Fuzzy Multiple Criteria Decision Making for Supplier Selection - Assignment Example

Multiple Decision Makers and Supplier Selection Name Course Tutor University Date Supplier selection is often a common decision problem involving many levels1. Various scholars define the supplier selection problem as “which supplier should be selected, and how much quantity of order should be assigned to them”2. However, this topic has lately attracted the attention of majority scholars as well as business practitioners since most businesses leave most of their processes to suppliers, who complete them through the use of supply chains3. Nevertheless, supply chains have their shortcomings especially given the complexity and length of some supply chains4. Some of the shortcomings observed in the supply chain include criteria such as supplier selection, order allocation problem, and knowledge gaps. While the common setup has been companies trying to increase value through increasing the efficiency of logistics procedures and enhancing their supply chains, decision makers can be involved in supply selection with different decision power in determining supply chains with lower risk, using competent supply chains and embracing eco-friendly and sustainable supply chains. A new form of corporate social responsibility is the inclusion of various stakeholders in the company’s decision-making can also be determined by the decision makers. This trend has complicated the process of supplier selection through increasing the number of policy makers that choose a supplier. This paper will form a framework with a mathematical and experimental foundation to facilitate the supplier selection and evaluation process for industrial settings involving decision makers with different decision powers within UAE-UK business organizations. Early models of supplier selection emphasized on maximizing the customer’s interest. However, various scholars suggest new models that focus on the total cost of the supply chain model. We agree that an effective supplier selection is crucial for any manufacturing company to acquire success. The primary focus of the supplier selection process is to cut down purchase risk, increase value for the buyer and create a strong business bond between the purchaser and supplier which is a necessity in the world of business. As stated earlier, various scholars and business practitioners alike have come down to research on the best practices for a robust supply chain creation. First, we check at the existing methods used in supplier selection. The common occurrence in industries is whereby the cost of raw materials comprises the largest part of the wholesome production cost. Consequently, it is logical that having the right supplier ensures maximum profitability for the company. Several criteria underlie for the selection of traders; a common practice is a selection of sellers based on price and secondly, a multiple criteria method. When comparing the two, we realize that the first criteria are fading to extinction since, suppliers may lower prices but give poor quality supply which automatically reduces the profitability of the company. In the latter criteria of modern multi-criteria, we evaluate that it puts into consideration of other factors that may affect the supply such as environment, social factors, and many other factors that affect the consumers satisfactory. This concern of the criteria makes companies resolve to the method since the criteria enhance flexibility as the diversification of the criteria causes competition among the suppliers. As such, this will enable companies to get better services. Several scholars have delved into this issue; Weber et al. collected 74 writings on the topic and put them together5. He concentrated on analyzing the methods used in the supplier selection model, while Degraeve et al. focused on a multi-criteria selection. In this case, the company would choose its suppliers in an ordered matrix bid6. Therefore, considering the two methods, Degraeve et al.’s system of multi-criteria selection was preferred since the company would choose its suppliers in an ordered matrix bid7. Still, the criteria method satisfies the company’s desire of getting better services from suppliers as analyzed and formulated by other scholars. One model that arose from this formulation was the fuzzy decision making, to deal with the problem of supplier selection. The Fuzzy selection model is whereby linguistic values are applied to assess the weakness and strength of various factors. Then, the linguistic assessment results are presented in trapezoidal or triangular fuzzy models. After the presentation of results, a hierarchy multi-criteria decision-making model is suggested to solve the supplier selection problem based on the Fuzzy model. To select the supplier the decision makers set up a closeness coefficient to determine how far or how near the suppliers are, to the fuzzy positive ideal solution or the fuzzy negative ideal solution. This method is preferable because it addresses supplier selection problems and analyzes weaknesses and strength of other factors. Subsequently, this will prompt the analysis to find solutions to the problems and devise ways of improving it. According to (Lewis, 1943), none of the purchasing related responsibility is essential than the selection of an appropriate source8. So long as the problem of the supplier relationship management is concerned, some companies are building profitable and long-term relationships with suppliers. Through the nineties, the role and structure of purchasing functions have undergone a series of evolution. In a practical view, factors such as globalization, increased value added to the supply, and an acceleration in technology has enabled the purchasing functions to gain important values in supply chain management. A decision maker can be involved by integrating optimization framework to enable joint decisions of sourcing and sustaining competitiveness of time-based. This decision power was according to (Zeng, 1998); whereby the author developed a procedure for optimization that can be implemented efficiently on a spreadsheet to define an optimal number of sources in a supplier selection. According to the lot size and the sensitivity analysis, it shows that the transportation impact on lot sizing and sourcing is significant9. The previous survey papers were presented by (Aissaoui, 2007) extending a presentation on literature review. As such, it covered the entire process of purchasing, considering the parts and outsourcing activities and considers procurement