Supplier Selection Decision Support System Business Essay

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The broad aim of this study is to classify the criteria in supplier selection, and to provide the decision maker with a systematic decision support system, based on a combination of multi criteria and application of modified Analytic Hierarchy Process (AHP) with Supply Chain Operations Reference (SCOR) integrated model. Research methodology of supplier selection, uses modified AHP for measuring supply chain efficiency and is structured in four sections. In the first section, data are gathered and used to construct a hierarchical model for supplier selection represented by the AHP. The second section determines the criteria to be used in evaluation and weighted for each criteria. The third section provides SCOR evaluation and the last section presents the implementation of decision making. Supplier selection is being practiced in organizations� supply chain managements with the need to modernize in the decision support system to fit the nature of selection processes. The results amplify the most appropriate decision-making providing the implication of novelty development of new integrated approach. Finally, this study provides practitioners in personal or professional setting to achieve usefulness of the holistic approach in future decision support system.

Index terms � Supply chain, AHP, SCOR, Decision Making, Supplier selection, Decision Support System, Criteria, Hypermarket

I. INTRODUCTION

Interest in supply chain decision has been highly outlined in the context of supply chain efficiency. Local and global organization supply chain member entails on making choices among alternative courses of actions and rapid improvement in supply chain performance. Many literatures have reviewed on the supplier selection problem that discussed on multi criteria decision making method. In contrast, selecting supplier is imperative important practice in industry including manufacturers, distributors, retailers, and service providers.

The organization of the paper as follows: Section 1 - introduction, Section 2 - AHP, Section 3 - SCOR, Section 4 �

AHP-SCOR integrated approach, Section 5 - Stages in proposed model, the last section demonstrate the conclusion.

II. AHP

In literature proves that there have different views on the measurement of supplier criterias. Many studies have relatively presented criterias in supplier selection. Giuseppe et al. (2009) discussed that many conflicting in the analysis and measuring the supplier, based on the rank order of the supplier�s criteria. He added the most utilized methodology is the Analytic Hierarchy Process (AHP). Supplier selection is regarded as a multi criteria decision making (MCDM) because its incorporate to solve a decision problem involving many goals and objectives. Despite that, there are four types of MCDM methods to solve decision problem and AHP, developed by Saaty (1980), is a tool for decision making process continuously be the extensively decision making theory to be employ. AHP is a general theory to set priorities to a qualitative and quantitative decision making. AHP has been widely exercised in solving decision problems. This has been found in Wan Khadijah and Lazim Abdullah (2012) study, environmental performance index was applied to the AHP principles to illustrate the world most countries� environment performance.

Since AHP is the most practical method to evaluating and selecting different alternatives, it based on three main principles, including structuring the problem, comparative judgement, and synthesize of the priorities. Pair-wise comparison metrics using 9 scale liker-type scales helps decision maker to compare different alternative. The values or scales can be modified depending on the relevant (Sahar, 2006).

Study by Boongasame and Boonjing (2010) clarifies that AHP stand alone methods are compensatory optimization approaches for which bad score on some criteria can be compensated by excellent scores on other criteria. SCOR

model is a management tools founded in 1996 Huan et al (2004). The benefits gained by organizations practicing SCOR is that the supply chain flow could be optimized and a sustainability of business outcome is derived. Huan et al (2004) claimed that SCOR model need to strive to improve concerning the use of network modelling tools to support management decision.

Since the integration of AHP with other techniques can be employed to solve complex decision (Hambali et al, 2008), this study proposes an integrated approach which employs Supply Chain Operation Reference (SCOR) model and partial concepts of AHP together, named the AHP-SCOR Integrated Model. In this method, SCOR will be used in ranking the criterion or alternatives whereas AHP is used in determining the consistency of the criteria thresholds. In this model, it is found that the values of criteria within SCOR influence the ranking of the alternatives.

AHP stands alone model needs to improve in its model and Bruno et al. (2009) has emphasize 51 out of 201 papers used AHP combined with other theories or approaches.

