Multi-Criteria Decision-Making Problem - Research Paper Example

• Introduction

The supplier selection process is where a firm identifies, assesses and enters into a contract with a supplier or suppliers (Beil 2009, 1). The process of supplier selection requires a firm to deploy a tremendous amount of financial resources due to the need to contract suppliers offering high value. A company invests lots of money in their operations. To ensure efficiency, companies are relying on outsourcing of complex services and products to different suppliers. This means that if a company needs to maintain or increase its place in the market, it has to choose suppliers who increase its value. This makes the supplier selection process very crucial for a firm. The importance attributed to the process also means that multiple criteria and processes are used in selecting the right suppliers. A company in need of suppliers must look at the performance of each supplier over the years, the financial standing, the cost of supplying goods among other factors. This makes the supplier selection process a multiple criteria decision-making problem (Beil 2009, 2).

The competitive corporate environment experienced today means that certain dimensions such as product delivery, the quality of the product, the flexibility and cost of the operations must be incorporated in the supply chain. Due to the competitive environment in the business sector, the decision concerning the selection of a supplier is important for the success of the production management. The evaluation and selection of a supplier is an important factor that influences these dimensions and must, therefore, be handled with care. Supplier evaluation and selection has an influence on the long-term commitments and performance of a business or a company. Purchasers of products have to assess each supplier carefully due to the varying strengths and weaknesses of such suppliers (Yildiz & Yayla 2015, 158).

A company’s multi-criteria decision-making process (MCDM) is important in the evaluation and selection of suppliers. The process is important because it helps the purchasers or companies to identify the challenges arising from the selection of a supplier (Yildiz & Yayla 2015, 159). The use of MCDM process makes it easy for the company to address the problems and promotes better decision-making. Further, selecting suitable suppliers helps a company reduce production costs, hence increasing the organization’s competition ability due to the low cost of raw materials.

• Multiple criteria decision making Methodologies

The current research intends to identify how decision-makers with different decision power can be involved in the supplier selection model. The answer to this question lies in the application of MCDM where there are different stages involved in the selection process where different decision-makers can be involved. The supplier selection process, as stated above, is a MCDM problem which can be solved through the application of the right approaches or methods. There are many criteria for the selection of the best supplier. These criteria include; quality delivery, price or cost, production capacity, technology, financial stability, reputation and position in the industry, flexibility, packaging quality among others. Such criteria can be used by a company to evaluate and select the appropriate supplier. There are also several methods that have been proposed for solving the problems associated with MCDM in the selection of suppliers. Some of these methods include a technique for order preference by similarity to ideal solutions (TOPSIS), analytical hierarchy process (AHP), and analytical network process (ANP). These techniques are mathematical models which have been used in different studies involving multi-criteria decision-making. The evidence presented in this section shows that these mathematical models have been applied in supplier selection. This means that a mathematical model can be developed for supplier selection.

• • - TOPSIS

The TOPSIS method ranks the alternatives, for example, suppliers according to how far they are from the ideal solution. This means that, according to the method, the best alternative will be the one with the shortest distance from the ideal solution and the furthest distance from the negative ideal solution (Sarraf et al. 2013, 862). TOPSIS is applied where the selection process involves several alternatives.

In applying this method, a decision matrix must be prepared before the process begins. The matrix contains alternatives placed in rows together with their ratings in terms of their attributes. These scores for each of the alternatives can be adjusted to conform to the standard required through a process known as normalization. The process can also be made in columns to allow the decision-makers to compare the available alternatives. The normalized value for the process is between 0 and 1. This method makes it easy to eliminate the computational issues that may result from the different measurements in the matrix (Sarraf et al. 2013, 863).

The first step in the application of this method is to make the decision matrix standard. The goal for the standardization process is to transform the attribute dimensions into non-dimensional attributes making it easier for comparison. The second step involves constructing the weighted decision matrix that is standardized. This is done by multiplying the weight of the attributes to each rating. Once this has been done, the decision-makers then have to determine the ideal solution and negative ideal (Ding & Zeng 2015, 345). These two ideals are meant to help the decision-maker choose the best alternative. The fourth step requires the decision-makers to determine how far each alternative is from the ideal solution. This process helps to identify the alternative that is best suited for the situation. The fifth step involves measuring how far the alternatives are from the negative solution. The process is meant to choose the alternatives that are not suitable for the intended solution. The sixth step, on the other hand, determines the relative closeness of the alternatives to the ideal solution.