environments that are internet-based10. Also, the internet environments are electronic marketplace auctions. Considering the practical view of its complexity, authors focused on the final selection stage that consisted a mixture of best vendors and allocating orders between the vendors so as to meet different purchasing powers. Further, it was suggested that, in the highly competitive environment currently, it is important to have a major supplier selection process11 (Tahriri, 2008). Indeed, this enables the success of any manufacturing organization. Supplier selection is a multi-criterion issue that involves both quantitative and qualitative factors. The relationship between these tangible and intangible factors is important in determining the best supplier. Additionally, the authors went ahead to discuss by comparing the benefits and limitations of different selection methods pertaining supplier selection especially the Analytic Hierarchy Process (AHP). According to (Burton, 1988), he suggested that many firms purchase from outside vendors account to ensure a large percentage of the total operating costs12. In the U.S, most raw materials purchased for most firms constitute forty to sixty percent of the unit cost of a product. Consequently, for large automotive manufacturers in the U.S, the cost of parts and components purchased from external vendors may total more than fifty percent of the total sales. Materials purchased and services represented up to eighty percent of the total cost of the product for high technology firms. In a practical view of (Abratt,1986), the author analyzes the purchasing behavior of buyers of high technology laboratory instruments process, identified, and determined the benefits of relative players that influence supplier selection13. Fifty-four organizations conducted this research. According to Sharland et al., they empirically examined the effect of cycle time on supplier selection and the convenience of long-term relationships with suppliers, as reflected in the trust and commitment development. The authors went ahead and determined that the initial time cycle is not necessarily an essential predictor of dedication and confidence in the supplier-buyer context of long-term relationships14. Conversely, a reduction in time cycle alongside a consistently high quality was found to be important determinants of trust and commitments in long in long term relationships. Sensitivity analysis of the mathematical model can affect the choice of suppliers. Indeed, this is caused by quality management whereby the management practices correlate with supplier participation strategy15 influences tangible business results and levels of customer satisfaction. Therefore, quality management practices are directly correlated with suppliers as the majority will prefer extending their supplies to companies that have quality management that meets their expectations. Gonzalez et al. suggested a methodology to make an analysis of variables involved in Supplier Management Selection Process16. The same is illustrated in the case study of the chair manufacturing industry. The outcome shows that the process of supplier selection seem to be the most important variable since it helps in accomplishing high-quality products and satisfaction of customer’s expectations. A total of nine variables associated with the supplier selection process was examined. An evaluation of each variable was conducted through an experimental strategy using statistical details based on three factors that include; quality, namely, productivity, and cost. Another framework was presented by Humphreys et al which involved integration of environmental considerations into supplier selection process17. In most cases, companies put into consideration of factors like quality and flexibility when doing analysis of factors affecting supplier management. Consequently, the pressure on environment is increasing. Leading to many, companies start considering the issues related to environment and the measure of environmental performance of the suppliers. Authors combined effort to develop a decision support tool that is used to help companies integrate environmental criteria into supplier selection process. Lastly, according to the framework that was proposed by the authors, a knowledge-based system was developed. Yan and Wei defined a Mini-Max principle procedure based on the preference modifications with finite steps to compromise number of weights18. The authors discussed in details the problem of optimal multiple solutions and describe a set of worst preference order. The order of the worst preference order is independent of optimal solutions selected. Lastly, it is confirmed that compromise weights can be accomplished by finite adjustment on preference orders. An investigation conducted by Svensson on models of supplier selection and segmentation criteria, showed empirical illustrations based on the VM perspective and the presentations on the suppliers19. One of the models is a supplier commitment to the VM and the other model is of commodity commitment to the VM. In addition, a model of dynamic relationship is also introduced It is made-up of four relations strategies in relationship with supplier automotive industry such as business partner, family, friendly, and transactional. A methodology that identifies a criteria for management was proposed by Lee et al. The criteria use information derived from supplier selection methods and make use of the processes in supplier management processes20. For the later methodology, authors suggest the supplier selection and administration system that involve the purchasing system for supplier, supplier selection system, and the management system for suppliers. The authors went ahead to explain how the supplier selection management system is applied to real supplier chain. This methodology identifies criteria for management using the information collected from supplier selection process. The methodology then makes use of the information in the supplier management system. A t-test and correlation analysis is used in showing the effectiveness of supplier management and the management criteria. Pearson and Ellram stated that the essential domain of management is the evaluation and selection of suppliers. The authors explored and examined the current techniques used to evaluate and select suppliers by conducting a study sample of both small and large organizations in the electronic industry21. According to Verma and Pullman, the experimental setting is what makes the difference between the actual choice of suppliers