III. SUPPLY CHAIN OPERATIONS REFERENCE

(SCOR) MODEL

The SCOR was established in 1996 founded by the Supply-Chain Council (SCC). According to Elgazzar et al. (2010), SCOR model is a business process reengineering, benchmarking, process measurement, and best practice analysis to be exercised in supply chain as an integrated modelling. The principle of SCOR allows organizations to align supply chain management practice as well as filling the gaps in chain performance.

The configuration of a supply chain in SCOR model is driven by:

? Plan - levels of aggregation and information sources

? Source - locations and products

? Make - production sites and methods

? Deliver - channels, inventory deployment and products

? Return - locations and methods

To assist organizations in solving supply chain problems, SCOR demonstrates four distinct processes: source, make, deliver, and plan (Huan et al, 2004). In 2011, Elgazzar (2010) and Supply Chain Council (www.supply-chain.org) extended one variable in SCOR process reference that is returned with the purpose of attaining competitive advantage. SCOR model-based supply chain infrastructure exploited by Huan et al. (2004) and, Elgazzar (2010), SCC (2010) is shown in a Figure 1.

Figure 1: The SCOR model-based supply chain infrastructure

IV. AHP-SCOR INTEGRATED APPROACH

AHP-SCOR integrated approach is newly developed decision model to solve supply chain decision-makings. In this study, one tool that is used to support the decision-making is a modified AHP model by comparing the scores on the different criteria and employed SCOR model to quantitatively aggregate the criterion scores and comparing the aggregate scores. Subsequently, ranking reversals are applied, based on ELECTRE III methods. The construction of this outranking is to finalize the ranking of the SCOR model multiplying between criteria scores to determine which supplier is preferred. The combination of AHP, ELECTRE III and SCOR are illustrated in Figure 2.

AHP-SCOR

Figure 2: AHP, ELECTRE III and SCOR Combined Theory

Shown in proposed AHP-SCOR integrated model in Appendix-1, there are four stages in the model: stage 1, stage 2, stage 3 and stage 4. Stage 1 consists of the criteria identification, stage 2 indicates criteria weighted, criteria computation shown in stage 3, and the final stage is the final score measurement.

This approach proposed to provide a guideline enhancing the support system in supply chain management decision-making as a whole. It demonstrates that different decision

PLAN

DELIVER

SOURCE

MAKE

RETURN

RETURN

techniques that have been used may have different results when it is applied to the same problem.

Finally, the proposed integrated model will be applied to Giant Hypermarket for verification purposes. Then the listed suppliers of this Giant Hypermarket are ranked by the means of computation AHP-SCOR method.

The schematic methods for selection process are as follows:

i. Gathering the data to structure the model. The best criteria will be selected. (details process in Section 4: Stages in Proposed Model)

ii. Criteria will be calculated and weighted with AHP. Step 1 and step 2 are appraisal stages.

iii. In selection stage, criteria AHP-SCOR will be computed.

iv. Lastly, final score is analyzed and decision on the best supplier will be implemented.

V. STAGES IN PROPOSED MODEL

Stage 1: Data Gathering

The first stage denoted the identification of criteria. The criterias were based on the past literature (Cheraghi et al., 2004) from the 36 criteria presented in the theoretical framework. Applying the AHP in supplier selection can be considered as hypothetic problem. Thus, due to competitive advantage in the industry, organizations must able to choose the right supplier to meet supply chain goals. The criteria will then be developed in a hierarchy model. The study analysis is narrowed further as below:

Criteria:

Criteria 1: Cost

Criteria 2: Quality

Criteria 3: Organization

Criteria 4: Service

Criteria 5: Relationship

Supplier:

Supplier A

Supplier B

Supplier C

A schematic of the decision hierarchy for measuring supplier criteria is presented below and Appendix-2 showed a developed hierarchy model:

Level 1: BEST SUPPLIER FOR HYPERMARKET

Level 2: CRITERIA: 1, 2, 3, 4, 5

Level 3: SUB-CRITERIA

Level 4: ALTERNATIVES: Supplier A, B, C

Level 1

The top element of the hierarchy is the overall goal of the decision-making. Thus in this study, level 1 indicates the best supplier for hypermarket.

