Vinod Thesis PDF

VENDOR SELECTION AND QUOTA
ALLOCATION USING FUZZY TOPSIS AND

LINEAR PROGRAMMING
A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS
FOR THE AWARD OF DEGREE OF
MASTER OF ENGINEERING
IN
PRODUCTION ENGINEERING
SUBMITTED BY
VINOD BASHER
UNIVERSITY ROLL NO. 8531
COLLEGE ROLL NO. 13/ PRO/08
UNDER THE SUPERVISION OF
DR. R.K. SINGH

AND
PROF. PARVIN KUMAR
DEPARTMENT OF MECHANICAL AND PRODUCTION ENGINEERING

DELHI COLLEGE OF ENGINEERING
UNIVERSITY OF DELHI, DELHI-110042
2008-2010
i
Candidates Declaration
I hereby certify that the work which is being presented in the dissertation entitled Vendor
Selection and Quota Allocation Using Fuzzy TOPSIS and Linear Programming
submitted in partial fulfillment of the requirements for the award of the degree of Master of
Engineering in Production Engineering, Delhi College of Engineering, Delhi is an authentic
record of my own work carried under the supervision of DR. R. K. SINGH and PROFESSOR
PARVIN KUMAR, Department of Mechanical and Production Engineering, Delhi College of
Engineering, Delhi.
I have not submitted the matter embodied in this major project report for the award of any other
degree.
VINOD BASHER
University Roll no. 8531
College Roll No. 13/ PRO/ 08
ii
CERTIFICATE
This is to certify that dissertation entitled Vendor Selection and Quota Allocation Using
Fuzzy TOPSIS and Linear Programming being submitted by Mr. VINOD BASHER in the
partial fulfilment for the award of degree of MASTER OF ENGINEERING with
specialization in PRODUCTION ENGINEERING submitted to Delhi College of Engineering,
University of Delhi, is a bonafide project work carried out by him under our guidance and
supervision.
The matter in this dissertation has not been submitted to any other university or institute for the
award of any degree.
Dr. R. K. Singh
Prof. Parvin Kumar
Department of Mechanical and Production Engineering

Delhi College of Engineering
Delhi-110042 (India)
iii
Acknowledgement
I wish to acknowledge my profound sense of gratitude to my project Guides Dr. R. K. Singh and
Prof. Pravin Kumar, Department of Mechanical and Production Engineering, Delhi College of
Engineering, Delhi, for their remarkable guidance and many valuable ideas during the
preparation of this project. Indeed it was a matter of great felicity and privilege for me to work
under his aegis was express my thankfulness to him for his dedicated inspiration, lively interest
and patience through my errors with which it would have being impossible to bring the project
near completion.
I express sincere gratitude to Prof. B.D. Pathak, Head of Department, Department of
Mechanical and Production Engineering and Prof. S.K. Garg, Department of Mechanical and
Production Engineering with whose blessing this project has been completed.
I wish to extend my hearty thanks to all the staff of the department who directly or
indirectly helped me in this project work.
VINOD BASHER
University Roll No. 8531
College Roll No. 13/PRO/08
iv
ABSTRACT
Vendor selection is an important aspect of a supply chain. The objective of vendor selection is to
reduce purchasing risk, maximize overall value to the purchaser and build a long term, reliable
relationships between buyers and suppliers. Therefore selection of a good vendor is an important
decision making process for an organization. An inappropriate decision affects not only that
specific buyer but also the entire supply chain. In general, many quantitative and qualitative
factors such as quality, price, and flexibility and delivery performance must be considered to
determine suitable vendors. Vendor selection is a multi-criteria decision making problem. In the
real-world situations, due to incomplete and vague information, the required data (imprecise in
nature) for decision making often cannot be described deterministically. Therefore, in order to
make more realistic decisions, fuzzy sets theory can be applied in such cases. So we have used
Fuzzy TOPSIS method to deal with impreciseness in vendor selection data. In this work,
important criteria for the vendor evaluation are indentified based on literature. Then Fuzzy
TOPSIS methodology is applied to calculate fuzzy positive ideal situation and fuzzy negative
ideal situation for finding closeness coefficient. On the basis of closeness coefficient vendors are
evaluated and ranked.
In this work, our goal is to maximize the total value of purchase (TVP) by evaluating the vendors
and then appropriate quota have been allocated among the selected vendors using linear
programming. A high rated vendor rated may not complete all the demand of buyers. Therefore
multiple quota allocation has been suggested in this project. The linear programming model
based on closeness coefficients of vendors and capacity constraints is developed and order
quantity is allocated to each vendor. To solve linear programming problem LINGO 12.0
software is used. A case study is presented in this thesis, which shows the selected methodology
is appropriate for such decision making situation.
Key Words: Vendor selection, Supply chain, Fuzzy TOPSIS, Fuzzy Logic
Table of content
Contents
Pages
Candidates declaration
ii
Certificate
iii
Acknowledgement
iv
Abstract
Table of Contents
vi
List of figures
ix
List of tables
List of abbreviations
xi
CHAPTER 1: INTRODUCTION
1-19
1.1 Introduction
1.2 Supply chain
1.3 Supply chain management (SCM)
1.4 Aim of SCM
1.5 Major drivers of supply Chain
1.6 Supply chain decision phases
12
1.7 Supply chain management problems
14
1.8 Vendor Selection Problem in SCM
15
1.9 Objective of project
17
1.10 Methodology
18
vi
1.11 Conclusion
18
CHAPTER 2 : LITERATURE REVIEW
20-51
2.1 Introduction
20
2.2 Supply chain management
20
2.3 Importance of supply chain management
27
2.4 Supply chain management approaches
29
2.5 Sourcing
30
2.6 Vendor selection in supply chain
32
2.7 Vendor selection criteria
36
2.8 Vendor selection methods
45
2.9 Fuzzy approach in vendor selection
49
2.10 Conclusion
51
CHAPTER 3: RESEARCH METHODOLOGY
52-71
3.1 Introduction
52
3.2 Fuzzy logic
52
3.3 Fuzzy set theory
54
3.4 Fuzzy Numbers
55
3.5 Algebraic operations on TFNs
57
3.6 TOPSIS
58
3.7 Fuzzy TOPSIS
62
3.8 The fuzzy TOPSIS methodology algorithm
64
3.9 Linear programming
69
3.10 General structure of linear programming
69
vii
3.11 General mathematical model of linear programming problem
70
3.12 Conclusion
71
CHAPTER 4: CASE ILUSTRATION
72-88
4.1 Introduction
72
4.2 Company profile
72
4.3 Case illustration
73
4.4 Linear programming and quota allocation
82
4.5 Formulation of LPP
83
4.6 Solution of LPP
84
4.7 Sensitivity analysis
86
4.8 Result and discussion
87
CHAPTER 5: CONCLUSION
89-90
REFRANCES
91-104
viii
List of figures
Figure No.
Title
Page No.
1.1
Supply chain stages
1.2
Major drivers of supply chain
10
1.3
Major question to be addressed
11
2.1
Supply chain network
24
2.2
Types of channel relations and flows across a supply chain
26
2.3
Cost-Responsiveness Efficient Frontier and Zone of Strategic Fit
30
3.1
A triangular fuzzy number
56
4.1
Objective Max Z (Total Value of Purchase)
84
4.2
Total Value of Purchase Objective Solution
85
4.3
Quota allocations v/s % change in capacity
87
ix
List of Tables
Table No.
Title
Page no.
1.1
Quantified benefit of supply chain
2.1
Definitions of supply chain
21
2.2
Important vendor selection criteria used by various researchers
43
4.1
Linguistic variable for importance of weight of each criterion
75
4.2
Fuzzy rating of vendors
75
4.3
Fuzzy weight importance given by three decision makers
77
4.4
Aggregated fuzzy weights for criteria
77
4.5
Fuzzy rating of vendors given by decision makers
78
4.6
Aggregated rating of vendors (fuzzy decision matrix)
79
4.7
Normalized decision matrix
79
4.8
Weighted normalized fuzzy decision matrix
80
4.9
Distance of alternative from A+ and A
81
4.10
Closeness coefficient and ranking
81
4.11
Capacity constraint and performance coefficient of vendors
82
4.12
Percentage change in capacity
86
LIST OF ABBREVIATIONS
Symbols/Notations used throughout the text of this thesis are explained as given below in
alphabetical order.
AHP
Analytical Hierarchy Process
ANN
Artificial Neural Network
ANP
Analytical Network Processes
ART
Adaptive Resonance Theory
CBR
Case Based Reasoning
DC
Distribution Center
DEA
Data envelopment analysis
DMs
Decision Makers
EDI
Electronic Data Interchange
ERP
Enterprise Resource Planning
FNIS
Fuzzy Negative Ideal Solution
FPIS
fuzzy positive ideal solution
FST
Fuzzy Set Theory
ISA
Intelligent Software Agents
ISM
Interpretive Structural Modeling
LP
Linear Programming
LPP
Linear Programming Problem
MCDM
Multi-Criteria Decision Making
MP
Mathematical Programming
OLS
Ordinary Least Square

xi
xii
CHAPTER 1
INTRODUCTION
1.1 Introduction
Supply chain management is set of approaches utilize to efficiently integrate suppliers,
manufacturers, warehouses and retailers so, that merchandise produced and distributed in right
quantities, to right locations, in order to lower the system cost while satisfying the service
requirements needed. Companies spend a large amount of their sales revenue on purchasing of
raw material and components. So decision on selecting a competent supplier is important for
successful implementation of supply chain management. As customers and suppliers band
together in mutually beneficial partnerships, the need for better supply chain management
processes and systems is more evident and becomes a very high business priority. In typical
supply chain, raw materials are procured and items are produced at one or more factories,
shipped to warehouses for intermediate storage, and then shipped to retailers or customers.
Consequently, to reduce cost and improve service levels, effective supply chain strategies must
take in to account the interaction at the various levels in the supply chain. The supply chain,
which is also referred to as the logistics network, consist of suppliers, manufacturing centers,
warehouses, distribution centers, and retail outlets, as well as raw materials, work-in-process
inventory, and finished products that flow between the facilities.
Supply chain management involves the flows of material, information and finance in a network
consisting of customers, suppliers, manufacturers, and distributors. It begins with raw materials,
Continues through internal operations, ends with distribution of finished goods. The short-term
1
objective of SCM is primarily to increase productivity and reduce the entire inventory and the
total cycle time, while the long-term objective is to increase customer satisfaction, market share,
and profits for all organizations in the supply chain: suppliers, manufacturers, distribution centers
(DCs), and customers.
In supply chains, coordination between a manufacturer and suppliers is typically a difficult and
important link in the channel of distribution. Since suppliers are manufacturers external
organizations, the coordination with the suppliers is not easy unless systems for cooperation and
information exchange are integrated. The coordination between a manufacturer and suppliers is
important because the failure of coordination results in excessive delays, and ultimately leads to
poor customer services. Consequently, inventories of incoming parts from suppliers or those of
finished goods at the manufacturer and distribution centers (DCs) may accumulate. Hence, the
total cost of the entire supply chains will rise. Manufacturers are able to assist their suppliers by
providing knowledge, skills, and experience, and to benefit in turn from suppliers improved
delivery performance and from fewer production disruptions that are caused by poor quality
materials. The suppliers also can benefit by becoming more competitive than other suppliers as
performance improves and costs go down. Thus, supplier development is a vehicle that can be
used to increase the competitiveness of the entire supply chains.
Supplier selection is one of the most critical activities of purchasing management in a supply
chain, because of the key role of suppliers performance on cost, quality, delivery and service in
achieving the objectives of a supply chain. The cost of raw materials, component parts and
services purchased from external vendors or suppliers is significant for most manufacturing
firms. On average, manufacturers purchases of goods and services constitute up to 70% of
product cost (Ghobadian et al., 1993) and in high technology firms, purchased materials and
2
services represent up to 80% of total product cost (Weber et al., 1991).Therefore vendor
selection is one of the most critical activities for many companies and selection of the wrong
vendor could be enough to upset the companys financial and operational position, while the
selection of an appropriate vendor may significantly reduce the purchasing cost and improve
competitiveness.
The vendor selection process has undergone significant changes during the past thirty years. In
todays competitive operating environment it is impossible to successfully-produce low cost,
high quality products without satisfactory vendors (Weber et al., 1991). Therefore, vendor
selection decisions are an important component of production and logistics management for
many firms (Weber et al., 1998). The analysis of criteria for selection and measuring the
performance of vendors has been the focus of many academicians and purchasing practitioners
since the 1960s (Weber et al., 1991). In a supply chain, vendor selection includes the selection of
the right vendors and their quota allocation which also needs to consider a variety of vendor
attributes such as price, quality, service, delivery performance. A vendor selection problem must
consider these various attributes because of their direct impact on final product dimensions such
as cost and quality. Vendor selection decisions play an important role in supply chain
management and have a significant impact on the competitiveness of a firm because purchases
from vendors account for a large percentage of the total cost for many firms. Vendor selection
has long been regarded as one of the most important functions performed by purchasing
departments.
In a real situation, many input information are not known precisely to select a supplier. In
decision making processes, many criteria and constraints are expressed in vague terms such as
very high in quality or low in price. Deterministic models cannot easily take this
3
vagueness into account. In these cases the theory of fuzzy sets is one of the best tools for
handling uncertainty. Fuzzy set theories are employed due to the presence of vagueness and
imprecision of information in the supplier selection problem. Bellman and Zadeh (1970)
suggested a fuzzy programming model for decision-making in fuzzy environments.
Zimmermann (1978) first used the Bellman and Zadeh (1970) method to solve fuzzy
multiobjective linear programming problems. In his model the fuzzy goals and fuzzy constraints
are treated equivalently, which is why the model is called symmetric. It is very common in
business activities, such as supplier selection, that the goals importance or weights are different
for DMs. Thus, the symmetrical models may not be appropriate for the same multiobjective
decision-making problem, because the objectives may not be equally important.
1.2 Supply Chain

