Int. J.

Production Economics 131 (2011) 441-452

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Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Assessing performance factors for a 3PL in a value chain

Gulgun Kayakutlu, Gulcin Buyukozkan
Galatasaray University, Istanbul 34357, Turkey
n

ar t i c l ei nf o
Article history: Received 27 February 2009 Accepted 12 October 2010 Available online 31 December 2010 Keywords: Third party logistics (3PL) companies Logistics performance factors Analytic network process Value chain performance

abst r act
Business continuity of the logistics companies in the twenty first century highly depends on the value chain performance. As the variety of services outsourced to third party logistics (3PL) companies increase, success strategies for these companies are to be revised. This study explores and illustrates an analytical framework to assess the performance factors for 3PL companies through a managerial view. The factors integrating the strategical and operational targets are evaluated within a framework based on four levels; performance targets, planning activities, logistics operations, and performance attributes of logistics operations. The analytic network process is used to determine the most effective performance attributes. The framework is applied and studied in two major logistics companies active in the South East Europe. The proposed framework will contribute to the logistics sector by demonstrating the paradigm shift in performance measurement. & 2011 Published by Elsevier B.V.

1. Introduction

Increasing requests for logistics services imposed a strategic role for the third party logistics (3PL) companies. It has been emphasised by many researchers that supply chain will not be effective unless logisticsfirmsdo notmeasureandmonitorthecompanyperformance in aflow offunctionsratherthanindividualactivities( Robertson etal., 2002). The biggest pace is taken by integrated evaluation of information and material flow (Gunasekaran and Ngai, 2003). It is shown by a recent literature survey on logistics and supply chains that there is still a big gap on reconsidering inter-functional and intercompany measures (Sachan and Datta, 2005). These gaps are advocated by concentration of 3PL companies on outsource requests; which are focused on evaluation of service provider on a single function such as transportation and warehousing (Jharkharia and Shankar, 2007). The need for differentiating proposed services caused managers to

logistics operations (Lai et al., 2004; Liu and Ma, 2005; Jayaram and Tan, 2010). First generic covering was realised by Yamin et al. (1999). ask for quantitative performance scores (Cook and Bala, 2007). Hence, there is a necessity of considering variations arising across the domain of effective factors (Parhizgaria and Gilbert, 2004); as well as integrating supplychainmanagement and logisticsmanagement( Kim,2009). In the production economy and business strategy literature, considerable interest has been centred on identifying the domain of effective factors. Approaches show a variety of dimensions in defining the success, such as quality and organisational interactions (Cheng et al., 2005), integrating network and operational strategies (Rudberg and Olhaberg, 2003 ), relating marketing performance and human capital (Knemeyer and Murphy, 2004 ), supply chain strategies and

Corresponding author. Fax: +90 212 259 5557. E-mail address: gulcin.buykozkan@gmail.com (G. Buyukozkan) .

0925-5273/$ - see front matter & 2011 Published by Elsevier B.V. doi:10.1016/j.ijpe.2010.12.019

Sincethen,therehasbeensomeindustryspecificanalysisastheoneon automotive logistics by Schmitz and Platts (2004) , Krakovics et al. (2008) and in food processing as in Hsiao et al. (2010). Today the altitude of performance is defined by core competence in networks, process orientation, free margins, organisational learning and technology utilisation as Gunasekaran and Ngai (2007) specifies. To create competitive advantages based on these new fields of focus, detailed factors vary by industry. De Sensi et al. (2007) makes an introduction to the industry specified issues in beverage supply chains. Singh et al. (2005) make the analysis in automotive industry of Australia. The article of Lai et al. (2007) take the issues in 3PL companies considering the clusters in China. South East Europe has become an important hub for logistic services between Asia and Europe. Hence, 3PL logistics companies giving services through Europe are in the process of changing the business paradigm. This is the first study that will discover the factors that need to be considered in competitive strategy reengineering by Turkish partnered companies that take role in this important route. This study has two main objectives: (1) define a model to analyse the effectiveness of a variety of factors that will link strategical and operational targets using Analytic Network Process (ANP); (2) apply the framework to compare effectiveness of the factors in two major 3PL companies of South East Europe with different strategies. Managers of the companies surveyed are in the process of changing the strategies and have not yet determined exact responses for the business questions. It is an obligation to prepare and present a pool of factors affecting the competitive strategies and then study the interdependenciesandeffectivenessofthosefactorsforthecompa nies studied.

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There is an unavoidable need to apply a multi criteria method to convert the managerial opinions into figures and analyse the dependency among the factors. Though there are several methods that can represent the importance and rank of the factors in figures, ANP is chosen for its unique features in analysing the interdependent criteria. The paper is organised as follows. The second section is reserved for preparing the pool of factors through literature survey. ANP method will be explained in the third section. In the fourth section, the application of the proposed framework will be presented. The conclusion and further recommendations will be given in the fifth and last section. The proposed framework will lead the managers of 3PL logistics sector by demonstrating the paradigm shift in performance measurement.

planning and operational level and the summary of literature analysis is given in Table 1a.

2. Proposition of a conceptual framework 2.1. Background for the conceptual framework Literature survey is run to depict the performance factors considered in logistics industry with the goal of global competition. Almost a hundred articles printed in highly graded academic periodicals are reviewed, which try to solve different issues in developing competitive uniqueness, recommending analytical and/or heuristic models for solutions. It is observed that strategic goals embracing competitive advantage in a supply chain can be classified in three groups: networking, capital balancing and customer focus. Effective planning enables linking these strategies with different logistics operations. There is a big variety of measure for operational performance. Besides, control and coordination of planning will feed in the right information for the related strategies ( Liu and Ma, 2005). This section is organised to handle performance factors at strategic,