and supplier attributes as the importance perceived by the managers’ rating. The authors make use of two models in this context; Likert scale of questions that is used to determine the importance of the supplier attributes. Another method that is used is a discrete choice analysis experiment which is used for determining supplier choice. The results show that despite manager’s say that, quality is an essential attribute of a supplier, they prefer choosing supplier largely based on delivery and cost performance22. Dulmin and Mininno made an effort of highlighting the aspects that are crucial in processing quantitative and qualitative analysis performance measures23. Multi-criteria decision aid method contributes largely to solving such problems. In relation with how to simultaneously change the weights, authors generated results that can be easily analyzed statistically and this is achieved through performing the sensitive analysis. Monczka and Trent suggested a Seven-step methodology for evaluating supplier selection process24. The steps involved; recognition of the supplier selection need, identifying key criteria and sourcing requirements, coming up with methods that determine supplier selection and final selection on reaching an agreement. De Boer et al. suggested that an application for outranking purchasing methods not be developed in purchasing or operating on research literature25. The authors have demonstrated by methods of supplier selection example. A decision-making tool for initial decisions for purchasing can be used as a method to outrank supplier selection processes. Weber et al. reviews classify and annotate seventy-four related articles that have appeared since 1966. A more specified attention have been given to analytical and criteria methods used in vendor selection methods. About increased interest in Just in Time JIT methods for manufacture strategies, and critical analysis of Just in Time effect on vendor selection is also chosen26. Finally, the conclusion on potential sectors for future research is presented. Li and Fun suggested supplier performance measure using the notion of dimensional analysis to obtain Vendor Performance Index. Mostly, the performance criteria used for evaluating supplier performance include qualitative and quantitative criteria27. At this juncture, a new supplier performance measure is suggested as a substitute to VPI. Additionally, a two-dimensional consideration is used for qualitative criteria. This criterion only results in a single score. The fuzzy bag procedural method is used to recompense judgment in human blindness. Aftermath, all scores for qualitative and quantitative are combined in an intuitive summation of averages on weights called SUR. Weber, Current, and Desai defines three methods for the selection and negotiation with those vendors that were not selected when the appointment was carried out28. According to Weber, the methods described how certain situations in two criteria tools of analysis, data involvement analysis and multi-programming criteria, can be used together in describing the selection and negotiation processes for this criteria. This paper gives a description for non-cooperative negotiation for vendor strategies. In this strategy, the selection of the vendor results is what leaves out the solution. Weber and Desai gave a brief demonstration on the use of analysis for data envelopment29. This analysis is used for measuring vendor performance and efficiency. A certain kind of algorithm is used to determine points of efficiency on vendor and multiple criteria. The study, therefore, demonstrates how graphical representation on parallel coordinates can be used to display vendors’ efficiency on multiple criteria. In doing so, benchmark values in this criteria is visually identified in making negotiations with those vendors who are inefficient. Weber and Ellram demonstrated an exploration on the use of multi-objective programming approach as a method for analyzing supplier selection in a Just in Time selection. According to the case study, a model of JIT method is selected, which gives allowance for simultaneous price trade-off, quality, and delivery criteria. A programming decision that is multi-objective support system is seen as being beneficial because in such an environment, the judgment in making decisions is allowed while trading off simultaneously in supplier selection criteria30. Maggie and Tummala came up with a formulation of an AHP and applied it to a real case study to analyze a feasibility in selecting a vendor in a telecommunication system31. The use of this model shows an indication that the method is used to improve the decision-making of groups that analyze vendor selection. Hill and Nydick showed how AHP could be used to make a structure in supplier selection32. Liu and Hai showed a comparison in a weighted sum of the selection number of the rank vote to determine the ranking of suppliers33. According to Ellarm, she analyzed various companies and realized that they used total cost of ownership criteria for making purchases. He goes ahead to give the advantages of the analyzed criteria (use of total cost of ownership). He classified the methods either as value-based or dollar based. A further analysis was to determine if they were supplier selection or supplier evaluation models34. Elanchezhian 35used a combination of factors (MCDM) techniques to evaluate decision making. MCDM techniques will be analyzed in the sections below. Another author who supported Multi-Attribute techniques was (Min, 1994), he believed that such models allowed for effective solution especially for decisions that involved selecting international suppliers36. Sanayei et al. 37and other authors such as Shyur and Shih suggested the inclusion of artificial intelligence in supporting the vendor selection model38. Various Criteria for Supplier Selection Going by the literature analyzed above, the common criteria used in supplier selection include; Cost Reputation from the previous history Ability to deliver Quality of goods The equipment owned and production capacity Ability to produce Financial power Reputation to follow requirements After sale services such as repair of broken goods The attitude portrayed by the supplier How many transactions has the supplier done previously The location where the supplier is positioned & The packaging offered by the supplier As shown in the literature review, cost, ability to deliver and quality of services are the most important factors when selecting a supplier. With the birth of the internet and other technology that