
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Market Share 1 ¥

 

 

 

 

 

 

 

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Figure 5.2 Contributions of Research: Logistics Service Quality Model

186

A logistics strategy may support any one of the three stages which form the
hierarchy of customer service standards discussed in Chapter I. These stages are: 1)
customer service which compares actual performance with the vendor’s internal
customer service standards; 2) customer satisfaction which is guided by customer
established service standards; and 3) customer success which aims at delighting select
customers with value-added logistics. These three stages reflect differing levels of
customer responsiveness and commitment between the vendor and the customer. The
objectives of the vendor may be to achieve customer service, customer satisfaction, or
customer success. In and of themselves, none of these three strategy levels are inherently
right, wrong, or more desirable. Each channel and customer relationship should be
assessed to determine the most appropriate logistics strategy given the projected value of
the customer over the lifetime of the relationship.

This section positioned the research in the spatial economics/location analysis,
customer service, and service quality literature streams. The next section discusses

suggested definition changes.

SUGGESTIONS FOR DEFINITION CHANGES

This section discusses the need to broaden the definition of a local market
presence from a physical proximity concept to one of relational proximity. It also
discusses the role of local market presence in defining desired customer service levels
within the uncoated paper segment.

This research revealed that local market presence is a more complex concept than

facility proximity or "the staging of inventory and/or the maintenance of a customer

187

contact point within a local market" as posited in Chapter One. It encompassed not only
physical location, but also perceptual closeness. It appeared to incorporate various
aspects of marketing goodwill as much as physical proximity benefits of product
availability. It seemed to encompass how business relationships are cultivated and
nurtured, not only where to locate distribution centers. Local market presence reflected
the evolution of the channel from a traditional structure to a more integrative, cooperative
partnership which seeks to enhance the business success of all channel members jointly.
Consequently, this research contributed to location theory by revealing how customer
perceptions of the vendor's logistics service and the vendor-customer relationship
enhanced or nullified the location decision.

Local market presence is best described as one potential logistics strategy as it
encompasses a broader range of logistics variables than implied by location alone. Its
configuration influences the transportation, warehousing, order processing and
information, lot quantity, inventory availability, or customer service level variables
within the logistics service delivery system. Customer service variables, as well as the
other logistics variables listed, are the building blocks utilized when constructing a
logistics strategy.

Local market presence is more accurately defined as a logistics strategy which
integrates the vendor-customer relationship and provides value-added benefits to the
distribution channel in a cost-effective manner. It is the perception of physical proximity
and the development of relational proximity with the vendor. Local market presence

encourages the channel to evolve into a more integrative, cooperative partnership. The

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customer receives benefits from a local market presence which may be categorized as: l)
availability of product in a timely and reliable manner; 2) accessibility and convenience
of interacting with the vendor; and 3) distance. Location is important only as it supports
the processes and outputs of the logistics service delivery system. These processes and
outputs are designed to “establish strategic and operational synergies through an
extended relationship” (Bowersox and Frayer, 1994: 2.14). The specific benefits
received from a local market presence will vary somewhat between industries and
between market segments depending upon the nuances of the relevant group (e.g.,
competitive structure, pressure on delivery time requirements, and cost structure).
However, the benefit categories should remain quite stable across industries and market
segments. In summary, local market presence should be defined as a configuration of
logistics service attributes designed to promote a relational/perceptual proximity which
focuses on those customer service elements critical to the customer's success. Its primary
facets, in descending order of importance, are product availability in a timely and reliable

manner, the accessibility and convenience of interacting with the vendor, and distance.

THEORETICAL SYNTHESIS

As discussed in Chapter One, the definition of customer service has evolved in
recent years from a listing of performed functions and/or performance standards to a
process that integrates the vendor-customer relationship and provides value-added
benefits to the distribution channel in a cost-effective manner (LaLonde, Cooper, and
Noordewier, 1988). This expanded definition elevates customer service to a strategic

level. In essence, it applies the marketing concept to logistics by adopting a customer

189

orientation which emphasizes the meeting of the customer’s logistics needs in a manner
which is profitable or beneficial to the distribution channel. Customer service is no
longer defined as a list of performed functions and/or performance standards; it is a
strategy which is focused on integrating the vendor-customer relationship and providing
value-added benefits to the distribution channel in a cost-effective manner. This
integration of the relationship and provision of benefits is accomplished by effectively
configuring the various distribution costs (e.g., transportation, warehousing, order
processing and information, inventory carrying, and lot quantity) and understanding
customer perceptions of the logistics process and output or service level. This customer
service strategy aptly describes a general logistics strategy supporting the customer
success stage. It is more accurately described as a customer success strategy. A
customer success strategy may take on a variety of forms, one of which is a local market
presence.

