Aristotle University of Thessaloniki Department of Economics MSC in Logistics & Supply Chain ...

144 Pages·2017·3.03 MB·English

Aristotle University of Thessaloniki
Department of Economics
MSC in Logistics & Supply Chain Management

LOGISTICS OUTSOURCING AND SELECTION OF THE BEST THIRD
PARTY LOGISTICS PROVIDER (3PL) USING THE FUZZY AHP
METHOD

Master Thesis

POLYZOIDIS ALEXANDROS
Thesis Supervisor: ASST. PROF. DR. DIAMANTIDIS ALEXANDROS

THESSALONIKI, 2017
Abstract
Nowadays, the business world has become competitive so it is immensely important
for a company to gain a competitive advantage against its competitors. Decision
makers of a firm need to have access to decision support tools so as to make quick,
right and accurate decisions. One of these decision making areas is logistics service
provider selection. Logistics service provider selection is a multi – criteria decision
making process that deals with the optimization of conflicting objectives such as cost,
quality and delivery time. If it is not supported by a system, this would be a complex
and time consuming process.
Despite that the term “logistics service provider selection” is commonly used in the
literature, and many methods and models have been designed to help decision makers,
few efforts have been dedicated to develop a system based on any of these methods.
In this thesis, logistics service provider selection decision support system based on the
analytic hierarchy process (AHP) method which has been commonly used for multi –
criteria decision making problems is proposed. Insofar as it is believed that fuzzy
concepts and usage of empirical data extend the capability of any modeling approach,
integrating them into model will lead to a more powerful system. To validate choice
of the Fuzzy AHP model and also to validate the conceptual design of logistics
service provider selection decision support system, it is conducted a case study in
MAJARIDIS BROS S.A.

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TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................. 9
1.1. Stimulus of the research .................................................................................. 9
1.2. Research goals ............................................................................................... 11
1.3. Thesis structure ............................................................................................. 11
2. LITERATURE REVIEW .................................................................................... 13
2.1. Logistics ........................................................................................................ 13
2.1.1 Logistics functions ...................................................................................... 14
2.1.2 Objectives of logistics management ........................................................... 20
2.2. Outsourcing ................................................................................................... 24
2.2.1 Definitions of Outsourcing ......................................................................... 24
2.2.2. Motivations of outsourcing ........................................................................ 26
2.2.3 Critical success factors of outsourcing ....................................................... 29
2.3. Logistics outsourcing .................................................................................... 33
2.3.2 Benefits and risks of logistics outsourcing ................................................. 35
2.3.3 Balance Sheet Impact of Logistics Outsourcing ......................................... 41
2.3.4 The role of logistics service providers in logistics outsourcing .................. 42
2.3.5 General logistics outsourcing perspective in Greek firms .......................... 45
2.4. Selection of third party logistics company (3PL).......................................... 49
2.4.1.Choosing the right logistics service provider.............................................. 49
2.4.2 Selection methods ....................................................................................... 53
2.4.3 Specific problems related to the selection of the 3PL provider .................. 59
2.4.4 Criteria for the selection of the 3PL provider ............................................. 61
3. DATA AND METHODOOGY ........................................................................... 67
3.1. Methodology ................................................................................................. 67
3.1.1 Analytical Hierarchy Process ...................................................................... 67

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3.1.2 Fuzzy set theory .......................................................................................... 69
3.1.3 Fuzzy numbers ............................................................................................ 69
3.1.4 Algebraic Operations on TFNs ................................................................... 71
3.1.5 Fuzzy Analytical Hierarchy Process (FAHP) ............................................. 71
3.1.6 Algorithm of FAHP Method ....................................................................... 72
3.1.7 Fuzzy AHP methodology applications in literature .................................... 75
3.2 Application of FAHP methodology ................................................................... 79
3.2.1 A Case Company ........................................................................................ 79
3.2.2 Selection Model Structure........................................................................... 83
3.2.3 Potential Providers ...................................................................................... 85
3.2.4 Pair wise comparisons matrices .................................................................. 86
3.2.5 Data Input and Analysis using Fuzzy AHP ................................................ 89
4. RESULTS .......................................................................................................... 105
5. DISCUSSION .................................................................................................... 108
6. CONCLUSION AND AREAS FOR FURTHER RESEARCH ........................ 111