Level 2

The second level, which is known as the cluster that are grouped, represents the main criteria which classified into five aspects; cost, quality, organization, service, and relationship. General criteria usually will impact the goal directly.

Level 3

Level 3 are sub-criteria for the 5 main criteria specify in level 2. There are 36 sub-criterias affecting business performance measurement.

Level 4

Alternative of the supplier A, B, and C are shown in level 4.

Stage 2: AHP Calculation

In the next step, a construction of a pair-wise comparison matrix is a major strength to derive accurate ratio scale priorities. Pairwise comparisons in this study are based on standardization of nine likert scales (Table 1). Yang et al. (2011) denoted a ranging from 1 � 9 scale preference to pairwise comparisons where, 1 denoted �equal more importance�, 3 represented �moderate more importance�, 5 was �strong more importance�, 7 denoted �very strong more importance�, and 9 �extreme more importance�

Table 1: Comparison Scale

Definition

Intensely of Importance

Equally important

1

Moderately important

3

Strongly more important

5

Very strongly more important

7

Extremely more important

9

Intermediate more important

2, 4, 6, 8

From the proceeding data of the pair-wise comparison, consistency will be derived. Consistency ratio (CR) is calculated by dividing Consistency index (CI) to random index (RI); CR=CI/RI. Nevertheless, the consistency ratio should be less than 0.1. Further, factor evaluation and factor weights will be multiply and the final score is illustrated in Table 4:

Table 2: Result Summary of Factor Evaluation and Factor Weight

Criteria

A

B

C Cost 0.06666 0.08888 0.04444

Quality

0.06666

0.08888

0.04444 Organization 0.06666 0.08888 0.04444

Service

0.06666

0.08888

0.04444 Relationship 0.06666 0.08888 0.04444

TOTAL

0.3333

0.4444*

0.2222

Stage 3: SCOR Evaluation

The score of factor evaluation and factor weight will be applied with the proposed SCOR calculation to evaluate each of the criteria. The weights of SCOR variables are found and these weights are multiplied with the final AHP scores. After the AHP-SCOR methodology is applied, the best supplier is determined as illustrated in Figure 3.

AHP SCOR

Figure 3: AHP and SCOR Metrics Evaluation

The final score, resulting from AHP and SCOR metrics evaluation are depicted in the following Table 3. In conclusion, the result will show that supplier C is the best choice of supplier.

Table 3: AHP-SCOR Final Score

A

B

C Final Score 10 20 30

Stage 4: Decision Making Implementation

The final score will be obtained as an indicator of performance to supplier selection solution. Otherwise, ranking the fuzzy number can be exploited using the integral values ranking method developed by Liou and Wang�s model (Aydin and Kahraman, 2011).

VI. CONCLUSION

Supplier selection of criterias involves both qualitative and qualitative factors. Therefore, AHP is a widely used decision-making process, involving supplier evaluation process. Literature has supported the determination of supplier selection criterias to appraise suppliers. MCDM is deemed as significant in this study that involve complex decision-making, therefore, a theoretical model is developed to represent AHP methodology. The value acquired from supplier�s personal evaluation on the criteria evaluated in the hierarchy. Then, the comparison matrix is calculated with pair-wise comparison matrix to obtained scores. The AHP-SCOR integrated approach is simplified in supplier selection using new decision support system. The final score of each supplier will be reckoned and the most score will be selected as the best supplier. This study discussed AHP model together with integrated SCOR approach to select hypermarket�s best suppliers applied in Malaysia scenario. Finally, suppliers in Malaysia will gain benefits and acquire competitive advantage from the research findings.

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