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A classification of multi-criteria and evaluation of supplier selection methods

Farzad Tahriri
Department of mechanical and manufacturing engineering, faculty of engineering
University Putra Malaysia (UPM)
MALAYSIA
Farzad_Tahriri@hotmail.com

Mohd Rasid Osman


Rosnah mohd. Yusuff
Alireza Esfandyari
Department of mechanical and manufacturing engineering, faculty of engineering
University Putra Malaysia (UPM)
MALAYSIA
Rasid@upm.edu.my
rosnah@eng.upm.edu.my
Alirezaesfandiary@yahoo.com

ABSTRACT
The purchasing function is increasingly seen as a
strategic issue in organizations. With the
increasing significance of the purchasing function,
purchasing decisions become more important. As
organizations become more dependent on suppliers
the direct and indirect consequences of poor
decision making become more severe. With new
strategies for purchasing, suppliers play a key role
in achieving corporate competition. Hence
selecting the right suppliers is a vital component of
these strategies. Thus, selecting the best supplier
depends on the chosen suitable criteria and
method. This paper extends previous reviews about
classification of "extremely important" criteria for
supplier selection. Also outranking and choosing
methods concerning about supplier selection.
KEYWORDS
Supplier Selection Criteria (SSC), Purchasing
Management,
Multi-Criteria,
Analytic
Hierarchical process (AHP)

1. INTRODUCTION
Supplier selection is one of the most critical
activities of purchasing management which has
gained great importance in the supply chain
management. It also functions as factors used in
globalization, increased value added in supply, and
accelerated technological change. A supply chain
is coordination between a manufacturer and
suppliers which is typically a difficult and

important link in the channel of distribution. The


overall objective of supplier selection process is to
reduce purchase risk, maximize overall value to the
purchaser, and build the closeness and long-term
relationships between buyers and suppliers, which
is effective in helping the company to achieve
"just-in- time" (JIT) with high quality of
production.(Li, C. C. et al., 1997). Additionally,
with the increase in use of Total Quality
Management (TQM) and Just-In-Time (JIT)
concepts by a wide range of firms, the supplier
selection question has become extremely important
for purchasing manager (Chen-Tung, C. et al.,
2006). Purchasing commands a significant position
in most organizations since purchased parts,
components, and supplies typically represent 40 to
60 percent of the sales of its end products (ChenTung, C. et al., 2006). Identifying the most
important criteria is helping the purchasing
manager to choose the right supplier among the
available suppliers. The supplier (vendor) selection
process would be simple if only one criterion were
used in the decision making process. However in
many situations, purchasers have to take account of
a range of criteria in making their decisions. If
several criteria are used then it is necessary to
determine how far each criterion influences the
decision making process, whether all are to be
equally weighted or whether the influence varies
accordingly to the type of criteria (Yahya, S. et al.,
1999). Supplier selection is a multiple criteria
decision-making (MCDM) problem, which is
affected
by
several
conflicting
factors.
Consequently, a purchasing manager must analyze
the trade off among the several criteria. MCDM
techniques support the decision-makers (DMs) in

2. Classification of supplier literature


During the 1990s, many manufacturers seek to
collaborate with their suppliers in order to upgrade
their
management
performance
and
competitiveness (Chen-Tung et al, 2006).
One of the most important processes performed in
organizations today is the evaluation, selection, and
continuous
improvement
of
suppliers.
Manufacturers usually evaluate potential suppliers
across multiple performance categories.
The literature was classified into seven broad
categories based upon the content of the articles as
shown in Figure 1. It maybe noted that the articles
considered have to do primarily with Supplier
Selection (SS) and not necessarily other aspects of
purchasing and supply chain management. The
classification scheme used is based on earlier work
by researchers Weber (1991) and Ellram (1990)
with some modifications. In the vast majority of
literature the issues of supplier selection and
evaluation has been handled identically. The author
informs that there is a conceptual difference
between selection and evaluation of suppliers and
this difference is indicated in Figure 1 (Bhutta, M.
K. S., 2003). Many researchers used surveys to
determine how purchasing decisions are made.
Some investigations were performed on a case-bycase basis. Two distinct research streams were
developed from this point: descriptive and
prescriptive. Descriptive research utilizes specific
characteristics or criterion on which to identify

