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Strategic sourcing: A combined QFD and AHP approach in manufacturing

Article in Supply Chain Management · September 2011

DOI: 10.1108/13598541111171093 · Source: OAI

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 Research paper

Strategic sourcing: a combined QFD and

AHP approach in manufacturing
William Ho and Prasanta K. Dey
Operations and Information Management Group, Aston Business School, Aston University, Birmingham, UK, and
Martin Lockstro¨m
Global Center for Operations Research, China Europe International Business School, Shanghai, China

Abstract
Purpose – This paper aims to develop an integrated analytical approach, combining quality function deployment (QFD) and analytic hierarchy process
(AHP) approach, to enhance the effectiveness of sourcing decisions.
Design/methodology/approach – In the approach, QFD is used to translate the company stakeholder requirements into multiple evaluating factors
for supplier selection, which are used to benchmark the suppliers. AHP is used to determine the importance of evaluating factors and preference of each
supplier with respect to each selection criterion.
Findings – The effectiveness of the proposed approach is demonstrated by applying it to a UK-based automobile manufacturing company. With QFD,
the evaluating factors are related to the strategic intent of the company through the involvement of concerned stakeholders. This ensures successful
strategic sourcing. The application of AHP ensures consistent supplier performance measurement using benchmarking approach.
Research limitations/implications – The proposed integrated approach can be principally adopted in other decision-making scenarios for effective
management of the supply chain.
Practical implications – The proposed integrated approach can be used as a group-based decision support system for supplier selection, in which all
relevant stakeholders are involved to identify various quantitative and qualitative evaluating criteria, and their importance.
Originality/value – Various approaches that can deal with multiple and conflicting criteria have been adopted for the supplier selection. However,
they fail to consider the impact of business objectives and the requirements of company stakeholders in the identification of evaluating criteria
for strategic supplier selection. The proposed integrated approach outranks the conventional approaches to supplier selection and supplier performance
measurement because the sourcing strategy and supplier selection are derived from the corporate/business strategy.

Keywords Supplier selection, Analytic hierarchy process, Quality function deployment, Manufacturing, Sourcing, Supply chain management

Paper type Research paper

1. Introduction problems. Ghodsypour and O’Brien (2001) also agreed that

Supply chain management (SCM) is the process of planning,
implementing, and controlling the operations of supply chain
as efficiently and effectively as possible. SCM involves
forecasting, purchasing, inventory management, information
management, quality assurance, scheduling, production,
distribution, delivery, and customer service (Stevenson,
2007).
Goffin et al. (2006) have stated that supplier management is
one of the key issues of SCM because the cost of raw
materials and component parts constitute the main cost of a
product and most of the firms have to spend considerable
amount of their sales revenues on purchasing, hence supplier
selection is one of the most important decision making
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal
16/6 (2011) 446– 461
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598541111171093]
selecting the right supplier significantly reduces the
purchasing costs and improves corporate competitiveness.
Therefore, appropriate supplier selection improves supply
chain performance.
The conventional approach to supplier selection is to
contact as many potential suppliers as possible, issue them
with procurement specifications, and ask for quotations. In
many cases, the offers would be evaluated and purchase order
would be issued to the lowest bidder. Increasingly
organizations are going for long-term partnership with their
suppliers for strategic items so as to get suggestions for new
product development and resolving various operational issues.
Choosing the right suppliers involves consideration of many
quantitative and qualitative factors other than price alone.
Several approaches have been proposed for supplier selection,
which also consider multiple and conflicting criteria.
However, they have not considered the impact of business
objectives and requirements of company stakeholders in
identifying criteria for supplier selection. Hence, the selected
suppliers may not be able to meet the company objectives.
This paper develops an integrated analytical approach for
selecting suppliers strategically using a combined QFD and

