Logistics Service Provider Selection through an Integrated Fuzzy Multicriteria Decision Making Approach

Gülşen Akman and Kasım Baynal

Department of Industrial Engineering, Faculty of Engineering, Kocaeli University, 41380 Kocaeli, Turkey

Received 3 October 2013; Revised 15 March 2014; Accepted 15 April 2014; Published 16 June 2014

Academic Editor: C. K. Kwong

Copyright © 2014 Gülşen Akman and Kasım Baynal. This is an open access article distributed under the
Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in
any medium, provided the original work is properly cited.

Abstract

Nowadays, the demand of third-party logistics provider becomes an increasingly important issue for
companies to improve their customer service and to decrease logistics costs. This paper presents an
integrated fuzzy approach for the evaluation and selection of 3rd party logistics service providers. This
method consists of two techniques: (1) use fuzzy analytic hierarchy process to identify weights of
evaluation criteria; (2) apply fuzzy technique for order preference by similarity to ideal solution (TOPSIS)
method to evaluate and sequence alternatives and to make the final selection. Finally, an actual
industrial application is performed in logistics department of a tire manufacturing company. For this,
first, eight logistics supplier selection criteria were determined, and then the best alternative among
seven logistics service provider companies was selected by the proposed method.

1. Introduction

Logistics plays an important role in integrating the supply chain of industries. Because the market
becomes more global, logistics is now seen as an important area where industries can decrease costs
and improve their customer service quality [1].

Nowadays, many companies are searching to outsource their logistics operations to what they call as
Third Party Logistics Service Providers (LSPs) to introduce products and service innovations quickly to
their markets [2]. Therefore there is an increasing trend that manufacturing companies outsource their
logistics activities to meet their increasing need for logistics services. This trend has increased
importance of the concept of third party LSPs [3]. In today’s economic environment, many firms name
third party LSPs as more qualified and economic in accomplishing their partial or all logistic
requirements [4].

Outsourcing means that an organization hires an outside organization to provide a good or service that
it traditionally had provided itself, because this third party is an “expert” in efficiently providing this
good or service, while the organization itself may not be [5].

Because of development of supply chain partnerships, cost reduction, restructuring of the company,
success of the firms using contract logistics, globalization, improvement of services, and efficient
operations, companies need to outsource their logistics activities to 3PL service providers [6]. The
outsourcing of logistics activities to third-party LSPs has now become a common practice. An LSP is
defined as a provider of logistics services that performs the logistics functions on behalf of their clients
[7].

The LSP selection is a complex multicriteria decision making (MCDM) problem that includes both
quantitative and qualitative criteria some of which can conflict each other and is vital in enhancing the
competitiveness of companies [8]. It is an important function of the logistics departments as it brings
significant savings for the organization. While choosing the appropriate LSP, logistics managers might be
uncertain whether the selection will satisfy completely the needs of the organization [9].

Because of some troubles in MCDM problems such as subjectivity, uncertainty, and ambiguity in
assessment process [10], this study uses fuzzy analytic hierarchy process (FAHP) to establish the
evaluation structure and calculate the importance weights of assessment criteria according to a group of
decision-makers and applies fuzzy technique for order preference by similarity to an ideal solution
(TOPSIS) [11] to obtain the final ranking order of LSPs.

This research evaluates the performance of 3rd party LSPs of a tire company in a developing country,
Turkey, via the proposed FAHP and fuzzy TOPSIS techniques with MCDM. The fuzzy AHP is used to
determine the preference weights of evaluation criteria. Then, this research illustrates that the fuzzy
TOPSIS is integrated with fuzzy AHP to evaluate and determine performance levels of seven logistics
service providers (LSPs) and find out the best alternatives among these seven LSP companies.
The remainder of this paper is organized as follows. Section 2 presents a literature survey of logistics
management, third party logistics, and third party logistics service provider. Also in this section we
mentioned logistics service providers in Turkey. This section also includes criteria used for evaluating
performances of third party LSPs and evaluation methods third party LSPs performances. Section 3
includes methodology related with selection of logistics service providers, fuzzy set theory, fuzzy AHP,
and fuzzy TOPSIS. A Case study for the proposed methodology about selection of logistics service
provider is performed for a tire manufacturing company. In Section 5, conclusion, limitation, and
managerial implications of the study are discussed.

