國立臺灣師範大學管理學院全球經營與策略研究所

碩士論文

Graduate Institute of Global Business and Strategy

College of Management

National Taiwan Normal University

Master Thesis

AHP應用於物流委外決策的評估因素之探討

An Exploratory Study of the Application of AHP to the Evaluating Factors

of Logistics Operations Outsourcing Decision

徐穎德

Suppanai Sriwararat

指導教授：周世玉博士

Advisor：Shih-Yu, Chou Ph.D.

中華民國 105年 7月

July, 2016

i

Abstract

The business in Mae Sot District, Thailand needs some logistics firm to take response in

logistic process. The purpose of this paper is to serves as a structure for the logistics part of Hong-

Li Inter Trade Company to select suitable of Third party logistics providers. The objective of the

research is to identify which factors can affect the decision making process of 3PLs selection.

Therefore, it is an important for the company to understand which factors could affect decision

makers in choosing 3PLs in order to maintain the good performance in transportation part of Hong-

Li Inter Trade Company at Mae Sot District, Thailand. Based on the literatures, 5 criteria and 23 of

sub criteria that influence the selection process were used. Questionnaire is designed and experts in

the Company are surveyed. Moreover, AHP method is applied in order to obtain the importance of

any factors. We consider and choose the important criteria are as follows: Information technology,

Relationship, Operation performance, Capabilities and Service. The rank of top five most important

sub criteria are as follows: Transportation safely, Accuracy Data, Easy to work with, Data securities

and Expertise. Finally, summarize the result and suggestions for the company.

Keywords: Analytic Hierarchy Process (AHP), Logistics outsourcing; 3PL, Decision-Making

Model

ii

摘要

在泰國美索地區的企業需要物流公司來負責貨品運輸的流程。此篇論文的目標是架構

出方法來選擇適合第三方物流提供者(Third logistics providers)，並以泰國當地一家企業__

Hong-Li Inter Trade Company 宏利公司為例。研究目的為辨認出哪幾項因素對於第三方物流

之選擇流程是有效的。因為，這是非常重要的事情，使公司了解到有哪幾項因子是有效果的

對於決策者選擇第三方物流以利維持好的績效在貨物運輸的部分，當然對泰國宏利公司也有

相同想法。在本研究中選用了五項準則與二十三項的次級準則，且認為它們有效地影響決策

過程。研究過程中有問卷設計和發放，且對公司內部專家進行調查，同時使用分層分析法

(Analytic Hierarchy Process, AHP)研究各因素之中要性。我們所選擇出的準則有：資訊科技

(Information Technology)、企業關係、經營績效、能力與服務。另外，排名前五名的次級準

則如下：運輸安全、準確的資料、是否容易合作、資料的安全性及專業程度。最後，我們將

會總結並提供建言給予泰國宏利公司。

關鍵詞：分層分析法、物流外包、第三方物流、決策制定模型

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Acknowledgement

There are many people whom I would like to acknowledge in making the research presented

in this thesis possible. First, I would like to thank my advisor, Dr. Chou, Shih-Yu (周世玉), who

has supported me throughout my thesis with his patience and knowledge. I appreciate his kindness

for taking time out from his busy schedule, to help me with the statistical analysis, correct my thesis

carefully and offer me inspiring suggestion.

Moreover, I would like to thank my defense committee member: Dr. Chiu, Hao-Jeng (邱皓

政) and Dr. Tu, Huei-Sheng (杜蕙生) for their precious time, valuable opinion and suggestion,

willingness to engage with my work.

I am also thank all of my classmates to helped me stay through these several years. I greatly

value their friendship and also grateful to the Taiwanese friends that helped me adjust to a new

country.

I am grateful to my parent, who encouraged and supported me everything about Master

degree life in Taiwan. I also would like to thank both of CEO and Manager of Hong-Li inter trade

company for give me a great opportunity to study and figure out the problem about their logistics

part to become my thesis research.

Finally, I would like to thank the Graduate Institute of Global Business and Strategy

Program at National Taiwan Normal University, for the support and course arrangement. I really

appreciate all teachers and classmates for teaching and patient helping.

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Table of Contents

Abstract ........................................................................................................................... i

摘要 ............................................................................................................................... ii

Acknowledgement ........................................................................................................ iii

Table of Contents ......................................................................................................... iv

List of Figures ............................................................................................................... vi

List of Tables ............................................................................................................... vii

CHAPTER 1 Introduction .......................................................................................... 1

1.1 Background and Motivation ............................................................................................ 1

1.2 Purpose of the Research .................................................................................................. 2

1.3 Research process ........................................................................................................... 2

CHAPTER 2 Literature Review ................................................................................ 4

2.1 Paper Related to Third-party Logistics provider ............................................................................ 4

2.2The criteria in the measurement of 3PL provider’s selection ......................................................... 6

2.3 The related paper of application of (AHP) .................................................................................... 7

2.4 A Hierarchical Framework of Critical Factors .............................................................................. 9

2.5 The criteria and Sub criteria definition related to Hong-Li Company ......................................... 15

CHAPTER 3 Research Methodology ..................................................................... 18

3.1 A Profile of Hong-Li Company ...................................................................................... 18

3.2 Supplier identification of Hong-Li Company ................................................................... 18

3.3 Analytical Hierarchy Process ......................................................................................... 19

3.4 The process of AHP ..................................................................................................... 20

CHAPTER 4 Data Collection and Analysis ............................................................ 28

4.1 Data Collection ........................................................................................................... 28

4.2 Expert’s Background ................................................................................................... 28

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4.3 Data Analysis .............................................................................................................. 29

4.3.1 The Data interpretation of Criteria ............................................................................. 29

4.3.2 The Data interpretation of Sub criteria ....................................................................... 31

4.3.3 The Data interpretation of Alternatives selections ........................................................ 32

CHAPTER 5 Conclusion .......................................................................................... 36

5.1 Summary of result ....................................................................................................... 36

5.2 Suggestion for Hong Li Inter Trade Company .................................................................. 37

5.3 Limitations ................................................................................................................. 38

5.4 Future development .................................................................................................... 39

REFERENCE ............................................................................................................ 40

APPENDICES............................................................................................................ 42

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List of Figures

Figure 1 A Hierarchy Framework of criteria affecting the selection of 3PL providers ..................... 10

Figure 2 The Nature of Business process of Hong-Li Company ....................................................... 18

Figure 3 Decision hierarchy of AHP .................................................................................................. 21

Figure 4 An example of pairwise compairisons for the 4 elements being examined ........................ 24

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List of Tables

Table 1 The Definition of Criteria and Sub-criteria .......................................................................... 11

Table 2 Evaluation scale used in pairwise comparisons between two elements .............................. 23

Table 3 Completed judgment matrix ................................................................................................ 25

Table 4 Average random consistency: the reference values of R.I. for different matrix sizes ......... 26

Table 5 The Global weight and Rank of Criteria .............................................................................. 29

Table 6 The Local Global weight and Rank of Sub criteria ............................................................. 30

Table7 The evaluation of the performance between supplier A and supplier B .............................. 33

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CHAPTER 1: INTRODUCTION

1.1 Background and Motivation

Mae Sot City, Thailand is a city in the western part of Thailand, that shares a border

with Burma to the west. It is a important district as a trade hub for its substantial population of

Burmese migrants. The city is part of Tak Province, 87 km from the city of Tak and 509 km from

Bangkok. Mae Sot District is the main gateway between Thailand and Burma. As a result, many

wholesalers and retailers or locals who live or own business in the Mae Sot area have earnings from

trade (Import-export) with their neighbors.

From a researcher’s view, we would like to study how Hong-Li Inter Trade Company is

doing the logistic part or what are the important factors to consider for selecting the right 3PL

which located at Mae Sot, Thailand. The company does its business as the part of wholesaler who

exports commodity products to Burma. For example, apparel and shoes. Most of Company’s

customers are Burmese’s customer who has an intention to come across the border to buy the

necessary commodities in Mae Sot area and take it back to sell at Burma. In the process of export

goods to its customers in Burma, Hong-Li Inter Trade Company does not have the expertise in the

shipping goods to their customer, so their business lacks of any tools or equipment in term of

transportation and experience. As a result, the company needs to outsource the right logistics

provider who will come in and take control in term of shipping products over and across country.

Now, Hong-Li Inter Trade Company would like to find out the suitable third party logistic

(Shipping Company) to take care and take action in the transportation part instead of them.

