a modified failure mode and effects analysis method for supplier selection problems in the supply...

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2013 Elsevier Ltd. All rights reserved.

CRM) ht (NeigHarrin, 200(2004, but ahas to

to fulll PC customers orders on time during the ood. Since thesesuppliers provided large quantities of hard drives for PC manufac-turers, this created a shortage of hard drives throughout the entirePC supply chain. This was a typical supply chain risk caused by anatural disaster.

right decisions inhas been. Therefored selection

sible. Further, this study considers the SCRM in suevaluation and selection. In order to develop a supplier seprocedure, this study proposes a modied FMEA (MFMEA) mwhich integrated the FMEA and AHP methods, to construct asupplier evaluation system and to discuss potential failure factorsand their effects on the system in a risky supply chain environ-ment. Moreover, this research will assist companies in improvingtheir ways of selecting and evaluating suppliers. Finally, preventivestrategies to the potential failure factors are identied, and theresults are discussed and summarized.

q The manuscript was handled by the area editor Qiuhong Zhao. Corresponding author. Tel.: +886 32654410; fax: +886 32654499.

Computers & Industrial Engineering 66 (2013) 634642

Contents lists availab

Computers & Indus

.eE-mail address: [email protected] (P.-S. Chen).natural and human disasters, such as earthquakes, oods,hurricanes, terrorist attacks, nancial crises, or labor strikes. Forexample, the ood of Thailand in 2011 caused serious damage towarehouses of hard drives suppliers. These suppliers were unable

of the FMEA could assist managers in making thethe face of supply chain risk. In practice, the FMEAproduct design and manufacturing improvementducing the FMEA into the supplier evaluation an0360-8352/$ - see front matter 2013 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.cie.2013.09.018used in, intro-is fea-pplierslectionethod,risks: demand, due date, cost management, and risk associatedwith production capability and operation exibility. Tang (2006)described that the supply chain risk as comprised of operationaland disruption risks. Operational risk was associated with theuncertainty of a process such as customer demand, the amountof supply, and cost uctuations. Disruption risk encompassed

(Che &Wang, 2008; Ho, Xu, & Dey, 2010). The multi-attribute deci-sion making technique is often used to solve this problem (Hoet al., 2010; Ng, 2008). However, this research considers this type(operational risk) of problem as a SCRM problem; few researchershave focused on this eld (Sawik, 2011; Wu, Blackhurst, &Chidambaram, 2006). Pillay and Wang (2003) found that the result1. Introduction

Supply chain risk management (Sissue for supply chain managemen2009; Schoenherr, Rao Tummala, &Thun & Hoenig, 2011; Wu & OlsoPulkkinen, Virolainen, and Tuominenchain not as a simple vertical chainnetwork. The supply chain networkas become an essentialer, Rotaru, & Churilov,son, 2008; Tang, 2006;8). Hallikas, Karvonen,) have described supplys a multi-layer supplyconfront four types of

However, since disruption risk is difcult to predict and pre-vent, this research focuses on decreasing the operational risk. In or-der to reduce the uncertainty of the supply, the SCRM shouldconstruct a good supplier selection and assessment system(Srinivasan, Mukherjee, & Gaur, 2011; Tang, 2006). Collaboratingwith suppliers at a low operational risk could reduce the chancesof losses for all members of the supply chain.

Based on the literature review, previous researchers haveviewed supplier selections as a multi-criteria decision problemSupply chain risk managementSupplier selection

partner. Moreover, the case company can provide unsatisfactory suppliers with valuable feedback thatwill help them improve and become its partners in the future.A modied failure mode and effects analselection problems in the supply chain ri

Ping-Shun Chen , Ming-Tsung WuDepartment of Industrial and Systems Engineering, Chung Yuan Christian University, Ch

a r t i c l e i n f o

Article history:Received 13 October 2012Received in revised form 15 August 2013Accepted 22 September 2013Available online 30 September 2013

Keywords:Analytic hierarchy process (AHP)Failure mode and effects analysis (FMEA)

a b s t r a c t

In the emerging supply chthan ever. Companies musunanticipated event occurssignicant loss. Therefore,method to select new suhierarchy process (AHP) mselection. An IC assembly ccompany can categorize its

journal homepage: wwwis method for supplierenvironment: A case studyq

Li 320, Taiwan, ROC

environment, supply chain risk management plays a more important rolecus not only on the efciency of supply chain, but also on its risks. If anl of the supply chain members will be impacted, and the result will causeresearch proposes a modied failure mode and effects analysis (MFMEA)iers from the supply chain risks perspective and applies the analyticod to determine the weight of each criterion and sub-criterion for supplierpany is then studied to validate this model. The result shows that the casepliers more effectively and at the same time select a low-risk supply chain

le at ScienceDirect

trial Engineering

lsev ier .com/ locate/caie

controllable, and external uncontrollable. Through the supply eval-uation, a company could understand its supply risks based on each

improved, a reevaluated version of the FMEA could be imple-mented. New RPNs of failures would be generated. The cycle would

dusfactor and decide which supplier was the most preferred. Schoenh-err et al. (2008) studied how a US manufacturing company as-sessed its supply chain risk and made its offshore sourcingdecisions. The case company adopted the AHP method to evaluatethe weights of its main objectives (such as product, partner, andenvironment) and sub-objectives (such as quality, cost, service,The rest of this article is organized as follows. Section 2 summa-rizes the literature review of supplier selection. Section 3 describesthe case company. Section 4 proposes a MFMEA method. Section 5discusses the results of this study and summarizes the managerialimplications based on this case study. The conclusions and futureresearch are presented in Section 6.