2.1.1. Performance targets The evolution in information sciences lead majority of academic studiestofocusonbusinessnetworkissues. Boysonetal. (1999) isone of the initiators of discussion on alliance relationship in distribution networks being as influential as cost management. Business alliances consider distribution channels as well as supplier and partner relations. Stock et al. (2000) detail the issues of distributors in a supply chain, emphasising that performance influencers are not only configuration and organisation of the chain, as mentioned by Jayaraman and Ross (2003), but real partnering in planning, pricing and services. Dubois and Gadde (2000) reveal the innovation and efficiency advances by partnering with suppliers. Ross and Droge (2004) worked on strategies and operations effected by supply chain efficiencies. It is analytically observed that effective business network would grant strategic enhancements as well as operational efficiency improvements. Most recently each operation is tested in detail to realise the integration (Dong and Chen, 2005; Biehl et al., 2007). It is observed that the supply chain is to be designed based on structural and relational coordination criteria as stated by Truong and Azadivar (2005). Kim (2009) gets into the details of supply chain management influences on structured and unstructured integration of strategies and logistics operations. Since logistics is a value adding industry, capital balancing is an important target specifically in developing countries ( Clark et al., 1993). One of the major operations of logistics, inventory management needs special interest in strategic and operation planning since it is a highly capital binding operation. Bonney (1994) analysed how capital performance is interacted with the balance of pull and push strategies of inventory management. De Sensi et al.

Table 1a Summary of literature review.

Performance factors Strategic targets Networking

Relevant focus

Main references

Distribution network Logistics chain (network) Supply chain (network)

Capital balance Structural capital Human capital

Financial capital Relational capital Customer focus Quality-customer satisfaction Mass customisation Customer capital Customer segmentation Demand chain Accredited customers Planning activities Strategies Technology/organisation Alliances/customers New product/services Resources Distribution centres Delivery vehicles Employees Strategic planning Operational planning Measurement

Stock et al. (2000) , Jayaraman and Ross (2003) , Liu and Ma (2005) , Sachan and Datta (2005) Boyson et al. (1999) , Dong and Chen (2005) Dubois and Gadde (2000) , Ross and Droge (2004) , Truong and Azadivar (2005) , Biehl et al. (2007) , Kim (2009), Jayaram and Tan (2010). Gunasekaran et al. (2005), De Sensi et al. (2007) Clark et al. (1993) , Rudberg and Olhaberg (2003) , Knemeyer and Murphy (2004) , Gunasekaran et al. (2005) Clark et al. (1993) , Bonney (1994) , Ross (2000) , Gunasekaran et al. (2005) , Krakovics et al. (2008) Zhao and Stank (2003) , Gunasekaran et al. (2005) Andersson et al. (1989) , Fawcett and Cooper (1998) , Korpela and Lehmusvaara (1999) , Ross (2000), Goetschalckx et al. (2002) , Rudberg and Olhaberg (2003) Rabinovich et al. (2003) Barad and Sapir (2003), Lai and Lee (2003), Zhao and Stank (2003), Parhizgaria and Gilbert (2004), Kuar et al. (2005), Krakovics et al. (2008) Mentzer et al. (2004) , Kuar et al. (2005) Landeghem and Vanmaele (2002) , Treville et al. (2004) , Cheng et al.(2005) , Hsiao et al., (2010). Bottani and Rizzi (2006) Andersson et al. (1989) , Hameri and Paatela (1995) , Schmitz and Platts (2004) , Kim (2009) . Robertson et al. (2002) , Hertz and Alfredsson (2003) , Georgiadis et al. (2005) , Sachan and Datta (2005) Hertz and Alfredsson (2003) , Rudberg and Olhaberg (2003) Toppen and Smits (1998) , Gunasekaran and Ngai (2003) , Zhao and Stank (2003) , Bogataj and Bogataj (2004), Ross and Droge (2004) , Georgiadis et al. (2005) , Krakovics et al. (2008) , Hsiao et al., (2010) Toppen and Smits (1998) , Ross and Droge (2004) , Georgiadis et al. (2005) , Ioannou (2005) Gunasekaran and Ngai (2003) , Cook and Bala (2007) , Ioannou (2005) Yamin et al. (1999), Gunasekaran and Ngai (2003, 2004), Yusuf et al. (2004), Bayraktar et al. (2009), Kim (2009). Toppen and Smits (1998) , Au et al. (2002) , Kim and Narasimhan (2002) , Landeghem and Vanmaele (2002) , Rabinovich et al. (2003) , Kim (2009) . Irani et al. (2006) , Hamdan and Rogers (2008)

Information

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(2007) worked on the importance of inventory issues in the supply customer satisfaction chain. Another capital balancing issue is the resource allocation influencing the distribution centres and transportation facilities as Ross (2000) has discussed. There are not many researches that combine financial or even cost issues with the structural and the relational capital. Gunasekaran et al. (2005) is a pioneer in search of performance factors of the twenty first century, where new factors are defined considering the integrated analysis of all capitals. Customer focus is found to be the third major goal. Customer satisfaction has been considered as a performance factor in all industries in the last ten years of twentieth century (Anderson et al., 1998 ). The need to redesign internal and external customer processes have been a major concern in logistics (Fawcett and Cooper, 1998 ). Customer satisfaction concept was analytically expressed only after the development of qualitative methods (Korpela and Lehmusvaara, 1999). Measures used in relations enabled the associating customer capital with cost and profit performances (Anderson et al., 1998; Fawcett and Cooper, 1998; Korpela and Lehmusvaara, 1999; Goetschalckx et al., 2002). Development of supply chains led the target of mass customisation which needs detailed demand analysis to include both enterprise and relational data (Rabinovich et al., 2003). Customer relations became an important asset only after definitionofcustomerrelatedprocessesinoperation( BaradandS apir, 2003; Lai and Lee, 2003; Zhao and Stank, 2003). Customer segmentation helped in strengthening the focus (Mentzer et al., 2004). Hence, contribution of this asset in cost reduction, lead time minimisation and capacity optimisation are also measured (Kuar et al., 2005). It is also emphasised that linking customers in a demand chain will contribute more in both strategic and operational modelling (Landeghem and Vanmaele, 2002; Treville et al., 2004). Positive interactions with loyal customers are expected to influence total quality of the organisation (Cheng et al., 2005). As outsourcing increased customer oriented service performance has become the challenge. 3PL firms are imposed to focus on accredited customers for sustainability (Bottani and Rizzi, 2006). Even cost optimisation has to be revised based on

reduction

(Rabinovich et al., 2003 ) and

services (Ross et al., 2007).

