3. THE VAHP METHOD FOR SELECTING SUPPLIERS
3.3 A Example for Umbrella Scheme of Malaysia’s Furniture Industry
Liu and Hai (2005a, 2005c) propose six steps procedure for assessing and selecting suppliers with numerical example for the Umbrella Scheme of Malaysia’s furniture industry that is from the paper of Yahya and Kingsman (1999). The problem is to select one of ten suppliers. The first step is structuring the problem into a hierarchy (see Figure 3-2). We set the objective for selecting suppliers on the top level. On the first level is that eight criteria
contribute to the objective. On the second level is that eight criteria are decomposed into thirteen sub-criteria. On the third level is that the weights are transferred by criteria and sub-criteria. Finally, the ten suppliers will be assessed by these weights.
Supplier
Figure 3-2: Hierarchy of supplier selection
3.3.1 Step 1: Select Supplier Criteria
We take sixty respondents participated as an example in this study, who were all managers and supervisors of company. The criteria obtained from group decision fall into two categories, objective and subjective criteria. The objective criteria are those that can be evaluated using factual data, which include quality, delivery, responsiveness, technical capability, facility and financial in Table 3-1.
Table 3-1: The measurement guidelines for the factors in the supplier rating
Factors and definitions Types of measurement Scales of measurement Quality: Customer Reject
Two sources of customer rejects are:
Goods returned within 8 months warranty Collection delayed due to quality problem
Quantity of defect Type of defect Seriousness of defect
None, Low, Acceptable, High None, Minimum, Acceptable, High None, Insignificant, Minor, Major Quality: Factory Audit
Scored based on monthly factory audit performed by officers. Measurement by violations in standard specification of raw material, assembly and finishing activities.
Number of violations Seriousness of violation
Low, Acceptable, High Insignificant, Minor, Major
Responsiveness: Urgent Delivery Delivery within a two weeks lead-time.
Measurement by delays beyond two weeks.
Frequency of delays Duration of delays
None, Low, Sometimes, High Number of weeks
Responsiveness: Quality Problems Defined by response time, time taken by the supplier to take action on the complaint and turn around time, time taken to solve problem.
Response time Turn around time
Number of days Number of weeks Discipline: Honesty
Determine by supplier honesty on transaction, commitment and negotiation related on the scheme and customer. Subjective assessment by managers.
Supplier attitude toward compliance to rules, guidelines and polices of the scheme.
Frequency of violations Impact of violations
Never, Low, Normal, High Minimal, Normal, Serious Delivery
Number of cancelled and delayed orders where supplier unable to fulfill the delivery
commitment
Cancelled orders Delayed orders
None, Low, High Low, Acceptable, High Management: Attitude
Supplier attitude towards:
Improvement (willingness, etc.) Cooperation
Business(positive thinking, hardworking)
Grading on all three separately
Strong, Adequate, weak
Management: Business Skill
Suppliers’ skills in terms of customer service, managing employees, managing process
Grading on all three Effective, Adequate, weak Technical Capability: Technical Problem
Solving
Supplier ability to proved corrective and preventive action on technical problem
Ability to find Solution Completeness of solution
High, Normal, Low
Full, Temporary fix, Unable Facility: Machinery
Amount of machinery, rang and level of a automation and machine maintenance
Amount of machinery
Building structure, material storage, production process and space availability
Building Structure Material Storage Production Process
Closed, Partially closed, mainly open Accurate/clean/safe, Normal, Messy/unsafe
Smooth/clean/spacious, Normal, Jam/messy Facility: Infrastructure (for furniture)
Critical infrastructure(communication, modes, location accessibility, etc) basic
infrastructure(labor availability, environmental control, transportation)
Critical Infrastructure Basic Infrastructure
Strong, Adequate, weak Strong, Adequate, weak
* Source: Yahya and Kingsman (1999).
3.3.2 Step 2: Structure the Hierarchy of the Criteria
We use the AHP to identify sub-criteria under each criterion and to investigate each level of the hierarchy separately. The thirteen sub-criteria are factory audit, customer reject, urgent delivery, quality problems, honesty, procedural compliance, attitude, business skill, product range, technical problem solving, machinery, infrastructure and layout.
3.3.3 Step 3: Prioritize the Criteria and Sub-criteria
(1) The first stage
Let us suppose that there are sixty managers (or voters) in the study and they select different order for the candidates of criteria or sub-criteria. Let us assume eight criteria:
quality, responsiveness, discipline, delivery, financial, management, technical capability and facility. The criteria are regarded as candidates. We get eight order from one to eight and sum up every vote in Table 3-2. It commonly happens that, when one has to select among many objects, a particular object is rated as the best in one evaluation, while others are selected by other evaluation methods. The managers get the order of criteria but not to get weights. The weight of each ranking is determined automatically by the total votes.