Nowadays, there are many criteria and factors that have influenced any merchandise

exporter for selecting the third-party logistics providers and also the company needs to make a right

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decision for considering the degree of outsourcing for logistics providers selected. Normally in any

export sales transactions has involved some type of external service providers, but some of the

exporters normally do not have any tools or equipment in term of transportation or experience

provided to their customer which included right time, right place and right customers, as a service

completely on their own.

1.2 Purposes of the Research

For the purposes of this paper, we will assume that the transportation company has

undergone a process of strategic and criteria assessment, Which are the criteria factor have

influence to select the 3PL for the company and what are the important weight priorities of the

critical factors for the company. That means this paper can focus on the process of refining the

decision of criteria and developing a systematic method for choosing the suitable logistics’

provider.

Transportation firms and Export Company are related along the supply chain management,

and cannot be separated by each other in our global trade. From the exporters point of view, they

need to find out the outsource activities in order to match the company’s goals, such as

transportation and documentation, it is an important factor to make a strategic decision to choose a

suitable logistic providers and make a long term relationship with a third party logistics (3PL)

provider.

1.3 Research Process

This research will apply based on a decision-making statistical model termed as the

analytic hierarchy process (AHP) model to help us to select the right and suitable 3PL’s also in

weighing of the selection and criteria to be a good choice and make a right decision. The paper will

show how five criteria were chosen while the two member of Hong-li Company (The CEO and The

manager) were asked to help weigh these criteria, how data were assumption on three of 3PL

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providers, and how the criteria weighs and 3Pl data were analyzed at a recommended decision of

which providers are suitable to choose.

In this paper the function of supply chain management that we are concerned with, which is

logistics operations, including transportation. Gathering overall complexity and requirements, such

as business that researchers need to study such a small or medium business, so the business

transaction is not a large scale. In addition to the physical flow of goods that come in and outbound

to Myanmar needs the flows of information and electronic documentation, both for internal and

external purposes.

Most of the 3PL providers can provide a basic service options in the area of logistics

management. Transportation and related documentation are naturally mention and the 3PL

functions still have more activities such as, warehousing, picking and packing, light assembly,

customization, labeling and order processing are combined as outsourced activities.

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CHAPTER 2: LITERATURE REVIEW

2.1 Paper Related to Third-party Logistics provider

Third-party logistics in logistics and supply chain management is a company's use of third

party businesses to outsource elements of the company's distribution and fulfillment services. The

3PL specialized in integrated operation , warehousing and transportation service which can be can

be scaled and customized to customers' needs based on market conditions, such as the demands and

delivery service requirements for their products and materials.

There are many research paper have been related and explain about a Third-party Logistics

provider (abbreviated 3PL or TPL). Logistics is defined by the Council of Supply Chain

Management Professionals as “The process of planning, implementing, and controlling procedures

for the efficient and effective transportation and storage of goods including services, and related

information from the point of origin to the point of consumption for the purpose of customer

requirements. This definition includes inbound, outbound, internal, and external movements.”

(CSCMP, 2006, p. 88). Logistics outsourcing has attracted the attention of lots of industrialists in

recent years. As a result, having long-term relationships with logistics parties seems to find its

undeniable place in today’s growing extent of outsourcing affairs (Seyed-Alagheband, 2011).

Domingues, Reis, and Macário (2015) also mention that today, Third-Party Logistics Providers

(3PL) face a great pressure in order to meet its clients’ needs: customers demand a high level of

time and place value for their deliveries, at lower prices, making the last mile activity not only a

challenge whilst meeting the clients’ requirements but likewise in managing the profitability and the

financial balance of the operation. According to the review of 3PL, we can see that third-party

logistics play an important role function in the supply chain management. Moreover, many

company or firm can get a competitive advantage from select right logistics providers to reduce a

company’s cost and make increase the profit to the company.

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Sink, H.L. and Langley (1997) explained that, there are five majors factors relate to logistic

provider. Strategic decision making in organizations, industrial buying behavior, transportation

purchasing, supplier selection, and logistics relationships. Moreover, Strategic alliances supported

the companies to reduce conflict with goal-related matters, increase efficiency and stability (Cooper

& Gardner, 1993). The manager who perceived performance, perceived capability, and

responsiveness as important factors in selecting logistics providers (Menon, M.K,1998).

Rabinovich, Windle, Dresner, and Corsi (1999) and Damme and Amstel (1996) stated that, In the

general, market and firm characteristics had influence the choice of logistics providers and

managers achieve customer service improvement with cost reduction by outsourcing logistics

services . The outline of framework for the selection of third-party logistics providers (Sink and

Langley, 1997). They presented the five clearly a systematic of 3PL buying process, with the

following five steps:

(1) Identify need to outsource logistics.

(2) Develop feasible alternatives.

(3) Evaluate and select supplier.

(4) Implement service.

(5) Ongoing service assessment.

They categorize the selection step as clearly for an essential task in the logistics out sourcing

management. Moreover, we can follow the empirical evidence that supplier selection criteria have

impact on the overall business performance. Kannan and Tan (2002) concluded that while cost,

quality, and delivery performance are including in supplier’s criteria and identified as being

important determinants of supplier selection. In this research paper, we are followed this principle

by reducing the 3PL providers from three candidate down to two candidates.

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2.2 Identify and classify the key criteria in the measurement of 3PL provider’s

selection

Information Technology: It is vital to be considered the criteria for selection of 3PL services

providers. IT capability can be improve by adopting complex software. Rahman (2004) mention

that, the use of IT is most popular in the Transportation management where the processes of picking

up at the origin distribution center most apply the internet in this area. Moreover, the advantage of

apply the internet can support the company in term of meeting the carrier’s promise arrival time,

provide the information to manager about the carrier’s shipment delays as they occur and the

information become available for collective and measure to take action. Enhanced IT capability

may lead to the reduction of cost of service in long term (Vaidyanathan, 2005).

Relationship: Long-term relationship is being a continuous improvement, develop of a

trust , sharing the risk and reward. The long-term relationship helps both firm and 3PL provider to

successful. The company can assess the 3PL provider’s information systems in the monitoring and

evaluating 3PL provider will also building a good long-term relationship. Langley et al. (2002)

consider the relationship with 3PL provider to be an important factor as supports the objective of

the firm. By committing the appropriate resource, both parties (Company and 3PL providers)

willing to create a good relationship and share the belief that the relationship is valuable (Sinkovics

& Roath, 2004) .

Operational performance: is an important factor which effectiveness and efficiency for

selecting the 3PL services provider. High operational performance can improves the business

relations. For the company’s goals in terms of quantitatively measurable and meaningful

performance will boosts long-term relationship (Bowersox and Daugherty, 1990). Spencer, Rogers,

and Daugherty (1994) state that higher operational performance may also enhances performance-

measuring capability, fault diagnosing capability, ability to resolve a potential problems, detailed

accounting information, system security, responsiveness and confidentiality of sensitive data. It also

enables 3PL services provider to provide an operational status report to the shipper consistently.

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The ability to provide quantitatively measurable performance is probably the most important

criteria, when choosing a provider (Spencer et al., 1994; Hoek 2001).

Capabilities: It becomes important if (some of situation sudden rise in demand of product)

there is a rise in the logistics needs of the firm. It is also considered as the shippers’ exceeding

logistics requirements in addition to the agreed one. Capacity of 3PL services provider comes to the

rescue from the exigency, thus firm should also consider the capabilities of 3PL services providers,

for continuously services. Thus, capacity of the 3PL services providers helps the firm in case of

emergency situation (Qureshi, Kumar, & Kumar, 2008).

Quality of service: It plays an important role in providing product differentiation from

competitors by adding values. Quality of logistics systems is referring as quality of service (Staff,

1991). 3PL services provider should support perceived quality of customers. Spencer et al. (1994)

and Van Hoek (2001) confirmed through empirical survey that the development of measurement

systems have contributed significantly to the expansion of 3PL alliances.

2.3 The related paper of application of Analytical Hierarchy Process (AHP)

In this part, we would like to review the paper of the researchers who use the methodology

of AHP for doing a research and follow the result of each paper study.