2.1.2. Planning activities The main objective of logistics is overall coordination of strategies andoperations.The coordination can be realised bythe rightplanning; there is a need of effective plans for resources and information in parallel with the altering strategies (Andersson et al., 1989). The increasing interest in 3PL operations by companies from different industries changed the traditional way of planning from operation integration to integrating multiple global strategies. With the aid of technology it has been easier to simulate the different strategic models for integration (Hameri and Paatela, 1995). These models are expected to include managerial performances to incorporate the link of customers and alliances to provide more complex services(HertzandAlfredsson,2003 ).Briefly,plansareexpe ctedtofind solutions for multi-level supply-chain issues (Georgiadis et al., 2005). Resource based performance theories are focused on limits and optimisation of capacities ( Zhao and Stank, 2003 ). Resource planning is interrelated with operational strategies and gets into more detail with improvements in enterprise planning software ( Bogataj and Bogataj, 2004 ). It is observed that distribution centres, distribution vehicles and employees are the main issues in resource planning. Optimisation of resources is effective in operational cost performance ( Ioannou, 2005 ) in terms of effective structure of distribution network and efficient utilisation of information about the resources ( Toppen et al., 1998 ). Yamin et al. (1999) have stressed the effect of information planning on logistics performance that helps analysing organisational success. Studies on functional improvements by information planning, such as cost reduction ( Toppen et al., 1998 ), lead time

(Au et al., 2002; Kim and Narasimhan, 2002; Treville et al., 2004 ) enlightened the paradigm change in logistics operations. Development of supply chains and the need for agility are emphasised in studies of Gunasekaran and Ngai (2003, 2004), who succeeded the promotion of information and material flows in parallel. These two researches have contributed to remove the restricted vision of operational data. It can be extended to benefit information and knowledge by effective planning of infrastructure, inter-operation and relational information ( Yusuf et al., 2004 ). Consequences of information plans are to be measured with care since they are in interaction with strategic and operational plans in both dimensions (Irani et al., 2006 ). Recently the impact of information systems on the supply chain of manufacturing companies is emphasised by Bayraktar et al. (2009) . It is observed in the literature of planning activities, that, it is indispensable to run and implement strategic, resource and information plans together as a bond between the strategies and the operations.

2.1.3. Logistics operations and their performance attributes Success of several industries are attributed to the performance of logistics operations (Knemeyer and Murphy, 2004); which would be defined as individual or integrated services in transportation, warehousing, materials management, order management, customer services and procurement (Robeson and Copacino, 1994; Skjoett-Larsen, 2000). Reduction of costs while providing the quality and schedule to satisfy the customers are considered to be the major objectives of operational performance (Lynch, 2000). Studies on supplier selection analyse these criteria in general (Bevilacqua and Petroni, 2002; Chang et al., 2006; Demirtas and stn, 2008) or detail as an interoperation mix classified by business (Lai et al., 2004), by processes (Robertson et al., 2002; Tyan et al., 2003) or by decision variables (Liu and Ma, 2005; Jharkharia and Shankar, 2007). Principal components of cost reduction in transportation are ascribed by vehicle allocation and routing ( Ross et al., 2007 ). The three measures which are independent of the industry are the size of fleet capacity ( Tarantilis and Kiranoudis, 2001; Tarantilis et al., 2004; Hsieh and Tien, 2004 ), distance ( Di Benedetto, 1999; Chen et al., 2005 ) and the driver force ( Zhao and Stank, 2003; Di Benedetto, 1999 ). The quality in transportation is helping to realise the delivery commitments in quality and time by avoiding the loss of goods (Bowersox et al., 1999; Panazzo et al., 1999) and relocation (Leung et al., 2002; Powell and Topaloglu, 2003 ). Warehouse performance involves physical infrastructure and monitoring receipt, storage and movements of goods between the distribution stations. Service quality for these activities relies on forecast success ( Van der Vorst et al., 1998 ) and layout flexibility (Barad and Sapir, 2003 ); however, cost and timing is influenced by regularity of receiving the goods (Hameri and Paatela, 1995; Wegelius-Lehtonen, 2001; Lutz et al., 2003; Singh et al., 2005 ), distribution rates ( Mason et al., 2003; Chen et al., 2005 ) and return rate of goods ( Lu, 2000; Mahadeven et al., 2003 ). Order rate and order cycle are indispensable measures in logistics service sales ( Boyson et al.,1999; Dong and Chen, 2005 ). These two measures ensure the success of transportation and warehouse management success as well as customer services (Chen et al., 2005). Improvements in sales cost reduction is realised by balancing the demand rates and order rates ( Van Norden and Van de Velde, 2005 ). Customer relations management also contributed with new measures like changes in customer portfolio and complaint rates ( Collins et al., 2001; Wouters and Sportel, 2005 ). Realisation of resource plans cannot be completed without close monitoring of fulfilment and procurement ( Gunasekaran and Ngai, 2003 ). Effective implementations of these activities result in

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reduction of distribution costs and lead-time ( Mahadeven et al., 2003; Muffatto and Payaro, 2004 ). When procurement is considered, cost fluctuations and unusual demands are issues that cannot be ignored in unstable economies ( Aktas- and Ulengin, 2005 ). Hamdan and Rogers (2008) gets into the details of operational performance indicators under demand and finance constraints. 2.2. Suggested conceptual framework The proposed conceptual framework is given in Fig. 1 . Four dimensions are defined in the framework: company performance targets supporting the competitive success in a value chain are planning activities, logistics operations and performance attributes of logistics operations.
Achieve Competitive Success in a Value Chain

Logistics firms performance targets

Planning Activities

Logistics operations

Performance attributes of logistics operations

Fig. 1. Graphical representation of proposed evaluation framework.

Table 1b Performance attributes of logistics operations.

