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International Journal of Physical Distribution & Logistics Management

Supplier Selection Using Multi-objective Programming: A Decision Support System Approach


Charles A. Weber Lisa M. Ellram
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To cite this document:
Charles A. Weber Lisa M. Ellram, (1993),"Supplier Selection Using Multi-objective Programming: A Decision Support System
Approach", International Journal of Physical Distribution & Logistics Management, Vol. 23 Iss 2 pp. 3 - 14
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SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 3

The use of multi-objective programming is explored maintains control of the decision-making process. In
as a method for supplier selection in a just-in-time addition, unlike traditional supplier selection
setting. approaches, MOP simultaneously finds alternative
solutions for suppliers to be selected, and the volume
allocated among suppliers.

This article begins with a discussion of the JIT


supplier selection problem, followed by an
Supplier introduction to the mathematics of multi-objective
programming. Next, an application of the multi-
objective programming approach to a purchasing

Selection Using problem of one manufacturing firm is presented.


Finally, the decision support system is discussed.
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Multi-objective The Supplier Selection Problem in a JIT


Environment
The analysis of criteria for supplier selection and
Programming: performance measurement has been the focus of many
academicians and purchasing practitioners since the
1960s. Gary W. Dickson [6] studied the factors which
various authors considered important in the supplier
A Decision Support selection process. He concluded: "From the purchasing
literature, it is fairly easy to abstract a list of at least 50
System Approach distinct factors (characteristic of supplier performance)
that are presented by various authors as being
meaningful to consider in the vendor selection
decision" [6]. Dickson later condensed this set to 23
Charles A. Weber andLisaM. Ellram factors to study with purchasing agents for their overall
importance to the supplier selection decision.

International Journal of Physical Distribution & Logistics Management,


Vol 23 No. 2, 1993, pp. 3-14 © MCB University Press, 0960-0035 The Dickson study demonstrated that the supplier
selection process is inherently multi-objective in nature
(i.e. involves the consideration of multiple criteria).
Wind and Robinson [7] further showed that interaction
typically exists between these supplier selection criteria
and that the effect of this interaction will be lost if only a
Introduction
single criterion is considered. In a later study,
Much attention has been placed in the past decade on
the manufacturing philosophy known as just-in-time Dempsey[8] demonstrated that the importance of the
(JIT) manufacturing. Much has also been written criteria changes from one buying situation to another.
regarding the issue of supplier selection under such a
philosophy[l-5]. However, little has been done in regard
to defining an approach to implement the selection of For many manufacturing companies, the JIT approach
suppliers in a JIT environment This article discusses to inventory management has become necessary to
such an approach using a multi-objective programming operate competitively. However, the JIT approach
(MOP) model operating in the context of a substantially complicates the duties of the purchasing
computerized, decision support system. It is the belief of department. The buyer can no longer be concerned with
the authors that such an approach overcomes many of merely the purchase price of raw material and parts. The
the weaknesses found in traditional supplier selection buyer must now also be very concerned with meeting
methods by presenting the buyer with alternative the specific production needs. Such needs are often
solutions to a particular problem so that the buyer dictated by a very precise schedule with very precise
quantities. Therefore, the reliability of the supplier in
terms of meeting scheduled delivery and quality
Received April 1992 requirements for raw material (parts) becomes of
Revised November 1992 paramount importance to the company's production
4 IJPD & LM 23,2

operations. In true JIT environments, the concept of Mathematical Background in Multi-objective


safety stock to serve as a buffer for such events as late Programming
deliveries and defective raw material (parts) is greatly As early as 1973, Moore and Fearon[ll, p. 16] recog-
reduced or eliminated. nized the potential for solving supplier selection
problems using optimization models:

Criteria Importance These models (linear programming) would have as their


A recent review of supplier selection criteria by Weber objective the analysis of any combinations of multi-price,
et al.[9] illustrated that implementation of the JIT multi-supplier, multi-item, multi-user, multi-time period
approach often creates a change in the relative procurement situations... The computer program would
importance of criteria by which suppliers are selected. manipulate the data to arrive at an optimum mix of supplier
Criteria such as quality, delivery performance, and the awards under the given constraints. These constraints may
use of local suppliers tend to increase in importance. take the form of a limitation placed on the amount of
Further, these criteria often conflict with one another. business any supplier could be awarded... Program options
For example, a reduction in the price of an item may might include an ability to measure the outcome and
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necessitate a reduction in quality or delivery economic effect of altering the constraints... Such models
performance. Conversely, an increase in an item price are almost a necessity for the comprehensive analysis of
may allow the supplier to provide improved quality or large contracts involving many items and many suppliers.
better delivery performance.
Multi-objective programming (MOP) deals with
optimization problems involving two or more objective
functions. In single-objective problems, the goal is to
Selection Approaches identify an optimal solution, where the optimal solution
Timmerman[10] has identified three basic approaches is the feasible solution which gives the best value of the
to the evaluation of a supplier in practice today—the objective function. In multi-objective problems, a
categorical, cost-ratio, and linear average or weighted- solution which optimizes one objective will not, in
point methods. Timmerman criticizes the categorical general, optimize the other objectives as well. Generally,
method as largely an intuitive approach relying on a trade-offs exist among the objectives such that one or
buyer's memory, personal judgement, ability and more objectives must be sacrificed in value in order to
experience. Whereas the cost-ratio method provides obtain an improvement in some other objective.
more objective results; operationally Timmerman found
it to be extremely complex, requiring a comprehensive
cost-accounting system to generate the precise cost data When defining these trade-offs, feasible solutions to the
needed. The linear average method is more objective problem will be found such that no other feasible
than the categorical method. However, Timmerman still solution will yield an improvement in one objective
found room for considerable judgement in determining without degrading the value of at least one other
the weights for the evaluation criteria, as well as the objective. These feasible solutions are referred to as
numerical values for a supplier's performance. "non-inferior", "efficient", "non-dominated", or "Pareto
optimal" solutions. Therefore, in multi-objective
problems the notion of the optimal solution is replaced
When applying any of the above methods to a JIT by the concept of the "best-compromise solution,"
purchasing situation, as well as the supplier selection where the "best-compromise solution" is the non-
process in most complex situations, one further inferior solution selected to be the preferred alternative
criticism can be made. Given the multi-criteria nature of by the decision maker.
the JIT supplier selection process, where criteria such as
price, quality and delivery are all viewed as important, it
is difficult, if not impossible, to use these methods to The identification of each non-inferior solution requires
measure the trade-offs which exist among these criteria the solution of an optimization problem. Multi-objective
in any given buying situation. That is, none of these problems which have only continuous decision variables
methods allow the buyer to determine easily the best can have an infinite number of non-inferior solutions.
combination of suppliers and associated order quantities However, multi-objective problems which solely contain
to use when these criteria may vary in importance in the integer or discrete decision variables, have a finite
buyer's mind. It is relative to this criticism that multi- number of non-inferior solutions, although this number
objective, mathematical programming is seen as an may be very large. Mixed integer multi-objective
especially useful tool to the buyer. problems, where both integer and continuous decision
SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 5

