SUPPLIER SELECTION MODEL IMPLEMENTATION USING INTERPRETIVE STRUCTURAL MODELING AND ANALYTICAL HIERARCHY PROCESS FOR SMALL AND
MEDIUM SCALE ENTERPRISES Abhijeet Choudhary1
Department of Industrial Engg. & Management,
Takshshila Institute of Engineering & Technology Jabalpur (M.P.) Prof. Alok Agrawal2
Department of Mechanical Engineering,
Takshshila Institute of Engineering & Technology Jabalpur (M.P.)
Abstract- Vendor selection is one of the most important function or activity performed by the all formal and non formal organization. More criticality and complexity exist when selection problem dealt with qualitative and quantities criteria in the rational selection .A panel of thirty members from academic; industry and supplier were given a task to recognize the importance of the supplier selection criteria. The research seeks to develop a list of priorities &operational knowledge assets to select the vendors in small scale and medium scale industries by interpretative structural modeling and analytical hierarchy process. Core objective of this research is to elaborate the significance of interpretive structuralmodelingandanalyticalhierarchyprocessasdecisionmakingapproachforvendor selection in any enterprise. The multi-criteria decision making (MCDM) is suggested to be a viable method for supplier selection.
ISM is an interactive learning process. The method is interpretive in that the group’s judgment decides whether and how items are related; it is structural in that on the basis of the relationship, an overall structure is extracted from a complex set of items; and it is modeling in that the specific relationship and overall structure are portrayed in a diagram model. In this, a set of different and directly related variables affecting the system under consideration is structured into a comprehensive systematic model. It has been used for over 25 years by specially trained consultants to help their client understand complex situations and find solution to complex problems.
The analytic hierarchy process (AHP) has been used as a tool for MCDM. The foundation of the Analytic Hierarchy Process (AHP) is a set of axioms that carefully delimits the scope of the problem environment. It has been implemented in supplier selection objective in previous literature. In this research study application of AHP for selection of perfect vendor is explained in a comprehensive manner.
The research could improve managers’ understanding in regard of selecting the vendors from available alternatives along with process improvements and business intelligence functions.
Keywords: Vendor selection, Analytical Hierarchy Process; interpretative structural modeling Multi- criteria Decision Making.
1 INTRODUCTION
Supplier selection process is one of the important activities for success of supply chain of any organization. According to the span of trade organizations are classified as small medium and large scale enterprises. This classification is based on the investment on plant and machinery which is less than 10 million for small scale, 10-1000 million for medium scale and more than 1000 million rupees for large scale enterprises [27] [28] Therefore the significance of supplier selection decision motivates the organization to analyze their procurement strategies and it has been discussed in
most of the purchasing literature [10]
Today, many organizations are facing rapid changes stimulated by technological innovations and changing customer demands. These organizations realize that the effort to obtain products at the right cost, in the right quantity, with the right quality at the right time from the right source is crucial for their survival.
Therefore an efficient supplier selection process needs to be in place and of paramount importance for successful supply chain management. It begins with the realization of the need for a good supplier; determination and formulation
of decision criteria; pre-qualification (initial screening and drawing up a short list of potential suppliers from a large list); final suppliers election; and the monitoring of the suppliers selected (i.e.
continuous evaluation and assessment) [5]. The Purchase department of that particular engineering institute started its functions in 2004. The department purchases engineering instruments and heavy machines, in order to share the practical knowledge along with the theoretical concepts. Selection of a competent supplier to provide the best supplies is a very weak procedure and a challenging task in the self financed engineering institution. This is due to many factors influencing the selection process, such as strong opposition to the present practices for suppliers selection, complexity and availability of many suppliers with different levels of experience, specialization, staffing and after sales services. [8]
1.1 Problem Statement
In present scenario of globalization, organizations need to ensure the quality of their product whether they meet the standards and market requirement or not. This is necessary for them to sustain in such competitive environment. To achieve the competitive advantage, organizations need to ensure the purchasing of raw material and other important input from the right sources or vendors. Selection process of vendors should be based on multi-criteria decision making. The evaluators are performing the supplier selection procedures without full consideration to professional qualifications. [12] The research will deal with supplier selection process in an attempt to improve the selection process.