2. Literature Review

2.1. Logistics Management

According to definition by the Council of Supply Chain Management Professionals [12], it is accepted
that logistics management is a part of supply chain management (SCM). It is the part “… that plans
implements, and controls the efficient, effective forward and reverse flow and storage of goods,
services, and related information between the point of origin and the point of consumption in order to
meet customers’ requirements.”

Logistics is an integration of information, transportation, material handling, stock and storage, and
packaging operations. Logistics activities contain purchasing, transportation, quality, control, customs
and insurance, handling, ware housing, inventory management, order processing, sales-demand
forecast, logistics information management, distribution, labeling, packaging, fleet management,
management of separate parts, product returns, and shipment planning [13]. Logistics includes the flow
of goods, services, and information related to movements of goods and services from the suppliers to a
satisfied customer without waste [14].

Council of Logistics Management defined logistics as the process of planning, implementing, and
controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished
goods, and related information from origin to consumption for the purpose of conforming to customer
wants [15]. According to this definition, logistics includes all activities related to the product, service,
and information flow between supplier, manufacturer, and customer (Figure 1).

794918.fig.001

Figure 1: Logistics management [12].

2.2. Third Party Logistics

There is an emerging trend for logistics outsourcing in the global market. Lambert et al. [15] state that
logistics outsourcing is “the use of a third-party provider for all or part of an organization’s logistics
operations.” Rabinovich et al. [16] defined logistics outsourcing relationships as “long and short-term
contracts or alliances between manufacturing and service firms and third party logistics providers.”
According to Banrodt and Davis, third-party logistics is defined as logistics outsourcing [17].

Lieb [14] expressed that third-party logistics involves the using of external companies to carry out
logistics functions traditionally performed within an organization. Third party LSPs provide multiple
logistics services to their customers such as direct transportation service, warehouse operations and
management, shipment planning and consolidation, management of logistics information systems,
carrier selection, rate negotiation, product returns, fleet management, labeling, packaging,
relabeling/repackaging, order processing and fulfillment, product assembly/installation, inventory
management, and customer spare parts [8, 9].

Lieb [14] defined third-party logistics as the using of external companies to perform logistics functions
that have traditionally been executed within an organization. Third-party logistics is defined as “activities
carried out by an external company on behalf of a client company and these activities consist of at least
the provision of management of multiple logistics services. These activities are offered in an integrated
way, not on a stand-alone basis. The cooperation between the shipper and the external company is an
intended continuous relationship taking at least one year” [18]. According to the Council of Supply Chain
Management Professionals, third-party logistics is defined as “a firm that provides multiple logistics
services for use by customers, and preferably, these services are integrated together by the provider”
[12].

Third-party logistics can be defined as specialized companies from outside of the firm fulfill the some or
all of the logistics activities performed traditionally within the organization through outsourcing [19].
The functions performed by the third party can include the entire logistics process or selected activities
within that process. 3PL services mostly focused their attention on transportation and warehousing, and
so forth, and these 3PLSPs must have professional experiences in each service [20].

Third-party logistics is the function by which the owner of goods (the client company) outsources
various elements of the supply chain to a third-party logistics company that can perform the
management function of the clients inbound freight, customs, warehousing, order fulfillment,
distribution, and outbound freight to the clients [21].
Bask [22] defined third-party logistics as relationships between interfaces in the supply chains and 3PL
providers, where logistics services are offered, from basic to customized ones, in a shorter or longer-
term relationship, with the aim of effectiveness and efficiency.

2.3. Third Party Logistics Service Provider

According to a survey performed by Forrester Research, 78% of Fortune 500 companies have
outsourced transportation services, 54% of them have outsourced their distribution services, and 46% of
them have outsourced their manufacturing activities. As a result, third-party logistics sector reached a
scale of 50 billion $ throughout the world. To prefer outsourcing in primarily transportation and shipping
services cause to transform some specialized transportation and shipping companies into third-party-
logistics companies which are able to serve in all logistics functions [23].

3PL service providers can be defined as external suppliers which fulfill a portion or all of a company’s
logistics functions of a company. Logistic functions released to third-party companies are services such
as especially transportation, storage, distribution. These functions are required a high level of business
investment [23]. Third-party logistics services mostly focused their attention on transportation and
warehousing, and so forth and these third-party LSPs should have professional experiences in each
service [20].