variables are present, have non-inferior solutions which et al.[41]. Recently, Weber and Current have shown
often are step-wise in appearance when graphed in two the theoretical development of the multi-objective model
dimensions. These problems often have solutions which for supplier selection [42].
alternate between being continuous and discontinuous
over various ranges of criteria values.
An Application of the Multi-objective Approach
to Supplier Selection
Estimating Solutions This section of the article describes the application of
Because of the computational burden associated with a multi-objective programming model to a firm
computing the entire non-inferior frontier, it is generally practising the JIT manufacturing philosophy. The firm is
satisfactory to generate an estimate of the entire non- a division of a Fortune 500 pharmaceutical company. The
inferior set Several methods exist to do this. However, application is for a single item which was chosen
the weighing method[12] and the NISE method[13] are by the firm to be representative of their manufac-
two methods recommended by these authors for the turing process. The firm expended nearly $14 million
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supplier selection problem as they can generate efficient a year on this item.
solutions over the entire range of a problem's feasible
region without altering the structure of the objective
function or constraint set From this range of "best-
Model Development
compromise solutions" a decision maker may then
select a course of action. Meetings were held with the firm to identify the forms
of the objective functions and constraints appropriate
to the purchasing situation for the item. The outcomes
For further discussion of these methods, please see of these meetings produced the following purchasing
Zadeh[12] and Cohon, et al.[13]. Both methods scenario to be modelled:
systematically convert the problem to a single objective
situation, then solve the resulting single objective (1) The company was in the process of moving
problem. Using either method, multi-objective towards a JIT manufacturing environment.
modelling can be used to identify alternative groups of Three objectives relating to price, quality and
suppliers from which to order an item as well as the delivery were seen as appropriate for testing
order quantities for each supplier. The interested reader the model. The company's management was
is referred to Cohon [14] for a more detailed description interested in results for the following
of multi-objective programming. combinations of criteria: price versus delivery,
price versus quality, and price versus quality
versus delivery.
Multi-objective mathematical programming models
have been used successfully in many areas of research
including facility location[15-18] network design[19, 20], (2) The price objective was quantified by
transportat network design[21], transportat resource minimizing the total purchase price based on
allocation[22-26], and water resource allocation[27]. a per unit contract delivered price for the
Surveys of multi-objective modelling can be found in the "price" objective.
literature[28-33].
(3) The delivery objective was quantified by
using late deliveries of the item. The
While multi-objective programming has been applied "delivery" objective function minimized the
successfully in other fields, mathematical programming number of units ordered which were late.
applications in purchasing have primarily been
concerned with single-objective models. Three single- (4) The quality objective was quantified by using
objective, linear programming applications are rejected units of the item. The "quality"
discussed in Anthony and Buffa[34], Kingsman[35] objective function minimized the number of
and Pan[36]. Single-objective, mixed integer models units shipped which were rejected.
are also discussed[37-39]. Goal programming, arguably
a multi-objective modelling form, was used in (5) Modelling results were developed for a varied
applications by Buffa and Jackson [40] and Sharma number of suppliers.
6 IJPD & LM 23,2

Supplier Selection Model standards of the firm, only six suppliers competed for
Thefinalform of the model which was tested appears as this firm's business at the test plant Purchase orders
follows: and receiving documents were aggregated for the item
over a one-year period in order to protect the
min Z = (Z1,Z2,Z3) (1) confidentiality of the individual suppliers. A demand of
10,790,000 units of material was forecasted over the
subject to: planning horizon. Individual supplier's capacity
constraints were such that a minimum of four suppliers
were needed to supply this demand.
xj≤min {uuj,wuj}v1for all j (3)
xj≥max {uLj,wLj}vjfor all j (4)
Price versus Delivery Results
The model was run with varying weights on the price
and delivery objectives (PD) for four (PD4), five (PD5),
xj≥0 for all j (6) and six (PD6) suppliers. The number of suppliers was
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fixed for each run by specifying the right-hand side


vj ε(0,1) for all j (7) value for constraint [5] to be four, five or six. The NISE
method[13] was used to generate the weights for
where: solutions on the convex hull. Duality gap solutions were
obtained using the constraint method [43] by optimizing
on the price objective and placing the delivery objective
as a constraint in the model. The quantity of late
deliveries was varied in increments of 10,000 units
between the convex hull solutions. Table I shows the
results for the five supplier model.
n = number of suppliers
xj = quantity purchased from supplier j
Table I indicates that the PD5 model generated five
vj = 1 if supplierjselected supplier/order quantity solutions on the convex hull
(solutions 1-5) and 11 duality gap solutions (solutions
= 0 if otherwise 1D-11D). To help the reader's understanding, these
solutions are also shown graphically in Figure 1. The
ϱj = per unit net purchase cost from supplier j "weight" column shows the weight that each objective
(price, quality) was assigned by the NISE method. The
λj = percentage of items late from supplier j "value" column indicates the solution values for price in
βj = percentage of rejected units from supplier j dollars, and delivery in late units. The last column,
"supplier number/order quantity" shows the number of
D = aggregate demand for item over planning units ordered from each supplier in the current solution.
period Solution number 1 identifies the least monetary cost,
highest late delivery rate alternative with a cost of
uuj = maximum amount of business for item to be $2,221,790 and a late delivery rate of 321,100 units of
given to supplier j material. Solution number 5 identifies the lowest late
delivery rate, highest monetary cost alternative with a
uLj = minimum amount of business for item to be late delivery rate of 176,010 units of material and a cost of
given to supplier j
$2,292,015. Solutions number 2, 3, and 4 represent
wuj = maximum order quantity from supplier j intermediate convex hull solutions with respective
monetary costs and late delivery rates of $2,251,223 and
wLj = minimum order quantityfromsupplier j. 212,610 units, $2,258,807 and 199,810 units and
$2,265,191 and 191,830 units of material. Solutions
number 1D to 10D are duality gap solutions found
Data to test the model were supplied by the firm for one between convex hull solutions number 1 and number 2.
of their plants from their MRP-II system. Due to the Solution number 11D is a duality gap solution found
volume of the item's purchases and the quality between convex hull solutions number 4 and number 5.
SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 7

