Outsourcing Strategies and Negotiation Power in Security Sector

Purpose: This research studies how the security-related outsourcing strategies and negotiation power of the public sector and the military and the relevant logistics service providers influence for indirect logistics costs. Design/methodology/approach: A tentative model was devised from theoretical literature comparing how logistics strategy and negotiating power impact for total logistics costs through improved service quality and/or unit-cost reductions. The model was tested using survey data from 149 respondents from the Finnish Defence Forces, and the public sector and industrial firms in Finland via structural equation modelling analysis. Findings: Contrary to the approach of classic assumption, where negotiating power correlates with strategy, the findings indicate that negotiating power and strategy do not correlate. However, together they affect direct costs and perceived service quality, which consequently decreases the indirect logistics costs. Research limitations/implications: By understanding different impacts of strategy and negotiation power on direct logistics cost and perceived service quality, buyer of the logistics services may increase the service performance of their supply chain. The data is collected from one country, which may cause bias. Further studies would be required to test this research proposal in other countries. Practical implications: To obtain improve service performance of the supply chain, buyers of logistics services could learn from the public sector and the military on how to use negotiating power and strategy to obtain better service in addition to short-term cost reductions, as both of them explains reduced costs in the long run. Originality/value: This study is important to practitioners as well as academics since there is little quantitative research available regarding importance of logistics strategy and its impact to negation power and service performance of the supply chain.