Local market presence is a customer success strategy. It integrates the vendor-
customer relationship, promoting relational proximity through a more cooperative
partnership. The customer’s critical success factors are fulfilled through a local market
presence, providing the customer with benefits regarding timely, reliable product
availability, vendor access and interaction convenience, and distance. The resulting
integrative vendor—customer relationship will “establish strategic and operational
synergies” which will promote loyalty to the vendor and enhance his market share.

A customer service strategy may be configured as a local market presence

strategy. This strategy may be operationalized by establishing a network of physical

190

facilities in close proximity to customers. This logistics service delivery system focuses
on distance as an integral factor in delivering product in a timely, relable manner and
facilitating vendor access and interaction convenience.

Alternatively, a local market presence strategy may be configured to provide
product availability in a timely and reliable manner and vendor accessibility and
interaction convenience from a distant location. A segment of respondents indicated that
measures of distance were not critical to a local market presence strategy. Over 40
percent of respondents stated that geographic location was neutral to not very important
to a local market presence strategy. Over 35 percent stated that close proximity was
neutral to not very important. Finally, over 37 percent stated that order processing
personnel located in the market area was neutral to not very important to a local market
presence strategy. This indicates the existence of a significant market segment which
believes a local market presence can be effectively implemented from a distant location.

Implementing a local market presence strategy from a distant location is one
possible configuration of a customer success strategy. It focuses on enhancing the
success of the various channel members by providing product in a timely and reliable
manner and facilitating vendor access and interaction convenience. Effective execution
of this strategy should strengthen vendor loyalty and enhance the market share of the
vendon

This research laid the theoretical foundation describing the intangible
ramifications of location. It reaffirmed the importance of cultivating and nurturing

business relationships in conjunction with appropriate distribution facility location and

191

rationalization. This research suggested that strategic leveraging of a configuration of
distribution points reaches beyond short order cycles and inventory availability; it
requires the development of relational and information flows designed to assist customers

in achieving success.

MANAGERIAL IMPLICATIONS

This section discusses the managerial implications of the research. These
implications are categorized as: 1) general implications and 2) implications for the paper

industry.

GENERAL IMPLICATIONS

This research had several important implications for firms attempting to
strengthen their local market presence strategy and for firms consolidating their
distribution facilities.
Physical Proximity Requirements

Customers believed that a local market presence strategy could be achieved short
of physical proximity based upon the analysis of research question Q5D. This is
welcome information to firms desiring or in the process of consolidating distribution
facilities. However, the process is complicated by the fact that local market presence is
not simply a distribution facility in close proximity to a customer. Siting a distribution
center close to a customer does not necessarily equate with a local market presence,

neither does closing a site proximate to a customer equate with the absence of a local

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market presence. Local market presence is a broader, more complex concept, as
previously discussed.

Since local market presence is not synonymous with physical proximity, a vendor
desiring to meet customer needs through a local market presence is faced with more
complex issues than location analysis.

First, the vendor must fully understand the critical success factors of the
customer’s business. The logistics service delivery system should be designed to provide
product availability in a timely and reliable manner. The vendor must determine the
customer service elements most important in product availability. Is a short delivery
time most critical? Frequent delivery? Extensive inventory availability? Is width or
depth of assortment most critical? Or, what other elements of customer service are most
critical in providing product availability in a timely and reliable manner? The vendor
must thoroughly understand the customer’s needs concerning product availability and the
forces driving these needs to provide the exceptional service that will facilitate the
building of customer loyalty and the nurturing of the vendor-customer relationship.

Second, the vendor must identify the manner in which the customer desires to
interact with the vendor. The ordering process should be convenient for the customer.
The vendor must determine if operationalization of this concept requires support for
ordering via telephone, fax, EDI, and/or a prearranged schedule of shipments (e.g., 200
widgets every 4 days). The vendor should be accessible to the customer. Does the
customer desire access through e-mail, monthly sales visits, an 800-number, assignment

of a customer service representative to his account, or another means? The vendor must

193

identify the types of information desired by the customer and the preferred means of
sharing this information. These types of information may include inventory status
reports, projected order cycle time, product line deletions, and standard substitutions.
The customer’s interaction with the vendor is important because one focus of a customer
success strategy is channel integration. More tangible cues of the advantages of such
integration to the customer will facilitate further integration and strengthen loyalty to the
vendon

Finally, the vendor must determine the distance needs of the customer. The
vendor must understand the concrete and perceptual functions that proximity serves.
Does the customer desire the option of picking-up orders or a specific emergency item?
Does he desire the convenience of returning product to the vendor’s dock rather than
arranging for package pick-up and return shipment? Does distance facilitate product
servicing due to the frequency or nature of the required service? The vendor must also
understand the perceptual factors associated with the distance between the customer and
vendor. Distance may represent safety from product stockouts or extended production
line shutdowns due to broken parts or product not meeting quality specifications. The
customer may perceive a greater understanding of the critical success factors driving his
business on the part of the vendor. The perceptual benefits derived from distance may be
as or more important than the tangible benefits.