The first dimension will follow the literature grouping on performance targets, consisting of networking, capital balancing and customer focus. Specific to 3PL companies networking and customer focus will be restricted. As networking with consumers is not yet wide-spread among 3PL companies ( Hertz and Alfredsson, 2003 ), alliance networking will be taken into account to indicate business chains. On the other hand, long-term contracted customers are of strategical importance for 3PL logistics companies (Bottani and Rizzi, 2006 ), while other customer related issues are taken into account in operational performance. The planning activities dimension includes strategic plans, resource and information plans that are needed to be run in parallel as an interface between the targets and the operations. Logistics operations , the third dimension is summarised in four groups based on accumulation of critical factors surveyed previously. Transportation all alone includes several factors; but, warehouse and inventory management are taken together; order and customer management are combined into one, procurement and fulfilment operations are represented by demand management. Attributes of logistics operations are widely used by other researchers as briefly summarised in Table 1b . Transportation is expressed by the fleet capacity, distances travelled, driver force, loss of goods and relocation rate. Warehouse/Inventory measures are forecast reliability, receiving regularity; return rate; distribution rate and layout flexibility. Attributes of order/customer management are interest on order rate, order cycle consistency, complaint rates, request trends and fluctuations in the customer portfolio (change). Demand coordination represents the procurement and fulfilment factors, which are, fulfil rate, procurement efficiency, lead time effectiveness, demand trends and cost fluctuation rate. The detailed model used to evaluate the 3PL company performance attributes is given in Fig. 2.

Logistics operation Transportation

Performance attribute

Brief definition Interest/order rate Order cycle consistency Customer complaint rate Request Trends Change in customer portfolio Demand coordination Fulfil rate Procure efficiency Lead time effective Demand trends Cost fluctuation rate

Fleet Distance travelled Driver force Loss of goods Relocation rate Warehouse/ inventory management Forecast reliability Receiving regularity Return rate Distribution rate Layout flexibility Order/customer management

Performance analysis of transportation activities. Optimal fleet capacity representing the number of vehicles used in logistics (Wu, 2009 ). Optimum distance travelled by transportation fleet (Levinson, 2003 ) Efficiency of the vehicle drivers ( Anderson et al., 1998 ) Minimum loss of goods during the delivery of the goods (Anderson et al., 1998 ) Rate of change in the given address of delivery ( SkjoettLarsen, 2000 ) Performance analysis of warehouse management and inventory control activities

How well the inventory amounts and security stocks are forecasted ( Korpela et al., 2002 ) Regularity in the periodicity of receiving purchased material ( Korpela et al., 2002 ). These two will affect the inventory turnover rate Product return rate over the quantity sold that will increase the inventory (Brito and Dekker, 2003 ) Optimal product flow in one warehouse ( Chen et al., 2005 ) Tolerance limits in assigning multiple warehouses to multiple locations ( Barad and Sapir, 2003 ) Order management activities and customer relations management related to orders Interest on order rate that will effect the prediction of order rates ( Chen et al., 2005 ) Consistency in repeating orders in a periodic cycle ( Chen et al., 2005) Number of customer complaint as a rate of received order amount ( Marasco, 2008 ) The rate of match among the customer requests and the company future predictions ( Marasco, 2008 ) Change in the customer portfolio profile that will force changes in requests (Collins et al., 2001 ) Demand forecasting, updating, modifications according to changes in activities Demand fulfilment rate which will satisfy the customer (Stadtler, 2005 ) Efficiency rate of procurement which influences demand fulfil rate ( Muffatto and Payaro, 2004 ) Weight of lead time in demand satisfaction which changes by industry ( Bogataj and Bogataj, 2004 ) Prediction robustness for future changes in demand ( Landeghem and Vanmaele, 2002 ) The rate of changes in demand fulfilment costs ( Ross et al., 2007)

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Performance Targets Alliance Network (ALNW) Achieving global Capital Balancing (CBAL) Accredited Customers (ACCU) competition success in the logistics market (A) GOAL

(B)

(C)

Strategies (STRA)

Resources (RSCS) (D)

Information (INFO)

Planning Activities

Logistics Operations Transportation Mgmt (TRANS) Performance Attributes Fleet (FL) Distance (DS) Driver force (DF) Loss of goods (LG) Relocation rate (RL) Forecast Reliability (FR) Receiving Regularity(RS) Return Rate (RR) Distribution Rate (DR) Layout Flexibility(LF) Interest/Order Rate (OR) Order Cycle Consist. (OC) Complaint Rates (CR) Request Trends (RT) Change in Portfolio (CP) Fulfil Rate (FlR) Procure Efficiency (PE) Lead Time Effective(LE) Demand Trends (DT) Cost Fluct. Rate (CS) WH/Inventory Mgmt (WHINV) Order-Customer Mgmt (ORD/CUST) Demand Coordination (DEMM)

(E)

Fig. 2. Evaluation network for achieving global competition in the logistics market.

3. Research methodology: the analytic network process Selection of a suitable methodology that can decode the high-level relationship model presented in Fig. 1 in order to determine the importance of each component is a critical issue. This methodology should be able to use quantitative, qualitative, tangible and intangible factors pertaining to the decision of which success attributes should be evaluated. ANP is a unique method capable of taking the multiple dimensions of information into the analysis. ANP (Saaty, 1996 ) is a general form of the analytical hierarchy process(AHP)firstintroducedby Saaty(1980) .WhiletheAHPemp loys a unidirectional hierarchical relationship among decision levels, the ANP enables interrelationships among the decision levels and attributes in a more general form (Saaty and Takizawa, 1986; Saaty, 1996; Saaty and Vargas, 1998). This provides a more accurate approach for modelling complex decision/evaluation environment and then the numberofANPrelatedworkshasincreasedin therecentyears( Meade and Sarkis, 1998, 1999; Yurdakul, 2003; Sarkis, 2003; Chung et al., 2005; Kengpol and Tuominen, 2006; Bayazit and Karpak, 2007; Jharkharia and Shankar, 2007; Ravi et al., 2008; Wadhwa et al., 2009). The detailed model used to evaluate the 3PL company performance attributes is given in Fig. 2. The ANP uses ratio scale measurements based on pair-

wise comparisons; however, it does not impose a strict hierarchical structure as in AHP, and models a decision problem using a systems-with-feedback approach. The ANP then refers to the systems of which a level may both dominate and be dominated, directly or indirectly, by other decision attributes and levels. The ANP approach is capable of handling interdependence among elements by obtaining the composite weights through the development of a supermatrix . Saaty (1996) explains the supermatrix concept similar to the Markov chain process. The supermatrix development is defined in the next section.