446
 Strategic sourcing: a combined QFD and AHP approach
William Ho, Prasanta K. Dey and Martin Lockstro¨m
AHP approach. In the approach, multiple evaluating criteria
are derived from the requirements of company stakeholders
using a series of house of quality (HOQ). The importance of
evaluating criteria is prioritized with respect to the degree of
achieving the stakeholder requirements using AHP. Based on
the ranked criteria, potential suppliers are evaluated using
AHP again to make an optimal selection.
2. Literature review
Bhutta (2003) selected and reviewed 154 journal articles on
supplier selection and evaluation for the period 1986-2002.
The methods used were individual, including total cost
approach, multiple attribute utility theory, total cost of
ownership (TCO), AHP, data envelopment analysis, and
mathematical programming techniques. Among them, TCO
was the most prevalent approach, followed by AHP.
Because of this finding, Bhutta and Huq (2002) compared
TCO and AHP comprehensively. They revealed that AHP
can provide a more robust tool for decision makers to select
and evaluate suppliers with respect to qualitative and
quantitative criteria, instead of cost data only considered
in TCO.
Ho et al. (2010) selected and reviewed 70 journal articles on
supplier selection and evaluation for the period 2000-2008.
Several approaches have been proposed for supplier selection,
such as using AHP, analytic network process (ANP), case-
based reasoning (CBR), data envelopment analysis (DEA),
fuzzy set theory, genetic algorithm (GA), mathematical
programming, simple multi-attribute rating technique
(SMART), and their integrations. Tables I– II summarize
the individual and integrated approaches for supplier
selection, respectively.
According to Ho et al. (2010), the most popular individual
approach is DEA. DEA has attracted more attention mainly
because of its robustness. In the past, it was used to measure
the relative efficiencies of homogeneous decision making units
(DMUs) based on numerical data only. As the supplier
selection problem involves both qualitative and quantitative
criteria, DEA has been modified to handle qualitative data,
such as amount of know-how transfer (Saen, 2006), service
(Seydel, 2006), supplier reputation (Saen, 2007a), and so
on. In addition, it can now be used to consider stochastic
performance measures (Talluri et al., 2006), and handle
imprecise data (Saen, 2007a; Wu et al., 2007).
447
Supply Chain Management: An International Journal
Volume 16 · Number 6 · 2011 · 446 – 461
There are three limitations or drawbacks of DEA. First, the
practitioners may be confused with input and output criteria.
For example, some authors considered price/cost as an output
criterion (Narasimhan et al., 2001; Talluri and Narasimhan,
2004; Seydel, 2006), whereas the others used it as an input
criterion (Liu et al., 2000; Narasimhan et al., 2001; Talluri
and Baker, 2002; Talluri and Sarkis, 2002; Talluri and
Narasimhan, 2004; Garfamy, 2006; Ross et al., 2006; Saen,
2006; Talluri et al., 2006; Saen, 2007a; Wu et al., 2007). The
second problem is due to the subjective assignment of ratings
to qualitative criteria. Although Saen (2006) and Seydel
(2006) deployed five-point and seven-point scales to rank the
priorities of qualitative criteria, respectively, some
inconsistencies may be occurred because of subjective
judgments. The third concern is due to the nature of DEA.
DEA is a linear programming to measure the relative
efficiencies of homogenous DMUs. In the other words,
those suppliers generating more outputs while requiring less
inputs are regarded as the more efficient suppliers. A question
is raised “is an efficient supplier equivalent to an effective
supplier?”
The second most popular individual approach is AHP,
which is a popular multi-criteria decision making technique
nowadays. It has been applied to various application areas,
including education, engineering, finance, government,
industry, management, manufacturing, personal, political,
social, and sports in the last 20 years (Steuer and Na, 2003;
Vaidya and Kumar, 2006; Ho, 2008). The wide applicability
is due to its simplicity, ease of use, and great flexibility.
Furthermore, AHP can be used to make a consistent decision
with respect to multiple qualitative and quantitative criteria.
This is achieved by one of its operations called consistency
verification. The operation can help to avoid making
inconsistent decisions due to personal or subjective
judgments.
Comparatively, the integrated AHP-goal programming
approach is more popular than the other integrated
approaches. The major reason is that the individual
techniques possess unique advantages. As mentioned earlier,
the consistency verification operation of AHP contributes
greatly to prevent inconsistency because it acts as a feedback
mechanism for the decision makers to review and revise their
judgments. Consequently, the judgments made are
guaranteed to be consistent, which is the basic ingredient
for making good decisions. Nevertheless, the output of AHP
Table I Summary of individual approaches for supplier selection
Approaches Authors
DEA Braglia and Petroni (2000);
Liu et al. (2000); Forker and
Mendez (2001); Narasimhan
et al. (2001); Talluri and
Baker (2002); Talluri and
Sarkis (2002); Talluri and
Narasimhan (2004); Garfamy
(2006); Ross et al. (2006);
Saen (2006); Seydel
(2006); Talluri et al.
(2006); Saen (2007a); Wu
et al. (2007)
AHP Akarte et al. (2001);
Muralidharan et al. (2002); Chan (2003); Chan and Chan (2004); Liu and Hai
(2005); Chan
 Strategic sourcing: a combined QFD and AHP approach Supply Chain Management: An International Journal
William Ho, Prasanta K. Dey and Martin Lockstro¨m Volume 16 · Number 6 · 2011 · 446 – 461

et al. (2007); Hou and Su

(2007)
CBR Choy and Lee (2002); Choy et
al. (2002); Choy and Lee (2003); Choy et al. (2003a); Choy et al. (2003b);
Choy et al.
(2004a); Choy et al. (2005)
Mathematical programming Ghodsypour and O’Brien
(2001); Karpak et al. (2001); Hong et al. (2005); Narasimhan et al. (2006);
Ng (2008)
ANP Sarkis and Talluri (2002);
Bayazit (2006); Gencer and Gu¨ rpinar (2007)
Fuzzy set theory Chen et al. (2006); Sarkar
and Mohapatra (2006); Florez-Lopez (2007)
SMART Barla (2003); Huang and
Keska (2007)
GA Ding et al. (2005)

448
Table II Summary of integrated approaches for supplier selection
Approaches Authors
AHP-goal programming C¸ ebi and Bayraktar (2003); Wang et al. (2004); Wang et al. (2005); Perc¸in (2006)
AHP-DEA Ramanathan (2007); Saen (2007b); Sevkli et al. (2007)
ANN-CBR Choy et al. (2003c); Choy et al. (2004b)
Fuzzy-AHP Kahraman et al. (2003); Chan and Kumar (2007)
Fuzzy-multi-objective programming Amid et al. (2006); Amid et al. (2009)
Fuzzy-SMART Kwong et al. (2002); Chou and Chang (2008)
AHP-Bi-negotiation Chen and Huang (2007)
AHP-DEA-artificial neural network Ha and Krishnan (2008)
AHP-grey relational analysis Yang and Chen (2006)
AHP-multi-objective programming Xia and Wu (2007)
Fuzzy-AHP-cluster analysis Bottani and Rizzi (2008)
Fuzzy-GA Jain et al. (2004)
Fuzzy-QFD Bevilacqua et al. (2006)
Artificial neural network-GA Lau et al. (2006)
ANP-multi-objective programming Demirtas and U¨ stu¨ n (2008)
ANP-goal programming Demirtas and U¨ stu¨ n (2009)
DEA-multi-objective programming Weber et al. (2000)
DEA-SMART Seydel (2005)
GA-multi-objective programming Liao and Rittscher (2007)