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LIST OF TABLES
Table 2.1: Balance sheet impact of logistics outsourcing ............................................ 42
Table 2.2 Summary of literature on the criteria of the selection of the provider ........ 62
Table 3.1: The fundamental scale ................................................................................ 68
Table 3.2: Triangular fuzzy numbers ........................................................................... 70
Table 3.3 Qualifications of 3PL providers ................................................................... 85
Table 3.4: Pair-wise comparison matrix for main attributes ........................................ 89
Table 3.5: Summary of priority weights of main criteria with respect to goal .......... 90
Table 3.6: Pair-wise comparison matrix for the sub-attributes of "Cost of Service"... 94
Table 3.7: Summary of priority weights for the sub-attributes of the "Cost of Service"
...................................................................................................................................... 94
Table 3.8: Pair-wise comparison matrix for the sub-attributes of "Service Quality" .. 95
Table 3.9: Summary of priority weights for the sub-attributes of the Service Quality"
...................................................................................................................................... 95
Table 3.10: Pair-wise comparison matrix for the sub-attributes of "Financial
Performance" ............................................................................................................... 95
Table 3.11: Summary of priority weights for the sub-attributes of the "Financial
Performance" ............................................................................................................... 96
Table 3.12: Pair-wise comparison matrix for the sub-attributes of "Operation
Performance" ............................................................................................................... 96
Table 3.13: Summary of priority weights for the sub-attributes of the "Operational
Performance" ............................................................................................................... 96
Table 3.14: Pair-wise comparison matrix for the sub-attributes of "Reputation of the
3PL" ............................................................................................................................. 97
Table 3.15: Summary of priority weights for the sub-attributes of the "Reputation of
the 3PL" ....................................................................................................................... 97
Table 3.16: Reading table of qualifications of potential providers .............................. 98
Table 3.17: An example matrix of reading table ......................................................... 99
Table 3.18: Pair-wise comparison matrix for the alternatives as regard to sub-
attributes of "Cost of service" ...................................................................................... 99
Table 3.19: Summary of priority weights for the alternatives as regard to the "Cost of
Service" ...................................................................................................................... 100

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Table 3.20: Pair-wise comparison matrix for the alternatives as regard to sub-
attributes of "Service Quality" ................................................................................... 100
Table 3.21: Summary of priority weights for the alternatives as regard to the "Service
Quality" ...................................................................................................................... 101
Table 3.22: Pair-wise comparison matrix for the alternatives as regard to sub-
attributes of "Financial Performance" ........................................................................ 101
Table 3.23: Summary of priority weights for the alternatives as regard to the
"Financial Performance" ............................................................................................ 102
Table 3.24: Pair-wise comparison matrix for the alternatives as regard to sub-
attributes of "Operational Performance" .................................................................... 102
Table 3.25: Summary of priority weights for the alternatives as regard to the
"Operational Performance" ........................................................................................ 103
Table 3.26: Pair-wise comparison matrix for the alternatives as regard to sub-
attributes of "Reputation of the 3PL" ......................................................................... 103
Table 3.27: Summary of priority weights for the alternatives as regard to the
"Reputation of the 3PL" ............................................................................................. 104
Table 4.1: Final priority weights of main, sub-attributes and alternatives ................ 106

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LIST OF FIGURES

Figure 2.1: Evolution of the total domestic service market 3PL in Greece (2005-2015)
...................................................................................................................................... 46
Figure 2.2: Greece Score Card (2007-2014) ................................................................ 48
Figure 2.3 : Key steps of contractor selection process................................................. 50
Figure 3.1: A triangular fuzzy number, M ................................................................... 70
Figure 3.2: The intersection between M1 and M2 ........................................................ 74
Figure 3.3: Decision Hierarchy .................................................................................... 84
Figure 3.4: Geometric average example in Microsoft Excel ....................................... 88
Figure 3.5: Fuzzy AHP Microsoft Excel Screen I ....................................................... 92
Figure 3.6: Fuzzy AHP Microsoft Excel Screen II ...................................................... 93