2. Literature review

Selecting the right suppliers is an important step in suppliermanagement (Shu & Wu, 2009; Tseng, Chiang, & Lan, 2009; Wuet al., 2006). The selection of the right suppliers can reduce opera-tional costs and delivery time (Che & Wang, 2008). Similarly,choosing the wrong suppliers may increase the number of defec-tive products, unstable deliveries, or refabricated costs, all of whichcan increase companys total cost and tarnish its reputation. There-fore, how to select the right suppliers has become an essential to-pic for companies wishing to minimize their supply chain risks.

Previous studies have identied some criteria for evaluatingsuppliers. Based on the relationships between suppliers and man-ufacturers, Dickson (1966) summarized 23 criteria, which fell intofour categories: quality, deliverability, performance, and warrantypolicy. Tracey and Tan (2001) chose quality, delivery reliability,product characteristics, and unit price as criteria when manufac-turers assessed their suppliers ability to increase customers satis-faction and improve companies performance. Similarly, Katsikeas,Paparoidamis, and Katsikea (2004) considered suppliers reliability,competitive price, service, and technical skills. In their review ofresearch studies from 2000 to 2008, Ho et al. (2010) cited qualityas the critical criterion, followed by deliverability, price, manufac-turing capability, service, management, and technology.

In order to increase a companys competitive advantage in sup-ply chain management, enterprises have to maintain long-termrelationships with their most reliable suppliers. When companiesselect the right suppliers, cost is not the only criterion to be consid-ered; companies also need to consider quality, deliverability, andservice (Ho et al., 2010). Moreover, as mentioned in the previousliterature reviews, researchers have focused on suppliers quality,cost, deliverability, and service. Therefore, the criteria adopted bythis research to select preferred suppliers include these fourfactors.

According to supplier selection criteria, the supplier risk de-pends on the type and degree of risks. A failure caused by the sup-plier is viewed as a risk for the manufacturer. The manufacturershould then evaluate and score the impact of each failure; thesum of the scores is the supplier risk. Therefore, the preferred sup-plier selection procedure is equal to the supplier lowest risk assess-ment procedure. Although many researchers have studied thesupplier evaluation and selection problems (Ho et al., 2010), fewhave explored supplier selection problems based on supplier riskor supply chain risk. For example, Wu et al. (2006) used the ana-lytic hierarchy process (AHP) to assess supply risk. They consideredsix factors of risks: internal controllable, internal partial controlla-ble, internal uncontrollable, external controllable, external partial

P.-S. Chen, M.-T. Wu / Computers & Inand management capabilities). Based on the weights of the 16 fac-tors, the case company could evaluate several offshore alterna-tives: nished goods from China; nished goods from Mexico;continue until the system reached a level of low or acceptable riskranges. Except for the FMEA applications in the airplane industry,the use of the FMEA has been introduced to other many industries,with the notable exception of airlines (Almannai et al., 2008; Pillay& Wang, 2003).

3. The case company

The case company is a well-known comprehensive semiconduc-tor manufacturing service provider which offers engineering tests,package design, integrated circuit (IC) assembly (or packaging),wafer probing, nal test, and design manufacturing services. Withthese manufacturing capabilities, the case company can provide itscustomers with complete semiconductor turnkey solutions. Themain business services of the case company are IC and system ser-vices. For the IC services, the case company offers substrate designand manufacturing, engineering test, wafer probing, nal test,package and module design, wafer bumping, and chip packaging(or assembly). For the system services, the case company offersturnkey solutions of module-to-systems products.

In order to provide fast services for global customers, the casecompanys subsidiaries are based near their overseas customersin South Korea, Japan, Singapore, Malaysia, China, the Americas,and Europe. Since the semiconductor industry is a high-tech indus-try, the case company invests heavily resources in research anddevelopment (R&D). The case company also invests in equipmentand state-of-art facilities in order to satisfy its customersdemands.

The case companys main raw materials are lead frames, IC sub-strates, epoxy, molding compounds, gold wires, and solder balls.Raw material costs account for approximately 50% of the totalmanufacturing cost of the case company. Except for the moldingcompounds, the price of the other raw materials is closely relatedparts from China, Maquiladora, no investment; parts from China,Maquiladora, with investment; and parts from China, with assem-bly in the US. The results showed that sourcing nished goods fromChina would be the best offshore strategy for the case company.Further, Thun and Hoenig (2011) surveyed 67 German automotivemanufacturers to investigate the supply chain vulnerability andthe key drivers of supply chain risks. They applied the probabil-ity-impact-matrix to analyze the internal and external supplychain risks. They then offered suggestions for mitigating these sup-ply chain risks.

