Selecting a Third Party Logistics partner for operating a Materials Service Centre: a Data Envelopment Analysis approach

Outsourcing materials management functions to a Third Party Logistics (3PL) firm is a widely accepted and increasingly common method that companies use to enhance logistics efficiency. Because logistics processes are generally considered critical to the success of the business venture, selecting a compatible outsourcing partner is very important. A Data Envelopment Analysis (DEA) based model is presented in this paper to address the supplier selection evaluation for a 3PL outsourcing arrangement. A case study is provided to demonstrate the application of the DEA model for evaluating alternatives in a Materials Service Centre (MSC) outsourcing analysis. Data from a heavy equipment manufacturer are used to represent the critical decision factors used in the illustrative DEA model. The analysis results demonstrate the effectiveness of DEA as a decision analysis tool when considering a MSC outsourcing arrangement.