TableI.Price-Delivery Five-Supplier
Model Solutions

Solution number Objective Weight Value Supplier number Order quantity (units)
1 Price 10 $2,221,790 V1- 2,400,000
Delivery .001 321.000 V2- 360,000
V3- 0
V4- 3,000,000
V5- 2,530,000
V6- 2,500,000
2 Price 25 $2,251,223 V1- 2,400,000
Delivery 1.0 212,610 V2- 360,000
V3- 2,783,000
V4- 3,000,000
V5- 2,247,000
V6- 0
3 Price 135 $2,258,807 V1- 2,400,000
Delivery 1.0 199,810 V2- 40,000
V3- 2,783,000
V4- 3,000,000
V5- 2,567,000
V6- 0
4 Price 10 $2,265,191 V1- 2,001,000
Delivery 10 191,830 V2- 40,000
V3- 2,783,000
V4- 3,000,000
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V5- 2,966,000
V6- 0
5 Price .0001 $2,292,015 V1- 40,000
Delivery 10 176,010 V2- 0
V3- 2,783,000
V4- 3,000,000
V5- 2,467,000
V6- 2,500,000
1D Price 10 $2,222,441 V1- 2,400,000
Delivery 00 320,000 V2- 332,500
V3- 0
V4- 3,000,000
V5- 2,557,500
V6- 2,500,000
2D Price 1.0 $2,228,366 V1- 2,400,000
Delivery 0.0 310,000 V2- 82,500
V3- 0
V4- 3,000,000
V5- 2,807,500
V6- 2,500,000
3D Price 10 $2,232,242 V1- 2,400,000
Delivery 00 300,000 V2- 0
V3- 2,233,333
V4- 3,000,000
V5- 2,666,667
V6- 2,500,000
4D Price 10 $2,235,109 V1- 2,400,000
Delivery 00 290,000 V2- 0
V3- 556,666
V4- 3,000,000
V5- 2,333,334
V6- 2,500,000
5D Price 10 $2,237,975 V1- 2,400,000
Delivery 00 280,000 V2- 0
V3- 890,000
V4- 3,000,000
V5- 2,000,000
V6- 2,500,000
6D Price 10 $2,240,842 V1- 2,400,000
Delivery 00 270,000 V2- 0
V3- 1,223,333
V4- 3,000,000
V5- 1,666,667
V6- 2,500,000
7D Price 10 $2,243,548 V1- 2,400,000
Delivery 00 245,200 V2- 360,000
V3- 2,530,000
V4- 3,000,000
V5- 0
V6- 2,500,000
8D Price 10 $2,245,040 V1- 2,400,000
Delivery 00 234,180 V2- 360,000
V3- 2,064,000
V4- 3,000,000
V5- 2,966,000
V6- 0
9D Price 10 $2,246,238 V1- 2,400,000
Delivery 00 230,000 V2- 360,000
V3- 2,203,233
V4- 3,000,000
V5- 2,826,667
V6- 0
10D Price 10 $2,249,105 V1- 2,400,000
Delivery 00 220,000 V2- 360,000
V3- 2,336,667
V4- 3,000,000
V5- 2,493,233
V6- 0
11D Price 10 $2,286,423 V1- 3,895,500
Delivery 00 183,000 V2- 0
V3- 2,783,000
V4- 3,000,000
V5- 2,117,500
V6- 2,500,000
Note: Price=$ purchase cost Delivery=units delivered late
8 IJPD & LM 23,2

increase in monetary cost Thus, the graphic solution


allows the buyer to spot easily the trade-offs between
price and quality that provide the greatest return (lowest
marginal cost), by looking for the areas in the graph with
the least price-delivery slope.