is the relative importance weightings of criteria and sub-
factors merely. In supplier selection problem, besides the
weightings of alternative suppliers, the decision makers also
need to consider the resource limitations (e.g. budget of buyer
and capacities of suppliers). For this reason, the goal
programming can compensate for AHP. It can definitely
provide more and useful information for the decision makers.
Based on the above analysis, it is believed that it must be
beneficial to the decision making process if both AHP and
goal programming are integrated together.
Although the above mentioned approaches can deal with
multiple and conflicting criteria, they have not taken into
consideration the impact of business objectives and
requirements of company stakeholders on the evaluating
criteria. In reality, the weightings of supplier evaluating
criteria depend greatly on business priorities and strategies. In
cases where the weightings are assigned arbitrarily and
subjectively without considering the “voice” of company
stakeholders, the suppliers selected may not provide what the
company exactly wants.
To better align supplier selection (and sourcing strategy)
with corporate/business strategy, an integrated analytical
approach, combining QFD and AHP is developed. The
most important information that QFD provides is the weights
of evaluating criteria, which are derived by the importance
ratings of stakeholder requirements together with the
relationship weightings between stakeholder requirements
and evaluating criterion. Generally, both importance ratings
of stakeholder requirements and relationship weightings are
determined by the decision makers arbitrarily. This may result
in a certain degree of inconsistency, and therefore degrade
the quality of decisions made. To overcome this drawback,
AHP is used to evaluate them consistently.
Recently, the combined AHP-QFD approach has been
applied to many areas, including higher education (Ko¨
ksal and Eg˘ itman, 1998; Lam and Zhao, 1998), logistics
(Chuang, 2001; Partovi, 2006), manufacturing (Wang et
al., 1998;
Partovi, 1999; Zakarian and Kusiak, 1999; Hsiao, 2002;
Kwong and Bai, 2002; Madu et al., 2002; Kwong and Bai,
2003; Myint, 2003; Bhattacharya et al., 2005; Hanumaiah
et al., 2006), military (Partovi and Epperly, 1999), and sports
(Partovi and Corredoira, 2002). To the best knowledge of the
authors, this approach has not yet been applied for supplier
selection problem.
3.The proposed supplier selection approach
The proposed supplier selection approach using combined
AHP and QFD has been described in the following steps
(Figure 1). The approach comprises of series of three
houses, including HOQ1 (refer to steps 1 to 5), HOQ2 (refer
to steps 6 to 9), and HOQ3 (refer to steps 10 to 13).
Step 1: Identify the company stakeholders, who have a
say in the supplier selection process.
Step 2: Determine the importance rating of each
stakeholder category.
Step 3: Identify the stakeholder requirements.
Step 4: Determine the relationship weights between the
company stakeholders and stakeholder
requirements using AHP (steps 4.1 to 4.7).
Step 4.1: AHP pairwise comparison. Construct a
pairwise comparison matrix,
2 3
a11 a12 ·· · a1n
6 a21 a22 ·· · a2n 7
A ¼......................................;
. . . 7
6 an1 an2············ann 5
4
where n denotes the number of elements
(stakeholder requirements in HOQ1), and aij
refers to the comparison of element i to element
j with respect to each criterion (company
stakeholders in HOQ1). The nine-point scale,
shown in Table III, can be used to decide on
Figure 1 Proposed methodology for supplier selection

which element is more important and by how Step 4.4: AHP consistency verification. Multiply
much. each entry in column i of matrix A by ci1 . Then,
Step 4.2: AHP synthesization. Divide each entry divide the summation of values in row i by c1i to
(aij) in each column of matrix A by its column yield another column vector,
total. The matrix now becomes a normalized 2 c a þc a þ·· ·c a 3
pairwise comparison matrix, 2 3 1
11
1
12
1
1n

2 Pa11 3a c
Pa1 ·· · P 1n 1
.
2

7 1k
1k 2k nk

¯ 6 . 7 6 c

1
;
1k
7
6
ai1 ai2 ain C¼4 7 ¼ 66
6 . 5 . 7
7
6 7 4 1 5
P P
1
1

6 7
P
. . .
6 i[R. i[ . . .
i[R

a21 a22 a 2n c1kan1 þc2kan2 þ·· ·cnk ann

7 c1nk c1

where C¯ refers to a weighted sum vector.

Step 4.5: Compute the averages of values in

·· ·

ai1
i[R
A ¼6
0
 ai2 ain

7
.
; . 7
7
5

i[R i[R

an1 P
an2 P
ann vector C¯
ai1 ai2 ain
i[R i[R i[R
matrix A,

·· · to yield the maximum eigenvalue of

 ¼

2 3
c
6
. . .
;
4 5
c 1
n 6 7
k

requirements, that is, R {1; 2; . . .

where R denotes the set of stakeholder
 Step 4.3: Compute the average
; n}.
 each row of matrix A0 to yield
of the entries in
 l max ¼
.

