a decision support system for supplier evaluation and order allocation m.a. thesis by emir göçen...

A Decision Support System for Supplier Evaluation and Order Allocation

M.A. Thesis By Emir Göçen

Supervised by Aslı SencerDepartment of MIS

November 2008

2

Objectives of the Thesis Study

Focus on the improvement of supplier evaluation and order allocation process of one of the leaders of the white-good manufacturers in Turkey.

Develop a decision support system (DSS) to increase the quality and speed of decision making for this company.

3

Related Studies in Recent Literature

Four inspiring studies:– Ghodsypour & O’Brien (1998): AHP-LP

– Çebi & Bayraktar (2003): AHP & LGP

– Wang et al. (2004-2005): AHP &PGP

Other studies:– Dağdeviren & Eren (2001)

– Ghodsypour & O’Brien (2001)

– Lee et al. (2001)

– Muralidharan et al. (2001)

– Bayazit & Karpak (2005)

– Bei et al. (2006)

– Perçin (2006)

– Aguezzoul & Ladet (2007)

– Pehlivan (2007)

– ...

4

Current Purchasing Process

Marketing Dept. forecasts next years

sales figures.

Budget is approved by the management.

Production Dept. runs MRP and calculates the

supply item requirements.

List of possible suppliers are given to the Purchasing

Dept.

Tough negotiations are made with

suppliers for annual order allocation.

Suppliers are selected

Production Dept. gives order directly to the suppliers through

ERP.

Supplier performance evaluation is

conducted twice a year.

5

Analytic Hierarchy Process

A multi-criteria decision making methodology developed by Thomas Saaty in 1986.

Enables decision makers to design the decision making process in a hierarchical structure, demonstrating the relationship between the aim, criteria and the alternatives.

Fundamental scale given below is used in pair-wise comparisons.

6

Supplier Evaluation Model Proposed

Supplier Evaluation

Cost

Quality

Logistics

Technology

Perfect Order Fulfillment

After Sales Service

Application of Quality Standards

Unit Purchase Price

Terms of Payment

Cost Reduction Projects

Improvement Efforts in Tech. &

Quality

Involvement in New Product Development

On Time Delivery

Order Lead Time

Delivery Conditions &

Packaging Std.

Flexibility of Transport

Allocated Capacity

Flexibility of Technology

Flexibility of Capacity

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier n

Geographic Distance

Corrective & Preventive Action

System

...

7

Goal Programming Model

Concepts of linear programming expanded to meet the multi-objective conditions for optimum target levels.

General form of goal programming model:

8

Order Allocation Model Proposed

Goals included in the model:– Maximize the overall utility

– Minimize total cost

– Maximize overall delivery performace

– Minimize defective material level

– Maximize overall rework performance

Regular constraints included in the model:– Satisfy demand

– Satisfy supplier quantitiy

– Allocate a minimum order

The objective of the model:– Minimize the deviation from the goal targets

9

Order Allocation Model

10

Order Allocation Model

11

Order Allocation Model

12

Order Allocation Model

13

Order Allocation Model

14

DSS Framework

Supplier Evaluation

Model(AHP)

Database

Order Allocation

Model(GP)

Criteria Weights

Supplier Comparison

Supplier Grades Sensitivity Reports

Scenario Analysis

Annual Quota Allocation Among Suppliers

Goals &

Other Inputs

-Annual Quota

- ...

Supplier Inputs

Supplier Inputs

Supplier Inputs

15

Conclusion

DSS is developed to improve the quality and the speed of the decision making process of the company.

It has been stated by the purchasing managers that it was difficult to make sure that the comparisons of main and sub-criteria were consistent. Software is enhanced to give feedback and detailed information on consistency is provided.

Another feedback was that the order allocation model only consisted of quantitative goals and constraints. It has been emphasized that the DSS is a tool to aid the decision maker and it is not developed to replace the decision maker. It has been proposed to develop scenario analysis function for the DSS.

16

Conclusion (cont’d)

As future work, simulation can be integrated to the DSS after the execution of the order allocation model. Applying Monte Carlo simulation, the real world imitation of the purchasing process can be realized.

Another enhancement can be developing the supplier evaluation model with group decision making perspective. In that case, the decision makers will list the main and sub-criteria and vote for them seperately. Then the selected criteria will be evalauted by each decision maker and the overall supplier grades will be calculated according to the weightings of each decision maker on the evaluation process.

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens

DSS Screens