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer
request. The supply chain includes not only the manufacturer and suppliers, but also transporters,
warehouses, retailers, and even customers themselves. Within each organization, such as a
manufacturer, the supply chain includes all functions involved in receiving and filling a customer
request. These function include, are not limited to, new product development, marketing,
operations, distribution, finance, and customer service (Chopra and Meindl, 2007).
A typical supply chain may involve a variety of stages as shown in fig 1.1. These supply chain
stages include:
Customers
Retailers
Wholesalers/distributors
4
Manufacturers
Component/raw material suppliers.
Supplier
Manufactur
er
Distributor
Retailer
Customer
Supplier
Manufactur
e
Distributor
Retailer
Customer
Supplier
Manufactur
er
Distributor
Retailer
Customer
Source: Chopra and Meindl (2007)

Figure 1.1: Supply Chain Stages
A supply chain is a network of retailers, distributors, transporters, storage facilities and
suppliers that participate in the sale, delivery and production of a particular product. So, a
supply chain is product specific, not company specific. A supply chain is the process of
moving goods from the customer order through the raw materials stage, supply, production
and distribution of products to the customer. All organizations have supply chains of
verifying degrees, depending upon the size of the organization and the type of product
manufactured. These networks obtain supplies and components, change these materials into
finished products and then distribute them to the customer.
Each stage in a supply chain is connected through the flow of products, information and
funds. These flows often occur in both direction and may be managed by one of the stages or
an intermediary. Managing the chain of events in this process is what is known as supply
chain management. Effective management must take into account coordinating all the
different pieces of this chain as quickly as possible without losing any of the quality or
customer satisfaction, while still keeping cost down.
1.3 Supply Chain Management (SCM)

Supply chain management (SCM) is the oversight of materials, information, and finances as
they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.
Supply chain management involves coordinating and integrating these flows both within and
among companies.
Most common and accepted definitions of Supply Chain Management are follows:
Supply chain management (SCM) is the management of a network of interconnected
businesses involved in the ultimate provision of product and service packages
required by end customers (Harland, 1996).
Global Supply Chain Forum - Supply Chain Management is the integration of key
business processes across the supply chain for the purpose of creating value for
customers and stakeholders (Lambert, 2005).
The supply chain refers to all those activities associated with the transformation and
flow of goods and services, including their attendant information flows, from the
sources of raw materials to end users. Management refers to the integration of all
these activities, both internal and external to the firm (Ballou et al.; 2000).
Supply chain management is the management of eight key business processes:
customer relationship management, customer service management, demand
management, order fulfillment, manufacturing flow management, procurement,
product development and commercialization and returns. These processes subsume
6
or include much of logistics, purchasing, marketing and operation management

(Stock and Lambert, 2001).
1.4 AIM of SCM

The main aim of SCM is to provide- right product, right quality, right cost, right time, to the
right customers.
In order to minimize system wide costs while satisfying service-level
requirements and maximize value & lower waste. The objective of every supply chain should be
to maximize the overall value generated. The value a supply chain generates is the difference
between what the final product is worth to the customer and the costs the supply chain incurs in
filling the customers request. For most commercial supply chains, value will be strongly
correlated with supply chain profitability (also known as supply chain surplus), the difference
between the revenue generated from the customer and the overall cost across the supply chain.
Supply chain success should be measured in terms of supply chain profitability and not in terms
of the profits at individual stages. The higher the supply chain profitability, the more successful
is the supply chain. The objectives of supply chain integration are to supply superior quality
goods faster, with more efficient processes and in essence be more responsive to the perceptions
of the marketplace and be able to change direction at will.
Some of the consequences of supply chain integration results in:
Reduced inventory at all sites of supply chain.
Reduced costs.
Faster processing speed.
Reduced lead times.

7
Reduced warehouse costs.
Reduced obsolescence.
Greater responsiveness to customer changes.
Electronic links to suppliers and customers.
Continuous flow of products and information.
Speeding up the development cycle.
The typical quantified benefits are highlighted in table 1.1. Relationships and predictable
performance become more important in an integrated supply chain (Mohanty and Deshmukh,
2005).
Table 1.1: Quantified Benefits of Supply Chain
Delivery Performance
15% to 30% improvement
Inventory Reduction
Fulfilment Cycle Time
Forecast Accuracy
Overall Productivity
Lower Supply - Chain Costs
Fill Rates
1.5 Major Drivers of Supply Chain

There are five major supply chain drivers as depicted in figure 1.2 (Mohanty and Deshmukh,
2005).
Production: This is typically related to issues on what to produce, how to produce (which
manufacturing process) and when to produce. These decisions have a big impact on the revenues,
costs and customer service levels of the firm. These decisions assume the existence of the
facilities, but determine the exact path(s) through which a product flows to and from these
facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely
depends the degree of vertical integration within the firm. Operational decisions focus on
detailed production scheduling. These decisions include the construction of the master
production schedules, scheduling production on machines, and equipment maintenance.
Inventory: Here the decisions and issues may be concerned with how much to make and how
much to store as inventory and where to store these items (at the plant itself, warehouse, or at the
retailer etc.).
Location: A number of issues regarding location such as where to locate a plant, where to locate
a warehouse facility etc. may have significant bearing on the dynamics of the supply chain and in
turn may affect the overall costs. The location of facilities involves a commitment of resources to
a long-term plan. Once the size, number, and location of these are determined, so are the possible
9
paths by which the product flows through to the final customer. These decisions are of great
significance to a firm since they represent the basic strategy for accessing customer markets, and
will have a considerable impact on revenue, cost, and level of service.
Transportation: The issues may be related to how to move a product from one location to
another and by what mode of transportation. One needs to evaluate economies of scale on one
hand and the desired level of customer satisfaction on the other hand.
Information: Information is a binding force having critical implications for the supply chain.
Information acts as basis for making various decisions in the supply chain. It also acts as an
integrator. Unless information flows are handled properly, one may not be able to derive benefits
from the supply chain integration.
Production
Inventory
What, How and When

to Produce
How much to make

how much to store
INFORMATION
The basis for making
these decisions and line
of organization
Transportation
Location
How and when to

move product
When the best to do

what activity
Source: ( Mohanty and Deshmukh 2005)

Figure 1.2 Major Derivers of Supply Chain
10
A number of question need to be addressed while designing and operating an effective supply
chain. These questions are related to various agents in the chain such as supplier, manufacturer,
warehouse management and the customer. These questions are shown in figure 1.5 (Mohanty
and Deshmukh, 2005). Resolution of these questions requires:
(a) Intimate knowledge of various process taking place at these agents,
(b) A complete understanding of the dynamics of the chain and most importantly,
(c) A total system orientation of the supply chain.
Where to produce &

assemble goods?
How much to produce?
When to produce?
Customer
Manufacture
Warehouse
Customer
Supplier
What market to serve?
Where to acquire
material & components?
What level of service?

What level of service cost?
Manufacture
Warehouse
What fleet size?
How much to shop?

, When to ship?
What vehicle routes?
What mode of
transportation?
What shipment routes
Source: (Mohanty and Deshmukh, 2005)

Figure 1.3 Major Question to be addressed
11
Customer
Customer
1.6 Supply chain decision phases

Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. These decisions fall into three categories or phases, depending
on the frequency of each decision and the time frame over which a decision phase has an impact.
a. Supply chain design or strategy
b. Supply chain planning
c. Supply chain operation
Supply chain design or strategy
During this phase, given the marketing and pricing plans for a product, a company decides how
to structure the supply chain over the next several years. It decides what the chains
configuration will be, how resources will be allocated, and what processes each stage will
perform. Strategic decisions made by companies include whether to outsource or perform a
supply chain function in-house, the location and capacities of production and warehousing
facilities, the products to be manufactured or stored at various location, the modes of
transportation to be made available along different shipping legs, and the type of information
system to be utilized. A firm must ensure that the supply chain configuration supports its
strategic objectives and increase the supply chain surplus during this phase.
Supply chain planning
For decision made during this phase, the time frame considered is a quarter to a year. Therefore,
the supply chains configuration determined in the strategic phase is fixed. The configuration
12
establishes constraints within which planning must be done. The goal of planning is to maximize
the supply chain surplus that can be generated over the planning horizon given the constraints
established during the strategic or design phase. Companies start the planning phase with a
forecast for the coming year of demand in different markets. Planning includes making decision
regarding which market will be supplied from which locations, the subcontracting of
manufacturing, the inventory policies to be followed, and the timing and size of marketing and
price promotions. In planning phase, companies must include uncertainty in demand, exchange
rates, and competition over this time horizon in their decisions. Given a shorter time frame and
better forecasts than the design phase, companies in the planning phase try to incorporate any
flexibility built into the supply chain in design phase and exploit it to optimize performance. As a
result of the planning phase, companies define a set of operating policies that govern short term
operations.
Supply chain operation
The time horizon here is weekly or daily, and during this phase companies make decisions
regarding individual customer orders. At the operational level, supply chain configuration is
considered fixed and planning policies are already defined. The goal of supply chain operations
is to handle incoming customer orders in the best possible manner. During this phase, firm
allocate the inventory or production to individual orders, set a date that an order is to be filled,
generate pick lists at a warehouse, allocate an order to a particular shipping mode and shipment,
set delivery schedules of trucks, and place replenishment orders. Because operational level are
being made in the short term (minutes, hours, or days), there is less uncertainty about demand
information. Given the constraints established by the configuration and planning policies, the
13
goal during the operation phase is to exploit the reduction of uncertainty and optimize the
performance.
The design, planning, and operation of a supply chain have a strong impact on overall
profitability and success (Chopra and Meindl, 2007).
1.7 Supply chain management problems
Distribution Network Configuration: number, location and network missions of

suppliers, production facilities, distribution centers, warehouses, cross-docks and
customers.
Distribution Strategy: Centralized versus decentralized, direct shipment, Cross docking,

pull or push strategies, third party logistics.
Information: Integration of processes through the supply chain to share valuable

information, including demand signals, forecasts, inventory, transportation, potential
collaboration, etc.
Inventory Management: Quantity and location of inventory, including raw materials,

work-in-progress (WIP) and finished goods.
Cash-Flow: Arranging the payment terms and methodologies for exchanging funds
across entities within the supply chain.
Supply chain execution means managing and coordinating the movement of materials,
information and funds across the supply chain. The flow is bi-directional.
14
1.8 Vendor Selection Problem in SCM