The supermatrix development for ANP process is defined into six major steps which are stated below:

Step 1. Develop an evaluation network hierarchy showing the relationships among the criteria analysed. The hierarchy has to show the goal, the targets, the cluster of factors and the attributes. Step 2. Elicit pair-wise comparisons among the factors influencing the evaluation. Eliciting preferences of various components and attributes will require a series of pair-wise comparisons where the assessorwillcomparetwocomponentsatatimewithrespecttoan upper level control criterion. In ANP, pair-wise comparisons of the elements in each level are conducted with respect to their relative importance towards their control criterion. Saaty has suggested a scale of 1-9 when comparing the two components, with a score of 1 representing indifference between the two components and 9 being overwhelming dominance of the component under consideration over the comparison component. When scoring is conducted for a pair, a reciprocal value is automatically assigned to the reverse comparison within the matrix. Since many of these values have strategic importance, strategic group decision-making tool is used. Step 3. Calculate relative-importance-weight vectors of the factors. Once all the pair-wise comparisons are completed, the relative importance weight for each component is determined. The weights can be determined as the largest eigenvalue. Step 4. Form a supermatrix (i.e. a two-dimensional matrix composed from the relative-importance-weight vectors) and normalise this supermatrix, so that the numbers in every column sum to one. The priority vectors for each pair-wise comparison matrix will be needed to complete the various supermatrix submatrices. The priority vectors are needed to complete the supermatrix, a

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partitioned matrix allowing the resolution of the effects of the interdependence that exists between the clusters within the evaluation network hierarchy. Each submatrix is composed of a set of relationships between two clusters. Step 5. Calculate converged (stable) weights from the normalised supermatrix. Supermatrix evaluation is to determine the final relative importance weights of each of the attribute levels to help guarantee convergence. The columns of the supermatrix must be column stochastic , i.e. the sum of weights of each column for the supermatrix must be equal to 1. To complete this task, each column is to be normalised by dividing weight in the column by the sum of that column. For convergence to a final set of weights, the normalised (column stochastic) supermatrix is raised to the power 2k+1 where k is an arbitrarily large number until stabilisation (values in the supermatrix do not change when it is multiplied by itself, converged). Step 6. Determine overall weightings of evaluation attributes. The last step in the ANP process is to take the final results of the converged supermatrix and the eigenvector values from the earlier pair-wise comparisons and calculate the relative importance weight for success attribute of each level. Once all the relative weights have been calculated, a composite (global) weight for each success attribute is determined. This is accomplished by aggregating the weights. The result is a single weight value for success attributes of each level. These six steps will be discussed in conjunction with the case study in the following section.

five hundred customers is served by three hundred and fifty personnel. Integrated services of distribution, warehousing and sales channel management are given for beverage and brewery companies. Distribution of fuel oil is one of the major services that should be accounted. The company has invested in information technology since the day of establishment but the implementation of integrated information system solutions is in process currently. Company E is only established in 1990 as a transportation company but quickly switched into an integrated logistics solutions company in 1994. This company owns several warehouses in different regions of South East Europe including the biggest technology rich textile logistics centre of the region. Integrated services are only given to the accredited customers; hence, there are only ten international conglomerates like 3M, Marks & Spencer and Metro Group in the customer base. Since the starting day integrated information systems, networking and automatic data collection and processing is given special interest and the warehouses are technically equipped. The proposed framework is applied in both companies to observe the similarities and differences in business performance measures. Assessors from both companies are high level managers and one business consultant of each. General Managers of both companies have graduate degrees of education and have experiences in global manufacturing companies. Interviewed consultants are experienced

4. Application of the proposed framework The proposed analytic framework is applied in two major 3PL companies of South East Europe of Turkish origin. Company A and company E are chosen since they have similar volume of logistics business with different background and strategies. Though, they both take an important role in the value chain through Europe. Company A has been in inbound transportation business for the last twenty years, whilst giving customs execution and insurance services. It has been international for the last ten years and started the warehouse management services with three warehouses in different regions of Turkey only a few years ago. Current portfolio of

in industry for at least ten years. Analysis is performed on average results of managers and consultants of each company. 4.1. The evaluation network hierarchy According to Fig. 2 the proposed logistics system is evaluated on four different dimensions (levels or clusters); Planning Activities, Performance Targets, Logistics Operations and Performance attributes of logistics operations. In this study, the interdependence or feedback type relationship occurs between planning activities and performance targets as represented by two reverse arrows among those levels. The other arrows in the model indicate a oneway relationship. In addition, the interdependency relationships of logistics operations are shown by a looped arc in Fig. 2. The capital letters from A to E in parenthesis in Fig. 2 represent the weight matrices used in the supermatrix construction which is described in details in Section 4.4. 4.2. Pair-wise comparisons Eliciting preferences of various components and attributes will require a series of pair-wise comparisons where the assessor will compare two components at a time with respect to an upper level control criterion. In ANP, like AHP, pair-wise comparisons of the elements in each level are conducted with respect to their relative importance towards their control criterion ( Saaty, 1996 ). Saaty has suggested a scale of 1-9 when comparing the two components, with a score of 1 representing indifference between the two components and 9 being overwhelming dominance of the component under consideration (row component) over the comparison component (column component). If a component has a weaker impactonthecontrolcriterion,therangeofscoreswillbefrom 1to1/9, where 1 represents indifference and 1/9 an overwhelming dominance byacolumnelementovertherowelement.Whenscoringisconduc ted for a pair, a reciprocal value is automatically assigned to the reverse comparison within thematrix.That is,ifa ij isamatrixvalueassignedto the relationship of component i to component j, then aji is equal to 1/aij (or aijnaji1). Since many of these values have strategic importance, strategic group decision-making tool, Delphi approach (Delbecq et al., 1975; Melnyk et al., 2008) is used to assign meaningful values to the pair-wise comparisons. Expertise of the assessors chosen has avoided the issues caused by difficulty of evaluation. Experts were asked questions such as: In terms of the goal of global competitiveness what is the relative importance of information planning compared to the strategies planning? In this example, the decision maker viewed collection as

