The impact of service quality and Cost on logistics service Outsourcing by vietnamese Manufacturing enterprises

This paper pointed out that the decision to use the service from LSP is generally different from the decision of choosing the alternative providers as the carrier, shipping[r]

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

NGUYEN THI HUONG GIANG

THE IMPACT OF SERVICE QUALITY AND

COST ON LOGISTICS SERVICE OUTSOURCING BY VIETNAMESE

MANUFACTURING ENTERPRISES

MASTER'S THESIS

Hanoi, 2020

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

NGUYEN THI HUONG GIANG

THE IMPACT OF SERVICE QUALITY AND

COST ON LOGISTICS SERVICE OUTSOURCING BY VIETNAMESE

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION 1

1.1 Research motivation 1

1.2 Research objectives 3

1.3 Research scope 3

1.4 The structure of research 3

CHAPTER 2: LITERATURE REVIEW 5

2.1 Definition and theories 5

2.1.1 Manufacturing enterprise 5

2.1.2 Logistics services and Logistics service provider 6

2.1.3 Business Buyer Behavior 6

2.1.4 Process of business decisions making 7

2.2 Outsourcing logistics service performance dimensions 9

2.3 Outsourcing logistics service process 11

2.4 Link the studies with reality in large scale Vietnamese manufacturing enterprise 18

2.5 Outcomes of outsourcing logistics service performance 18

2.6 Conceptual model and research hypotheses 19

2.7 Research model 23

CHAPTER 3: RESEARCH METHODOLOGY 24

3.1 Research scope 24

3.2 Measurement scale 24

3.3 Questionnaire design 27

3.3.1 Demographic information 27

3.3.2 Questionnaire 28

3.4 Sampling method 28

3.5 Sample size 29

3.6 Data analysis procedure 29

3.6.1 Testing reliability – Validity of scale measurement 29

3.6.2 Exploratory Factor Analysis (EFA) 30

3.6.3 Regression analysis 31

CHAPTER 4 DATA ANALYSIS 32

4.1 Data collection and demographic results 32

4.2 Reliability test 33

4.3 Exploratory Factor Analysis (EFA) 35

4.3.1 Independent variable factor analysis 35

4.3.2 Dependent variable factor analysis 36

4.4 Analyzing the influence of demographic factors on Intention to continue using the same LSP 36

4.5 Correlation coefficient and linear regression analysis 42

4.5.1 Correlations Analysis 45

4.5.2 Regression analysis 45

4.5.3 Searching violation of regression assumptions 47

CHAPTER 5 RESULT AND DISCUSSION 49

5.1 Result discussion 49

5.2 Contributions 53

5.3 Managerial implications 54

5.4 Limitations 55

APPENDIXES 69

Appendix 1 Survey form in English 69

Appendix 2 Survey form in Vietnamese 76

Appendix 3 Result of frequencies test 83

Appendix 4 Result of reliability test 86

Appendix 5 Result of factor analysis 93

Appendix 6 Result of correlations and regression test 97

Appendix 7 Result of T-test and ANOVA 103

LIST OF TABLES

Table 2.1: SERVQUAL dimensions (Parasuraman et al., 1988) 20

Table 3.1: Measurement scale 24

Table 4.1: Manufacturing sectors .40

Table 4.2: Correlation matrix between variables 45

Table 4.3: Evaluation of the suitability of the model 46

Table 4.4: Factors affecting the Intention to continue using the same LSP .46

LIST OF FIGURES

Figure 2.1: Business Buyer Behavior model (Philip Kotler, 1980) 7

Figure 2.2: The business decision-making process (Philip Kotler, 1980) 8

Figure 2.3: Conceptual model 23

Figure 4.1: Results of regression analysis 47

ACKNOWLEDGEMENT

During the period of thesis writing, I received plenty of enthusiastic help and support that guide and encourage me to overcome all difficulties and finish this hard but meaningful time

I would like to express the warmest thanks to Prof Yoshiki Matsui and Assoc.Prof

Vu Anh Dung who gave me useful advice that helps me to finish my thesis successfully Their advice gave me professional guidance and insightful comments that considerably help me gain a lot of experience in improving my skills in synthesizing the literature, data analysis Especially, I would like to express my endless thanks and gratefulness to my respectful teacher Prof Yoshiki Matsui His devoutness inspired me to complete this dissertation Without his motivation and instructions, the thesis would have been impossible to be done effectively

As of last, my deepest thanks come to all people who help me during the time I study at Vietnam Japan University Their kindly help, care, motivation gave me strength and lift me up all the trouble

CHAPTER 1: INTRODUCTION

1.1 Research motivation

In recent years, outsourcing has become a key element in the success of organizations and can no longer be overlooked in recent years (Tomas, 2010) The businesses have been involved in how they can use their competitive advantage to boost their sales and income since the Industrial Revolution (Handfield, 2006) Companies have tried to boost efficiency by outsourcing tasks that are not considered

a core business competency Outsourcing a variety of resources, spanning from sanitation, distribution, and compound management among others, has been an influential factor in global pattern outsourcing services, but there are several concerns how often outsourcing results in a successful outcome and the circumstances that enable it While several businesses outsource to save costs, they frequently struggle

to do so and can even increase costs unless properly managed (Meixell and Norbis, 2008) Outsourcing management plays an important role in revolutionizing enhanced efficiency in businesses (Juettner et al., 2003) Organizations have been repetitively reviewing a variety of cost-cutting strategies while also enhancing their operating efficiency At the industry's foremost hand, there is often a trend to redefine core businesses away from certain conventional roles (Agrell et al, 2004) The strong growth of the service providers contributes to changes in the power structure, and the market sense and clock speed among the market participants This guiding force contributed to a large consolidation of core competences and to the outsourcing of certain roles in an attempt to achieve multiple performances and effective service delivery

