Optimal selection of third-party logistics service providers using quality function deployment and Taguchi loss function

Purpose – Selection of logistics service provider (LSP) (also known as Third-party logistics (3PL) is a critical decision, because logistics affects top and bottom line as well. Companies consider logistics as a cost driver and at the time of LSP selection decision, many important decision criteria’s are left out. 3PL selection is multi-criteria decision-making process. The purpose of this paper is to develop an integrated approach, combining quality function deployment (QFD), and Taguchi loss function (TLF) to select optimal 3PL. Design/methodology/approach – Multiple criteria are derived from the company requirements using house of quality. The 3PL service attributes are developed using QFD and the relative importance of the attributes are assessed. TLFs are used to measure performance of each 3PL on each decision variable. Composite weighted loss scores are used to rank 3PLs. Findings – QFD is a better tool which connects attributes used in a decision problem to decision maker’s requirements. In total, 15 criteria were used and TLF provides performance on these criteria. Practical implications – The proposed model provides a methodology to make informed decision related to 3PL selection. The proposed model may be converted into decision support system. Originality/value – Proposed approach in this paper is a novel approach that connects the 3PL selection problem to practice in terms of identifying criteria’s and provides a single numerical value in terms of Taghui loss.