slightly more important by the score of 3.000 (as shown in the cell at the intersection of the strategies row and the information column in Table 2a). Reciprocally, the intersection of the information row and strategies column shows a score of 1/3. This pair-wise comparison approach is used to populate the matrix. 4.3. Calculation of relative importance weights Once all the pair-wise comparisons are completed, the relative importance weight for each component is determined. The priority
Table 2a Pair-wise comparison matrix of Company A importance of planning elements relative to the goal (A). GOAL Strategies Resources Information Strategies 1 1/5 1/3 Resources 5 1 3 Information 3 1/3 1 Weights 0.64 0.10 0.26

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vector shows that for this study, the strategic planning activities were given the highest rating (0.64 and 0.65) (the weighted priorities are shown as the last column in Table 2). Given that A is the pair-wise comparison matrix; the weights can be determined by expression:
Aw

lmax w

summingtheelementsineachrowoftheresultantmatrixanddividing bythenelementsintherow.Thisisreferredastheprocessofavera ging over normalised columns. The procedure may be algebraically represented as PJ =P a Ik1 kj j1 a ij wi J for i 1,2,::,I 2 where w i is the weighted priority for component I, J is number of columns (components), and I is number of rows (components). In the assessment process there may occur a problem in the transitivity or consistency of the pair-wise comparisons. For an explanation on inconsistencies in relationships and their calculations see Saaty (1980) . The priority vectors for each pairwise comparison matrix will be needed to complete the various supermatrix submatrices. We will need a total of 19 priority vectors to complete our supermatrix. This requirement means that 19 pairwise comparison matrices must be completed. The pairwise comparison matrix results were used below after tests and validation of the consistency. 4.4. Supermatrix formation ANP uses supermatrix to allow the resolution of interdepen-

where lmax is the largest eigenvalue of A. Saaty provides several algorithms for approximating w. In this paper a two-stage algorithm was used to involve forming a new n n matrix by dividing each element in a column by the sum of the column elements and then
Table 2b Pair-wise comparison matrix of Company E importance of planning elements relative to the goal (A). GOAL Strategies Resources Information Strategies 1 1/5 1/3 Resources 5 1 1/3 Information 3 3 1 Weights 0.65 0.22 0.13

Perform.

Goal Goal Performance Targets Planning Operations 0 0 A 0

Targets 0 0 B 0

Planning 0 C 0 D

Operations

0 0 E

dence that exists between the levels and elements of the evaluation network hierarchy. The supermatrix is a partitioned matrix, where each submatrix is composed of a set of relationships between two clusters in the graphical model. A generic supermatrix is shown in Fig. 3 , with the notation representing the various relationships from Fig. 2 ; for instance, A is the submatrix representing the influence relationship between the Planning Activities and control factor of achieving global competition success by determining the

Fig. 3. General submatrix notation for supermatrix.

Table 3a Initial supermatrix M for determining the weights of logistics operations performance attributes for Company A. GOAL Perform. Targets ALNW GOAL Performance targets 0.00 0.00 0.00 0.00 0.64 0.10 0.26 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.64 0.26 0.10 0.00 0.00 0.00 0.00 CBAL 0.00 0.00 0.00 0.00 0.10 0.64 0.26 0.00 0.00 0.00 0.00 ACCU 0.00 0.00 0.00 0.00 0.10 0.26 0.64 0.00 0.00 0.00 0.00 Planning STRA 0.00 0.10 0.26 0.64 0.00 0.00 0.00 0.08 0.52 0.20 0.20 RSCS 0.00 0.65 0.22 0.13 0.00 0.00 0.00 0.55 0.23 0.11 0.11 INFO 0.00 0.10 0.64 0.26 0.00 0.00 0.00 0.08 0.52 0.20 0.20 Operations TRANS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.60 0.22 0.10 0.08 WHINV 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.21 0.06 0.60 0.13 ORD/CUST 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.26 0.52 0.10 0.12 DEMM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.26 0.52 0.12 0.10

Planning

Operations

ALNW CBAL ACCU STRA RSCS INFO TRANS WH/INV ORD/CUST DEMM

Table 3b Initial supermatrix M for determining the weights of logistics operations GOAL Perform. targets ALNW GOAL Performance targets 0.00 0.00 0.00 0.00 CBAL 0.00 0.00

performance attributes for Company E. Planning ACCU 0.00 0.00 STRA 0.00 0.10 RSCS 0.00 0.64 INFO 0.00 0.26 Operations TRANS 0.00 0.00 WHINV 0.00 0.00 ORD/CUST 0.00 0.00 DEMM 0.00 0.00