A number of researches have shown that outsourcing decision has significant strategic and operational implications and extremely influence several performance objectives across the entire business (Harland et al., 2005; Aron & Singh, 2005; Sanders et al., 2007; McIvor et al., 2009) Lower costs and competitive advantage can be driven by making the right outsourcing decisions In contrast, poor outsourcing

decisions can lead to rising cost, failure operation, disrupted services, and even entire business failure In an organization, a full understanding of a corporate strategy, core competencies, potential risks, and total costs, as well as a thorough justification of possible outsourcing arrangements for meeting business objectives were required to have efficient and effective outsourcing decision making (Sanders et al., 2007, McIvor et al., 2009)

One of the most concerning outsourcing service in the companies is logistics Logistics play a greatly important role in businesses especially in manufacturing enterprises According to Russell and Taylor, 2003, transportation costs account for about 20 percent of total production costs in manufacturing enterprises A survey was conducted by Pedersen and Gray (1998) showed that on average 50 percent of the total logistics cost could be attributed to transportation Transportation is not only an incurred cost, but also can be instrumental in achieving competitive advantage as distribution (Reimann, 1989) The performance of the logistics service provider may affect the efficiency of the total logistics function of an enterprise It follows that an appropriate logistics service provider (LSP) choosing process is important to the firm’s success As the global market develops with technological advances, especially the opening of markets in developing and underdeveloped countries, logistics is considered by managers as a tool, a means to connect the fields Due to the importance of logistics, using logistics service outsourcing at manufacturing enterprises is always carefully considered by managers LSPs must adapt themselves and provide more value-added in order to respond effectively to meet the ever-changing need of customers’ logistics requirements

Freight forwarding and logistics service has been developed for a long time in the world, and the issue of determining the factors affecting the choice of the LSP is also extremely concerning Since the early 1970s, many authors have done research on this issue in many different countries However, there have been no official studies

on the issues of using logistics service outsourcing in the Vietnamese manufacturing enterprises The review and reference of the previous studies is a very necessary and

meaningful work, so that the author can find out the important factors that influence the decision of the manufacturing company to LSPs, from which the author put forward research hypotheses to conduct testing with the Vietnamese data

With the current status of the Vietnam economy that most manufacturing enterprises are foreign-invested enterprises The Selection criteria for LSP sometimes based on the decision of the headquarters outside Vietnam Is there any difference between the actual situation of Vietnam and other countries around the world? The next chapters will explain it carefully

1.2 Research objectives

The research objectives of this study are two-fold One objective is for

manufacturers, another is for logistics service providers

- Manufacturing Enterprise: this study identifies how the service quality and

cost impact on logistics service outsourcing by Vietnamese manufacturing enterprises

- Logistics Service provider: Logistics service providers can sort information

and services that are considered as significantly important to the customers who are manufacturing enterprises from the knowledge of the key decision factors of the customers

1.3 Research scope

Because of limitations in terms of survey scale, only large-scale manufacturing enterprises that have more than 200 employees who are insured and have a total annual revenue of over VND 200 billion or have a total capital of over VND 100 billion are researched

1.4 The structure of research

 Chapter 1: Introduction

This chapter provides information on research, including the motivation of research, the research objective and the research scope

 Chapter 2: Literature review

This chapter will firstly introduce the relevant definitions Next is a summary of related studies from which the research questions, hypotheses and initial research models will be developed

 Chapter 3: Research methodology

This chapter discusses the research design, the method used, and the data collection procedure

 Chapter 4: Data analysis

This chapter describes the analysis of the data collected and interpreted and then verifies the hypothesizes in Chapter 2

 Chapter 5: Results and discussions

The chapter responds to research questions, reveals the theoretical contribution, the practical implications, and the direction of further research

CHAPTER 2: LITERATURE REVIEW

2.1 Definition and theories

2.1.1 Manufacturing enterprise

According to the definition of the North American industry classification system that the manufacturing sector includes the establishment engaged using resources in combination with the application of science and technology to produce commodities

to meet market demands Manufacturing enterprises are generally characterized as factories, plants, or mills and commonly use power-driven machines and materials-handling equipment

Each country has their own criteria to determine the scale of the business In Vietnam, there has not been any official decree on large-scale enterprises, but small and medium-sized enterprises definitions are stipulated in decree No 39/2018/ ND-

CP dated March 11, 2018, of the Vietnam government In which:

Microenterprises in the industrial manufacturing sector have the average number

of employees that have insured not exceeding 10 people per year and the total revenue does not exceed 3 billion VND or the total capital source does not exceed 3 billion VND

Small-sized enterprise's industrial manufacturing sector has an average number of employees that have insured no more than 100 people and the total revenue of the year does not exceed VND 50 billion or the total capital source is not over VND 20 billion

Medium enterprises in the industrial manufacturing sector with an average number

of employees not exceeding 200 people and annual revenue of not more than VND

200 billion or total capital of no more than VND 100 billion The rest of the enterprises will be regulated as large scale enterprises In this article, the writer takes the criteria of the objective is the large scale Vietnamese manufacturing enterprise that has an annual average number of employees that have insured more than 200 and

an annual turnover of over VND 200 billion or total capital of over VND 100 billion for making selection criteria

2.1.2 Logistics services and Logistics service provider

FIATA, 2004 defined “logistics services” is kind of services relating to the carriage (carry out by multimodal transport means or single-mode), in relation to consolidating, transporting, managed, packaging, or distributing of goods or supplementary and consulting services, including but not limited to customs and fiscal matters, officially declared the goods, Provision of goods insurance and processing or acquisition of payment or goods documentations