Figure 2 shows the curves resulting from graphing the


convex hull solutions for the model with four, five and six
suppliers. Figure 2 indicates that the least monetary cost
solution is to be found when running the PD model with
five suppliers. Figure 2 also indicates that using four
suppliers in the PD model will give the solution with the
least amount of late delivered material. Finally, any
solution generated by the six suppliers model can be
improved on by using either a four supplier or five
supplier alternative.
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Price versus Quality Results


Figure 1 graphically depicts the approximation of the The model was then run with varying weights on the
non-inferior boundary which resulted from running the price and quality objectives (PQ) for four (PQ4), five
Price-delivery five-model. This type of display technique (PQ5) and six (PQ6) suppliers. The number of suppliers
uses orthogonal scales to show the trade-offs which are was againfixedfor each run by specifying the right-hand
possible between two criteria based on the efficient side value for constraint[5] to be four, five or six. The
solutions generated from an MOP model. By analysing NISE method [13] was again used to generate the
these trade-offs, managers may evaluate the efficient set weights for solutions on the PQ models' convex hulls.
of solutions to develop a preferred solution. Duality gap solutions were obtained using the constraint
method [43] by optimizing on the price objective with
From Figure 1, the buyer can observe that the largest the quality objective placed as a constraint in the model.
decrease in late deliveries per increase in monetary cost The amount of rejected material was varied in
can be found by moving along the efficient frontier from increments of 10,000 units between convex hull
solution number 1 to solution number 2. For example, solutions. Table II shows the results for thefivesupplier
moving from solution number 1 to solution 10D would model.
save 101,100 units of late material (31.49 per cent) but
would cost the firm an additional $27,315 (1.23 per cent),
for a marginal decrease of 25.60 per cent in late
deliveries per percentage increase in monetary cost
Moving along the efficient frontier to the right of
solution number 2 results in a decline of this marginal
rate. Another way of looking at this is that it costs the
firm $.27($27,315/101,000 units) per unit for each of the
101,000 units that would be in solution number 2 versus
solution number 1. Thus, as the firm considers moving
from solution 1 to solution 2, it would need to decide if it
is worth $.27 per unit to avoid late deliveries on these
101,00 units. Moving from solution number 3D to
solution number 5 would save 123,990 units of late
material (41.33 per cent) but would cost the firm an
additional $59,773 (2.68 per cent). This results in a
marginal decrease of 15.42 per cent in late deliveries per
percentage increase in monetary cost, or a cost of $.482
per unit for the non-late units. Finally, moving from
solution number 4 to solution number 5 would save the
firm only 15,820 units of late material (8.25 per cent) but
would cost the firm an additional $26,824 (1.18 per cent),
a marginal decrease of only 6.99 per cent per percentage
SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 9

Table II. Price-Quality Five-Supplier Table II indicates that the PQ5 model generated three
Model Solutions supplier/order quantity solutions on the convex hull and
seven duality gap solutions. Solution number 1 identifies
Solution Objective Weight Value Supplier number the least monetary cost, highest rejection rate
number Order quantity
(units) alternative with a cost of $2,221,790 and a rejection rate
of 182,870 units of material. Solution number 3 identifies
1 Price 1.0 $2,221,790 V1- 2,400,000
Quality 0.0001 182,870 V2- 360,000 the lowest rejection rate, highest monetary cost
V3- 0 alternative with a rejection rate of 119,367 units of
V4- 3,000,000 material and a cost of $2,246,659. Solution number 2
V5- 2,530,000
V6- 2,500,000 represents an intermediate convex hull solution with
2 Price 2.0 $2,243,548 V1- 2,400,000
monetary costs and rejection rates of $2,243,548 and
Quality 1.0 124,680 V2- 360,000 124,680 units of material. The duality gap solutions lie
V3- 2,530,000 between convex hull solutions number 1 to number 3.
V4- 3,000,000
V5- 0
V6- 2,500,000 Figure 3 graphically shows the approximation of the
3 V1- non-inferior boundary which resulted from running
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Price 0.0001 $2,246,659 2,400,000


