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Vendor Selection Using
Interpretive Structural
Modelling (ISM)
Anukul Mandal and S.G. Deshmukh
Indian Institute of Technology, Delhi, India
Introduction
Materials represent a substantial part of the value of products, and for a
majority of industries, represent more than 50 per cent of the sales price.
The key objective of the purchase department is to purchase the right quality of
material in the right quantity from the right source at the right time. The right
source is one which can provide the right quality of material on time at a
reasonable price[1].
Vendor selection and evaluation is one of the most critical activities. Selection
of a wrong vendor or source could be enough to upset the companys financial
and operational position. Traditionally vendors are selected on their ability to
meet the quality requirements, delivery schedule and the price offered. However,
in modern management, one needs to consider many other factors with the aim
of developing a long-term vendor relationship. Vendors are considered as the
best intangible assets of any organization[2].
Basically, the selection process involves evaluation of different alternative
vendors based on various criteria. This process has undergone significant
changes during the past few years with the increase of technical capabilities,
application of computers and development of methodologies.
Weber et al.[3] have compiled 74 articles published since 1966 in this area.
The literature survey reveals that various methodologies have been suggested
by experts. Some of these methods have been applied in practice. Most of them
are applications of linear programming, mixed integer programming and other
quantitative approaches. Dickson[4] has identified 23 important vendor
selection criteria by approaching purchasing managers through questionnaires.
Some of these criteria are quantitative such as price, production capacity,
financial position, etc. However there are qualitative factors also. So far few
attempts have been made to develop an analytical framework for the vendor
selection process combining these qualitative and quantitative criteria.
Before developing any framework, it is necessary to understand the
significance of each criterion and the role which it plays in the vendor selection
process. It is also necessary to visualize the levels of importance and
relationships of criteria among themselves.
Interpretive structural modelling (ISM) is a well-established methodology for
identifying and summarizing relationships among specific items which define
Received February 1993
Revised August 1993
International Journal of Operations
&Production Management, Vol. 14
No. 6, 1994, pp. 52-59, MCB
University Press, 0144-3577
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Selection
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an issue or problem. It provides a means by which a group can impose order on
the complexity of the items.The important vendor selection criteria have been
analysed to obtain an ISM which shows the inter-relationship of the criteria and
their levels. These criteria have also been categorized depending on their driver
power and dependence.
Methodology
Interpretive structural modelling (ISM) is an interactive learning process.
The method is interpretive in that the groups judgement decides whether and
how items are related; it is structural in that, on the basis of the relationship, an
overall structure is extracted from the complex set of items; and it is modelling
in that the specific relationships and overall structure are portrayed in a
digraph model[5].
It starts with the identification of elements which are relevant to the problem
or issue; this could be done by any group problem-solving technique. Next a
contextually relevant subordinate relation is chosen. Having decided on the
element set and the contextual relation, a structural self-interaction matrix
(SSIM) is developed based on pairwise comparison of elements. In the next step,
the SSIM is converted into a reachability matrix and its transitivity is checked.
Once transitivity embedding is complete, the conversion of an object system
into a well-defined representation system i.e. the. matrix model, is obtained.
Then the partitioning of the elements and the extraction of the structural model,
called ISM is done. Figure 1 explains the logical flow of the process.
Identification of Elements
Vendor selection criteria have been identified from Dicksons study. All the 23
criteria identified by Dickson[4] have been analysed and the 11 most important
have been chosen for this study, keeping the Indian engineering industry
scenario in view. These criteria are :
(1) Qualityrefers to the vendors ability to meet quality specifications
consistently. It covers product performance, reliability, accuracy, etc. and
also vendors quality awareness, inspection methods, etc.
(2) Deliveryrefers to vendors ability to meet delivery schedules. It covers
flexibility and reliability of delivery, lead time, etc.
(3) Production facilities and capacityrefers to vendors manufacturing
facilities, capacity utilization, minimum economic capacity, infra-
structural facilities, etc.
(4) Priceis the net price of the product after discounts and adding transport
costs. It also includes the cost of warranties.
(5) Financial positionshows the vendors liquidity, solvency positions and
its credit rating policy.
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(6) Technical capabilityrefers to the availability of technical manpower, state
of production technology, R & D facilities, etc.
(7) Management and organization refers to the vendors organization
structure, management, goals and objectives, etc.
(8) Transport and communications conveniencerefers to the geographical
location of the vendor and its communication facilities.
(9) After-sales servicerefers to the vendors ability to provide after-sales
service and also the availability of spare parts.
(10) Attitude and willingnessrefers to the attitude of the vendor towards the
buyer and its willingness to do business with the buyer.