Delivery time contributed more to a customer's perception of a local market
presence than distance based upon the analysis of research question Q2B. Therefore,

cultivating a local market presence is much more complex than selecting a site for a

I94

distribution center. It involves determining and understanding the critical success factors
of the customer’s business and configuring the vendor's logistics service delivery system
to effectively and efficiently facilitate the customer’s success. The customer is most
concerned with receiving the product in a timely, reliable manner so that his business
continues to operate normally. This is evidenced in the research by the importance of
such time variables as a short delivery time, reliable delivery, short order cycle time, and
the ability to expedite orders. In specific situations, it may be possible to effectively
implement a local market presence strategy with one distribution center. For example,
the vendor may contract with a third-party logistics supplier such as Federal Express to
maintain a distribution center in Memphis, Tennessee and ship product in response to
customer orders. This design of the logistics service delivery system may successfully
achieve the objectives of a local market presence provided that delivery the next business
morning is acceptable and the other customer needs related to product availability,
vendor accessibility, and distance are met satisfactorily.
Vendor Relationship

Customers viewed their relationships with vendors whom they described as
having a local market presence much more positively than their relationships with
vendors they described as having little local market presence. This was based upon the
analysis of research question Q2A. Logistics service attributes which may be described
broadly as marketing goodwill were important to customers when assessing local market
presence. These attributes included ordering ease, accurate and timely information, a

short communication channel, and quick complaint resolution. Though less concrete,

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these attributes can have a significant positive impact on the customer's local market
presence evaluation. A vendor performing satisfactorily on these attributes enhances the
customer’s perceptions of trust, cooperation, problem-solving, interdependence,
coordination, information sharing, and quality communication within the vendor-
customer relationship. However, management may have greater difficulty focusing on
improving customer perceptions of these attributes due to their intangible nature. The
subsequent performance evaluation is more subjective and nebulous than in other areas
of logistics performance such as order fill rate and delivery time. This research indicated
efforts to improve customer perceptions of these attributes should have a positive impact
on vendor loyalty.
Segmentation

Uncoated paper customers responded similarly, regardless of the percentage of
cost of goods sold accounted for by uncoated paper, based upon the analysis of research
question Q4. For this particular industry segment, the evaluation of local market
presence benefits and their importance in vendor relationships were fairly consistent
among all respondents; purchases of uncoated paper as a percentage of cost of goods sold
did not influence response to local market presence. Consequently, customer
segmentation based upon purchases as a percentage of cost of goods sold did not appear
to be necessary when designing and evaluating vendor-customer relationships.

Rather, it is suggested that customer segmentation be conducted as follows. First,
the vendor should define the critical success factors facing the customer’s business. If a

local market presence strategy is a viable option for this customer, it is expected that

 

196

these factors can be categorized as product availability in a timely and reliable manner,
accessibility and convenience of interacting with the vendor, and distance. Second, the
customer should be segmented based upon his preferences for logistics service. These
preferences should achieve the performance level dictated by the critical success factors.
This method will provide much more reliable and meaningful segments while providing
directives for implementation.

Price Premium

Based upon the analysis of research question QSB, customers were not willing to
pay a premium for facility proximity, though price was ceded a bit more quickly than
facility proximity measured as travel time. However, this may be posing the wrong
question. Local market presence was operationalized in terms of a physical proximity for
the purposes of this research. However, as previously mentioned, local market presence
is a broader concept than facility proximity. Geographic location and other distance
factors were tertiary importance factors in a local market presence strategy, behind
factors of product availability in a timely and reliable manner and the accessibility and
convenience of interacting with the vendor. Therefore, the operationalization of a local
market presence requires extensive broadening.

This broader definition may not increase printers' willingness to pay a premium
for the associated logistical service benefits. However, the provision of these benefits
will increase their vendor loyalty and it is probable that a vendor will experience an
increase in market share. Vendors must assess their ability to provide these benefits

given the competitiveness of the market. Conversely, it is questionable if a vendor can

I97

survive and prosper in this uncoated paper channel without providing timely, reliable
product delivery nor an accessible and convenient means of interacting with customers.

Firms may cultivate a local market presence without investing in a physical
facility close to a particular customer group. However, it will be necessary to invest in
information systems to provide accurate and timely information, facilitate the ordering
process and other interactions with the customer, and pinpoint and resolve complaints.
Adequate infrastructure and technology must be available to provide timely product
delivery. Investment in an extensive inventory of the full product line is not required as
long as adequate substitutes are available. The distributor needs to understand the
dynamics of acceptable substitutions from the customer's perspective so as to provide
satisfactory inventory availability. While a local market presence can be supported apart
from facility proximity, it requires a greater understanding of the customer and the
factors driving his business.

Conclusion

Managers of firms desiring to pursue a local market presence strategy should
follow the steps outlined in Figure 5.3.