Quality 1.0 119,367 V2- 360,000 the PQ5 model. From Figure 3, the buyer can observe
V3- 2,783,000
V4- 2,747,000 that the largest decrease in rejections per increase
V5- 0 in monetary cost can be found by moving along
V6- 2,500,000 the efficient frontier from solution number 1 to
1D Price 1.0 $2,235,283 V1- 2,400,000 solution number 2. For example, moving from
Quality 1.0 175,000 V2- 0 solution number 1 to solution number 2 would save
V3- 576,956
V4- 3,000,000 58,190 units of rejected material (31.82 per cent) but
V5- 2,313,044 would cost thefirman additional $21,758 (0.98 per cent).
V6- 2,500,000 This translates to a cost of $.374 per unit ($21,758/58,190
2D Price 1.0 $2,237,153 V1- 2,400,000 reduction in late units), or a marginal decrease of 32.47
Quality 0.0 170,000 V2- 0 per cent in rejected material per percentage increase in
V3- 794,347
V4- 3,000,000 monetary cost. This represents a clear way for
V5- 2,095,653 management to value the price versus quality trade-off.
V6- 2,500,000 Moving along the efficient frontier to the right of
3D Price 1.0 $2,239,022 V1- 2,400,000 solution number 2 results in a slight lowering of this
Quality 0.0 165,000 V2- 0 marginal rate. For example, moving from solution
V3- 1,011,739
V4- 3,000,000 number 2 to solution number 3 would save 5,313 units of
V5- 1,878,261 rejected material (4.26 per cent) but would cost the firm
V6- 2,500,000 an additional $3,111 (0.14 per cent), resulting in a
4D Price 1.0 $2,240,892 V1- 2,400,000
Quality 0.0 160,000 V2- 0
V3- 1,229,130
V4- 3,000,000
V5- 1,660,870
V6- 2,500,000
5D Price 1.0 $2,242,762 V1- 2,400,000
Quality 0.0 155,000 V2- 0
V3- 1,446,521
V4- 3,000,000
V5- 1,443,479
V6- 2,500,000
6D Price 1.0 $2,243,547 V1- 2,400,000
Quality 0.0 152,898 V2- 0
V3- 1,537,903
V4- 3,000,000
V5- 1352,097
V6- 2,500,000
7D Price 1.0 $2,246,289 V1- 2,400,000
Quality 0.0 120,000 V2- 360,000
V3- 2,752,857
V4- 2,777,143
V5- 0
V6- 2,500,000
Note: Price = $ purchase cost
Quality=units rejected
10 IJPD & LM 23,2

marginal decrease of 30.42 per cent in rejections per three dimensions, the results of the four supplier model
percentage increase in monetary cost (PDQ4) are discussed below.

Figure 4 shows the curves resulting from graphing the Table III indicates that four convex hull and four duality
convex hull solutions for the price-quality model with gap solutions were identified by the PDQ4 model.
four, five and six suppliers. Figure 4 indicates that the Solution number 1 had the least monetary cost
five supplier solution dominates the four and six supplier ($2,230,322) but had the highest rates of rejection
solutions in the sense that a lower price-rejection rate (188,270 units of material) and late deliveries (306,700
alternative can be found for the five supplier model at units of material). Solution number 2 identifies the
any weighing than that which was found for the four or solution with the lowest rates of rejection and late
six supplier model. Figure 4 also shows that the four deliveries. This solution had a rejection rate of 150,661
supplier model gives the worst results. units of material and a late delivery rate of 175,210 units
of material but had the highest monetary cost of the
three solutions ($2,292,655). This three objective
Price versus Quality versus Delivery Results solution is more difficult to analyse than the two
The final three runs of the model were made with all objective solutions, because by paying $62,333 more, the
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three objectives (price, delivery and quality) for four firm increases their on time deliveries by 131,490 units,
(PDQ4), five (PDQ5) and six (PDQ6) suppliers. The and simultaneously reduces rejected material by 27,609
number of suppliers was again fixed for each run by units. The price paid for this simultaneous performance
improvement cannot be as easily allocated as when just
specifying the right-hand side value for constraint [5] to one performance parameter is being improved.
be four, five or six. The weighing method[12] was used Solutions number 3 and number 4 resulted in
to determine convex hull solutions. As in the two- intermediate alternatives with respective monetary
dimensional models, non-inferior, duality gap solutions costs of $2,265,499 and $2,259,755, rejection rates of
may exist within the convex hull generated by the three- 155,710 and 151,761 units of material, and late delivery
dimensional model. The constraint method [43] was rates of 191,030 and 198,210 units of material. All four of
again used to find these points. Price was maintained as the duality gap solutions, number 1D to number 4D,
the objective to be optimized while the delivery and were also intermediate alternatives.
quality objectives were placed as constraints in the PDQ
model. The values for material delivered late and
rejected were varied in increments of 10,000 units
between convex hull solutions. Table III shows the Analysis of Three-dimensional Results
results for the four supplier model (PDQ4). In order to One problem that is especially difficult when working
demonstrate the multi-objective modelling approach in with multi-objective programming (MOP) in more than
two dimensions is displaying the results in a manner
meaningful for the decision maker. The orthogonal
graphing technique shown for the two dimensional
models are a particularly cumbersome way of showing
the MOP model results when there are more than two
objectives because of the number of graphs which need
to be analysed. For example, analysing the orthogonal
graphs for this three dimensional problem would result
in the decision maker attempting to analyse solution
values on three separate graphs—price versus delivery,
price versus quality, delivery versus quality. Should a
fourth objective exist, the decision maker would need to
analyse solutions on 12 separate graphs of two
dimensions; quite a formidable task.

