A Decision Support System for Supplier Evaluation and Order Allocation M.A. Thesis By Emir Göçen Supervised by Aslı Sencer Department of MIS November 2008

2 Objectives of the Thesis Study  Focus on the improvement of supplier evaluation and order allocation process of one of the leaders of the white-good manufacturers in Turkey.  Develop a decision support system (DSS) to increase the quality and speed of decision making for this company.

3 Related Studies in Recent Literature  Four inspiring studies: –Ghodsypour & O’Brien (1998): AHP-LP –Çebi & Bayraktar (2003): AHP & LGP –Wang et al. ( ): AHP &PGP  Other studies: –Dağdeviren & Eren (2001) –Ghodsypour & O’Brien (2001) –Lee et al. (2001) –Muralidharan et al. (2001) –Bayazit & Karpak (2005) –Bei et al. (2006) –Perçin (2006) –Aguezzoul & Ladet (2007) –Pehlivan (2007) –...

4 Current Purchasing Process Marketing Dept. forecasts next years sales figures. Budget is approved by the management. Production Dept. runs MRP and calculates the supply item requirements. List of possible suppliers are given to the Purchasing Dept. Tough negotiations are made with suppliers for annual order allocation. Suppliers are selected Production Dept. gives order directly to the suppliers through ERP. Supplier performance evaluation is conducted twice a year.

5 Analytic Hierarchy Process  A multi-criteria decision making methodology developed by Thomas Saaty in  Enables decision makers to design the decision making process in a hierarchical structure, demonstrating the relationship between the aim, criteria and the alternatives.  Fundamental scale given below is used in pair-wise comparisons.

6 Supplier Evaluation Model Proposed

7 Goal Programming Model  Concepts of linear programming expanded to meet the multi-objective conditions for optimum target levels.  General form of goal programming model:

8 Order Allocation Model Proposed  Goals included in the model: –Maximize the overall utility –Minimize total cost –Maximize overall delivery performace –Minimize defective material level –Maximize overall rework performance  Regular constraints included in the model: –Satisfy demand –Satisfy supplier quantitiy –Allocate a minimum order  The objective of the model: –Minimize the deviation from the goal targets

9 Order Allocation Model

10 Order Allocation Model

11 Order Allocation Model

12 Order Allocation Model

13 Order Allocation Model

14 DSS Framework Supplier Evaluation Model (AHP) Database Order Allocation Model (GP) Criteria Weights Supplier Comparison Supplier Grades Sensitivity Reports Scenario Analysis Annual Quota Allocation Among Suppliers Goals & Other Inputs -Annual Quota -... Supplier Inputs

15 Conclusion  DSS is developed to improve the quality and the speed of the decision making process of the company.  It has been stated by the purchasing managers that it was difficult to make sure that the comparisons of main and sub-criteria were consistent. Software is enhanced to give feedback and detailed information on consistency is provided.  Another feedback was that the order allocation model only consisted of quantitative goals and constraints. It has been emphasized that the DSS is a tool to aid the decision maker and it is not developed to replace the decision maker. It has been proposed to develop scenario analysis function for the DSS.

16 Conclusion (cont’d)  As future work, simulation can be integrated to the DSS after the execution of the order allocation model. Applying Monte Carlo simulation, the real world imitation of the purchasing process can be realized.  Another enhancement can be developing the supplier evaluation model with group decision making perspective. In that case, the decision makers will list the main and sub-criteria and vote for them seperately. Then the selected criteria will be evalauted by each decision maker and the overall supplier grades will be calculated according to the weightings of each decision maker on the evaluation process.

DSS Screens