column vector,

c¯1
 P
i

n
i[R

@0a1P
P na A
a11
1 þ3a7P a12
þ· · ·þ
a
i1 i2 in

Table III AHP pairwise 6

comparison scale
n 7
C¼ 7¼6
7
Intensity 6 . 7 6 Importance Explanation
.
4 0 an1 1 7A CR ¼
1 6 @P þP n2 þ· · ·þ Pann CI
a
i[R ai1 ai2Equal 7 Two activities contribute equally to the object RIðnÞ
3 nModerate Slightly favors onewhere
over another
RI(n) is a random index of which the
5 Strong Strongly favors one over another
Table
7 IV List of random index values Very strong N
Dominance 2of the demonstrated
3 4 in practice
5 6 7 8 9
9 Extreme Evidence favoring one over another of highest possible order of affirmation
2, 4, 6, 8 Intermediate When compromise is needed
Reciprocals of the above numbers For inverse comparison
RI(n) 0 0.58 0.90 1.12 1.24 1.32 1.41 1.45 three other potential suppliers (S2, S3, and S4). The aim of
this review was to determine supplier performance in terms of
the ability of satisfying the company’s requirements.
Step 5: Compute the importance rating of each The following paragraphs demonstrate the application of
stakeholder requirement, proposed approach using step-by-step approach.
w1i ¼ 1
ik Step 1: Identify the company stakeholders
X k[S
pk c To evaluate and select the best supplier, the company
stakeholders who have a say in supplier selection were
where S denotes the set of company identified first. In this case, there were four categories or
stakeholders, that is, S ¼ {1; 2; . . . ; m}, and pk departments: finance, procurement, production, and quality
denotes the proportion of stakeholder k. control.
Step 6: Copy the stakeholder requirements (step 3) and
their corresponding importance ratings (step 5) Step 2: Determine the importance rating of each
into HOQ2.
stakeholder category
Step 7: Identify the supplier evaluating factors.
The importance rating of each stakeholder category needs to
Step 8: Determine the relationship weightings between be determined by the company’s management team using
evaluating factors i and its corresponding
AHP. A stakeholder with a higher importance rating means
stakeholder requirements k, ci 2 , using AHP
that s/he has more impact on the selection process.
(steps 4.1 to 4.7). Note that, in HOQ2, R
Summation of the importance ratings is equal to one.
denotes the set of evaluating factors, that is,
R ¼{1; 2; . . . ; n}, whereas S denotes the set of Step 3: Identify the stakeholder requirements
stakeholder requirements, that is, In the third step, the stakeholder requirements were
¼
S {1; 2; . . . ; m}. identified through a brainstorming session among the
Step 9: Compute the importance rating of each identified stakeholders. The brainstorming session resulted
evaluating factor, nine stakeholder requirements. They are shown in Table V.
X
w2i ¼ w¯1k 2ik
k[S
Step 4: Determine the relationship weights between the
c company stakeholders and stakeholder requirements
where w¯k 1 is computed in step 5. using AHP
Step 10: Copy the evaluating factors (step 7) and their To calculate the importance of stakeholder requirements, the
corresponding importance ratings (step 9) into relationship weights between the stakeholders and their
HOQ3. requirements were determined using AHP. For example, the
Step 11: Identify the alternative suppliers. procedure of calculating the relationship weights for finance
Step 12: Determine the relationship weightings between department is to construct a pairwise comparison matrix first
suppliers i and its corresponding evaluating as shown in Figure 2. Because four requirements were related
factors k, c3i , using AHP (steps 4.1 to 4.7). to the finance department, there were four elements in matrix
Note that, in HOQ3, R denotes the set of A only. The relevant requirements were “EDI”, “Established
alternative suppliers, that is, R {1; ¼ 2; . .. ; n}, business and financial stability”, “Reference from satisfied
whereas S denotes the set of evaluating factors, customers”, and “Total cost ownership”. For synthesization, a
{1; 2; . .. ; m}.
that is, S ¼ normalized comparison matrix is constructed as shown in
Step 13: Finally, calculate the total score of each supplier, Figure 3. Based on matrix A0 , a column vector showing
X the relationship weightings between stakeholder
wi 3 ¼ w¯
k ik
requirements and finance department was constructed as
2 3
c shown in Figure 4. To verify the consistency, a weighted sum
k[ vector was constructed as shown in Figure 5. Then, the
maximum eigenvalue of matrix A, consistency index, and
consistency
ratio were computed as follows.
4:015 þ 4:042 þ 4:016 þ 4:051
where w¯k 2 is computed in step 9. l ¼ ¼ 4:031
max
4
4:031 2 4
CI ¼ 421 0:010
4. Application 0:010
The proposed strategic sourcing approach is applied to CR ¼ ¼ 0:011
0:90
evaluate supplier for a strategic item in a UK-based
multinational automobile manufacturing company. The Because CR was less than 0.10, the pairwise comparison for
company is a market leader for a few specific brand of cars the finance department was consistent.
and successfully completed 60 years of production. It has
production facilities in more than 15 countries and has more Step 5: Compute the importance rating of each
than four thousands suppliers from more than 70 countries. stakeholder requirement
The company recently reviewed the performance of its Following the above procedure for determining the
suppliers, including the one being collaborated with (S1) and relationship weights between the stakeholder requirements
Table V Descriptions of company stakeholder requirements
Stakeholder requirements
1. Compliance with industrial standards and procedures
2. Compliance with social and environmental requirements
3. Electronic data interchange (EDI)
4. Established business and financial stability
5. Quality
6. Reference from satisfied customers
7. Reliability of order fulfillment
8. Risk management
9. Total cost ownership
Figure 2 Pairwise comparison matrix
Figure 3 Normalized pairwise comparison matrix
Figure 4 Column vector
Description
Suppliers are asked to conform to the industrial standards, e.g. TL9000 a quality system
requirement used by suppliers worldwide
Deploying and respecting ethical standards throughout the supply chain. Environmental
standards, Environment Awareness, Project Plan, Design Review and FMEA
requirement. Suppliers are expected to make proper provision for health, safety and
welfare of its people, visitors, customers and those in the community who may be
affected by their activities. Suppliers are encouraged to implement a health and safety
management system such as Occupational Health and Safety Assessment Series
(OHSAS) 18001
Suppliers providing products and services are asked to have the capability to utilize EDI
for order placement, receipt, confirmation, and invoicing. They may sometimes be asked
to have the capability to use industry standards, bar code products and packaging for
inventory and tracking purposes
Suppliers must be financially sound and credit worthy. Prospective suppliers should be in
business for a period of time
Suppliers are accountable for the quality and reliability of products and services
supplied. Suppliers are required to be able to demonstrate their philosophy,
organization, and process to produce and continually improve high quality reliable
products and services
Reference gotten from satisfied customers
Reliability of order fulfillment consists of the accuracy of quantity fulfillment, the
accuracy of due date fulfillment, and reliability of delivery time
Suppliers should have a process for identification and management of potential risks to
the continual supply of products. They should be able to handle unexpected
situations
Suppliers providing products or services are asked to work to reduce cost elements that
affect the total life cycle cost of product or service procured
