SOURABH MAHAJAN, PARAS CHOUHAN. Research scholar, ME(IEM) Asst. Prof. (MED) JIT Borawan

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1 International Journal of Advances in Applied Science and Engineering (IJAEAS) ISSN (P): ; ISSN (E): X Vol. 3, Issue 4, July 2016, IIST A PROJECT REPORT ON APPLYING THE WORK STUDY TO SOLVE THE COMPLEX MULTI-CRITERIA DECISION PROBLEMS FOR VENDER SELECTION BY ANALYTIC HIERARCHY PROCESS (AHP) SOURABH MAHAJAN, PARAS CHOUHAN Research scholar, ME(IEM) Asst. Prof. (MED) JIT Borawan smahajn@gmail.com,bhurmal.bamne@gmail.com ABSTRACT:- Many organizations are facing rapid changes stimulated by technological innovations and changing customer demands. These organizations realize that the effort to obtain products at the right cost, in the right quantity, with the right quality at the right time from the right source is crucial for their survival. An efficient vendor selection process needs to be in place and of paramount importance for successful supply chain management. It begins with the realization of the need for a good vendor; determination and formulation of decision criteria; pre-qualification (initial screening and drawing upa shortlist of potential vendors from a large list); final vendor selection; and the monitoring of the vendors selected (i.e. continuous evaluation and assessment). Vendor selection process requires a formal, systematic and rational selection model. Analytic Hierarchy Process is presented along with sensitivity analysis. The AHP is designed to solve complex multi-criteria decision problems. It is based on the innate human ability to make sound judgments about small problems. It facilitates decision making by organizing perceptions, feelings, judgments, and memories into a framework that exhibits the forces that influence a decision. The main objective of this research is to capture both the subjective and the objective evaluation measures in order to solve vendor selection specially when different organizations have different combinations of qualitative and quantitative criteria and sub-criteria. I. INTRODUCTION Today, many organizations are facing changes stimulated by technological innovations and customer demands. It realizes that the effort to obtain products in the right quantity, at the right cost, with at the right time the right quality from the right source is crucial for their survival. For an efficient vendor selection process needs to be in place and of paramount importance for supply chain management. It begins with the realization of the need for a very good vendor; formulation and determination of decision criteria; final vendor selection; pre-qualification; and monitoring of vendors selected.selection of vendors and evaluation are a typical multiple criteria decision making (MCDM) problem involve multiple criteria that can be both intangible and tangible. The analysis of criteria for measuring and selecting the performance of vendor has been focus of many purchasing practitioners and researchers as to provide a comprehensive view of important criteria in the vendor selection decision. Vendor selection process requires a systematic, formal and rational selection model. In this study, a comprehensive application of Analytic Hierarchy Process (AHP) for a case is presented along with sensitivity analysis to choose best vendor. 49

2 1.1 IMPORTANCE OF THE RESEARCH After conducting research, the objective of selection process will determined by handling and identifying multiple criteria that will be enable considering a number of both qualitative and quantitative factors when assessing vendor. Then identified selection criteria will be used to develop a model of good vendor selection, which will enable public-sector to mitigate selection of the incompetent vendor. by vendors. They were asked to rate selection criteria in order of the importance. Based on survey conducted, major influencing sub-criteria and criteria involved in vendor selection problem will determine. Stage Three: To implement selected criteria and the AHP as a decision analysis tool, A sensitivity analysis series conducted to investigate impact of changing the priority of criteria on vendors ranking. II. INTRODUCTION 1.2 RESEARCH METHODOLOGY The decision of selecting the good vendor to deliver services or goods is often complex. Vendor selection is a multi-objective problem, which have many quantitative and qualitative concerns. Research objectives will be achieved through following three stages: Stage One: To identify the major vendor selection sub-criteria and criteria that should be considered by purchasing good experts. The available literature on the good vendor selection methods were comprehensively studied and searched for identify the major selection criteria. In addition, data will gathered through interviews with the purchasing managers in public sector and a sample of the vendors. Stage Two: The selected criteria had been identified in the stage one was used as basis for formulating questionnaire survey which consists of these criteria. A respondent to questionnaire will randomly select from different functional areas of decision makers and experts who are involved in materials supplied The selection of vendors is big responsibility of purchasing department and requires a consideration of the several factors. Liu and Hay indicated the main function of purchasing department includes acquisition of required material, equipment and services for all organizations. If buyer chooses right vendor, the buyer can promote in the market its competitive advantage. The success of vendor selection procedure is depends on quality of specific criteria and sub-criteria. These criteria are defined specially to guarantee accomplishment of selection process, quality of criteria to arrive at best vendor. Public sector organizations should be define A systematic and appropriate approach represented by a set of t h e specific criteria before final selection of vender takes place. However, it should remember that the even though a given set of the criteria represents minimum selection requirements, it should be assigned carefully and identified correctly to assure objectives of the vendor selection were achieved. Previous studies on this topic had been surveyed to find out most important criteria for the vendor 51

