DESIGNING VENDOR SELECTION FRAMEWORK USING FUZZY LOGIC
Sonu Verma1#, Dr Kavita Chauhan1, Greeshma P Rao2
1#SonuVerma, Research Scholar, Centre for Management Studies, Jamia Millia Islamia University, New Delhi.
Mobile Number: +91-999-036-8829/852-745-4892. E-mail id: .
1Dr Kavita Chauhan, Associate Professor, Centre for Management Studies, Jamia Millia Islamia University, New Delhi.
2Greeshma P Rao, Post Graduate Student, Indian Institute of Foreign Trade, New Delhi.
Abstract
An industry’s success depends on product cost optimization and the above goal can be achieved only when the supplier selection is error free and efficient. This problem of the supplier selection is multi-objective and involves both qualitative and quantitative factors. The problem is made highly complex by these factors and their interdependencies. The issue of supplier selection is found to be a fundamental operation in the supply chain.
A fuzzy expert decision support system has been developed, in this study, for the purpose of solving the multi-objective supplier selection problem for automobile sector. To ensure relevance , considering only the sector specific factors and then simulating these factors with the data derived from the field experts was adopted for the fuzzy based model. Furthermore, the validation of the above developed model was done by TOPSIS and Industry’s perception of the suppliers.
Keywords: Supply chain Management; Fuzzy Logic; Automobile Sector; TOPSIS; Vendor Selection Framework.
1.Introduction:
In today‘s accelerating world economy, where the advancements in technology and Internet channels have not limited the access of businesses local boundaries, manufacturing companies are facing the market realities like shrinking the product lifecycles and steep price erosion more than ever before .The customers are expecting different product specifications, higher product quality at a lower product price and faster response. In an effort to cope with the above demands, the firms try and work with the suppliers who can assure the best product quality, at reasonable cost and desired flexibility. This condition drives them to continually cut costs, focus on core competencies (outsource some or all of their production), increase efforts to improve the supply chain execution and to leverage the supply base which has become more critical to achieve a competitive advantage through robust supplier selection process. The overall objective of the supplier selection process is to maximize overall value to the manufacturer.
The cost of purchasing raw materials and component parts is significant in most
manufacturing companies. Purchased products and services account for more than 60% of an
average organization‘s total costs. Accordingly, improvement in the procurement process can help organization to increase their profits as well as the relationship quality with their suppliers which can be deemed as one of the significant criteria in the evaluation of organizations’ economic performance. Selection of the suppliers is considered a critical process, cumbersome and lengthy process. In fact, supplier selection is purchasing’s most important responsibility. Later, Weber et al. (1991) made the same point by stating, ―In today‘s competitive operating environment it is impossible to successfully produce low cost, high quality products without satisfactory supplier. Thus one of the important purchasing decisions is the selection of suppliers. More recently, with emergence of the concept of supply chain management, more and more scholars and practitioners have realized that supplier selection was a vehicle that can be used to increase the competitiveness of the entire supply. The selections of suppliers are strategic decisions to be made by an organization with long-term or short term implications. These decisions are highly complex and the most difficult responsibility of the organization and depends on a wide range of criteria such as price, quality, reliability, service, track record, adequate financial resources and ability to comply with the delivery requirements etc. How an organization weighs up the importance of these different criteria will be based on business’ priorities, strategy and characteristic of organization. In this study the major focus will be on supplier selection for auto industry. The objectives are two fold enumerated as follows:
1. To understand the criterion for vendor selection for automobile manufactures in India and develop a validated framework for the same using fuzzy logic decision making methodology for a single product category.
2. To cross validate the fuzzy logic methodology with another popular method known asTOPSIS, and check if the final results were consistent with the industry perception of the suppliers for a particular product.
The remainder of the paper is organized as follows; Section 2 deals with a brief note on automotive industry in India, followed by a summary of the literature on supplier selection issues and supplier selection criteria in Section 3. Session 4 sets the theoretical framework for fuzzy logic. In the Section 5 methodology adopted is discussed. Section 6 deals with discussion of results and section 7 concludes along with scope for future research.