Asuquo, Coward, and Yang (2014) applied the selection of a TPSM company and

introduces a decision making tool developed by using AHP, which probably presents the first

description of such a tool in the TPSM. More importantly, the AHP methodology not only leads to a

logical result but also enables the decision-makers to visualize the impact of various criteria in the

final result. Moreover, the AHP model has demonstrated how the user can systematically structure

the framework to improve the decision making process, as it can further establish the successful

applications within the shipping industry at large.

Sahin, Mohamed, Warnken, and Rahman (2013) stated that AHP technique was particularly

suited for the decision making process regarding the adaptation alternatives to SLR for the Gold

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Coast owing to the richness of its hierarchical structure, which allows stakeholders to easily identify

and evaluate various options by considering multiple criteria. Moreover, the ability of the AHP to

incorporate the decisions of multiple members, from multiple stakeholder groups, was highly

favorable for use in this scenario. Further, the method allowed a fast and efficient outcome, with

reliable results; the attributes permitted favorable project management decisions and the appropriate

allocation of project resources. The results from the AHP analysis demonstrated that, for all

stakeholder groups, there is a clear and precious agreement that the least preferred alternative is

prolonging adaptation actions.

Daim, Udbye, and Balasubramanian (2012) suggested that the AHP is a very appealing and

thorough method to weigh selection criteria and apply the weights on attribute scores matrices with

information distilled from the 3PL providers being considered. The focusing of pairwise method of

asking similar comparison questions in a repeated pattern assures fairly consistent rankings,

especially when more than just a couple of experts are consulted. In our hypothetical example,

which contained real selection criteria, but attribute data and scores on the four finalists that were

guesstimates we were able to come up with a very realistic weighting vector and a workable

attribute score matrix that we used to develop a pro forma ranking of the four candidate providers.

Govindan, Rajendran, Sarkis, and Murugesan (2015) reviewed the multi-criteria decision

making approaches for supplier evaluation and selection in literature from 1997 to 2011. Many

individual and integrated approaches have been proposed for supplier selection. The literature

review has shown that the implementation of green issues within the supplier selection process is

limited as relatively few papers were identified. We found that the most widely used multi-criteria

decision-making approach is analytical hierarchy process (AHP) and the most widely considered

criteria for green supplier evaluation and selection is environmental management system.

Ho, Dey, and Lockström (2011) selected the AHP method to determine the importance of

evaluating factors and preference of each supplier with respect to each selection criterion. He also

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explains that, there are many advantages of the application of AHP approach. First, the application

of AHP ensures consistent supplier performance measurement using benchmarking approach. This

ensures that the judgments made are guaranteed to be consistent, which is the basic ingredient for

making good decisions. Second, sensitivity analysis utility of AHP could be applied here in order to

check the effect of changes in the importance levels of various factors on final outcome. Therefore,

the proposed approach outranks the conventional approaches to supplier selection and supplier

performance measurement.

2.4 A Hierarchical Framework of Critical Factors Affecting the Selection of

3PLs

After reviewing some literature based on the mention above, we develop a hierarchical

framework of factors for the selection of 3PL providers in Figure 1. According to the Figure 1,

every factor is the result from the discussion of Hong-Li Inter Trade Company, Mae Sot Thailand

and literature. Now, the conceptual mind of human provisions into decision making problems has

been significantly increased. By combining human judgment and factual information, AHP enables

decision makers to make more effective decisions.

In AHP, an objective of the problem must be determined to achieve. Then, a hierarchy is

constructed based on the primary criteria with respect to the objective of the decision maker, then

the sub criteria with respect to the primary criteria, and finally the decision alternatives.

The goal of this paper is to choose the best logistics outsourcing provider for a case company.

So, this goal is placed at the top of the hierarchy. The hierarchy divided into the criteria in the

second level and the sub criteria as in the third level. The definition of all the dimensions and

factors are shown in Table 1.

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Figure 1: A Hierarchy Framework of criteria affecting the selection of 3PL providers.

Com

pan

y G

oal

(Sel

ect

the

bes

t 3P

L P

rov

ider

s)

Information Technology (A1)

Data in real time (B1)

Accuracy of data (B2)

Data security (B3)

IT infrastructure (B4)

Relationship (A2)

Personal Relationship (B5)

Good Communication (B6)

Easy to work with (B7)

Decrease labor problem (B8)

Network coverage (B9)

Operation performance (A3)

Reliability (B10)

On-time delivery (B11)

Document Accuracy (B12)

Transportation safety (B13)

Capabilities (A4)

Management Quality (B18)

Expertise (B14)

Cost reduction (B16)

Financial Stability (B17)

Flexibility (B15)

Service (A5)

Value-added (B19)

Customer support (B20)

Problem solving (B21)

Variety (B22)

Quality (B23)

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Table 1 : The Definition of Criteria and Sub-criteria

Criteria Sub-criteria Definition of Sub-criteria

A1. Information Technology B1. Data in real time Data in real time refer to 3PL send the data to the company in the real

time.

B2. Accuracy of data Accuracy of data from 3PL sent to the company.

B3. Data security Data security of customers that 3PL providers must protect safely.

B4. IT infrastructure IT infrastructure of Logistics providers offers to their customers. Such

as, IT solution, hardware, software, network resources and services.

A2. Relationship B5. Personal Relationship The relationship between the logistics providers and the company.

B6. Good Communication The communication between logistics provider and company by

distribute the effective information.

B7. Easy to work with The easy way to dealing with 3PL

12

B8. Decrease Labor

problem

The company can reduce the manpower in the logistics’ field within the

company

B9. Network Coverage The network connection of logistics provider with their co-operations.

A3. Operation performance B10. Reliability The reliability’s performance of 3PL that can show the trustworthy to

the company.

B11. On-time delivery The abilities of logistics provider can deliver the goods to the

company’s customers on time.

B12. Document Accuracy The document in which 3PL provider doing with the right information

provide to the firm needs.

B13. Transportation safety The logistics providers transport the customer’s product with no broken

and safely at the end user.

13

A4. Capabilities B14. Expertise The knowledge and skills of the logistics providers to handle with any

problem for the company.

B15. Flexibility The ability of 3PL manages space, labor and transportation in term of

seasonal change by quick shipping of goods to the right location.

B16. Cost reduction The company can negotiate the cost reduction with the 3PL in some

situations.

B17. Financial stability The stability of 3PL’s financial performance with company can ensure

that the logistics providers can continually working with company.

B18. Management quality The capability of logistics provider can control the good service quality

and controlling the internal and external change.

A5. Service B19. Value-added The extra service from logistics provider offer to the customer without

customer’s requirement.

B20. Customer Support The supporting from 3PL to help firm planning, doing, checking and

take action for transportation.

14

B21. Problem solving The power of logistics provider can solve the problem when the

customer need and acquire.

B22. Variety 3PL providers typically specialize in integrated operation, warehousing

and transportation service that can be scaled and customized to customer’s

need.

B23. Quality The intention of 3PL provider to the customer in term of product loss or

damage and prompt to take a responsible for that case.

15

2.5 The criteria and Sub criteria definition related to Hong-Li Company

Information Technology: Technology driven is not only the key to winning new contracts,

it also provide stronger client partnership which are harder for competition to overcome when

contract renewal time arrives So Hong-Li Company consider this factor to be a criteria for selection

a local logistics provider that ensure real-time visibility and accuracy. There are following with 4

sub criteria in the Information Technology.

1. (B1) Data in real time: Data in real time refer to 3PL send the data to Hong-Li Company

in real time.

2. (B2) Accuracy of data: The data from 3PL sent to Hong-Li Company with the correct

data and information.

3. (B3) Data security: Data security of Hong-Li Company that 3PL providers must protect

safely.

4. (B4) IT Infrastructure: Logistics providers offer to Hong-Li Company. Such as, IT

solution, hardware, software, network resources and services.

Relationship: Hong-Li Company needs to build a good relationship between the 3Pl in

order to make things easier and can decrease cost of the company in term of some situation might

be occur and the 3PL can come over and handle it for the company. So the company takes the

relationship factor to consider about logistics providers. There are 5 elements of sub criteria in the

relationship.

1. (B5) Personal relationship: The relationship between the logistics providers and Hong-li

Company.

2. (B6) Good communication: The communication between logistics provider and company

by distribute the effective information.

3. (B7) Easy to work with: The easy way of doing the task between logistics provider and

Hong-Li Company

4. (B8) Decrease labor problem: Hong-Li Company can reduce the manpower in the

logistics’ field within the company

5. (B9) Network coverage: The network connection of logistics provider with their co-

operations.