First, the customer’s critical success factors should be identified and assessed
according to their importance rankings and the environmental and competitive factors
determining their importance. This will aid the vendor’s understanding of the customer’s
business and facilitate the following steps.

Second, customer expectations regarding the vendor’s logistics service delivery

system and service level should be defined. It is important to understand these

198

  

 

 

 
   
  
 
  
 

 

   
   
  
  
 

 
  
 
  
   

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Figure 5.3 Managerial Guidelines

expectations when establishing the logistics service level and when designing tangible
cues to the service level provided. These cues will enhance the customer’s perceptions of
the service level received.

Third, the customer perceptions of the vendor should be determined. These
perceptions should be measured and compared with the customer’s expectations to
highlight those areas which require improvement. These perceptions should also be
compared to the customer’s perceptions of other vendors to benchmark logistics
performance.

Fourth, the vendor should cultivate a relationship with the customer to begin to
nurture a cooperative relationship characterized by information sharing and coordination.

This is a continual process and may require extensive time and effort to develop.

 

199

Fifth, the vendor should adjust his product delivery and communication systems
to provide a logistics service level that more adequately meets customer expectations and
responds to the problem areas identified from customer perceptions.

Sixth, the vendor should continue to nurture the vendor-customer relationship.

Finally, the vendor should actively seek similar customers. The vendor should
have developed extensive knowledge concerning the needs and desires of these
customers; this will facilitate the cultivation of additional customers with similar critical

success factors.

IMPLICATIONS FOR THE PAPER INDUSTRY

Local market presence was attractive to a significant group of customers based
upon the analysis of research questions Q5A and C. Over 55 percent of respondents
believed a vendor's local market presence was critical to their success. Over 80 percent
expressed a preference to purchase from a vendor with a local market presence. The
magnitude of customers perceiving local market presence to be critical to their own
success and expressing a preference to purchase from such a vendor deemed local market
presence an important concept for paper distributors to understand and leverage. As
paper products proliferate and printer's margins remain tight, benefits associated with a
local market presence are critical in determining the printer's success or failure.
Consequently, paper distributors have the opportunity to establish themselves as the

vendor of choice by efficiently providing these benefits to their customers.

200
Segmentation

The research results suggested several guidelines for customer segmentation.
First, the customer should be categorized into one of the three stages of the customer
service hierarchy: 1) customer service, 2) customer satisfaction, or 3) customer success.
The categorization of the customer is based upon the level of logistics service desired by
the customer and required by the competitive structure of the industry.

Second, a basic type of logistics strategy is associated with each stage of the
hierarchy, reflecting the logistics service provided, the commitment level within the
vendor-customer relationship, and the integration of the channel. The appropriateness of
the relevant logistics strategy type to the customer should be assessed. The following
customer variables should be evaluated: 1) purchase requirements; 2) projected growth;
3) propensity for loyalty to the vendor; 4) the cost of providing this level of logistics
service; and 5) projected profit. The larger the customer’s purchase requirements,
projected growth, and propensity for loyalty to the vendor, the more attractive the
customer is to the vendor. Providing the customer with a logistics strategy which
effectively addresses his critical success factors should increase the customer’s
propensity for loyalty to the vendor. If the customer presents an attractive opportunity
based upon this assessment, the vendor should analyze the various costs associated with
providing the specified level of logistics service. These costs should include all the
logistics costs associated with transporting and storing the product. The costs of any
required changes in the product delivery system and/or the infrastructure supporting

interactions with the customer should be included. Finally, the vendor should project

201

expected profits generated by this customer. This should allow the vendor to adequately
assess the attractiveness of the customer. A customer failing to be sufficiently attractive
to the vendor may be assigned to a hierarchy stage providing a less demanding level of
logistics services. Otherwise, the vendor may choose not to pursue the customer.

At each logistics strategy level the vendor chooses to provide, he should choose
those customers he desires to pursue. This is particularly important at the customer
success stage. This stage requires a long-term commitment to the vendor-customer
relationship. A substantial time commitment is required of the vendor to understand the
customer’s business and design an appropriate logistics strategy to assist the customer in
achieving the performance level required by the critical success factors. The customer
success strategy level is the most expensive level in terms of time and resource
commitments to provide the associated level of logistics services.

Perceptions

The research identified the importance of perceptions in a local market presence
strategy. The customer’s perceptions of the logistics process and output are integral in
the successful execution of a customer success strategy. Vendor-customer relationships
are an integral component of these strategies. Consequently, a greater proportion of the
exchange is comprised of less tangible and subjective variables.

The importance of perceptions in the evaluation of the logistics processes and
outputs challenges the vendor to design the logistics service delivery system so that the

customer perceives a differentiated service that uniquely meets his needs. The vendor

202

should be knowledgeable of the customer’s preferences regarding the logistics service
delivery system. Examples of differentiated logistics service included:

1) The vendor establishing delivery routes to deliver
twice daily to printers or to a location where printers
may pick-up orders. This would provide reliable
delivery. Depending upon the distance to the distri-
bution center, the customer could expect a relatively
short order cycle time.