Figure 5 Weighted sum vector
and the remaining stakeholders, the importance ratings of
each stakeholder requirement were computed in HOQ1 as
shown in Table VI.
Step 6: Copy the stakeholder requirements (step 3)
and their corresponding importance ratings (step 5)
into HOQ2
After completing HOQ1, both stakeholder requirements and
their corresponding importance ratings were copied into
HOQ2, which linked the requirements and evaluating factors.
Step 7: Identify the supplier evaluating factors
In this HOQ, stakeholder requirements were regarded as
“what’s”, whereas evaluating factors were akin to “how’s”.
The evaluating factors were proposed by the stakeholders
according to the results of a questionnaire. In this case, there
were 20 evaluating factors that the supplier should possess in
order to achieve the stakeholder requirements. Table VII
shows the list of evaluating criteria and their sub-factors.
 Strate
gic
sourci
ng: a
combi
ned
QFD
and
AHP
appro
ach
Willia
m Ho,
Prasan
ta K.
Table VI HOQ1 – linking company stakeholders and their requirements Dey
and
Stakeholder requirements
Marti
2. Compliance with 4. Established 6. Reference 7.
n
Importance 1. Compliance with social and business and from Reliability 9. Total Lockst
Company of industrial standards environmental financial satisfied of order 8. Risk cost ro¨m
stakeholders stakeholders and procedures requirements 3. EDI stability 5. Quality customers fulfillment Management ownership
1. Finance
45 department 0.200 0.096 0.277 0.161 0.466
2 2. Procurement
department 0.400 0.036 0.021 0.072 0.114 0.235 0.054 0.166 0.030 0.273
3. Production
department 0.200 0.157 0.055 0.423 0.257 0.108
4. Quality control Suppl
department 0.200 0.327 0.099 0.360 0.063 0.150 y
Chain
Importance Mana
ratings of geme
stakeholder nt: An
Intern
requirements 0.111 0.039 0.048 0.101 0.251 0.066 0.118 0.064 0.202 ationa
Ranking 4th 9th 8th 5th 1st 6th 3rd 7th 2nd l
Journ
al
Volum
e 16 ·
Numb
er 6 ·
2011 ·
446 –
461
Strategic sourcing: a combined QFD and AHP approach Supply Chain Management: An International Journal
William Ho, Prasanta K. Dey and Martin Lockstro¨m Volume 16 · Number 6 · 2011 · 446 – 461
Table VII A list of supplier
evaluating criteria
Evaluating criteria
factors
Transparency in terms
of cost Sustainable low
cost through
Responsibility for
warranty cost Pro-
active in cost reduction
Delivery
delivery
Quality
453
e
c
t
Sub-
a
t
t
i
t
u
d
100 e
Q
A u
p a
p l
r i
o t
v y
e
d a
n
p d
a
c p
k r
a o
g d
i u
n c
g t
Product i
H v
i i
t
g
y
h
e i
s m
t p
q r
u o
a v
l e
i m
e
t
n
y t
s Flexibility in adapting to
t changes Capacity
a management
n
F
d i
a n
r a
d n
s c
Z i
e a
r l
o
c
i
d r
e c
f u
 msta were “Approved Step 11: Identify the understand why S3
nces packaging”, “Product outperforms the others,
alternative suppliers
Evid audits”, “Highest quality and examine how the
As mentioned earlier,
ence standards”, “Zero defect supplier replacement will
there were four supplier
of attitude” and “Quality alternatives to be be beneficial to the
tax and productivity evaluated, including one automobile manufacturing
pay
improvement”. All of being currently company.
ment
them were related to collaborated with and The first criterion is
s
and the requirement. three other candidate “cost”, in which there are
insur suppliers. four factors as shown in
ance Table XI. S3 gets the
Compliance with EDI Step 9: Compute the Step 12: Determine the highest score because it
Comprehensive importance rating of relationship weightings has the highest degree of
information system each evaluating factor between suppliers i cost transparency, it is the
Technical/innovation After determining all and its corresponding most active supplier in
skills
relationship weightings evaluating factors AHP terms of cost reduction,
between the nine was used again to and most important, most
Relationship
relationship stakeholder calculate the relationship of its raw materials are
requirements and their weightings between the the cheapest. In the
Pref
related evaluating evaluating factors and financial perspective,
erre
factors, the importance suppliers in HOQ3. collaborating with S3 will
d
ratings of each factor help to minimize the
cust
were computed in Step 13: Finally, expenses.
omer
HOQ2 as shown in calculate the The comparison of
treat alternative suppliers with
Tables VIII– IX. total score of
ment respect to “delivery” is
According to HOQ2, each supplier
Tran shown in Table XII.
the five most critical After determining all
spar Because of having a large
factors were “Highest relationship weighs, the
ency fleet size, S3 has a better
quality standards”, importance ratings of
in performance in terms of
“Quality and each supplier were
term on time delivery. Besides,
productivity computed in HOQ3 as
s of it is the second best
improvement”, shown in Table X.
strat According to HOQ3, the supplier in terms of
“Sustainable low cost
egy performance of the third secured and safety
through”, “Zero
supplier was the best, packaging. Fast and
defects attitude”, and
followed by S2, S1, and reliable delivery is utmost
“100 percent on time
Step 8: Determine S4. Alternatively, the important in
delivery”. The finding
the relationship performance of suppliers contemporary supply chain
was almost identical to
weights between can be evaluated with management because this
that in Ho et al. (2010),
evaluating factors respect to some critical ensures that right amount
which revealed that of incoming raw materials
and its “Quality”, “Delivery”, factors instead of all 20
corresponding factors. Based on the five is available at the right
and “Cost” were the time.
stakeholder most important critical factors mentioned
in step 9, the The comparison of
requirements evaluating factors. alternative suppliers with
Similar to HOQ1, AHP performance of S3 was
the best (0.204), respect to “quality” is
was used to calculate
followed by S1 (0.118), shown in Table XIII. S3
the relationship Step 10: Copy the
S2 (0.102), and S4 gets the highest score
weightings between the evaluating factors (step
(0.067). According to because it focuses on
stakeholder 7) and their
both evaluations, the product audits most,
requirements and corresponding
company should various quality standards,
evaluating factors in importance ratings such as statistical process
HOQ2. Certainly, the terminate the
(step 9) into HOQ3 control, are applied to
size of each pairwise collaboration with the
In the last stage, both monitor the production
comparison matrix was current supplier, and
evaluating factors and processes (i.e. “Highest
varied, and was replace S1 by S3.
their corresponding quality standards”), and
dependent on the importance ratings its ability of continuously
number of evaluating were copied into 5. Result analysis improving quality and
factors that will achieve HOQ3, which evaluates productivity is the highest
In this section, we focus
a particular the suppliers with on comparing alternative (i.e. “Quality and
requirement. For respect to the 20 suppliers with respect to productivity
example, there were evaluating factors. the six evaluating criteria – improvement”). However,
five elements in the cost, delivery, quality, its’ staff awareness of
matrix for the management, technology, achieving zero defect is not
requirement and relationship. The as high as S1 (i.e. “Zero
“Compliance with factors of each criterion defect attitude”). In
industrial standards and will be analyzed to summary, collaborating
procedures”. They with S3 will help to
453
increase the quality of
automobiles, and
reduce the cost of poor
quality, especially the
internal failure costs
due to defective
incoming raw
materials.
According to Table
XIV, S3 scores the
highest in all factors
of “management”
criterion. Instead of
supplying standardized