There are general restrictions imposed on the selection procedure based on the lowest price, which may not easily accomplish the selection process. Some barriers responsible for making the decision making of supplier selection complicated areas follows:
a) Awiderange of criteria-both qualitative and quantitative.
b) Conflicts amongst criteria- conflicting criteria of the criteria.
c) Availability of many alternatives- due to in tense competition.
d) Internal and external affairs or constraints imposed on the buying process.
Therefore this research takes into consideration the whole criteria and sub- criteria that control the supplier selection process. This research will try to develop a model for selecting the best supplier who is capable of satisfying certain criteria.
1.2 Research Objective
The main objective of this research is to identifying the most prominent drivers for vendors for medium and small scale enterprise with respect to various criteria.
The second important objective of this research is to capture both the subjective and the objective evaluation measures in order to solve supplier selection especially when different organizations have different combinations of qualitative and quantitative criteria and sub-criteria. To meet that, it is necessary to develop the supplier selection model based on ISM and AHP. The third objective is to validate the hierarchy obtained by ISM using AHP.
2 LITERATURE REVIEW 2.1 Introduction
The selection of suppliers is the responsibility of the purchasing department and requires a Consideration of several factors indicated that the main function of the Purchasing department includes the acquisition of required material, services and equipment for all types of organizations. If the buyer chooses the right supplier, the buyer can promote its Competitive advantage in the market. [7]
Previous studies had been surveyed to find out the most important criteria for supplier selection. They have indicated that supplier selection is of great importance for both the private and public sectors and should not be done without complete evaluation of those criteria influencing the selection process [10].
Some enterprises employ simple procedures with few criteria for supplier selection, while others use complex procedures with many criteria divided into sub criteria. The complexity of the selection process depends on the size, business type and revenue of the
purchasing department, the total costs involved in purchasing, and how often the purchase is to be repeated. [11] Many papers introduced the use of different decision making methods and tools for supplier selection. These methods can be clustered into several broad categories:
traditional Multiple Criteria Decision Making (MCDM) techniques, mathematical programming, artificial intelligence and expert systems, multivariate statistical analysis, group decision making and multiple methods.
2.2 Types of Suppliers:
Suppliers are an important part of business process of any organization.
Identification and selection of best supplier according to nature of business is also worth to analyze. Communication between purchasing organization and supplier is bidirectional. In some cases suppliers directly contact to the organization through their sales representative to offers their products.
[19] But for a comparative analysis of purchasing and for finding best product according to all required criteria, most of the organizations need to locate no. of suppliers for any product from different industrial contacts, trade journals, vendor directories, wholesale showrooms, trade fares etc. the term suppliers can be classified in four different categories:
distributers, manufacturers, importation sources and independent crafts people.
[32]
2.3 Supplier Selection (Decision) Criteria
Supplier selection is complicated by the fact that various criteria must be considered in the decision making process. The analysis of criteria for selecting and measuring the performance of the suppliers has been the focus of many research papers. Some papers reviewed and examined the decision criteria used for supplier selection. Most papers attempted to identify and determine the relative importance of criteria for supplier selection in various industries. [42] Important criteria being considered for decision making of supplier selection may vary due to following factors:
The demographic characteristics of
the purchasing managers
The size of the buyer organization
The existence of purchasing strategy
The type of products and/or services purchased.
A committee of 20 decision makers was formed to decide the various criteria and sub criteria for the case study of selecting the best supplier.10members were from the academics, 05 from the industry & 05 were the supplier.
Graph 2.1 Graphical representation of the participation.
Committee of decision makers suggested 7 main criteria and 40 sub criteria with the help of various old research papers, case studies, own concepts & self intelligence, Out of them 6 main criteria and 34 sub criteria which were rated first and are very important for this particular type of study (Selection of best material testing machine supplier) were selected by the researcher (Discussed in Table 2.2).