2.Supply chain of automobile industries:
Many industrial branches such as iron & steel, light metals, petro-chemicals, glass, tires, etc, see a principal customer in the automobile industry.Consequently, with its suppliers as well as the auxiliary sectors of marketing, distribution, services, fuel, finance and insurance which supply automotive products/services to customers, the automobile industry creates a vast business volume and employment together. The above factors are mainly the reasons that contribute to why it can be considered as the flagship of the economy in all industrialized nations. The overall success in this industry is extremely important to flourish, especially for developing countries.
Automotive Sector quality management system standards requires the organization to assess and select suppliers in view of their capacity to supply item as per the organization’s prerequisites and to set up criteria for choice, evaluation and re- evaluation. The supplier determination process varies based upon the type of the items and services to be purchased. The supplier choice procedure, for the most part, comprises of various stages some of which don't have any significant bearing to basic buys. At every stage, the number of potential suppliers is whittled down to end with the choice of what is considered to be the most reasonable to meet the prerequisites. Every organization should initially meet the purchase request qualifiers. After that, the selection process goes ahead with assessing the potential suppliers against request winner’s criteria. For unique case buys occasional re-evaluation would not be fundamental. Where a contract between both players (buyer and supplier) are made to supply items and services constantly till expiry, some method for re-evaluation is essential as a shield against degrading quality standards. The re-evaluation might be based on supplier compliance to requirements, length of supply, volume supplied, risks or changes in requirements and can be directed not withstanding any item check that might be done.
3.Review of Literature
Supplier selection has attained the highest significance for the companies because of the
increasing competition. Improper selection of suppliers will have a poor impact on the overall
performance of the manufacturer. In the past many models have been proposed. These could
be: categorical methods, data envelopment analysis, cluster analysis, case based reasoning
systems, linear weighting methods, total cost of ownership based models, mathematical
programming models, artificial intelligence (AI) based systems. These essentially focused the
complex and unstructured nature of present day decisions. However many factors are not
taken into account and are rather standardized instead being industry specific making room
for errors. There can be both qualitative and quantitative objectives however the problem
aggravates when there could be room for conflicting metrics. Past works have also indicated
that there could be two kinds of selection models. Compensatory and non-compensatory or scoring system. The present study mainly focusses on the scoring model for evaluation. As stated before there needs to be the consideration of both qualitative and quantitative
variables in evaluating performance of the supplier based on the efficiency and effectiveness
of car manufacturers [1]. The first stage is mostly qualitative stage by utilizing weights to
determine the criterion importance and the second stage is quantitative which gives the
supplier score. Assigning weights is important for various criteria and these ratings of
qualitative criteria are considered as linguistic variables. Because linguistic evaluations
merely approximate the subjective judgment of decision-makers, linear trapezoidal functions
are considered to be adequate for capturing the vagueness of these linguistic evaluations.
These linguistic variables can be expressed in positive trapezoidal fuzzy numbers.
Linguistic ratings are used by the decision makers to evaluate importance of criterion and ratings of alternatives with respect to qualitative criterion [2].
The key point is that generally these problems are multi-objective in nature [3]. However, researchers have pointed out that these methods cannot be directly applied to assess a large number of alternatives, since they tend to generate inconsistencies. In view of this, this work has mainly tried to restrict the number of alternative parameters, by considering the most crucial through expert validation [4].
In the past many studies have been carried out with improved fuzzy models. For instance the
TOPSIS which took linear trapezoidal models to convert qualitative linguistic criterion to quantitative score and according weights to each criterion [2] as stated before. Importance of weights in a multi objective linear fuzzy logic model is seen to be of great significance [3]. Also it is helpful categorizing supplier performance according to the item category so as to indicate strengths and weaknesses of current suppliers, thus helping decision makers review supplier development action plans [5]. Thus supplier frameworks and supplier categorization change along with the change in the items supplied in the automobile industry where multiple suppliers are pooled in for multiple items (A, B and C classes). For the definition of criterion for selection of suppliers many past papers have listed various metrics. For instance Dickson first identified 23 criterions. In many studies price was determined to be the most important factor. Many authors identify multiple criterion. However four criterion have been cited as the most popular for supplier selection criterion [6]. These further included many sub criterions. The four criterion were supplier criteria, product performance criteria, service performance criteria, or cost criteria. Supplier criterion includes aspects like financial, technical, quality systems and processes etc. product performance criterion includes aspects of usability etc. service performance includes aspects of accessibility, timeliness, responsiveness, dependability, value add, customer satisfaction etc. Of the many popular methods and approaches, this work choses to adapt a combination of criterion and sub criterion and has also tried to incorporate normalized weighted multi criterion fuzzy logic approach to solve the vendor selection problem [7]. A comprehensive list of selection factors has been stated in Table 1 after extensive literature survey.