The logistics service providers (LSP) provide logistic services to their customers Vietnamese LSPs have been supporting the local enterprises for more than 30 years, especially the manufacturing enterprise since they perform as trade facilitators such

as in handling import-export shipments, connect the customs and import-exporters, negotiate with the shipping lines, or other transportation services, and finally coordinate with all related parties

2.1.3 Business Buyer Behavior

“Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others” (Philip Kotler, 1980) Business buying process

is the decision process by which business buyers identify products and services that they need to purchase, search, evaluate and select among alternative vendors and brands In trying to understand the business buying behavior, marketers must find answers to some complex issues: “What kind of purchasing decisions do the businesses make?”, “How do they select among the different suppliers?”, “The decision will be made by who?”, “What is the businesses' buying decision process?”,

“What factors impact the businesses buying decisions?” A simple model of the organization's buying behavior is shown in the figure

Figure 2.1: Business Buyer Behavior model (Philip Kotler, 1980)

The buying behavior model of business shows that marketing and other factors influence the organization and create buyer responses These marketing factors include 4P (product, price, place, and promotion), other factors include important environmental forces of the organization, such as economy, technology, politics, and culture All of these factors influence the business and create its responses, such as goods or service selection, supplier selection, order quantity, delivery time and payment terms In order to design effective marketing modalities, marketers must find out what happens inside the organization in turning the stimulus into the buying organization's response Based on this model, we will examine the various factors of institutional customer buying behavior

2.1.4 Process of business decisions making

The business buying process is the making choices process by specifying a decision, gather information, and assessing alternative resolutions Following Philip Kotler's Business behavior model (1980), the decision-making process consists

of steps:

Figure 2.2: The business decision-making process (Philip Kotler, 1980)

The process of LSP selection by large manufacturing enterprises is a series of

thinking, evaluation and selection decisions (Plomaritou et al., 2011), but also

includes behavioral modeling steps by Philip Kotler, specifically including the following basic stages:

Problem recognition: identify the need to use LSP(s), logistics services when a sales contract is signed and the goods need to be shipped to the destination specified

by the buyer

General need description: the service buyer determines the feature and quantity of the goods to be handled

Product specification: based on the characteristics and quantity of goods required

to handle the service buyer will search for all relevant information about shipping services, import, and export customs procedures in accordance with the requirements

of the goods The customers can get this information based on their own experience

or can be found in maritime magazines, on the internet, or through recommendations from colleagues

Supplier search: based on the characteristics of the need to use, the service buyer tries to find the most suitable vendors

Proposal solicitation: the service buyer invites qualified LSPs to submit proposals (price, service, process, time, etc.)

Supplier selection: the service buyer assesses the proposals After the assessment, the Service buyer decided to choose the most optimal plan as the LSP meet the most evaluation criteria, proceeding to sign a service provision contract with freight forwarders However, there are also cases where buying decisions are made by habit, which does not require any evaluation (repeat purchases or loyal purchases regardless

of other information)

Order-routine specification: the service buyer gives the order to the chosen LSP(s), listing the technical specifications of the cargo, quantity, expected delivery time, and warranties

Performance review: performance of the LSP(s) is assessed and decided to continue, modify, or drop the arrangement by the service buyer

2.2 Outsourcing logistics service performance dimensions

Outsourcing logistics service performance was supported by the service quality dimensions originally defined by Parasuraman et al in 1985 and 1988 The research identified five specific dimensions of service quality: reliability (the ability to carry out reliably and accurately the advertised service); responsiveness (able to provide timely service to customers); assurance (understanding and courtesy employee, and the capacity to express faith and confidence); empathy (providing attention, individualized customer experience); and tangibles (physical facilities, equipment, resources, and communications materials) These dimensions were characterized in a measurement scale named SERVQUAL, which measured the quality of service as the difference between the quality requirements of pre-transaction customers and their expectations of service quality after being used

A number of studies have recorded the importance of the service quality dimensions to end-use users, i.e retail customers (Crompton and Mackay (1989); Johnson et al (1988); Berry and Parasuraman (1991); Babakus and Mangold (1989); Berry (1995); Bojanic (1991); Parasuraman et al (1991); Carman (1990); Zeithaml

et al (1990); and Zeithaml, (2000))

Empirical data shows that the current delineation of five elements is contradictory

as measured in various forms of service industries (Cronin and Taylor (1992); Babakus and Boller (1992); Carman (1990); and Finn and Lamb (1991) In fact, researchers have had difficulties simulating SERVQUAL dimensions in the context

of services (Bienstock et al (1997)) One potential reason for the inconsistent findings is that the measurements of service quality differ from one sector to another

It is particularly relevant for industrial services such as logistics, which rely on concrete activities directed at actual items and intangible behavior directed at thoughts and attitudes (Lovelock, 1983) Brown et al (1993) therefore encourage researchers carefully determine the important problems for the service quality in the different contexts and change the SERVQUAL scale accordingly Another logical reason is that a more general conceptual framework has not been defined yet

Stank et al (1999) used SERVQUAL measurements for creating a more generalized conceptualization of outsourcing logistics service performance, a specific illustration of a service sector They conceptualized two main aspects of logistic outsourcing: operational performance and relational performance Operational performance comprises of two main factors: reliability (which captured the reliability and accuracy of the service provider (Parasuraman et al., 1985) referred to the quality consistency factor of operational performance) and price The responsiveness, assurance, and empathy attributes of Parasuraman et al were included in the relational performance, the second dimension of service performance in their research Although Parasuraman et al.'s original study identified the price or cost of service outsourced to be part of the contact, Stank et al mentioned costs as the main characteristic of outsourcing logistics service performance in the fast-food industry study Costs are characterized as a special, third-dimensional outsourcing of logistics service performance, distinct and separate from the operational and relational components of the service Manufacturing and service operations literature offers significant justification for the treatment of prices (or costs) as a separate dimension

of outsourcing service performance (Roth et al (1991); Hayes et al (1984);

