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Lecture 3: Supplier Selection (Making Supplier Selection Decisions…

- - - - Semi-structured Problem:
        Semi-structured problem combine structured and nonstructured elements. Note: Supplier selection problems tend to be semi- or non-structured, but are very often treated as structured problems!
      - Non-structured Problem:
        In non-structured problems, decision information lacks organization or is non-quantitative. Human perception and judgment play decisive roles, although such human factors are usually intangible or unmeasurable.
      - Structured Problem:
        Structured problems reveal a well-organized formulation, such as highly structured information tables, measurable decision goals, and clear problem boundaries
    - - Individual:
        Decisions can be made by individuals. For example,
        an investor can decide on which stock to buy by considering the rate of return. Supplier selection, however, usually involves several decision-makers.
      - Group:
        Large complex decisions can involve multiple decision
        makers who need to work effectively together. Dealing with conflicting objectives, inconsistent judgments, and incompatible opinions can be challenging.
      - Machine:
        With advancements made in artificial intelligence and machine learning, it can be expected that decisions will increasingly be supported or even made by machines.
- - - - Reducing the risk of having an unqualified supplier in the final
        list of selected suppliers.
      - Reducing the amount of time and energy the decision-maker
        spends to gather information about suppliers with respect to
        the selection criteria and also implementing the methodology
      - Reducing the risk of not including qualified suppliers in the
        selection phase, as some suppliers might otherwise intuitively
        be excluded, i.e., good suppliers could be excluded, too.
      - Reducing the risk of selecting an unqualified supplier if a
        compensatory method is used in the selection phase.
    - - Compensatory Decision Rules
        “Compensatory rules are based on the assumption that poor
        performance on a given criterion can be compensated with a high
        performance on another criterion.” Rezaei et al. (2016)
      - Non-Compensatory Screening
        
        Conjuctive Screening:
        Conjunctive screening requires a supplier to equal or
        exceed a minimum score on each criterion.
        
        Disjunctive Screening:
        Disjunctive screening requires a supplier to equal or
        exceed a minimum score on at least one criterion.
        
        Lexicographical Screening:
        Lexicographical screening ranks the criteria on
        importance and the suppliers that exceed the
        requirements of the most important criterion move on
        to the next phase
  - - - Description:
        
        This process makes a comparison system composed of two
        comparison vectors.
        
        The goal is to find the optimal weights and consistency ratio through a simple optimisation model constructed using the comparison system.
        
        The best worst method is comprised of five steps.
      - Features of the Best Worst Method:
        
        Provides a structured pairwise comparison, which results in highly consistent and reliable results;
        
        Uses only two vectors instead of a full pairwise comparison matrix. This implies less data collection effort, taking less time from the analyst and the decision-maker. Interestingly, as these two vectors are more structured than a full matrix, less data here leads to more reliability;
        
        Uses only integer values, which makes it more practically
        understandable compared to methods utilising fractions. This feature also implies that we use a single scale and not two or more asymmetric scales
        
        Checking and finding the reasons behind potential low
        inconsistencies, and revising the vectors to increase the consistency ratio is relatively easy and understandable for this method
        
        Can be integrated with other multi-criteria decision-making
        methods, even those that use more complete pairwise comparison matrices.
      - Basic Screening Methods
        (Non-Compensatory Decision Rules!)
        
        Step 1. Determine a set of decision criteria (slide 32)
        
        Step 2. Determine the best and worst criteria to be used for the
        decision environment (slide 33)
        
        Step 3. Determine the preference of the best criterion over all the other criteria (Slide 34)
        
        Step 4. Determine the preference of each of the other criteria over the worst criterion (slide 35)
        
        Step 5. Find the optimal weights
  - - - Value of the Alternatives - Determine weights (slide 16)
    - - Traditionally supplier selection has focused on the evaluation of a mostly quantitative business performance metrics such as quality, delivery, speed and price.
        
        However, when relationships are of importance, the number of criteria increases and the distinction and definition of the criteria can become ambiguous.
        
        In the latter case, more intangible and qualitative criteria like supplier involvement, company image and continuous improvement capabilities increase in importance.
        
        This construct is also coupled with the distinction between the manufacturing and the services industry.
        (slide 17)
    - - Compatibility:
        The compatibility of new (e.g., environmental) criteria with established criteria is not seamless, where possible tradeoff scenarios tend to arise when both sets are considered.
      - Complexity:
        New criteria add to the complexity of the decision and modeling process
      - Ambiguity:
        New criteria may be less specific and can be ambiguous.
        The operationalisation of these criteria into meaningful, practical and measurable variables often pose challenges.
- - - - Advantages
        Dollar Based - Direct Costs
        
        Tailor factors considered to decision
        
        Very Flexible
        
        Alter level of complexity to fit decision
        
        Help Identify critical issues
        
        Dollar Based - Formular
        
        Easy to use once system is in place
        
        Excellent for repetitive decisions where costs for key factors can be determined
      - Disadvantage
        Dollar Based - Direct Costs
        
        Time consuming
        
        Does not make sense for repetitive decisions
        
        Not cost beneficial for low dollar buys
        
        Dollar Based - Formular
        
        Time consuming to establish system
        
        Formulae need to be periodically reviewed and updated
        
        Inflexible to different types of decisions
        
        Considers a limited set of factors
    - - Advantages
        
        Can incorporate issues where costs cannot be determined
        
        Considers the importance of factors using weighting
        
        Easy to use for repetitive decisions
      - Disadvantage
        
        Time consuming to develop; only good for important and/or repetitive decisions
        
        Much judgement in establish weightings