Beside these supplier risk assessments, the failure mode and ef-fects analysis (FMEA) is a popular method of measuring preventiverisks (Ko, 2013; Liu, Liu, & Liu, 2013). The FMEA has been exten-sively applied in product design and manufacturing process plan-ning (Almannai, Greenough, & Kay, 2008; Chen & Ko, 2009;Ekmekcioglu & Kutlu, 2012). The traditional FMEA evaluated risksby calculating the risk priority number (RPN). The RPN was com-puted by multiplying three factors (O, S, and D), where O and S rep-resented the occurrence and severity of a failure, and D wasdened as the detection that meant the ability to detect the failurebefore it reached the customer (Chin, Wang, Poon, & Yang, 2009).Each factor was evaluated on a 10-point scale. After calculatingthe RPNs of each failure, managers could sort the RPNs from largestto smallest. Failures with higher RPNs could be viewed as moreimportant and as meriting greater attention. Therefore, the FMEAcould help managers assess the risks of failures and provide themanagers with guidelines for improvement. After the system was

trial Engineering 66 (2013) 634642 635to the price of the industrial and precious metals. However, in2009, prices of the industrial and precious metals increased by99.43% and 59.5%, respectively. This indicated that manufacturers

needed to pay almost twice as much for these raw materials. Theimpact was huge for the case companies. Due to much higher pro-duction cost, the case company incurred a signicant loss of prot.

In addition, most of the case companys suppliers are in foreigncountries. Thus, the case company faces some supply chain risks insecuring its raw materials. For example, the case company hastrouble lling its urgent orders by air and with its products costand quality. This research therefore proposes the MFMEA methodas a solution.

4. A decision-making framework for supplier selections

In the process of supplier selections, suppliers needs and risksneed to be considered. This research proposes a ve-step supplierselection framework (Fig. 1).

Step 1: Identifying the needs of potential suppliers.

This project begins when the manager of the procurementdepartment considers selecting a new lead-frame supplier in orderto reduce the supply chain risk of the case company. The managerand his or her subordinates should discuss key or requisite charac-teristics for suppliers and survey available candidates A, B, and C in the market.

Supplier A was established in the 1950s to repair and overhaulcompressors. At rst, Supplier A had a compressor factory for itsmachinery division. It established its sporting goods division in

established an Asia Pacic regional operations center in Singapore.Supplier B has subsidiaries in Asian countries. Supplier B has plantsin Malaysia, Taiwan, Thailand, Indonesia, and China (Chengdu andSoochow). Supplier B has advanced manufacturing technology. Themain products of Supplier B are lead frames and exible print cir-cuit (FPC).

Supplier C is a Germany company which was funded in the1950s. Supplier C providers high-quality, high-precision intercon-nect materials to customers in the semiconductor or electronicsindustry. Product categories of Supplier C are semiconductor leadframe services, such as offering ICs lead frames, discrete and powerlead frames; connector services, such as offering customizationservices of plating and stamping technologies to electronics com-panies; and smartcard services, such as offering interconnects tothe nancial/banking security, and communication industries.Supplier C has factories in Singapore, Malaysia, Hong Kong, China(Shenzhen), France, the Netherlands, and the US (South Carolinaand Illinois).

Step 2: Establishing a team for supplier selections.

Once the needs of the new suppliers have been identied, thecase company creates a cross-functional team to assist the pro-curement department. This team is comprised of experts fromthe R&D, procurement, quality assurance, and engineeringdepartments.

Step 3: Determining criteria for supplier selections.

4. Conducting the MFMEA method

636 P.-S. Chen, M.-T. Wu / Computers & Industrial Engineering 66 (2013) 634642Qualified suppliers?

5. Categorizing qualified suppliers

No

Yesthe 1960s and its precision products division in the 1970s. In the2000s, Supplier A established its electronics division. Supplier Ahas subsidiaries in China (Zhongshan and Beijing), Vietnam, andthe US (Los Angeles and St. Louis). The main products of SupplierA are light-emitting diode (LED) lead frames, IC lead frames, andprecision molds.

Supplier B is a subsidiary of a Japanese company which is aworld-class supplier for IC lead frames. In the 1990s, Supplier B

2. Establishing a team for supplier selections

1. Identifying the needs of potential suppliers

3. Determining criteria for supplier selectionsFig. 1. A decision-making frameThis case company considers not only the traditional criteria,such as quality, cost, deliverability, and service, but also the prac-tical criteria, such as technology and productivity. The reasons foradding these two practical criteria are as follows.

According to the literature, technology and productivity areessential for supplier selection. For example, Weber, Current, and

6 criteria and 17 sub-criteria

Recommendations for needs-improvement and unqualified suppliers

Selecting a new lead-frame supplier

Staff of R&D, procurement, quality assurance,

and engineering departments

Modified FMEA and AHPwork of supplier selections.

higher than that offered by other competitors. The score canbe classied into four levels from 1 (rarely) to 4 points (mostoften), as shown in Table 2.

5. Delineating the detection of each failure and scoring each sub-criteria: After the four steps have been carried out, the projectteam evaluates whether or not the case company has the abilityto detect failures of candidate suppliers, as shown in Table 3.The results show that the project team can detect all failuresof the candidate suppliers. Therefore, the detection of all sub-criteria is set to 1.