Krajewski et al (1987); Hill (1989); Wood et al (1990); Cleveland et al (1989); Roth

et al (1990); Ferdows et al (1990)) Further evidence for this approach is offered by Porter's generic strategies scheme, in which cost leadership (as opposed to the quality distinction) tends to be a straightforward, but feasible, the road to competitive advantage (Porter 1980; 1985)

2.3 Outsourcing logistics service process

Some researchers have studied the processes of outsourcing and how it flows in organizations that outsource logistics service Zoran et al (2007) concluded that although many studies were conducted about the outsourcing process issues, there are only a few frameworks that represent the actual stages and structure of the entire outsourcing process The study describe the main stages as: preparation, vendor(s) choosing, transition, managing relationship and reconsideration

The questions such as how, where, why, when, whether or not, among others were answered in the preparation phase The issues of whom to pick and not to pick from

an identified and qualifying pool of potential service providers were addressed in the vendor selection stage The next stage discusses the transition stage of manage relationship issues in the approved service providers The outcome of the entire process was examined in the final stage

The few researchers who have conducted research on logistics outsourcing performance concluded that it is complicated and thus involves sophisticated measurement (Deepen et al (2008); Knemeyer et al (2004); Stank et al (2003)) Selecting a service provider for outsourcing logistics service needs a strategy, care, and caution to fit with organizational objectives Logistics service provider selection criteria should ideally start by understanding the reasons behind outsourcing failures, which drive the organizations towards insourcing (Bandeira et al., 2015) Cost, service levels, IT integration, supply chain security, lack of trusting relationships are some of the likely reasons given for opting to insource (Langley, 2010) Logistics supplier selection is considered a multi-criterion decision-making process and

researchers have developed research frameworks that organize selection criteria into

a hierarchical structure (Hwang and Shen, 2015) Apart from the importance of the above criteria, this study focuses on their relationship elements on organizational strategy The majority of published research has focused on their operational aspects thus ignoring the strategic importance of outsourcing as well as the significance of a collaborative partnership to deliver competitive outcomes Landry (2011) believes that setting the goal is not the primary task, achieving the identified goals, and staying with the plan that matters Thus, achieving identified objectives is critical and aligning them with choosing logistics service provider is paramount It is believed that outsourcing relationships fail due to service provider promises to meet organizational strategic goals that have not been fully defined, communicated, and understood in the form of strategy (Lynch, 2004)

The LSP research classification framework proposed by Selviaridis and Spring (2007) is based on a comprehensive review of literature that focuses on peer-reviewed journal papers published during the period 1990 to 2005 A total of 114 academic sources were retrieved and analyzed This paper pointed out that the decision to use the service from LSP is generally different from the decision of choosing the alternative providers as the carrier, shipping lines, logistics service providers, etc but the criteria used to evaluate alternative providers are similar –cost, service quality, reliability, flexibility, and responsiveness

The selection process of the appropriate international containership carrier is dependent upon a variety of service quality attributes (Kent & Parker, 1998) 18 factors that affect the international containership carrier selection were used, and the results indicated that the factors that influence the international containership carriers choosing are different among the three groups: exporter; importer; and containerized transportation companies

Brooks (1983) studied factors influencing customers' choice of shipping lines in the Canadian market At the time of more than 30 years ago, there was not much

academic research on this topic, and the research concepts developed were still in its infancy Brooks identified 15 factors that influence carrier selection, of which freight rate is assessed by customers as the most important, followed by the frequency of trains departing during the week and reputation and transit time

Kokkinis, G et al (2006) argued that LSP consider that their customers’ main requirements are reliability on delivery time and information accuracy, together with personal treatment followed by the safety of transport, all related to the quality of service Low prices are an important criterion but less important than the main criteria

of quality In a while, Swathy, S (2016) highlighted that the customers always look forward the LSPs have warehouse, good infrastructure, material handling, packaging, customs clearance, and documentation

Pedersen and Gray (1998) carried out a study on shipping line selection criteria of Norwegian exporters, according to which the criteria are divided into four main groups:

- Group of price factors: low freight rates, discount programs, the relationship between actual cost and estimated cost

- Group of time factors: short transit time, reliability of delivery time, many trains departing during the week

- Group of factors of safety: low loss and damage of goods, the ability to coordinate goods in transshipment ports, control delivery time, knowledge about wharves

- Group of service factors: cooperation with shipping lines, the ability to meet the transport of special shipments, ready to meet the urgent delivery

Of the above four groups, the price factor group is considered to be more important than the other groups, even for high-value goods, only 50% of exporters think that the time factor group Time is more important than price This is explained by Pedersen et al for two main reasons Firstly, Norway is a country with a high cost due

to its geographical characteristics, transportation distance and the limitation of

domestic competition Second, Norway's main exports are raw materials, which are price sensitive This has led to a group of price factors being considered the most important when exporters choose shipping lines

