Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
How to Select Effective Criteria for the Third-Fourth Party
Logistics: Roadmap for Thai Automotive Industry
Vichayanan Rattanawiboonsom*
This study proposes a model framework for the selection of effective third party logistics
partners for the specific logistics function of Thai automotive organizations. The empirical
research of this study is an exploratory investigation into the factors that play important
roles in selecting a third-Fourth party logistics provider. This consist of: 1) An extensive
literature review, 2) a large sample survey of the Thai automotive organizations that have
third party logistics providers for logistics management, and 3)follow-up interviews in the
case studies of organizations. This study developed the model framework of the
determinant factors for selecting a third-party logistics provider. This modelsuggests
some factors differ from some traditional factors used for supplier selection. It shows how
the new factors can be added to a model for the selection of the logistics provider. All
fieldwork was conducted in Thailand and, as such, the findings may not be applicable to
organizations outside Thailand. Moreover, the conclusions are within the context of
developing countries only. In addition, the generalization of the findings of this study is
limited to the automotive industry sector only and does not include all manufacturing
industry sectors.This paper is the first kind to provide a model framework to relate these
benefits to the determinant factors concerned with selection of a third party logistics, in
particular for a developing country such as Thailand. Basically, the results of this
research will help management make crucial decisions for the third logistics provider
issue.
Keywords: the third-fourth logistics provider, Thai Automotive Industry
JEL Codes: …..
1. Introduction
There is a large of literature review covering the subject area of international selecting
for the logistics provider. However, there is only a limited amount of literature that
addresses the selecting effective criteria Third party logistics provider, in particular for
Thai Automotive industry. Robinovich et al., (1999), and Discount Store News (1999)
mentioned that in recently years, companies have increasingly embraced one stop
logistics services. By allowing companies to concentrate on their core competencies
and performances, the third party logistics providers can improve customer service and
reduce costs by outsourcing logistics services (pp353-373. The third party logistics
provider can act as a lead logistics provider or a fourth party logistics provider aligned
with a host of third party logistics providers. Logistics manager need to consider
perceived performance, capability and responsiveness as main factors in effectiveness
of selecting logistics providers (Menon et al., 1998).This paper explores the major
___________________________________________________________________
Faculty of Business, Economics and Communication, Naresuan University, Thailand, Email:
[email protected]
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
consideration in searching critical factors for selecting of a third party logistics provider
to expedite the movement of goods and information in particular in Thai automotive
industry organizations.
1.1 Defining Third and Fourth party Logistics
Term “Third party Logistics (3PL)” describe to the organizational practice of contractingout part of all logistics activities that performed in house (Aertsen, 1993; Bowersox,
1990; Lieb, 1992; and Sink et al., 1996) . 3PL is always linked with the offering of
bundled services rather than only transport or warehousing functions (Leahy et al.,
1995).
The Term of “Fourth party Logistics (4PL)” has also explained more advanced
contracting arrangements in recent years. Van Hoek and Chong (2001, p 463) define
the 4PL as “…service provider that participates rather in supply chain coordination than
operation services. It is highly information based and coordinates multiple asset-based
players on behalf of its clients”.
2. Literature Review
According to some literature relate to logistics provider models (Sink and Langley, 1997)
which relate to strategic decision making in organization industrial buying behavior,
transportation, purchasing, supplier selection, and logistics relationships. Strategic
alliances allow companies to reduce conflict, reciprocate regarding mutual goal related
matters, increase efficiency and stability, and establish market place legitimacy (Cooper
and Gardner, 1993). Logistics manager consider perceived performance, perceived
capability, and responsiveness as important factors in selecting logistics providers
(Menon et at.,1998) In general, it appears that market and firm characteristics influence
the choice of logistics providers (DammeandAmstel, 1996), and manager achieve
customer service improvement and cost reduction by outsourcing
2.1 Third party Logistics Functions
Robinovich et al.,(1999) and Sink and Langley (1997) classified the outsourcing
functions into four categories as shown in Figure1; which are inventory and logistics
(such as management freight consolidation, freight distribution, shipment planning,
traffic
management,
inventory
management,
carrier
selection,
order
entry/management); customer service (such as freight payments, auditing, order,
management, fulfillment, help desk, carrier selection, rate negotiation); warehousing
(such as packaging, product making, labeling, and warehousing); and transportation
(such as fleet management, cross docking, and product return). Among four categories
have a validate the interrelationships between transportation and customer service
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
(Robinovich et al., 1999). There is information flow to integrate into four categories.
Also, material flow occurs from an integration of transportation and distribution systems.
Figure1: Categorization of logistics functions
Source: Robinovich et al.,(1999) and Sink and Langley (1997)
In conclusion, the material flow and information have been theorized to validate the
interrelationships to each other function (Lewis and Talalayevsky, 2000). Additional,
3PL provider function can be derived that revolves around the information flow that
affects the 3PL provider function.