Supplier literature

Evaluation

Selection
Similar diagram to selection

Figure 1 Classification Scheme [7]

suppliers. The identification of the criteria by


Dickson (1966) is an example of a descriptive
research.
Prescriptive
research
utilizes
programmed techniques or matrix models to
identify suppliers to be selected. Early models used
to select suppliers reduced the subjectivity in the
selection process. Timmerman (1986) proposed
using the cost-ratio method related to quality,
delivery, and service to express a percentage of the
unit price. Timmerman (1986) also proposed using
the weighted point plan, which quantifies factors
with relevant weights then rates the potential
suppliers according to the weighted factors.
According to a study by Houshyar and Lyth (1992)
where 147 articles were selected for the review.
The distribution of the articles according to time
period was as follows: four articles appeared
between1985 and 1989; 14 in 1990-1994; 47 in
1995-1999 and 82 in between 2000 and the first
half of 2006 as indicated in Figure 2.
Number of Articles

evaluating a set of alternatives (Amid, A. et al.,


2006). Supplier selection problem has become one
of the most important issues for establishing an
effective supply chain system. The supplier
selection problem in supply chain system is a
group decision-making under multiple criteria out
of which quantities criteria has been considered for
supplier selection in the previous and existing
decision models so far (Chen-Tung, C. et al.,
2006).
Choosing the right method will help purchasing
manager to select right supplier and effecting to
reduce purchase risk, increase JIT of supplier and
TQM production. Purchasing manager must
identify the extremely important criteria, then use
best method between the types of methods to select
right supplier. Thus, selecting the suitable supplier
is depending on choosing suitable criteria and
method.

100
80

82

60
40

47

20

14

0
19851989

19901994

19951999

20002006

Time period
Figure 2 The distribution of the articles according to time
period

3. SUPPLER SELECTION METHODS


Supplier selection methods are the models, or
approaches, used to conduct the selection Li, C. et
al., (1997). The method(s) chosen are extremely
important to the overall selection process and can
have a significant influence on the selection results.
It is important to understand why a firm chooses
one method (or a combination of different methods
together) over another. Several of the well-known
selection methods have been developed and
classified by numerous scholars over the years.
Certain methods have been popular selection
choices for years, while other methods have only
emerged recently. Usually when a company sets
out to develop or choose a supplier selection
method, the result is usually a combination of
several different methods and different strengths
suited to meet the companys specific selection
needs. Therefore, it is important to explore a range
of different selection methods and to discuss their
different applications. There are several supplier
selection methods available in the literature. Some
authors propose linear weighting models in which
suppliers are rated on several criteria and in which
these ratings are combined into a single score.
These models include the categorical. The
categorical model is a simple method, is also the
quickest, easiest, and less costly to implement, but
may be influenced by recent events, usually
implies a high level of subjectivity and is imprecise
(Petroni, A., 2000).
The weighted point model is also easy to
implement, flexible, and rather efficient in the
optimization of supplier selection decisions, is
more costly than the categorical, but tends to be
more objective, even though it relies on the buyers
assessment of the supplier performance. Total cost
approaches attempt to quantify all costs related to
the selection of a vendor in monetary units, this
approach includes cost ratio (Timmerman, m.,
1986) and total cost of ownership (TCO) (Ellram,
L. M., 1990).The cost ratio method is very flexible.
Its a complex method that requires a developed
cost accounting system. The total cost model is
precise, expensive to implement due its
complexity, requires more time, and implies the
ability to identify the more important elements.
Mathematical programming models often consider
only the more quantitative criteria; this approach
includes the Principal Component Analysis (PCA)
and Artificial Neural Network (ANN).