One of the objectives for the current study is to review previous research in supplier selection using MCDM techniques to identify the method that is best suited for the research. TOPSIS has extensively been used in MCDM. TOPSIS has been used in a recent study to determine the performance of universities in China. The scope of the study was to assess the teaching and research, development ability and the performance of these universities. The research was conducted through a criterion that was based on the methods of teaching and research in every university (Ding & Zeng 2015, 356). In this study, TOPSIS was used together with information entropy weight (IEW). The results of this study show that the two techniques are compatible and effective. According to the research, an increase in the financing of the universities by the Ministry of Education does not affect the performance ((Ding & Zeng 2015, 357). The Universities continue to perform poorly even with increased funding.

Chen et al. (2016, 279) uses the TOPSIS method to propose the construction of a new MCDM. The process also involves using similarity measures between the intuitionistic fuzzy values (IFV). Through the application of the TOPSIS technique, the researchers propose a new MCDM method that calculates the degree of the interdependency of the IFV. The new method also calculates the degree of positive similarity and negative similarity of the IFVs together with the positive and negative ideal solutions used for the criteria (Chen et al. 2016, 280). According to the results, the proposed method has a time complexity of O(mn) where m represents the alternatives while n represents the number of criteria used for the research. Through the use of TOPSIS, the researchers identify a new MCDM method which is capable of overcoming the drawbacks that previously existed (Chen et al. 2016, 294).

2.2- AHP

AHP is a technique applied in MCDM that helps to simplify a complex problem by dividing it into a multi-level structure. Through this method, the decision-makers can perform comparisons in pairs to determine the importance of the variables in the structure. The method can be applied where there is subjectivity and is also suitable where the criteria used can be divided into sub-criteria organized in a hierarchical manner. The method can also be used to determine relative priorities where comparisons are done in pairs within the structures (Deng et al. 2014, 157).

Albert et al. (2016, 54) use AHP to develop a blueprint for the use of smartphone apps that have the potential to reduce road accidents or injury crashes. Experts’ opinions are evaluated through the Analytic Hierarchy Process (AHP), and apps mapping is also incorporated to identify apps that can help reduce accidents and also be easily acceptable to users. The criteria used for the research was risky driving behavior and general acceptance of apps. The criterion for general acceptance was divided into three; the willingness of the individual, support from the public and potential functionality. The research also involved thirty-seven experts who considered the alternatives against the criteria. The results of the research showed that apps that provided for collision warning, texting prevention and voice control were seen as potential apps that could be used to reduce or prevent injury crashes (Albert et al. 2016, 61). AHP has also been used to identify technology and practices that could be used in the design of ships to lower fuel consumption of such ships (Besikci et al. 2016, 392). Practices such as increasing energy awareness and system energy efficiency were seen as some of the measures that could help to reduce fuel consumption of ships.

2.3- ANP

ANP, like AHP, is a technique used to measure intangible factors through the use of pairwise comparisons with judgments where one element is dominant than another in a shared property (Gorener 2012, 197). ANP, unlike AHP, allows interrelationships that are complex among decision levels and attributes. The method involves four steps. The first step is model construction and structuring of the problem where the problem is stated clearly and organized into a form of structure. Secondly, pairwise comparisons and priority vectors are made where decision elements are paired for comparison. There is also the supermatrix formation where the matrix is partitioned and finally the synthesis of the criteria and alternatives through a prioritized process where the best alternative is selected (Thanki et al. 2016, 294).

ANP involves the generalization of AHP through evaluating the level of dependence between the different elements in the hierarchical structures or elements set up in AHP. The fact that there are some decision-making problems that cannot be structured in a hierarchical manner means that ANP has to be applied such that the problems will be structured in a network instead of a hierarchy. The structure consists of cycles that link the elements (Gupta et al. 2015, 84). The use of ANP requires the decision-maker to describe the decision problem in detail form. This means that the objectives, criteria and possible outcomes of the decision being made must be considered. The decision-maker then proceeds to determine the criterion that controls the structure. This process requires the decision-maker to consider the benefits, costs, opportunities and risks that are involved. The decision-maker proceeds to identify the general network of components or clusters together with their elements and apply them to the control criteria. Such application of ANP allows the decision-makers to deal with complex decisions where the elements involved are dependent on each other. The dependence and feedback has to be analyzed through looking at the benefits, risks, opportunities and costs.