In the Turkish market, Kofteci et al (2010) conducted a survey of cement trading enterprises on the choice of transportation method with four main factors: transportation cost, shipping time, reliability of transport time and safety of goods The results also show that "reliability" is considered to be the most important factor when customers choose the mode of transportation, and the factor "transportation cost" is equally important as "reliability" Meanwhile, customers do not care much about "Safety" (the level of goods lost) due to the nature of the cargo being cement Research by Tuna (2002) in Turkey shows that freight rates are not an important factor when customers choose this market carrier, while the factors of service value are important customers concerning The study was conducted with 24 observed variables, and the group of factors of "reliability and competitiveness" was rated as the most important when choosing a shipping line, including variables: respond to complaints of customers quickly, delivery on time agreed, meet requirements quickly, send accurate quotes, issue documents accurately and quickly, no goods damaged on delivery In which the criteria "respond quickly to complaints" is the first choice from customers Besides, the topic also mentioned the influence of many other factors when choosing shipping lines such as "support activities", "Value-added services",

"Transport equipment"

Lu, C S (2003) studied carrier selection criteria in Taiwan and made comparisons

of the importance of these criteria from two angles of the transportation service provider and direct customer From the transportation service provider’s perspective, the most important criteria include knowledge and ability to solve problems of sales staff, responding quickly to customer complaints, the ability to receive goods and documents exactly Meanwhile, direct customers evaluate the selection criteria in the most important order which is the correct documents, the reliability of the given train

schedule, the ability to receive goods and response to complaints quickly This difference requires transportation service providers to consider and change business strategies to suit the needs of customers, because from the marketing point of view,

"sell what customers need, not sell what you have available.”

Premeaux (2007) also investigates the difference between shippers and shipping lines when assessing the importance of shipping service selection criteria in the US market With 36 evaluation criteria, there are nine different criteria, of which five criteria are evaluated by customers more important and the remaining four criteria are more appreciated by shipping lines While customers pay much attention to the carrier's response factors to emergencies or unexpected situations, electronic data, flexible rates, the information provided to customers, translation in case of searching information via the internet The shipping line highly appreciates the reputation factors of the shipping line, the cooperation between shipping lines and customers, the knowledge of sales staff about customer needs and the results of shipping carrier's past operations When there are differences in the selection criteria, there is a gap in the level of satisfaction between the service provided by the carrier and the customer's expectations for that service (Wong, 2007)

Wong, P C C (2007) conducted research in the southern provinces of China on the factors affecting the mean of transportation and carrier selection This doctoral thesis of Wong was conducted for 5 years from 2002 to 2007 Analytical data was collected through the survey questionnaire with 82 questions and the number of samples size up to 1100 After analyzing the EFA factor to eliminate nonconforming variables and grouping the variables into common factor groups, Wong used the AHP (Analytical Hierarchy Process) pair method to identify the influential factors The EFA analysis results identify seven groups of factors as follows:

- Relationship with shippers: including the willingness to negotiate prices and services, the ability to act as a commercial representative for buyers, the flexibility to handle documents, and resolve complaints fast

- Service response: availability of transport equipment, shipment information, service reliability, and low freight

- Customer service: the quality of service provided by the staff, the service provided at the loading port, the service quality of the customs declaration unit, past information on customer satisfaction, etc

- The ability to transport goods: including freight services, transport equipment

- Location of the goods to be transported

- The reputation of the customer: this factor shows the reputation of the customer from the perspective of the customs office, such as whether the business is reliable or not, whether or not its goods are regularly inspected, etc

- Relationship with customs

The results of the AHP analysis show that for time-sensitive items, customers prefer to choose the mode of transport by truck As for the mode of transportation by barges, the factor of the frequency of departures during the week is of primary concern to customers Finally, heavy or bulk cargoes are more often transported by rail

Barthel et al (2010) summarized the factors affecting carrier selection based on

27 studies published from 1990 to 2009 in the European market The summary results show that the core factors affecting the choice of transportation services include cost, transit time, reliability and quality of transportation In particular, shipping costs are considered the most important of the above factors Quality factors is also assessed

to be of high importance However, once the quality requirements are met, customers

do not want to pay more for a better level of service In addition, the summary results include the basic factors that affect the choice of shipping lines, namely the extent of damage to goods, the number of trains departing in the week, the train schedule, information technology, etc

Another study conducted in Taiwan, Wen, C L and Gin, S L (2011) is related to the topic of this thesis From the reference of previous studies, Wen and Gin selected

22 observation variables that affect the choice of shipping lines to be included in the survey After analyzing the factors, these 22 variables were grouped into four groups

of factors, namely: operational convenience, service completion, good cargo performance, and freight Next, FZOT (Fuzzy Zone of Tolerance) is used to assess the importance of these factors The results show that there are six criteria that customers consider to be the most important, including containers provided in good condition, on-time delivery, sales staff with good knowledge, and quick response to complaints, electronic data and tracking service over the internet This requires shipping businesses to pay attention to improve the quality of service to meet the needs and maintain customer satisfaction

Most recently, Rotaris et al (2012) conducted a survey of small and medium-sized manufacturing enterprises in Italy to assess the impact of transport cost factors, transit time, potential loss of cargo, and punctuality in choosing shipping lines The results show that these factors are important because they affect logistics costs and profitability of the business

The process of selecting LSP is a relatively complex process involving many parties interacting with one another to make decisions based on attitudes, perceptions, and information gathering and analysis (Barthel et al., 2010) Participants include the shipper, the consignee, the carrier, the logistics/forwarder service provider, and other intermediaries if any

Customers choose shipping lines to minimize production and distribution costs and maximize their benefits (Rotaris et al., 2012), thereby improving efficiency throughout the supply chain The research results of many previous authors have shown that most of the criteria for customers to choose shipping lines are directly or indirectly related to supply chain cost factors

2.4 Link the studies with reality in large scale Vietnamese manufacturing enterprise

Vietnam's economy currently has been integrated period and the wave of foreign investment has been strongly entered Along with the strong development of manufacturing industries, LSPs also mushroomed which made the supply of logistics service saturated Businesses wishing to use outsourcing logistics service have more choices, making the criteria for choosing LSPs are stricter and stricter In realistics,

a large-scale manufacturing business cannot use only one LSPs due to the financial limitations of the LSPs Besides, they are also using multiple LSPs at the same time

to take advantage of the LSPs, it is a strategy that is fully utilized by manufacturing enterprises How are manufacturing enterprises choosing logistics service providers?