6. Weighing each criterion based on its importance: This researchadopts the AHP method (Saaty, 1980) to determine the weightof each criterion. The AHP method is developed by Thomas L.

complaint within short time

Low 2 Cost: A supplier offers middle-priced raw materialsQuality: A supplier offers some defects among rawmaterialsDeliverability: A supplier delivers raw materials with anormal delayTechnology: A supplier has a normal capability to solvetechnical problems caused by manufacturing the rawmaterialsProductivity: A supplier has a normal ability tomanufacture customized raw materials for the casecompanyService: A supplier can handle the case companyscomplaint within moderate time

Moderate 3 Cost: A supplier offers high-priced raw materialsQuality: A supplier offers many defects among rawmaterialsDeliverability: A supplier delivers raw materials with along delayTechnology: A supplier has a low capability to solvetechnical problems caused by manufacturing the rawmaterialsProductivity: A supplier has a low ability tomanufacture customized raw materials for the casecompanyService: A supplier can handle the case companyscomplaint within long time

High 4 Cost: A supplier offers very expensive raw materialsQuality: A supplier offers abundant defects among rawmaterialsDeliverability: A supplier delivers raw materials with avery long delayTechnology: A supplier has a very little capability tosolve technical problems caused by manufacturing theraw materialsProductivity: A supplier has a very little ability tomanufacture customized raw materials for the casecompanyService: A supplier can handle the case companyscomplaint within very long time

dusBenton (1991) work provided an overview of issues of supplierselection up to 1991. The basic attributes were price, delivery,quality, production facilities and capacity, geographical location,and technical capability. Production facilities and capacity refersto productivity; technical capability refers to technology. Hoet al. (2010) reviewed on articles about supplier selection from2000 until 2008 and concluded that the most popular criteria con-sidered by the decision makers were quality (68 papers), price/cost(63 papers), manufacturing capability (39 papers), service (35 pa-pers), management (25 papers), and technology (25 papers). Here,manufacturing capability means productivity. As a result, produc-tivity and technology are important criteria in the literature onsupplier selection.

Further, the case company belongs to a high-tech industry. Forthe technology criterion, the IC assembly industry is very compet-itive and requires a long-term investment in R&D for the wholesupply chain members. Otherwise, lagging behind other competi-tors may diminish the competitive advantage of the case company.For the productivity criterion, the domestic semi-conductor indus-try emerges due to the need of a exible (or agile) productivity. Inthe past, the integrated device manufacturers (IDM) viewed the ICdesign companies as competitors rather than as customers. Unlessthe IC design companies have an extra demand, the IDMs will nottake productivity expansion into consideration. To solve this prob-lem, the domestic semi-conductor industry allows the IC designcompanies to provide manufacturing services without competitionin the industry. This differential strategy has contributed to thesuccess of the semi-conductor industry.

Consequently, technology and productivity are essential in thesemi-conductor supply chain. This case company considers thesepractical criteria into its supplier selection.

Step 4: Conducting the MFMEA method.

Before conducting the MFMEA method, the team used surveys,approval of written documents, and eld study to collect informa-tion on the Suppliers A, B, and C. Then, the MFMEA method ana-lyzes the information. The steps of the MFMEA method are asfollows:

1. Dening a scoring system for the supplier selection: The pro-curement department is in charge of evaluating cost, deliver-ability, and productivity of the supplier selection; the qualityassurance department is responsible for assess the quality ofnew suppliers; the R&D department rates the technology score;and the service score is rated by all departments.

2. Identifying potential failure modes: The project team deter-mines potential failure modes based on each score. For the tech-nology criterion, the case company nds that some suppliershave less design capability than their competitors do. This willbe viewed as a failure mode for the candidate supplier.

3. Evaluating the impact of a failure mode and justifying its sever-ity: If a candidate supplier has a weak design capability, it willbe not able to produce some components of products that arerequested by the case company. Since the market of the ICindustry changes when new products or technologies emerge,all members of the supply chain should have a strong technol-ogy capability. Therefore, the project team needs to evaluate theeffect (or severity) of the failure caused by the supplier weakdesign capability and give it a score from 1 (lowest) to 4 (high-est) points, as shown in Table 1.

4. Determining factors that cause to failures and classifying theprobability of occurrence of the failure: For example, high raw

P.-S. Chen, M.-T. Wu / Computers & Inmaterial price offered by a supplier may be attributed to its highdirect labor costs. Then, the project team needs to evaluate howfrequently the raw material price offered by the supplier isTable 1Scales for severity.

Severity Rating Descriptions

Remote 1 Cost: A supplier offers cheap raw materialsQuality: A supplier offers few defects among rawmaterialsDeliverability: A supplier delivers raw materials with aslight delayTechnology: A supplier has a strong capability to solvetechnical problems caused by manufacturing the rawmaterialsProductivity: A supplier has a strong ability tomanufacture customized raw materials for the casecompanyService: A supplier can handle the case companys

trial Engineering 66 (2013) 634642 637Saaty in the 1970s and can be applied to solve complex deci-sion-making problems. The AHP method is based on pairwisecomparisons (aij) of experts opinions to evaluate the

Table 2Scales for occurrence.

Severity Rating Descriptions

Remote 1 Cost: A supplier rarely offers expensive raw materialsQuality: A supplier rarely offers defects of raw materialsDeliverability: A supplier rarely fails to deliver rawmaterials on timeTechnology: A supplier rarely cannot solve technical

Table 5Pairwise comparison matrix of the sub-criteria with respect to quality.

