Outsourcing relationships in the context of
product returns management in e-commerce
Master Thesis
University of Groningen
Faculty of Economics and Business
Koen Metzelaar
S2748762
k.f.metzelaar@student.rug.nl
Research paper supervisor MSc Supply Chain Management:
prof. dr. K.J. (Kees Jan) Roodbergen
Second assessor: dr. I. (Ilke) Bakir
1 ABSTRACT
Purpose – The purpose of this thesis is to investigate the different kinds of relationships e-commerce retailers develop with their service providers when outsourcing product returns management. How these relationships are affected by the strategic orientation e-commerce retailers have towards product returns, and their motivations to outsource their product returns management will also be investigated.
Design/Method/Approach – This thesis uses a multiple case study method. It adopts a dyad perspective, where both respondents of e-commerce retailers and their service providers are interviewed using semi-structured interviews.
Findings – Evidence of this thesis suggests that the strategic orientation of e-commerce retailers affects the degree of outsourcing they engage in, the amount of information that is shared between e-commerce retailers and service providers, and how committed the parties are to the relationship.
Practical implications – This paper provides insights to practitioners in the e-commerce and product returns context, on how relationships in their sector are managed. An interesting finding is that service providers adopt a advisory role for e-commerce retailers.
Originality/Contribution – This study contributed to literature by exploring buyer-supplier relationships in the context of the e-commerce returns market in a real life setting. It provides new insights into the literature on product returns management, and how relationships between e-commerce retailers and service providers are managed.
Keywords – Product returns management, outsourcing motivations, strategic orientation, relationship dimensions
2
Table of Contents
1. Introduction ... Error! Bookmark not defined.
2. Theoretical Background ... 6
2.1. Product returns ... 6
2.2. Product returns processes ... 6
2.3. Outsourcing ... 8
2.4. Strategic orientation towards product returns ... 8
2.5. Outsourcing Motivation ... 9
2.6. Factors influencing the relationship development... 11
2.7. Relationship Dimensions ... 11 3. Methodology ... 14 3.1. Research design ... 14 3.2. Case Selection ... 14 3.3. Data Collection ... 16 3.4. Data Analysis ... 16 4. Findings ... 18 4.1 Strategic orientation ... 18 4.2 Outsourcing Motivation ... 19 4.3 Relationship intensity ... 20 4.4 Relationship orientation ... 23 5. Discussion ... 27 5.1 Strategic orientation ... 27 5.2 Outsourcing motivation ... 27 5.3 Relationships ... 28 5.4 Miscellaneous ... 29 6. Conclusions ... 31 6.1 Managerial implications ... 31
6.2 Limitations and future research ... 31
7. References ... 33
8. Appendix 1 ... 39
3 1. INTRODUCTION
Since the introduction of the internet, ordering goods via e-commerce retailers (ECRs) has become common practice, resulting in an extensive e-commerce industry. This industry is marked by relatively high rates of commercial returns, mainly because the customer cannot closely examine the product before buying it. EU law dictates that customers are allowed to return products within two weeks for a refund. Therefore, it is mandatory for ECRs to have a process in place to manage commercial returns. Within Europe, Dutch consumers are leading in e-commerce product returns with an average of 13% (DPD, 2020).
Due to the decentralised nature of e-commerce supply chains, returned products come from a variety of locations, in unpredictable volumes, and their quality is not guaranteed. For ECR’s managing product returns is sometimes even more challenging than managing their forward supply chain. How ECRs approach product returns management (PRM), their strategic orientation, can differ. Some ECRs view returns as a cost of doing business, others see it as an opportunity to provide additional service to their customers (Hjort et al., 2019; Röllecke et al., 2018). Furthermore, ECRs can decide to organise product return processes in-house or involve an external party for support. The latter option, using outside resources for handling business processes, is referred to as outsourcing (Arnold, 2000). In e-commerce outsourcing of supply chain processes to service providers (SPs) is common (Rao et al., 2009).
Knowledge on PRM of ECRs is limited (Bernon et al., 2016; Hjort et al., 2019). Current literature mostly focusses on describing processes and policies used by the ECRs (Bernon et al., 2016; de Leeuw et al., 2016; Hjort et al., 2019; Hjort & Lantz, 2016; D. A. Mollenkopf et al., 2007), and only makes offhand statements whether PRM is outsourced. Hence, there is still a need to understand the motivation behind the decision of ECRs to outsource their PRM. Furthermore, outsourcing is inherently linked to the development of a relationship between a buyer and supplier, in the context of this study ECRs and SPs. Relationships can differ in how intensively firms work together, and in the attitude the two firms have towards each other. How and what kind of relationships are formed in the context of PRM in the e-commerce industry has not yet been researched.
4 motivations are: access to expertise, focus on core functions of the firm, or simply cost reductions (Krikke et al., 2013; Meade & Sarkis, 2002; Ordoobadi, 2009). The outsourcing motivations an ECR has before entering the relationship can shape the nature of the relationship between the ECR and SP (Bolumole, 2001). Buyer-supplier relationships can be analysed using the relationship dimensions, as described in the framework by Kim & Choi (2015). This framework incorporates many of the relationship dimensions that are commonly used in literature, into two dimensions, relationship posture and relationship intensity, to describe differences in buyer-supplier relationships.
In this thesis the focus is on ECRs that outsource their PRM and the relationships they have with their SPs. How the strategic orientation of ECRs, and the motivations they have for outsourcing PRM influences the relationship between the ECR and the SP is investigated. Therefore the following research questions are formulated:
-What kind of relationships are formed between logistic service providers and e-commerce retailers within the context of product returns management.
-How are these relationships influenced by the strategic orientation of the e-commerce retailer?