has made the world become a global village, geographical location is losing its impact on supplier selection. You find that companies are sourcing their suppliers from Africa and other developing countries. The reason for this trend is that these developing countries provide the cheapest solutions due to the availability of order. The figure below shows the various supplier selection models and then proceeds to discuss them in the section below. Fig 1: A simplification of the supplier selection models Several mathematical and linguistic methods are used to determine the vendor prequalifications. Indeed, some of these methods are; categorical methods: these are methods that focus on the historical qualities of suppliers and then choose the best. Another method is the Data Envelopment Analysis (DEA); this method divides suppliers into two categories: efficient and inefficient. Cluster analysis is the third method used to determine the prequalification of vendors, this approach aims at cutting down the number of applicants to manageable levels in an attempt to ease the process of selection. However, comparing the three mathematical models for supplier selection, the DEA method is preferable to other two methods. We see that DEA focusses on the flexibility and reliability of the suppliers by categorizing suppliers into efficient and inefficient. The vendors who are classified as efficient are given the consideration by the company while those considered as being inefficient are avoided. The cluster method is preferred to categorical methods as it cuts down some applicants and remains with suppliers with high quality in service delivery. After the prequalification of vendors, there are several multi-criteria decision making (MCDM) techniques. TOPSIS, which stands for a Technique For The Order Performance By Similarity To The Ideal Solution, uses a mathematical coefficient to determine the closest suppliers and a linguistic concept to add to the weight of providers. All the MCDM techniques use a similar strategy to come up with a formula to combine the methods used in decision making to select a vendor. To come up with the numerical coefficient that assists selection, a combination of methods exists; these methods include multi-objective formulations and goal programming formulas. Multi-objective methods are used to come up with optimization coefficients for supplier problems involving many suppliers. Goal programming methods, these methods give the decision maker flexibility to combine criteria while at the same time compromising others so as to come up with the most optimum method. Other methods used to come up with the mathematical coefficient involve the use of information technology, (known as artificial intelligence methods). Therefore, when the linguistic and mathematical solutions for the supplier selection problem have been identified, a fuzzy logic criteria is applied. Additionally, the linguistic solutions are placed in trapezoidal or triangular fuzzy logic. Therefore, to reduce the vagueness of human judgment, a mathematical closeness coefficient is applied to ensure sound decision making. As stated earlier in the paper a common trend in corporate social responsibility is the involvement of various stakeholders in decision making. The participation of stakeholders increases the policy makers and thus further complicates the process of decision making. One finds that a decision that would have been accomplished by the managers alone gets to involve the engineers in a firm, the accountants and at times even the investors. Though the involvement of various stakeholders may improve the quality of decisions made, they complicate the process of decision making. This paper will look at the supplier selection and evaluation process for industries with different decision makers in the United Kingdom and the United Arab Emirates. The supply chain model has gained its fame due to a variety of reasons such as quality revolution, concepts of material management and integrated logistics. Many people in business are moving towards supply chain management through adaptation of processes such as partnering, use of framework agreements and techniques to stabilize their supplier base. A supply chain is an integrated series of activities regarding planning and control of raw materials, components and final products from the acquiring stage to when they reach the consumer. It includes two main processes namely production control and inventory planning, and distribution and logistics process. The first process involves the production and the sub-storage process while the second process involves all the sub-processes before the product reaches the final consumer. The supply chain model covers the long term and short term collaborations that the company has with other firms so as to achieve an astute supply network. To formulate this paper’s hypothesis, we must first understand the factors that affect a supply chain. Environmental uncertainty is brought about by company environment, government support and uncertainty aspects of overseas operations. Company environment is how the firm interacts with its employees both internal and external while government support is the terms and conditions that the government sets towards trade in the country. The second factor that influences supply chain is information technology, which comprises of the communication tools and planning tools. Another issue is the supply chain relationships, which comprises of relationship with suppliers and relationship with customers. Value added processes are factors such as flexibility, quality and production system that ensures better supply. The last factor affecting supply chain is business management, which includes process strategy, process performance and marketing strategy and decision making. To study the effect of multiple decision makers our research will be formulated to answer the following hypothesis. Is the effect of different decision makers with different decision power on the overall supplier selection and evaluation decision negative? To achieve the purpose of the study, we will first formulate an experiment with an ANOVA analysis to determine the main factors that affect the supplier selection and evaluation process. The variance values to be used in the ANOVA analysis will be determined using various methods indicated in this document. Next, we will study how the inclusion of multiple decision makers influence the main issues identified in the step above i.e. (significant factors that influence the supplier selection process). Read More