Vendor selection problem (VSP) is an area of tremendous importance in the effective
management of a supply chain. This is due to the compelling need to evolve strategic alliances
with the vendors. The material and equipment supplied from the vendors play an important role
in the management of a supply chain. Many issues in the supply chain are influenced by the
proper selection of Vendors. In the logistics decisions of a firm, the location of vendors has a
great influence on the supply chain design in terms of transportation and distribution planning.
Hence, it is important to select the potential vendors so that different objectives of the supply
chain are achieved. Similarly, reliable vendors may lead to less number of vendors in a supply
chain, whereas the selection of a large number of vendors may be done to minimize the risk
associated with the purchase, the associated costs increase with this approach. Hence, the
optimization of vendor-base is needed to identify better performing vendors in a supply chain.
In the process of vendor selection, the most important issue is to determine a suitable decisionmaking method and select the right vendor. Essentially the vendor selection problem is a multicriteria decision making problem under an uncertain environment. Fuzzy set theory best handles
these uncertainties. In decision-making, especially when a high degree of fuzziness and
uncertainties are involved, due to imperfections and complications of information processes the
theory of fuzzy sets is one of the best tools of systematically handling uncertainty in decision
parameters. VSP is complex in nature and invites strategic decision of long-term implications.
Much information at the decision process is not known with certainty. Due to this, the VSP
inherits the characteristics of impreciseness and fuzziness. Fuzzy set theories are employed due
to vagueness and imprecision in the VSP and are used to transform imprecise and vague
15
information of the objective(s) and constraint(s) into the fuzzy objective(s) and fuzzy
constraint(s).
Evaluation of the companys vendors is considered an effective tool for rectification of defects,
improving their ability to serve more satisfactorily and as a basis for making future purchasing
decisions. A Vendor selection problem typically consists of four phases namely: problem
definition (recognition of the need for a new dealer), formulation of criteria, qualification of
suitable suppliers and final selection of the ultimate suppliers (De Boer et al., 2001). The
evaluation of vendors is done on a periodic basis and includes written evaluation aspects relating
to quality, quantity, price, service etc. as obtained from the buyer, user and quality control and
other concerned staff.
There are four stages in the purchasing and supply literature, namely, defining the problem,
formulation of criteria, qualification, and final selection. Defining the problem in the decisionmaking processes is the first step in the method that supports the DMs in carefully questioning
the need for a decision and identifying available alternatives. During the criteria formulation
stage, the main task for buying firms is assessing the key competitive factors in their industry
and translating these dimensions into supplier selection criteria. Strategic management decisions
influence the relative importance of the various criteria involved in the supplier selection process
(Weber et al., 2000). The choice and the number of criteria to be included in the supplier
selection process must be carefully determined to represent the competitive strategies of buying
firm (Sarkis & Talluri, 2002). No publication that treats the stages of problem definition and
criteria formulation can be found for supplier selection processes (De Boer et al., 2001). The
16
majority of supplier selection models in the existing literature ignore the fact that evaluation
criteria must be aligned with firm strategy.
The performance of the vendor is a key element in a company's success or failure. In order to
attain the goals of low cost, consistent high quality, flexibility and quick response, companies
have increasingly considered better vendor selection approaches. The overall goal of selection is
to identify high-potential vendors and their quota allocations. An effective and appropriate
vendor selection method is therefore very crucial to the competitiveness of companies.
The vendor selection problem (VSP) is associated with deciding how one vendor should be
selected from a number of potential alternatives (Dickson, 1966). Weber et al., (1998) believe
that vendor selection decisions entail the selection of individual vendors to employ, and the
determination of order quantities to be placed with the selected ones. Therefore vendor selection
is one of the most critical activities for many companies and selection of the wrong vendor could
be enough to upset the companys financial and operational position, while the selection of an
appropriate vendor may significantly reduce the purchasing cost and improve competitiveness.
1.9 Objective of the project

The objective of this research is to select and evaluate the vendors on the basis of important
criteria identified through literature review. Vendor plays important role in the supply chain
management. A good vendor increases the overall performance of organization and profit, but a
bad vendor choice may be disrupts the entire supply chain. Delays in components and material
supply may lead to long waiting time, which results in customer and profit loss both. So it is
necessary to evaluate vendors so that organization remains competitive. In this work we have
17
evaluated the selected vendors on the basis some important criteria and our purpose is to find
best suited vendors for particular organization.
1.10 Methodology
Vendor evaluation is a multiple criteria decision making problem, in which all the information
and data available is imprecise in nature. Under imprecise condition decision making process is
difficult. But to deal with this kind of impreciseness fuzzy set theory is used. Thus for vendor
evaluation we have used Fuzzy TOPSIS methodology.
In this methodology fuzzy positive ideal solution (FPIS), which is nearest to best possible
alternative and fuzzy negative ideal solution (FNIS), which is farthest from worst situation is
calculated. Then on the basis of FPIS and FNIS the closeness index is calculated. Then final
ranking is done, based on closeness coefficient.
To maximize the total value of purchase (TVP) and quota allocation to each vendor we have
used linear programming.
1.11 Conclusion
The supplier selection problem is of vital importance for operation of every firm because the
solution of this problem can directly and substantially affect costs and quality. Indeed, for many
organizations effective supplier evaluation and purchasing processes are critical success factors.
A great deal of research has been conducted to determine what criteria should be used to evaluate
suppliers. In practice, any set of criteria must be considered in light of real-life constraints,
18
making the supplier selection a complicated decision problem that involves balancing many
tradeoffs and satisfying conflicting desiderata.
19
CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
Supplier selection is one of the most critical activities of purchasing management in a supply
chain, because of the key role of suppliers performance on cost, quality, delivery and service in
achieving the objectives of a supply chain. Supplier selection is a multiple criteria decisionmaking (MCDM) problem which is affected by several conflicting factors.
2.2 Supply Chain Management

SCM is management of material, money, men, and information within and across the supply
chain to maximize customer satisfaction and to get an edge over competitors. Customers want
products at the right place and at the right time. For this, there should be an excellent
synchronization between the manufacturer and the customers. As things started becoming
complicated, where one person had to reach many individuals for his needs, one of the
individuals started management of gathering the products from different people and supplying to
those who are in need and thus fulfilling his needs in return. This was the revolutionized form of
the Barter system and today it is known as the supply chain management (Chopra & Meindl,
2001). The supply chain encompasses all activities associated with the flow and transformation
of goods from the raw materials stage through to the end user, as well as the associated
20
information flows. Material and information flow both up and down the supply chain. Supply
chain management is the integration of these activities through improved supply chain
relationships to achieve a sustainable competitive advantage (Handfield and Nicols, 1999). The
great benefit of supply chain management is that when all of the channel members including
suppliers, manufacturers, distributors, and customers behave as if they are part of the same
company, they can enhance performance significantly across the board (Copacino, 1997).
Researchers found that the lack of commonly accepted definition of supply chain management
and the problems associated with supply chain activities makes the understanding of supply
chain management difficult. There are numerous definitions of SCM; few definitions
summarized in table no. 2.1
Table 2.1: Definitions of Supply chain
Author
Definition
Govindan et al. (2009)
Supply chain management (SCM) is the term used to describe the

management of the flow of materials, information, and funds across the
entire supply chain, from suppliers to component producers to final
assemblers to distribution (warehouses and retailers), and ultimately to
the consumer.
Simchi-Levi et al. (2003)
SCM is a set of approaches utilized to efficiently integrate suppliers,

manufacturers warehouses and stores, so that merchandise is produced
21
and distributed at the right quantities, to the right locations, and at the
right time, in order to minimize system wide costs while satisfying
service level requirements
Stock & Lambert (2001)
Supply chain management is the management of eight key business

processes:
customer
relationship
management,
customer
service
management, demand management, order fulfillment, manufacturing flow

management, procurement, product development and commercialization
and returns. These processes subsume or include much of logistics,
purchasing, marketing and operation management.
Chopra and Meindl
The processes which occur before manufacturing or production into a
(2001)
deliverable product or service, typically processes dedicated to getting

raw materials from suppliers; and the processes which occur after
manufacturing or production dedicated to getting goods and services to
customers
Ballou et al. (2000)
The supply chain refers to all those activities associated with the
transformation and flow of goods and services, including their attendant
information flows, from the sources of raw materials to end users.
Management refers to the integration of all these activities, both internal
and external to the firm.
22
Christopher (1998)
SCM is the management of upstream and downstream relationships with

the suppliers and customers to deliver superior customer value at lesser
cost to the chain as a whole.
Leenders and Fearon
SCM is a systems approach to managing the entire flow of information,
(1997)
materials and services from raw materials suppliers through factories and
warehouses to the end customer.
SCM addresses the management of materials and information across the entire chain from
suppliers to producers, distributors, retailers, and customers. It helps the company to make an
optimal plan for the whole chain. Actions taken by one member of the chain can influence all
others in the chain (Chopra and Meindl, 2001).
The historical evolution of supply chain can be traced back to the development of quick response
(QR) programs in the textile and clothing industry (Lummus and Vokurka, 1999). According to
Fiorito et al; (1998), QR is a strategy where the manufacturer strives to provide products and
services to its retail customers in exact quantities on a continuous basis with minimum lead
times, resulting in minimum inventory levels throughout the pipeline. The focus of SCM is not
limited to improving the relationship and co-ordination between buyers and suppliers. Rather,
SCM requires all parties involved in producing and delivering a product to take a holistic
approach to manage and integrate key business functions in order to achieve a smooth flow of
information and product along a supply chain (Cooper et al.; 1997). Early efforts of SCM was
23
focused on the firm's internal processes and extended to supply chain partners that were most
immediately affected by the firm's products and services (Lancaster, 2006). Supply chain
strategy is no longer a single focus discipline, meant for one department, but a cross-functional
decision-making process. It is a means to compete in the marketplace and thus a factor in
corporate strategy (Subrahmani, 2004). Most significant paradigm shifts of modern business
management is that individual businesses no longer compete as independent entities, but rather
as supply chains. Now the competition becomes supply chain versus supply chain. The supply
chain is not a chain of businesses with one-to-one, but a network of multiple businesses and
relationships (Drucker, 1998).
According to Lambert et al.; (1998) managing from initial suppliers to end customers network
is an enormous undertaking. Managing the entire supply chain is a very difficult and challenging
task as illustrated in Figure 2.1
Source: Lambert et al.; (1998)

Figure 2.1: Supply Chain Network
24
It is necessary to identify who are the core members of the supply chain, because all types of
members may cause the total network to become highly complex. It is important to sort out some
basis for determining which members are critical to the success of the supply chain and, thus,
should be allocated managerial attention and resources. (Cooper et al.; 1997).
The same company can perform primary activities related to one process and supportive
activities related to another process in the supply chain. For example a manufacturer that buys
some critical and complex production equipment from a supplier and when the manufacturer
develops new products, it works very closely with the equipment supplier and becomes a
primary member of the manufactures product development process. However, once the
machinery is in place, the Supplier is a supportive, not a primary, member for the manufacturing
process. The point of origin of the supply chain occurs where no previous primary suppliers
exist. The point of consumption is where no further value is added, and the product or service is
consumed (Lambert et al; 1998).
The management of supply chains is characterized by high degrees of difficulty, recognized in
the multiple relationships and interactions between trading partners. These interactions are
complicated by their volume, variation in processes and the complexity inherent in the
dependencies between parties in time and space (Walker, 2001). It has a direct impact on the
ability of organizations to manage inventories, cash flows and service levels beyond the
enterprise. The information technologies become more sophisticated and accessible, so the
expectation for the technology to improve information flows has been high.
Modern supply chain deals with material flows and information flows across the entire chain,
from suppliers of raw material to final customers, it comprises at least two major fields: the
25
physical transformation field (mining, smelting, casting, alloying, machining, assembling; etc.),
and the goods distribution field (conveyance, storage, and transportation). Due to the
development of modern information technology, firms can coordinate all organizations and all
functions involved in the whole supply chain. (Xiaobo et al; 2006).
Supply chains can differ in size, complexity of relations between the members and distribution of
physical presence. In the Figure 2.2, two different types of channel relations can be seen: direct,
where the SC consists of one supplier and one customer of an organization, and extended, where
apart from the above, a suppliers supplier, a customers customer, etc. are included. In general,
supply chains are dynamic, and involve the flow of information, products and funds between
different stages (Lee, 2000) as shown in the Figure 2.2.
Direct Supply Chain
Supplier
Organization
Customer
Extended Supply Chain

Suppliers
supplier
Supplier
Organization
Customers
Customers
customer
Product
Information
Fund
Source: Lee, (2000)

Figure 2.2: Types of channel relations and flows across a supply chain
26
Supply chain management has the objective to have the right products in the right quantities at
the right time at minimal cost (Cutting et. al.; 2006) a situation that would guarantee optimal
service levels for the customer and optimal performance for the organizations as a whole and
separately. Therefore, SCM involves the management of flows between and among members of
supply, chain in order to maximize total supply chain profitability (Chopra and Meindl, 2003)
hence maximize the total value generated throughout the SC.
Bearing in mind the different dimensions of SCM, there are three types of SCM decisions:
strategic, tactical and operational (Narasimhan &Mahapatra, 2004). Strategic SCM decisions
involve the design and configuration of the supply chain, capacity planning and facility location;
tactical decisions include supplier selection and evaluation, bidding and contracts; operational
decisions include inventory management, production planning and scheduling, and
replenishment policy. The research concerning SCM decisions is wide, and it includes the five
illustrative decision models by Narasimhan et al. (2004), thus buyer-supplier behavior, sourcing,
integrated operations and marketing and logistics models.
2.3 Importance of Supply Chain Management

Supply chain management is becoming more and more important in todays business world.
Enterprises are now competing through supply chains, Gattorna (2006) claims that supply
chains are the business. However, what is it that makes supply chains so important? To answer
this question one has to consider the modern business environment and Porters value chain
model (Porter , 1980).
Research conducted in the early 1990s in the SCM field centered on minimizing transaction costs
in the buyer/supplier interaction. Then companies changed their focus and their perspective to a
27
more relationship-oriented approach to SCM (Tanner, 1999). Companies are now stressing a
value delivery network that is based on strong alliances alongside significant vertical and
horizontal integration (McCutcheon and Stuart, 2000 and Corsten and Kumar, 2005).
Companies today are increasingly dealing with suppliers and buyers from all over the world. The
products they design, manufacture and sell are shipped globally. As a result, SCM seems to have
gained increasing importance with today's large multinational corporations (Lummus et al.;
2001). In fact, some academics have suggested that the competitive battle is now between supply
chain and supply chain rather than between firms (Lambert and Cooper 2000). This is because as
much as a product or service itself is important to a firm, an effective SCM strategy can assist a
company with an established and sustainable competitive advantage, if well executed (Martin
2000). With the onset of globalization, the value delivery network has increased its impact on
corporate planning. Complex global supply chains must extend beyond value delivery to include
traceability and safety due to numerous recalls of pet food, toys and drugs (Roth et al.; 2008).
In global supply chain manufacturers are graphically dispersed around the world. Each company
is involved in a wide variety of supply chain activities such as order fulfillment, international
procurement, acquisition of information technology, manufacturing, faster and reliable delivery
of products and customer service (McIvor, 2000).
SCM includes extensive research and data analysis to perform above activities efficiently. It is
also observed that whole supply network could improve its ability to meet expectation of
consumers in terms of quality through co-management of quality and supply chain practices
(Romano and Vinelli, 2001). Thus by using supply chain management principles, the company
will be able to reduce product defects and to improve relationships within supply chain (Sahay et
28
al.; 2006). In todays ERP controlled uncertain manufacturing environments SCM ensures higher
availability of product to avoid lost sales / stock outages. It also stresses the importance of the
efficient consumer response process to achieve both customer satisfaction and business
efficiency (Romano and Vinelli, 2001).
2.4 Supply Chain Management Approaches