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Operation Performance: The Company considers the operation performance to be criteria

for selection logistics provider because If the 3PL can provide a good performance show to the

company, the company will also gain a good performance with their customer. For example, On-

time delivery to the customer, Data accuracy and Transportation safely to the company’s customer.

There are 4 elements of sub criteria in operation Performance.

1. (B10) Reliability: The reliability’s performance of 3PL that can show the trustworthy to

the company.

2. (B11) On-time delivery: The abilities of logistics provider can deliver the goods to the

company’s customers on time.

3. (B12) Document accuracy: The document in which 3PL provider doing with the right

information provide to the firm needs.

4. (B13) Transportation Safety: The logistics providers transport the customer’s product

with no broken and safely at the end user.

Capabilities: Capable third-party logistics (3PL) providers can help company manage rising

logistics costs because they already have highly developed processes and critical infrastructures in

place. So, Hong-Li company select this factor for select the third party provider that can reduce

company’s costs while still exceeding company service and delivery goals. There are 5 sub criteria

are explain in the following.

1. (B14) Expertise: The knowledge and skills of the logistics providers to handle with any

problem for the company.

2. (B15) Flexibility: The ability of 3PL manages space, labor and transportation in term of

seasonal change by quick shipping of goods to the right location.

3. (B16) Cost reduction: The Company can negotiate the cost reduction with the 3PL in

some situations.

4. (B17) Financial stability: The stability of 3PL’s financial performance with company can

ensure that the logistics providers can continually working company.

5. (B18) Management Quality: The capability of logistics provider can control the good

service quality and controlling the internal and external change.

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Service: Hong-Li Company mention this service factor for 3PL selection because some

situations might occur at the 3PL not in Hong-Li Company, so the company would like to see what

the logistics provider will help the company resolve that problem or what the 3PL can do more for

the company such as value-added, customer support and the quality of service. There are 5 elements

of sub criteria can explain the service.

1. (B19) Value-add: The extra service from logistics provider offer to the customer without

customer’s requirement.

2. (B20) Customer support: The supporting from 3PL to help firm planning, doing,

checking and take action for transportation.

3. (B21) Problem solving: The power of logistics provider can solve the problem when the

customer need and acquire.

4. (B22) Variety: 3PL providers typically specialize in integrated operation, warehousing

and transportation service that can be scaled and customized to customer’s

need.

5. (B23) Quality: The intention of 3PL provider to the customer in term of product loss or

damage and prompt to take a responsible for that case.

18

CHAPTER 3: RESEARCH METHODOLOGY

3.1 A Profile of Hong-li Company

Hong-Li Company does the business as the part of wholesaler who exports commodity

products to Burma around 5 years. For example, apparel and shoes. The size of the company is

small business which located in Mae Sot district, Thailand. Moreover, the company’s members

have around 15 people can separate as one of CEO and one of manager but the rest of the staff are

salesperson. In addition, Most of Company’s customers are Burmese’s customer who has an

intention to come across the border to buy the necessary commodities in Mae Sot area and take it

back to sell at Burma. The figure 2 will show as the nature of Business process of Hong-Li

Company.

Figuer:2 The Nature of Business process of Hong-Li company

In the process of export goods to its customers in Burma, Hong-Li Inter Trade Company

does not have the expertise in the shipping goods to their customer, so their business lacks of any

tools or equipment in term of transportation and experience.

3.2 Supplier identification of Hong-Li Company

The company choose 3 of the locals supplier who expert in the transportation and had a

knowledge about Burma’s rules and regulation in term of transportation. The reason why the

company chooses 3 of local suppliers, because the companies receive some recommendation from

other local’s business that has been used this three of Transportation Company. Most of them said

that 3 of suppliers are reliable and the cost of transportation is not high, so Hong-Li company can

qualified 3 of suppliers to be a good company partner.

Ordering products

from Bangkok

Hong-Li Company

- Warehousing

- Re-packaging

- Prepare product for customer

Burmese Customers

19

The supplier A did the transportation company between Burma for 10 years. The company

also has the family members live at Burma and they export some Burma’s goods to Mae Sot,

Thailand. Moreover, the location of supplier A company located near Hong-Li company around 1

kilometers.

The supplier B also did the transportation company between Burma but the time is about 7

years. The company didn’t have any family member live in Burma or have any business in Burma

too. The location of supplier B is quite far from Hong-Li company about 5 kilometers.

The supplier C is new transportation companies who came from outside Mae sot city and

live in Mae Sot about 2 years.

To apply with the criteria for supplier selection and their importance required data were

collected based on the consideration of literature, interviews and questionnaire.

3.3 Analytical Hierarchy Process

For achieve the Company’s objective (select the best 3PL providers) of the study, AHP was

applied to select the best logistics provider for Hong-Li Inter Trade (Mae Sot, Thailand). The

analytic hierarchy process is an effective tool for solving the complex alternative factors for making

a decision, and may support the decision maker to set the priorities and make the best decision.

AHP can be reducing complex decisions to a group of pairwise comparisons, and then analyzing the

results, the AHP helps to focus on both criteria and sub-criteria aspects of a decision.

In addition, the AHP methodology is useful technique for checking the consistency of the

decision maker’s evaluations, so reducing the bias in the decision making process. Moreover, The

AHP considers a group of evaluation criteria, and a set of alternative options among which the best

criteria is to be made. The higher the weight, the more important the criteria. Furthermore, AHP

point out a score to each option according to the decision maker’s pairwise comparisons of the

options based on a various criteria. The highest of the score, the better of the performance for

criteria’s consideration (Saaty, T.L., 1980).

20

3.4 The process of AHP

It is an important to focus on what are the goals of the company is. Our hierarchy has the

goal of “selecting the best 3PL provider” on top level, with the criteria and sub-criteria on the next

levels, and ultimately the three finalists on the bottom level.

There are six major steps to implementing AHP for supplier selection process (Tahriri,

Osman, Ali, Yusuff, & Esfandiary, 2008).

Step 1: Define criteria for supplier selection

In the first stage we have to establish the criteria to be used for assessing the supplier.

Moreover, to apply with the criteria for supplier selection and their importance required data were

collected based on the consideration of literature, interviews and questionnaire for last evaluation.

Step 2: Define criteria and sub-criteria for supplier selection

In this step, the definition of the criteria and sub-criteria has been done for supplier selection

based on the main five important criteria selected as the results of previous step with the

consideration of literature.

Step 3: Structure the hierarchical model

In this stage is how we construct the AHP hierarchy model and calculating the weights of

each levels of supplier selection model. To implement AHP model, based on the identified criteria

and sub-criteria, contains 4 levels: Company’s goal, the criteria, sub-criteria and alternatives.

21

(Level 1)

(Level 2)

(Level 3)

(Level 4)

Figure 3: Decision hierarchy of AHP (Saaty,1980)

Preference Analysis

Preferences in the AHP are determined on the basis of pairwise comparisons, which

involves the evaluation of each element with all the other elements at a given hierarchical level. An

element is a defined object such as evaluation criterion. The reference point for the comparisons is

an element which is higher in the hierarchy. To compute the weights for the different criteria, the

AHP starts creating a pairwise comparison matrix A.

[aij ], where i, j =1, 2, ..., n , (1)

aij =1 for i = j , (2)

aij =

for i ≠ j (3)

Company

Goals/Objective

Criteria 1 Criteria 2 Criteria 3

Sub-criteria 2 Sub-criteria 3 Sub-criteria 4 Sub-criteria 1

Alternative 1 Alternative 2 Alternative 3

22

The preference matrix with the above properties is the result of a pairwise comparison

of all the elements at a given hierarchical level with respect to a defined feature (attribute, criterion).

Formula (1) means that we are dealing with a matrix of dimensions n×n, where n is the number of

elements compared. Formula (2) is an expression of the principle of identity, which says that two

identical elements compared with each other are not differentiated by preference. A lack of

difference in preferences is expressed by the number 1. Therefore, all the element values along the

diagonal of the matrix are equal to 1.

In comparisons between elements at a given hierarchical level, we assume the principle that

an element on line i is always compared with an element in column j. And so aij indicates how

much more (or less) important the i-th element is than the j-th element. In the AHP we also assume

that preferences are reciprocal, which is expressed by Formula (3). If we state that the i-th element

is, for instance, x times more important than the j-th element (e.g. aij = x), then we automatically

assume that the j-th element is 1/x as important as the i-th element (aji = 1/x).

