A fuzzy supplier selection model with the consideration of benefits, opportunities, costs and risks
Introduction
Outsourcing has become an important business approach since a competitive advantage may be gained by the cooperation with suppliers to provide products/services more effectively and efficiently (McCarthy & Anagnostou, 2004). Under the domain of inter-organizational linkage, the relationship between purchasing organizations and their suppliers has been of particular interest. Many of today’s buyer–supplier relationships are operating well beyond the traditional arm’s length mode, with different degrees of alliance. Closer buyer–supplier relationships can be effective ways to guarantee good quality materials, diffuse new technologies rapidly, enter a new market, overcome financial constraints, bypass governmental restrictions, and learn quickly from the leading firms in a given field (Elmuti and Kathawala, 2001, Monczka et al., 1998). With strategic alliances ranging from nontraditional contracts to the creation of a new equity, many firms develop supplier linkages that fell somewhere between these two extremes (Achrol, 1997, Argyres, 1996, McCutcheon and Stuart, 2000, Sinclair et al., 1996). Firms develop mutually beneficial, longer-term relationships with the best of their key suppliers so that the suppliers are more willing to invest in skills or technologies specific to the partner firm (McCutcheon & Stuart, 2000). Buyers and suppliers may broaden their contact and share business and technology information. Suppliers may expand their roles to provide services beyond traditional purchasing transactions, such as participating in the buyer’s design and development work or providing advice, assistance or training from their areas of expertise (McCutcheon & Stuart, 2000). In the past two decades, a surge in the formation of a longer-term relationship that fosters cooperation among suppliers and customers has been witnessed. However, many managers find it difficult to determine which suppliers should be targeted for long-term relationships.
While there are many supplier selection models in literature, most studies only concern with the benefits that can be gained from selecting a supplier. In fact, various aspects of costs and risks should be considered extensively too. Therefore, in this research, we adopt the analytic hierarchy process (AHP) with benefits, opportunities, costs and risks (BOCR) for constructing the supplier selection model. In addition, fuzziness and vagueness are usually present in the decision-making process, and thus, the fuzzy set theory is incorporated into the model.
The global TFT-LCD industry is becoming extremely competitive, and a cooperative buyer–supplier relationship is essential for a TFT-LCD manufacturer to survive and to acquire reasonable profit. Since backlight units (BLU) comprise the largest portion of raw material in TFT-LCD modules and are essential for the final quality of the units, the selection of the most appropriate backlight unit supplier is very important. The main objectives in this study are to propose a fuzzy AHP with BOCR model for supplier selection and to apply the model to the backlight unit supplier selection for TFT-LCD manufacturer in Taiwan. This paper is organized as follows. Section 2 reviews the supplier selection literatures. Section 3 goes over the key concepts of analytic hierarchy process (AHP), fuzzy set theory, and benefits, opportunities, costs and risks (BOCR) methods. A fuzzy analytic hierarchy process (FAHP) model will be constructed to evaluate the suppliers in Section 4. Section 5 provides a case study of TFT-LCD manufacturer in evaluating backlight unit suppliers. Some concluding remarks are made in the last section.
Section snippets
Supplier selection
The selection of a supplier for partnership is perhaps the most important step in creating a successful alliance. A careful screening of potential partners is a time-consuming process, in addition to developing an understanding of partners’ expectations and objectives (Dacin & Hitt, 1997). Observations of the candidate partner in direct transactions or in other interactions are highly valued. A relatively long period of relationship is recommended to gather valuable information about the
Analytic hierarchy process (AHP)
First introduced by Saaty in 1971, the analytic hierarchy process (AHP) has become one of the most widely used methods for multiple criteria decision-making (MCDM) (Saaty, 1980). It can solve unstructured problems in different areas of human needs and interests, such as political, economic, social and management sciences. The procedures of AHP to solve a complex problem involve six essential steps (Cheng, 1999, Lee et al., 2006, Lee, in press, Murtaza, 2003, Zahedi, 1986):
- 1.
Define the
Methodology and algorithm
Based on Saaty, 2003a, Saaty, 2004 and Lee (in press), a systematic fuzzy AHP model for supplier selection is proposed in this section. The steps are summarized as follows:
- Step 1.
Form a committee of experts in the industry and define the supplier selection problem.
- Step 2.
Decompose the problem into a control hierarchy for determining the priorities of the merits, benefits (B), opportunities (O), costs (C) and risks (R). The goal of the control hierarchy is to calculate the relative importance of the four
TFT-LCD industry in Taiwan
TFT-LCD industry is becoming the most brilliant industry in Taiwan, following the prosperity of the semiconductor industry in the 1990’s. Taiwan is currently the world’s largest supplier of TFT-LCDs, and produces more than 40% of the world’s supply (Hung, 2006). With the transfer of Japan’s TFT-LCD technology to Taiwan and the competitive advantages of Taiwan in abundant capital, technology from the semiconductor industry, numerous downstream clients, and a complete supply chain, the TFT-LCD
Conclusions
In this paper, a fuzzy analytic hierarchy process (AHP) model with the consideration of benefits, opportunities, costs and risks (BOCR) is constructed for supplier selection. Although there are many supplier selection models available, most models usually only stress the criteria that are required by the buyers, but seldom the opportunities, costs and risks that need to be faced by the buyers if they select a specific supplier. Therefore, this research provides a comprehensive model that
Acknowledgement
This work was supported in part by the National Science Council in Taiwan under Grant NSC 96-2416-H-216-002.
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