W12_AL_Vendor Evaluation


1. Problem Definition

Vendor is a business partner that plays an important role in ensuring the availability of the supply of goods needed by the company. Vendor performance will affect the performance of the company. Therefore, companies need to assess vendor carefully and continuously.

Vendor assessment requires a variety of criteria that can describe the overall performance, therefore evaluation should be based on criteria that may have added value to the current conditions and in the future conditions. During this time, Company evaluate vendor only focused to the current value criteria and the valuation models are not classified according to the classification of vendor.

Each company has different criteria in assessing vendor, depending on the objectives to be achieved by the company. Most companies assess vendor focused solely on the price of items, quality of items and delivery time without any notice given on the influence of the total cost. What are the parameters should be consider in vendor evaluation? What is the most affecting?

2.Identify the Feasible Alternative

Several factors that need to be assess:

  1. Cost
  2. Quality
  3. Delivery
  4. After sales service

There are two factors used in designing relationships with contractor

  1. The level of strategic importance for the company
  2. Level of difficulty managing the purchase of items.

3. Development of the Outcome for Alternative

Parameter selection with analytical hierarchy process (AHP) method

  1. Generate hierarchy Image
  1. Perform pairwise comparison

The fundamental scale of absolute numbers

Image

                      Pair-wise comparison matrix  ImageNormalized matrix of paired comparisons and calculation of priority weights Image

The consistency ratio (C.R.) for the comparison above is calculated to determine the acceptance of the priority weighting. Based on Saaty’s empirical suggestion that a C.R. = 0.10 is acceptable

Estimating the consistency ratio is as follows:

Image

Dividing all the elements of the weighted sum matrices by their respective priority

Image

Then compute the average of these values:

Image

Random consistency (RI) for size of matrix 4 is 0.9

Image

As the value of CR < 0.1, the judgments are acceptable

Composite priority weights for sub sub-criteria

Image

4. Selection Criteria

Criteria that having biggest global weights will be selected the most parameters that influence for vendor selection.

5. Analysis and Comparison of the Alternative

Image

6. Selection of the Preferred Alternative

Based on comparison table, price (within budget) is the most influence in selecting vendor.

7. Performance Monitoring and the Post Evaluation of Result

Companies that have chosen to be a vendor should always be monitored on their performance through periodic assessments. The results of this assessment are used as input for the supplier to improve their performance.

Reference

1. Saaty, T. L. (2008). Decision making with the analytic hierarchy process. Int. J. Services Sciences.

2. SupplyChainOpz. (2014, May). Segmenting Supply Chain using Portfolio Matrix (2×2 Matrix). Retrieved from http://www.supplychainopz.com/2013/05/supply-chain-portofolio-matrix.html

3. Emerald Group Publishing (Bingley, Gran Bretan) (1985). Handbook of business strategy. Bingley: Emerald Group Publishing.

 

5 thoughts on “W12_AL_Vendor Evaluation

  1. AWESOME posting, Andhy!! Nice work with an excellent case study.

    Given your mastery of using this blog to solve real problems, can I ask you to step forward please and mentor those of your colleagues on the team who are clearly struggling with this assignment?

    Keep up the good work and looking forward to seeing your next exciting and interesting case study.

    BR,
    Dr. PDG, Jakarta

  2. Pingback: W23_HI_Analytic Hierarchy Process | GARUDA AACE 2015

  3. Pingback: Analytic Hierarchy Process (AHP) using preferenceFunction in ahp | Quality and Innovation

  4. Pingback: Analytic Hierarchy Process (AHP) using preferenceFunction in ahp | Quality and Innovation

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