BEST CRITERIA OF SUPPLIER SELECTION MODEL

FOR PROCUREMENT USING ANALYTICAL

HIERARCHY PROCESS (AHP) AND EXPERT
CHOICE (EC)

Name: Sasitaran Baskaran (MRS181032)

ID: MRS181032
LECTURER: Prof. Madya Dr. Abd. Rahman Bin Abdul Rahim
 Presentation Outline

INTRODUCTION PROBLEM STATEMENT OBJECTIVES SCOPE OF STUDY SIGNIFICANCE OF

STUDY

LITERATURE REVIEWS RESEARCH RESULTS AND FUTURE RESEARCH

METHODOLOGY DISCUSSION AND
RECOMMENDATIONS
 INTRODUCTION

TechTarget, 2019

Supplier- A company, person, that provides things that people want or need,
especially over a long period of time. (Cambridge, 2019)
 Since early 60’s supplier selection problem and
methods has received considerable attention in
academic researchers and literature.

One of the major topics in production and

operations management literature.
Supplier selection

One of the most critical activities in

procurement process

Involves many evaluation criteria such as price

of product, lead time, quality, responsiveness
of supplier and terms and conditions
 Introduction

Procurement
• Act of buying the goods and services to be operated or manufactured by the company

• Expense of purchasing represents over 60% of firm

• Includes assessing the requirements, choosing manufacturers, issuing contract order

and ensuring proper delivery

• Focuses on obtaining the right quantity and quality to the right place, at the right time,
at the right price
 RESEARCH BACKGROUND

XYZ is a multinational company Provides electronic

based in St. Petersburg, USA. manufacturing services

Have more than 100

Global Procurement Centre
manufacturing sites around the
located at Penang, Malaysia
world with 200,000 employees

XYZ need to be proactive and

Procurement of XYZ must be
agile to win new businesses by
strong for excellent
sourcing to the right suppliers
deliverability and performance
and sustain in the market
 Research Background

• Sourcing decisions are made within Global Procurement organization

• Supplier sourcing based on received projects and locations

• Has more than 3000 suppliers worldwide namely from US, China,
Japan and UK
 PROBLEM STATEMENT
• Longer lead time affects production time

• Poor response of supplier towards inquiry

• Different price for same part from different suppliers

 PROBLEM STATEMENT

• Quality of products varies according to supplier (eg: compliance)

• Different payment terms (eg: 30 days, 60 days)

• Difficulty to search for alternative suppliers during unexpected situations

(eg: covid19 pandemic
 PROBLEM STATEMENT

Current Practice
• XYZ only focuses on least price/cost strategy to select suppliers

• Survey is conducted at each quarter to identify supplier performance or issues

• Categorical method which involves categorizing each supplier’s performance in

specific areas as defined by a list of relevant performance variables. Internal
team only focuses on the price category to select suppliers.

• Detailed performance achievement or shortcomings are not measured.

 PROBLEM STATEMENT

Current Practice
Acknowledge the
need for supplier
sourcing

Contract /
Identify sources
Agreement
of potential
signing with the
suppliers
selected supplier

Choose suppliers
Shortlist the
with the best
suppliers
price offer
 RESEARCH OBJECTIVE
BEST CRITERIA OF SUPPLIER SELECTION MODEL FOR PROCUREMENT USING ANALYICS
HIERARCHY PROCESS (AHP) AND EXPERT CHOICE (EC)

Problem Statement Research Objective (RO)

Only lowest price is considered as main criteria.
Material analyst are facing difficulties of other factors
from suppliers such as delivery time, quality, quantity
and service.
No other criterias of supplier performance is taken into
consideration which affects the procurement activity
1. To identify the important criteria for supplier
selection model
2. To analyse the main criteria of supplier selection
model

3. To propose a Multiple Attribute Decision Making

supplier selection model for procurement
organisation
 RESEARCH OBJECTIVE
BEST CRITERIA OF SUPPLIER SELECTION MODEL FOR PROCUREMENT USING ANALYICS
HIERARCHY PROCESS (AHP) AND EXPERT CHOICE (EC)

Research Objective (RO) Research Instrument / Methodology

1. To identify the important criteria for supplier Literature review on supplier evaluation method
selection model implemented to measure supplier performance

2. To analyse the main criteria of supplier selection Data obtained from survey
model

3. To propose a Multiple Attribute Decision Making Based on literature review and data collected from
supplier selection model for procurement organisation supply base, also considering contributing factors,
propose supplier selection model for procurement
organisation
 SCOPE OF STUDY

Data gathered from 15 Material Only bidding projects China region, Huangpu All Original Equipment Passive components -
Quote Analyst. received from site Manufacturer (OEM) most used in a project
(1st Jul 2020 to 30th Sept suppliers
2020)
SIGNIFICANCE OF STUDY
Help to assess and select Reduce time, energy and
supplier based on chosen increase productivity in
criteria procurement process