2.4 Supplier Selection in the Government Sector
In India central government and state government organizations are a major buyer of goods and Services. Government organizations require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, the government purchases departments will make allowance for the supplier's superior quality or reputation for completing contracts on time.
Government will also buy on a negotiated contract bases, primarily in the case of complex projects and in cases where there is little competition [24]. Government purchases departments tend to favor domestic suppliers, so each country showed favoritism toward its nationals in spite of superior offers available from
foreign firms. [29]
It seems that the reviewed articles studied the purchasing activities of the private sector organizations. Surprisingly, there was no evidence of any research on how public organizations evaluate and select suppliers. This may be either because such research reported within contractor selection literature or the purchasing activities are carried out according to constrained laws, which would only provide a brief report to the organization concerned.[31] It is known that the evaluation and selection of suppliers and/or contractors by public organizations is more complicated than by the privately owned organizations. Since the government ministries decisions are subject to public review, they require considerable paperwork from the suppliers, who often complain about excessive paper work, bureaucracy, regulations, decision making relays, and frequent shifts in procurement personnel while the final decision to select suppliers is made by the public ministries based on the principle.[36] The best value for money. It seems that the private sector companies do not base their selection decisions solely on price but also other criteria such as quality, on-time delivery, after-sale services, and buyer seller relationships and so on.
3 INTERPRETIVE STRUCTURAL MODELING
Interpretive Structural Modeling was first proposed by J.Warfieldin 1973 to analyze the complex socioeconomic systems. ISM is a computer-assisted learning process that enables individuals or groups to develop a map of the complex relationships between the many elements involved in a complex situation. Its basic idea is to use experts’ practical experience and knowledge to decompose complicated system into several sub-systems (elements) and construct a multilevel structural model. [44] ISM is often used to provide fundamental understanding of complex situations, as well as to put together a course of action for solving a problem.
ISM is an interactive learning process. The method is interpretive in that the group’s judgment decides whether and how items are related; it is structural in that on the basis of the relationship, an over all structure is extracted from a complex set of items;
and it is modeling in that the specific relationship and overall structure are portrayed in a diagram model. In this technique a number of variables related to the system directly or indirectly) are first defined into a structured model. It has been used for over 25 years by specially trained consultants to help their client understand complex situations and find solution to complex problems. ISM allows researchers and managers to gain a deeper understanding of the relationship among key issues. Saxena (1992) applied the ISM methodology to the case of energy-conservation in Indian cement industry. Sharma (1995) employed ISM methodology to analyze the activities essential for waste management in India.
Mandal and Deshmukh (1994) used the ISM methodology to analyze some of the important vendor selection criteria and have shown the inter-relationship of criteria and their levels. These criteria have also been categorized depending on their driver power and dependence.
4. RESEARCH POPULATION
This research targets most of the decision makers in the purchasing process and supplier selection in the private and government sector, in the engineering institute, located at the central India such as purchasing managers and technicians committee. Also it targets the material testing machines suppliers who deal with trade of mechanical engineering machines. After the distribution of questionnaire form the decision makers and the suppliers were asked to rate the selection criteria in order of importance to the supplier selection process. A total of 40 completed questionnaires were distributed and received 30.This represents 75 % of the total distributed questionnaires. Table 4.1 shows the total sample and the respondents.
Table 4.1 Number of participants in the survey Sr.
No Description Total %
1 Total no. of questionnaires that were
handed out or E-mailed 200 ----
2 Total no. of questionnaires returned. 35 17.5 3 No. of incomplete returned questionnaire 05 02 4 Total no. of respondent who did not
return questionnaire. 165 82.5
According to the literature review to the criteria that are used in the supplier selection and for developing a reliable and valid research, the initial survey criteria were assessed and revised to satisfy the face validity to ensure its read ability, clarity, completeness, relevance and applicability. It was done based on the feedbacks obtained from some academics and purchasing experts. The criteria list was compiled from previous studies discussed in chapter two sections (2.4) inordertoen sure that all the criteria that used in the selection of suppliers are listed. As a result of this arbitration, Table (4.2) summarizes the most six main criteria and 34 sub-criteria that may be used in the supplier selection in the public sector.