3 selection. They have indicated that the vendor selection is of great importance for both the public sectors and private and should not be done without complete evaluation of those criteria influencing selection process. Some organizations employ simple procedures with the few criteria for vendor selection, while others use complex procedures with many t he criteria divided into sub- criteria. The complexity of selection process depends on business type, revenue and the size of purchasing department, the total costs involved in the purchasing, and how often purchase is to repeated. Many papers introduced use of the different decision making methods and tools for the vendor selection. These methods can be classification into several broad categories: traditional Multiple Criteria Decision Making techniques, mathematical programming, expert systems and artificial intelligence, multivariate statistical analysis, group decision making and multiple methods. This chapter is divided into five sections: (1) types of vendors; (2) criteria and attributes; (3) vendor selection criteria; (4) vendor selection methods; (5) vendor selection in the public sector. 2.1 VENDORS AND ITS TYPE The vendors are essential to any business, and process of identifying and selecting vendors is both relevant and important. Sometimes vendors will be contact purchasing organization through their sale representatives, but more often, buyer will need to locate them either at trade shows, conventions and wholesale showrooms, or through buyer s directories, the industry contacts and trade journals. The vendors can be divided into four general categories: manufacturers, distributors, importation sources and independent craftspeople. First category is manufacturers who most retailers buy through company salespeople or independent representatives, who handle wares of several different companies. Prices from these sources are lowest, unless the retailer's location makes shipping freight costly. Second type of vendors is distributors who are also known as the wholesalers, jobbers or brokers, distributors buy in quantity from several warehouse and manufacturers the goods for sale to t h e retailers. Although their prices are higher than the manufacturers, t h e y c a n s u p p l y t h e retailerswithsmall o r d e r s f r o m a v a r i e t y o f the manufacturers. A lower quick delivery time and freight bill from a nearby distributor often compensates for per-item cost higher. Third are independent crafts people, the exclusive distributors of unique creations frequently offered by these third type of vender that sell through representatives or at trade shows. The forth category of vendors is importation sources in many retailers buy foreign goods from wholesaler. Or, depending on company s import goods. 2.2 CRITERIA, ATTRIBUTES AND OBJECTIVES A criterion can be thought of as any performance measure for the particular vendor choice. An attribute is sometimes used to refer to measurable criterion. The words attribute and criterion are often used synonymously in literature on the Multi Criteria Decision Making (MCDM), these indeed sometimes referred as the Multi- Attribute Decision Analysis. dom famili 52

4 Criterion is the general term and includes both objectives and concepts of attributes. The attribute is a measurable quantity whose value reflects degree to a particular objective, which is achieved. Objective is a statement about desired state of system under the consideration. It indicates directions of improvement of one or more than one attributes. Objectives are the functionally related to, or derived from a set of the attributes. There might be a formal relationship between attributes and objectives, but usually relationship is informal. To assign an attribute to a given objective, two properties which are measurability and comprehensiveness should be satisfied. An attribute comprehensive if its value is sufficiently indicates degree to which the objective is met. And it is measurable if it is reasonably practical to assign a value in the relevant measurement scale. In this study the word criterion rather than attribute will be used. 2.3 VENDOR SELECTION CRITERIA Vendor selection is the complicated by fact that decision making process. Analysis of t h e criteria performance has been focus of many of research papers. Some papers examined and reviewed decision criteria used for the vendor selection. The most papers attempted to determine and identify relative importance of criteria for the vendor selection in various industries. Decision criteria used for weightings assigned and vendor selection to them can be different due to The Previous Studies Vendor Selection Criteria: - In domain of t he vendor sel ection 53