Can be implemented in
Mitigate confusion and
procurement organization of
conflict in supplier selection
other companies especially
process
manufacturing field

Supplier selection can be

done with wide range
number of suppliers for any
components
 LITERATURE REVIEW
Measure supplier performance periodically (usually quarterly basis) for sustainable and highly effective procurement process
(SRSC NC State University, 2011)

Procurement cost comprises of 60–80% of production cost for many manufacturing organisations. Suppliers not only contribute in
product innovation, but also help achieve highly effective production processes. (Estampe and Lamouri, 2013)

Majority of the prior studies, journals or reports emphasise on lagging factors (quality, delivery schedule and value/cost) for supplier
selection and evaluation. (Dey, 2014)

Supplier evaluation eventually facilitates to improve supplier performance through identifying improvement measures, such
measures are complex and cumbersome to implement (Estampe and Lamouri, 2013)
 LITERATURE REVIEW

Multi-Attribute Decision Making Supplier Selection Method

TITLE/
NO AUTHOR/YEARS/ METHODS FINDINGS SUGGESTIONS FROM THE CRITICAL REVIEWS
USED PAPERS
JOURNAL
1. Supplier selection and Neural Incorporation of both NN based supplier performance Supplier performance evaluation is
performance network(NN)- quantitative and evaluation method criteria:- based on JIT environment and only
evaluation in just-in- based supplier qualitative 4 criteria used for evaluation.
time selection and supplier attributes by 1. Quality
production performance using the NN technique 2. JIT delivery performance
environments (Aksoy, evaluation is a suitable method 3. Location
Asli & Öztürk, Nursel, system for manufacturers, 4. Price
2011). especially for those who
outsource a significant
part of their business.
2. An integrated Data envelope Companies consider Sustainability factors play a DEA method has many input criteria
framework for analysis (DEA) – criteria such as price, critical role for long and may not be suitable for all
sustainable supplier linear quality, flexibility, and term achievement of a Supply procurement environment
selection and programming to supplier reputation Chain Management (SCM) and the
evaluation in supply meet all when evaluating purchasing process becomes
chains (Luthra, Sunil & Decision-Making supplier performance. more complicated with social and
Govindan, 2016) Units (DMU) environmental pressures

TITLE/ AUTHOR/YEARS/
NO JOURNAL
3. The use of AHP method for
selection of
supplier(Roman, 2014)
4. Analytical Hierarchy Process
(AHP) approach for selecting
stationery suppliers in
selected universities in
Benin City (Dickson,2018)
METHODS USED FINDINGS
Analytical Hierarchy The AHP is systematic
Process (AHP) approach for selecting
suppliers. People deal with
complex decisions rather than
prescribing a ‘correct decision’,
the AHP helps people to
determine one.
Analytical Hierarchy The analytic hierarchy
Process (AHP) process (AHP) decision
making process functions in
terms of the multi-criteria
analysis for cost, flexibility,
quality, delivery, and variety.
LITERATURE REVIEW
CRITICAL REVIEWS
AHP is a decision making method for prioritizing
alternatives when multiple criteria must be
considered and allows the decision maker to
structure complex problems in the form of a
hierarchy
The performance of each supplier on each
criterion each supplier has been studied by
AHP to construct a framework to formalize
the evaluation between the conflicting
selections criteria associated with various
suppliers’ offers.
 LITERATURE REVIEW

Supplier Selection Criteria

No Title Researcher Supplier Selection Criteria

Price/Cost Service Quality Delivery Quantity
1 A supplier selection model in Forghani et al, ✔   ✔   ✔   ✔    
pharmaceutical 2018
supply chain using PCA, Z-
TOPSIS and MILP: A case study

2 Analyzing the Process of Taherdoost et ✔   ✔   ✔   ✔   ✔  

Supplier Selection Criteria and al, 2019
Methods

3 Decision Model for Supplier Ragavan et al, ✔   ✔   ✔   ✔   ✔  

Selection Using Data 2013
Envelopment Analysis
 RESEARCH
RESEARCH METHODOLOGY

DEFINE THE PROBLEM

METHODOLOGY
STATEMENT
INTERPRATE DATA &
YES DATA COME OUT WITH
COLLECTION THE RESULT
GATHER LITERATURE
START FINDING REVIEW & NO
RESEARCH TOPIC INFORMATION
YES
YES YES
GATHER QW ANALYZE PROPOSE
DATA/SURVEY RESULTS COLLECTED SUPPLIER
DATA SELECTION
YES MODEL