Sub-criterion InputQualitycontrol

Manufacturingcapability

Reliability Highyieldcontrol

Weight

Input qualitycontrol

1 1/7 1/7 1/9 0.04


7 1 1 1/3 0.22

638 P.-S. Chen, M.-T. Wu / Computers & Industrial Engineering 66 (2013) 634642problems caused by manufacturing the raw materialsProductivity: A supplier rarely cannot manufacturecustomized raw materials for the case companyimportance between two criteria. The meaning of aij refers tothe compared importance of criterion i to criterion j, the ranking

Service: A supplier rarely fails to handle the casecompanys complaint within a reasonable time

Low 2 Cost: A supplier sometimes offers expensive rawmaterialsQuality: A supplier sometimes offers defects of rawmaterialsDeliverability: A supplier sometimes fails to deliver rawmaterials on timeTechnology: A supplier sometimes cannot solvetechnical problems caused by manufacturing the rawmaterialsProductivity: A supplier sometimes cannot manufacturecustomized raw materials for the case companyService: A supplier sometimes fails to handle the casecompanys complaint within a reasonable time

Moderate 3 Cost: A supplier often offers expensive raw materialsQuality: A supplier often offers defects of raw materialsDeliverability: A supplier often fails to deliver rawmaterials on timeTechnology: A supplier often cannot solve technicalproblems caused by manufacturing the raw materialsProductivity: A supplier often cannot manufacturecustomized raw materials for the case companyService: A supplier often fails to handle the casecompanys complaint within a reasonable time

High 4 Cost: A supplier usually offers expensive raw materialsQuality: A supplier usually offers defects of rawmaterialsDeliverability: A supplier usually fails to deliver rawmaterials on timeTechnology: A supplier usually cannot solve technicalproblems caused by manufacturing the raw materialsProductivity: A supplier usually cannot manufacturecustomized raw materials for the case companyService: A supplier usually fails to handle the casecompanys complaint within a reasonable time

Table 3Scales for detection.

Detection Rating Probability of detection (%)for all six criteria

Remote 1 76100Low 2 5175Moderate 3 2650High 4 025

Table 4Pairwise comparison matrix of the main criteria of supplier selection.

Criterion Cost Quality Deliverability

Cost 1 3 9Quality 1/3 1 9Deliverability 1/9 1/9 1Technology 1 5 9Productivity 1/5 1/5 5Service 1/5 1/7 5kmax = 6.61 C.I. = 0.122 R.I. for 6 = 1.24from 9 (highest), 7, 5, 3, to 1 (lowest). After pairwise compari-sons, the weights of criteria and sub-criteria are calculated byEq. (1). However, since there are only two sub-criteria of thecost and productivity, the weight of each sub-criterion can bedecided by one comparison whether the AHP method is appliedor not.

Reliability 7 1 1 1/3 0.22High yield

control9 3 3 1 0.53

kmax = 4.09 C.I. = 0.030 R.I. for 4 = 0.9 C.R. = 0.03 < 0.1

Table 6Pairwise comparison matrix of the sub-criteria with respect to deliverability.

Sub-criterion Productioncycle

On timedelivery

Delivery leadtime

Weight

Productioncycle

1 1/5 1 0.13

On timedelivery

5 1 7 0.75

Delivery leadtime

1 1/7 1 0.12

kmax = 3.013 C.I. = 0.006 R.I. for3 = 0.58

C.R. = 0.01 < 0.1For the other four criteria, kmax is calculated by Eqs. (2) and (3).Consistency index (C.I.) is calculated by Eq. (4), where n is the num-ber of criteria. The value of random index (R.I.) is based on thenumber of criteria. Here, the values 3, 4, and 5 of R.I. are 0.58,0.90, and 1.12, respectively. Consistency ratio (C.R.) is calculatedby C.I. divided by R.I. The value of C.R. must be less than 0.1, whichmeans the consistency of comparisons among criteria. According tothe outcomes of Tables 48, all C.R. values are less than 0.1. Fur-ther, the results of the AHP method are shown in Tables 49.

Wi Qn

j1aij 1=n

Pni1

Qnj1aij

1=n 8i 1;2; . . . ;n 1

mi Pn

j1wjaijwi

8i 1;2; . . . ;n 2

kmax Pn

i1min

3

Technology Productivity Service Weight

1 5 5 0.311/5 5 7 0.181/9 1/5 1/5 0.021 5 9 0.381/5 1 1 0.061/9 1 1 0.05C.R. = 0.098 < 0.1

m so

dusTable 7Pairwise comparison matrix of the sub-criteria with respect to technology.

Sub-criterion Design capability Proble

Design capability 1 5Problem solving capability 1/5 1Continuous improvement capability 1/7 1/3

P.-S. Chen, M.-T. Wu / Computers & InC:I: kmax nn 1 4

7. Calculating the RPN: The RPN is the product of severity, occur-rence, and detection. For the products total cost of Supplier A,the severity is 4, the occurrence is 2, the detection is 1, andRPN is 4 2 1 = 8. According to the column Weight of Sub-cri-teria in Table 9, the weight RPN (Ri) is then calculated by theRPN multiplied by the weight of sub-criteria. For example, the

RPN means that the higher priority of the criterion needs to be

kmax = 3.065 C.I. = 0.032 R.I for 3 = 0

Table 8Pairwise comparison matrix of the sub-criteria with respect to Service.