According to Bello, M. (2003), the (PCA) method


has the advantage that is accessible and is capable
of handling multiple conflicting attributes. The
(ANN) model saves money and time of system
development. The weakness of this model is that
demands software and requires qualified personnel
expert on this subject. Over the years, researchers
have begun to classify and group the individual
supplier selection methods into a number of
broader categories, with each classification having
both advantages and disadvantages.
Multiple Attribute Utility Theory (MAUT) method
has the advantage that is purchasing professionals
to formulate viable sourcing strategies and capable
of handling multiple conflicting attribute.
However, this method is only used for international
supplier selection, where the environment is more
complicated and risky (Dickson, G. W., 1966).
Fuzzy Theory was also looked at as a tool for
vendor selection. Being able to model human
judgment and multi-criteria information, some
papers discussed its application when facing
uncertainty. As a result, it was combined in many
studies with weighting models.
According to Chen-Tung, C. et al. (2006), Fuzzy
logic approach measures for supplier performance
evaluation. This approach can help the Decision
Making (DM) to find out the appropriate ordering
from each supplier. Li, C. et al. (1997) propose a
fuzzy set methodology to takes the inconsistency
of the evaluator into account for each qualitative
criterion.
Another useful method is the Analytical
Hierarchical Process (AHP), a decision-making
method developed for prioritizing alternatives
when multiple criteria must be considered and
allows the decision maker to structure complex
problems in the form of a hierarchy, or a set of
integrated levels.
The analytical hierarchy process (AHP) is
relatively simple to use and understand. This
method incorporates qualitative and quantitative
criteria. A review of the supplier selection
literature, showed the AHP method to be one of the
most commonly applied methods in practice. AHP
is an ideal method for ranking alternatives when
multiples criteria and sub-criteria are present in the
decision-making process.
The analytic hierarchy process (AHP) was
introduced by Saaty, T. (1980).There has been a
wide discussion about the empirical effectiveness
and theoretical validity of this technique. Similar to

that of the Multiple Attribute Utility Theory


(MAUT), AHP allows the decision-maker to
structure complicated problems in the form of a
decision hierarchy. The hierarchy usually consists
of three different levels, which include goals, the
criteria, and alternatives.
AHP is often considered as supplier selection
method because it allows decision makers to rank
suppliers based on the relative importance of the
criteria and the suitability of the suppliers (Saaty,
T., 1980). AHP offers a methodology to rank
alternative courses of action based on the decision
makers judgments concerning the importance of
the criteria and the extent to which they are met by
each alternative. For this reason, AHP is ideally
suited for the supplier selection problem. The
problem hierarchy lends itself to an analysis based
on the impact of a given level on the next higher
level. The process begins by determining the
relative importance of the criteria in meeting the
goals. Next, the focus shifts to measuring the
extent to which the alternatives achieve each of the
criteria. Finally, the results of the two analyses are
synthesized to compute the relative importance of
the alternative in meeting the goal. Managerial
judgments are used to drive the AHP approach
(Yusuff, R. d. et al., 2001). These judgments are
expressed in terms of pair-wise comparisons of
items on a given level of the hierarchy with respect
to their impact on the next higher level. Pair-wise
comparisons express the relative importance of one
item versus another in meeting a goal or a criterion.
Each of the pair-wise comparisons represents an
estimate of the ratio of the weights of the two
criteria being compared. Because AHP utilizes a
ratio scale for human judgments, the alternatives
weights reflect the relative importance of the
criteria in achieving the goal of the hierarchy
(Maggie, C. et al., 2001).
The usage of AHP is increasing with time; since a
lot of Journals are bringing out special issues, on
that topic, Omkarprasad, S.V. et al. (2006),
presented an excellent review and shows the
percentage usage of AHP method during the
allocated time period as shown in Figure 3.
The use of the AHP approach offers a number of
benefits. One important advantage is its simplicity
(Liu, F. et al., 2005). The AHP can also
accommodate
uncertainties
and
subjective
information, and allows the application of
experience, insight, and intuition in a logical
manner. It is observed that AHP is being

predominantly used in the theme area of selection


and evaluation (Maggie, C. et al., 2001).