To determined the perform by using pair-wise comparisons. The function of the pair-wise

comparisons is by finding the relative importance of the criteria and sub criteria which is rated by

the nine-point scale stated by Saaty (1980), as shown in Table 2.

23

Table 2: Evaluation scale used in pairwise comparisons between two elements (Saaty,2001. P.73).

Intensity of importance Definition Explanation

1 Equal importance Two activities contribute equally to

the objective

3 Moderate importance Experience and judgment slightly

favor activity over another

5 Strong Importance Experience and judgment strongly

favor activity over another

7 Very strong importance An activity is favored very strongly

over another; its dominance

demonstrated in practice

9 Extreme importance The evidence favoring one activity

over another is of the highest

possible order of affirmation

2,4,6,8 For compromise between the

above values

Sometimes one needs to interpolate

a compromise judgment numerically

because there is no good word to

describe it

Reciprocals

of above

If activity i has one of the

above

nonzero numbers assigned to it

when compared with activity j,

then j has the reciprocal value

when compared with i

A comparison mandated by

choosing the smaller element as the

unit to estimate the lager one as a

multiple of that unit

Rational Ratios arising from the scale If consistency were to be forced by

obtaining n numerical values to span

the matrix

1:1–1:9 For tied activities When elements are close and nearly

indistinguishable; moderate is 1:3

and extreme is 1:9

In pairwise comparison of n elements, it is sufficient for the comparison values to be entered

above the diagonal in matrix A. The remaining values equal 1 (the diagonal) or are the reciprocals

of the values above the diagonal. Therefore, the total number of comparisons necessary equals

. Furthermore, when experts perform pairwise comparisons they do not need to enter their

results in a table like matrix A. Better results can be obtained by preparing suitable scales. For

example, for 4 elements which are to be compared pairwise, it suffices to draw up the 6 appropriate

combinations in the form shown in figure 3.

24

The elements on the left and right

are equivalent

The element on the left is more important The element on the right is more important

than the element on the right than the element on the left

Figure 4: An example of pairwise compairisons for the 4 elements being examined

For instance, consider a judgment matrix comparing between elements “A,” “B,” and “C”

in terms of above element “N.” An element in the matrix is equally important when compared with

itself, and thus the main diagonal of all judgment matrices must be 1. Employing Table 3, consider

the following scenario:

1. In terms of above element “N,” A is very strong importance than B and the intensity of

importance is 7. Meaning of satisfying criterion “N,” alternative A strongly outperforms

alternative B.

2. In terms of above element “N,” C is moderate importance than A and its scale is 3. Meaning

of criterion “N,” alternative C is slightly superior to alternative A.

3. In terms of above element “N,” C is absolutely more important than B and its scale is 9.

Mean that element C is absolutely superior to element B in satisfying criterion “N.”

9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9

E1 E2

E1 E3

E1 E4

E2 E3

E2 E4

E3 E4

25

Table 3: Completed judgment matrix (Criterion “N”)

N A B C

A 1 7 1/3

B 1/7 1 1/9

C 3 9 1

The above step is repeated until judgment matrices are constructed for each selection criterion.

As presented in Tables 3 the competing elements, in this example A, B, and C, must be compared in

terms of each element. The final task in this step is the construction of a judgment matrix that

prioritizes each selection criterion by comparing one against all other selection criteria.

After we constructing the pair-wise comparison matrix and making the normalization

computation to form the matrix elements onto a common scale, you can obtain the priority ranking

of the criteria through calculating row averages.

Ax = x , =

Where A is denoted as the pair-wise comparison matrix and X as row averages, Consistency

Index (C.I.) can be calculated by:

C.I. = –

Where n is the total number of elements in the matrix.

The consistency index (CI) refers to the average of the remaining solutions of the

characteristic equation for the inconsistent matrix A. This index increases in proportion to the

inconsistency of the estimates. Using the suggested comparison scale (1/9,1/8, …1/2, 1,2, 3…9)

values for the pairwise comparisons are generated randomly.

26

Table 4: Average random consistency: the reference values of R.I. for different matrix sizes

Size of Matrix

1 2 3 4 5 6 7 8 9 10

Random Consistency

0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49

Alsuwehri, 2011; developed by Saaty

Table 4 shows the CI values for matrices with dimensions from 1 to 10. Matrices of a higher

degree do not concern us because, following our assumption, the maximum number of compared

elements should not exceed nine.

The CI values for random pairwise comparisons (r) should vary considerably from the

experts’ estimates3. The expression of this difference is the Consistency Ratio (CR).

C.R. =

=

100%

Generally, C.R. ≤ 0.1 a consistency ratio of 0.10 or less is acceptable (Saaty, 1980). In the

event that the consistency ratio is greater than 0.10, the operator must re-evaluate the weight

assignments within the matrix violating the consistency limits.

Step 4: Prioritize the order of criteria or sub criteria

After we completed mathematical calculations, comparisons of criteria and allocating

weights for each criterion in each level is performed

Step 5: Measure supplier performance

An evaluation model to measure the supplier’s performance under each criterion. A total

score of each supplier will be generated through adding up the weighted scores multiplied

preference values with scores with respect to criteria.

Step 6: Identify supplier priority and selection

The decision matrix is of dimensions M N, “M” representing the number of alternatives being

considered, and “N” indicating the total number of influential criteria for which judgment matrices

was constructed. Considering three possible alternatives (A, B, and C), three selection criteria (i, j,

and k), and adopting the following priority subscript convention:

27

The decision matrix would appear as follows:

Considering the following subscript convention for the row priority vector of the selection

criteria:

= Row priority vector for selection criteria matrix

The matrix multiplication operation is then formulated as follows:

The overall rank of each alternative is shown as follows:

Rank of alternative A =

Rank of alternative B =

Rank of alternative C =

The overall weighted score for each supplier. Through ranking, the supplier with the best score

will be chosen as the suitable supplier as it should have a compelling performance level comparing

to all alternatives and satisfy all the goals and objectives of the company.

28

CHAPTER 4: DATA COLLECTION AND ANALYSIS

4.1 Data Collection

In this research, we collected both quantitative and qualitative data that related to the

research objectives by collecting the general information from Hong-Li Inter Trade’s company,

Mae sot, Thailand and interviewing the CEO and The general manager of the company. The

primary data is gathered through a questionnaire. Questions were asked regarding company’s

logistic activities. Interviewing is to understand attitude and believe from both of them in Hong-Li

Inter Trade Company.

To qualify the transportation company, Hong-Li Company consider 3 of the suppliers

according to other local business in Mae Sot city recommend and give Hong-Li Company some

suggestions, who had been used the Local’s transportation Company for take the action in the

logistics part. After the company knows the information, they collected and contact the

transportation company for in depth interview about the process of transportation to Burma.

The purpose is to understand the company’s using the 3PL provider’s activity which

involved in outsourcing. We designed the questionnaire with regard to the selection of 3PLs by

literature review and interviewing with experts. The questionnaire consisted of three parts: 1) Figure

of hierarchy framework of factors; 2) The table of the definitions of factors; 3) The checkboxes for

the pair wise comparison.

4.2 Expert’s Background

The objectives of this research are to select the logistics service provider in the part of

Transportation Company of Hong-Li Company, by applying the AHP model, and to test the

applicability of the proposed model. The experts are comprised of 2 members in which CEO and

the Manager of the company. Each expert compared the criteria and sub criteria by assigning

corresponding numerical values based on the relative importance of factors under the consideration

of the hierarchy framework. Each factor needs to be compared against the other factor.

Both of experts in this study are experienced in managers that engage in exporting.

Specifically, experts are required to possess experience in exporting project and have at least 5

years working experience as company members. Two of the experts are CEO and Manager in

Hong-Li Company. Experts have an average 5 working years, and their average age are 30 years old

29

and all of them have master degree. Thus this level of experience suggests that the decision makers

are well-qualified within the study of this research.

4.3 Data Analysis

To analyze the result from our questionnaire about various elements in the hierarchy, we

compare the elements two at a time. Our example will begin with the five criteria in the second row

and the twenty three of the sub criteria at the third row of the hierarchy (see Table 5 and Table 6).

The criteria will be compared as to how important they are to us, with respect to the goal.