2.4. Logistics Service Providers in Turkey

Logistics industry constitutes approximately 10–15% of the total global GDP and is an integral portion of
Turkey’s economy. The Turkey logistics sector’s value in 2008 was 60 billion U.S. dollar. Current size of
3PL service providers is 22 billion U.S. dollar. According to LODER, Turkey’s current logistics industry size
is estimated to be USD 80–100 billion and is forecasted to reach USD 108–140 billion by 2017. The
average growth in the fields of transportation, storage and communication was 6.4% between 2003 and
2013 [24].

According to Logistics Performance Index (LPI) prepared by World Bank, Turkey is ranked 27th with 3.22
point. Turkey moved up from 39th place in 2010 to 27th in 2013, out of the 155 countries in the index.
Moreover, it is ranked third in the top 10 upper middle income performing countries. [24, 25]. According
to Agility Emerging Markets Logistics Index prepared by Transport Intelligence, Turkey is ranked as the
11th best country in logistics out of 41 emerging markets [24].
There are a large number of logistics provider firms in Turkey. These are newly founded small and
medium sized firms with a transportation background. The most important Turkish logistics service
providers are Arkas Denizcilik, Omsan, Barsan, Reysas, Borusan, Balnak, Türksped, and Horoz Lojistik.
Rapidly growing trade with Turkey has created a promising perspective for the logistics sector, and the
trend is expected to continue. For this reason, international logistics companies are increasing their
presence in the country [26]. All of the top 10 global third-party logistics companies have understood
the strategic importance of Turkey and either directly operate or have agencies in Turkey [24]. All major
international logistics companies such as DHL, TNT, Kühne & Nagel, Mars, Schenker, Ceva, and Panalpina
are already active in Turkey. Initially, firms were focused on only one or a few number of logistics
operations, but by the rimes of progress, in order to meet increasing customer demands, LSPs improved
their services in terms of modern logistics concepts; this structuring compels the logistics firms to
improve their technological facilities and change management styles in order to offer customers more
flexible and quality logistics service [13].

2.5. Selecting Criteria for Evaluating 3rd Party Logistics Service Provider

Deciding to use a third party LSP is a decision that depends on a variety of factors that differ from
company to company. The decision to outsource certain business functions will depend on the
company’s plans, future objectives, product lines, expansion, acquisitions, and so forth [27].

Measures indicating the success of logistics management can be summarized as cost reduction,
maximized on time delivery, minimized lead times, rapid respond to the market, higher flexibility,
increased number of solution alternatives, improved information reliability, faster communication,
minimized rate of consumption, damage and loss, minimized number of total inventory through the
supply chain, transformation of fixed costs into variable costs, increased efficiency and productivity in
logistics activities, reduction of logistics management expenses, focus on core competencies, improved
customer relations, customer focus, and creating win-win relationships in the supply chain [28].

The needs of the firm can be satisfied by the third party logistics organization in optimum by defining
the firm’s goals and selection criteria. To know what metrics are used to evaluate the selection criteria
of logistics service provider is an important issue. Generally, the companies have a variety of different
characteristics related suppliers; but, if they use same methodology to evaluate the different types of
suppliers, and the result cannot represent the real situation. Therefore, when determining the logistics
service provider criteria, it should be considered that the criteria of selection differ in the different types
of LSP [20].
According to Menon et al. [29], the firm’s competitiveness strategy and its external environment affect
the selection criteria. The important criteria for the selection of a third-party LSP are on time shipment
and deliveries, superior error rates, financial stability, creative management, ability to deliver as
promised, availability of top management, responsiveness to unforeseen occurrences, and meeting
performance and quality requirements before pricediscussions occur. Meade and Sarkis [30] developed
conceptual model for selecting and evaluating third-party reverse logistics providers. In this study, the
most important factors for third-party logistics selection are time, quality, cost, and flexibility.
Aghazadeh [31] used criteria for selecting effective third-party LSP as similar value, information
technology systems, and key management. Efendigil et al. [32] select the third party reverse logistics
providers by using performance indicators like: on time delivery ratio, confirmed fill rate, service quality
level, unit operation cost, capacity usage ratio, total order cycle time, system flexibility index, integration
level index, increment in market share, research and development ratio, environmental expenditures,
and customer satisfaction index. According to Chen and Wu [20] some frequently used criteria from
literature are price, delivery performance, range of services provided, the ability of response, human
resources, IT capability, speed and punctuality, finance status, past experiences, expertise technology,
product reliability, reputation, the quality of service, market share, geographical location, and surge
capacity.