The supplier selection process is a difficult and complex process in supply chain management. The selection of suppliers is, therefore, considered as a multi-criteria problem. The use of ANP can help decision-makers to evaluate the best suppliers for a firm. As stated above, not all problems in MCDM can be solved through a hierarchical structure. For such circumstances, ANP comes in to address such challenges where the elements are evaluated and the criteria considered through a network structure (Gupta et al. 2015, 85).

2.4- Critic

The studies discussed above highlight the success that has been achieved through the use of the techniques meant to address the challenges in MCDM. The TOPSIS and AHP techniques have been successfully used in different MCDM studies. One of the objectives of this research is to identify the technique that is most suitable for the model to be developed in the research. Based on the evidence submitted above, the use of a single technique may not be sufficient to deal with the challenges that arise in MCDM process. Despite the success highlighted in these studies, researchers have found the use of single techniques to be less reliable and are, therefore, incorporating more than one technique. Due to the complexity of the problems involved in MCDM, many researchers are adopting the use of hybrid MCDM technique to ensure better and accurate results. Wang et al. (2016, 194), for example, uses the hybrid OWA-TOPSIS technique to tackle problems arising from fuzzy multiple attributes.

Rouyendegh and Saputro (2014, 3957) applied the fuzzy TOPSIS and Multi-Choice Goal Programming (MCGP) to deal with the qualitative and quantitative problems that arise from the criteria in the supplier selection process. The use of these two methods together enabled the researchers to address imprecise judgment of the decision-makers and the order selection process which could not be effectively done using one of the methods. Lima-Junior and Carpinetti (2016, 128), on the other hand, used the fuzzy TOPSIS and SCOR methods together. The researchers, Lima-Junior and Carpinetti as discussed above, listed some of the benefits of using the two methods together rather than using one of them as; the two facilitate the processes of performance evaluation of the suppliers, it does not limit the number of alternatives to be used and it allows benchmarking. The use of a hybrid method is, therefore, more appropriate and efficient in multi-criteria decision-making. The use of fuzzy TOPSIS and MCGP together in the research by Rouyendegh and Saputro (2014, 3957), as discussed above, revealed that the challenges encountered by decision-makers may not be effectively resolved using one tool. Challenges such as the imprecise judgment of the decision-makers could not be effectively resolved using TOPSIS alone.

The available research provides evidence of on the use of the tools in different multiple criteria decision making processes. My research tends to add on to these evidence by showing that these tools can be used together in the selection of suppliers to ensure that all potential and real challenges encountered such as the differences in culture of the decision-makers are handled. This is to ensure that such challenges do not adversely affect the selection process.

• Supplier selection Industrial Application

Techniques such as AHP that are constantly used in supplier selection have also been used in the selection of green vendors for production outsourcing in the mining industry (Azarnivand & Azarnivand 2016, 51). The multi-criteria decision-making was used, in this case, to design a framework that could perform sensitivity analysis for the purpose of alleviating subjectivity in the judgments that would be made. The MCDM process that was developed through the research was also designed in a way that addressed uncertainty in green vendor selection process. The MCDM method and the mathematical techniques have also been used in identifying the factors that influence agile suppliers. The purpose of the research is to help suppliers from different sectors and industries to choose efficient ways of increasing their degree of agility and competitiveness (Beikkhakhian et al. 2015, 6234). One of the important points to note in studies is the fact that the use of hybrid methods produces better results as stated above. Researchers today are more willing to combine more than one technique in MCDM to ensure better results and the reliability of the information in the research. The use of the hybrid techniques has also led to the development of new MCDM methods that fit specific industries depending on the needs or the objectives of the researchers.

The evidence submitted shows that the techniques used in supplier selection have been applied in different industries. There are different studies that have been conducted to guide decision-makers in different industries on how to apply the techniques in supplier selection to ensure that better solutions are identified.

• Factors Affecting the Supplier Selection Process

The supplier selection process involves several stages to ensure that a company selects suppliers who can increase its competitiveness in the market. The company or the decision-makers have to identify the decision characteristics which are to be used in assessing the suppliers. The suppliers then have to be assessed to ensure that they are appropriate or fit for the company. The decision-makers then assign weight to the attributes to identify the contribution of each criterion to the evaluation of the suppliers. Lastly, the suppliers are evaluated against the characteristics identified at the beginning of the process to determine the best-suited supplier (Mwikali & Kavale 2012, 190). During this process, there are several factors that affect supplier selection.