Sub-criterion Complaint processing Resp

Complaint processing 1 5Response to demands 1/5 1Report generation 1/7 1/3kmax = 3.065 C.I. = 0.032 R.I fo

Table 9Weights of criteria and sub-criteria of supplier selection.

Maincriterion

Weights ofmaincriterion(1)

Sub-criterion Weight ofsub-criterions(2)

Weight ofsub-criterion(3) = (1) (2)

Cost 0.31 Products totalcost

0.83 0.2573

Cost reductionplan

0.17 0.0527

Quality 0.18 Input qualitycontrol

0.04 0.0072


0.22 0.0396

Reliability 0.22 0.0396High yieldcontrol

0.53 0.0954

Deliverability 0.02 Productioncycle

0.13 0.0026

On timedelivery

0.75 0.0150

Delivery leadtime

0.12 0.0024

Technology 0.38 Designcapability

0.73 0.2774

Problemsolvingcapability

0.19 0.0722

Continuousimprovementcapability

0.08 0.0304

Productivity 0.06 Productivityexibility

0.75 0.0450

Amount ofproduction

0.25 0.0150

Service 0.05 Complaintprocessing

0.73 0.0365

Response todemands

0.19 0.0095

Reportgeneration

0.08 0.0040improved. If the RPN of a criterion is greater than or equal to 6,the specic failure of the candidate supplier requires improving.Further, the project team proposes some suggestions for thecandidate supplier to x failures, as illustrated in Table 13.

Step 5: Categorizing qualied suppliers.

For evaluating a new supplier, the case company adopts theaverage weight RPNs method. The average weight RPNs of Suppli-ers A, B, and C are 1.03, 0.62, and 1.13. This means that there is lessrisk for the case company to purchase Supplier Bs lead frames thanthose of the other suppliers. Through step 4, there may be severalqualied suppliers who meet the requirement of the case com-pany, but their performances are not equal to each other. There-fore, qualied suppliers have to be categorized according to thesupply risk. These discussions will be described in Section 5.1.

5. Discussions and implications

5.1. Discussionsweight RPNs of products total cost for Supplier A is8 0.2573 = 2.0584. The results of each weight RPNs for Suppli-ers A, B, and C are shown in Tables 1012, respectively.

8. Sorting each criterion by its RPNs: For all sub-criteria, a higher

lving capability Continuous improvement capability Weight

7 0.733 0.191 0.08

.58 C.R. = 0.056 < 0.1

onse to demands Report generation Weight

7 0.733 0.191 0.08

r 3 = 0.58 C.R. = 0.056 < 0.1trial Engineering 66 (2013) 634642 6395.1.1. Analysis on each criterion of suppliersAccording to Table 14, the case company can have a good

understanding of each suppliers advantages. Supplier Bs quality,technology, and productivity scores are less than those of the othertwo suppliers. This indicates that Supplier B can provide betterquality, technology, and productivity strategies for the case com-pany and help the case company gain some competitive advantagethrough this supply chain collaboration. Supplier C has the abilityto offer some information and suggestions on cost, deliverability,and service strategies. Therefore, if the case company adopts thecost reduction strategy, Supplier C will be the best choice. How-ever, Supplier C is the weakest in its quality, technology, and pro-ductivity. In conclusion, the case company should evaluate the sixcriteria of suppliers instead of the four criteria in order to nd theright supplier for its supply chain and to reduce its supply chainrisk.

5.1.2. Categorization of qualied suppliersBased on the above analysis (Table 14), the case company se-

lects Supplier B which has the lowest supply chain risk. AlthoughSupplier Bs service score is higher than Supplier As, and Supplier

nt

dusTable 10Weighted RPNs of Supplier A.

Supplier A Risk assessme

Criterion Sub-criterion S O

Cost Products total cost 4 2Cost reduction plan 2 2

Quality Input quality control 2 1Manufacturing capability 2 2Reliability 1 2High yield control 2 2

Deliverability Production cycle 1 1On time delivery 2 2Delivery lead time 3 2

640 P.-S. Chen, M.-T. Wu / Computers & InBs scores on cost, deliverability, and service are higher than Sup-plier Cs, the average weight RPNs of Supplier B is still the lowest.This indicates that collaborating with Supplier B enables the casecompany to operate in the low-risk supply chain environment.As a result, this research recommends that the case company coop-erate with Supplier B.

In addition, considering the needs of the case company, this pro-ject team determines the following selection criteria. The averageweight RPNs of qualied suppliers must be lower than 0.75. Suppli-ers with scores between 0.76 and 1.25 are categorized as suppliersthatneed improvementwithina limited time. Supplierswhoseaver-age weight RPNs are more than 1.26 will be disqualied. Therefore,Suppliers A, B, and C are categorized as the needs-improvement,qualied, and needs-improvement, respectively.

Meanwhile, from the suppliers perspective, suppliers can rec-ognize the needs of their customers and improve their competitive

Table 11Weighted RPNs of Supplier B.