In 2003, the International Warehouse Logistics Association, which comprises more than 550 logistics
companies of North America, identified third-party LSP selection criteria (in a descending order) as
follows: price, reliability, service quality, on-time performance, cost reduction, flexibility and innovation,
good communication, management quality, location, customize service, speed of service, order cycle
time, easy to work with, customer support, vendor reputation, technical competence, special expertise,
systems capabilities, variety of available services, decreased labor problems, personal relationships,
decreased asset commitment, and early notification of disruptions [33].

2.6. Selecting and Evaluating Methods for 3rd Party Logistics Service Providers

Because of increasing importance of logistics outsourcing, selecting correct third-party LSP is a more
critical issue for companies. There are lots of factors affecting selection of the service provider.
Therefore it is a multicriteria decision making (MCDM) problem. In the literature, a variety number of
techniques are used to evaluate third party performance and some MCDM methods are used to select
3PL service provider. For example, Yan et al. [1] propose a case-based reasoning (CBR) model framework
for a third-party LSP evaluation and selection system. Thakkar et al. [34] applied an approach integrating
interpretive structural model (ISM) and ANP for a proper selection of third-party logistics.
Yeung et al. [35] used analysis of variance (ANOVA) for financial performance measurement of 3PL.
Bottani and Rizzi [36] used the fuzzy TOPSIS for third-party LSP selection and ranking. Min and Joo [37]
used data envelopment analysis (DEA) for benchmarking the efficiency of third party logistics providers.

Jharkharia and Shankar [6] used analytic network process (ANP) to select logistics service provider in a
medium-sized and growth-oriented fast moving-consumer-goods (FMCG) company. Işıklar et al. [38]
proposed an intelligent decision support framework-integrating case-based reasoning (CBR), rule-based
reasoning (RBR), and compromise programming techniques in fuzzy environment, for effective third-
party LSP evaluation and selection. Qureshi et al. [39] used ANP and TOPSIS to evaluate the performance
of logistics solution providers. Zhang [40] studied the logistics supplier selection based on the analytic
hierarchy process (AHP) and data envelopment analysis (DEA).

Liu and Wang [41] proposed an integrated fuzzy approach for the evaluation and selection of third-party
LSPs. Their approach method consists of three different techniques: fuzzy Delphi method, fuzzy
inference method, and a fuzzy linear assignment approach. Zhang and Feng [42] used fuzzy AHP to
discuss a selection approach of reverse logistics provider through a case study.

Kannan et al. [43] developed a multicriteria group decision making model in fuzzy environment for the
selection process of best third party reverse logistics service provider by using two methods: interpretive
structural modeling (ISM) and fuzzy technique for order preference by similarity to ideal solution
(TOPSIS) in battery manufacturing industry in India. Chen and Wu [20] developed a decision making
method combining the Delphi method and analytical network process (ANP) to help the electronic
companies that need to evaluate and select the logistics service provider type. Cao et al. [44] developed
two-step-model based on borda function theory and gray rational analysis to select third-party LSP.
Sheng et al. [45] used a method integrating AHP and goal programming to select third-party reverse
logistics enterprise. Wong [46] proposed a methodology combining fuzzy AHP and preemptive fuzzy
integer goal programming to select third-party LSP in global supply chain. Çakır et al. [8] utilized the
fuzzy AHP approach to select third-party LSP selection for a medium-sized and growth-oriented fast-
moving-consumer-goods (FMCG) company, which is steadily moving towards IT enablement of its supply
chain.

Hamdan and Rogers [47] propose a data envelopment analysis (DEA) to evaluate the efficiency of a
group of 3PL warehouse logistics operations. Cheng et al. [48] applied the fuzzy AHP method to calculate
the relative importance among individual dimensions and subcriteria on the evaluation of fourth party
logistics (4PLs) selection criteria.
Kumar [49] proposed a framework which uses AHP and TOPSIS for performance measurement of third-
party LSPs. Soh [33] proposed an evaluation framework and methodology by means of Fuzzy AHP for
selecting a suitable third-party LSP through a case study. Li et al. [50] utilized an indicator system and
established a compound quantification model based on centralized quantification values, a comparison
method based on the synthesis effect, and a third party logistics supplier selection model.

Liu et al. [51] used new integrated model for selecting third-party LSP based on support vector machine
(SVM) and fuzzy analytic hierarchy process (FAHP). Kabir [52] proposed FAHP approach based on TOPSIS
method for evaluating and selecting an appropriate logistics service provider.

Some of these studies are summarized in Table 1.

tab1

Table 1: Summary of methods for 3PL providers selection.