Given the increasing importance of SCM for business success, there is a growing interest in
SCM in both academia and business world. Different approaches are adopted in the analysis of
the phenomenon and the problems to seek the best choice of supply chain strategy.
One can tackle this problem through modelling models of successful supply chains are
expected to give insight into SC theory and extend it. Beamon (1998) provides us with a focused
review of multi-stage supply chain modelling, differentiating four types of SC models:
deterministic analytical, stochastic analytical, economic models and simulation models. In the
same article an analysis is given on the different SC performance measures being used, divided
into qualitative and quantitative categories.
It is also common practice to examine and analyze important issues of supply chain
management. For example, it has been argued (Chopra and Meindl, 2003) that competitiveness
and supply chain strategies must have the same goal, in other words a company should achieve
a strategic fit by aligning its SC strategies with the customer priorities. Towards this, three steps
should be followed: understand the customer and supply chain uncertainty, understand the
supply chain capabilities and achieve the strategic fit. As far as the second step is concerned, one
should bear in mind the so-called cost-responsiveness efficient frontier, which can be seen in
the Figure 2.3.
29
Source: Chopra and Meindl (2003)

Figure 2.3: Cost-Responsiveness Efficient Frontier and Zone of Strategic Fit
Many researchers are also concerned with the strategic dimension of SCM. Cohen et al. (2005)
propose five disciplines for top performance: view your supply chain as a strategic asset, develop
an end-to-end process architecture, design your organization for performance, build the right
collaborative model and use metrics to drive business success.
2.5 Sourcing
Sourcing decisions have recently gained in strategic importance. As companies are under
constant pressure to outperform increasingly fierce competition, cost effectiveness, innovative
capability and quality consciousness in the supply chain offer opportunities for achieving
competitive advantage (Juttner et al., 2007). Strategic sourcing must thus incorporate capability
assessments of the supply partners and total cost of ownership considerations when comparing
different alternative partners (Talluri and Narasimhan, 2003) emphasizes the impact of sourcing
30
on a firms growth and profit and provides a short review of different global sourcing strategies
(multiple, single and hybrid network).
Most of the literature (Bhote, 1989; Schorr, 1992; Gadde and Hakansson, 2001) compares
multiple sourcing as a strategy with single sourcing. In multiple sourcing, the buying company is
splitting its orders for the same item among different available sources, whereas single sourcing
is an extreme form of source loyalty towards one single supplier within a range of acceptable
sources. Freeman and Cavinato (1990) and Stork (1999a, b) suggest that single sourcing is the
ultimate stage of full partnerships between buyers and sellers on industrial markets.
Other literature compares the theoretical advantages and inconveniencies of different sourcing
strategies (Zeng, 2000). In general, most authors attribute more advantages than disadvantages to
a single sourcing strategy (Sriram and Mummalaneni, 1990).
Single sourcing is often preferred to multiple sourcing because of an imminent cutting of costs.
Single supplier-buyer relationships offer different cost advantages. As volumes are not split
between different sources, the buyer has the opportunity of negotiating better purchasing
conditions (Ellram and Billington, 2001).
Less investment in warehousing is needed as delivery schedules do not have to be split and
deliveries can more easily be planned (Kelle and Miller, 2001). The administrative costs of
handling just one supplier are obviously lower ( Brierly, 2001). Buyer and supplier can finally
also achieve cost reductions in the logistics field (Lynch, 2001).
Moreover, improvements in quality are noticed (Sriram and Mummalaneni, 1990). This is due to
fact that the supplier is capable of managing operations more efficiently and acquiring more
31
expertise in developing solutions for technical, logistic and other problems (Clayton, 1998).
Improved products and better quality result from that. A strict prerequisite for realising this
benefit is that a lot of detailed attention is paid to the selection and evaluation of the suppliers
performance. Certification is considered to be a very effective way in achieving this (Kulchitsky,
1998). Larson and Kulchitsky (1998) report both cost reductions and quality improvements
resulting from single sourcing. Automotive companies are therefore increasingly relying on
single sourcing to safeguard their global competitive position (Pfaffman and Stephan, 2001).
Dependency of both partners on one another is the one major drawback associated with a single
sourcing strategy. It may lead to higher switching costs (as suppliers will want to create captive
customers). Potentially less competitive cost structures (Haywood, 2001) might also result. As it
may become cumbersome and costly to change supply partnerships, the buyer might loose
market feeling. Knowledge of supply alternatives might fade. Thus the flexibility of the supplier
might shrink and cost and price competitiveness might be gradually reduced (Talluri and
Narasimhan, 2003).
2.6 Vendor selection in Supply Chain

In the recent years, supply chain management (SCM) has gained immense importance since
enterprises are now competing on supply chain rather than manufacturing or service operations.
Supply chain management involves the flows of material, information and finance in a network
consisting of customers, suppliers, manufacturers, and distributors. A well managed supply chain
leads to cost reduction by lead time reduction, timely delivery and low inventories. In supply
chain a good coordination between supplier and manufacturer are necessary. Since suppliers are
manufacturers external organizations, the coordination with the suppliers is not easy unless
32
systems for cooperation and information exchange are integrated. Selection of appropriate
suppliers is one of the fundamental strategies for enhancing the quality of output of any
organization, which has a direct influence on the companys reputation. The importance of
supplier selection has been stressed in the literature (Weber et al., 1991). As pointed out by
Bhutta and Huq (2002), the supplier selection problem requires the consideration of multiple
objectives, and hence can be viewed as a multi-criteria decision-making (MCDM) problem.
In most industries the cost of raw materials and component parts constitutes the main cost of a
product, such that in some cases it can account for up to 70% (Ghodsypour & OBrien, 1998).
Goffin et al. (1997) have stated that supplier management is one of the key issues of supply chain
management because the cost of raw materials and component parts constitutes the main cost of
a product and most of the firms have to spend considerable amount of their sales revenues on
purchasing. So it becomes important to have good vendors which lead to cost reduction and
maximize the profit. According to Ghodsypour and OBrien, (2001) selecting a good supplier
significantly reduce the purchasing cost and improve corporate competitiveness. Krajeweski&
Ritzman (2006) reported for instance, that the percentage of sales revenues spent on materials
varies from more than 80 percent in the petroleum refining industry to 25 percent in the
pharmaceutical industry. Most firms have spent 45 to 65 percent of sales revenues on materials.
Moreover, the emphasis on quality and timely delivery in today's globally competitive
marketplace adds a new level of complexity to outsourcing and supplier selection decisions. The
importance of vendor selection comes from the fact that it commits resources while
simultaneously impacting such activities as inventory management, production planning and
control, cash flow requirements and product quality( Narasimhan, 1983).
33
Global competitive environment continues to force many companies to make strategic changes in
managing their business. Numerous manufacturers have been downsizing, concentrating on their
core competencies, moving away from vertical integration, and outsourcing more extensively
(Goffin, et al.; 1997). As outsourcing has increased, so has the importance of vendor selection
decisions (Ernst et al.; 2007). In todays competitive operating environment, it is impossible to
successfully
produce
low-cost,
high-quality
products
without
satisfactory
suppliers
(Golmohammadi et al.; 2009). Selection of appropriate vendors or suppliers is one of the

fundamental strategies for enhancing the quality of output in any organization, which has a direct
influence on the company (Shlrouyehzad et al.; 2009).
A variety of changes in the business environment including globalization, accelerated global
competition, decreased governmental regulation worldwide, intensified environmental concerns,
increased rates of technological change as well as increasingly demanding customers, fast
product development cycle time, short product life cycle, increased product complexity and
quality consciousness are leading firms towards development of long-term strategic partnerships
with a few competent and innovative suppliers and collaborate with them in non-core process
outsourcing to improve organizational performance and generate long-term competitive
advantage. This structured approach to the design of the supply chain will result in an
organization that is an appropriate mix of the companys own capabilities with those of partners
or suppliers in a relationship that is consistent with the strategy of business. For this reason,
suppliers should be selected based on how their actions will impact all competitive elements of
the supply chain. This indicates that one of the competencies essential to supply chain success is
an effective purchasing function (Tracey & Tan, 2001). Purchase decision process of
organizational buyers has become increasingly a complex, multidimensional and multifunctional
34
activity as the traditional role of the purchasing has significantly changed over the past few years
as organizations increasingly globalize their sourcing activities. In today's highly competitive
and interrelated manufacturing environment, the effective selection of suppliers is very important
to the success of a manufacturing firm (Weber et al.; 2000). The involvement of a large number
of closely interrelated decisions regarding financing, negotiations, distribution, procurements and
product quality assurance at the source implies the significance and long-lasting impact of
suppliers selection on sourcing (Min, 1994). Companies in order to attain the goals of low cost,
consistent high quality, flexibility and quick response have increasingly considered better
supplier selection approaches. These approaches require cooperation in sharing costs, benefits,
expertise and in attempting to understand one another's strengths and weaknesses, which in turn
leads to single sourcing and long-term partnerships (Bhutta & Huq, 2002).
Several factors have been identified by Dzever et al. (2001) which impact supplier selection
decisions of organizational buyers. These factors (which are both of a firm-specific nature as
well as environmentally determined) include: the composition and functional specialization of
the members of the decision-making unit, patterns of buyer-seller interaction and relationships,
the role of intermediaries in the decision process and the impact of environmental factors such as
market structure, technology, economic and culture on these decisions. Moreover, purchase
decisions are also influenced by three dimensions of buyer behavior identified as technical,
commercial and social (Dzever et al.; 2001). It is thus by having a correct understanding of these
factors that one can fully appreciate the decision process of organizational buyers in a wider
perspective.
Since the supplier selection process encompasses different functions (such as purchasing,
quality, production, etc.) within the company, it is a multi-objective problem, encompassing
35
many tangible and intangible factors in a hierarchical manner (Bhutta and Huq, 2002). Supplier
selection process is inherently multi-objective in nature, because typically more than one
criterion (e.g. price, quality, delivery performance) needs to be considered and evaluated in
selecting suppliers and monitoring their performance (Talluri and Sarkis, 2002). When
evaluating sources, the single most important task for buyers is assessing the key competitive
factors in their industry and translating these dimensions into supplier evaluation criteria. An
evaluation of best-in-class performance in product and process technology, quality, delivery and
design flexibility is key determinants in this decision (Handfield, 1994). Therefore, a buyer
should analyze and evaluate the potential threats when selecting suitable supplier resulting from
a systematic selection process and its corresponding attributes. The source-selection decision is
highly complex and purchases most difficult responsibility. First, such a decision involves more
than one selection criterion when choosing among the available suppliers. Second, criteria
included in the supplier selection process may frequently contradict each other (lowest price
against poor quality). A third complication surrounding the supplier selection decision arises
from internal policy constraints and externally imposed system constraints placed on the buying
process. Fourth, as organizational requirements and market conditions change, the importance of
the analysis of tradeoffs among the selection criteria may be increased (Weber et al.; 2000).
2.7 Vendor Selection Criteria