Table 5 : The Global weight and Rank of Criteria

Criteria Rank of the Criteria Global weight of Criteria %

Operation performance (A3)

1 41.7

Service (A5)

2 20.3

Capabilities (A4)

3 19.2

Relationship (A2)

4 14.7

Information Technology (A1)

5 4.1

4.3.1 The Data interpretation of Criteria

According to the Table 5 shown the rank of importance of Criteria by their global weights is

as follows: (1) Operation performance (41.7%); (2) Services (20.3%); (3) Capabilities (19.2%); (4)

Relationship (14.7%); (5) Information Technology (4.1%).

30

Operation performance (A1) is shown as the first important criteria in this study. The

criteria were clearly accounts for 41.7 % of total importance of criteria. High operational

performance of 3PL providers can improves and boots up the company’s operation. At the

operational performance, Hong-Li company may also enhances performance-measuring capability,

Reliability, ability to resolve a potential problems, The company will get data and information

accuracy, system security, responsiveness and on time delivery.

Service (A5) is the second important criteria in this study. The criteria were clearly accounts

for 20.3% of total importance of criteria. Services play an important role in providing product

differentiation from competitors by adding values. So Hong-Li Company may receive competitive

advantage from other competitor. Quality of logistics systems is referring as quality of service. 3PL

services provider can support perceived quality to the company.

Capabilities (A4) is the third important criteria in this study. The criteria were clearly

accounts for 19.2% of total importance of criteria. Capacity of 3PL services provider comes to the

rescue from the exigency, thus the company should also consider the capabilities of 3PL services

providers, for continuously services. In the other word capacity of the 3PL services providers helps

the firm in case of emergency situation.

Table 6 : The Local Global weight and Rank of Sub criteria

Sub Criteria Rank of

Criteria

Local weight % Global weight %

Transportation safety (B13) , A34

1 51.1 21.3

Easy to work with (B7) , A23

2 46.6 9.7

Data security (B3) , A13

3 43 9.4

Accuracy of data (B2) , A12

4 36.4 6.9

Expertise (B14) , A41

5 34.2 6.6

Management Quality (B18), A45

6 32.5 6.3

Problem solving (B21) , A53

7 31.3 6.3

Quality (B23) , A55

8 31 6.2

31

Customer support (B20) , A52

9 28 5.7

On-time delivery (B11) , A32

10 23.1 4.3

Document Accuracy (B12) , A33

11 22.6 2.9

Flexibility (B15) , A42

12 22.5 2.3

Good Communication (B6) , A22

13 20 1.8

Decrease labor problem (B8) , A24

14 15.3 1.8

Data in real time (B1) , A11

15 12.4 1.5

Personal Relationship (B5) , A21

16 12.2 1.2

IT infrastructure (B4) , A14

17 8.2 1.3

Cost reduction (B16) , A43

18 6.3 1.1

Network coverage (B9) , A25

19 5.9 0.9

Value-added (B19) , A51

20 5.6 0.9

Financial Stability (B17) , A44

21 4.5 0.8

Variety (B22) , A54

22 4.1 0.5

Reliability (B10) , A31

23 3.1 0.3

4.3.2 The Data interpretation of Sub criteria

We are discussing of the top three and the last important factors on our study. Thus, the

meaning and the reason for the top three important factors to select the 3PL of Hong-Li Inter Trade

Company will be explained below.

Transportation safety (B13) accounted for 21.3% is the most important factor to select

3PL. The company have to emphasis on this factor because the process of the 3PL firm provide to

the company for transfer the product to the Burma’s customer must not broken and safely to the end

user during the transportation.

Easy to work with (B7) accounted for 9.7% It is the second important factor for Hong-Li

Inter Trade Company to select 3PLs. The 3PLs are willing to support what Hong-Li Company need

32

and wants. If 3PLs are not easy to work with, the companies may encounter difficulty when it needs

the 3PLs to cooperate with it in the local area.

Data security (B3) accounted for 9.4% is the third important factor to select 3PL. The

company needs the 3PL provider to keep and maintain any company’s data safely in order to protect

leak out of the important information from the competitor or new entrance.

Reliability (B10) accounted for 0.3% as the less important factor to select 3PL. The

company considers that reliability is very important for them but in nowadays, we had more 3PL

company in Mae Sot city to serve the company in transportation service. Some of them cannot

reliable to work with so, this factor not much effect to the company and always can change the

transportation company in any situation.

4.3.3 The Data interpretation of Alternatives selections

In this section, the study is applied to a form of a situation by an example. Suppose, the

Hong-Li Inter Trade Company conducted a preliminary investigation on the strengths and

weaknesses of each provider. Request list was then prepared for the candidates of 3PLs to fill out in

order to consider the capability and performance of 3PLs. Then, the CEO and the manager of the

company filtered out unqualified suppliers and selected supplier A and supplier B as qualified

candidates to be evaluated. Then experts expressed their opinions on the strengths of suppliers A

and B for each factor in the form of ranking scale such as very strong (score 5 points), strong (score

4 points), medium (score 3 points), weak (score 2 points) and none (score 1 points). The following

table is the calculation and results are shown in Table 7.

33

Table 7 : The evaluation of the performance between supplier A and supplier B

Sub Criteria

Supplier A Supplier B

Global

Weight %

Score Weight

score %

Global

Weight %

Score Weight

score % Transportation

safety (B13) , A34

21.3 * 4 = 85.2 21.3 * 4 = 85.2

Easy to work with

(B7) , A23

9.7 * 4 = 38.2 9.7 * 3 = 28.1

Data security (B3) ,

A13

9.4 * 4 = 37.6 9.4 * 3 = 28.2

Accuracy of data

(B2) , A12

6.9 * 4 = 27.6 6.9 * 4 = 27.6

Expertise (B14) ,

A41

6.6 * 4 = 26.4 6.6 * 5 = 33

Management

Quality (B18), A45

6.3 * 4 = 25.2 6.3 * 3 = 18.9

Problem solving

(B21) , A53

6.3 * 3 = 18.9 6.3 * 4 = 25.2

Quality (B23) ,

A55

6.2 * 3 = 18.6 6.2 * 3 = 18.6

Customer support

(B20) , A52

5.7 * 4 = 22.8 5.7 * 3 = 17.1

On-time delivery

(B11) , A32

4.3 * 4 = 17.2 4.3 * 3 = 12.9

Document

Accuracy (B12) ,

A33

2.9 * 4 = 11.6 2.9 * 5 = 14.5

Flexibility (B15) ,

A42

2.3 * 4 = 9.2 2.3 * 5 = 11.5

Good

Communication

(B6) , A22

1.8 * 5 = 9 1.8 * 4 = 7.2

Decrease labor

problem (B8) , A24

1.8 * 4 = 7.2 1.8 * 3 = 5.4

34

According to the results of Table 7, supplier A show the outstanding point at 385.3% better

than supplier B based on its highest total score. Based on the analysis of results, supplier A will be

the best choice for the company. The supplier A can meets the goal of the Hong Li Inter Trade

company. As a result, using AHP implementation are valid and reliable as the evaluation factors

match the company’s goal.

Data in real time

(B1) , A11

1.5 * 3 = 4.5 1.5 * 4 = 6

Personal

Relationship (B5) ,

A21

1.2 * 4 = 4.8 1.2 * 3 = 3.6

IT infrastructure

(B4) , A14

1.3 * 3 = 3.9 1.3 * 2 = 2.6

Cost reduction

(B16) , A43

1.1 * 4 = 4.4 1.1 * 3 = 3.3

Network coverage

(B9) , A25

0.9 * 4 = 3.6 0.9 * 2 = 1.8

Value-added

(B19) , A51

0.9 * 3 = 2.7 0.9 * 2 = 1.8

Financial Stability

(B17) , A44

0.8 * 5 = 4 0.8 * 4 = 3.2

Variety (B22) ,

A54

0.5 * 3 = 1.5 0.5 * 4 = 2

Reliability (B10) ,

A31

0.3 * 4 = 1.2 0.3 * 4 = 1.2

Total Score

385.3 358.9

35

Moreover, the Table 7 also shown the important factors of supplier A is greater than supplier

B. For example, the supplier A is easy to work with better than supplier B with shown as 38.2

points. The data security that supplier A provides to Hong-Li Company is better than Supplier B.

On-time delivery which supplier A also show better performance than supplier B. For the cost

reduction, supplier A can help Hong-Li Company to reduce the company’s cost better than supplier

B. Finally, Supplier A can provide good network coverage with their co-operations better than

supplier B.