2) If same day delivery service is not critical and the
distribution center is located at a more distant location,
the vendor may ship orders next-day air. Alternatively,
a third-party logistics provider could maintain a DC and
handle all orders below a specified quantity. Orders of
uncoated paper products which are not standard inventory
items for a printer would generally be smaller shipments.
These next-day air delivery options would provide reliable
delivery and may provide a short delivery time and expe-
dited delivery, depending upon current delivery times.

3) The vendor may be able to forecast demand across a
number of customers for paper products not normally
stocked by the customer. A selection of these paper
products, in quantities based upon forecasted demand,
would be carried on the delivery truck when space
permitted. As a result, the vendor may be able to fill-
fill customer needs which did not arise until the truck
had left the DC.
These are just a few examples of how the logistics service may be designed to create a
differentiated perception within the customer.
The logistics service delivery system should assist the customer in meeting the
challenges of his critical success factors. The resulting logistics services should be
provided in a manner which stimulates the customer's perception of receiving a

differentiated service. The vendor should attempt to leverage this system to enhance

customer satisfaction and loyalty. The uncoated paper segment is characterized by tight

203

profit margins and short service delivery windows. If a vendor can facilitate a printer's
success by providing benefits which successfully address these competitive factors, he is
likely to enjoy an increase in customer satisfaction and loyalty, reducing the printer's
focus on price.
Internal Cost Evaluation

The vendor should assess his cost structure to identify those categories most
critical to customer satisfaction, success, and loyalty. Marketing dollars in these
categories should be leveraged to maximize profits and/or market share and future
success. This assessment may reveal the need to reallocate marketing dollars to critical
categories as the distributor refines his logistics service strategy. This research revealed
that inventory and other select logistics benefits were not of paramount importance to this
market segment. Benefits of a short delivery time and timely information were more
critical to printers. 1f the allocation of marketing and logistics dollars does not support
customer priorities, the distributor should reallocate those dollars to finance the necessary
infrastructure to provide these benefits.
Product Delivery System

The vendor should audit his product delivery system to determine if the existing
system is capable of providing the timely and reliable service desired by the customer.
Any "errors" which result in service failures should be identified and corrected. Product
availability in a timely and reliable manner is critical to the successful execution of a
local market presence strategy. Any failures in the product delivery system will probably

be noticed by the customer and will negatively impact his perceptions of the logistics

204

service provided by the vendor. If the failure causes the customer to miss an important
delivery date or results in another severe consequence, he may choose not to purchase
from this vendor in the future.
Customer Communication System

The vendor’s system for communicating and interacting with the customer should
be assessed to determine if the customer is receiving the desired information and other
relationship benefits. This assessment requires exploration of the manner in which the
customer desires to communicate and interact with the vendor as well as the types of
information needed to facilitate his business success. Communication systems which are
convenient for the vendor may not be convenient for the customer due to his business
hours, daily work flow, or other characteristics of his work environment. Consequently,
the vendor may need to redesign his communication system to address these restrictions.
Communication systems are important in customer success strategies due to the
integration within the channel. Effective communications are critical in forming positive
customer perceptions of the logistics service delivery system.

These guidelines aid the vendor of uncoated paper products in leveraging his local
market presence strategy to enhance the success of his customers and, ultimately, his own

growth as customer loyalty is strengthened.

LIMITATIONS

There were several limitations to the research which must be considered when

interpreting the results.

 

205

First, a few respondents indicated that they did not understand logistics terms
such as picking accuracy. In addition, some respondents did not understand how to
complete some sections of the questionnaire, particularly the trade-off analysis tables.
There appeared to have been some confusion among a few respondents on various
questions due to varying levels of respondent sophistication. This may have lead to
lower response on some questionnaire sections (e.g., trade-off analysis tables) and
inappropriate responses on others.

Second, ten of the thirty customer service elements were measured via reversed
scales. As previously discussed, it appeared that a number of respondents failed to detect
the reversal. The analysis results of these elements were interpreted cautiously and,
when possible, variables measuring very similar constructs were substituted.

Third, little previous work on local market presence has been published.
Consequently, variables key to this concept may have been inadvertently missed,
skewing the results of the research. The research design began with thirty customer
service elements which measured aspects of time or distance and examined the
relationship of each with a local market presence. Given the extensiveness of the list of
customer service elements, the probability of missing a significant number of customer
service variables was probably not high.

In addition, there has been a lack of understanding of logistics’ role in local
market presence. Previous research which includes local market presence within a
variable list presents it as one-dimensional and, therefore, unworthy of discussion,

implying that it simply refers to a distribution or sales facility located in close proximity

 

206

to a customer's geographic location. A basic understanding of the role and dynamics of a
local market presence has not been provided by previous research. This research presents
a foundational understanding of local market presence.