2.2 Factors that Influence success in selecting a third party logistics
provider
There have been many studies investigated success factors for third party logistics
partnerships (Lambert et al., 1999; Leahy et al., 1995; Murphy and Poist, 2000; Sink
and Langley, 1997; Tate, 1996; and Van Laarhoven et al.,2000) as followed;


cost
service quality
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
















responsiveness to requests
flexibility and reliability
financial stability
supplier reputation,
references from clients and response to information requests
top management support
understanding client‟s supply chain needs
common goals
compatibility of organization culture and routines
customer orientation
expert knowledge in a processes, products and specific markets
management of 3PL relationship
power balance between contracting parties
mechanisms for dispute resolution
provider ability to stay updated to new technologies
risk, bonus and reward sharing
Furthermore, in the view of the client‟s industry, its regulations and products type are
perceived as important selection factors by buyers (Aghazadeh, 2003; Sink et al., 1996;
Van Damme and Ploss V Amstel, 1996).
In particular, management of 3PL relationship issue is important. The problematic
relations is lack of understanding of client‟s supply chain needs, lack of in adequate
description of services and service levels, lack of logistics cost awareness by the client
and lack of 3PL innovation (Ackerman, 1996; Ellram and Cooper, 1990; Wilding and
Juriado, 2004). To response the such problems, there are many literature review
focuses on issues such as contracts, information exchange and performance
measurement (Andersson and Norman, 2002; Boyson et al., 1999; Lambert et al., 1999;
and Logan, 2000).
2.3Effectiveness of selection criteria for the Third-fourth Party
logistics
There are several criteria logistics service providers (LSP) have been discussed in the
literature. These include subjective and tangible benefits such as reputation, service
quality and reliability, flexibility, responsiveness to requests, and tangible as cost and
financial measurement. Some criteria are developed with specific client needs in mind
(Bagchi and Virum, 1996). This study has measured benefits by both subjective benefits
and tangible benefits.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
2.3.1 Subjective Benefits
With regard to the difficulties in obtaining improved performance measures, there are
several studies have decided to measure MRP benefits using buyer‟s internal view
(Aghazadeh, 2003; Sink et al., 1996; Vaidyanathan, 2003; and Van Damme and Ploss
V Amstel, 1996).A set of criteria for subjective measurement includes “quality” (such as
compliance requirements for warehousing requirements, ISO procedures for units
handling, storing, and preservation, ISO procedures for pick, pack, and ship facilities
and quality requirements, ISO procedures for delivery, six sigma and commitment to
continuous improvement, facilities and personnel to identify, correct, collect, index,
access, file, store, maintain and dispose quality records in accordance with ISO, and
training procedures);“service” (such as physical warehousing services, security and
scalability services in warehousing, monitoring/Tracking efforts in warehousing,
historical delivery and reverse logistics metrics, historical order management metrics,
historical transportation Management metrics, customer support services, historical
average time to settle warranty claim summarized reports available on monthly basis),
and “responsiveness to unexpected events” play predominant role is identified
(Vaidyanathan, 2003).
2.3.2 Tangible Benefits
Tangible benefits can be measured as instrumental for assessing the extent of 3PL
success and identifying corrective action in case of service failures (Van Hoek, 2001;
Wilding and Juriado, 2004). The tangible benefits also can be measured by
improvement in tangible measures of selection criteria of 3PL logistics performance.
These are delivery timeliness and accuracy, order fill rates, inventory turnover (Wilding
and Jurrado, 2004). Furthermore, Vaidyanathan (2003) identified a tangible criteria
measurement which includes cost (such as cost of warehousing, cost of transportation,
cost of logistic, supply chain and inventory management), shipment and delivery times,
and error rates.
3. Methodology
The development of the framework was devised based on both survey and in-depth
case studies of effective criteria third-fourth party logistics provider within Thai
Automotive industry. In particular, case studies methods were felt that it would be more
suitable to provide the in-depth understanding of the success factors in selecting a third
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
party logistics provider, and benefit measurement. Following the development of
framework, the researcher obtained feedbacks and opinions from participants in the
automotive industry. The study process was conducted through semi-structured
interview with eight participants. They all have knowledge and experience on the
effective criteria for selecting the third party logistics. The interviews were recorded and
duration of the interviews between 30 minutes and one hour. The researcher obtained
the feedbacks and opinions of the industrialists based on their personal knowledge and
experience. In general, this multi-method approach allowed for data triangulation (Jick,
1979, 1998; Burgess, 1984; Mentzner and Flint, 1997; and Van Maanen, 1979)
In conclusion, in this study, the mix of survey and follow up case study methods was
adopted. The study includes two separate but complementary methods: a questionnaire
survey, followed up by semi-structured interviews within case study. In detail, four cases
each of important criteria of selection the Third-Fourth party logistics providers have
been analyzed. The case comprised of third party logistics function, success factors for
third party logistics partnerships, and benefit measurement.
4. The Proposed Framework
The proposed framework has three groups….. Figure2: demonstrated the proposed
framework
Figure2: The proposed framework.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
The figure 2 combines the main critical factors of selecting the third party logistics which
have been subdivided into three groups of factors as shown within three black ovals.