In the scope of this article, the author will answer two questions:

- How are service quality and cost impacting on the selection of LSPs by

Vietnamese manufacturing enterprises?

- How are the logistics service providers adapting themselves to the demand of

the customers who are manufacturing enterprises?

2.5 Outcomes of outsourcing logistics service performance

Many studies has repeatedly tried to identify the association between service performance and perceptual factors, such as repurchase intentions (Zeithaml, 2000) Significant higher quality of service leads to improved behavioral intentions, such as stronger intention to repurchase (Boulding et al., 1993), recommended Willingness (Zeithaml et al (1996); Danaher et al (1996b)), and increase usage intention (Bolton

et al (1999); Danaher et al (1996a, 1996b)) Behavioral impact was lead by increased behavioral intentions, including repurchase or customer retention (Bolton (1998); Reichheld et al (1990); Rust et al (1993)) The total purchase and consumption experience with a good or service over time may consider a cumulative evaluation of the customer (Fornell (1992); Fournier et al (1999)) The assessment shall be based

on post purchase confirmation or disconfirmation of the buyer’s pre-conception

expectations of product or service standards (Anderson et al (1994); Leuthesser et

al (1995); Crosby et al (1990); and Reichheld et al (1990))

A large number of studies strongly support the idea that improving the quality of logistics services will enhance customer satisfaction (Innis and LaLonde (1994); Daugherty, Stank, and Ellinger (1998); and Leuthesser and Kohli (1995) Logistics service operational elements associated with product availability, product condition, delivery dependability and timely delivery as well as related elements such as communication and responsiveness have been demonstrated to have a positive impact

on customer satisfaction (Innis and LaLonde 1994; Daugherty, Stank, and Ellinger 1998; and Stank, Goldsby, and Vickery 1999) In terms of loyalty and positive word

of mouth, Parasuraman, Zeithaml , and Berry (1994) investigated the impacts of each service quality dimension on overall service satisfaction and behavioral intentions Primary data from 656 senior final year undergraduate students at one public university were collected based on a quantitative correlational design The findings indicate that the dimensions of service quality performance (tangibility, reliability, responsiveness, empathy, and assurance) are each significantly related to the overall satisfaction of customers, which in turn affects behavioral intentions

2.6 Conceptual model and research hypotheses

A number of authors have addressed quality attributes in the context of logistics service using service quality dimensions - SERVQUAL The service quality approach

is an attempt to understand customer satisfaction from the perspective of the differences between customer perceptions and actual customer service on various attributes (Parasuraman, et al., 1988) SERVQUAL model describe five gaps between those two visions of quality Elimination of those gaps should help the organization

to improve service quality Application of SERVQUAL is already popular in various service industries before expansion to logistics In SERVQUAL, service quality is the gap between customers’ expectation and the actual perception of service Cronin

Jr and Taylor (1992) criticize it because customers might be very difficult to measure their expectations In order to overcome this supposed limitation, they introduce SERVPERF model that use traditional concept of quality as excellence of

performance Hence, instead of measuring both expectation and perception of service, only perception of service is evaluated However, SERVPERF is only recognized as

a transformation of SERVQUAL because it applies the same scale and dimensions

In reality, both SERVQUAL and SERVPERF are the most popular service quality model in logistics industry (Gulc, 2017)

Table 2.1: SERVQUAL dimensions (Parasuraman et al., 1988)

Some researchers considered the SERVQUAL dimensions in the service quality approach can also be used in determining the critical factors that may affect the purchasing logistics service decision (Kong & Mayo (1993); Bienstock, et al (1997))

Crosby and LeMay (1998) specifically addressed carrier selection and formulated SERVQUAL in terms of service quality in the trucking industry They integrated three methods for identifying customer requirements: SERVQUAL, direct questioning of the customer by trucking managers, and policy-capturing via simulation of the customer’s decision process Policy-capturing was particularly useful in this context as the first two methods lacked the impact of resource constraints and respondents tended to select all factors as important Data were collected using mail survey questionnaire methods that contained elements of all three approaches The attributes of service were in the following categories: assurance, tangibles, empathy, responsiveness and reliability for SERVQUAL; responsiveness, convenience, timeliness, equipment, price and image for direct

questioning; and approach, accuracy, support and price for the policy-capturing approach This study largely addressed the best approach for developing an instrument for measuring customer requirements and the associated measurement of logistics service quality, the selection of criteria is helpful in developing a picture of traditional attributes for use in carrier selection This paper included equipment as a service attribute, and as a result does address the capacity dimension

Based on the above discussion, the author concludes the hypothesis:

H1: Service quality of a logistics service provider has a positive impact on the intention to continue using the same logistics service provider

The LSP research classification framework proposed by Selviaridis and Spring (2007) is based on a comprehensive review of literature that focuses on peer-reviewed journal papers published during the period 1990 to 2005 A total of 114 academic sources were retrieved and analyzed This paper pointed out that the decision to use the service from LSP is generally different from the decision of choosing the alternative providers as the carrier, shipping lines, logistics service providers, etc but the some criteria including cost factor used to evaluate alternative providers are similar

Cost is an amount that has to be paid or given up in order to get something (business dictionary) Within manufacturing firms, transportation costs account for average 20 percent of total production costs (Russell and Taylor, 2003) More than

50 percent of the total logistics cost of a product is attributed to transportation in the Norwegian companies surveyed by Pedersen and Gray (1998) Research results of Brooks (1983) argued that transportation costs as the most important choosing factor

in the Canadian market Similarly, shipping costs are ranked as the most important in the research of Pedersen and Gray (1998), Danielis and Marcucci (2007) In other studies, transport costs have been identified as one of the important factors in purchasing logistics service decision, but it is not necessary to have the lowest cost

in Lammgard (2007) However, according to Barthel et al (2010), after basic quality

requirements such as punctual delivery, degree of control damage, etc., most selection decisions are made based on freight rates

Based on the above discussion, the aurthor concludes the hypothesis:

H2 Cost reduction has a positive impact on the intention to continue using the same logistics service provider.

