A Multicriteria Multilevel Group Decision Method for Supplier Selection and Order Allocation

A Multicriteria Multilevel Group Decision Method for Supplier Selection and Order Allocation

Mariya A. Sodenkamp (University of Paderborn, Germany) and Leena Suhl (University of Paderborn, Germany)
Copyright: © 2012 |Pages: 25
DOI: 10.4018/ijsds.2012010103
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Abstract

Supplier selection is an integral part of supply chain management (SCM). It plays a prominent role in the purchasing activity of manufacturing and trading companies. Evaluation of vendors and procurement planning requires simultaneous consideration of tangible and intangible decision factors, some of which may conflict. A large body of analytical and intuitive methods has been proposed to trade off conflicting aspects of realism and optimize the selection process. In the large companies the fields of decision makers’ (DMs) expertise are highly distributed and DMs’ authorities are unequal. On the other hand, the decision components and their interactions are very complex. These facts restrict the effectiveness of using the existing methods in practice. The authors present a multicriteria decision analysis (MCDA) method which facilitates making supplier selection decisions by the distributed groups of experts and improves quality of the order allocation decisions. A numerical example is presented and applicability of the proposed algorithm is demonstrated in the Raiffeisen Westfalen Mitte, eG in Germany.
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Proposed Algorithm And Its Application

Taking complex multicriteria decision, including purchasing, is a consequent multistage process. We designed the algorithm that includes 16 steps summarized.

1. Identify Overall Purpose of the Decision

A first step of MCDA is to establish a clear goal pursued. Generally decision theory deals with three main types of problems: choice, ranking and classification (Zopounidis, 2002). Choice is selection of the most appropriate alternative or set of alternatives. Generally, organizations have two approaches to supplier selection. The first approach is to select the best single supplier, which can meet all the requirements (single sourcing). The second approach is to select an appropriate combination of suppliers (multiple sourcing) (Sanayei et al., 2008). Ranking of suppliers is ordering of alternatives based on measuring of their contribution to the achievement of the stated decision objectives. Classification is division of alternatives into predefined homogeneous classes which are not necessarily ordered, on the other hand in sorting problems groups are ordered from the best to worst (Zopounidis, 2002). The proposed multilevel group framework is aimed at performing the following analytical functions:

  • Derive consensus based rankings of suppliers in accordance with their strategic performance. Rankings serve as a legitimate and transparent foundation for establishment of partnership strategies, selection of long-term contractors and stimulation of supplier development.

  • Classification of vendors into the groups reflecting their relative competitive advantages and disadvantages.

  • Support Just-In-Time (JIT) purchasing decisions for trading activity based on market-rate prices taking into consideration compound strategic weights of vendors.

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