453
 Strate
gic
sourci
ng: a
combi
ned
QFD
and
AHP
appro
ach
Table VIII HOQ2 – linking stakeholder requirements and evaluating factors
Willia
Evaluating factors m Ho,
1. 2. 3. 4. 5. 8. 9. 10. Prasan
Importance Transparency Sustainable Responsibility Pro-active 100 percent 6. 7. Highest Zero Quality and ta K.
Stakeholder of in terms of low cost for warranty in cost on time Approved Product quality defects productivity Dey
requirements requirements cost through cost reduction delivery packaging audits standards attitude improvement and
Marti
1. Compliance with n
industrial standards Lockst
ro¨m
and procedures 0.111 0.198 0.211 0.402 0.085 0.104
2. Compliance with
social and
45 environmental
4 requirements 0.039 0.122 0.319 0.303
3. EDI 0.048 0.293
4. Established business
and financial stability 0.101
5. Quality 0.251 0.089 0.090 0.417 0.195 0.209 Suppl
y
6. Reference from Chain
satisfied customers 0.066 Mana
7. Reliability of order geme
fulfillment 0.118 0.531 0.072 0.244 nt: An
Intern
8. Risk management 0.064 0.096 ationa
9. Total cost ownership 0.202 0.133 0.479 0.094 0.294 l
Importance ratings of Journ
al
evaluating factors 0.041 0.097 0.019 0.059 0.063 0.058 0.046 0.149 0.077 0.105
Ranking 12th 3rd 16th 6th 5th 7th 10th 1st 4th 2nd Volum
e 16 ·
Numb
er 6 ·
2011 ·
446 –
461
 Strate
gic
sourci
ng: a
combi
ned
QFD
and
AHP
appro
Table IX HOQ2 – linking stakeholder requirements and evaluating factors ach
Evaluating factors Willia
11. 14. m Ho,
Flexibility 13. Evidence of 16. 17. 19. 20. Prasan
ta K.
Importance in 12. Good tax payments 15. Comprehensive Technical/ 18. Preferred Transparency Dey
Stakeholder of adapting Capacity financial and Compliance information innovation Long-term customer in terms of and
requirements requirements to changes management circumstance insurance with EDI system skills relationship treatment strategy Marti
n
1. Compliance with Lockst
industrial ro¨m
standards and
procedures 0.111
2. Compliance with
45 social and
5 environmental
requirements 0.039 0.057 0.052 0.146
3. EDI 0.048 0.412 0.187 0.108
4. Established
Suppl
business and y
financial stability 0.101 0.469 0.267 0.130 0.053 0.082 Chain
5. Quality 0.251 Mana
geme
6. Reference from nt: An
satisfied Intern
customers 0.066 0.260 0.633 0.106 ationa
l
7. Reliability of Journ
order fulfillment 0.118 0.153 al
8. Risk management 0.064 0.466 0.277 0.161 Volum
9. Total cost e 16 ·
ownership 0.202 Numb
Importance ratings er 6 ·
of evaluating 2011 ·
446 –
factors 0.048 0.018 0.047 0.027 0.035 0.016 0.024 0.017 0.042 0.012 461
Ranking 8th 17th 9th 14th 13th 19th 15th 18th 11th 20th
 Strategic sourcing: a combined QFD and AHP approach Supply Chain Management: An International Journal
William Ho, Prasanta K. Dey and Martin Lockstro¨m Volume 16 · Number 6 · 2011 · 446 – 461