12%
Prior to 1990 (18)

31%
15%

1991-1994(23)
1995-1997 (23)

15%
27%

1998-2000 (40)
2000-2003 (46)

Figure 3 Distribution of review papers of using


AHP method over the years
(Omkarprasad, S.V. et al., 2006)
4.1 ADVANTAGES AND DISADVANTAGES
OF AHP METHOD
One advantage of AHP is that it illustrates how
possible changes in priority at upper levels have an
effect on the priority of criteria in lower levels.
Moreover, it provides the buyer with an overview
of criteria, their function in the lower levels and
goal in the higher levels. A further advantage of
AHP is its stability and flexibility regarding
changes within and additions to the hierarchy. In
addition, the method is able to rank criteria
according to the needs of the buyer which also
leads to more precise decisions concerning the
supplier selection. A main advantage of AHP is
that the buyer is able to get a good picture of the
supplier's performance by using the hierarchy of
the criteria and evaluating the suppliers
(Omkarprasad, S. et al., 2006). However, AHP also
has some weak points. One of those is the high
complexity of this method which makes the use of
it quite troublesome. Moreover, if more than one
person is working on this method, different
opinions about the weight of each criterion can
complicate the work. AHP also requires data based
on experience, knowledge and judgment which are
subjective for each decision-maker. A further
disadvantage of this method is that it does not
consider risks and uncertainties regarding the
supplier's performances (Yusuff, R. d. et al., 2001).

5. An evolution Supplier Selection


Criteria (SSC)
In supplier selection decisions, the issue is of
particular significance. It is what criteria should be
used, to compare suppliers. For answering the
question, first it is needed to find the extremely
important criteria. A number of research studies
have been conducted which focus on the
importance of choosing the right criteria for
supplier selection. The studies from 1960 till now
are helpful to know which criteria are important for
most companies. Some criteria for supplier
selection are general. Table 1 shows ranking
criteria between 10 studies during 1966 to 2007.
The important criteria between Weber's, C. (1991)
studies (1960-1991) and Zhang's, Z. (2003) study
(1991-2003) are compared and the results between
years 2003 to 2007 are highlighted. Two major
criteria of quality and quantity are compared. Table
2 lists the number of articles in which each
criterion was addressed, along with the rank and
rating of the Qualitative and Quantitative criteria.
Results of studies between the years 1960 to 2007
are also summarized. These criteria were rated as
having extreme importance. It implies that these
qualitative and quantitative criteria have invariably
been the most important ones in supplier selection
decisions, and that there maybe more agreement on
recognition of their importance. The reviewed
studies between 1960 to 2003, 23 criteria for
supplier (vendor) selection was found extremely
important criteria of Dickson, G. (1966) study, the
result of Weber, C. et al.'s (1991) study and
Zhang, Z. et al., (2003) study is also summarized
into the 23 criteria. Some observations about these
studies indicate the different ranking of extremely
important criteria. Dickson study indicates that
quality, delivery and Performance history
discussed are respectively extremely important
criteria and distinctively more than any other
criteria. The ranking of the criteria with Weber, C.
et al.'s (1991) and Zhang, Z. et al., (2003)
indicates that these three criteria such as: net price,
quality and delivery have invariably been the most
important ones in supplier selection decisions, and
that there maybe more agreement on recognition of
their importance. Production facilities and capacity
takes the 4th position in both Weber et al.s study
and Zhang et al's. During the time from Weber et
al.s work to Zhang, Z. et al., (2003) work, some