4.1- Cost and Price

Cost is one of the factors that are considered in selecting a supplier. The decision-makers will be keen to look at the purchase price, taxes and the transportation cost relating to each supplier. This is because each company aims at maintaining a low cost of production as a way of maximizing profits. The cost of the raw materials for the suppliers must be assessed together with other costs such as labor cost and cost due to delay. The decision-makers are also keen on finding a supply base with the minimum price of raw materials or the product. Price, therefore, remains an important factor that affects the selection process (Roshandel et al. 2013, 10172). Other than cost and price, quality of products is also a factor that affects the supplier selection process. Decision-makers will be keen to assess the extent to which a supplier can improve or maintain quality and delivery performance. Maintaining the quality of products being supplied is important for the company to improve its position in the market (Beikkhakhian et al. 2015, 6226).

4.2- Organizational Profile

The organizational profile of the supplier is also another factor that is considered in the selection process. The decision-makers look at the financial performance of the supplier, the achievement of sales and marketing goals, and the strategy that the supplier has regarding the use of technology (Beikkhakhian et al. 2015, 6226). The ease of communication between the firm and the supplier is also a factor that affects the supplier selection process. The negotiability and the ease of communication with the supplier has a great influence on the long-term relation between the firm and the supplier. The performance history of the supplier is also a factor that influences the selection process. The competitive nature of the supplier, production schedule and its response to the market are some of the issues that are considered (Mwikali & Kavale 2012, 192).

These factors, among others, are considered in the supplier selection process. It is worth noting that each firm will give more weight to different factors depending on what they are looking for in the supplier. This means that the selection criteria will always differ especially where the firms operate in different industries or sectors. Though these factors majorly depend on what the company wants, the need to comply with the standards set in the respective industry also influences the decision-making process.

4.3- Standards in Supplier Selection

Feurtey et al. (2010, 1455) in their research on the factors that influence strategic decision-making in energy highlighted the influence that government standards and social acceptance have on such decision-making. In Canada and France, the presence of unfavorable energy policies stood in the way of the introduction of wind energy. However, the deregulation of the energy sector and the pressure from social actions led to the change in the policies. The research highlights the importance that government support plays in critical decision-making in different sectors.

Governments have the responsibility to set standards in all sectors of the economy to ensure that the end product that reaches the consumer is of high quality and safe for their use or consumption (Feurtey et al. 2010, 1457). The objective for the setting of the standards is to ensure that even in the midst of competition, both global and national, manufacturers of products and services maintain quality in their end products. These standards ensure that all people in the supply chain maintain quality. As a result, companies have to be careful when selecting the suppliers for their raw materials. Companies have to look at how each supplier complies with the standards to ensure that the final product made by the company meets the set standard. Companies must, therefore, look at the suppliers and their ability to deliver quality in line with the standards that have been set.

4.4- Quality

The quality of the suppliers goods or products is one of the most important factors to consider in the supplier selection process. Where a firm contracts a supplier with poor quality products, such as raw materials, this reflects on the final product of the firm. This means that the product made by the firm ends up being of poor quality. As a result, the company loses business due to the lack of confidence by consumers. In the selection of suppliers, it is important for firms to consider whether the culture of each supplier is based on quality (Beikkhakhian et al. 2015, 6228).

4.5- Innovation

The selection of a supplier is also determined by the ability of the supplier to innovate and keep up with the latest technology. Companies are interested in adopting technology or other measures that can ensure that production costs remain low while quality is maintained (Mwikali & Kavale 2012, 191). This is meant to ensure that such a firm maintains its competitiveness in the market. To achieve this, firms must always look for suppliers who are keen on innovating to ensure low cost of products, transportation, and other operations.

Critic

As stated above, there are different factors that affect the supplier selection process. One of the objectives of the current study is to conduct a sensitivity analysis to identify the effect of dynamic changes in the variables being used. The input variables such as cost, price, quality of products and the organizational profile of the suppliers are factors that affect the supplier scores and the supplier selection process as a whole. The weight attributed to these factors varies depending on the decision-makers. This is because the corporate culture of each firm may be different hence different decision-makers acting on behalf of different firms may give more weight to some factors than others depending on how such factors relate to the corporate culture.