The vendor selection process has undergone significant changes during the past thirty years. In
todays competitive operating environment it is impossible to successfully-produce low cost,
high quality products without satisfactory vendors (Weber, 1991). Therefore, vendor selection
decisions are an important component of production and logistics management for many firms
36
(Weber, 1998). The analysis of criteria for selection and measuring the performance of vendors
has been the focus of many academicians and purchasing practitioners since the 1960s (Weber,
1991).
In his study, Dickson (1966) investigated 273 purchasing agents and managers selected from
membership list of National Association of Purchasing Managers, and indentified 23 vendor
evaluation criteria and their importance rating. He concluded that critical factor for supplier
selections are quality, on time delivery, supplier performance history and warranties and claims
got high ranking.
Weber et al. (1991) reviewed 74 supplier selection papers that has appeared since 1966, and
classified that criteria used in these paper based on Dicksons 23 criteria. They found that most
frequently mentioned criteria net price, delivery, quality, production facilities, technical
capabilities, reputation, financial position, performance history, repair and attitude. They
concluded that quality was considered as the most important factor followed by delivery
performance and cost. Almost all the articles pay more attention to price, quality, capability,
delivery, especially JIT philosophy.
Wilson (1994) reviewed and compared the supplier selection criteria in 70ss and 90s, and found
that quality and services are becoming more important while price is becoming less important.
The reason for this shifting is implementation of supply chain management and JIT system. In
70s company had numerous suppliers, competition was solely based on price and contact was
usually short term. In 90s, single sourcing is becoming more common and competition was based
on quality, delivery, engineering and price, and contracts were increasingly long term.
37
Choi and Hartley (1996) explored the supplier selection practices in auto industry. Their
selection criteria are based on supplier selection criteria of Dickson (1966) and Weber et al.
(1991), and included others that some researcher had suggested as important. They indentified 26
criteria and grouped in to 8 main factors using principle component analysis. The 8 factors are
(1) Finances: financial condition, profitability of supplier, financial record disclosures and
performance awards. (2) Consistency: conformance quality, consistent delivery, quality
philosophy and prompt response. (3) Relationship: long term relationship, relation closeness,
communication openness and reputation. (4) Flexibility: product volume changes, short setup
time, short delivery lead time and conflict resolutions. (5) Technological capability: design
capability and technical capability. (6) Services: after sale support and sale representative
competences. (7) Reliability: incremental improvement and product reliability. (8) Price: low
initial price. They concluded that selecting supplier based on potential for cooperative, long term
relationship was important and price was least important criteria regardless of position in supply
chain.
Barbaresoglu and Yazagac (1997) proposed a general purpose model for Turkish industry to
evaluate suppliers and applied the A.H.P. to generate the weights for suppliers selection criteria.
The primary criteria used in the supplier selection model were performance assessment,
manufacturing capability assessment and quality system assessment. The weights for these
primary criteria were 0.625, 0.136, and 0.238 respectively. The second level criteria and there
weights under the performance assessment are: shipment quality (0.429), delivery (0.429) and
cost analysis (0.142).
Pearson and Ellram (1995) investigated the supplier selection and evaluation problem in small
and large electronics firms. The criteria they used for the supplier selection and evaluation
38
included quality, cost, current technology, design capabilities, speed to market, manufacturing
process, assessment of future technology, economic performance, management compatibility,
location and proximity, visitation to supplier facilities and organizational structure. They
concluded that both large and small firms were putting much greater emphasis on quality in
supplier selection. In addition, large firms used more formal methods to evaluate suppliers, while
small firms used informal methods.
Petroni and Braglia (2000) indentified that management capability, production capacity and
flexibility, design and technological capability, financial stability, experience and geographical
location are important criteria for selecting a suitable supplier.
Akarte et al. (2001) used 18 criteria to evaluate suppliers for automobile castings sector. These
criteria were groped in to 4 groups: product development capability, manufacturing capability,
quality capability, cost and delivery. They also used the A.H.P. to generate the criteria weights
and implemented this evaluation system in a web environment.
Wang et al. (2004) proposed that low cost and high quality should be considered for a lean
supply chain and that speed, flexibility, and quality should be considered for an agile supply
chain.
Thaver and Wilcock (2006) used 16 criteria for vendor selection which are used by textile and
apparel buyers to select overseas vendors in Canadian firms. They are offering competitive
prices, merchandise fashionability, quality of first samples, sound financial position, willingness
to negotiate prices, sufficient export quota, short lead times for delivery, long-term commitment
supplying quotations promptly, economic stability in country, effective communication system
registered to a quality program, low minimum quantities required, possessing EDI, technical
39
expertise and registration to ISO 9000. He concluded that Canadian buyers are not influenced by
ISO 9000 during overseas vendor selection.
Ho et al. (2010) reviewed papers published between 2000 to 2008 on multicriteria decision
making approaches for supplier selection and evaluation. They found that price or cost is not
most widely adopted criterion. Instead, the most popular criterion used for evaluating the
performance of suppliers is quality, followed by delivery, price or cost, manufacturing capability,
service, management, technology, research and development, finance, flexibility, reputation,
relationship, risk, and safety and environment. In table 2.2 important criteria used by researchers
are summarized.
There are many criteria discussed in literature for vendor selection some of important criteria are
mentioned below:
Cost: The purchasing price is very significant to decrease cost and to promote the competitive
capability of products for core enterprise. Therefore the purchasing price is a highlighted
consideration to the purchasing organization (Bei et al., 2006). Ho et al. (2010) reviewed
international journal published between (2000- 2008) and found price/ cost is third most
important criteria for vendor selection. Its related attributes include appropriateness of the
materials price to the market price, competitiveness of cost, cost reduction capability, cost
reduction effort, cost reduction performance, direct cost, fluctuation on costs, indirectcoordination cost, logistics cost, manufacturing cost, unit cost, ordering cost, parts price, product
price, and total cost of shipments.
Quality: Quality is a critical concern for most enterprises. The need for high quality vendors has
always been an important issue for enterprises. The factors assessing quality include mainly
40
quality systems, equipment for manufacturing required products, process capability and rate of
certified product. In supplying products or services there are three fundamental parameters that
determine their sale ability. They are price, delivery, and quality. Customers require products and
services of a given quality to be delivered by, or be available by, a given time, and to be at a
price that reflects value for money. These are the needs of customers. An organization will
survive only if it creates and retains satisfied customers and this can only be achieved if the
products or services meet customer needs and expectations. While price is a function of cost,
profit margin, and market forces, and delivery is a function of the organizations efficiency and
effectiveness, quality is determined by the extent to which a product or service successfully
serves the purpose of the user during usage (not just at the point of sale). Price and delivery are
transient features whereas the impact of quality is sustained long after the attraction or the pain
of price and delivery has subsided. Therefore, the fact that quality is on top of the list of critical
success factors for supplier selection should not be surprising. Ho et al. (2010) found that quality
is the topmost criteria for vendor selection.
Delivery: Along with quality, another factor that is considered a basic prerequisite for supplier
selection is delivery. As outsourcing has increased, so has the importance of vendor selection
decisions. In the selection process, delivery performance remains an important criterion (Ernst et
al 2007). Since Dicksons (1966) study conforming to quality specifications and meeting
delivery deadlines remain the most important supplier selection criteria. In a fundamental sense,
these form the threshold criteria that buying firms apply to all suppliers before they can be
considered as strategic partners in the buyer-supplier relationship (Choi and Hartley, 1996). They
have emerged as order qualifiers to the extent that if suppliers cannot demonstrate acceptable
performance in these two areas, they will be dropped as potential candidates during the screening
41
phase itself. Ho et al. (2010) found that second most used criteria for supplier selection is
delivery.
Flexibility: Flexibility is one of the important objectives in operation strategy model (Schroeder,
2000) and is often seen as a reaction to environmental uncertainty (Suarey et al., 1991; Gerwin,
1993). Flexibility is described as the ability of a manufacturing system to cope with
environmental uncertainties (Barad and Sipper, 1988). There are many ways to characterize
supply chain flexibility, for example, manufacturing flexibility and marketing flexibility
(Vickery et al., 1999). In general, flexibility reflects an organizations ability to effectively adapt
or respond to changes that add value in the customers eyes (Upton, 1995).
Financial Capability: A solid financial position helps ensure that performance standards can be
maintained and that products and services will continue to be available (Kahraman et al. 2003).
Both buyers and sellers are looking for partners that are viable, ongoing concerns that will
contribute to the relationship both for the present and in the future. A supplier on financially
unstable footing will have much more difficulty contributing to the partnership venture, as it
must focus its efforts on improving its financial soundness. Hence, both suppliers and buyers are
becoming more mindful of the financial position of their potential partners in their decision
making (Ellram, 1990).
Reputation: Reputation is defined as the perception of quality over time. There is definitely a
notion of quality, but it may be real today or may be perceived based on past quality or past
experience. The experience may be personal or may be secondary. Someone else who is trusted
may have expressed their perception of quality. A positive reputation can lead to trust. Achrol
(1997) notes that business decisions superficially based on trust may in reality judgment related
42
to partys reputation. Wilson (1995) argues that reputation for performance become a measure
of trust when partner is untested. Similarly, Michel et al. (1998) suggest that reputation is an
element of trust because it affects cognitive perception of quality
Table 2.2: Important vendor selection criteria used by various researchers
Author
Criteria Used
Ho et al. (2010)
They found most popular criterion used for evaluating the performance
of suppliers is quality, followed by delivery, price or cost,
manufacturing capability, service, management, technology, research
and development, finance, flexibility, reputation, relationship, risk, and
safety and environment
Thaver and Wilcock
They used offering competitive prices, merchandise fashionability,
(2006)
quality of first samples, sound financial position, willingness to

negotiate prices, sufficient export quota, short lead times for delivery,
long-term commitment supplying quotations promptly, economic
stability in country, effective communication system registered to a
quality program, low minimum quantities required, possessing EDI,
technical expertise and registration to ISO 9000
Low cost and high quality should be considered for a lean supply chain
and that speed, flexibility, and quality should be considered for an
43
Wang et al. (2004)
agile supply chain.
Akarte et al. (2001)
Product development capability, manufacturing capability, quality

capability, cost and delivery
Petroni and Braglia (2000)
Management capability, production capacity and flexibility, design and

technological capability, financial stability, experience and
geographical location
Pearson and Ellram (1995)
Quality, cost, current technology, design capabilities, speed to market,

manufacturing process, assessment of future technology, economic
performance, management compatibility, location and proximity,
visitation to supplier facilities and organizational structure.
Barbaresoglu and Yazagac
Performance assessment, manufacturing capability assessment and
(1997)
quality system assessment.
Choi and Hartley (1996)
Finances, Consistency, Relationship, Flexibility, Technological

capability, Services, Readability and Price
Wilson (1994)
They found that quality and services are becoming more important
while price is becoming less important
44
Weber et al. (1991
They found that most frequently mentioned criteria net price, delivery,
quality, production facilities, technical capabilities, reputation,
financial position, performance history, repair and attitude.
Dickson (1966)
Quality, delivery, performance history, warranties and claim

policies, production facilities, price, technical capability, financial
capability, bidding procedural compliance, communication
system, industry reputation and position, desire for business,
management and organization, operating controls, repair service,
altitude, impression, packaging ability, labour relations record,
geographical location, amount of past business, training aids,
Reciprocal arrangement.
2.8 Vendor Selection Methods

Boer et.al. (2001) presented a review of decision methods reported in the literature for
supporting the supplier selection process. They showed that several suitable Operations Research
methods such as data envelopment analysis, total cost approaches, linear programming, linear
weighting models, statistical methods, artificial intelligence.
45
In linear weighting models weights are given to the criteria, the biggest weight indicating the
highest importance. Ratings on the criteria are multiplied by their weights and summed in order
to obtain a single figure for each supplier. The supplier with the highest overall rating can then
be selected. This basic linear weighting model is described mostly in Purchasing textbooks, see
e.g. Zenz (1981) and in Timmerman (1986).
Nydick and Hill (1992) and Masella and Rangone (2000) propose the use of the analytic
hierarchy process (AHP) to deal with imprecision in supplier choice. In short, AHP circumvents
the difficulty of having to provide point estimates for criteria weights as well as performance
scores in the basic linear weighting model. Instead, using AHP the buyer is only required to give
verbal, qualitative statements regarding the relative importance of one criterion versus another
criterion and similarly regarding the relative preference for one supplier versus another on a
criterion. Tahriri et al (2008) applied AHP approach for supplier selection and evaluation in steel
manufacturing company.
Sarkis and Talluri (2000) propose the use of the analytical network process (ANP), a more
sophisticated version of AHP, for supplier selection. Mandal and Deshmukh (1994) applied
interpretive structural modeling(ISM) technique for the supplier selection.its main goal to
indentify and summarize the relationship among items and to form structural model of problem.
Min (1994) used multi attribute utility approach for international supplier selection.
Mathematical Programming (MP) allows the decision-maker to formulate the decision problem
in terms of a mathematical objective function that subsequently needs to be maximized (e.g.
profit) or minimized (e.g. Costs) by varying the values of the variables in the objective function.
Karpak et al. (1999) use goal programming to minimize costs and maximize quality and delivery
46
reliability when selecting suppliers and allocating orders between them. Weber and Desai (1996)
propose data envelopment analysis (DEA) for evaluation of vendors that were already selected.
Weber et al. (1998) combine MP and the DEA method to provide buyers with a tool for
negotiations with vendors that were not selected right away as well as to evaluate different
numbers of suppliers to use (Weber et al., 2000). Rosenthal et al. (1995) developed a mixed
integer linear program that would find the purchasing strategy for the buyer to minimize the total
purchase cost, and the computational results was also presented on a personal computer with
standard optimization software.
Ghodsypour and OBrien (1998) used an integrated AHP and LP model for the vendor selection
and order allocation problem.
Degraeve and Roodhooft (2000) develop a mathematical
programming model that minimises the total cost of ownership of the supplier choice and
inventory management policy using activity-based costing information. Degraeve et al. (2000)
extend this methodology to the service sector in developing an airline selection model for the
procurement of business travel.
Tempelmeier (2002) formulated a mixed integer linear optimization model for supplier selection
and purchase order sizing for a single item under dynamic demand conditions. Dahel (2003)
presented a multi-objective mixed integer programming approach to simultaneously determine
the number of vendors to employ and the order quantities to allocate to these vendors in a
multiple-product, multiple-supplier competitive sourcing environment.
Statistical models deal with the stochastic uncertainty related to the vendor choice. Ronen and
Trietsch (1988) develop a decision support system for supplier choice and ordering policy in the
context of a large one/of project where the order lead time is uncertain. Soukoup (1987)
47
introduces a simulation solution for unstable demand in his rating model. Tracey and Tan (2001)
employed confirmatory factor analysis and path analysis to examine empirically the relationships
among supplier selection criteria, supplier involvement on design teams and in continuous
improvement programs, customer satisfaction, and overall firm performance.
Khoo et al. (1998) discuss the potential use of an Internet-based technology called intelligent
software agents (ISAs). ISA's are generally used for automating the procurement of goods. The
authors suggest different types of agents - learning agents and shopping agents -that can be
applied to the supplier selection problem. The focus is on the development of a simple model to
demonstrate the electiveness of using intelligent software agents for electronic sourcing. Choy
and Lee (2003) presented an intelligent generic supplier management tool using the CBR
technique for outsourcing to suppliers and automating the decision making process when
selecting them.
Karpak et al. (2001) implemented the Visual Interactive Goal programming (VIG) in a multiple
replenishment purchasing problem. Bhutta and Huq (2002) presented two approaches related to
supplier selection decision, AHP and TCO and provided a comparison. Handfield et al. (2002)
proposed an AHP model that included relevant environmental criteria in supplier selection
decision.
Weber et al. (2000) presented data envelopment analysis method for selecting vendors and their
quota allocation. Wu et al. (2007) presented a so-called augmented imprecise DEA for supplier
selection. The proposed model was able to handle imprecise data (i.e., to rank the efficient
suppliers) and allow for increased discriminatory power (i.e., to discriminate efficient suppliers
from poor performing suppliers). A web-based system was developed to allow potential buyers
48
for supplier evaluation and selection. Ha and Krishnan (2008) applied an integrated approach in
an auto parts manufacturing company for supplier selection. Twelve evaluating criteria were
proposed for the selection problem. In the approach, AHP was used first to evaluate the
performance of suppliers with respect to five qualitative factors. Then, the remaining seven
quantitative criteria along with the scores for each supplier calculated by AHP were passed to
DEA and artificial neural network (ANN) to measure the performance efficiency of each
supplier. Both results were compiled into one efficiency index using a simple averaging method.
Ng (2008) developed a weighted linear programming model for the supplier selection problem,
with an objective of maximizing the supplier score. Similar to AHP, it involves the decision
makers in determining the relative importance weightings of criteria.
2.9 Fuzzy Approach in Vendor selection

