Fuzzy MCDM Approach for Make or Buy Decision Problem

Fuzzy MCDM Approach for Make or Buy Decision Problem

Ferhan Çebi (Istanbul Technical University, Turkey), İrem Otay (Istanbul Technical UniversityIstanbul Technical University, Turkey) and Dilay Çelebi (Istanbul Technical UniversityIstanbul Technical University, Turkey)
Copyright: © 2014 |Pages: 18
DOI: 10.4018/978-1-4666-5202-6.ch090
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Abstract

Make or buy decision answers a fundamental question in the development of a manufacturing strategy. It requires consideration of both quantitative and qualitative factors diverging in a broad range. This study presents a two-stage decision model which incorporates fuzzy multi-criteria decision making methods to support make or buy decision of a company operating in the wood building products sector. The first stage comprises fuzzy SAW (Simple Additive Weighting) method to evaluate the decision on market entry, then the second stage integrates fuzzy SAW and fuzzy VIKOR (Multi-criteria optimization and compromise solution) methods to evaluate sourcing options. Proposed approach is demonstrated on an example invoked from a real-life problem. Then, sensitivity analysis is conducted to test the robustness of the models.
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Background

The literature contains a good number of studies from different perspectives. Padillo (1995) presents a comprehensive literature review and taxonomy of the issue. Canez et al. (2000) discuss current make or buy decision approaches in the literature and proposed a framework for the problem. Ruffo et al. (2007) carry out a literature review and outlined some criteria on the make or buy decision process. In a recent literature review, Moses and Ahlströmthe (2008) focus on how make or buy decision processes develop over time; and they determined the dimensions of the process changed over time.

Some authors focus on the evaluation factors to be considered on the analysis of make or buy decisions. It has been emphasized that “cost” is frequently a primary factor to be considered on the choice between the make or buy alternatives (Blaxill & Hout, 1991; Tayles & Drury, 2001; Fill & Visser, 2000; Water & Peet, 2006). However, financial factors should not be evaluated as only factor addressing the organizations’ make or buy decisions (Dale & Cunningham, 1984; Padillo & Diaby, 1999; Moschuris, 2008; Cortellessa et al.,2008). Analyzing a make or buy decision problem, in addition to the financial criteria in term of costs and profitability, some other criteria such as quality, delivery time, reliability, technical capability, and financial stability, should necessarily be considered (Dooley, 1995; Probert, 1997; Humphreys and McIvor, 1997, 2000).

Key Terms in this Chapter

Financial Factors: Factors to be used for evaluating the alternatives with regard to financial measures.

Multi-Criteria Decision Making: Decision making by considering a number of criteria

Make-or-Buy: To produce a product/service or any part of a product internally or to outsource it.

Technological Factors: Factors to be used for evaluating the alternatives with regard to technological capabilities.

Market-Related Factors: Factors to be used for assessing customer demand in a case of a new product to be launched.

Internal Factors: Controllable factors to be used for evaluating firms’ own resources and capabilities with regard to being successful or failure in a sector.

Fuzzy Logic: Apart from Boolean logic, can handle imprecise and uncertainties.

External Factors: Uncontrollable factors to be used for analyzing the structure of the industry with regard to competitiveness in a sector.

Operational Factors: Factors to be used for evaluating the alternatives with regard to the capabilities for meeting the requirements of outbound logistics service.

Strategic Factors: Factors to be used for evaluating the alternatives with regard to the company’s competitiveness in the sector.

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