These are: 1). Contextual Factors, 2). Other Contextual (uncertainty) Factors, and 3).
Implementation Factors which are under the control of the company.
In its current shape, the model is a map for any organization thinking about, or already
selecting a third party logistics. The diagram allows the organization to focus on all the
elements required to make a success selection of third party logistics and maximize
effectiveness, and helps avoid expensive pitfalls.
Key elements of the proposed model based on this study, this consists of three groups:
group 1: Contextual Factors, group 2: Other Contextual (uncertainty) Factors over which
the company has at least some operation control, and group 3: Implementation Factors
which are under the control of the company). Group 1: the contextual factors‟ are the
basics for the successful selecting of third party logistics which are not under the control
of the company, and cannot be changed. There is factors which are found in this study,
and no found in the previous study before; company ownership, company size and
company age. Group 2: Other Contextual (uncertainty) Factors; behavior of people
within the third party logistics companies, mechanisms for dispute resolution, provider
ability to stay updated to new technologies, and Group 3: „Implementation Factors‟
which consist of a number of critical factors that the company have to deal with in detail,
carefully and attentively in order to achieve a successful selecting third party logistics as
measured by the benefits which will be discussed in further detail. These factors are
cost, service quality, common goals, flexibility and reliability, risk/bonus and reward
sharing, management of third party logistics relationships, power balance between
contracting parties, top management support, understanding clients supply chain needs,
compatibility of organization culture and routines, customer orientation, expert
knowledge in a processes, products and specific markets, responsiveness to requests,
and references from clients and response to information requests.
To sum up, the „all three groups of factorseffect together with successul MRP project
implementation as measured by benefits obtained.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
The quantitative and qualitative results in this study confirmed and validated the major
critical factors in all three groups in selecting third party logistics. This means that
organizations must pay special and continual attention to these critical factor areas,
especially the first group, which is contextual factors, group of other contextual factors
over which the company has at least some operation control, and implementation
factors which are under control of the company in order to ensure success in selecting
the third party logistics.
4.1 Success measured by Benefits
From figure 2, all three groups of main factors in the model will directly determine a
successful selecting third party logistics, which are measured by both subjective and
tangible benefits. There are a variety of both tangible and subjective benefits. These
might be delivery timeliness and accuracy, improved order fill rates, inventory turnover
reduced cost of warehousing, reduced cost of transportation, reduced cost of logistic,
shipment and delivery times, error rates, better quality and service, improved
responsiveness to unexpected events, improved job performance ability; whether
benefits are obtained during selecting third party logistics through all
these three
groups of factors.
In conclusion, the model presented in figure 2 has highlighted a number of elements
found to be critical to select a third party logistics and all benefits obtained, based on the
perception of buyer in the Thai automotive industry organizations. These factors have
been divided into three groups of factors. These are Contextual Factors, Other
contextual (uncertainty) factors over which the company has at least some operation
control, and Implementation Factors which are under control of the company. It is
structured in the similar way as the theory and practice discussed in the literature.
However, the results from this study regarding the key elements factors of selecting
third party logistics were derived. There are differences from the study in the literature
review ; the proposed model shows that the framework has been categorized into three
groups of factors, 1) Contextual Factors, 2) the Other Contextual (uncertainty) Factors
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
over which the company has at least some operational control, and 3) Implementation
Factors. Furthermore, the study found the new factors in the group1 which are company
ownership, size, and age; and Group 2 which are behavior of people within the 3PL
companies. These factors have not found in the previous study. The contextual factors
are the basics for the successful selecting of third party logistics which are not under the
control of the company, and cannot be changed, and should be ongoing throughout all
implementation levels (groups). They should be clearly visible and monitored at all
stages of selecting the third party logistics.
Finally, as previously mentioned, there are about 18 critical factors within 3 group
factors in the literature finding which were regarded as critical factors, but there are 21
critical factors of all 3 factors groups in this study result was regarded as critical factors.
Furthermore, there are some factors which this study found, but they had not been
discussed in the literature finding before, for instance the company ownership, size, and
age; and behavior of people within the third party logistics companies
5. Summary and Conclusion
The criteria factors of selecting the third-fourth logistics providers framework presented
in this paper. The determinant factors of benefit‟s framework model are hypothesised to
deliver a comprehensive approach to successful selecting third party logistics.
Moreover, it is the researcher‟s hope that this proposed model will enable managers to
develop a truly effective selecting the third party for their organization. Also, this model
can help manufacturing companies and supplier to improve their performance such as
reduced cost, improved logistics services, inventory management and etc.. Using this
framework and the factors essential to select third party logistics provider, this must be
carefully considered to ensure success of selecting third party logistics. However, this
model can be applied to automotive industry companies, in particular Thailand as the
empirical study is based on Thailand‟s automotive industry.
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Proceedings of 26th International Business Research Conference
7 - 8 April 2014, Imperial College, London, UK, ISBN: 978-1-922069-46-7
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Proceedings of 26th International Business Research Conference
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