Fuzzy set theory can provide a valuable tool to cope with three major problematic areas of
vendor selection: imprecision, randomness and ambiguity. As far as imprecision is concerned it
provides a powerful tool to weigh selection criteria importance. As far as randomness is
concerned, it is more effective than probabilistic approaches in that the selection problems
should not use prediction based on previous vents, since each selection case is not repeatable. As
far as ambiguity is concerned it copes better than other methods with the treatment of linguistic
variables. Fuzzy logic enables us to emulate the human reasoning process and make decisions
based on vague or imprecise data. There are few papers in order to handle imprecise information
and uncertainty in supplier selection models (Narasimhan, 1983, Soukup, 1987, Nydick and Hill,
1992). In these papers, for finding the best overall rating supplier, simple linear weighting
models have been adapted to deal with uncertainty from incomplete and qualitative data in
49
unstructured purchasing situations. Based on fuzzy logic approaches, Morlacchi (1997)

developed a model that combines the use of FST with AHP and implements it to evaluate small
suppliers in the engineering and machine sectors. Li et al. (1997) proposed a measure for
supplier performance evaluation. They used fuzzy bag method to score qualitative criteria and
then all scores for qualitative and quantitative criteria are combined in an intuitive sum of
weighted averages. Holt (1998) reviewed of contractor evaluation and selection modelling
methodologies including FST method. In these methods, binary decisions (e.g. the contractor
does, or does not, have a formal safety policy) can convert to linguistic variables (e.g. No,
Minimum, Strong and Maximum). Albino et al. (1998) used fuzzy logic system to support
vendor rating and compared it to a neural network in order to evaluate the different system
performances. Nassimbeig and Battain (2003) developed a vendor-rating tool based on fuzzy
logic, a neural application and ordinary least squares (OLS) regression. Erol and Ferrel (2003)
proposed a methodology that assists DMs to use qualitative and quantitative data in a
multiobjective mathematical programming model. In their method first, qualitative information
converts into quantitative format using fuzzy quality function deployment (QFD) and then
combines this data with other quantitative data to parameterize a multi-objective model. Kumar
et al. (2006) used a fuzzy programming approach for vendor selection problem in a supply chain
considering a fuzzy Multi-objective Integer Programming formulation and a fuzzy mixed integer
goal programming formulation. Chou et al. (2006) used a fuzzy factor rating system to evaluate
potential vendors based on a modified re-buy situation. Keskin et al. (2010) used Fuzzy Adaptive
Resonance Theory (ART)s classification ability to the supplier evaluation and selection area.
The proposed selection method, using Fuzzy ART not only selects the most appropriate
supplier(s) and also clusters all of the vendors according to chosen criteria.
50
2.10 Conclusion
In this chapter, brief literature review of supply chain management is given. Then, vendor
selection criteria used by various researchers are discussed. Some important criteria are
indentified for vendor evaluation based on literature. Then various methods used so far for
vendor evaluation are discussed in brief.
In conclusion, focusing on selecting best vendor
will make a major contribution to the
competitiveness of the entire organization. This main task requires careful evaluation, selection,
and continuous measurement of the suppliers that provide the goods and services that help satisfy
the needs of an organizations final customers.
In other words, once a supplier is selected, the focus must shift from supplier evaluation to the
continuous measurement of supplier performance. An organization must have the tools to
measure, manage, and develop the performance of its supply base. Supplier performance
measurement includes the methods and systems to collect and provide information to measure,
rate, or rank supplier performance on a continuous basis. Supplier performance measurement
differs from the process used to initially evaluate and select supplier, given that is a continuous
process.
51
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Introduction
This chapter contains methodology used in this thesis for evaluating and ranking vendors based
on selected criteria. The chapter consists of fuzzy logic introduction and then methodologies
TOPSIS, Fuzzy TOPSIS and Linear Programming. Firstly fuzzy logic is discussed, and then
TOPSIS and Fuzzy TOPSIS are discussed. Fuzzy TOPSIS is used for evaluating and ranking of
vendors and in the last Linear Programming is, discussed which is used for quota allocation in
this thesis.
3.2 Fuzzy Logic

Fuzzy logic is a form of multi-valued logic derived from fuzzy set theory to deal with reasoning
that is approximate rather than precise. Most real world decision problems take place in a
complex environment where conflicting systems of logic, uncertain and imprecise knowledge,
and possibly vague preferences have to be considered. To face such complexity, the use of
specific tools, techniques, and concepts which allow the available information to be represented
with the appropriate granularity is believed as crucial. Particularly, fuzzy set theory can ideally
cope with this kind of problems.
52
Verma (1997) applied fuzzy logic for construction of offender profiles. He proposed a fuzzy
logic based mathematical procedure for criminals justice fields. He found out that this is a
strong mathematical technique that can handle imprecise and fuzzy data is undoubtedly going to
strengthen the analytical capabilities of the social researchers. Above all, an exposure to the
concept of fuzzy variables and an understanding of the mathematical base of fuzzy logic could
initiate a new research process for police and criminal justice fields, for obviously this is only a
beginning.
Shore and Venkatachalam (2003) used fuzzy logic technique for evaluation of the information
sharing capabilities of supply chain partners. The methodology allows decision makers to
evaluate information sharing capability of suppliers in a natural way while preserving the
fuzziness of the measurement process and capturing data in linguistic terms. Fuzzy logic, used
extensively in engineering for control problems, seems potentially very useful in solving a range
of supply chain evaluation problems. While the purpose of this paper is to introduce the
methodology, the next step should be to apply this methodology to an actual problem and extend
the methodology to a wider range of evaluation problems.
Chena and Hsu (2004) presented a new method for forecasting the enrollments of the University
of Alabama using fuzzy time series. The proposed method belongs to the first order and timevariant methods. The proposed method gets a higher forecasting accuracy rate for forecasting
enrollments than the existing methods.
Oke and Charles-Owaba (2006) used fuzzy logic control model for Gantt charting preventive
maintenance scheduling. The research has serious implication in terms of the ability to monitor
the Imprecision those were introduced in early work. He provide a more reliable framework for
53
researchers and practitioners interested in maintenance scheduling activities.

Malagoli and Magni (2007) used fuzzy logic and expert systems to provide a score for the
firm(s) under consideration, representing the firm value-creating power. They introduced a
system which was capable of dealing with both quantitative and qualitative variables and
integrates financial, managerial and strategic variables. The use of a fuzzy expert system for
ranking firms within a sector and pricing firms is a first attempt at an alternative way of
measuring performance and value. Ordoobadi (2008) proposed a tool for decision makers to
make more informed decisions regarding their investment in advanced technologies. He
proposed that addition of subjective perceptions to the purely quantitative approach provides a
more realistic evaluation process. He founded a procedure that would help practitioners with
their technology. The value of the paper is the inclusion of the decision makers judgment in the
evaluation process by use of fuzzy logic. Munoz et al. (2008) used fuzzy logic for evaluating
sustainability in organizations. His aim was to determine whether the organizations more
strategically committed to their stakeholders present better social and financial performance and,
based on this relationship, to determine the state of the art of the Spanish sectors approach to
sustainable development.
3.3 Fuzzy Set Theory

Fuzzy set theory introduced by Zadeh (1965) is used to represent the vagueness of human
thinking; it expands traditional logic to include instances of partial truth. In traditional set theory,
elements have either complete membership or complete non-membership in a given set. With
fuzzy set theory, intermediate degrees of membership are allowed. The coding of the degree of
membership to each of the elements in the set is defined as the membership function of the fuzzy
54
set. The membership function is commonly depicted as a membership curve. The membership
curve contains three main components: the horizontal axis consisting of domain elements
(usually real numbers) of the fuzzy set, the vertical axis consisting of the degree of membership
scale from 0 to1, and the surface of the set itself which relates the degree of membership to the
domain element. These membership curves can take on several shapes, but the triangular and
trapezoidal are the most frequently used. This type of methodology is very useful when the
model requires human perceptions as inputs where ambiguity and vagueness exists. In particular,
systems requiring linguistic descriptions are more easily modeled using fuzzy sets. There are two
main inputs to the evaluation process of data. The first is the decision makers perception
regarding the importance weight of the criteria of interest. The second input is how the decisionmaker rates each parameter with respect to objective. However, it is very difficult to obtain exact
assessments from the decision maker. The nature of these assessments is often subjective and
qualitative and thus forcing the decision makers to express their opinion in pure numeric scales
does not allow any room for subjectivity. Subjectivity of human assessments and beliefs can be
expressed by using linguistic terms such as low importance or highly likely. The fuzzy set
theory and fuzzy numbers allow such qualitative expressions. As a result, their use in modeling
of our proposed system seems a logical choice.
3.4 Fuzzy Numbers

Fuzzy numbers are the special classes of fuzzy quantities. A fuzzy number is a fuzzy quantity M
that represents a generalization of a real number r. intuitively; M(x) should be a measure of how
well M (x) approximates r. (Nguyen and Walker, 2000). A fuzzy number M is a convex
normalized fuzzy set. A fuzzy number is characterized by a given interval of real numbers, each
55
with a grade of membership between 0 and 1. (Deng, 1999) A triangular fuzzy number (TFN),
M is shown in Figure 1.
1.0
M
l
u
Figure 3.1: A Triangular fuzzy number, M
0.0
Triangular fuzzy numbers are defined by three real numbers, expressed as (l, m, u). The
parameters l, m, and u, respectively, indicate the smallest possible value, the most promising
value, and the largest possible value that describe a fuzzy event. Their membership functions are
described as;
0,
( x l ) (m l ) ,
~
( x / M )
(u x ) (u m ),
0,
x l,
l x m,
m x u,
x u
(3.1)
In applications it is convenient to work with TFNs because of their computational simplicity, and
they are useful in promoting representation and information processing in a fuzzy environment.
In this study TFNs in the Fuzzy TOPSIS is adopted.
56
3.5 Algebraic Operations on TFNs

Although we are familiar with algebraic operations with crisp numbers, when we want to use
fuzzy sets in applications, we have to deal with fuzzy numbers. We can define various operations
on TFNs. But in this section, important operations used in this study are illustrated. (Tang and
Beynon, 2005) If we define, two TFNs A and B by the triplets A= (la, ma, ua) and B= (lb, mb, ub).
Then
Multiplication:
A.B=(la, ma, ua).(lb, mb, ub)
= (lalb, mamb, uaub)
(3.2)
(la, ma, ua)-1=(1/ua, 1/ma, 1/la)
(3.3)
Inverse:
Distance B/W Two triangular Fuzzy numbers:

Distance between two triangular fuzzy numbers a (la, ma, ua ) and b (l b, mb ,ub) can be calculated
as follows:
d ( a, b)
1
3
2
2
2
[(la lb ) (ma mb ) (ua ub )
d ( a, b) R
(3.4)
Distance between two fuzzy numbers is crisp in nature
57
3.6 TOPSIS
The TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) method was firstly
proposed by Hwang and Yoon (1981). It is very effective in multi-criteria decision-making
(MCDM). The basic concept of this method is that the chosen alternative should have the
shortest distance from the positive ideal solution and the farthest distance from negative ideal
solution. Positive ideal solution is a solution that maximizes the benefit criteria and minimizes
cost criteria, whereas the negative ideal solution maximizes the cost criteria and minimizes the
benefit criteria.
The TOPSIS method assumes that each criterion has a tendency of monotonically increasing or
decreasing utility. Therefore, it is easy to define the ideal and negative ideal solutions. The
Euclidean distance approach was proposed to evaluate the relative closeness of the alternatives to
the ideal solution. Thus, the preference order of the alternatives can be derived by a series of
comparison of these relative distances.
The TOPSIS method evaluates the following decision matrix (D) which refers to
which are evaluated in terms of
n criteria:
x11
x
21
D .
.
x
m1
x12
x22
.
.
x1n
x2 n
.
.
.
.
.
.
xm 2 . xmn
58
m alternatives
Where
xij denotes the performance measure of the i-th alternative in terms of j-th criterion.
The steps of the method are as follows:

Step 1: Construct the Normalized Decision Matrix
TOPSIS converts the various criteria dimensions into non-dimensional criteria as done in the
ELECTRE method. An element rij of the normalized decision matrix
rij
xij
m 2
x kj
k 1
R is thus calculated as:
(3.5)
Step2: Construct the Weighted Normalized Decision Matrix
A set of weights W ( w1, w2 , w3,......, wn ) , (where: wi 1 ) defined by the decision maker

is used with the decision matrix to generate the weighted normalized decision matrix
follows:
w1r11 w2 r12 . wn r1n

w r
w
r
.
w
r
n
2n
1 21 2 22
v .
.
.
.
.
.
.
.
w r
w
r
.
w
r
n
mn
1 m1 2 m 2
59
as
Step 3: Determine the Ideal and Negative Ideal Solutions
The ideal denoted as
A* , and the negative ideal denoted as A , alternatives (solutions) are
defined as follows:
A* { (ma x vij j J ) , (mi n vij j J ) , i 1, 2, 3,. . . . , m}

i
i
{v1* , v2* , . . . . . , vn*}
(3.6)
A { (mi n vij j J ) , (ma x vij j J ) , i 1, 2, 3,. . . . , m}

i
i
{v1 , v2 , . . . . . , vn }
Where, J { j 1, 2,3,. . . . , n and
(3.7)
j is associated with the benefit criteria }
J { j 1, 2,3,...., n and j is associated with cost /lost criteria }

The previous two alternatives are fictitious. However, it is reasonable to assume here that for the
benefit criteria, the decision maker wants to have a maximum value among the alternatives. For
the cost criteria the decision maker wants to have a minimum value among the alternatives. From
the previous definition it follows that the alternative
that is, ideal solution. Similarly
A* indicates the most preferable alternative
A indicates the least preferable alternative that is, negative-
ideal solution.
60
Step 4: Calculate the Separation Measure

The n- dimensional Euclidean distance method is applied to measure the separation distances of
each alternative from the ideal solution and negative-ideal solution. Thus, for the distances from
the ideal solution we have:
i*
Where
n
2
(vij v j* ) , for i 1, 2, 3,..., m
j 1
(3.8)
S is the distance of each alternative from the ideal solution.

i*
Simillarly the distance from the negative-ideal solution can be calculated as:
Si
n
2
(vij v j )
j 1
, for
i 1, 2, 3,..., m
(3.9)
Where Si is the distance of each alternative from the negative-ideal solution.

Step 5: Calculate the Relative Closeness to the Ideal Solution
The relative closenessof an alternative
Ai with respect to the ideal solution A* is defined as
follows:
Si
Ci*
Si* Si
Where, 1 Ci* 0 and
i 1, 2, 3,..., m
61
(3.10)
C 1
A A* and Ci 0 , if
Apparently, i*
, if i
Ai A
Step 6: Rank the Preference Order
The best alternative can be decided according to the preference rank order of
Ci* . Therefore,
the best alternative is the one which have shortest distance to the ideal solution. The previous
defination can also be used to demonstrate that any alternative which has the shortest distance
from the ideal solution is also guranteed to have the longest distance from the negative-ideal
solution.
3.7 Fuzzy TOPSIS

In the classical TOPSIS method, the weights of the criteria and the ratings of alternatives are
known precisely and crisp values are used in the evaluation process. However, under many
conditions crisp data are inadequate to model real-life decision problems. Therefore, the fuzzy
TOPSIS method is proposed where the weights of criteria and ratings of alternatives are
evaluated by linguistic variables represented by fuzzy numbers to deal with the deficiency in the
traditional TOPSIS.
The TOPSIS method is a linear weighting technique, which was first proposed, in its crisp
version by Chen and Hwang (1992), with reference to Hwang and Yoon (1981). Since then, this
method has been widely adopted to solve MCGDM problems in many different fields, ranging
from robot design (Parkan and Wu, 1999) to materials selection (Jee and Kang, 2000), from the
evaluation of performance of competitive companies (Deng et al.; 2000), to the assessment of
service quality in airline industry (Tsaur et al.; 2002).
62
There are many applications of fuzzy TOPSIS in the literature. For instance, Triantaphyllou and
Lin (1996) developed a fuzzy version of the TOPSIS method based on fuzzy arithmetic
operations, which leads to a fuzzy relative closeness for each alternative. Chen (2000) extended
the TOPSIS to the fuzzy environment and gave a numerical example of system analysis engineer
selection for a software company. Chu (2002) presented a fuzzy TOPSIS model under group
decisions for solving the facility location selection problem. Chu and Lin (2003) proposed the
fuzzy TOPSIS method for robot selection. Yong (2006) used fuzzy TOPSIS method for plant
location selection. Wang and Elhag (2006) proposed a fuzzy TOPSIS method based on alpha
level sets and presented a nonlinear programming solution procedure for bridge risk assessment.
Jahanshahloo et al. (2006) extended the TOPSIS method to decision-making problems with
fuzzy data and they used the concept of -cuts to normalize fuzzy numbers. Wang and Chang
(2007) developed an evaluation approach based on the fuzzy TOPSIS to help the Air Force
Academy in Taiwan to choose initial training aircraft. Benitez et al. (2007) presented a fuzzy
TOPSIS method for measuring quality of service in the hotel industry. Wang and Lee (2007)
generalized TOPSIS to fuzzy multiple-criteria group decision-making in a fuzzy environment.
They proposed two operators Up and Low that are employed to find ideal and negative ideal
solutions.
Semih et.al (2009) used a combined model of fuzzy AHP and fuzzy TOPSIS model for selecting
shopping centre site in Istanbul. Sun and Lin (2009) used fuzzy TOPSIS method for evaluating
the competitive advantage shopping websites and selecting the best alternate based on 12
different criteria.
63
3.8 The Fuzzy TOPSIS Methodology Algorithm

In this paper, the extension of TOPSIS method is considered which was proposed by Chen
(2000) and Chen et al. (2006) the algorithm of this method can be described as follows:
Step 1: First of all a team of decision-makers is formed. In a decision team that has K decisionmakers; fuzzy rating of each decision maker Dk =(k =1.2..k) can be represented by triangular
k
fuzzy number x =( k =1,2...k) with membership function k(X).

Step 2: Then evaluation criteria are determined.
Step 3: After that, appropriate linguistic variables are chosen for evaluating criteria and
alternatives.
Step 4: Then the weight of criteria and performance rating of each alternatives are aggregated as
shown below
wj
1
( w j ,1 w j ,2 ....w
)
j ,k
k
1
2
k
1
xij
( x ij x ij .... x ij )
k
(3.11)
w j and xij are aggergated fuzzy weight of critieria and performance rating of each
alternative Ai.
64
Step 5: Construct the fuzzy decision matrix with m alternatives, n criteria and k decision makers
C1 C2
A1 x11 x12
A2 x
21 x22
D
Am
xm1 xm 2
xij
1
k
x ij l xij , mxij , u xij
Cn
x2 n
xmn
x1n
i=1, 2..m, j=1, 2n
1
2
k
( x ij x ij .... x ij )
Where D represent fuzzy decision matrix with alternative Ai and criteria Cj , x ij
triangular
fuzzy no. represent judgement by expert k and xij (triangular fuzzy number) is the rating of the
alternatives Ai with respect to criteria Cj evaluated by experts.
Step 6: Normalize the decision matrix
The normalization of fuzzy decision matrix is denoted by
= [rij] m*n
i = 1; 2; . . . ; m; j = 1; 2; . . . ; n
65
shown as the following formula

(3.12)
A1
= Ai
Am
C1
r1,1
Cj
Cn
r1, j
ri , j
r1,n
ri ,n
ri ,1
rm,1 rm, j
rm,n
Where rij element of normalized decision matrix

The aim of normalization is twofold: on the one hand, normalization is necessary to compare
heterogeneous criteria, on the other, normalization ensures that triangular fuzzy numbers all
range within the interval [0, 1].In the normalization process, different equations have to be
applied to benefit criteria and to cost criteria. The following formulae are used respectively:
x ij l xij mxij u xij

rij ; ;
uj uj uj uj
jB
(3.13)
lj
l j l j l j
j C
rij
;
;
u xij mxij l xij
x ij
(3.14)
u j max(u xij )i 1,...., m B
l j min(l xij )i 1,...., m C
Where B represents benefit criteria and C represents cost criteria

Step 7: Considering the different weight of each criterion, the weighted normalized decision
matrix is computed by multiplying the importance weights of evaluation criteria and the values
66
in the normalized fuzzy decision matrix. The weighted normalized decision matrix
is defined
as:
= [vij]m*n
A1
V= Ai
Am
i= 1,2......m; j= 1,2.......n
(3.15)
C1 C j Cn
v1,1 v1, j v1, n
vi ,1 vi , j vi ,n
rm,1 vm, j vm,n
vi, j ri, j w j
i 1,..., m; j 1,..., n
In this matrix, each element vij is a fuzzy normalized number which ranges within the interval [0,
1].
Step 8: This step is aimed at determining the fuzzy positive ideal solution A+ and the fuzzy
negative ideal solution A-.We know that after normalization each element vi , j of fuzzy weight
normalized matrix is in the rang [0,1]. Then we can define fuzzy positive ideal solution A+ and
the fuzzy negative ideal solution A- by following formula:A+ = (v1+; vj+........vn+)
(3.16)
A- = (v1- ;vj-...........vn-)
(3.17)
Where v j =max of vij for B and v j min of vij for C
v j =min of vij for B and v j max of vij for C
67
(1,1,1) j B
vj
(0, 0, 0) j C
(0, 0, 0) j B
vj
(1,1,1) j C
Step 9: In this step, the n-dimensional separation distances of each alternative i =1,. . . m to the
fuzzy Positive Ideal Solution A+ and to the fuzzy Negative Ideal Solution A -are computed.
n
di d (vij ; v j ) ; i= 1, 2 ...m;
j 1
j=1, 2 ...n
(3.18)
di d (vij ; v j ) ; i= 1, 2 ...m;
j 1
j=1, 2 ...n
(3.19)
di R
di R
Where di+ and di- are the separation distances from fuzzy positive ideal situation and fuzzy
negative solution respectively
Step 10: In this step each alternatives closeness index is calculated by following formula
di
Ci
di di
Ci [0,1]
(3.20)
Ci is closeness index
68
The optimal alternatives have value of closeness index closer to 1. According to the closeness
coefficient, the ranking of the alternatives can be determined. Closeness coefficient value much
nearer to 1 is ranked high, while closeness coefficient having value farthest from 1 is ranked
lowest.
3.9 Linear programming (LP)

Linear programming (LP) is a mathematical modeling technique useful for allocation of scarce
resources or limited resources such as labour, material, machine, time, warehouse space, capital,
energy etc., to several competing activities, such as product, service, job, new equipment etc., on
the basis of given criterion of optimality (Sharma, 1997).
Linear programming is a relatively young mathematical discipline, dating from the
invention of the simplex method by G. B. Dantzig in 1947. Historically, development in linear
programming is driven by its applications in economics and management. Dantzig
initially
developed the simplex method to solve U.S. Air Force planning problems and planning and
scheduling problems still dominate the applications of linear programming. One reason that
linear programming is a relatively new field is that only the smallest linear programming
problems can be solved without a computer.
3.10 General structure of linear programming