Table 3-2: Priority votes of eight criteria from sixty respondents
Criteria 1st 2nd 3rd 4th 5th 6th 7th 8th Total
Quality 15 5 5 9 12 4 0 10 60
Responsiveness 12 11 15 6 4 1 4 7 60
Discipline 7 10 8 10 9 6 3 7 60
Delivery 20 16 10 11 3 0 0 0 60
Financial 1 6 1 9 12 9 11 11 60
Management 1 5 7 7 5 13 15 7 60
Technical Capability 2 5 2 3 7 16 20 5 60
Facility 2 2 12 5 8 11 7 13 60
Total 60 60 60 60 60 60 60 60
(2) The second stage
We use the same method to find the priority votes of thirteen sub-criteria in Table3-3.
Table 3-3: Priority votes and weights of thirteen sub-criteria
Votes Votes Criteria
1st 2nd
Weights Criteria
1st 2nd
Discipline Facility
Honesty 44 16 1.000
*( ): the total weights of the criteria equal to one by normalization.
3.3.4 Step 4: Calculate the Weights of Criteria and Sub-criteria
We use Noguchi’s vote-ranking method to calculate the weights of criteria and sub-criteria.
(1) The first stage
We use the votes of Table 3-2 and find these weights of eight criteria from model (3-3). Figure 3-2 shows that weights for quality, responsiveness, discipline, delivery, financial, management, technical capability and facility are 0.896, 0.924, 0.877, 1.000, 0.790, 0.796, 0.780 and 0.803, respectively. After normalize these data, the results are 0.130, 0.135, 0.128, 0.146, 0.115, 0.116, 0.113 and 0.117.
(2) The second stage
We take the votes of Table 3-3 with the same method to get the weights of the sub-criteria in Figure 3-2. The second level gives the normalized values for all the thirteen sub-criteria. The sum of weights for sub-criteria must be added up to one in specific criterion.
So the quality criterion performance will be made up from weighting “Factory Audit”
performance by 0.439 and “Customer Reject” by 0.561. Finally, we will use the same methodology to find these weights of these sub-criteria in columns 4 and 8 of Table 3-3.
(3) The third stage
The values in the bottom level are the global weights for each of the thirteen sub-criteria. In Figure 3-2, the number 0.057 is equal to the “Quality” criterion score 0.130 product the “Factory Audit” sub-criterion score 0.439. The actual performance data is collected for these weights in the bottom level. They will be used directly to calculate the overall rating of the suppliers.
3.3.5 Step 5: Measure Supplier Performance
A major problem was thus to ensure consistency between the managers and avoid any bias creeping in. A set of standard guidelines was set up after discussions with the managers (or voters) of the company. It is agreed that all performance scores would be based on an ten points grade scale. Each grade would have an adjective descriptor and an associated point score or range of point scores. The managers preferred in the first instance to make their judge on the qualitative scale of adjectival descriptors. The general performance score guidelines are given in Table 3-4. Therefore each supplier can be awarded a “score” from one to ten on sub-criteria.
3.3.6 Step 6: Identify Supplier Priority
Simple score sheets were provided to assist the manager to record the scores for each supplier on each of the weights of Level 3. Once the weighted scores for each criterion have been determined, then it is relatively easy to calculate the resulting supplier rating scores. An example of this supplier is shown in Table 3-5. The supplier rating value for supplier-1 is obtained by summing up the products of the respective elements in columns 3 and 4 for each row, given in the final column, over all the rows to give a value of “8.057”. The rating method used in supplier-1, can also be used to find the total weighted scores of the other nine suppliers. The supplier with the highest supplier rating value should be regarded as the best performing supplier and the rest can be ranked.
Table 3-4: Supplier criteria score guideline
Scores Grades Descriptions
10 Exceptional Demonstrates substantially excellence performance, has been in the excellence for last 12 months.
9/8 Excellent Exceeds officers and customer expectation, demonstrates extra effort and is superior to vast majority of suppliers.
7/6 Good Meet officers and customer expectation.
5 Acceptable Meet minimum officers’ requirement.
4/3 Needs Attention Overall performance does not meet officers and customer minimum acceptance level.
2 Poor Overall performance is well below officers and customer acceptance level and is inferior to vast majority of suppliers.
1 Bad Performance has not been improved, and has been in poor band for last 12 months.
Table 3-5: Rating of supplier-1
Criteria Sub-Criteria Weights Scores Weighted Scores
Quality Factory audit 0.057 8 0.456
Customer reject 0.073 7 0.511
Responsiveness Urgent Delivery 0.082 9 0.738
Quality Problems 0.053 9 0.477
Discipline Honesty 0.068 7 0.476
Procedural Compliance 0.060 6 0.360
Delivery Delivery 0.146 7 1.022
Financial Financial 0.115 9 1.035
Management Attitude 0.066 7 0.462
Business Skill 0.050 9 0.450
Technical Capability Technical Problem Solving 0.063 9 0.567
Product Range 0.050 9 0.450
Facility Machinery 0.048 9 0.432
Infrastructure 0.037 9 0.333
Layout 0.032 9 0.288