Supplier B Risk assessment





Technology Design capability 1 3Problem solving capability 2 1Continuous improvement capability 3 4

Productivity Productivity exibility 1 3Amount of production 3 2

Service Complaint processing 3 3Response to demands 2 1Report generation 2 1



Service Complaint processing 2 2Response to demands 2 2Report generation 2 4

Note: S means Severity; O means Occurrence; and D means Detection.D RPN Sub-criterions weight (Wi) Weight RPN (Ri)

1 8 0.2573 2.05841 4 0.0527 0.2108

1 2 0.0072 0.01441 4 0.0396 0.15841 2 0.0396 0.07921 4 0.0954 0.3816

1 1 0.0026 0.00261 4 0.0150 0.06001 6 0.0024 0.0144

trial Engineering 66 (2013) 634642advantage from those with higher RPNs. In order to solve problemswhich cause the higher RPNs, suppliers need to adjust their strat-egies. After doing so, candidate suppliers will prevent their cus-tomers from entering the high-risk supply chain environment.

5.2. Managerial implications

The following are some implications pertaining to the supplierselection framework, supplier selection management, and practicalsupplier procurement and management.

5.2.1. Supplier selection frameworkIn the literature, most of the traditional supplier selection sys-

tems focus on cost, quality, deliverability, and service. Based onTable 4, the weight of six criteria cost, quality, deliverability,technology, productivity, and service are 0.31, 0.18, 0.02, 0.38,

D RPN Sub-criterions weight (Wi) Weighted RPN (Ri)

1 4 0.2573 1.02921 3 0.0527 0.1581

1 4 0.0072 0.02881 1 0.0396 0.03961 2 0.0396 0.07921 4 0.0954 0.3816

1 2 0.0026 0.00521 3 0.0150 0.04501 4 0.0024 0.0096

1 3 0.2774 0.83221 2 0.0722 0.14441 12 0.0304 0.3648

1 3 0.0450 0.13501 6 0.0150 0.0900

1 9 0.0365 0.32851 2 0.0095 0.01901 2 0.0040 0.0080

Total = 1 Total = 3.70Average = 0.62

1 9 0.2774 2.49661 1 0.0722 0.07221 2 0.0304 0.0608

1 8 0.0450 0.36001 1 0.0150 0.0150

1 4 0.0365 0.14601 4 0.0095 0.03801 8 0.0040 0.0320


nt

dusTable 12Weighted RPNs of Supplier C.

Supplier C Risk assessme



P.-S. Chen, M.-T. Wu / Computers & In0.06, and 0.05. The important criterion for the case company istechnology, followed by cost, quality, productivity, service, anddeliverability. Therefore, the cost, quality, and technology areessential criteria for the case company, which is in the high-techindustry, to select the right supplier. Further, since the case com-pany has high demands for lead frames, suppliers of lead-framesusually cooperate with the case company and make their deliverieson time. As a result, deliverability does not have a signicant effecton supplier selection.

Table 13Recommendations for Supplier A.

Sub-criterion RPNP 6 Recommendations for Sub-criterionwith RPNP 6

Design capability 9 Increase the number of the R&Dpersonnel and strengthen R&D ondeveloping diversied products

Products total cost 8 The products total cost of Supplier A ishigher than the industry average.Therefore, Supplier A should have bettercost management on its products

Production exibility 8 Increase the diversication of productsReport generation 8 Collect more data on production and

qualityDelivery lead time 6 Shorten order processing time

Table 14The comparisons among three suppliers.

Weight RPNs of Each Criterion

Criterion Supplier A Supplier B Supplier C

Cost 2.27 1.19 0.73Quality 0.63 0.53 0.82Deliverability 0.08 0.06 0.05Technology 2.63 1.34 4.38Productivity 0.38 0.23 0.60Service 0.22 0.36 0.20

The average RPNs of six criteria 1.03 0.62 1.13

The average RPNs of four criteria () 0.80 0.53 0.45

Note: The bold and italic score represents the lowest score among three suppliers.





Service Complaint processing 2 2Response to demands 2 2Report generation 2 2However, this study considers two additional criteria: produc-tivity and technology. This raises the following question: are thereany differences between using four and six criteria? After the cal-culation in Table 14, the average weight RPNs of four criteria forSuppliers A, B, and C are 0.80, 0.53, and 0.45, respectively. Thereis no difference between Suppliers A (needs-improvement withina limited time) and B (a qualied supplier). Nonetheless, SupplierC is categorized as the best-qualied supplier when using the tra-ditional four criteria.

If this research adopts the traditional four criteria for evaluatingsuppliers, some suppliers, such as Supplier C, will have been cate-gorized as qualied. Although Supplier C has a strong competitiveadvantage on the cost strategy, it has adverse effects on quality and

D RPN Sub-criterions weight (Wi) Weighted RPN (Ri)

1 2 0.2573 0.51461 4 0.0527 0.2108

1 6 0.0072 0.04321 4 0.0396 0.15841 6 0.0396 0.23761 4 0.0954 0.3816

1 4 0.0026 0.01041 2 0.0150 0.03001 4 0.0024 0.0096

1 12 0.2774 3.32881 12 0.0722 0.86641 6 0.0304 0.1824

1 12 0.0450 0.54001 4 0.0150 0.0600

1 4 0.0365 0.14601 4 0.0095 0.03801 4 0.0040 0.0160


trial Engineering 66 (2013) 634642 641technology strategies. Nonetheless, quality always has a critical ef-fect on supplier selection and customer satisfaction. Selecting Sup-plier C as a lead-frame supplier will draw the case company andsupply chain partners into a high-risk supply chain environment.Hence, the challenges for the case company are to balance trade-offs among the three key criteria cost, quality, and technology in order to decrease supply chain risk.