(11) Labour relations: Labour relations existing in the factory and also the
relevant past records are examined.
Structural Self-interaction Matrix (SSIM)
For analysing the criteria a contextual relationship of leads to is chosen. This
means that one criterion leads to another. Based on this contextual relationship,
a SSIM[6] has been developed. To obtain consensus, the SSIM was sent to five
experts. Based on their responses, the SSIM has been modified as shown in
Table I.
The programme
Identification of elements
Determine a contextual relation between the elements
Develop structural self-interaction matrix (SSIM)
Develop reachability matrix
Work out driver power and
dependence for each element
Prepare the driver-power-
dependence matrix
Classify the elements
into four sectors
Transform the reachability
matrix into lower triangular
matrix format
Prepare the ISM
Prepare diagraph from lower
triangular matrix
Figure 1.
Methodology for
Preparing ISM
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Reachability Matrix
The SSIM has been converted into a binary matrix, called the reachability
matrix by substituting X, A, V and O by 1 and 0. Then its transitivity is
checked. If element i leads to element j and element j leads to element k, then
element i should lead to element k. By transitivity embedding, the modified
reachability matrix is obtained as shown in Table II.
Classification of Criteria
Different criteria have been classified into four sectors, namely autonomous,
dependent, linkage and driver/independent, based on their driver power and
dependence. It has been presented in Table III as a driver power-dependence
matrix.
Level Partition and Lower Triangular Matrix
From the reachability matrix, the reachability set and antecedent set[6] for each
criterion is found. The reachability set consists of the element itself and other
elements to which it may reach, whereas the antecedent set consists of the
element itself and the other elements which may reach to it. Then the
intersection of these sets is derived for all elements. The element for which the
reachability and intersection sets are the same is the top-level element.
Physically, the top elements of the hierarchy will not reach to any other element
above their own level. Once the top-level element is identified, it is separated out
from the other elements. Then, by the same process, the next level of elements is
Table I.
Structural Self-
interaction Matrix
(SSIM)
Criterion
Criterion 11 10 9 8 7 6 5 4 3 2
1 A O O O A A O V A O
2 A A O A A O O O A
3 O V O O O O O V
4 O A O A O O O
5 O V V O O O
6 O V V O O
7 V V V O
8 O V V
9 O A
10 A
Legend: Here for i < j,
A : Criterion for j leads to criterion i
V : Criterion for i leads to criterion j
X : Criterion for i leads to criterion j and criterion i leads to criterion j
O : No relationship between i and j
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Table III.
Driver Power
Dependence Matrix
Driving Power
10
9
8
7
6
5
4
3
2
1
1 2 3 4 5 6 7 8 9 10
Dependence
G Criteria for vendor selection
Sectors: I Autonomous, II Dependent,
III Linkage, IV Independent (Driver)
7 IV III
3,6 11
5,8 10
I II
1
2,9 4
G
G
Table II.
Reachability Matrix
Criterion
Criterion Driver
1 2 3 4 5 6 7 8 9 10 11 power Ranks
1 1 0 0 1 0 0 0 0 0 0 0 2 VI
2 0 1 0 0 0 0 0 0 0 0 0 1 VII
3 1 1 1 1 0 0 0 0 1 1 0 6 II
4 0 0 0 1 0 0 0 0 0 0 0 1 VII
5 0 1 0 1 1 0 0 0 1 1 0 5 IV
6 1 1 0 1 0 1 0 0 1 1 0 6 II
7 1 1 0 1 0 0 1 0 1 1 1 7 I
8 0 1 0 1 0 0 0 1 1 1 0 5 IV
9 0 0 0 0 0 0 0 0 1 0 0 1 VII
10 0 1 0 1 0 0 0 0 1 1 0 4 V
11 1 1 0 1 0 0 0 0 1 1 1 6 III
Dependence 5 8 1 9 1 1 1 1 8 7 2
Ranks IV II VI I VI VI VI VI II III V
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found. Then the reachability matrix is converted into the lower triangular
format by arranging the elements according to their levels (Table IV).
Formation of ISM
From the lower triangular form of reachability matrix (Table V), the structural
model is generated by means of vertices or nodes and lines of edges. If there is
a relationship between element i and j, this is shown by an arrow which points
from i to j. This graph is called a directed graph or digraph. Next the elements
descriptions are written in the digraph to call it the ISM (Figure 2).
The developed ISM has no cycles or feedbacks. Elements are related in a pure
hierarchical pattern[5].
Table IV.