ALNW

Planning

Operations

CBAL ACCU STRA RSCS INFO TRANS WH/INV ORD/CUST DEMM

0.00 0.00 0.65 0.22 0.13 0.00 0.00 0.00 0.00

0.00 0.00 0.26 0.64 0.10 0.00 0.00 0.00 0.00

0.00 0.00 0.65 0.22 0.13 0.00 0.00 0.00 0.00

0.00 0.00 0.10 0.64 0.26 0.00 0.00 0.00 0.00

0.64 0.26 0.00 0.00 0.00 0.06 0.12 0.56 0.26

0.26 0.10 0.00 0.00 0.00 0.07 0.09 0.57 0.27

0.10 0.64 0.00 0.00 0.00 0.07 0.15 0.39 0.39

0.00 0.00 0.00 0.00 0.00 0.06 0.08 0.55 0.31

0.00 0.00 0.00 0.00 0.00 0.14 0.06 0.51 0.29

0.00 0.00 0.00 0.00 0.00 0.58 0.23 0.07 0.12

0.00 0.00 0.00 0.00 0.00 0.58 0.23 0.07 0.12

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G. Kayakutlu, G. Buyukozkan / Int. J. Production Economics 131 (2011) 441-452

weights of performance attributes of logistics operations. Tables 3a and 3b are the detailed initial supermatrix of the proposed model. 4.5. Calculation of stable weights from the normalised supermatrix The next step with the supermatrix evaluation is to determine the final relative importance weights for each operation. To complete this step and to help guarantee convergence, the columns of the supermatrix must be column stochastic and thus minimise the possibility for divergence to infinity or convergence to zero. That is, the sum of weights of each column for the supermatrix must be equal to 1. In order to achieve this sum, each column is normalised by dividing weight in the column by the sum of that column. Let w ij be any weight in the jth column then normalised weight can be expressed as (3) XJ

4.6. Final relative importance weight calculation The sixth and last step in the ANP process is to take the final results of the converged supermatrix and the eigenvector values from the earlier pair-wise comparisons and calculate the relative importance weight for each operational performance attribute. To analyse operational performance attributes, pair-wise comparison similar to the one that is done in Step 2 is realised to achieve importance weights (or eigenvectors). There are three separate pair-wise comparison matrices that have to be developed for this step in the analysis. Table 5 (a-c) gives the evaluation results for Company A and Table 6(a-c) gives results for Company E. Once all the relative weights have been calculated, a composite (global) weight for each performance attribute is determined. This is accomplished by aggregating the weights. The result is a single weight value for performance attributes of logistics operations. The combination of all the weights is given in Tables 7 and 8. Company A appears to have Fleet (0.1850), Forecast Reliability (0.1428), Interest/Order Rate (0.1224) and the Driver Force (0.1036) as performance attributes that have the most impact on the success of global competitiveness. Whereas Company E has Fleet (0.1734), Complaint rates (0.1320), Lead Time Effectiveness (0.0945), the Driver Force (0.0884) and Change in Customer Portfolio (0.0810) as performance attributes that have the most impact on the success of global competitiveness. The Fleet being the most important performance attribute was not a surprise for any assessor. The reasons behind that may be the cultural issue of insisting to own the trucks as explained by Aktasand Ulengin (2005) . Forecast reliability seems to be solved by technology in Company E but not yet in company A. The driver force is an attribute, most possibly depending on the low education level of drivers.

wi P w ij
j

J j1

or 0 w
ij

where

j 1

wi 1
j

For convergence to a final set of weights, we raise the normalised (column stochastic) supermatrix to the power 2k+1 where k is an arbitrarily large number, increased until stabilisation of the weights occurs (i.e. the point where values in the supermatrix do not change as a result of multiplication by itself, is also defined as convergence). For our example, convergence occurred when the supermatrix was raised to the 39th power. The long-term stable weighted values to be used in the analysis are shown in the converged supermatrix given in Tables 4a and 4b. The results show the most important operation is transportation for both of the companies (0.37; 0.34). For Company A the following operation is warehouse/inventory management, whereas for Company E it is the order/customer management.
Table 4a Converged supermatrix at M

39

for Company A.

GOAL

Perform. targets ALNW CBAL 0.00 0.00 ACCU 0.00 0.00

Planning STRA 0.00 0.00 RSCS 0.00 0.00 INFO 0.00 0.00

Operations TRANS 0.00 0.00 WHINV 0.00 0.00 ORD/CUST 0.00 0.00 DEMM 0.00 0.00

GOAL Performance targets

ALNW

0.00 0.00

0.00 0.00

Planning

Operations

CBAL ACCU STRA RSCS INFO TRANS WH/INV ORD/CUST DEMM

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

0.00 0.00 0.00 0.00 0.00 0.37 0.28 0.24 0.11

Table 4b Converged supermatrix at M

39

for Company E. GOAL Perform. targets ALNW CBAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 ACCU 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 Planning STRA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 RSCS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 INFO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 Operations TRANS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 WHINV 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 ORD/CUST 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21 DEMM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21

GOAL Performance targets

Planning

Operations

ALNW CBAL ACCU STRA RSCS INFO TRANS WH/INV ORD/CUST DEMM

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.34 0.15 0.30 0.21

G. Kayakutlu, G. Buyukozkan / Int. J. Production Economics 131 (2011) Table 5 Relative importance of the logistics operations performance attributes for Company A. (a) The relative importance of the transportation management performance attributes FL DS Fleet Distance Driver force Loss in goods Relocation rate 1 1/5 1/7 1/3 1/3 5 1 9 3 5

441-452 449

DF 7 1/9 1 1/5 1/7

LG 3 1/3 5 1 5 DR 9 7 1/5 1 1/3 RT 9 7 3 1 5 DT 1/3 1/9 1/7 1 1/3

RL 3 1/5 7 1/5 1 LF 5 3 1/3 3 1 CP 5 3 1/3 1/5 1 CS 3 1/5 1/3 5 1

(b) The relative importance of the warehouse/inventory management performance attributes FR RS RR Forecast reliability Receiving regularity Return rate Distribution rate Layout flexibility 1 1/3 1/7 1/9 1/5 3 1 1/5 1/7 1/3 7 5 1 5 3 CR 7 5 1 1/3 3 LE 5 1/3 1 7 3

(c) The relative importance of the order/customer management performance attributes OR OC Interest/order rate Order cycle consist. Complaint rates Request trends Change in portfolio 1 1/3 1/7 1/9 1/5 3 1 1/5 1/7 1/3

(d) The relative importance of the demand coordination performance attributes FlR PE Fullfil rate Procure efficiency Lead time effectiveness Demand trends Cost fluctuation rate 1 1/7 1/5 3 1/3 7 1 3 9 5

Table 6 Relative importance of the logistics operations performance attributes for Company E. (a) The relative importance of the transportation management performance attributes FL DS Fleet Distance Driver force Loss in goods Relocation rate 1 1/9 1/3 1/5 1/7 9 1 7 5 3