Within the context of PRM, previous research investigating the influence of the strategic orientation of the buyer and the buyer-supplier relationships that result from it has been conceptual and prescriptive (Ordoobadi, 2009), and this relation has not been examined yet in a real life setting. This research will contribute to existing literature by exploring this topic in an empirical setting, by conducting a multiple case study. Furthermore, ample research in the area of return processes focusses on end-of-life product returns in a manufacturing setting (Martin et al., 2010; Roy et al., 2006). There are a few empirical studies that do describe PRM in an e-commerce setting (Bernon et al., 2016; de Leeuw et al., 2016; Hjort et al., 2019; Hjort & Lantz, 2016; Mollenkopf et al., 2007), however these do not detail the role of relationships between ECRs and SPs, and just assume their existence. This thesis will expand on the literature, by investigating the relationship development between buyers (ECRs) and suppliers of returns management processes (SPs) in a e-commerce environment.
6 2. THEORETICAL BACKGROUND
In the following section, an overview of the relevant literature is discussed. The concepts related to product returns management and outsourcing were briefly introduced in the introduction, and are further described in this chapter to provide the reader with a basic understanding of what these concepts entail. Secondly, the concepts strategic orientation towards product returns and outsourcing motivations of the ECR are elaborated upon as those concepts are used to explain the different relationship types that exist between ECRs and SPs in product returns management. Lastly, the relationship types based on the relationship typology framework by Kim & Choi (2015) are presented. The influence of strategic orientation and outsourcing motivations on the different relationship dimensions in this framework is described in this section.
2.1.Product returns
In literature on PRM several types of product returns are distinguished. Product returns can be initiated by the retailer, e.g. a product recall, or by the customer. Returns initiated by the customer are called commercial returns (Rogers & Tibben-lembke, 2001), and can stem from various reasons such as customer regret, the product not meeting expectations, or it being defective upon arrival (de Leeuw et al., 2016). The product return rate differs per product type, which is especially noticeable in the e-commerce industry (Bernon et al., 2016). This is due to the fact that customers cannot experience the product before purchasing it (Krikke et al., 2013; Meade & Sarkis, 2002). Bernon et al. (2016) identified that there are product types which can be seen as “considered purchases”, such as electronic equipment, and “try-before-you-buy” purchases, such as fashion. “Try-before-you-buy” purchases have a significantly higher returns rate compared to “considered” purchases.
2.2.Product returns processes
7 The logistics process behind product returns consists of the following steps:
• Collection phase: after the customer decides to return the product, the product needs to be physically returned to the retailer (Kumar & Putnam, 2008).
• Storage and inspection phase: after the product has been collected, it needs to be inspected, because the quality of the product itself and its packaging can vary, so a decision needs to be made what will be the next step (Stock & Mulki, 2009).
• Rework phase: after inspection the product might need rework. During the rework stage the product will be returned to a sellable state (de Leeuw et al., 2016).
• Disposition phase: during the disposition the product will either enter redistribution or there will be full disposal of the product (de Leeuw et al., 2016; Rogers & Tibben-lembke, 2001). Redistribution entails that the product can be sold again. (de Leeuw et al., 2016). If there is full disposal, the product will be thrown away or recycled (Rogers & Tibben-lembke, 2001).
During the logistics process there are several moments of authorization, so called gatekeeping. Gatekeeping is the moment a decision is made whether a product can enter the next phase of the process (de Leeuw et al., 2016; Rogers & Tibben-lembke, 2001).
IT & data management systems can support both the logistics and gatekeeping processes. Figure 1 represent a visual representation of the product returns processes.
Figure 1: Visual representation of the steps in the product returns management for e-commerce retailers
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2.3. Outsourcing
In purchasing literature, Shakeel et al. (2018) offer a simplified view of the outsourcing process. In this view there are two phases in an outsourcing relationship. Firstly, there is the selection phase during which the ECR selects the SP it wants to work with. Secondly, there is the development phase during which a relationship between the two firms develops and takes a certain form.
More elaborate versions of the outsourcing process have been described by e.g. Wan et al. (2015) who split the process in multiple steps and pay more attention to the selection phase. Since the main focus of this thesis is on the relationships that are formed between SP and ECR and how they develop over time, the stages that cover the selection process up to the start of the relationship are of lesser relevance. One does not need to know the alternative SPs that were considered to examine the current existing relationship. Hence, the view by Shakeel et al. (2018) is adopted for the purpose of this research.
2.4. Strategic orientation towards product returns
An important factor identified in literature that influences PRM is the strategic orientation firms have towards returns. Firms can view returns as a cost of doing business, and thus try to avoid them as much as possible (Röllecke et al., 2018), which in this research is referred to as a cost orientation. While, firms can also see returns as an opportunity to provide additional service to customers (Hjort et al., 2019; Röllecke et al., 2018), which in turn drives customer acquisition and retention (Hjort & Lantz, 2016; Mollenkopf et al., 2011). This view is often adopted by firms with “try-before-you-buy-products” (Röllecke et al., 2018). In this research this will be referred to as a service orientation. Firms with a service orientation view PRM as an important part of their overall company strategy, whereas firms with a cost orientation often do not consider returns as part of their wider strategy (Li & Olorunniwo, 2008; Olorunniwo & Li, 2010; Röllecke et al., 2018).
9 The strategic orientation towards business processes influences the relationship that outsourcing firms form with their suppliers (Golicic & Mentzer, 2005). Firms that do not view business processes as being important are more likely to develop loose relationships with their SPs, while at the same time firms that do view the outsourced business processes as having strategic importance are expected to develop relationships that are more intensive, with a higher relationship orientation (Cai & Yang, 2008; Chu & Wang, 2012).
If and what the effect is of the strategic orientation towards PRM processes, on the relationship between ECRs and SPs, has not yet been described in literature, and will be investigated in thesis.
2.5. Outsourcing Motivation
Supply chain literature identifies three main motivations to outsource business processes. These are strategic, operational, and financial motivations (Ordoobadi, 2009; Sanders et al., 2007; Selviaridis & Spring, 2007). Strategic motivations are based on the goal of a firm to gain a competitive advantage over its competitors (Sanders et al., 2007). In the context of outsourcing PRM, an example of such a strategic motivation could be the focus on a firm’s core competencies.(Govindan et al., 2012; M. C. Lacity et al., 2011; Ordoobadi, 2009). Another strategic reason can be to increase customer service (Cho et al., 2008; Mollenkopf et al., 2007). Operational reasons are related to the internal resources of a firm, or actually the lack there of (Bolumole et al., 2007; Sanders et al., 2007). This can be a lack of resources, expertise or IT systems, which a company wants to access through outsourcing (Li & Olorunniwo, 2008; Ordoobadi, 2009). Lastly, outsourcing can be financially motivated. The firm decides to outsource to achieve a cost reduction (Cho et al., 2008). This cost reduction can be obtained by the economies of scale a SP can achieve by processing a returns for multiple firms (Govindan et al., 2012), by avoiding a large investment(Richey, Chen, et al., 2005).