5 Criterion Quality Price Service Table 2.2 Vendor selection criteria and sub-criteria Sub-Criterion Product durability i.e. Life span) Product reliability e.g., Quality over a given period Of time, Consistency) Quality systems Percent rejection Adherence to quality tools(e.g., Check sheet, Histogram, Cause-and-effect diagram,ö) Reputation and position in the market Competitive pricing Total cost Quantity discount Payment terms Payment procedures understanding Spare parts availability Handling of complaints Ability to maintain product/service After sales services (e.g., Warranties and Claims policies) Training aids Flexibility(Payment, Freight, Price reduction, Order Frequency & amount) Financial stability Quality performance(e.g.,iso9000accreditation) Business overall Knowledge of the market performance Information systems Management capability Performance history Offering technical support Technical know(how know why) Technical capability Delivery Understanding of technology Responsiveness Personnel capabilities Delivery lead time Delivery speed Upcoming delivery commitments Ability and willingness to expedite an order Safety and security components Modes of transportation facility 54 problem, lot o f the criteria has been discussed. Relative importance places onthe evaluative criteria varies largely in accordance with nature of selection situation and it is complicated further by fact that the (service, flexibility, brand image, othersare quantitative (price, some criteria are, qualitative etc.), while quality, capacity, etc.). If decision makers choose critical and useful criteria as the measuring bases, purchasing strategy after the evaluating will just provide positive benefits for enterprise Quality: Just as role of price has reduced as a criterion in the vendor selection in many sectors, so quality has become an important factor. Vendor s capability is to reduce his price in future. In a d d i t i o n, understanding of the concept e q u a l i t y has b e e n transformed. Quality is no longer applies to the product itself but also applies to the service and other received aspects of vendor-manufacturer relationship. The vendor quality has been established as a primary concern in vendor selection process for decades. Quality factor was measured in terms of the vendor s ability to provide inputs that are durable and reliable, possessing the vendor to, percent rejection, adherence to quality tools and vendor reputation and position in market Delivery: Another criterion is on-time delivery. If a vendor submits lowest price, it doesn t mean much to the firm if vendor is also late one or two weeks on all contracts. The delivery factor has been measured on basis of importance of following delivery dimensions in

6 buying firms vendor selection process: willingness and ability to expedite an order, the amount of time that it takes a vendor to deliver the supplies, how quickly a vendor can deliver, upcoming delivery commitments, security and safety components during modes of transportation and transportation facility Service: In buying firms vendor selection the service factor has been measured on basis of importance of service dimensions. These included vendors attitude to handling complaints and willingness, andability to provide training and technical support the technician in public sector, ability to maintain product/service, after the vendor flexibility and sales services Technical Capability: Technical capability factor has been measured on basis of importance of technical capability dimensions in buying organizations vendor selection process: ability of vendor to provide use of current technology,technical support, understanding of technology, responsiveness of the vendor to changes in purchase quantities and personnel capabilities and due dates Business Overall Performance: A numerous of purchasers view the business overall structure factor as a preliminary condition or screening process that vendor must pass before a detailed evaluation can begin. The overall performance factor has been measured on the basis of constitutes an important component of MCDM. technical know Procedure will carry out the comprehensive importance of following dimensions in buying firms vendor the selection ranked accordingly, process: and alternative that vendor's scores financial stability, if vendor has quality performance, knowledge highest of should market be and selected as best solution if the to selection is overall objective. vendor is using information systems, performance history and management capability of vendor Which relates to vendors reputation for performance? 3.1 INTRODUCTION Multiple Criteria Decision Making (MCDM) approaches are the major parts of analysis and decision theory. They are the efficient tools for making the critical decisions in many fields. They are utilized when the decision-makers are faced with difficulties because of more than one criteria or objective that have to be satisfied in the order to arrive at the successful and final selection from available alternatives. MCDM approach involves structuring problem, evaluation of alternatives and criteria, synthesis and prioritization. In MCDM, first task is to obtain a set of the objectives or requirements for achievement of overall objective. In this study, the vendor selection will be the overall objective and the applicable criteria considered for vendor selection are listed in section (2.4). Identification of these objectives or the requirements evaluations of alternatives and objectives for purpose of selecting best alternative. Decision makers will have to determine criteria that are important to selection procedure and the each criterion is assigned a weight according to the relative importance. After listing all applicable criteria and the determining their degree of importance, the list of alternatives would be proposed and the subjected to rigorous evaluation considering all of established criteria. Alternatives that satisfy predetermined important criteria will be 55