Fourth, the research assumed that local market presence and physical proximity
were similar constructs during the questionnaire development and data collection stages.
Analysis revealed that these terms were not similar. This may have resulted in
convoluted responses on a few questions. The discussion of the research results
highlighted any areas where this created a concern.

Fifth, local market presence and the other logistics service attributes were treated
as independent variables. In reality, some of the attributes were dependent; however,
data analysis revealed that multicollinearity was not a significant issue when addressing
the research questions.

Finally, the research investigated the perceptions of printers of uncoated paper
products regarding a local market presence. This research should not be used to make
inferences concerning other market segments within the paper industry or market

segments within other industries.

DIRECTIONS FOR FUTURE RESEARCH

Research concerning a local market presence is very limited. As firms continue
to focus on consolidating distribution centers, local market presence issues will be critical

in achieving a smooth transition and sustaining and enhancing customer satisfaction and

207

vendor loyalty. Local market presence will provide a fertile research area as greater
understanding is sought concerning its component attributes and implementation issues.

First, additional research is required to validate the critical benefits of local
market presence. This research was limited to printers of uncoated paper products.
Benefit categories of product availability in a timely and reliable manner, accessibility
and convenience of interacting with the vendor, and distance were identified in the
research. Market segments in various industries for which local market presence is a
viable option should be analyzed to ensure that the benefit categories remain similar.

Second, research is needed to investigate the specific benefits received from the
distance benefit category. Distance variables act as tangible cues to intangible benefits
received from a local market presence. For example, these benefits may: I) assure the
customer of an adequate product supply so that delivery dates promised to print
customers can be met; 2) indicate the vendor’s concern for the customer’s success; and 3)
reassure the customer that product exchanges or returns can be completed and credits or
refunds can be obtained conveniently and quickly. An understanding of these intangible
benefits will assist the vendor in designing and implementing a more effective and
efficient logistics service delivery system. The vendor may be able to delivery these
benefits to the customer and provide adequate cues without an extensive investment in
distribution center facilities.

Finally, comparative industry studies would aid in the understanding of the
critical success factors impacting the customer’s preference for a specific logistics

strategy. These studies would provide insight into how the customer prioritizes the

208

critical success factors. Which factors are most critical to address first? Second? Third?
The priority assigned to each factor will impact the selection of the most appropriate
logistics strategy. Analysis would also indicate the importance of specific types of
critical success factors (e.g., cost structure, product development and differentiation,
product availability, product support, and customer communication). These studies
should encompass different types of products/services, vendor-customer relationships
and histories, and stages of consolidating distribution facilities. Similarities and
differences across market segments and industries will provide insight into the design
and implementation of logistics service delivery systems for similar market segments and

industries.

APPENDIX

APPENDIX

LOCAL MARKET PRESENCE STUDY

Part One
Local Market Presence and Its Importance

Please answer all questions with respect to uncoated paper products.

This part of the questionnaire is designed to obtain your beliefs concerning attributes of an uncoated
paper vendor's local market presence and the importance of these attributes to your business
operations.

The following definition is offered to guide completion of the questionnaire:
A local market presence is the vendor maintaining inventory within a local market.

A. Please indicate the strength of your agreement with the following statements concerning your beliefs
of a vendor's local market presence. Circle "NR" if the variable is not relevant to a local market
presence.

 

 

 

 

 

 

 

 

 

 

I believe that local market I believe that is critical
presence results in: to my business operations.
Strongly Strongly Strongly Strongly
Disagree A grce Disagree Agree
1 A short order assembly time ........................... l 2 3 4 5 NR 1 2 3 4 5
2. A short delivery time 1 2 3 4 5 NR 1 2 3 4 5
3. High variability in lead times ......................... l 2 3 4 5 NR 1 2 3 4 5
4 The vendor’s consistent ability to meet
promised delivery dates I 2 3 4 5 NR 1 2 3 4 5
5 Low delivery frequency 1 2 3 4 5 NR 1 2 3 4 5
6 The consistent ability to expedite orders ........ l 2 3 4 5 NR 1 2 3 4 5
7. Low order processing accuracy ...................... l 2 3 4 5 NR 1 2 3 4 5
8 Low picking accuracy I 2 3 4 5 NR 1 2 3 4 5
9. High inventory availability ............................. l 2 3 4 5 NR 1 2 3 4 5
10. A high fill rate I 2 3 4 5 NR 1 2 3 4 5
l 1. Low order completeness l 2 3 4 5 NR 1 2 3 4 5
12. Timely inventory status information .............. l 2 3 4 5 NR 1 2 3 4 5
13. The order arriving in poor condition .............. l 2 3 4 5 NR 1 2 3 4 5
14. A timely response to assistance requests ....... 1 2 3 4 5 NR 1 2 3 4 5
15. High quality technical advice ......................... l 2 3 4 5 NR 1 2 3 4 5
16. An improved ability to inspect or diagnose
problems areas 1 2 3 4 5 NR 1 2 3 4 5
17. Efficient assistance by the vendor in order
preparation 1 2 3 4 5 NR 1 2 3 4 5
18. Decreased order preparation convenience
and efficiency 1 2 3 4 5 NR 1 2 3 4 5
19. Efficient assistance from the vendor in
handling carrier loss and damage claims ....... l 2 3 4 5 NR 1 2 3 4 5
20. Proper canon identification ............................ l 2 3 4 5 NR 1 2 3 4 5
21 . lneflicient procedures for returned
merchandise 1 2 3 4 5 NR 1 2 3 4 5
22. The vendor's increased willingness to
accept retums of product damaged or
shipped in error 1 2 3 4 5 NR 1 2 3 4 5