10 Motivation
type
Outsourcing reasons References
Strategic Reasons
Competencies of the third party logistics provider Li & Olorunniwo (2008), Ordoobadi (2009) Ability to focus on core activities Roy et al. (2006), Li &
Olorunniwo (2008), Cho et al. (2008), Ordoobadi (2009) Improve service offerings to end-customers Cho et al. (2008), Ordoobadi
(2009) Operational
Reasons
Lack of internal expertise Li & Olorunniwo (2008), Ordoobadi (2009), Krikke et al. (2013),
Access to more specialized logistics expertise Cho et al. (2008), Ordoobadi (2009), Röllecke et al. (2018) Handling of the non-value added activities Ordoobadi (2009), Lacity et
al. (2011) Financial
Reasons
Avoiding large investments Richey et al. (2005), Li & Olorunniwo (2008), Ordoobadi (2009), Cost advantages due to economies of scales Rogers & Tibben-lembke,
(2001), Cho et al. (2008), Li & Olorunniwo (2008), Stock & Mulki, (2009), Ordoobadi (2009),
Reduction in operating and transaction costs Lau & Wang (2009), Ordoobadi (2009),Govindan et al. (2012)
Table 1: Outsourcing Motivations
Bolumole (2001) argues that relationships between firms and SPs are dependent on the outsourcing motivation of the firm. If a firm has a financial motivation the relationship will likely be less intensive, with a lower relationship orientation, as the SP is perceived as a means to an end. Sanders et al. (2007) add that outsourcing arrangements often stem from a mixture of motivations, thus a firm with a strategic motivation to outsource will also have financial and/or operational motivations. However, one will always be the more dominant motivation. In outsourcing relationships where the firm has a dominant strategic motivation, a relationship with higher relationship orientation is likely to be present (Ordoobadi, 2009). While in outsourcing relationships based on financial or operational motivations, relationship orientation will likely be lower (Sanders et al., 2007).
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2.6.Factors influencing the relationship development
The outsourcing process consists of two phases: the selection phase and the relationship development phase. In the following section, factors influencing the relationship development are described.
At the start of the formal cooperation between a firm and an SP, the nature of the relationship is not fully developed yet (Andersson & Norrman, 2002). Multiple studies have indicated that SPs proactively engage with retailers (Chen et al., 2010; Hofer et al., 2012), and use various strategies to create more intensive and cooperative relationships with them(Balci et al., 2019; Williams & Naumann, 2011).
Ordoobadi (2009) and Sanders et al. (2007) propose that when retailers have a more strategic reason for outsourcing they want to focus more on the relational orientation in the relationship to keep a tighter control on the outsourced operations. Furthermore, when there is a dominant cost focus the relationship will likely be more adversarial, since there is no need to develop a positive relationship orientation. If this holds in the context of PRM outsourcing is investigated in this thesis by using the relationship typology of Kim & Choi (2015). This relationship typology is described in the following section.
2.7.Relationship Dimensions
For a long time in supply chain literature buyer-supplier relationships were characterized along the dichotomy of arm’s length and close relationships (Lambert & Knemeyer, 2004; Whipple et al., 2010). Where arm’s length relationships are considered as being adversarial with limited operational interaction between the two parties, and close relationships being collaborative with higher operational interaction and cooperation between the parties (Whipple et al., 2010). In recent years this view on buyer-supplier relationships has been considered as being too simplistic (Kim & Choi, 2015; Wallenburg et al., 2019). Therefore, authors have started incorporating other aspects to analyse buyer-supplier relationships, such as power (Hansen & Rasmussen, 2013), hierarchy (Zybell & Wallenburg, 2017), and relationship orientation (Kim & Choi, 2015).
For this research the approach of Kim & Choi (2015) is taken, since it does not steer too far away from the classic dichotomy of arm’s length and close relationships. Kim & Choi split this view into an operational dimension, the relationship intensity, and an affective dimension, the
relationship orientation. For this research this distinction is suitable, as for ECRs with a low
12 still might have a high level of relationship orientation. For example, Bernon et al. (2016) indicated that SPs can be a source of novel PRM solutions for an ECR. This indicates information sharing takes place, one of the aspects of relationship orientation as described below. However, when and why this happens has not been investigated yet.
Relationship Orientation
Relationship orientation is the way companies view each other, the feeling they have regarding the relationship, and the way they act within the relationship (Kim & Choi 2015). It is the extent to which companies actively maintain or develop the relationship (Panayides & So, 2005). Factors influencing the relationship orientation are trust, commitment, information sharing, conflict resolution and relational norms (Kim & Choi, 2015). Trust is defined as the expected credibility and reliability of a partner (Kim & Choi, 2015; Tian et al., 2008). Commitment can be described as the intention of parties to stay in the relationship, even if short-term disruptions arise (Tian et al., 2008). Information sharing is the degree of knowledge exchange with the aim to help the other party (Kim & Choi, 2015; Liu et al., 2015). Conflict resolution relates to how problems and conflicts are resolved between parties (Kim & Choi, 2015; Lacity & Willcocks, 2017) Finally, relational norms can be defined by whether both parties are on the same page in the relationship (Huo et al., 2016; Kim & Choi, 2015). A positive relational orientation can lead to better collaboration, organisational learning and innovation, which is good for the performance of both firms (Panayides & So, 2005; Yuan et al., 2018). How the strategic orientation towards PRM influences relationship orientation and its underlying dimensions, is not yet clear in literature, and will be investigated in this research.
Relationship intensity
13 responsibility assigned to the SP, which can range from taking over simple tasks, to fully controlling the design and management of the process of the ECR. Leaving the ECR without direct control over the process (Mukhopadhyay & Setaputra, 2006).
