Fostering Innovation and Trust when Contracting Service Suppliers : A Case Study at a Retail Company

Abstract: Manufacturing and retail companies outsource their logistics activities to third party logisticsproviders to focus on, and enhance, core competencies. Outsourcing is associated with severalbenefits, e.g. decreasing costs and more flexibility, but it also inherent risks. Uncontrollablebehaviours and suppliers that only act in their own self-interest are common issues that ariseand prevent expected results. During the 21st century, the digitalisation has constantlyrequired companies to acquire new capabilities to cope with new technologies and how to usethem to gain competitive advantage. Therefore, companies choose to outsource IT for thesame reason they outsource logistics. This paper aims to compare outsourcing of logistics andIT outsourcing to draw parallels and highlight differences to create awareness about risks. Aliterature review on third party logistics, IT outsourcing and governance mechanism wasconducted. In addition, a case study at a European retail company, henceforth called Alpha,was carried out. At Alpha, we have investigated how their IT department can work with theirsuppliers, application management service (AMS) providers, to foster innovation and trust.Further, we discuss how Alpha can work with performance measurements to run the ITservices in a resource efficient way. The case study was carried out through two rounds ofinterviews with employees at Alpha.The result shows that there are several similarities between third party logistics and IToutsourcing. The result can be used to create awareness of risks that can arise whenoutsourcing IT. The difference was that studies concerning IT outsourcing emphasized issuescreated by cultural and language barriers, which is not mentioned in studies regarding thirdparty logistics.Moreover, we present a proposal for six areas of improvement for Alpha which can be seen asa foundation for further research.The proposals that we have put forward are as follows:● Develop a travelling agenda for Alpha’s employees to visit service suppliers.● Establishing an innovation fund together with AMS providers● Introduce performance based contracting for AMS providers● Review how Alpha work with and perceive KPIs● Develop a new best practice when contracting AMS providers● Review suppliers role in service development and running business