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ABBREVIATIONS
Logistics service provider: LSP
Third party logistics service provider: 3PL
Analytical hierarchy process: AHP
Analytical network process: ANP
Supply chain management: SCM
Just in time: JIT
Information Technology: IT
Request for information: RFI
Request for proposal: RFP
Triangular fuzzy number: TFN

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1. INTRODUCTION
1.1. Stimulus of the research
In recent years, choosing the most suitable logistics service provider is an important
problem dealing with when managing supply chain of a firm. It is necessary to
enhance the competitiveness of the company and has a positive impact on expanding
the life span of the firm. Cakir et al. (2009) point out that the logistics service provider
selection is a multi-criteria problem that includes both quantitative and qualitative
criteria some of which can conflict each other.
The selection of efficient logistics service providers is one of the most important
functions of the logistics department as it brings significant savings for the
organization. While choosing the best provider, a logistics manager might be
uncertain whether the selection will satisfy completely the demands of their
organizations (Bevilacqua & Petroni 2002). Experts agree that no best way exists to
evaluate and select providers, and thus organizations use a range of approaches.
According to Razzaque and Sheng (1998) the overall purpose of the provider
evaluation process is to reduce risk and maximize overall value to the purchaser.
There are several supplier selection applications available in the literature.
Ghodsypour et al. (1998) introduced an integration of an analytical hierarchy process
and linear programming to consider both tangible and intangible factors in choosing
the best suppliers and placing the optimum order quantities among them such that the
total value of purchasing becomes maximum. Verma and Pulman (1998) examined
the difference between managers' ratings of the perceived importance of different
supplier attributes and their actual choice of suppliers in an experimental setting. They
used two methods: a Likert scale set of questions and a discrete choice analysis
(DCA) experiment.
Wong et al. (2001) proposed an approach of combined scoring method with fuzzy
expert systems to perform the supplier assessment. Bevilacqua and Petroni (2002)
developed a system for supplier selection using fuzzy logic. Kahraman et al. (2003)
used fuzzy AHP to choose the best supplier firm providing the most satisfaction for a
white good manufacturer established in Turkey. Dulmin and Mininno (2003)

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introduced a multi-criteria decision aid method (promethee & gaia) to supplier
selection problem. They applied the model to a mid-sized Italian firm operating in the
field of public road and rail transportation. Chan and Chan (2004) reported a case
study to illustrate an innovative model which adopts AHP and quality management
system principles in the development of the supplier selection model. Xia and Wu
(2005) introduced an integrated approach of AHP improved by rough sets theory and
multi-objective mixed integer programming to simultaneously determine the number
of suppliers to employ and the order quantity allocated to these suppliers in the case
of multiple sourcing, multiple products, with multiple criteria and with supplier’s
capacity constraints.
It is almost impossible to find a provider that excels in all areas. Moreover, some of
the criteria are quantitative while others are qualitative, which is certainly a weakness
of existing reported approaches. Thus a methodology that can capture both the
subjective and the objective evaluation measures is needed. In recent years, the AHP
approach was proposed for logistics service provider selection problems (Chan &
Chan 2004).
The Analytical Hierarchy Process has found widespread application in decision-
making problems, involving multiple criteria in systems of many levels. In the AHP,
the factors that affect the system are designed in hierarchy. Then, to evaluate the
decision alternatives pair-wise comparisons of elements in all levels, are done. The
scores of alternatives are calculated according to obtained characteristics. The
strength of the AHP lies in its ability to structure a complex, multi-person and multi-
attribute problem hierarchically, and then to investigate each level of the hierarchy
separately, combining the results. And also AHP is useful, practical and systematic
method for provider selection. But in the traditional formulation of the AHP, human’s
judgments are represented with crisp numbers. However, in many practical cases the
human preference model is uncertain and decision-makers might be reluctant or
unable to assign exact numerical values to the comparison judgments. For instance,
when evaluating different suppliers, the decision-makers are usually unsure about
their level of preference due to incomplete and uncertain information about possible
suppliers and their performances. Since some of the provider evaluation criteria are
subjective and qualitative, it is quite difficult for the decision-maker to express the

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