papers were the focus of attention to supplier


selection criteria. The studies of Zhang, Z. et al.,
(2003) and Maggie, C., (2001) have taken the same
point of raking the criteria. These criteria are net
price and quality which have invariably been the
extremely important ones in supplier selection
decisions. On the other hand, the result of Weber,
C. et al.'s (1991) and Tullous, R. et al., (1991)
studies, in 1991 which is different from Weber et al
study defined product facility & capacity as
important criteria but Tullous, R. et al., (1991),
which sampled eighty (80) manufacturing firms, in
the same year of Weber et al's study, discovered
that technical services were among the most
important selected factors. Consequently, the
extremely important criteria for supplier selection
between the years 1960 to 2003 were net price,
quality, delivery, performance history, warranties
& policies, product facility & capacity and
technical service. Since 2003, more criteria that did
not appear in Dicksons 23 criteria are presented in
the supplier selection articles. The definitions of
Dicksons 23 criteria have been expanded and
some new criteria are developed with the growth of
new business needs. The review of studies between
years (2003 to 2007), Garfamy's, R. (2003) studies
indicates the relationship and organization criteria
that were rated as having extreme importance in
selecting suppliers. Before Garfamy's, R. (2003)
studies, the results that have been done by Dickson,
G. (1966), Weber, C. et al.'s (1991) and Zhang, Z.
et al., (2003), indicates that management and
organization have Considerable Importance,
similar to Garfamy's, R. (2003) criteria studies.
According to those studies the ranking point was
(13), (7) and (7). Garfamy's, R. (2003) propounded
organization criteria as being extremely important
criteria. In 2005, another criterion which is of
different ranking point between Dickson, G.
(1966), Weber, C. et al.'s (1991) and Zhang, Z. et
al., (2003) studies and Liu, F. et al., (2005) studies
is management and organization. Liu, F. et al.,
(2005), shows the ranking (4) for management and
organization criteria. Consequently, the ranking of
Management and organization criteria is increasing
during years (1960 to 2003) from point (13) to (6)
and decreasing during years (2003 till now) from
point (6) to (4). Nowadays these results have been
attending to qualitative critical success of supplier
selection.

Weber
(1991)

Tullous,
Munson
(1991)

Maggie,
Tummala
(2001)

Zhang
(2003)

Garfamy's
(2003)

Yu , Jing
(2004)

Wang,
Huang
(2004)

Liu, Hai
(2005)

Chan,
Kumar
(2007)

Rank

Rank

Rank

Rank

Rank

Rank

Rank

Rank

Rank

Net price
Quality
Delivery
Performance history
Warranties & policies
Product facility & Capacity
Technical service
Relationship and organization
Trust
Responsiveness
Discipline
Management and organization
Supplier's profile
Risk factor

Dickson
(1966)
Extreme importance

Rank

1960 2007 (Extremely important Criteria)

Table 1 Ranking criteria: Comparison of ten different studies

6
1
2
3
4
5
7
------------13
-------

1
3
2
------4
5
------------6
-------

1
2
3
7
---4
5
------------6
-------

1
5
2
------6
4
3
-------------------

2
4
3
---------------1
----------------

2
1
4
---------3
----------------------

1
2
-------------------------------------

3
---2
------------------1
-------------

---3
1
------5
---------2
4
6
-------

1960 2003
(Quantitative Criteria)
2003 -2007
(Qualitative Criteria)

The criteria for supplier selection

Table 2 Ranking qualitative and quantitative criteria: Comparison of ten different studies

Extreme importance
Net price
Quality
Delivery
Performance history
Warranties & policies
Product facility & Capacity
Technical service

Extreme importance
Relationship and organization
Trust
Responsiveness
Discipline
Management and organization
Supplier's profile
Risk factor

Dickson
(1966)

Weber
(1991)

Tullous,
Munson
(1991)

Maggie,
Tummala
(2001)

Zhang
(2003)

Rank

Rank

Rank

Rank

Rank

---1
2
3
4
-------

1
3
2
------4
----

2
1
4
---------3

1
2
----------------

1
2
3
------4
----

Garfamy's
(2003)

Yu ,
Jing
(2004)

Wang,
Huang
(2004)

Liu,
Hai
(2005)

Chan,
Kumar
(2007)

