Modelling Fourth-Party Logistics Transaction Centre for Evaluation and Integration of Trading Partners using Data Envelopment Analysis

Author
  • Adappa Chandrashekar Lokesh


Abstract

This thesis presents the modelling of an effective Fourth-Party Logistics (4PL) transaction centre which can evaluate trading partners and comprehensively integrate the improved competencies of trading partners for sustaining the post-merger effects. The proposed 4PL transaction centre is based on the best of breed concept to serve as a single point integrator. To create a best of breed 4PL set up, an exclusive performance measurement framework is proposed in a balanced approach by considering decision parameters from both the trading partners and the buying organisation perspectives. The novelty of the proposed 4PL performance measurement framework lies in its capability to integrate analytics with mathematical modelling resulting in a multi-stage framework which can be generalised to any industry. This thesis proposes the modelling of 4PL transaction centre through a computationally efficient Data Envelopment Analysis (DEA) approach considering time dynamics as an influential factor instead of conventional static evaluation. The versatile features of dynamic DEA approach are realised through the variable lag effects (positive, neutral or negative) on subsequent chain partners to emulate actual scenario by eliminating bias in the evaluation process. Based on the derived outputs from the developed framework, this thesis enables to deal with a range of cross-segment mergers by extending the conventional Bogetoft and Wang’s production economics integration model which is otherwise limited to mergers of similarsegment only. This thesis proposes a novel two-tier cross-segment integration framework for the 4PL transaction centre prioritising performance orientation in the first tier and cost orientation in the second tier to quantify the merger gain. The integration framework developed in this thesis facilitates the coordinator of transaction centre to manage and control 4PL activities. In summary, this thesis demonstrates an objective approach to quantify the 4PL value addition in a unified approach (evaluation and integration) with improved consistency and adequacy. The advantageous and desirable features attained by modelling the 4PL transaction centre are addressed specifically from operational perspective instead of available financial measures. This thesis also presents extensions to the proposed transaction centre to deal with multi-criteria decisions objectively along with risk considerations. The expected value additions from the proposed 4PL transaction centre are substantiated through a case study utilising real data of suppliers and logistics service providers from a tiller and tractor manufacturing company.

Conclusion: 
Findings and Original Contributions to the Body of Knowledge The original contributions and findings from this thesis can be briefly summarised as follows: 
  • The Make-Shift methodology is proposed to estimate the net dependence effect from trading partner’s perspective. In this method, clustering of heterogeneous trading partners into like-minded groups through modified Kraljic’s matrix eliminates bias factor for further DEA evaluation. Further, the net dependence effect helps the coordinator of 4PL transaction centre to identify appropriate relationship that has to be maintained with trading partners before conducting the evaluation process. Conversely, an attempt to reduce the size of the SC problem in order to exploit DEA principles is put forward to induct right trading partners into the pool of transaction centre. The empirical application shows that positive correlation exists between best-peer’ and other trading partners in individual clusters. The recommended method has enabled a new line of thinking for carrying out SC research using DEA and can be generalised to other areas of DEA evaluation. (validation in section 4.3.3)
  • In order to consider appropriate trading partners for 4PL operations, multi-stage performance evaluation framework is developed from buying organisation perspective. This framework explores improvement stages from static to dynamic consideration. Specifically, the performance evaluation framework can deal with discretionary, nondiscretionary and categorical situations along with dynamic consideration. The proposed dynamic evaluation differs from the existing research through output disposability relaxation of lag parameters signifying variable inter-temporal effects (positive, neutral or negative) between the chain partners. Besides, it is demonstrated that the dynamic evaluation system yields better performance results and provides pragmatic insights to improve technical and cost efficiencies. Thus, an integrated approach is formulated for the evaluation process wherein the resultant framework can be a generalisation to any industry. Also, the coordinator of 4PL transaction centre can look into the capabilities of all the trading partners before carrying out cross-segment integration (validation in sections 4.3.3 and 5.3.4). In summary, an exclusive 4PL performance measurement framework to create a best of breed trading partner setup is a value addition to the logistics research. The novelty of the proposed 4PL performance measurement framework lies in its capability to integrate analytics with mathematical modelling resulting in a multi-stage framework
  • An exclusive 4PL approach for the dynamic transaction centre is developed to comprehensively deal with a range of merger scenarios by arriving at operating standards. In particular, a novel two-tier cross-segment integration framework for the 4PL transaction centre is proposed prioritising performance orientation in the first tier and cost orientation in the second tier to quantify the merger gain. Therefore, a holistic approach is presented to assist the coordinator for assimilating operations process and implementation characteristics in the transaction centre. One can conclude that, a first attempt to merge cross-segment trading partners using DEA for the 4PL transaction centre is demonstrated. Further, the client and the 4PL organisation can optimally synchronise outside competencies with internal resources to enable transparency between the network members. In principle, the proposed model identifies best of breed trading partners auguring 4PL principles (validation in sections 5.3.4 and 5.3.5). Thus, the integration framework developed in this thesis facilitates the coordinator of transaction centre to manage and control the activities of 4PL 
  • In some situations, it may be a buying organisation’s desire to retain all the trading partners in the pool of transaction centre. To address such a scenario, an optimistic heuristic procedure to retain trading partners sub-optimally is proposed for a stipulated time period based on the output of 4PL transaction centre. The proposed OE based heuristic ordering mechanism makes the procedure simpler and faster compared to Shapley value approach by ensuring fair chance across the 4PL network members. Moreover, this approach has opened a new line of research in 4PL domain (validation in section 6.3.1.1[Extension‑1])
  • Adopting the suggested extensions enabled the 4PL transaction centre to address real-life industry problems and the coordinator can be equipped to manage 4PL operations effectively. The proposed extensions envisage to consider various aspects in multiple domains for making the intended transaction centre robust (validation in sections 6.3.1.2 and 6.3.1.3 [Extension‑2 and 3])
  • As the transaction centre comprises various categories of trading partners, risk is analysed proactively to minimise supply disruptions. A proactive risk-predictive model which can synchronise different metric scores of trading partners for estimating future risk is developed exclusively for the 4PL transaction centre. The recommended risk model consists of information which can help the coordinator of transaction centre to explore merger options proactively. Besides, the coordinator can foresee supply disruption risks in the future (validation in section 7.4)