DF 3 1/7 1 1/3 1/5

LG 5 1/5 3 1 1/3 DR 3 3 1/3 1 1/5 RT 1/3 1/5 5 1 3 DT 1/5 1/5 5 1 3

RL 7 1/3 5 3 1 LF 7 5 5 5 1 CP 1/5 1/5 3 1/3 1 CS 1/3 1/3 3 1/3 1

(b) The relative importance of the warehouse/inventory management performance attributes FR RS RR Forecast reliability Receiving regularity Return rate Distribution rate Layout flexibility 1 1/3 1/5 1/3 1/7 3 1 1/7 1/3 1/5 5 7 1 3 1/5 CR 1/5 1/3 1 1/5 1/3 LE 1/5 1/3 1 1/5 1/3

(c) The relative importance of the order/customer management performance attributes OR OC Interest/order rate Order cycle consist. Complaint rates Request trends Change in portfolio 1 3 5 3 5 1/3 1 3 5 5

(d) The relative importance of the demand coordination performance attributes FlR PE Fullfill rate Procure efficiency Lead time effectiveness Demand trends Cost fluctuation rate 1 3 5 5 3 1/3 1 3 5 3

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Table 7 Composite weights for logistics operations priority Company A. Logistics operations Transportation management Local weights 0.37 Performance attributes Fleet Distance Driver force Loss in goods Relocation rate Forecast reliability Receiving regularity Return rate Distribution rate Layout flexibility Interest/order rate Order cycle consist. Complaint rates Request trends Change in portfolio

performance attributes of factors

chain. The study addresses the need for defining new performance to develop competitive success. A framework is developed in ordertoidentifyandrankthepossiblefactors.Thepoolofcriteriatobe consideredbya3PLcompanyisconstructedonaliteraturesurveyand

Local weights 0.50 0.03 0.28 0.06 0.13 0.51 0.28 0.04 0.10 0.07 0.51 0.26 0.07 0.03 0.13

Global weights 0.1850 0.0111 0.1036 0.0222 0.0481 0.1428 0.0784 0.0112 0.0280 0.0196 0.1224 0.0624 0.0168 0.0072 0.0312 0.0286 0.0033 0.0066 0.0561 0.0154

Warehousing/ inventory management

0.28

Order/customer management

0.24

Demand management

0.11

Fullfill rate 0.26 Procure efficiency 0.03 Lead time 0.06 effectiveness Demand trends 0.51 Cost fluctuation 0.14 rate

Table 8 Composite priority weights for logistics operations attributes of Company E. Logistics operations Transportation management Local weights 0.34 Performance attributes Fleet Distance Driver force Loss in goods Relocation rate Forecast reliability Receiving regularity Return rate Distribution rate Layout flexibility Interest/order rate Order cycle consist. Complaint rates Request trends Change in portfolio

performance

Local weights 0.51 0.04 0.26 0.13 0.06 0.44 0.29 0.08 0.15 0.04 0.05 0.08 0.44 0.16 0.27

Global weights 0.1734 0.0136 0.0884 0.0442 0.0204 0.0660 0.0435 0.0120 0.0225 0.0060 0.0150 0.0240 0.1320 0.0480 0.0810 0.0105 0.0189 0.0945 0.0378 0.0483

Warehousing/ inventory management

0.15

Order/customer management

0.30

Demand management

0.21

Fullfill rate 0.05 Procure efficiency 0.09 Lead time 0.45 effectiveness Demand trends 0.18 Cost fluctuation 0.23 rate

refined with industrial experts. The model considers tangible, intangible, quantitative, qualitative factors in the analytic evaluation. As shown in Table 1 , the previous studies were focused on integrating either strategic performance factors or bringing together the attributes in one or more operations. This study will contribute to the logistics research literature with the unique effort to amalgamate strategic factors and operational factors through planning activities. The fact that performance issues are interdependent is clearly observed in the background section. Research on strategic decisions to develop competitive success uses alternate decisionmaking tools. The fact that factors influencing the strategies cannot be mutually excluded, ANP has become a unique method. The ANP method is used in this study to offer a more precise and accurate analysis by integrating interdependent relationships, though it requires more time and effort (additional interdependency relationships increase geometrically the number of pair-wise comparison matrices). The case is run on two 3PL companies providing integrated services ininternationalcompetitionwitheachother.Theaim ofchoosingthese two companies was to observe the differences in importance of performance targets, planning and operational performance factors in conjunction with (i) the level of information technology utilisation and (ii) the richness of logistics services provided. The results show that both give the biggest importance to strategic planning and transportation operation; but the differences are observed in the followers. This is possible mainly because both companies started in transportation business and evolved in additional logistics operations. The Fleet and the Driver Force both taking place among the important operational performance attributes fortifies the possibility. Issues in the chosen factors cannot be removed by information technologies but control and monitor operations and by learning organisation. The second choices are quite different. Company A shows the need for technology by the choice of planning and operational factors like forecast reliability and interest/order rate, which are known to be handled by integrated information systems. Company E on the other hand, shows interest in customer relations management willing to measure complaint rates, change in portfolio and lead time effectiveness. The proposed framework has a few limitations as well. The results depend on the initial responses. Even if the effort is made by choosing the assessors as managers and the business consultants, the possibility of bias cannot be totally removed. Hence, this study will be extended to take the evaluation of customers into account to reduce the bias by opposition.

Development of the model can also be continued by applying sensitivity analysis. Comparing the results of this study and the application of another analytical method will provide more definitive conclusions, which can lead for the development of an expert system in performance evaluation.

Acknowledgements

The authors acknowledge the managers and consultants of Adahan Logistics and Ekol Logistics for their unlimited support 5. Concluding remarks and future directions in evaluation of the framework. The authors thank the Editor, Professor T.C. Edwin Cheng, and anonymous reviewers for their This research aims to contribute both academic studies and the valuable comments and suggestions to improve the early version 3PL logistics management in reengineering the strategies in a value of the paper.

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