Previous research in a non-retail setting of product returns shows that the interaction frequency between SPs of product returns and their clients are dependent on the returns rate of the products. Where a high return rate means, a higher interaction frequency. At the same time, relation specific investments are expected to be relatively low in the relationships as most activities and resources can be used regardless of product type (Roy et al., 2006). The impact of the strategic orientation towards PRM on the dimensions relationship orientation and relationship intensity have not been investigated yet in literature in the e-commerce context. The different distributions of the relationship dimensions result in different relationship types. These will be discussed in the following section.
Relationship types
Kim & Choi (2015) identify four relationship types based on the extent of the relational intensity and the relational orientation. First of all, there is the deep relationship, which is a closely-tied relationship where firms have a good relational orientation. Secondly, there is the
sticky relationship, which is closely-tied, however the firms do not have a good relational
14 3. METHODOLOGY
3.1. Research design
The aim of this thesis is to provide a better understanding of the outsourcing of PRM by ECRs, and the relationships that develop between the ECRs and SPs. For this research, a multiple case study was chosen, since knowledge on PRM in ECRs in general (Bernon et al., 2016; Hjort et al., 2019) and the nature of their relationships with SPs is limited. Therefore, research on this topic is still in a development phase and needs to be further explored (Eisenhardt & Graebner, 2007; Yin, 2009). Case studies allow for phenomena to be studied in their natural setting and create a better in-depth understanding of processes (Karlsson 2016).
ECRs can have a varying strategic orientation towards PRM (Röllecke et al., 2018), and numerous possible reasons for outsourcing (Ordoobadi, 2009). Both depend on the context in which a ECR operates. Because the strategic orientation and outsourcing reasons can differ, different types of relationships between SPs and ECRs might develop. To explore these differences a multiple case study using theoretical replication logic is most suitable. Being able to compare various cases with each other increases external validity of the research (Eisenhardt & Graebner, 2007). The unit of analysis is the dyadic relationship between an e-commerce retailer and its SP. This allows for incorporating perspectives from both sides of the relationship in the analysis.
3.2. Case Selection
For the selection of cases for this research, a convenience and snowball sampling technique was used. This thesis was conducted within a limited time frame, so SP participants were selected based on their willingness to participate. Moreover, due to the invisible and painful nature of returns management processes (Rogers & Tibben-lembke, 2001), a snowballing technique was chosen to select ECR participants. The snowballing technique is useful to contact hard-to-reach populations and populations that might otherwise be unwilling to participate (Flynn, 1973). The SPs were selected based on publicly available data where SPs identified themselves as service providers of PRM for ECRs. After initial contact, it was established that the SPs offered various types of returns processes, as discussed in Chapter 2.
15 The reasoning behind this differentiation is that ECRs with different product types are likely to have different strategic orientations towards product returns, as described in section 2.4, and design their product returns processes differently (Hjort et al., 2019). Therefore, the selection process is designed based on theoretical replication.
Unfortunately, in the majority of cases ECRs were unwilling to participate in the research. SP5 stated: “ECRs are unwilling to talk about their product returns. There still is a bit of a taboo
around them”. This partly explains the unwillingness of ECRs to participate, and therefore
caused that only the perspectives of four ECRs could be taken into account. Furthermore, one interview (ECR4) was cut short, and the participant was unwilling to reschedule. Therefore, only on three SP-ECR relationships a dyad perspective can be given. For the other relationships the supplier perspective will be used. The final selection of cases can be found in Table 2 and 3 below. The names of the participating companies have been anonymized on their request:
Case SP Name Services Provided by SP
ECRs Product type ECR Name
1 SP1 Logistics & IT Fashion & Apparel ECR1
2 SP2 Logistics Collectibles ECR2
3 SP3 IT & Data Management
Bags ECR3
Table 2: Dyadic Perspective
Case SP Name Services Provided by SP ECR Product type
4 SP1 Logistics & IT Consumer Electronics
5 SP4 Logistics & IT Fashion
6 Electronics
7 SP5 Logistics Gadgets
8 Fashion
91 SP6 Logistics Fashion (ECR4)
10 SP3 IT & Data Management Fashion 11 SP7 IT & Data Management Fashion
12 Consumer Electronics
Table 3: SP Perspective
16
3.3. Data Collection
Data was collected by means of semi-structured interviews based on a pre-constructed interview protocol for reliability and validity (Yin, 2009). For both the ECR and the SP side different protocols have been constructed to be able to explore the different perspectives and orientations of these companies. The interview protocols can be found in Appendix 1 and 2. For the ECR interviews, first strategic orientation was discussed, after which the outsourcing motivations and the relationship dimensions were investigated The SP interviews started with an exploration of their service offerings and customer base. This was followed by an investigation in the perceived strategic orientation and outsourcing motivations of their ECR client. Finally, the relationship dimensions were investigated.
To increase the validity of the research, parts of the interview protocols used to investigate the different aspects of relationship orientation and relationship intensity were adapted from the survey created by Kim & Choi (2015). For the parts of the interview detailing strategic orientation and outsourcing motivations no clear precedent was found in literature, and thus were formulated by the author based on the literature used in the respective sections in Chapter 2.
All interviews were conducted in November and December of 2020. Due to the COVID-19 pandemic, all interviews took place via Google Meet or Microsoft Teams. Furthermore, all interviews were conducted in Dutch, since all participants spoke this as their first language, which allowed for the free expression of their thoughts. After the main part of the interview was concluded, every participant was asked if in their view a certain topic was overlooked during the interview. This allowed for additional subjects to be identified, which could lead to changes to be made to the interview protocol, and prevented data collection bias (Yin, 2009).