5 DEVELOPMENT OF THE SSM
The development of the SSM was based on the previously obtained supplier selection criteria (Table 4.2) that were identified as a result of literature search and by examining the selection criteria of the public sector. These criteria were used as main factors that must be considered during the supplier selection process. Careful consideration of these criteria will contribute to establishment of minimum and acceptable requirements, and ultimately lead to the selection of the best supplier.
5.1 Formation of the Supplier Selection Criteria
To ensure the effectiveness of the model, the predetermined criteria and sub criteria must be objective. In order to meet the user's full satisfaction, these criteria must be positively satisfying the maingoal of the process. To select the best supplier necessary criteria and their sub-criteria are illustrated in hierarchy (fig 6.1) at second and third level.
6 STRUCTURING THE HIERARCHY The goal is to choose the best material testing machine supplier for engineering institute, located at the central India. For this purpose hierarchy of operation at different level is established in which goal is set at the top level. Different criteria on which supplier will be selected are defined in second level. For fulfillment of these criterion different sub criteria are introduced in third level. Then various alternatives available for achieving these sub-criteria are described in bottom level.
General criteria level involved six major criteria: quality, cost, service, business overall performance, technical capability and delivery. The decision-making team considered five photocopying machine suppliers for the decision alternatives, and located them on the bottom level of the hierarchy. Figure 6.1 shows hierarchical representation of the selecting best material testing machine supplier selection model.
6.1 Performing Pair-wise Comparisons After constructing the hierarchy, pair- wise comparisons were performed systematically to include all the combinations of criteria and sub-criteria relationships. The criteria and sub- criteria were compared according to their relative importance with respect to the parent element in the adjacent upper level. Prior to the study, it is hoped to go through pair-wise comparisons together with the decision makers. It was not possible due to the differences among the schedule of the managers. Hence, questionnaire including all possible pair- wise comparison combinations were distributed to the decision makers. They first made all the pair-wise comparisons using semantic terms from the fundamental scale and then translated them to the corresponding numbers, separately. After performing all pair wise comparisons by the decision-makers, the
individual judgments were aggregated using the Eigen-vector approach as Saaty suggested (Saaty,1990).
7 CONCLUSION
The Major intention of the research
“Identifying the most important selection criteria and the development of a Supplier Selection Model (SSM)” was accomplished.
The SSM model was implemented for solving the complicated selection problem, in a practical way by comparing prospective suppliers in terms of selection criteria.
7.1 Recommendations
Based on the result of application of the SSM, central India is recommended to use the SSM for the following reasons:
The model can be used in the evaluation and selection of the supplier.
The model can represent a framework that can be used in the private, semi-government and government sector.
The model ensures fast but accurate evaluation and successful supplier selection.
The flexibility of the model enables the user to modify it as required.
7.2 Future Researches
This research may be expanded in a number of different directions. First of all, this is the primary model for supplier selection problem; further research is required to review the suitability of the hierarchy structure, the validity and significance of the selection criteria and sub-criteria, and their weights. Secondly, rather than material testing machine there are a lots of machines and equipments which are being purchase , it is suggested that research on the application of the AHP and ISM model in other kinds of supplies is conducted in the future. This will help in further verification and fine tuning of the model.
Thirdly, there are some limitations of the approach. AHP and assumes linear independence of criteria and alternatives.
A comparative study between AHP and other MCDM is recommended in the supplier selection field. If there is dependence among the criteria, Analytic Network Process (ANP) is more
appropriate yet, [41] ANP requires far more comparisons which may be formidable in practical decision environment. This is a new area of research to explore. Finally, criteria included in the supplier selection process may frequently contradict each other (lowest price against poor quality).
Therefore, it requires substantial judgment to assess the wide range of trade-offs present, to recognize all the al treaties available and to make a decision, which balances both theshort-andlong- termneedsofanorganization.Itisimportance toanalyzethetradeoffs among the selection criteria which may be increased over time.
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