CHAPTER 3: RESEARCH METHODOLOGY

- Frequently use outsourced freight forwarding service (forwarder, shipping line, garage, etc.)

3.2 Measurement scale

Hair et al (2006b) recommends that literature can be applied to 25 to establish the development of the instrument, if the literature has provided a reliable sufficient study

on the related research topic The application of the measurements scale supported

by previous literature may be accepted as the valid scale (Hair, et al., 2006b) The table 2 illustrates the development of the scale applied in this current study

Based on the previous researches, 36 question items were synthesized The author has developed customized items that fit the actual service context and processes:

Table 3.1: Measurement scale

Tangibility (T)

T1 LSP X offers customers e-tracking shipment and

electronic data transmission EDI

T2 LSP X always has enough equipment that we need T3 LSP X has their own warehouse

T4 LSP X has a lot of offices that can handle our

shipments in many different locations

T5 LSP X has sufficient infrastructure to handle a

consignment of goods to be transported

Reliability (RL)

RL1 LSP X delivers on time

RL2 When a complaint or problem arises, the LSP X

usually solves quickly RL3 LSP X has the ability to control shipments very well

in the transportation process

RL4 LSP X always issues correct documents

with information we provide

RL5 I feel secure when using services from LSP X

forwarders for our shipment

RS4 LSP X has an extensive worldwide agent network RS5 LSP X has the ability to consolidate cargoes

RS6 LSP X frequently updates rates for us

RS7 LSP X meets our basic requirements for handling a

shipment

Assurance (A)

A1 LSP X is a well-known name in its industry A2 LSP X has a better reputation than other forwarders

in its industry A3 During transport, LSP X is less likely to cause

damage or loss of goods

A4 LSP X always update information in the shipments

handling process for us

A5 We are always consulted on laws and rules promptly

from LSP X A6 Goods are guaranteed when using services from LSP

X

Empathy (E)

E1 We often receive gifts from LSP X on holidays E2 In previous collaborations with my company, LSP X

served very well

E3 Leaders of our company have close relationship with

C2 LSP X has a better credit term than other forwarders

for our company

C3 LSP X has discount programs for our shipments

C4 We save more money when using LSP X

I2B I will propose to outsource more activities to other

logistic service providers instead of LSP X in the future

The 5-point likert scale was used to measure the extent of each measurement scale in this study

3.3 Questionnaire design

3.3.1 Demographic information

- The question of identifying the target respondents including:

 Field: 24 manufacturing field are specified (Food products, Beverages,

Textiles, etc)

 Amount of employees: there are more than 200 employees who are insured?

 Annual revenue: Is the total annual revenue of over VND 200 billion?

 Total capital: Is the total capital of over VND 100 billion?

 Interaction with LSP: Do the respondents interact with Logistics service

providers?

- Respondent’s infographic information including:

 Position: Employee/ Manager

 Gender: Male/ female

 Age: 24 years old or less /from 25 to 29/from 30 to 34/from 35 to 39/from 40

to 44 /from 45 to 49/ from 50 to 54/55 years old or more

 Working time: Less than 1 year/ From 1 to less than 3 years/ From 3 to less

than 5 years/ 5 years or more

 Interaction frequency with LSP: Weekly/ Monthly/ Quarterly/Yearly/ Others

3.3.2 Questionnaire

The survey was conducted including 46 questions:

Google form was used for designing the questionnaire which is a popular online survey tool in Vietnam The questions relating to the research was arranged randomly

to avoid the bias when the respondent answered Three sections (identify target respondents, demographic questions, the main question was pressed separately in 3 pages to reduce the feeling that the survey was long when it was first seen and to increase the patience of the respondents The questionnaire is designed with a simple, clear and unbiased wording to help each person respond without confusion The questionnaire was designed in English and then translated into Vietnamese for Vietnamese respondents The translation version is based on a reference to people who are fluent in either English or Vietnamese, as well as a deep understanding of Vietnamese thinking and reading culture

3.4 Sampling method

Random sampling methods are used to conduct research on this topic The reason for choosing this sampling method is because respondents are easily accessible, they are willing to answer the research questionnaire as well as less time-consuming The author approached the survey subjects by sending the link of questionnaire that was designed by Google form to the survey subjects via social networks, import-export professional forums The responses were recorded automatically by the

Google Form service

3.5 Sample size

The reliability of the information will depend on the sample size selected The larger sample leads to the greater the accuracy of the research results, but the larger the sample size needs more time, resources and cost are increased Conversely, if the sample size is small, it is beneficial in terms of cost and time, but the information is poorly reliable

The choice of sample size, which is large enough to ensure processing reliability,

is currently not clearly defined Moreover, the sample size depends on the estimation method used in the particular study

According to experience, there is a researcher who thinks that the minimum sample size must be from 100 to 150 There is also a researcher who thinks that the critical sample size must be 200 There are also researchers who believe that the minimum sample size is 5 samples for a parameter to be estimated (Bollen, 1989)