3.4. Data Analysis
17
First Order Codes Second Order Codes Themes
Returns are costs Cost Orientation Strategic orientation
Return Avoidance
Data Management for avoidance
Customer Return Experience Service Orientation Innovation
Data Management for service
Competencies of SP Strategic Motivation Outsourcing Motivation Focus on core competencies
Service to end-customer
Avoid large investments Financial Motivation Economies of scale
Lack of internal capacity Operational Motivation Foreign Returns Address
Lack of internal expertise
Simple Logistics Degree of outsourcing Relationship Intensity Complex Logistics
IT & Data Management IT & Logistics
Operational Interaction Frequency Interaction Frequency Strategic Interaction Frequency
Diversified Client Base Operational
Interdependency Substitutability
Ease of switching Single Sourcing
IT Integration Relationship specific
investments Standardised Services
Set-up Time
Reliability Trust Relationship Orientation
Interpersonal Trust Relevance of Trust
Transparent Communication
Sharing Risks Commitment
Role of contract Importance of client Long Term Orientation
Co-development Information Sharing
Information Sharing Advisory Role of SP
Reciprocity Relational Norms
Mutual Benefits
Multiple levels of escalation Conflict Resolution Open Communication
Attitude
time for problem solving
18 4. FINDINGS
In this section the findings based on the interviews are discussed. The structure of this section is based on the structure of the coding tree, as depicted in Table 4. First, the findings on strategic orientation and outsourcing motivations are discussed individually. Secondly, relationship intensity and relationship orientation, their underlying factors, and the relations with strategic orientation and outsourcing motivations are discussed. Within the findings, quotes by participants are used for illustration purposes. Originally the responses were in Dutch, the quotes have been translated into English by the author for readability and clarity.
Although this research was designed to have theoretical replication based on product type, this relation was not found for all constructs. When there is a difference between product types this will be explicitly stated, otherwise the findings are discussed without a distinction between product types.
4.1 Strategic orientation
ECRs can adopt a cost or service orientation when it comes to PRM, based on the ECR interviews. Some ECRs view returns mainly as a cost and part of doing business, resulting in a focus on return avoidance. ECR3 stated: “The returns process is mainly a cost for us. Our
primary goal is to reduce the amount we have, and reduce the costs associated with them”.
Other ECRs identified the return process as a tool to offer additional service, resulting in a focus on the customer experience during the returns process.
There is no indication that the product type or company size affect the strategic orientation, as is evidenced by ECR2, a smaller ECR selling collectibles, and ECR1, a larger ECR of apparel active in multiple countries. Both have a service orientation, ECR2 stated: “If a client wants to
return something, … I have it picked up for free by the carrier. For me the service aspect is important”, and ECR1 stated: “For us it is important that the returns process is frictionless for the end- customer … Its more about service, than about costs.”
SP respondents confirmed both strategic orientations. SP4 stated: “Clients mainly come to us to
improve their customer return journey”, and SP6: “Our clients mainly see returns as a cost … they focus on cost reduction and efficiency”. In contrast to ECR interviews, the SPs indicated
19
have a choice, if you look at the current market”. Indicating that in the current market situation
ECRs need to have a (slight) service orientation to stay competitive.
Interviews indicated that there is a difference in how actively ECRs think about the design of their product returns processes. ECRs with a service orientation are more actively engaged in the design of their PRM processes, compared to ECRs with a cost orientation. ECR1 and 2 were actively engaged in the management of the processes and discussed innovation with their SPs. ECR3 and 4 were not actively engaged, accepting more basic solutions. ECR3 went as far as stating: “We did not even think about having such a system in place, before SP3 contacted us”.
4.2 Outsourcing Motivation
Multiple motivations to outsource PRM can be distinguished in the context of e-commerce returns. Based on the analysed cases outsourcing motivations are not clear cut and singular. It seems that ECRs have a main motivation, however multiple other reasons are involved as well. For example, ECR2 stated: “I outsourced the physical processes, because I wanted to focus on
the online process and marketing. It is also cheaper, for the price SP2 processes returns, I cannot hire someone. Furthermore, it increases the service to my customers, since the returns get processed quicker.” This quote matches with multiple first- and second order codes of the
theme outsourcing motivation in the coding tree. The ECR mentions focus on core competencies and an increased service to the end-customer, two strategic motivations, a lack of labour, an operational motivation, and cost advantages due to economies of scale, a financial motivation.
Other outsourcing motivations that were identified are: advantage of the competencies of the SP, lack of internal expertise, and avoidance of large investments.
ECR1’s main reason was strategic: “When returns started increasing, we decided that we
needed a partner that could provide us with end-to-end capabilities… We are really looking for a partner that can bring us ahead in the returns market.”, and ECR3 was more focused on
financial motivations: “At first we thought we will do it ourselves, however it turned out that it
took quite some time and money”. However, various other outsourcing motivations were
mentioned. Therefore, no clear pattern is identifiable in the outsourcing motivations, as different combinations of outsourcing reasons were mentioned by the ECRs and SPs.
20 need of a local return address. SP5 stated: “I think an important reason to outsource is access
to a returns address, because we are located in the Netherlands.” Next to this operational
motivation, a service element is involved. Return locations closer to end-customers mean returns can be processed faster. SP1 affirmed this: “It is important for our clients to have access
to local return hubs, so the products can be processes quickly”. Finally, there is a cost element.
Shipments can be consolidated before being shipped internationally, which saves costs. SP5 stated: “We consolidate their returns, and send it as one shipment, which saves costs”.
4.3 Relationship intensity
Relationship intensity is constituted of four components: degree of outsourcing, interaction frequency, interdependency, and relationship specific investments, as depicted in the coding tree in Table 4. In the following sections these four components will be described in more detail. The relationship intensity between ECRs and SPs appears to be relatively low in the e-commerce returns market, when judged by the analyzed cases. Although the degree of outsourcing and interaction frequency were relatively high in most cases, interdependency and the amount of relationship specific investments was low.
Degree of outsourcing
Based on the evidence, ECRs with a service orientation are engaged in relationships with a higher degree of outsourcing ECRs with a service orientation outsourced both IT and logistics processes. Furthermore, the logistics process took on a more complex and elaborate form, which SP5 called an “end-to-end solution”. ECRs with a cost orientation either only outsourced IT, or parts of the logistics process. This indicates that these ECRs have a higher relationship intensity than ECRs with a cost orientation.