3. Methodology

In this study we used an integrated method via analytic hierarchy process (AHP) and (TOPSIS) with fuzzy
logic to select the best logistics service provider. The methodology applies the Fuzzy AHP and TOPSIS to
help the decision makers for the evaluation of logistics service providers in a fuzzy environment where
the vagueness and subjectivity are handled with linguistic values parameterized by triangular fuzzy
numbers. Fuzzy AHP is used to determine the weight to criteria for 3PL rating. It has been further used in
TOPSIS to determine weights of evaluation criteria. Fuzzy TOPSIS is a good tool to determine the order
preferences of 3PLs, and this method has been used for ranking of service providers and to find the
difference between alternatives to ideal [60].

Combining fuzzy AHP with fuzzy TOPSIS to evaluate the alternatives according to the decision makers’
preference orders is very useful when the performance ratings are vague and imprecise. The usage of
fuzzy-AHP weights in TOPSIS makes the decisions more realistic and reliable [61].

Methodology used in this study is shown in Figure 2.

794918.fig.002
Figure 2: Methodology of the study.

3.1. Selection Criteria

The selection and the evaluation stage of the service provider organization will be important after
evaluation of those listed criteria. A systematic approach is necessary to make an effective selection
among potential service providers. In this study, the most important eight criteria were used in the
evaluation process of the logistics service providers. In order to support objectiveness in selection
process, clear definitions of those criteria are listed and defined in Table 2.

tab2

Table 2: Explanation of LSP selection criteria.

3.2. Fuzzy Sets Theory

To deal with vagueness of human thought, Zadeh [66] first introduced the fuzzy set theory, which was
oriented to the rationality of uncertainty due to imprecision or vagueness. A major contribution of fuzzy
set theory is its capability of representing vague data. The theory also allows mathematical operators
and programming to be applied to the fuzzy domain.

A fuzzy set is a class of objects with a continuum of grades of membership. Such a set is characterized by
a membership (characteristic) function, which assigns to each object a grade of membership ranging
between zero and one. A fuzzy set in a universe of discourse is characterized by a membership function
which associates with each element in , a real number in the interval . The function value is termed the
grade of membership of in [66].

A fuzzy number is a fuzzy subset in the universe of discourse that is both convex and normal. A
triangular fuzzy number (TFN) is shown in Figure 3. A TFN is denoted simply as or . The parameters and ,
respectively, denote the smallest possible value, the most promising value, and the largest possible
value that describe a fuzzy event [67]. The membership functions for these fuzzy sets will be denoted by
(1), respectively. Consider the following:

794918.fig.003

Figure 3: Membership function of triangular fuzzy number.

A linguistic variable is a variable whose values are linguistic terms. Linguistic variables are very useful in
relation to situations which are unclear to be described in quantitative expressions. For example,
“weight" is a linguistic variable, its values are very low, low, medium, high, very high, and so forth. These
linguistic values can also be represented by fuzzy numbers [68].

Suppose that and are two triangular fuzzy numbers as presented in Figure 4. Distance between two
triangular numbers is calculated as follows:

794918.fig.004

Figure 4: Two triangular fuzzy numbers.

Both triangular and trapezoidal fuzzy numbers are used for fuzzy set theory. Using TFNs is preferred
because of their computational ease. In this study, it is suitable to work with TFNs because of their
computational simplicity and their usefulness in providing representation and information processing in
a fuzzy environment. In this study TFNs in the FAHP is adopted. Reason of using TFNs for pairwise
comparisons in fuzzy AHP is that a TFN corresponding to the expressed verbal condition in the pairwise
comparison process has only one value which has the highest membership degree [69].

3.3. Fuzzy AHP

The analytic hierarchy process (AHP) is one of the extensively used multicriteria decision-making
methods. One of the main advantages of this method is the relative ease with which it handles multiple
criteria. In addition to this, AHP is easier to understand and it can effectively handle both qualitative and
quantitative data. The use of AHP does not involve cumbersome mathematics. AHP involves the
principles of decomposition, pair wise comparisons, and priority vector generation and synthesis.
Though the purpose of AHP is to capture the expert’s knowledge, the conventional AHP still cannot
reflect the human thinking style. Therefore, fuzzy AHP, a fuzzy extension of AHP, was developed to solve
the hierarchical fuzzy problems. In the fuzzy-AHP procedure, the pairwise comparisons in the judgment
matrix are fuzzy numbers that are modified by the designer’s emphasis [67].