Levels of Criterion
Criterion Reachability set Antecedent set Intersection set Level
1 1,4 1,3,6,7,11 1 II
2 2 2,3,5,6,7,8,10,11 2 I
3 1,2,3,4,9,10 3 3 III
4 4 1,3,4,5,6,7,8,10,11 4 I
5 2,4,5,9,10 5 5 III
6 1,2,4,6,9,10 6 6 III
7 1,2,4,7,9,10,11 7 7 IV
8 2,4,8,9,10 8 8 III
9 9 3,5,6,7,8,9,10,11 9 I
10 2,4,9,10 3,5,6,7,8,10,11 10 II
11 1,2,4,9,10,11 7,11 11 III
Table V.
Lower Triangular
Matrix
Criterion
Criterion 4 2 9 1 10 5 8 3 6 11 7
4 1 0 0 0 0 0 0 0 0 0 0
2 0 1 0 0 0 0 0 0 0 0 0
9 0 0 1 0 0 0 0 0 0 0 0
1 1 0 0 1 0 0 0 0 0 0 0
10 1 1 1 0 1 0 0 0 0 0 0
5 1 1 1 0 1 1 0 0 0 0 0
8 1 1 1 0 1 0 1 0 0 0 0
3 1 1 1 1 1 0 0 1 0 0 0
6 1 1 1 1 1 0 0 0 1 0 0
11 1 1 1 1 1 0 0 0 0 1 0
7 1 1 1 1 1 0 0 0 0 1 1
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Findings of fhe Study
G Ranks of the criteria based on their driver powers indicate that
management and organization is the key criterion. Next is the production
facilities and capacity and also the technical capability.
G Driverpower-dependence matrix reveals that financial position of the
vendor and transport and communication are the autonomous variables
in the vendor selection process. These variables are weak drivers and
weak dependents and are relatively disconnected from the system.
G Dependent variables are quality, delivery, price, after-sales service and
attitude and willingness to do business. These attributes are weak
drivers but strongly dependent.
G There is no linkage variable which has strong driver power as well as
strong dependence.
G Variables like production facilities and capacity technical capabilities,
management and organization and labour relation are the strong driver.
They condition the rest of the system and are called independent
variables or drivers.
G From the map, it is seen that price, delivery and after-sales service are the
top-level criteria. Quality and attitude and willingness to do business are
the second-level criteria. The remaining criteria are in the bottom levels.
Discussion and Conclusions
The levels of criteria are more important than their driver powers in the vendor
selection process. Although management and organization of the vendor is the
Price (4) After-sales service (9) Delivery (2)
Attitude and willingness to do business (10) Quality (1)
Financial
position (5)
Transport and
communication
convenience (8)
Production
facilities and
capacity (3)
Technical
capability (6)
.
Labour relations (11)
Management and organization (7)
Figure 2.
Interpretive Structural
Model (ISM) for Vendor
Selection Criteria
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key variable, in the vendor selection process it appears at the bottom of the
hierarchy.
Dependent variables are very important for vendor selection whereas
independent variables are important for vendor development. Dependent
variables appear at the top of the hierarchy. For developing a vendor, one should
assist the vendor in improving the independent factors; these include the
vendors production facilities and capacity, technical capability and financial
position.
Price could be an effect of other criteria such as quality, delivery, and after-
sales service. Firms ability to fulfil these three criteria should be checked first
and then, among the qualified vendors, the lowest price offer could be accepted.
Attitude and willingness is one of the most important criteria to be
considered. It is very difficult to quantify or measure. It is an effect of so many
other variables such as financial position, geographical location, production
facilities, capacity utilization, labour relations, etc. A qualitative analysis based
on fuzzy set theory may be useful for measuring this attribute.
References
1. Burt, D.N., ProactiveProcurement, theKey to Increased Profits, Productivity and Quality,
Prentice-Hall, Englewood Cliffs, NJ, 1984.
2. Gopalkrishnan, P., Purchasing and Materials Management, Tata McGraw-Hill, New Delhi,
1990.
3. Weber, C.A., Current, J.R. and Benton, W.C., Vendor Selection Criteria and Methods,
European Journal of Operations Research, Vol. 50 No. 1, 1991, pp. 2-18.
4. Dickson, G.W., An Analysis of Vendor Selection Systems and Decisions, Journal of
Purchasing, Vol. 2 No. 1, 1966, pp. 28-41.
5. Sage, A.P., Interpretive Structural Modelling: Methodology for Large Scale Systems,
McGraw-Hill, New York, NY, 1977, pp. 91-164.
6. Warfield, J.W., Developing Interconnected Matrices in Structural Modelling, IEEE
Transcript on Systems, Men and Cybernetics, Vol. 4 No. 1, 1974, pp. 51-81.