Rank

Rank

Rank

Rank

Rank

3
-------------------

---1
----------------

------1
-------------

------2
3
4
-------

---------------4
5

1
2
3
---------------------------4
5

Wang, H. (2004) introduce Responsiveness


criterion as extremely important criteria and give
point (1) for that criterion. Wang, H. (2004) and
Hung results, Liu, F. et al., (2005) studies show the
importance of responsiveness criteria. The
definitions of Liu, F. et al., (2005), discipline
criteria which have been expanded as a new
criterion, are developed with the growth of new
business needs. Another new criterion which has
been expanded, definitions of Yu, X. et al., (2004),
is trust. They researched and introduced the role of
trust in supplier selection. About trust criterion, Yu
and Yu, X. et al., (2004) developed the 23 criteria's
list from Dickson, Weber and Zhang studies. The
recent study for Chan, F. et al., (2007), added new
qualitative criteria in nowadays uses of supplier
selection, are risk factor and supplier's profile. The
ranking criteria of Chan, F. et al., (2007) studies,
gives point (4) and (5) for Risk factor and
supplier's profile.During the time between 2003
untill now much attention has been paid to
qualitative criteria for selecting the best suppliers.
It can also be seen that the greatest amount of
qualitative criteria attention has been considered
and published in the last four years. Table 1
indicates that develop qualitative criteria in
nowadays attention in the last four years. Some
observations may be made to have the analogical
distributions to studies years about supplier
selection and quantitative and qualitative criteria
are shown from Table 1.

6. PROPOSED SUPPLIER SELECTION


METHOD
The strength of the AHP method lies in its ability
to structure a complex, multi person, multi
attribute, and multi period problem hierarchically

and it is simple to use and understand. It


necessitates the construction of a hierarchy of
attributes, sub attributes, alternatives and so on,
which facilitates communication of the problem
and recommend solutions. In addition, AHP
method provides a unique means of quantify
judgmental consistency. AHP does not require
preferential independent of its complement (i.e.,
the preference order of consequences, for any pair
of attributes does not depend on the levels at which
all other attributes are hold) as multi attribute
utility model.
The AHP does provide remarkable versatility and
power in structuring and analyzing complex multi
attribute decision problems. Figure 4, shows the
relation between criteria and methods for supplier
selection, since 1960 until now. Figure 4 classifies
quantitative and qualitative criteria. It illustrates
that after year 2003 there is more attention on
qualitative criteria. After 2003 by changes in the
use of qualitative criteria consequently the methods
in supplier selection have also been changed.
During those years, need changing methods to
support and measuring qualitative and quantitative
criteria. Figure 4 shows the variation on the usage
of quantitative to qualitative criteria during the
time and also clearly shows the mostly used
supplier selection methods from 2003 until today.

7. CONCLUSION
The issues of supplier selection have attracted the
interest of researchers since the 1960s, and
researches in this area have evolved. In his seminal
paper, Dickson, G. (1966) ranked the importance
placed on 23 criteria. Based on this, Weber, C. et
al. (1991) reviewed 74 articles from 1966 to 1991
concerning supplier selection criteria and methods.

Figure 4 Classification supplier selection criteria and methods during the time

Based on two previous researches, Zhang, Z. et al.,


(2003) collected 49 articles from 1992 to 2003 and
made a review using similar methodology. Along
this line, this paper collected articles from 2003 to
2007 and made a review using similar
methodology and compare with the pervious
researches during the 1960s till now. In the mid
1960's till 2003, researchers were developing
performance criteria upon which potential
suppliers could be evaluated. An extensive study
performed to determine what criteria were used in
the selection of a firm as a supplier. Most of these
criteria during that time were quantitatively.
During that time researcher was not paying to
qualitative criteria, or qualitative criteria have low
level in rank to evaluation supplier selection.
Table 1 shows researches in qualitative criteria
after 2003s. Nowadays in new decision making
model for selecting the suppliers has been using
qualitative criteria. These qualitative criteria are
"extremely important" and have upper ranking (1
to 4). These qualitative criteria are important for
supplier selection in the last 4 years. They are
Trust,
Responsiveness,
Relationship
and
organization, Discipline, Management and
organization, Supplier's profile and Risk factor.
Most of these criteria during that time were
quantitative. Method for decision making (DM) to
measure qualitative such as AHP, Fuzzy etc. is
using to select supplier. Nowadays, qualitative
criteria are a more suitable in decision making
model for selecting the suppliers. AHP and Fuzzy
AHP as two precise methods for supplier selection
decision making are more applicable by managers
regarding to their simplicity in used and
understanding. Consequently, it seems that supplier
selection issues need attention to use a combination
of qualitative and qualitative criteria in future
research with existing method such as AHP or
FAHP to developed decision making models for
selecting the suitable supplier.
.

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