Other reasons why Hong-Li Company choose supplier A out of our criteria and sub criteria.

First, Supplier A is the first company to do transportation direct to the Burma about 10 years ago, so

the company can reliable from their experience. Second, Supplier A has their family member at

Burma, so they might handle with the possible problem occur in Burma faster than other suppliers.

Finally, The Office of Supplier A located near Hong-Li Company at the main road in Mae Sot city

so, the cost of transportation between Supplier A and Hong-Li Company may not high.

The difference between supplier A and supplier B are the performance that they shown to

Hong-Li Company as 385.3 and 358.9 in Table 7. The supplier A doing a transportation company

between Burma for 10 years. The company also has the family members live at Burma and they

export some Burma’s goods to Mae Sot, Thailand. Moreover, the location of supplier A company

located near Hong-Li company around 1 kilometers. On the other hand, supplier B also

performanced the transportation company between Burma but the time is about 7 years. The

company didn’t have any family member live in Burma or have any business in Burma too. The

location of supplier B is quite far from Hong-Li company about 5 kilometers.

36

CHAPTER 5: CONCLUSION

5.1 Summary of Results

Outsourcing of logistics activities has become a popular in our global business nowadays.

This study provides insight from the company’s part of logistics outsourcing in Mae Sot City,

Thailand. The proposed of this research serves as a guideline of the Hong-Li company in the

outsourcing department with related to making the decisions. This research selects and chooses the

criteria and sub criteria from literature review. So we identified the potentially criteria and sub

criteria into the hierarchical structure.

The questionnaire was designed according to the hierarchical structure of criteria and sub

criteria from the literature review. The CEO and manager of Hong li Inter Trade Company was

surveyed by the questionnaire and the supplier’s information was collected in Mae Sot area. This

study relies on the development of AHP methodology, which incorporates diversified of the

suppliers for the selection of third party logistics provider.

The AHP approach is a kind of methodology provide the decision-makers to utilize and

analyze the impact of various factors in the result. The AHP methodology also make and

consideration both qualitative and quantitative information.

We find that the hierarchy of the most important criteria and sub-criteria are as follows: For

the 5 criteria, the Operation performance is the most important factor toward Hong-Li Company

and the others criteria come respectively such as, Service, Capabilities, Relationship and

Information Technology. On the other hand, the ranking of top five most important of sub-criteria

are transportation safety, easy to work with, data securities, accuracy of data and expertise.

The finding results can be as a guideline of the criteria affecting the 3PL selection of Hong

Li Inter Trade Company. Finally, we hoped that this research could assist the company for making

the decision in selection 3PLs in the future.

37

5.2 Suggestion for Hong Li Inter Trade Company

This study presents the important factors for logistics outsourcing decision in Hong Li Inter

Trade Company. Most of factors can apply in the steps of selection 3PL. For example, The

company can apply this study to select the suitable supplier in the transportation part in which

company never had the process of how to select the best supplier before.

For other contributions, Hong-Li Company can consider and apply the criteria and sub

criteria in this study for maximize a profit and minimize some cost of the company from selecting

the right partner.

According to the criteria, The company should consider the operation performance of

logistics provider in order to enhances performance-measuring capability, Reliability, ability to

resolve a potential problems, The company will get data and information accuracy, system security,

responsiveness and on time delivery. Second, Services play an important role in providing product

differentiation from competitors by adding values. So Hong-Li Company may receive competitive

advantage from other competitor. Quality of logistics systems is referring as quality of service. 3PL

services provider can support perceived quality to the company. Finally, the company should also

consider the capabilities of 3PL services providers, for continuously services. In the other word

capacity of the 3PL services providers helps the firm in case of emergency situation.

In term of the sub criteria in this study, Hong-Li Company should consider the factors which

show as the top three in the sub criteria result. First, Transportation safely due to the company’s

product transfer to the Burma’s customer must not broken and safely to the end user during the

transportation. Second, Hong-Li Company should maintain the relationship between the 3PL

because If 3PLs are not easy to work with, the companies may encounter difficulty when the

company needs the 3PLs to cooperate with it in the local area. Finally, The company needs to

consider the 3PL provider to keep and maintain any company’s data safely in order to protect leak

out of the important information from the competitor or new entrance.

38

5.3 Limitations

The methodology in this research is AHP, a multi-criteria decision making (MCDM)

method that can assist decision-makers who encounter with a complex problem with multiple

conflicting and subjective criteria. However, AHP also have some limitations such as the

assumption of independence between criteria and alternatives, if the assumption is violated, it can

lead to inconsistencies between judgments and ranking criteria, and is susceptible of rank reversal,

as well as, the method cannot reflect the fuzzy of opinions. Therefore, future study should solve the

weakness of the conventional AHP.

Due to the research method and source of data, every research has its limitations and our

study also has no exception. In fact the finding of this study may suffer from the aspect shown

below

In this research, we study only small business as Hong Li Inter Trade Company which

located in Mae Sot, Thailand. However, future research could extend the company model to study

in another part. Mae Sot City, Thailand is a city in the western part of Thailand, that shares a border

with Burma to the west. It is an important district as a trade hub for its substantial population of

Burmese migrants. So, logistics outsourcing will become a need of any business in Mae Sot area.

The results of our study and other papers will be useful for company to select appropriate third

party logistic providers.

39

5.4 Future Development

ANP (Analytical Network Process) approach is an effective alternative to alleviate the

problem of AHP, and ANP is regard as the general form of AHP (Saaty, 2006), developed in order

to take the interdependencies between factors into consideration. ANP is more concerned with

network structure that allows for dependence. There is a capacity to prioritize groups or clusters of

elements which are interdependence. ANP can also support the complicated, networked decision

making with various intangible criteria. Thus, ANP is always applied to solve the problem of

dependence among alternative or criteria of AHP.

For the future research could use different methods. For example, ANP (Analytic Network

Process) or Fuzzy Theory. In actually AHP is widely known as a multi-criteria decision making

(MCDM) method. The most criticized aspect is the use of a ratio scale in pairwise comparisons,

rather than an interval scale commonly used in multi-attribute utility theory.

For instance, when evaluating different suppliers, due to incomplete and uncertain

information regarding potential suppliers and their performance, decision makers often find it is

difficult to express their preferences precisely. The AHP method assumes that factors and

dimensions are independent. However, ANP method could be used to investigate the relationship

among criteria and sub criteria.

40

Reference

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Bowersox, D.J. and Daugherty, P. (1990), Logistical Excellence: It’s Not Business as Usual, Digital

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CSCMP (2006) Supply Chain and Logistics Terms and Glossary. Bellevue.

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Logistics Management, 23(6), 14-26.

Daim, T. U., Udbye, A., & Balasubramanian, A. (2012). Use of analytic hierarchy process (AHP)

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Kannan, V. R., & Tan, K. C. (2002). Supplier Selection and Assessment: Their Impact on Business

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Qureshi, M. N., Kumar, D., & Kumar, P. (2008). An integrated model to identify and classify the

key criteria and their role in the assessment of 3PL services providers. Asia Pacific Journal

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Rabinovich, E., Windle, R., Dresner, M., & Corsi, T. (1999). Outsourcing of integrated logistics

functions: An examination of industry practices. International Journal of Physical

Distribution & Logistics Management, 29(6), 353-374.

Rahman, Z. (2004). Use of Internet in supply chain management: a study of Indian companies.

Industrial Management & Data Systems, 104(1), 31-41.

Sahin, O., Mohamed, S., Warnken, J., & Rahman, A. (2013). Assessment of sea‐level rise

adaptation options: Multiple‐criteria decision‐making approach involving stakeholders.

Structural Survey, 31(4), 283-

Saaty, T.L. (1980), “The analytic hierarchy process”, McGraw-Hill, New York.

Seyed-Alagheband, S.-A. (2011). 5 - Logistics Parties A2 - Kardar, Reza Zanjirani

FarahaniShabnam RezapourLaleh Logistics Operations and Management (pp. 71-91).

London: Elsevier.

Sinkovics, R. R., & Roath, A. S. (2004). STRATEGIC ORIENTATION, CAPABILITIES, AND

PERFORMANCE IN MANUFACTURER — 3PL RELATIONSHIPS. Journal of Business

Logistics, 25(2), 43-64.

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Tahriri, F., Osman, M. R., Ali, A., Yusuff, R. M., & Esfandiary, A. (2008). AHP approach for

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89-94.