Multi-objective value paths[16], however, use parallel


scales on a single graph to show how the solutions
simultaneously react on the various objectives in an
MOP model. As more objectives are used in the model,
the value path compensates by appending additional
axes rather than requiring additional graphs. Because of
the need for the buyer to see concisely how the MOP
solutions simultaneously consider trade-offs among
SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 11

Table III. Price-delivery-quality Four-Supplier multiple objectives, multi-objective value paths were
Model Solutions selected as the display technique for the supplier
selection problem when more than two criteria are to be
Solution Objective Weight Value Supplier number
considered.
number Order quantity
(units) A value path showing the performance of each PDQ4
model solution is shown in Figure 5. Figure 5
1 Price 1.0 $2,230,322 V1- 2,400,000 demonstrates the efficient trade-offs which are possible
Delivery 0.0001 306,700 V2- 0 among the price, quality and delivery objectives for the
Quality 0.0001 188,270 V3- 0
four supplier scenario. Solution number 1 represents the
V4- 3,000,000
V5- 2,890,000
solution with the least monetary cost but the highest
V6- 2,500,000 rate of rejects and late deliveries. Solution number 2, on
the other hand, represents the solution with the highest
2 Price 0.0001 $2,292,655 V1- 0 monetary cost but the lowest rate of rejects and late
Delivery 1.0 175,210 V2- 0 deliveries. The remaining solutions are intermediate
Quality 0.0001 150,661 V 3 - 2,783,000 solutions with their objective values falling between
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V4- 3,000,000 those in solution number 1 and solution number 2.


V5- 2,507,000
V6- 2,500,000
Value paths can also be used to portray graphically the
3 Price 0.075 $2,265,499 V1- 2,041,000 trade-offs existing among multiple solutions. Figure 6
Delivery 1.0 191,030 V2- 0 shows the best case solutions for the PDQ models when
Quality 1.0 155,710 V3- 2,783,000
the number of suppliers and the individual optimization
V4- 3,000,000
V5- 2,966,000
objectives were varied. For example, Figure 6 shows
V6- 0 that the lowest monetary cost can be obtained when
using five suppliers although this solution will result in a
4 Price 1.0 $2,259,755 V1- 2,400,000 relatively high number of units delivered late and units
Delivery 1.0 198,210 V2- 0 rejected. likewise, Figure 6 shows that the lowest
Quality 1.0 151,761 V3- 2,783,000 number of units delivered late can be obtained when
V4- 3,000,000 optimizing with four suppliers although this solution will
V5- 2,607,000 result in the highest monetary cost and a moderate
V6- 0 number of units rejected. Finally, the lowest number of
1D Price 1.0 $2,256,668 V1- 2,400,000 units rejected would be obtained by optimizing with five
Delivery 0.0 208,980 V2- 0 suppliers, also resulting in a moderate monetary cost
Quality 0.0 160,018 V3- 2,424,000 and a moderate number of units delivered late.
V4- 3,000,000
V5- 2,966,000
V6- 0

