Background and Motivation

In last decade, logistics had played a significant role to the supply chain. Logistics was seemed to be an important function in business around the world, because logistics helped small and medium enterprises and industry sector to achieve their objectives such as reducing operation costs, saving delivery times, improving customer service quality, building company image and company reputation, (Liu and Wang, 2009). Logistics can be regarded as an important mechanism for driving business world. However, small and medium enterprises didn’t have appropriate operational plans for running logistics efficiently since lack of economy of scale. Therefore, logistics outsourcing was used to improve product delivery.

Moreover, logistics outsourcing providers always tried to develop themselves along with the evolution of logistics. Thus, logistics evolved from logistics department within organization to third-party logistics provider (3PL). 3PL is a logistics service provider that helps a firm delivery product to customers. According to 3PL survey done by Boyson et al. (1999), they found that the popular outsourcing activities of logistics were: warehousing, outbound transportation, customs brokerage, inbound transportation, inventory management, IT services, value added activities, and the installation of products. Moreover, Gol and Satay (2007) and Boyson et al. (1999) mentioned that 3PLs had evolved from offering a single function to integrating logistics provision. Therefore, we can state that the evolution of logistics industry will continually follow the changes of global business environments.

With the rapid development of business involving the growth of market, many firms have realized that it is necessary to establish efficient, effective, and relevant product or service solutions to satisfy various customers’ requirements with supply chain partners (Bowerxsox et al, 2000). Particularly, problems related to logistics operations of a company have gradually become

the “bottle-neck” in doing business. In some specific situations, the self-built logistics system is unable to meet the changeable needs of distribution in the market.

International trade of Thailand has grown 173% within 10 years. This growth (Figure 1) was aided in part by the nation’s bilateral trade agreements with China, India, New Zealand and Australia. It has led Thailand to upgrade its logistics infrastructure and expertise.

Thailand is geographically positioned to be one of Asia’s major trading zones. This is particularly true for the airfreight, trucking and railway industries. Situated within a 5 hour flight from Asia’s major cities, Thailand has become ASEAN’s air cargo hub after opening Bangkok International airport, the 18th largest international airport in the world, and combing this with well-developed and value-added industries. For 2016, Thailand is expected to continue to enjoy its high growth rate of 7.5% of GDP and face an influx in foreign investment from international companies seeking to be a part of Asia’s increasingly complex trade routes. After the completion of the corridor that will link Southeast Asia with China.

Thailand will witness heavy trade flows among Asian countries (Ministry of Commerce Royal Thai Government, 2011).

Figure 1 Thailand exports 2004 - 2014, $ million (Source: Ministry of commerce, Thailand 2015)

Figure 2 Comparison between registered capital and number of companies (Source: Office of the National Economic and Social Development Board, 2010)

From Figures 2, we can see that most of logistics companies in Thailand are Thai company but the registered capital of foreign companies is higher. The reason may be that foreign companies invested a lot in automatic equipment and may have better technology of logistics.

Moreover, in 2010 the market value of logistics in Thailand was approximately $ 26.4 billion and increased about 3% in 2011. According to Thai logistics and production society (2010), Thailand has potential in becoming a distribution area with new road linkages and extensive highway system. Additionally, foreign 3PLs (Third Party Logistics) are rapidly increasing their market share in retail and consumer goods sectors in Thailand. The Thai government launched a comprehensive project to develop the logistics sector with focus on improving in-land transportation network and enhancing the capabilities of its air and sea ports. As a result, the logistics sector in Thailand enjoyed booming growth in the past few years, which largely benefited the 3PLs. Currently, the annual revenue of 3PL industry in Thailand is estimated at about $2.5 billion. The industry is dominated by a large number of unorganized local participants with only 15-20 international participants. Local Thai companies provide services

30%

70%

53%

47%

Registered Capital Number of Company

215 companies

Foreign

Thai

Foreign

Thai

$ 237 million

of transportation, warehousing, and distribution but are not able to turn themselves into integrated logistics providers. Logistics costs in Thailand are estimated at 17 percent of its GDP in 2005, compared to other ASEAN countries such as Singapore at 8 percent and Malaysia at 12 percent. local challenges remain to be addressed to further reduce the costs and take Thai 3PL industry to a competitive level in the ASEAN region (Manda, 2012). Because of this upcoming opportunity and vast improvement in infrastructure, many 3PLs could begin expanding their scope of business from express mail services to freight forwarding, etc.

Thai-tone Company (T.T. Company) is a Chiang Mai based company with employing more than 600 people and generating estimated total revenue of US$ 4 million a year. The T.T. Company has strong advantage in fresh and dried fruit industry, with approximately trading 173,511 ton per year. This Company was chosen to be the case company for several reasons. First, it originated from Thailand and has been aggressive in international fruit markets particular in China. China is the number one export market for Thailand. Second, with its aggressive diversification and globalization, T.T. Company has nearly 50% of export fruit market share in Thailand so we think T.T. Company is a good example to represent Thailand business which utilizes logistics outsourcing. Finally, even though T.T. Company has been one of Thailand’s most trading companies more than 20 years but it just used 3PLs in recent years so we hoped that this research could assist T.T. Company to select appropriate 3PLs. T.T. Company exports Thai fruit especially fresh longan, dried longan, tinned longan, frozen longan and other longan products to global market. T.T. Company was led by Mr.

Hung Ken, the president with 30 years of experience in fruit market. With the help of Mr.

Hung Ken, T.T. Company has achieved the aim of having a good reputation of quality for Thai fruit product and being accepted by global customers. T.T. Company exported fresh fruit to China by 60 X 40 feet containers and export approximately 2,000 containers per year. T.T.

Company has expanded its market to other regions and countries, such as Hong Kong. To Hong Kong, T.T. Company uses 750 X 40 feet containers and export about 1,300 containers in 2005.

T.T. Company purchases Thai longan with attention to quality, and it carefully controls longan in the packaging factories and three frozen storage rooms. T.T. Company is certified as the Good Agricultural Practice (GAP) by Agriculture Department. Furthermore,

its packaging factories are certified as the Good Manufacturing Practice (GMP) by the Food and Drug Committee, at the Ministry of Health. T.T. Company guarantees global customers the quality of exported Thai fruit by ensuring the fruit is as fresh as when it was picked from the trees, fields or vines.

The outsourcing of logistics activities to third-party logistics in Thailand has now become a more popular practice. But the selection of 3PLs is a complex problem since the criteria of selection include both quantitative and qualitative criteria and some of which can conflict with each other. Outsourcing is vital in enhancing the competitiveness of companies and it is an important function of the logistics departments as it brings significant savings for the organization. While choosing the appropriate 3PLs might be uncertain since it is not sure whether the selected will completely satisfy the needs of the company. This paper develops a multiple criteria optimization model for logistics outsourcing. The Analytic Hierarchy Process (AHP), a commonly used approach for multi-criteria decision-making problems is used. A study is conducted in T.T. Company to validate the selection process of logistics outsourcing.

The thesis is organized as follows. Chapter 1 briefly describes the background and motivation of logistics outsourcing. Chapter 2 presents a literature review of the existing papers related to the outsourcing decision to find the factors affecting selection. Chapter 3 describes the methodology of AHP. Chapters 4 presents an empirical study, and the company’s profile is described, including the overviews of the business and the operation process from logistic perspectives. Chapters 5 analyzes the data collected from AHP questionnaires. Our focus is to find the priority of factors. Chapter 6 wraps up the study and draws conclusions from previous chapters.