 

209

210

I believe that local market I believe that __ is critical
presence results in: to my business operations.
Strongly Strongly Strongly Strongly
Disagree Agree Disagree Agree
23. A decrease in the customer's ability to
consistently select the carrier .......................... l 2 3 4 5 NR 1 2 3 4 5
24. A decrease in the vendor’s ability to

meet specific or unique customer service

and delivery needs of individual customers... I 2 3 4 5 NR 1 2 3 4 5
25. Adherence to special shipping instructions 1 2 3 4 5 NR 1 2 3 4 5
26. Adherence to special packaging instructions. 1 2 3 4 5 NR 1 2 3 4 5
27. Timely order status inlbnnation ..................... l 2 3 4 5 NR 1 2 3 4 5
28. More accurate advance int'onnation

collceming order deletions and substitutions. l 2 3 4 5 NR 1 2 3 4 S
29. More accurate advance information

concerning shipping delays ............................ l 2 3 4 5 NR 1 2 3 4 5
30. Shorter communication channel and

quicker action to resolve complaints .............. l 2 3 4 5 NR 1 2 3 4 5

B. Please indicate the importance of the following items to a local market presence strategy.

 

 

 

 

 

 

 

 

 

 

Not Very Very
Important Important

1. Short order cycle time I 2 3 4 5 -‘

2. Low lead time variability ................................ l 2 3 4 5

3. Short delivery time 1 2 3 4 5

4. Reliable delivery 1 2 3 4 5

5. Delivery capability l 2 3 4 5

6. Frequent delivery 1 2 3 4 5

7. Ability to expedite orders ............................... l 2 3 4 5

8. Ability to receive orders electronically .......... l 2 3 4 5

9. Ordering convenience l 2 3 4 5

10. Order processing personnel located in

market area 1 2 3 4 5

1 1. Geographic location 1 2 3 4 5

12. Located in close proximity ............................. 1 2 3 4 5

l3. Accessibility ofseller l 2 3 4 5

Part Two

Comparison of Vendors

Part Two of the questionnaire is a comparison of two vendors of uncoated paper products—one
exhibiting a high degree of local market presence and the other a relatively low degree of local market
presence.

A. Please select an uncoated paper vendor whom you consider to have a local market presence and
answer the next four questions with respect to this vendor. Please indicate the strength of your
agreement with the following statements.

 

 

 

 

 

 

Strongly Strongly
Disagree Agree
1. This vendor has a high degree oflocal market presence ....................... l .. 3 4 5
2. I would describe my relationship with this vendor as:
a. Trusting l 2 3 4 5
b. Cooperative l 2 3 4 5
c. Focused on a Common Goal 1 2 3 4 5
d. Problem-solving l 2 3 4 5
e. Committed | 2 3 4 5
f. Interdependent l 2 3 4 5
g. Coordinated l 2 3 4 5

 

211

 

 

Strongly Strongly
Disagree Agree
3. I would describe my communication with this vendor as:
a. information sharing I 2 3 4 5
b. quality communication 1 2 3 4 5
c. participatory in planning and goal setting ................................ l 2 3 4 5
4. When a conflict occurs with this vendor, it is resolved through:
(Please rank based upon frequency of occurance. "1" occurs most frequently.)
_ joint problem solving. __ ignoring the issue. __ arbitration.
_ persuasion. __ domination.
_ smoothing over the issue. _ harsh words.

B. Please select an uncoated paper vendor whom you consider to exhibit a relatively low degree of local
market presence and answer the next four questions with respect to this vendor. Please indicate the

strength of your agreement with the following statements.
Strongly Strongly
Disagree Agree
1. This vendor has a high degree of local market presence ....................... l 4 5
2. I would describe my relationship with this vendor as:
a. Trusting
b. Cooperative
c. Focused on a Common Goal
(1. Problem-solving
e. Committed
f. Interdependent
g. Coordinated
3. 1 would describe my communication with this vendor as:
a. information sharing 1
b. quality communication 1
c. participatory in planning and goal setting ................................ 1

N
b)

 

 

Vile/3M

 

 

 

 

Ix) N N N Is.) N N
b) La) w w b) D) U)
k A A k b #8 vb»

MMUIUI

 

La)
A
U'

 

 

NNIJ
1»)
A

4. When a conflict occurs with this vendor, it is resolved through:
(Please rank based upon frequency of occurance. " l " occurs most frequently.)
_ joint problem solving. _, ignoring the issue. __ arbitration.
_ persuasion. __ domination.
__ smoothing over the issue. _ harsh words.