2D Price 1.0 $2,291,282 V1- 0


Delivery 0.0 180,000 V2- 0
Quality 0.0 154,333 V 3 - 2,623,333
V4- 3,000,000
V5- 2,666,667
V6- 2,500,000

3D Price 1.0 $2,289,163 V1- 0


Delivery 0.0 187,391 V2- 0
Quality 0.0 160,000 V 3 - 2,376,956
V4- 3,000,000
V5- 2,913,044
V6- 2,500,000

4D Price 1.0 $2,288,708 V1- 0


Delivery 0.0 188,980 V2- 0
Quality 0.0 161,218 V3- 2,324,000
V4- 3,000,000
V5- 2,966,000
V6- 2,500,000
12 IJPD & LM 23,2

Using the above developmental system configuration,


the models required between 25 and 100 optimization
(branch-and-bound) iterations with running times
varying between two and five minutes depending on
whether a similar basis was used as a starting point
for optimization. These times are expected to decrease
significantly when the models are run on today's
faster computers.

Summary and Conclusions


The purpose of this article was to demonstrate the
benefits of applying a multi-objective mathematical
programming model in a decision support context for
supplier selection. While this was demonstrated for a
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firm practising JIT manufacturing, it has wide


applications across all type's of supplier selection
decisions. For thefirmdiscussed here, price, quality and
delivery were all seen as important criteria to be
considered for the supplier selection process. However,
multi-objective programming is flexible in the criteria it
uses, as long as the criteria basically can be quantified.
By varying the weights of the criteria in the multi-
A Decision Support System for Supplier Selection objective model, a set of alternative solutions (i.e.
The use of computers and information systems in the supplier/order-quantity combinations) can be found
purchasing function has been the topic of discussion for which quantifies the efficient trade-offs. Further, a
some time[11, 44-49]. More recently, decision support varying number of criteria can be used.Witha greater
systems (DSS) have been developed to support number of criteria, the model will run longer, and the
purchasing supplier selection[39,50,51,52]. solution analysis will become more complex. Thus, the
model allows for a great deal of flexibility.
Based on the firm's technical environment, a decision
support system was developed for running the models
discussed above. The following hardware and software An important practical aspect of the multi-objective
serve as the technical basis for the DSS: decision support system is that it does not provide one
solution, but rather a number of "best-compromise"
(1) The developmental hardware unit was an IBM solutions for the buyer to choose from. Thus, buyer's
PC XT utilizing an 8086 chip with no math co- expert judgement is still critical in the decision-making
processor. This unit was virtually compatible with process. Indeed, the buyer's judgement should be
the test firm's IBM AT unit except that it had enhanced by the ability to simultaneously view the
considerably slower processing speed. outcome of alternative decisions.
(2) LOTUS 1-2-3 (Lotus Development Corporation)
spreadsheet software (version 2.1) was used for Yet another benefit of multi-objective decision support
data input and reporting the results of individual systems is that such a system simultaneously solves for
model runs. suppliers selected and volume to be allocated among
those suppliers. The models also allow for consideration
(3) The What's Best-Personal Version (General of different numbers of suppliers, if thefirmis interested
Optimization Inc.) package was used to solve the in limiting the minimum or maximum number of
optimization models. The Personal Version suppliers in the solution.
allows a maximum of 42 binary variables, 200
constraints and 4,000 coefficients. These
restrictions equate to maximally solving a 42 Thus, while a multi-objective decision support system is
supplier problem for the JITMOVS model. The very flexible, it also provides a great deal of consistency
What's Best package can use LOTUS 1-2-3 in the decision-making process. The consistency comes
spreadsheets (among others) as the medium for by putting the decision in a formalized model, using the
both data input and reporting the results of same decision criteria and type of information for each
individual model runs. supplier.
SUPPLIER SELECTION USING MULTI-OBJECTIVE PROGRAMMING 13

A multi-objective decision support system can easily 9. Weber, C.A., Current, J.R. and Benton, W.C.,
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Charles A. Weber is on faculty at George Washington University, Washington DC, USA; and Lisa M. Ellram is
Assistant Professor of Purchasing and Logistics Management at Arizona State University, Tempe, Arizona, USA
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