An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing for Effective Supply-Chain Linkages

An Application of Multi-Criteria Decision-Making Model to Strategic Outsourcing for Effective Supply-Chain Linkages

N. K. Kwak (Saint Louis University, USA) and Chang Won Lee (Jinju National University, Korea)
Copyright: © 2009 |Pages: 14
DOI: 10.4018/978-1-60566-090-5.ch015
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Abstract

An appropriate outsourcing and supply-chain planning strategy needs to be based on compromise and more objective decision-making procedures. Although factors affecting business performance in manufacturing firms have been explored in the past, focuses are on financial performance and measurement, neglecting intangible and nonfinancial factors in the decision-making planning process. This study presents development of an integrated multi-criteria decision-making (MCDM) model. This model aids in allocating outsourcing and supply-chain resources pertinent to strategic planning by providing a satisfying solution. The model was developed based on the data obtained from a business firm producing intelligent home system devices. This developed model will reinforce a firm’s ongoing outsourcing strategies to meet defined requirements while positioning the supply-chain system to respond to a new growth and innovation.
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Multi-Criteria Decision Making

Multi-criteria decision making (especially integrated MCDM) is defined as an applied linear programming model for a decision process that allows the decision-maker to evaluate various competing alternatives to achieve certain goals. Relative importance is assigned to the goal with respect to a set of chosen criteria. MCDM is appropriate for situations in which the decision-maker needs to consider multiple criteria in arriving at the best overall decisions. In MCDM, a decision-makers select the best strategy among a number of alternatives that they evaluate on the basis of two or more criteria. The alternatives can involve risks and uncertainties; they may require sequential actions at different times; and a set of alternatives might be either finite or infinite. A decision-maker acts to maximize a value or utility function that depends on the chosen criteria. Since MCDM assumes that a decision-maker is to select among a set of alternatives, its objective function values are known with certainty. Many MCDM problems are formulated as multiple objective linear, integer, nonlinear, and/or interactive mathematical programming problems.

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