Though previous research has shown how these standards guide the selection process, there is not enough research on how such standards act as impediments to the decision-making process. Government standards can sometimes be excessive such that a company is not able to get the suppliers it desires since the standards indirectly recommend certain suppliers through the stringent policies put in place. However, firms must ensure compliance with existing government standards since they ensure that the consumers are protected from poor quality products and services.

• Cultural Factors

The current research seeks to determine the effect of changing the culture of the decision-maker on the choice of the supplier. The research is meant to focus on how having decision-makers from different cultures can affect the supplier selection process. Developing countries such as the US have embraced the practice of engaging patients in their healthcare through shared decision-making. This initiative in the health sector has been embraced by both national and international groups. However, there are challenges that have arisen in engaging patients from different backgrounds in shared decision-making. Research has shown that patients from different cultural backgrounds, whether racial or ethnic, appraise the decision-making process in a less positive manner as compared to the white people or the US-born patients (Hawley & Morris 2016, 5). People of different nationalities are likely to make different career decisions. Such differences in career decision-making can be attributed to the system of higher education in these countries. Another reason for the difference in decision-making is the culture and the different expectations that arise. The individualism and collectivism dimensions also highlight the differences in career decision-making. Individuals with different cultural backgrounds will differ in their decision-making regarding their careers due to the differences in timing of when such decisions are to be made and the individualistic, which is common in the US and other western countries, and the collectivism dimension, common among the Chinese people (Willner et al. 2015, 146). This difference arising from the cultural background of the decision-makers also affects the selection process of suppliers.

The evaluation and selection of suppliers in companies and industries are done by procurement managers who, in many cases, originate from various cultures. These managers may at times perform their duties alone or at other times they work as members of a cross-functional sourcing team. The difference in the cultural backgrounds of the people involved in the selection process raises the question whether such people are influenced by their culture which also affects the selection decision. Research has shown that the decision-makers in the selection process which come from different national cultures do not reason or make similar business decisions (Carter et al. 2010, 354).

Decision-makers from western nations such as Europe and America and those from eastern nations such as China, Japan, and Korea have continued to maintain different though systems for a long time. Cultures that originate from various levels of development either at the national or organizational level differ on decision-making. National cultures affect the decision-making process of the people involved in the selection process. Research has shown that eastern decision-makers have a different approach regarding labor costs as compared to western decision-makers. Eastern decision-makers look at low costs because the procurement environment in these countries is moving towards low-cost. Western decision-makers are not as concerned about labor cost as the eastern managers (Carter et al. 2010, 367).

Carter et al. (2010, 368), provides a comprehensive discussion of the influence that national culture has on decision-making in the selection process. However, it is noteworthy that the company culture also affects the final decision in the selection process. The company culture differs from company to company, therefore; the perception of what makes up ethical culture differs. Most of the research has not addressed the conflict between the company and the national culture as challenges to the decision-making in the selection process. The research has also not shown whether the corporate culture can do away with the influences that arise from the national culture. The current research is meant to address these issues as a way to add to the current research.

5.1- Critic

Research has shown that the decision-making process in supplier selection is affected by the culture of the decision-maker. This means that having decision-makers from different cultures in the supplier selection process could affect the selection process. The research has also shown that corporate culture can be used as a tool to eliminate the differences in national culture by ensuring that all decision-makers, despite the difference in national cultures, follow the culture of the company involved. However, corporate culture cannot be seen as an effective way to reduce the effect of national culture in decision-making. The impact of culture in the selection process remain factors that affect the choice of suppliers.

• Conclusion

The competitive nature of today’s business environment has made it mandatory for firms to ensure efficiency in all their transactions and to demand reliability among its external stakeholders. Suppliers are important stakeholders for companies and as a result, they impact on the success of the firm. Due to the need to maintain the quality of products, firms or the decision-makers in the firms have put in place stringent measures to ensure that they only deal with suppliers who have the potential to improve their position in the market. As a result, the supplier selection process has become an important part of the recruitment process of a company since the decisions made during the process have a great impact on the company’s performance. The selection of suppliers is made through a MCDM process to ensure that a firm gets the appropriate suppliers. Several techniques have been incorporated into this process to resolve the problems associated with MCDM. These techniques include TOPSIS, AHP, and ANP. Despite the success in the use of these techniques, researchers and decision-makers are opting to use hybrid methods made up of two or more of these techniques to ensure success in the decision-making process.