42

Appendices

Part 1 A Hierarchy Framework of criteria

Com

pan

y G

oal

(Sel

ect

the

bes

t 3P

L P

rov

ider

s)

Information Technology (A1)

Data in real time (B1)

Accuracy of data (B2)

Data security (B3)

IT infrastructure (B4)

Relationship (A2)

Personal Relationship (B5)

Good Communication (B6)

Easy to work with (B7)

Decrease labor problem (B8)

Network coverage (B9)

Operation performance (A3)

Reliability (B10)

On-time delivery (B11)

Document Accuracy (B12)

Transportation safety (B13)

Capabilities (A4)

Management Quality (B18)

Expertise (B14)

Cost reduction (B16)

Financial Stability (B17)

Flexibility (B15)

Service (A5)

Value-added (B19)

Customer support (B20)

Problem solving (B21)

Variety (B22)

Quality (B23)

43

Part 2 The Definition of Criteria and Sub-criteria

Criteria Sub-criteria Definition of Sub-criteria

A1. Information Technology B1. Data in real time Data in real time refer to 3PL send the data to the company in the real

time.

B2. Accuracy of data Accuracy of data from 3PL sent to the company.

B3. Data security Data security of customers that 3PL providers must protect safely.

B4. IT infrastructure IT infrastructure of Logistics providers offers to their customers. Such

as, IT solution, hardware, software, network resources and services.

A2. Relationship B5. Personal Relationship The relationship between the logistics providers and the company.

B6. Good Communication The communication between logistics provider and company by

distribute the effective information.

B7. Easy to work with The easy way to dealing with 3PL

44

B8. Decrease Labor

problem

The company can reduce the manpower in the logistics’ field within the

company

B9. Network Coverage The network connection of logistics provider with their co-operations.

A3. Operation performance B10. Reliability The reliability’s performance of 3PL that can show the trustworthy to

the company.

B11. On-time delivery The abilities of logistics provider can deliver the goods to the

company’s customers on time.

B12. Document Accuracy The document in which 3PL provider doing with the right information

provide to the firm needs.

B13. Transportation safety The logistics providers transport the customer’s product with no broken

and safely at the end user.

45

A4. Capabilities B14. Expertise The knowledge and skills of the logistics providers to handle with any

problem for the company.

B15. Flexibility The ability of 3PL manages space, labor and transportation in term of

seasonal change by quick shipping of goods to the right location.

B16. Cost reduction The company can negotiate the cost reduction with the 3PL in some

situations.

B17. Financial stability The stability of 3PL’s financial performance with company can ensure

that the logistics providers can continually working with company.

B18. Management quality The capability of logistics provider can control the good service quality

and controlling the internal and external change.

A5. Service B19. Value-added The extra service from logistics provider offer to the customer without

customer’s requirement.

B20. Customer Support The supporting from 3PL to help firm planning, doing, checking and

take action for transportation.

46

B21. Problem solving The power of logistics provider can solve the problem when the

customer need and acquire.

B22. Variety 3PL providers typically specialize in integrated operation, warehousing

and transportation service that can be scaled and customized to customer’s

need.

B23. Quality The intention of 3PL provider to the customer in term of product loss or

damage and prompt to take a responsible for that case.

47

Part 3 The Description and example of Questionnaire form.

The following table we would like your explicit opinion in order to select various alternative.

The pair wise compare scale was used explain the importance of one element over another.

Explanation Numeric Values

If Option A and Option B are equally important : Please Mark 1

If Option A is moderately more important than Option B : Please Mark 3

If Option A is strongly more important than Option B : Please Mark 5

If Option A is very strongly more important than Option B : Please Mark 7

If Option A is extremely more important than Option B : Please Mark 9

Use even numbers for neutral judgments 2,4,6,8

Table 1- Saaty Comparison Scale

Example:

Given Options A & B, you can judge their relative importance as shown below example:

If you think the option ‘Information Technology (A1)’ in column A is equal important

option ‘Relationship (A2)’ in column B, then you mark 1 with (O) on the middle.

If you think the option ‘Information Technology (A1)’ in column A is strongly more

important than the option ‘Relationship (A2)’ in column B, then you mark 5 with (O) on the left

hand side.

If you think the option ‘Relationship (A2)’ in column B is extremely more important than

the option ‘Information Technology (A1)’ in column A, then you mark 9 with (O) on the right

hand side.

48

The important level of comparison

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Information

technology

(A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Relationship

(A2)

Information

technology

(A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Relationship

(A2)

Information

technology

(A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Relationship

(A2)

Extr

emel

y

Ver

y S

tron

g

Str

on

g

Mod

erate

Eq

ual

Mod

erate

Str

on

g

Ver

y S

tron

g

Extr

emel

y

49

Part 4 The questionnaire form: The analysis of the Criteria part comparison.

With respect to compare on “Criteria”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Information Technology (A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Relationship (A2)

Information Technology (A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Operation performance (A3)

Information Technology (A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Capabilities (A4)

Information Technology (A1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Service (A5)

Relationship (A2)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Operation performance (A3)

Relationship (A2)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Capabilities (A4)

Relationship (A2)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Service (A5)

Operation performance (A3)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Capabilities (A4)

Operation performance (A3)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Service (A5)

Capabilities (A4)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Service (A5)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely

50

Part 5 The questionnaire form: The Sub criteria part comparison.

With respect to compare on “Information Technology”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Data in real time (B1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Accuracy of data (B2)

Data in real time (B1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Data security (B3)

Data in real time (B1)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

IT infrastructure (B4)

Accuracy of data (B2)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Data security (B3)

Accuracy of data (B2)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

IT infrastructure (B4)

Data security (B3)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

IT infrastructure (B4)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely

51

With respect to compare on “Relationship”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Personal Relationship (B5)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Good Communication (B6)

Personal Relationship (B5)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Easy to work with (B7)

Personal Relationship (B5)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Decrease labor problem (B8)

Personal Relationship (B5)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Network coverage (B9)

Good Communication (B6)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Easy to work with (B7)

Good Communication (B6)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Decrease labor problem (B8)

Good Communication (B6)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Network coverage (B9)

Easy to work with (B7)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Decrease labor problem (B8)

Easy to work with (B7)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Network coverage (B9)

Decrease labor problem (B8)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Network coverage (B9)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely

52

With respect to compare on “Operation Performance”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Reliability (B10)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

On-time delivery (B11)

Reliability (B10)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Document Accuracy (B12)

Reliability (B10)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Transportation safety (B13)

On-time delivery (B11)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Document Accuracy (B12)

On-time delivery (B11)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Transportation safety (B13)

Document Accuracy (B12)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Transportation safety (B13)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely

53

With respect to compare on “Capabilities”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Expertise (B14)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Flexibility (B15)

Expertise (B14)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Cost reduction (B16)

Expertise (B14)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Financial Stability (B17)

Expertise (B14)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Management Quality (B18)

Flexibility (B15)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Cost reduction (B16)

Flexibility (B15)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Financial Stability (B17)

Flexibility (B15)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Management Quality (B18)

Cost reduction (B16)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Financial Stability (B17)

Cost reduction (B16)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Management Quality (B18)

Financial Stability (B17)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Management Quality (B18)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely

54

With respect to compare on “Services”

Using the scale from 1 to 9 (where 9 is extremely and 1 is equally important), please indicate (O)

On the relative importance of options A (left column) to options B (right column).

Options A

9:1

8:1

7:1

6:1

5:1

4:1

3:1

2:1

1:1

1:2

1:3

1:4

1:5

1:6

1:7

1:8

1:9

Options B

Value-added (B19)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Customer support (B20)

Value-added (B19)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Problem solving (B21)

Value-added (B19)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Variety (B22)

Value-added (B19)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Quality (B23)

Customer support (B20)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Problem solving (B21)

Customer support (B20)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Variety (B22)

Customer support (B20)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Quality (B23)

Problem solving (B21)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Variety (B22)

Problem solving (B21)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Quality (B23)

Variety (B22)

9

8

7

6

5

4

3

2

1

2

3

4

5

6

7

8

9

Quality (B23)

Ex

trem

ely

Ver

y S

tro

ng

Str

on

g

Mo

der

ate

Eq

ua

l

Mo

der

ate

Str

on

g

Ver

y S

tro

ng

Ex

trem

ely