Table X HOQ3 – linking evaluating factors and alternative suppliers

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
1. Transparency in terms of cost 0.041 0.218 0.182 0.427 0.173
2. Sustainable low cost through 0.097 0.284 0.063 0.509 0.144
3. Responsibility for warranty cost 0.019 0.301 0.484 0.143 0.072
4. Pro-active in cost reduction 0.059 0.143 0.239 0.525 0.093
5. 100 percent on time delivery 0.063 0.077 0.157 0.536 0.229
6. Approved packaging 0.058 0.063 0.136 0.309 0.492
7. Product audits 0.046 0.081 0.272 0.567 0.081
8. Highest quality standards 0.149 0.167 0.333 0.333 0.167
9. Zero defects attitude 0.077 0.563 0.108 0.267 0.062
10. Quality and productivity improvement 0.105 0.166 0.264 0.483 0.087
11. Flexibility in change adaptation 0.048 0.125 0.375 0.375 0.125
12. Capacity management 0.018 0.167 0.333 0.333 0.167
13. Good financial circumstance 0.047 0.062 0.108 0.563 0.267
14. Evidence of tax payments and insurance 0.027 0.218 0.182 0.427 0.173
15. Compliance with EDI 0.035 0.218 0.182 0.427 0.173
16. Comprehensive information system 0.016 0.284 0.063 0.509 0.144
17. Technical/innovation skills 0.024 0.085 0.140 0.542 0.233
18. Long-term relationship 0.017 0.379 0.379 0.161 0.081
19. Preferred customer treatment 0.042 0.125 0.375 0.375 0.125
20. Transparency in terms of strategy 0.012 0.284 0.063 0.509 0.144
Importance ratings of alternative suppliers 0.196 0.220 0.422 0.162
Ranking 3rd 2nd 1st 4th

Table XI A comparison of the alternative suppliers with respect to cost

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
1. Transparency in terms of cost 0.041 0.218 0.182 0.427 0.173
2. Sustainable low cost through 0.097 0.284 0.063 0.509 0.144
3. Responsibility for warranty cost 0.019 0.301 0.484 0.143 0.072
4. Pro-active in cost reduction 0.059 0.143 0.239 0.525 0.093
Importance ratings of alternative suppliers 0.051 0.037 0.101 0.028
Ranking 2nd 3rd 1st 4th

Table XII A comparison of the alternative suppliers with respect to delivery

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
5. 100 percent on time delivery 0.063 0.077 0.157 0.536 0.229
6. Approved packaging 0.058 0.063 0.136 0.309 0.492
Importance ratings of alternative suppliers 0.009 0.018 0.052 0.043
Ranking 4th 3rd 1st 2nd

Table XIII A comparison of the alternative suppliers with respect to quality

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
7. Product audits 0.046 0.081 0.272 0.567 0.081
8. Highest quality standards 0.149 0.167 0.333 0.333 0.167
9. Zero defects attitude 0.077 0.563 0.108 0.267 0.062
10. Quality and productivity improvement 0.105 0.166 0.264 0.483 0.087
Importance ratings of alternative suppliers 0.089 0.098 0.147 0.043
Ranking 3rd 2nd 1st 4th

456
 Strategic sourcing: a combined QFD and AHP approach Supply Chain Management: An International Journal
William Ho, Prasanta K. Dey and Martin Lockstro¨m Volume 16 · Number 6 · 2011 · 446 – 461

