Evaluating the efficiency of 3PL logistics operations

This paper introduces data envelopment analysis (DEA) as a tool to evaluate the efficiency of a group of third-party logistics (3PL) warehouse logistics operations. DEA is a linear programming technique used to evaluate the efficiency of decision-making units (DMUs) where multiple inputs and outputs are involved. The paper starts with a general review of the DEA models and basic definitions, and then provides a review of warehousing functions and performance measures. First, a basic (unrestricted) DEA model is applied to a group of homogeneous warehouses that have similar inputs and outputs. Then, a revised (restricted) DEA model with additional constraints is presented; the revised model incorporates weight restrictions and value judgment. The relative efficiency scores for the warehouses used in the study were analyzed before and after the use of weight restrictions. As a result, we were able to determine the impact of each input and output on the efficiency of each warehouse, and also, we were able to examine specific warehouse characteristics and develop a set of recommendations for assisting managers and engineers in the improvement and design of more efficient operations.