According to the SPs the amount of services actually performed, and thus the relationship intensity, is dependent on the product value. If the cost of the logistics processes, such as inspection or rework, exceed the value that can be attained by reselling the product, these steps will not be performed. Therefore, ECRs with low value products will have a lower degree of outsourcing, thus leading to less intense relationships with SPs. As SP4 put it: “What clients
21
Interaction Frequency
Interaction frequency is one of the four components that constitute relationship intensity in the coding tree. It can be split into operational- and strategic interaction frequency, as depicted in Table 4. The operational interaction frequencies between the ECRs and SPs ranged from daily to quarterly, however based on the interviews, the interaction frequency did not relate to the strategic orientation and outsourcing motivations.
Operational interaction frequency does seem to be related to the degree of outsourcing and the volume of returns. When multiple phases of logistics process are outsourced, the SP needs to contact the ECR to notify it of incoming returns, so the ECR can contact the end-customer. Therefore, when there is a higher volume of returns, the SP needs to contact the ECR more frequent. ECR1 stated: “There is daily contact. It is about the returns that have arrived, and
about forecasting from our side”. When only IT & data management is outsourced, the IT
systems are used to track the returns, making manual notification of the ECR redundant, leading to a lower operational interaction frequency. Noteworthy, is that this is only the case when IT systems work flawlessly. SP3 noted: “The volumes of this client are higher, so more can go
wrong in our system, if that happens the ECR contacts us”. Indicating that if bugs in the system
occur more contact is needed.
The strategic orientation of ECRs seems to be related to the strategic interaction frequency. In the analysed relationships, the strategic interaction frequency is linked to information sharing. ECRs with a service orientation discussed strategic matters more frequently with their SPs. This will be further discussed in Section 4.4.
Operational Interdependency
There does not seem to be a clear relation between operational interdependency and strategic orientation, or outsourcing motivations. The operational interdependency between ECRs and SPs appears to be relatively low in the e-commerce returns market, when judged by the analyzed cases. The services of the SPs are perceived as substitutable, and easy to switch. This was both the case for SPs providing logistics, and SPs providing IT services. SP2, provider of logistics, stated: “It is very easy for them to switch, they just need to call another provider and say
products are coming their way.” Furthermore, SP7, an IT provider, stated: “ These clients can easily switch. It is a standardised portal with minimal adaptions”. The perspectives of the ECRs
22
anyone can do. Switching is not difficult”, and ECR3: “We can easily switch to another provider. There are enough alternatives”.
An interesting observation is that regardless of the perceived substitutability of the SP, all ECRs outsourced their PRM to one SP. Thus, indicating a certain level of dependency on the SP to keep operations running. As ECR1 put it: “They are our only service provider for e-commerce
returns … if they go bankrupt tomorrow, we have a problem”. SP1 corroborated stating: “It is difficult to switch to other service providers … operations must simply continue”. Although
switching SPs is possible due to the substitutable nature of PRM services, ECRs need to make timely preparations to perform such a switch. Arguably this is related to the return volume and product type of the ECR. When the return volume processed by the SP is high, the ECR is more dependent on the continuation of daily business.
SPs indicated that they were not too dependent on the relationships discussed in the interviews, since they had a diversified client base.
Relationship specific investments
Relations specific investments can be made in tangible and intangible assets. Based on this study, tangible relationship specific investments in PRM outsourcing relationships in the e-commerce market are low.
None of the respondents mentioned relationship specific investments in tangible assets. Both ECRs and LSPs preferred to make investments that can be used for multiple vendors or clients. ECR1 stated: “Initially we had solutions that were not flexible, now we opt for standardised
options for all vendors”. LSP6 stated: “It is important to recuperate an investment, we take into account that we can use it for multiple customers.” LSP1 shared this view: “We tend to standardise all investments, so they can be used for every customer.”
Intangible relationship specific investments were present in all relationships. The services of the LSPs were mostly standardised, however a set-up time is necessary to implement the services. For logistic services this means e.g. training of personnel, or creating decision scenarios, as SP2 mentioned: “We invest time in our clients to train our personnel to be able to
process their returns”. In relationships were IT was outsourced, the SP needed to configure the
23 outsourced the up time is shorter. Basic logistic- and IT SPs mentioned relatively short set-up times, ranging from one hour to a few weeks. While SPs providing both logistics & IT services stated longer set-up times, even ranging to multiple years. SP1: “If they want to switch
to another provider, it would take years to set-up all scenarios again”. And SP4 stating:
“Clients need to make investments to work with us. They need to change processes, train people,
make integrations. They engage in a change process with us, which takes time.”
4.4 Relationship orientation
In the following sections the different dimensions of the relationship orientation are discussed. Relationship orientation constitutes of five dimensions: trust, information sharing, commitment, relational norms, and conflict resolution, as depicted in the coding tree in Table 4. Overall, there was no clear relation between the strategic orientation of the ECR and the relationship orientation. Only a relationships between the strategic orientation and information sharing, and commitment were observed.
Trust
Based on the data, there is no relation between trust and the strategic orientation, or outsourcing motivations. Trust was discussed in terms of reliability and personal trust. Reliability trust seems to serve as a prerequisite for the relationship between ECRs and LSPs. All respondents stated to trust that their counterpart will deliver on the agreements made. From an ECR perspective, ECR2 stated: “Trust is something very important, I have to be able to rely on the
SP to deliver the agreed service.” From an SP perspective, SP5 stated: “Trust plays an important role in our relationship, our service is related to end-customers of our clients, so they have to trust us to deliver”. Transparent communication plays an important role for achieving
reliability trust. SP6 stated: “It is important to manage expectations, and keep communicating.
If trust weakens, the relationship can fail.” This indicates that if there was no reliability trust,
one of the parties would end the relationship.