In the fuzzy AHP, triangular fuzzy numbers are utilized to develop the scaling scheme in the judgement
matrices, and interval arithmetic is used to solve the fuzzy eigenvector [70].

The procedure of the fuzzy AHP approach involves four essential steps as follows [71].
Step 1. Define the problem and state clearly the objectives and results.

Step 2. Decompose the complex problem into a hierarchical structure with decision elements (criteria
and alternatives).

Step 3. Employ pairwise comparisons among decision elements and form comparison matrices with
fuzzy numbers.

Step 4. Use the extent analysis method to estimate the relative weights of the decision elements.

(See [70–72] for further details).

3.4. Fuzzy TOPSIS

In this study, fuzzy TOPSIS method developed by Chen [73] was used. Method is described as follows.

Assume that a decision group contains persons; then the importance of the criteria and the rating of
alternatives according to each criterion are computed as follows: where and are the rating and the
importance weight of the th decision maker.

As mentioned above, a fuzzy multicriteria group decision-making problem can be concisely presented in
matrix format as where and are linguistic variables. These linguistic variables are described by triangular
fuzzy numbers, and . To avoid the complicated normalization formula used in classical TOPSIS, the linear
scale transformation is used to transform the various criteria scales into a comparable scale. Hence, the
normalized fuzzy decision matrix is indicated by as follows: where and are the set of benefit criteria and
cost criteria, respectively, and

The normalization method stated above is to protect the property that the ranges of normalized
triangular fuzzy numbers belong to .
Considering the different importance of each criterion, the weighted normalized fuzzy decision matrix
can be constructed as follows: where .

With respect to the weighted normalized fuzzy decision matrix, it is known that the elements are
normalized positive triangular fuzzy numbers and their ranges belong to the closed interval . Then, the
fuzzy positive-ideal solution (FPIS, ) and fuzzy negative-ideal solution (FNIS, ) can be defined as follows:
where and , .

The distance of each alternative from and can be currently calculated as follows: where is the distance
measurement between two fuzzy numbers.

A closeness coefficient is defined in order to determine the ranking order of all alternatives once the and
of each alternative has been computed. The closeness coefficient of each alternative is calculated as
follows:

Obviously, an alternative is closer to the FPIS () and farther from FNIS () as approaches to 1. Therefore,
according to the closeness coefficient, the ranking order of all alternatives can be determined and the
best one can be selected from among a set of alternatives (see [36, 73, 74] for further details).

4. Case Study

In this section, we presented an illustrative example by using the methodology shown in Figure 2. The
example was performed to select logistics service provider for a tire manufacturing company which has
more than 1000 employees in Turkey.

Five people working in the logistics department of the company were determined to select evaluation
criteria, to make pairwise comparisons for AHP in order to determine weights of criteria, and to evaluate
alternatives via TOPSIS method. One of them is the manager of the logistic department and one of them
is chief in the logistic department. Three of them are the normal staffs working in the logistics
department.
Step 1 (determining the evaluation criteria and alternatives). Seven evaluation criteria are determined.
These are on time delivery (OTD), price (P), product availability (PA), reliability (R), firm’s background
(FB), firm reputation (FR), knowledge sharing (KS), and flexibility (F).

Seven logistics service providers are determined as alternatives. These alternatives are LSP1, LSP2,…,
and LSP7.

Step 2 (construction of the hierarchy). In this step hierarchical construction of the problem was prepared
as shown in Figure 5.

794918.fig.005

Figure 5: Hierarchical structure of the problem.

Step 3 (determining the weights of the criteria). In this step, first, linguistic variables for Fuzzy
importance level are determined as shown in Table 3 [75]. Then, criteria are compared pairwisely using
linguistic variables as shown in Table 4. Then using fuzzy AHP methodology with Chang Algorithm [76],
weights of the criteria are calculated as shown in Table 5.

tab3

Table 3: Fuzzy triangular numbers for pairwise comparison of criteria [75].

tab4

Table 4: Pairwise comparison of criteria with linguistic variables.

tab5

Table 5: Fuzzy weights of criteria.

Step 4 (construction of the decision matrix). In this step, first, linguistic variables for fuzzy evaluation of
alternatives are determined as shown in Table 6. Then alternatives are evaluated by using these fuzzy
linguistic variables as presented in Table 7. Then fuzzy decision matrix of fuzzy TOPSIS () is constituted as
shown in Table 8.

tab6

Table 6: Linguistic variables used for TOPSIS [49].

tab7

Table 7: Evaluation of alternatives with linguistic variables.

tab8

Table 8: Fuzzy decision matrix.