ANALYSE VARIABLES

STAGE 1- STAGE 2- STAGE 3- STAGE 4 –

DEVELOPMENT OF DEVELOPMENT- PRIMARY CARRYING OUT RESEARCH DATA ANALYSIS &
STUDY FOUNDATION STUDY METHODOLOGY RECOMMENDATION
20
 Respondents

15 MATERIAL QUOTE ANALYST

DATA COLLECTION – Google Forms
DATA INPUT – Expert Choice
 DATA ANALYSIS
• Data analysis using Analytical Hierarchy Process (AHP) using preselected criteria

• AHP helps to make necessary trade off between these criteria by implementing
pairwise-comparison

• AHP provides a framework for making effective decisions in complex decision

situations, helps to simplify and accelerate the natural process of decision making.
 RESEARCH DESIGN
Price

Delivery SUPPLIER
SELECTION BEST SUPPLIER
CRITERIA
Quantity  Dependent Variable

Quality

Service

 Independent Variable
 RESEARCH DESIGN

Elements of independent variable

Cost Delivery Quantity Quality Service
• Total Cost of • Payment terms • Minimum Order Quantity • ROHS • Response
product • Standard Leadtime (MOQ) compliance • Privilege
• Reschedule/Cancellation • Standard Packaging
Window quantity (SPQ)
• Ask quantity

• The selected criteria are the most used criteria in many different industries and found
to cover most of the organization’s needs.
 Assigning Weightage
Intensity of Importance Definition Explanation

1 Equal Importance Two activities contribute equally to the objective

3 Moderate Experience and judgement slightly favour one activity

importance over another

5 Strong importance Experience and judgement strongly favour one activity

over another

  Very strong or An activity is favoured very strongly over another; its

demonstrated
7 importance dominance demonstrated in practice

9 Extreme The evidence favouring one activity over another is of

importance the highest possible order of affirmation
 TOOLS

Expert Choice is decision-making software that is based on

multi-criteria decision making. Expert Choice implements the
Analytic Hierarchy Process

Google Forms is a survey administration app

 GANTT CHART

Gantt Chart of Project Timeline

2020
                         
        Month >                
# Activity Start End Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
1 ANALYSE GATHERED INFORMATION Feb Apr                      
2 COME OUT WITH RESEARCH MODEL Apr Jun                      
3 COLLECT DATA Apr Jun                      
4 DATA ANALYSIS Jul Sept                      
5 PUBLISH RESULT Sept Oct                      
6 REPORT WRITING Feb Dec                      
7 PROPOSE MODEL Oct Nov                      
RESULTS AND DISCUSSION
RESULTS AND DISCUSSION
 RESULTS AND DISCUSSION

CRITERIA WEIGHT RANKING

Price 0.322 1

Delivery 0.200 2

Service 0.161 3

Quality 0.159 4

Quantity 0.158 5
 RESULTS AND DISCUSSION

• Consistency index (C.I.) and the consistency ratio (C.R.) to measure a lack of consistency. It is considered
that a consistency ratio of 0.10 or less is acceptable.

• Saaty argues that an inconsistency ratio (CR) less than 0.10 or less is acceptable while more than 0.10 must
be re-examined or re-assessed.

• In this project, the overall inconsistency ratio is less than 0.10 which is 0.07 to be exact. This can be
considered reasonably consistent.
FUTURE RESEARCH AND RECOMMENDATIONS
• This project is based on the supplier selection mechanism and situation in Company XYZ thus, it does not
review the whole supplier selection picture in a procurement environment

• More criteria can be added into the AHP process to obtain more accurate results according to the need
and situation

• The alternatives can be used to select the best supplier and set the goal to find the best supplier
 REFERENCES
i. Omorogbe, Dickson & Iguodala, Wilfred. (2018). Analytical Hierarchy Process (AHP) approach for
selecting stationery suppliers in selected universities in Benin City. AFRREV STECH: An International
Journal of Science and Technology. 7. 46. 10.4314/stech.v7i2.5.

ii. Průša, Petr & Hruška, Roman & Babić, Darko. (2014). The use of AHP method for selection of supplier.
Transport. 29. 195 - 203. 10.3846/16484142.2014.930928.

iii. Seyit Ali Erdogana, Jonas Šaparauskasb & Zenonas Turskisc. (2017). Decision Making in Construction
Management: AHP and Expert Choice Approach. Procedia Engineering, 172, p. 270-276.

iv. Shirley Jin Lin Chua, Azlan Shah Ali & Anuar Alias. (2014). Procurement Method Selection for Building
Maintenance Projects: The Case of Malaysian Public Universities. World Journal of Engineering and
Technology, 2, p. 7-13.

v. Saaty, T. L. (2008). Decision Making with the Analytical Hierarchy Process. Int. J. Services Sciences, Vol. 1,
No. 1, p. 83-98.