Personal trust can improve the relationship, if reliability trust is already present. SP1 stated: “If
I trust the person at the other side of the table, we can come to a mutual beneficial solution quicker. This is the case with ECR1”. And SP2 stating: “Trust is also about the person, if you see eye-to-eye it will improve the working relationship”. At the same time, the relevance of
personal trust was questioned. SP1 stated: “ECR1 is trustworthy, however in the end it is about
24
Commitment
Based on the interviews, there is a possible correlation between the strategic orientation of ECRs and their commitment in ongoing relationships. In the analysed cases ECRs with a service orientation showed higher levels of commitment in case of problems. ECR1 and ECR2 both indicated being committed to the relationship with their SP. ECR1 stating: “We will never pull
the plug on the relationship at random, if there are problems we try to solve them together.”
ECR2 stating: “I never just look what my company needs and how I can get it on the market
quickly, I always first take SP2 into account.” While, ECR3, a cost-oriented ECR, showed to
be less commited to the relationship: “The relationship is not as such that we would support
each other if there are disruptions. There would not even be a conversation about it.”
Interestingly, the service orientation could have an adverse effect on the commitment in terms of long-term orientation. One ECR, ECR1 stated: “We are currently looking at alternatives to
split up our returns processes, we are thinking about working with multiple parties, to achieve local return networks” Indicating that since service-oriented ECRs are more actively
considering the design of their PRM, they do not have a long term orientation towards one SP. All SPs showed a certain level of commitment to ECRs. Commitment is shown through helping clients and sharing costs and risks. For example, SP7 stated: “During COVID-19, our clients
had problems with a certain carrier, we used our contracts with other carriers to help them out.” By showing commitment, SPs hoped to achieve loyalty and commitment by ECRs in
return. How far this commitment goes, seems to be dependent on the importance of the ECR to the SP, as illustrated by SP7: “If we are the small fish, we will always do what the client asks,
however, if we are the big fish, they need to settle with what we offer.”
In the e-commerce market there seem to be contracts with multiple levels of detail, based on the analysed relationships. Ranging from contracts with explicit descriptions of services and KPI’s, to the lack of a formal contract and agreeing to terms & conditions on the SPs website. However, in all cases the contract was not leading in the relationship, and more a means to fall back on in case of conflicts. Both SPs and ECRs were willing to go beyond the contract. ECR1 illustrated this best stating: “Our relation goes above the contract, of course the service levels
25
Information sharing
There appears to be a relation between the amount of information sharing and the strategic orientation. ECRs with a service orientation engage in relationships with higher amounts of information sharing, compared to ECRs with a cost orientation, based on the analysed data. Service oriented ECRs engage in information sharing with their LSP more often. They actively look for information to improve processes. ECR1 stated: “They know the market and what can
be useful for us, in that sense they act as consultants.” SP4 made a corresponding statement:
“We do more than providing IT and logistics. We are a conscience for clients concerning their
returns processes ”. These quotes imply that LSPs in the PRM context take on an advisory role,
next to their operational one. At the same time, SP1 mentioned that this knowledge exchange goes both ways, stating: “Many ideas for new services come from clients, they know what is
needed in the market”. This information sharing can lead to the co-development of services.
For example, ECR2 stated: “I want LSP2 to implement a new service for our returns, for them
it is a new concept, so we have to co-develop.”
Cost oriented ECRs are likely to engage in relationships with lower amounts of, and one-sided, information sharing. SPs seem to instigate sharing beneficial information with their clients in formal and informal ways. SP7 stated: “We organise webinars for our clients to learn from. It
is a way to show our expertise”. Informal information sharing is mainly incidental. For example,
SP2 stated: “Of course I will provide the services a client asks of me, however I also give them
additional advice on how they can design their returns process smarter.” Relational Norms
The presence of relational norms does not seem to be affected by the strategic orientation of the e-commerce retailers, nor the outsourcing motivation. All respondents emphasized the importance of reciprocity in the relationship. For example, SP2 stated: “I share helpful
information with my clients, but only if I think I will get something back in return. This is the case with ECR2.” From the perspectives of the ECRs the relational norms showed through
mutual benificial solutions. For example ECR1 stated: “It is a process of mutual development,
26
Conflict resolution
In this reseach no major conflicts between the SPs and the ECRs were reported. However, most respondents did discuss smaller problems, such as one-time incidents related to service levels. Based on the interviews, no clear relation between conflict resolution and the strategic orientation, or outsourcing motivation can be drawn.
A mutual attitude to solve the problem is an important factor in conflict resolution, as seen in the coding tree depicted in Table 4. According to all respondents, both sides need to understand each other’s perspective, and be willing to come to a mutual satisfactory solution. For example, ECR1 stated: “In case of conflict, we always look for a solution together. Both sides work
together to solve it”. SP1 agreed stating: “You need to understand each others perspective, and need to come to a middle-ground.”
Furthermore, bilateral communication is also deemed important. SP5 stated: “It is important
for clients that we are available and keep our communication channels open when something is wrong.” And SP6: “If something goes wrong, communication is important, we have to explain why it happened. At the same time, the client needs to keep his side of the agreement, and do the same.” One SP provided an example specifally about a conflict caused by a client. SP7: “If a client cannot pay in time, and informs me about it, I’ll be accomodating about it.” Indicating
that both ECRs and SPs are expected to communicate to resolve problems.
Finally, time for solving conflicts is important and mentioned by all respondents. Interestingly, sometimes this is contractually anchored. For example, SP4 stated: “With both clients we have
27 5. DISCUSSION
5.1 Strategic orientation
Previous case-based literature in the e-commerce context identified two main strategic orientations towards PRM, which are cost orientation and service orientation (Hjort et al., 2019; Röllecke et al., 2018b). This research corroborates with these findings. The service orientation is perceived as something adopted by larger firms and firms with “try-before-you-buy” products (Hjort et al., 2019; Röllecke et al., 2018b). The practices and increased costs related to the service orientation are difficult to manage for smaller firms, due to the lack of resources and commitment (Richey, Genchev, et al., 2005; Röllecke et al., 2018b). This research deviates from these previous observations, as it shows that smaller firms with “considered-purchase” products still can have a service orientation. Possibly, this is explained by their overall return volume. A small ECR with a low return rate needs less resources to adopt a service orientation, as the high volumes and related costs normally associated with this orientation are not present. Furthermore, in literature, service orientation is often associated with an intrinsic strategic customer orientation of the firm (Hjort & Lantz, 2016; Janakiraman et al., 2016; Röllecke et al., 2018). Meaning that firms offer services based on what they believe a customer needs. The findings of this study indicate that not all ECRs take these decisions with the intrinsic intent to increase customer service and satisfaction. However, they feel forced to employ these policies due to external pressures. Borrowed concepts from marketing literature, such as the voice of the customer (Griffin & Hauser, 1993), and competitive pressures (Armstrong & Collopy, 1996; Grawe et al., 2009) can be used to explain the behaviour seen in this study. However, these concepts have not yet been used in the context of PRM.