Step 5 (construction of the normalized decision matrix). In this step, the normalized decision matrix is
constituted by (6). Normalized decision matrix for the LSP selection problem is shown in Table 9.

tab9

Table 9: Standardized Decision Matrix.

Step 6 (construction of the weighted standard decision matrix). The weighted normalized decision
matrix is constituted by multiplying the normalized decision matrix by its associated weights by (7).
Weighted normalized matrix for the LSP selection problem is shown in Table 10.

tab10

Table 10: Weighted standardized decision matrix.

Step 7 (construction of ideal positive () and ideal negative () solutions). We determined FPIS and FNIS as

Step 8 (calculation of separation measures). We calculated the distance of each alternative from FPIS
and FNIS. The separation measures are calculated using the -dimensional Euclidean distance. The
separation measure of each alternative is calculated from (9). Similarly, the separation measure of each
alternative is calculated from (10). Separation measures for LSP selection problem are shown in Table
10.

Step 9 (calculation of relative closeness to ideal solution). In this step, the relative closeness to the ideal
solution is calculated from (11) and alternatives are ranked in descending order according to values.
Relative closeness to ideal solution for LSP selection problem is shown in Table 11. When the index value
of lies between 0 and 1, the larger the index value, and the better the performance of the alternatives.
According to the closeness coefficient, the ranking order of the three candidates is LSP7, LSP5, and LSP3.
Obviously, the best selection is candidate LSP7.
tab11

Table 11: Separation measures and relative closeness to ideal solution.

5. Conclusion

Outsourcing has become a common practice in many industries, specifically in the logistics activities.
Because more companies outsource their logistics operations, selecting appropriate and preferable third
party LSPs has increasingly become a critical issue and a strategic decision for companies outsourcing
their logistics operations.

This study provides a practical approach and methodology for companies to select the best third party
LSP meeting their requirements. LSP selection process started the determination of quantitative and
qualitative factors to select the best LSP. In this study LSP provider selection via integrating approach of
fuzzy AHP and fuzzy TOPSIS method has been presented. Evaluation criteria were determined as on time
delivery (OTD), price (P), product availability (PA), reliability (R), firm’s background (FB), firm reputation
(FR), knowledge sharing (KS), flexibility (F).

This study proposes a methodology to provide a simple approach to evaluate alternative LSP firms and
help decision maker to select the best one. By using improved AHP with fuzzy set theory, the qualitative
judgment can be qualified to make comparison more intuition and reduce or eliminate assessment bias
in pairwise comparison process. Finally this paper defines an approach that integrates fuzzy TOPSIS
algorithm with fuzzy AHP to support LSP evaluation and selection decisions. By means of the extent
fuzzy approach, the uncertainty in the data could be effectively represented and processed to make a
more effective decision.

As a result of this study, alternative LSP7 is determined as the best LSP which has the highest level. The
company management found the application and results to be satisfactory and decided to work with
alternative LSP7.

Researchers such as Kabir [52], Kumar [49], Perçin [59], and Ravi [58] utilized integrated approach of
fuzzy AHP and fuzzy TOPSIS for evaluation performance of third party LSPs and selection of appropriate
third party LSPs. Our findings are consistent with their findings for efficient usage and reliable results of
the proposed methodology in this study.
This study has some limitations. One of them is that only qualitative criteria were used to evaluate
performance of LSPs. Quantitative criteria can be used together with qualitative data. Another limitation
of this study is that any subcriteria are not used as evaluation criteria, only main criteria are used for
evaluation. Another limitation of this study is that the focus of the paper is on LSPs of a tire
manufacturing company, but the analysis and methodology of 3PL providers’ selection can be
successfully adopted by other sectors. Because this study used a small sample size and was performed in
the tire manufacturing industry, this situation limits the generalization of the results. To generalize the
results, similar studies can be performed in different industries with a different data set.

The main contribution of this paper includes application of integrated AHP and TOPSIS framework with
support of fuzzy approach to measure the relative strength of the third-party LSPs. We hope that results
of this research can be used a reference by the tire companies to select the best logistics service
provider partner.