5.2.2. Supplier selection managementWhen the case company selects a supplier, ve criteria (except

for deliverability) need to be considered. Since each criterion is re-lated to the others, the traditional FMEA cannot predict the totalsupply chain risk. Therefore, this study integrates the risks of eachcriterion and sub-criterion into the MFMEA model. More speci-cally, this supplier selection system considers each elements RPN(each criterion has several elements to be measured), each crite-rions RPN, as well as weight of criteria and sub-criteria.

In this research, Supplier B is categorized as a qualied supplier.However, Supplier Bs performance shouldbe reviewedperiodically.Suppliers with good performance need to be encouraged, and sup-pliers with poor performance must be warned or eliminated.

Moreover, Suppliers A and C are rated as a needs-improvementsupplier within a limited time. This supplier has to submit animproving proposal to the case company within the dened time.The report will be reviewed by the supplier selection team. If thereport meets the case companys requirements, Supplier A or Ccan become a qualied supplier. Otherwise, Supplier A or C willbe disqualied.

642 P.-S. Chen, M.-T. Wu / Computers & IndusFinally, for an unqualied supplier, a supplier can improve itshigh-risk elements and adjust its strategies based on the needs ofthe case company. The report that the supplier has been improvedis sent to the supplier selection team for review. If the report meetsthe case companys requirement, the unqualied supplier can bereviewed during the supplier selection process.

5.2.3. Practical supplier procurement and managementMinimizing cost is always the main consideration of the pro-

curement department in selecting a supplier. This may lead suppli-ers to reduce costs and at the same time decrease their productquality and R&D capability. Thus, it is very common to hear thatwhen the quality and assurance personnel requests the suppliersto provide better quality products, or when the engineers ask thesuppliers for better technology, they usually fail to do so.

In brief, this study recommends the case company to take thesupplier with the lowest average RPN value into account. If a com-pany adopts the minimum cost strategy as the most important sup-plier criterion, it may bring the holistic supply chainmembers into ariskier environment. Therefore, the concept of the minimal coststrategy should be replaced by the minimal supplier-risk strategy.

6. Conclusions

This research makes three contributions. First, it develops asupplier-selection framework (Fig. 1), which incorporates theMFMEA and AHP methods. The proposed MFMEA method selectssix criteria and 17 sub-criteria to assess the RPNs of three lead-frame suppliers. Then, this study applies the AHP method to deter-mine the weight of each criterion and sub-criterion. As a result,suppliers can be categorized as needs-improvement, qualied,and unqualied based on their average weight RPNs. For theneeds-improvement suppliers, the case company makes valuablesuggestions so that they can turn their weaknesses into strengths.The MFMEA method can help companies select the right supplierwith the lowest risk in order to reduce the holistic supply chainrisk.

Second, for the criteria of supplier selection, the four essentialcriteria in the literature are cost, quality, deliverability, and service.According to these criteria, a supplier with the lower cost strategyand less advanced technology strategy may be viewed as the pre-ferred supplier. For the high-tech industry, this will create a high-risk supply chain. After adding technology and productivity, thecase company can select the right supplier with the lowest supplyrisk. The results of this research suggest that the case companyneeds to consider technology for supplier selection, but omitdeliverability.

Finally, this research uses a case study to verify the feasibility ofthe proposed supplier-selection framework and MFMEA method.Section 5.1 summarizes the discussions of supplier selection. Fur-ther, the managerial implications of the case study in Section 5.2can help companies in making their future supplier-selectiondecisions.

Despite the contributions, this study has several limitations.First, when different enterprises select suppliers, their viewpointsmay depend on their supply chain environment. Even though thisresearch studies the IC assembly industry, other similar industriesmay not consider it in the same way. In addition, this MFMEA is re-stricted by the information provided by the case company, andtherefore there are six criteria for supplier selection, which maynot be sufcient for other companies. Other considerations mayneed to be factored into future analyses.

Finally, this research suggests two directions for future

research:1. Suppliers evaluative criteria play important roles in the supplierselectionprocess.Howto chooseappropriate suppliers criteria iscomplicated. Future researchers should pay more attention tothe criteria of supplier selection for different industries.

2. Other than the FMEA, other approaches, such as the Delphimethod, fault tree analysis, and stress testing are often usedfor supplier selection. Other approaches for the risk assessmentcan be applied to see if they can generate similar results in thefuture.

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A modified failure mode and effects analysis method for supplier selection problems in the supply chain risk environment: A case study1 Introduction2 Literature review3 The case company4 A decision-making framework for supplier selections5 Discussions and implications5.1 Discussions5.1.1 Analysis on each criterion of suppliers5.1.2 Categorization of qualified suppliers

5.2 Managerial implications5.2.1 Supplier selection framework5.2.2 Supplier selection management5.2.3 Practical supplier procurement and management

6 ConclusionsReferences

a modified failure mode and effects analysis method for supplier selection problems in the supply...

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