5.2 Outsourcing motivation
28 empirical quantitative study in the accounting industry, Asatiani et al. (2019) controlled for the outsourcing motivation in their analysis, and found relationships between individual motivations and the degree of outsourcing. A similar approach can be used by future researchers in an e-commerce context.
This study finds that some ECRs outsource PRM as part of their internationalisation strategy. In the research of Krikke et al. (2013), where a multitude of firm types and returns stemming from the entire product lifecycle were investigated, a similar motivation was found. Respondents in their study cited that reducing the effort spend on complying to international regulation as the most important underlying motivation to outsource PRM to local SPs. In this research this regulatory aspect was not mentioned by participants. The underlying motivations were related to cost reduction and increased service towards the end-customer. This difference in findings could be explained by the fact that ECRs processing commercial returns experience different regulatory pressure, compared to manufacturers processing end-of-life returns, as different regulations apply for commercial returns and end-of-life returns (O’Connell et al., 2013). Different regulatory pressures cause firms to adopt different PRM strategies (Huang et al., 2014), which might possibly also affect how they engage in relationships with SPs.
5.3 Relationships
Past research on outsourcing relationships in the context of PRM has been theoretical and prescriptive. Ordoobadi, (2009) proposed that firms viewing PRM as more strategically important to their business processes, will engage in more intense relationship with their SPs. Furthermore, in a more general logistic outsourcing setting, Sanders et al., (2007) proposed a similar framework. This research provides anecdotal empirical evidence that supports their propositions in the context of the e-commerce market. Various types of relationships exist between ECRs and their SPs of PRM. ECRs that have a strategic service orientation engaged in relationships characterised by higher relational intensity and a higher relation orientation, described by Kim & Choi (2015) as deep relationships.
29 sharing information (Stank et al., 2003), high willingness to help (Tontini et al., 2017), and relationship specific investments (Knemeyer et al., 2003; Large, 2011; Tian et al., 2008), to drive customer loyalty, and as a sign of commitment. This in turn drives relational orientation in the relationship. This thesis shows that the SPs play an important role in the relationship development, as it shows that SPs use relational tactics to drive the relationship orientation, and ECRs. It extends the use of relational tactics to the context of the e-commerce returns market. Furthermore, it shows that relationships are more complex compared when from the principal-agent perspective. Future research should put their focus on the contrasting drivers of buyer-supplier relationships, and how they affect the relationship dimensions differently, as both factors related to ECRs and SPs play a role in the relationship development.
This research gives indication that SPs of PRM in the e-commerce market use relational tactics to increase relationship orientation. Interestingly, in the findings of this study the relationships were characterised by a lack of relationship specific investments in terms of assets. With both ECRs and SPs stating they want to stay away from making tangible relation specific investments, and opting for standardised services with only minor configurations. Although this finding is similar to previous case based research in reverse logistics networks for recycling (Roy et al., 2006), it is contrasting with the aforementioned research in outbound logistic outsourcing relationships. In the outbound context, relationship specific investments are often seen as a way to build trust and show commitment in the relationship (Knemeyer et al., 2003; Tian et al., 2008). This difference in the use of tangible relationship specific investments could be explained by the observation that most ECRs in this research have a cost orientation towards product returns, and thus do not want or need very specific processes to suit their needs. At the same time, due to the lack of the relational specific investments, the SPs are more substitutable, and thus must find other ways to drive loyalty. This makes them turn to other strategies for increasing relational orientation.
5.4 Miscellaneous
Role of trust
30 of PRM outsourcing in e-commerce. Based on this perception of trust, it can be assumed that a certain degree of reliability trust is necessary to engage in a relationship; without reliability trust firms would not engage in a relationship. Personal trust can help build stronger relationships (Zaheer et al., 1998). However by some of the SPs in this research personal trust was not deemed necessary. This gives rise to the question in what kind of context personal trust is necessary in buyer-supplier relationships. Further research can explore the role of personal trust.
Advisory role of SPs
31 6. CONCLUSIONS
In this thesis the relationship between ECRs that outsource their PRM and their SPs, and the possible influence of the strategic orientation towards PRM on the relationships was investigated. Furthermore, different outsourcing motivations were taken into account. To analyse the relationships, the relationship framework of Kim & Choi (2015), and the underlying concepts of relationship intensity and relationship orientation was used.
A multiple case study using semi-structured interviews was performed. Both respondents from ECRs and SPs were interviewed, to provide a dyadic perspective on the relationships, and to discover possible differences in perspectives.
The results of this research demonstrate that ECRs with a service orientation are more likely to form gracious or deep relationships characterised by higher relational intensity, due to higher degrees of outsourcing and intangible relationship specific investments, and higher relational orientation, due to higher levels of information sharing by both ECRs and SP and commitment.. ECRs with a cost orientation are more likely to form transient, or gracious type relationships, characterised by lower degrees of outsourcing, and one-sided information sharing by the SP. Additionally, no clear relation was found between strategic orientation and the relationship factors of relational norms, conflict resolution, trust, and the interaction frequency between both parties. The first three were perceived as basic elements to the relationship, while interaction frequency was mainly related to the volume of returns processed by the SP.
6.1 Managerial implications
Based on the findings ECR managers can take away that SPs can be a source of knowledge and improvement in terms of PRM processes, by adopting an advisory role. Therefore, firms looking to improve their PRM should turn outward to SPs to develop or acquire knowledge on PRM. For managers of SPs, this study can give insights on how to manage relationships with their clients, as it shows examples of relational strategies to strengthen the relationship.
6.2 Limitations and future research
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