1. Delivery / a) Compliance with due date,b) Fill rate,
c) Lead time,
d) Delivery Speed,
e) Delivery flexibility (change in delivery date,
special requests, meeting fluctuations in
demand),
f) Condition of product on arrival,
g) Accuracy in filling order,
h) Order cycle time,
i) Accuracy in billing and credit,
j) Reserve capacity,
k) Modes of transportation facility,
l) Delivery Personnel capabilities,
m) Safety and security components,
n) Packaging ability,
o) JIT
2. Quality / a) Quality control rejection rate,
b) Customer rejection rate,
c) Product durability,
d) Product reliability,
e) Product performance,
3. Cost /price / a) Purchase price,
b) Logistics cost,
c) Cost harness capability,
d) Payment terms
e) Quantity discount
f) Competitive pricing
4. Service / a) Reliability
b) Empathy(communication, access,
understanding)
c) Assurance (competence, courtesy, credibility
Responsiveness)
d) Ability and willingness to assist in design
process,
e) Post sales assistance and support,
f) After sales services (e.g., Warranties and
Claims policies), Training aids,
g) Payment procedures understanding,
h) Spare parts availability,
i) Handling of complaints,
j) Ability to maintain product/service
5. Product / a) Product range,
b) New product availability,
c) Additional features
d) Product performance,
6. Technical capabilities / a) Technical knowhow,
b) Performance history
c) Offering technical support,
d) Innovativeness,
e) R&D capability,
f) Future manufacturing capabilities,
g) Process
h) Manufacturing Capability,
i) Design capabilities
7. Organizational and
cultural factors / a) Globalization, procedural compliance
b) Compatibility of organizational cultures
c) Competitive pressure
d) Supplier strategic objective
e) Training and education Reputation and
position in the market,
f) Financial stability,
g) Geographic location and its political and
economic stability,
h) Quality performance accreditation,
i) Knowledge of the market,
j) Information systems,
k) Management capability,
l) Company assets,
m) Work safety and labor health,
n) Sustainability Environmental policies,
o) Top management support,
p) Supplier Integrity
8. Relationship factors / a) Trust and information sharing,
b) Ease of communication,
c) Long-term relationship,
d) Reciprocal arrangement,
e) Ability to identify needs,
f) Ability to maintain
g) Commercial relations,
h) Cooperation,
i) Supplier Willingness
Table 1: Selection factors for suppliers
However all these factors are quite generic and are applicable to multiple industries. To make it rather specific this list is validated by experts from the industry and specific factors are taken to make further analysis.
4.Theoretical Background
In this section we will discuss the fundamental frameworks underlying the two methodologies, called the fuzzy logic method and the TOPSIS framework, which are used to score the suppliers.
Fuzzy logic
In a human body, the imprecise and incomplete sensory information provided by perceptive organs is interpreted by the human brain. Pioneered by Lotfi A. Zadeh, the Fuzzy Set Theory is an appropriate tool to uncertainty, ambiguity, vagueness and imprecision of the human cognitive processes. A systemic calculus is provided by this theory in order to linguistically deal with such information and perform a numerical computation using the membership functions stipulated linguistic labels. These are spcial rule-based systems which are using the fuzzy logic in their knowledge base to derive conclusions from user inputs and fuzzy inference process. The knowledge base of the system is made up by the functions [8]. “Fuzzy if-then” rule, in other words, is an “if-then” rule in which a few terms are given with continuous functions. When selected properly, Fuzzy Logic System(FLS), can effectively model human expertise in a specific application.