In this research topic, the author chooses a sample of size 80 + 5n (Tabachnick and Fidell, 1996) with n = 30 (number of observed variables) Therefore, the sample size

is expected to be 230 people

3.6 Data analysis procedure

The data collected was processed on the basis of SPSS 20 application

3.6.1 Testing reliability – Validity of scale measurement

When testing any measurement model, it is necessary to check the reliability and validity of the design (Anderson & Gerbing, 1988; Hair, et al , 2006b) This study used cronbach's alpha to test the reliability of the measurement design as the majority

of other researches The alpha value indicates how close a set of items is to a group Generally, this value ranges from 0 to 1 According to George & Mallery (2003), if the alpha value is over 0.9 the measurement scale can be considered highly reliable and if the value is below 0.5, the reliability is regard low At the same time, the

correlation among items is also an important indicator (Nunnally & Bernstein, 1994) This value indicates the correlation between one item and the other in the same measurement scale The accepted level is more than 0.3 for the item-total correlation, and if it is less than 0.3, this item will be deleted

3.6.2 Exploratory Factor Analysis (EFA)

EFA is used to investigate which factors influence the variables and to gather the analytical variables (DeCoster, 1998) EFA is a method for identifying factors for analyzing data input, which is intended to shorten the list of common factors that will appear in the correlations (McDonald, 1985) EFA is a method to reduce the number

of variables into smaller variables while maintaining significance in the original list (Hair et al., 2006b) EFA helps to conduct a study consisting of some to hundred observed variables that can be grouped into smaller number of variables to achieve and clarify the hidden concept (Rummel, 1970) To carry out EFA, there are certain requirements:

- The sample size should be 300 at least and each variable to explore the latent

element should have between 5 and 10 items observed (Comrey & Lee, 1992) The greater number of samples size will reduce the error in the collected data to a minimum However, the researcher usually relies on the previous measurement and literature and is generally acceptable for validity of the measurement scale

- Furthermore, if the data contains the high loading factor score (> 0.8),

Guadagnoli & Velicer (1988) discussed that 150 observation may be appropriate for the creation of a valuable research

- Hair et al (2006b) proposed that the sample size minimum should be more

than 50 and that 100 should be better

- Factor loading > 0.5 can be accepted

- Sample adequacy Kaiser – Meyer – Olkin (KMO) exceeds 0.5 It means that

there is strong correlation among variables where the KMO is less than 0.5

- Bartlett sphericity test, significant p<0.05 level to make sure that the relations

between variables are patterned

3.6.3 Regression analysis

Regression analysis is a tool for predicting the results of one dependent variable based on one or more separate variables' interaction The most common type of regression analysis is linear regression, which shows an almost relation between dependent and independent variables based on the data collected

The regression model's function is usually represented:

CHAPTER 4 DATA ANALYSIS

4.1 Data collection and demographic results

The writer start to conduct the survey from April 10, 2020 to May 05, 2020, 339 responses were recorded by Google form However, after removing inappropriate responses with the same points for all the questions or not to be the target objective, there are only 318 valid responses left This sample size (n = 318) corresponds to the expected sample size set in Chapter 3, section 3.2

Among respondents, 249 people are female and only 69 people are male It means that over three fourth of respondents are female The women are certainly interact with

LSP more than the men

The group from 25 to 29 years old accounts for the most with 137 people (43.1%), the next group is from 30 to 34 years old with 84 people (26.4%), followed by the group under 24 years old with 40 people (12.5%), the group from 40 to 44 years of age only 20 people (6.3%) (Appendix 3)

Out of the 318 survey participants, only 45 respondents have a working time at the current enterprise of less than 1 year, accounting for 14.2% These could be fresh graduates or new positions at the current company The highest proportion of 49.1% is the respondents who have working time from 1-3 years 23.3% is the proportion of people with 3-5 years of working time, and finally, those who have worked more than 5 years accounted for 0.9% (Appendix 3)

Among 318 respondents, 239 people interact with LSP weekly, accounting for the highest rate of 75.2%, 54 people interact monthly with LSP, accounting for 17%, 3 people interact quarterly, 22 people interact with LSP annually (Appendix 3)

The majority of respondents often interact with LSPs weekly or monthly Only a few respondents interact with LSPs quarterly or yearly (Appendix 3)

Among 318 responses, 49 answers were from the Wearing apparel industry, accounting for the highest percentage of all responses, 15.4% Ranked second is Computer, electronic and optical products with 44 answers, accounting for 13.8% Textiles and Electrical equipment received 33 responses, accounting for 10.4% Next is the paper products group with 30 answers, accounting for 9.4% Fabricated metal products, except machinery and equipment 8.8%, Machinery and equipment 7.5%, Chemicals and chemical products 6.6%, Rubber and plastics products 6.3%, Printing and reproduction of recorded media 5.7%, Other transport equipment 2.8%, Furniture 1.6%, Other manufacturing 0.6%, Wood and cork products except for furniture; articles of straw and plaiting materials 0.6% (Appendix 3)

The group often using outsourcing logistics service is the Wearing apparel industry, fiber, electronics, Computer, electronic and optical products This is consistent with the situation of foreign investment in Vietnam when most foreign-invested enterprises are these industries Moreover, with the characteristics of foreign businesses often importing and exporting, the frequent using LSP's services is inevitable

4.2 Reliability test

Cronbach’s alpha value is used to test the reliability of the scale and eliminate variables (if any) The variables and observed item are considered appropriately will be used in the next step

Because of the content of the questions I1B and I2B are in contrast to I1A and I2B, therefore, the values of the observed variables I1B and I2B were reversed prior to analysis to ensure that the scale was correctly assessed