Part Three
Tradeoffs Between Service Levels

Part Three of the questionnaire obtains your preferences for various logistics service levels.
A. Uncoated paper products account for percent of my firm's cost of goods sold.

B. Please indicate the strength of your agreement with the following statements.

 

Strongly Strongly
Disagree Agree
1. I prefer to buy uncoated paper products from a vendor with a
local market presence 1 2 3 4 5

2. A vendor’s local market presence is critical to the success of
my firm I 2 3 4 5

 

 

212

C. Please rank your preferences for the following service combinations from an uncoated paper
products vendor—" 1" indicates the most highly preferred service combination; "9" the least preferred.

 

Price and Facility Proximity Fill Rate and Facility Proximity

 

 

F

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delivery Frequency and Facility Proximity Order Cycle Time and Facility Proximity W

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D. Please indicate the importance of the following items to your loyalty to a vendor of uncoated paper
products.

Strongly Strongly
Disagree Agree
1. Local Market Presence 1 2 3 4 5
2. Price 1 2 3 4 5
3 Delivcn Consistency l 2 3 4 5
4. Fill Rate 1 2 3 4 5
5. Order (‘yclc lime l 2 3 4 5

213

Part Four
Vendor Selection and Logistics Service Quality

Part Four of the questionnaire is designed to obtain the importance of logistics attributes in your
vendor selection process and assessment of a vendor's logistics service quality.

A. Indicate the importance B. Indicate the importance
of the following items in your of the following items in your

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

vendor selection. assessment of a vendor's
logistics service quality.
Not Very Very Not Very Very
Important Important Important Important

1 Short order assembly time 1 2 3 4 5 l 2 4 5
2. Short delivery time I 2 3 4 5 l 2 3 4 5
3. Low variability in lead times I 2 3 4 5 l 2 3 4 5 p:
4 Consistent ability to meet promised delivery ‘

dates 1 2 3 4 5 1 2 3 4 5
5 High delivery frequency 1 2 3 4 5 l 2 3 4 5
6. Consistent ability to expedite orders ...................... l 2 3 4 5 l 2 3 4 5
7. Order processing accuracy 1 2 3 4 5 l 2 3 4 5
8. High picking accuracy I 2 3 4 5 l 2 3 4 5
9. High inventory availability ..................................... l 2 3 4 5 l 2 3 4 5 ‘
10. High till rate 1 2 3 4 5 1 2 3 4 5
l I. High order completeness l 2 3 4 5 l 2 3 4 5
12. Timely inventory status information ...................... l 2 3 4 5 l 2 3 4 5
13. Order arriving in excellent condition ..................... l 2 3 4 5 l 2 3 4 5
l4. Timely response to assistance request ................... l 2 3 4 5 l 2 3 4 5
15. High quality technical advice ................................. l 2 3 4 5 l 2 3 4 5
l6. Ability to inspect or diagnose problem areas ........ | 2 3 4 5 l 2 3 4 5
17. Efficient assistance in order preparation ................ l 2 3 4 5 l 2 3 4 5
18. Order preparation convenience and efficiency ...... | 2 3 4 5 l 2 3 4 5
19. Efficient assistance in handling carrier loss and

damage claims 1 3 4 5 l 2 3 4
20. Proper carton identification .................................... l 3 4 5 l 2 3 4 5
21. Efficient procedures for returned merchandise ...... l 2 3 4 5 1 2 3 4 5
22. Willingness to accept returns of product

damaged or shipped in error 1 2 3 4 5 l 2 3 4 5
23. C ustomcr’s ability to consistently select the

carrier for inbound good 1 2 3 4 5 l 2 3 4 5
24. Ability to meet specific or unique customer

service and delivery needs of individual

customers 1 2 3 4 5 l 2 3 4 5
2S. Adherence to special shipping instructions ........... l 2 3 4 5 1 2 3 4 5
26. Adherence to special packaging instructions ......... | 2 3 4 S l 2 3 4 5
27. Timely order status information ............................. l 2 3 4 5 | 2 3 4 5
28. Accurate advance information concerning order

deletions and substitutions l 2 3 4 5 l 2 3 4 5
29. Accurate advance infonnation concerning

shipping delays 1 2 3 4 5 l 2 3 4 5
30. Short communication channel and quick action

to resolve complaints 1 2 3 4 5 l 2 3 4 5

 

Thank you for taking the time to thoroughly complete this questionnaire. Your input
is sincerely appreciated.

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