A Multi-Criteria Vendor Selection and Order Allocation GDSS using a Mixed Alternative and Value Focused Thinking Approach

A Multi-Criteria Vendor Selection and Order Allocation GDSS using a Mixed Alternative and Value Focused Thinking Approach

Mariya A. Sodenkamp, Leena Suhl
Copyright: © 2014 |Pages: 31
DOI: 10.4018/978-1-4666-5958-2.ch007
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Abstract

Vendor selection and order quantity assignment plays a central role in the purchasing activity of manufacturing and trading companies. Evaluation of product and service suppliers for procurement planning requires, on the one hand, accurate identification and exploration of all decision relevant parameters. On the other hand, effective agreements must tackle all parties’ rights, obligations, interests, motives, and values, which are usually conflicting in nature. In this chapter, the authors address the problem of expert group structuring and formalization of participant competences by distinguishing among the a-, ß-, and ?-level experts responsible for the value system establishment, alternatives assessment and auxiliary objects evaluation, respectively. Experts can belong to more than one task community. The triples of a-, ß-, and ?-voting power indices are assigned to the individuals depending on their competence/authority. Moreover, the presented Multi-Criteria Decision Analysis (MCDA)-based framework facilitates selecting appropriate suppliers by the distributed expert groups and improves the quality of order allocation decisions. The usefulness of the proposed approach is demonstrated for the fuel oils and crops purchasing activities in the trading department of Raiffeisen Westfalen Mitte eG in Germany.
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Vendor Selection And Order Allocation Framework

Commodity purchasing is a consequent multistage process. We designed the algorithm based on our practical observations that includes 16 steps summarized in the following section.

1. Identify Overall Decision Objectives

Decision theory deals, in general, with three types of problems: choice, ranking and classification (Zopounidis, 2002). Choice is selection of the most appropriate alternative or set of alternatives. There are two typical approaches to the choice of suppliers: single and multiple sourcing. Single sourcing refers to the selection of one supplier who can meet all decision makers’ (DM) requirements. Multiple sourcing is a choice of the most effective combination of suppliers (Sanayei et al., 2008). Ranking of suppliers means their ordering with respect to the benchmark. Classification is division of suppliers into predefined homogeneous classes, which are not necessarily ordered. In sorting problems, classes can be ordered from the best to worst or vice versa (Zopounidis, 2002). This framework aims at performing the following analytical functions:

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    Deriving consensus-based rankings of vendors BASED on their value to the stakeholders. Rankings serve as a legitimate and transparent foundation for establishment of partnership strategies, selection of long-term contractors and stimulation of supplier development.

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    Classifying vendors into similarity groups reflecting their relative competitive advantages and disadvantages.

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    Supporting daily purchasing decisions based on market-rate prices and taking into consideration compound strategic weights of vendors.

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