7 3.2 MCDM ON VENDOR SELECTION PROBLEM The MCDM problem exists everywhere in our daily life. The range of the MCDM is from simple problem of selecting an adviser or a university to the complex engineering application problems, and to the more complicated social problems of the designing alternative future outcomes of the developing country, evaluating the 4.2 DATA COLLECTION Main sources of required data for this research are: Primary Data 1. Questionnaire survey to determine criteria and the importance. 2. The pair-wise comparison questionnaire to compare t h e each pair of sub-criteria, criteria and alternatives used in vendor selection and to identify to what extent one criterion or alternative is more/less important/preferred to another one. Respondents to this questionnaire are a committee of the experts in field of the public purchasing Secondary Data: The main sources for required data for this research were the previous studies conducted on the vendor selection, prevailing published researches, documents and the other literature related. comprehensively searched and t h e studied to identify 2.1).These criteria and the methods were described in the chapter one (S Stage 2 : Selection criteria that were identified formulating first questionnaire form. Since there was no research done t h e vendor selection, t h e criteria arbitration purchasing managers, purchasing experts and the academics were co objectives of this stage were: V. DATA COLLECTION Main sources of required data for this research are: 5.1 Primary Data Questionnaire survey to determine criteria and the importance. The pair-wise comparison questionnaire to compare t h e each pair of sub-criteria, criteria and alternatives used in vendor selection and to identify to what extent one criterion or alternative is more/less important/preferred to another one. Respondents to this questionnaire are a committee of the experts in field of the public purchasing. 5.2 Secondary Data: The main sources for required data for this research were the previous studies conducted on the vendor selection, prevailing published researches, documents and the other literature related. 4.3 RESEARCH DESIGN In an attempt to achieve objectives of this research, methodology adopted for the research consisted of the five main stages: Stage 1: Available literature on the vendor selection criteria and the methods were 4.3 RESEARCH DESIGN In an attempt to achieve objectives of this research, methodology adopted for the research consisted of the five main stages: Stage 1: Available literature on the vendor 56

8 selection criteria and the methods were Comprehensively searched and t h e studied to identify major selection criteria(table2.1).these criteria and the methods were described in the chapter one (Section 2.4). Stage 2 : Selection criteria that were identified in the stage one were used as a basis for formulating first questionnaire form. Since there was no research done in the in the field of t h e vendor selection, t h e criteria arbitration and the assessment were conducted, where purchasing managers, purchasing experts and the academics were contacted. Main objectives of this stage. VI. DEVELOPMENT OF VENDOR SELECTION MODEL (VSM) To achieve second objective of this research, vendor selection criteria were identified and then these identified criteria were modified to suit vendor selection. Final identified criteria, Analytic Hierarchy Process (AHP), and the computerized software Expert Choice Version 11.5î based on the AHP were used to develop Vendor Selection Model (VSM). Significance of using computer was simply to avoid the excessive manual computation 6.1 INTRODUCTION This chapter explains how data from survey were analyzed and discusses results of this analysis. Selection criteria in t he order of importance are identified and first objective of research was accomplished. 6.2 DATA MEASUREMENT In order to be able to select appropriate method of t h e analysis, the level of the measurement must be understood. For the each type of measurement, there is/are an appropriate method/s that can be applied and not others. In this research, the ordinal scales were used. Ordinal scale is a ranking or a rating data that normally uses integers in descending or ascending order. Numbers assigned to agreement or degree of the influence (1, 2, 3, 4, 5) do not indicate that interval between the scales are equal, nor do they indicate the absolute quantities. When an organization is dealing with t h e selecting best vendor to deliver a service or good, decision can often be very complex. The vendor selection problems are multi-criteria problems which have many quantitative and qualitative concerns. This research has presented AHP as a decision analysis tool in the vendor selection problems. An AHP model was proposed to the select best photo copy vendor. This c h a p t e r s u m m a r i z e d major findings, conclusion and the recommendations that were derived from combined results of the literature review, methodology and case study. CONCLUSION The main objective of the research identifying the major selection criteria and the development of a Vendor Selection Model (VSM) î was accomplished. The VSM model was implemented for solving the complicated selection problem, in a practical way by comparing prospective vendors in terms of selection criteria. The VSM concept is concerned with the selecting a capable and competent vendor based on several criteria to supply the required materials (Photo copy machines) within a given time, with an appropriate price and with the required quality. The implementation proved that the VSM model is a consistent, practical, and effective selection tool for selecting the best vendor. According to this study the best vender for photocopy machine is supplier 1 because the overall rank of this supplier is which is highest in the entire suppliers. REFERENCE 1. Aamodt, A. and Plaza E. (1994) "Case-based reasoning: Foundational issues, methodological variations and system 57

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