Are logistics outsourcing partners more integrated in a more volatile environment?

This study examines how integration, an emerging innovative approach in inter-firm relationship management, between the vendor and the client in logistics outsourcing relationships is influenced by environmental uncertainties. Building on transaction cost theory, we develop the hypothesis that integration decreases to cope with supply volatility and technology uncertainty, and increases to cope with demand volatility and legal unenforceability. These four interrelated yet distinct characteristics jointly describe environmental uncertainties in a logistics outsourcing relationship. Our analysis of 264 such relationships suggests that integration does decrease with supply volatility and technology uncertainty and increase with demand volatility and legal unenforceability. By enhancing operational performance, integration improves outsourcing performance in terms of both financial performance and overall satisfaction. Lastly, operational performance also contributes to financial performance.