The proposed methodology of this study is easy to implement and quite reliable for ranking the
alternatives. Applicability of the proposed methodology has been proposed in a tire company for the
selection of the third-party LSPs. The approach can also be applied effectively to help any managerial
decision-makings. The findings provide valuable insights for logistics practitioners, academicians, and
educators. For further research, other multicriteria evaluation methods can be used and the obtained
results can be compared with the ones found in this paper. Also, the methodology of third-party LSPs
selection can be successfully adapted to other sectors with different data sets.

Conflict of Interests

The authors declare that there is no conflict of interests regarding the publication of this paper.

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Tips to Select Your Logistics Service Provider

Selecting a logistics service provider is critical for every business. This job is more critical when
full container loads are not an option and the business has to ship LCL (loads of less than a
container).  Historically, customers on the LCL side have been in a weaker position than those on
the FCL side, because dealing in FCL provided the strength to bargain.  This is not the situation
anymore, as so many of the logistics service providers are operating around the globe, are
seeking new business, and are willing and able to customize their services. Here are a few tips
for selecting your logistics service provider:

First, evaluate your transportation plan completely, focusing on creating an overall competitive
advantage for your operation.

Instead of requesting a proposal from logistics service providers, detail your needs on freight
mode, lead time, territory, carriers, frequency, order volume, seasons, and payment terms.

Try to use a single carrier when possible.

Analyze the coverage and customization options offered by the logistics service provider.

Assess the logistics service provider’s operational edges, their disaster plan, and their advanced
preparedness for rush periods.

Clearly communicate your shipping requirements upfront. 

Stick to standardized industry contract terms.

Review the financial health of the logistics service providers you are considering

Require the ability to monitor your freight online. Most logistics service providers offer such
automated online systems.

Ask your suppliers for references on logistics service providers.

These are a few basic hints for how to select a logistics service provider.  You want to use a
logistics service provider you can trust: Your logistics service provider is a lifeline of your
business. 
 

Choosing a Logistic Service Provider

Choosing and selecting the right service provider is very crucial for every successful business 
involved with export and import trading.  Imagine a European retailer receiving all supplies from
the Far East.  This means that the entire supply chain is dependent upon the performance of the
logistics service provider. Without a reliable company to take care of these needs, the shelves in
the European retailer's stores will be empty, causing customers to return home without buying
anything.  Selecting the right logistics service provider is very important and not a one-time job. 
The hunt for a better logistics service provider should continue all of the time.

The first thing someone needs to consider is the cost and service level of a logistics service
provider.  There are a few reputable logistics service providers operating globally who have
different cost structures for their clients.  But, not all have the same or even similarly strong
operational satisfaction rates from their customers across global regions.  A few may offer better
service from a specific port to the destination ports of choice, but charge high prices and vice
versa. So, one needs to check out the big picture to determine the individual factors involved. 
There are two things to look for when selecting your logistics service provider: a) competitive
service and b) acceptable cost.  It is quite difficult to nominate only one logistics service provider
for a global operation.  One must consider what is required to reach the optimum level of the two
tiers of cost and benefit. 

Once the choice is made, there are certain other issues to consider.  Check existing channels and
routes to see whether they fit with proper logistics operations or not.  If not, redesign them to fit
the logistics service provider’s schedule.  Also, narrow negotiations down to specific regions
since sourcing from other parts of the world is unlikely.  Explore any new opportunities and tap
into them immediately.  Always ask for bidding instead of negotiation to ensure a competitive
place in the industry. 

Check the shipping lines’ connections and the reputation of the shipping lines for connectivity
performance.  This is important for all sea freights.  Many businesses can be ruined if the
logistics service provider does not have a strong hold or if they do not have the bargaining skills
to negotiate under irregular circumstances.  Check up on the relationship with the shipping line
and the performance of the logistics service provider.  Also, remember that on sea freights, there
are two types of shipments -- direct and trans-shipment. Not all ships roam around the world’s
ports; most of the world’s seaports are planned as regional hubs and the goods get shipped from
these ports.  Take Italy, for example.  Italy cannot send goods directly to any big container
carriers, namely mother vessels, because their port level is not sufficient for such mother vessels
to anchor.  Consequently, they load their goods onto smaller carriers or container ships, namely
feeder vessels. These feeders then move to Germany or other places to load the containers onto
the mother vessel which will, in turn, move to the destination port or regional hub.  The system
operates in reverse in the same way. Therefore, establishment of connectivity is critically
important.

These are some very basic considerations for choosing a logistics service provider. There may be
other factors to consider as well.
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