Table XIV A comparison of the alternative suppliers with respect to management

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
11. Flexibility in change adaptation 0.048 0.125 0.375 0.375 0.125
12. Capacity management 0.018 0.167 0.333 0.333 0.167
13. Good financial circumstance 0.047 0.062 0.108 0.563 0.267
14. Evidence of tax payments and insurance 0.027 0.218 0.182 0.427 0.173
Importance ratings of alternative suppliers 0.018 0.034 0.062 0.026
Ranking 4th 2nd 1st 3rd

raw materials, S3 is able to adjust the production lines to
manufacture various types of raw materials based on buyers’
requests (i.e. Flexibility in change adaptation). S3 is able to
increase its internal capacity and acquire external capacity
from sub-contractors to adapt to unpredictable high demand
(i.e. Capacity management). In addition, S3 is financially
sound and credit worthy (i.e. Good financial circumstance;
Evidence of tax payments and insurance). Collaborating with
such a flexible and reliable supplier will help to reduce risks
and uncertainties faced by the automobile manufacturing
company.
The comparison of alternative suppliers with respect to
“technology” is shown in Table XV. S3 possesses
comprehensive information systems, including EDI and
extranet, for its buyers to place orders online. This will help
to shorten the order cycle, and reduce the cost of placing
orders manually. Besides, workforces in S3 have high
technical and innovation skills. It invests on research and
development heavily, and this helps to increase the
uniqueness of raw materials supplied.
Finally, the comparison of alternative suppliers with respect
to “relationship” is shown in Table XVI. Again, S3 gets the
highest score because it treats its buyers favorably (i.e.
Preferred customer treatment) by providing various value-
added services (e.g. track-and-trace system and free technical
support). Moreover, S3 has the highest degree of strategy
transparency. Its missions and visions are shown explicitly on
the company website.
Based on the above analysis, there are numerous
advantages of terminating the collaboration with the current
supplier, and replacing S1 by S3. In summary, this supplier
replacement will help to enhance the competitiveness of
automobile manufacturing company by reducing costs,
increasing quality, speed, flexibility, and value. These are the
five dimensions that an organization must possess in order
to differentiate itself from the competitors. Evaluating
suppliers with respect to cost factors using the traditional
approaches, such as TCO and mathematical programming,
cannot guarantee that the selected supplier is optimal in
contemporary supply chain management because multiple
criteria should be considered, as the proposed approach
did.
6. Conclusions
This paper develops a combined QFD and AHP approach to
measure the performance of alternative suppliers. The
effectiveness of approach has been demonstrated using a
case study of UK-based automobile manufacturing company.
In the approach, QFD has been used to translate the company
stakeholder requirements into multiple evaluating factors for
supplier selection, which are used to benchmark the suppliers.
AHP was used to determine the importance of evaluating

Table XV A comparison of the alternative suppliers with respect to technology

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
15. Compliance with EDI 0.035 0.218 0.182 0.427 0.173
16. Comprehensive information system 0.016 0.284 0.063 0.509 0.144
17. Technical/innovation skills 0.024 0.085 0.140 0.542 0.233
Importance ratings of alternative suppliers 0.014 0.011 0.036 0.014
Ranking 2nd 4th 1st 2nd

Table XVI A comparison of the alternative suppliers with respect to relationship

Alternative suppliers
Evaluating factors Importance rating S1 S2 S3 S4
18. Long-term relationship 0.017 0.379 0.379 0.161 0.081
19. Preferred customer treatment 0.042 0.125 0.375 0.375 0.125
20. Transparency in terms of strategy 0.012 0.284 0.063 0.509 0.144
Importance ratings of alternative suppliers 0.015 0.023 0.025 0.008
Ranking 3rd 2nd 1st 4th

457
 Strategic sourcing: a combined QFD and AHP approach
William Ho, Prasanta K. Dey and Martin Lockstro¨m
factors and preference of each supplier with respect to each
selection criterion.
There are many advantages of this integrated approach.
First, multiple qualitative and quantitative factors can be
considered to evaluate the performance of alternative
suppliers. This will ensure that the selected supplier is
optimal in terms of lowest cost, highest quality, fastest
delivery, greatest flexibility, and highest value-added. Second,
the evaluating factors are related to the strategic intent of
company through the involvement of concerned stakeholders.
This ensures successful strategic sourcing because the
supplier selected can achieve the business objectives. Third,
the application of AHP ensures consistent supplier
performance measurement using benchmarking approach.
This ensures that the judgments made are guaranteed to be
consistent, which is the basic ingredient for making good
decisions. Fourth, the integrated approach involves a team of
people representing various functional departments (finance,
procurement, production, and quality control) for supplier
selection. The active involvement of these departments can
lead to a balanced consideration of the requirements or
“what’s” at each stage of this translation process, and provide
a mechanism to communicate hidden knowledge - knowledge
that is known by one individual or department but may not
otherwise be communicated through the organization. This
methodology helps procurement personnel understand the
essential requirements from various departments. Besides
internal stakeholders, this integrated approach can also take
external stakeholders, such as customers, publics, and
government, into consideration. Based on the requirements
of various relevant stakeholders, the sourcing decisions can be
made more strategically and effectively. Fifth, sensitivity
analysis utility of AHP could be applied here in order to check
the effect of changes in the importance levels of various
factors on final outcome. Therefore, the proposed approach
outranks the conventional approaches to supplier selection
and supplier performance measurement.
The major limitation or drawback of proposed integrated
approach is due to AHP. It may be time-consuming in
reaching consensus. Decision makers have to compare each
cluster in the same level in a pairwise fashion based on their
own experience and knowledge. For instance, every two
criteria in the second level are compared at each time with
respect to the goal, whereas every two sub-factors of the
same criteria in the third level are compared at a time with
respect to the corresponding criterion. If it is found that the
consistency ratio exceeds the limit, the decision makers have
to review and revise the pairwise comparisons again.
Similar approach could be principally adopted in other
decision-making scenarios for effective management of supply
chain, including third-party logistics service provider
evaluation and selection, distribution center and warehouse
location evaluation and selection, supply chain performance
measurement, and so on. However, this calls for thorough
research as both frameworks and criteria for decision-making
are likely to vary widely depending on the context.
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Corresponding author
William Ho can be contacted at: w.ho@aston.ac.uk
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