The linear programming consists of three basic elements
Decision variable: In LPP model, the decision variables whose quantitative values are required
to be found so as to minimize or maximize the objective function.
69
Objective Function: Function which minimized or maximized is called objective function. In its
general form, it is represented as:
Z=c1x1+ c2x2 + cnxn
Where Z is measure of performance variable, which is function of x1, x2,,.. xn. Quantities c1,
c2,.cn are parameters that represent the contribution of a unit of the respective variable x 1,
x2,,.. xn to measure the of performance of Z.
The Constraint: There are always certain limitations on the use of resources, e.g. labour,
machine, raw material etc., that limit the objective function can be achieved. Such constraint
must be expressed in linear equalities or inequalities in term of decision variable.
3.11 General mathematical model of linear programming problem

The general linear programming problem with n decision variable and m constraints can be
stated in following form:
Find the value of decision variable x1, x2,,.. xn so as to
Optimize (Max. or Min.) Z =
n
C jxj
j 1
(3.21)
Subject to linear to constraint
n
a jx j
j 1
(bi; i=1, 2,.m
( Capacity constraints)
70
(3.22)
xJ j = 1,2,,n
Here
(Non- negativity conditions)
(3.23)
xJ = j th decision variable about which the which decision maker is interested.
CJ = Unit contribution to the j th decision variable in the objective function.

aij = Exchange coefficient of j th variable in ith constraint set.
bi = Requirement or availability.
3.12 Conclusion
The chapter introduces to TOPSIS, Fuzzy TOPSIS and Linear Programming methods and from
literature of fuzzy TOPSIS, it is clear that fuzzy TOPSIS is a suitable tool for making multicriteria decisions in fuzzy environment as its applied in various other multi-criteria decision
problems in uncertain environments. Vendor selection is also a multi-criteria decision problem
so Fuzzy TOPSIS can suitable used, for evaluation and ranking of vendors.
71
CHAPTER 4
CASE ILLUSTRATION
4.1 Introduction
In this chapter a case study for vendor selection and evaluation is presented. The Fuzzy TOPSIS
methodology is used for the evaluation of vendor so that company may reduce lead time and
increase profit. After evaluation and raking of vendors linear programming has been used for the
quota allocation purpose. At the last sensitivity analysis is done and result obtained is discussed
in detail.
4.2 Company Profile

XYZ is the leading two wheeler manufacturer company in India. It is joint venture of Indian
company X and Japanese company Y come into exist in to 1984.Over the course of two and a
half decades, and three successive joint venture agreements later, both partners have fine-tuned
and perfected their roles as joint venture partners. What the two partners did was something quite
basic. They simply stuck to their respective strengths. As one of the world's technology leaders
in the automotive sector, Y has been able to consistently provide technical know-how, design
specifications and R&D innovations. This has led to the development of world class, value - formoney motorcycles and scooters for the Indian market. On its part, the X has taken on the
singular and onerous responsibility of creating world-class manufacturing facilities with robust
processes, building the supply chain, setting up an extensive distribution networks and providing
insights into the mind of the Indian customer. Since both partners continue to focus on their
72
respective strengths, they have been able to complement each other. In the process, XYZ is
recognized today as one of the most successful joint ventures in the world. XYZ primarily
operates in India. It is headquartered in New Delhi, India and employs over 4,500 people. XYZ
currently spin out from its three globally benchmarked manufacturing units sited at Dharuhera
and Gurgaon in Haryana and Haridwar, Uttrakhand. These plants collectively are proficient of
producing out 4.4 million units per year. Over 20 million XYZ companys two wheelers squash
Indian roads. Having reached an unassailable pole position in the Indian two wheeler market,
XYZ is constantly working towards consolidating its position in the market place.
The company recorded net sales and other income of INR125, 398.4 million during the financial
year ended march 2009, an increase of 19.2% over financial year 2008. The operating profit of
the company was INR17, 497.8 million during financial year 2009, an increase of 27.3% over
financial year 2008. The net profit was INR12, 817.6 in financial year 2009, an increase of
32.4% over financial year 2008.
The companies procure large amount of material and component from the vendor. It has more
than 250 vendors at present, which keep the flow in supply chain smooth by timely delivering.
4.3 Case illustration

The company located at Gurgaon Haryana needs to select vendor for the supply of disk brakes
for particular brand of two wheelers. There is large number of vendors who supplies disk brakes,
so company wants to evaluate best suited vendors for its operation. Company management
believes that consideration of some key factors in vendor evaluation will increase its efficiency
and reduce the cost.
73
But the capacity of each vendor is limited and a single vendor cant fulfill the all the demand of
company so company wants to maximize the total value of purchase by evaluating the selected
vendors.
In order to demonstrate the use of fuzzy TOPSIS methodology in vendor selection an industrial
case is discussed in this chapter. After preliminary screening five vendors are selected for further
analysis .Now Company has faced the problem of effectively evaluating five alternatives. For
confidentiality we will name those companies as A1, A2, A3, A4 and A5.
Then, the selection phase was arranged.
The panel of expert was instructed about the
fundamentals of approximate reasoning, fuzzy logic, and the TOPSIS methodology to be

adopted. Specifically, the panel acknowledge about the efficacy of the results provided by
TOPSIS in terms of relative distances from positive and negative ideal solutions. The avoidance
of complex pair-wise comparisons as in AHP and the opportunity to give direct linguistic
judgments to weights and ratings was largely appreciated since it made the selection process very
straightforward. .The project team agreed that the selection criteria to be used were those
illustrated in the The vendor selection criteria paragraph. First of all, linguistic scales were set
to assess both the relative importance of criteria and the performance of each candidate for each
criterion. The scales and related fuzzy triangular numbers are shown in table 4.1 and 4.2
respectively.
74
Table 4.1: Linguistic variable for importance of weight of each criterion

Linguistic variable
Triangular fuzzy numbers
Very Low (VL)
(0.0, 0.1, 0.2)
Low (L)
(0.1, 0.2, 0.3)
Medium (M)
(0.2, 0.3, 0.4)
High (H)
(0.3, 0.4, 0.5)
Very High (VH)
(0.4, 0.5, 0.5)
Table 4.2: Fuzzy rating of vendors

Linguistic variable
triangular fuzzy numbers
Poor (P)
(0.0, 0.1, 0.2)
Fair (F)
(0.1, 0.2, 0.3)
Good (G)
(0.2, 0.3, 0.4)
Very Good (VG)
(0.3, 0.4, 0.5)
Excellent (E)
(0.4, 0.5, 0.5)
The three decision makers were then separately asked to judge the importance of each selection
criterion. Weights given by each DM, together with pooled fuzzy values are summarized in
Table 4.4.
The same panel was separately asked to express verbal opinions about candidate performance for
each selection criterion. The results are shown in Table 4.6. Then aggregate of weight and
criteria rating is done and no candidate is considered better than other because every provider has
some strength and weakness. So proposed Fuzzy TOPSIS methodology applied to rank the 5
different vendors as shown below:
75
Step 1: In first step a panel of three experts from the case company is selected as per their
experience and role in management of company. They are we denoting here D1, D2 and D3
respectively.
Step 2: The important criteria used for vendor evaluation are indentified based on literature. The
six important criteria used are
Cost
Quality
Delivery
Flexibility
Financial capability
Reputation
They are denoted by C1, C2, C3, C4, C4, C5 and C6 respectively.
Step 3: Three decision makers asked to weight the criteria according to the provided linguistic
variable as per Table no.4.1. Similarly performance rating is also done on the basis of linguistic
scale given in Table no. 4.2, by the panel of same decision makers
Step 4: Then the weight of criteria and performance rating of each alternative is aggregated
using equation 3.11. The result is shown in Table no. 4.4 and Table no. 4.6 respectively.
76
Table 4.3: Fuzzy weight importance given by three decision makers

Criteria
D1
D2
D3
C1
VH
C2
VH
VH
VH
C3
VH
VH
C4
VH
C5
C6
Table 4.4: Aggregated fuzzy weights for criteria

Criteria
Aggregated weight
C1
(0.333,0.433,0.500)
C2
(0.400,0.500,0500)
C3
(0.367,0.467,0.500)
C4
(0.333,0.433,0.500)
C5
(0.300,0.400,0.500)
C6
(0.233,0.333,0.433)
77
Table4.5: Fuzzy rating of vendors given by decision makers

CRITERIA ALTERNATIVE D1
C1
A1
E
A2
VG
A3
G
A4
E
A5
VG
D2
VG
E
VG
VG
VG
D3
VG
E
G
VG
VG
Aggregated Rating
(0.333,0.433,0.500)
(0.367,0.467,0.500)
(0.233,0.333,0.433)
(0.333,0.433,0.500)
(0.300,0.400,0.500)
C2
A1
A2
A3
A4
A5
G
E
VG
VG
G
F
E
E
G
VG
F
E
E
VG
E
(0.133,0.233,0.333)
(0.400,0.500,0.500)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.300,0.400,0.467)
C3
A1
A2
A3
A4
A5
VG
E
G
E
VG
G
VG
VG
E
F
VG
E
VG
E
G
(0.267,0.367,0.467)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.400,0.500,0.500)
(0.200,0.300,0.400)
C4
A1
A2
A3
A4
A5
VG
E
VG
VG
F
E
VG
G
E
G
E
E
F
E
VG
(0.367,0.467,0.500)
(0.367,0.467,0.500)
(0.200,0.300,0.400)
(0.367,0.467,0.500)
(0.200,0.300,0.400)
C5
A1
A2
A3
A4
A5
VG
E
VG
VG
VG
VG
E
G
E
E
VG
E
VG
G
E
(0.300,0.400,0.500)
(0.400,0.500,0.500)
(0.267,0.367,0.467)
(0.300,0.400,0.467)
(0.367,0.467,0.500)
C6
A1
A2
A3
A4
A5
G
VG
E
G
E
VG
G
VG
VG
E
VG
VG
E
VG
G
(0.267,0.367,0.467)
(0.267,0.367,0.467)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.333,0.433,0.467)
78
Table 4.6: Aggregated rating of vendors (fuzzy decision matrix)

A1
A2
A3
A4
A5
C1 (0.333,0.433,0.500)
(0.367,0.467,0.500)
(0.233,0.333,0.433)
(0.333,0.433,0.500)
(0.300,0.400,0.500)
C2 (0.133,0.233,0.333)
(0.400,0.500,0.500)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.300,0.400,0.467)
C3 (0.267,0.367,0.467)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.400,0.500,0.500)
(0.200,0.300,0.400)
C4 (0.367,0.467,0.500)
(0.367,0.467,0.500)
(0.200,0.300,0.400)
(0.367,0.467,0.500)
(0.200,0.300,0.400)
C5 (0.300,0.400,0.500)
(0.400,0.500,0.500)
(0.267,0.367,0.467)
(0.300,0.400,0.467)
(0.367,0.467,0.500)
C6 (0.267,0.367,0.467)
(0.267,0.367,0.467)
(0.367,0.467,0.500)
(0.267,0.367,0.467)
(0.333,0.433,0.467)
Step 4: Normalize the fuzzy decision matrix according to equation (3.13) and (3.14) for benefit
and cost criteria respectively the normalized decision matrix is given in table no. 4.7.
Table 4.7: Normalized decision matrix
A1
A2
A3
A4
A5
C1 (0.466,0.538,0.700)
(0.466,0.499,0.635)
(0.538,0.700,1.000)
(0.466,0.538,0.738)
(0.466,0.583,0.777)
C2 (0.266,0.466,0.666)
(0.800,1.000,1.000)
(0.734,0.934,1.000)
(0.534,0.734,0.934)
(0.600,0.800,0.934)
C3 (0.534,0.734,0.934)
(0.734,0.934,1.000)
(0.534,0.734,0.934)
(0.800,1.000,1.000)
(0.400,0.600,0.800)
C4 (0.734,0.934,1.000)
(0.734,0.934,1.000)
(0.400,0.600,0.800)
(0.734,0.934,1.000)
(0.400,0.600,0.800)
C5 (0.600,0.800,1.000)
(0.800,1.000,1.000)
(0.534,0.734,0.934)
(0.600,0.800,0.934)
(0.734,0.934,1.000)
C6 (0.534,0.734,0.934)
(0.534,0.734,0.934)
(0.734,0.934,1.000)
(0.534,0.734,0.934)
(0.666,0.866,0.934)
Step 6: Considering the different weight of each criterion, the weighted normalized decision
matrix is computed by multiplying the importance weights of evaluation criteria and the values
in the normalized fuzzy decision matrix. This is shown in table no. 4.8.
79
Table 4.8: Weighted normalized fuzzy decision matrix

A1
A2
A3
A4
A5
C1 (0.155,0.233,0.350)
(0.155,0.216,0.318)
(0.179,0.303,0.500)
(0.155,0.233,0.369)
(0.155,0.233,0.389)
C2 (0.106,0.233,0.333)
(0.320,0.500,0.500)
(0.294,0.467,0.500)
(0.214,0.367,0.467)
(0.240,0.400,0.467)
C3 (0.196,0.343,0.467)
(0.269,0.436,0.500)
(0.196,0.343,0.467)
(0.294,0.467,0.500)
(0.147,0.280,0.400)
C4 (0.244,0.404,0.500)
(0.244,0.404,0.500)
(0.133,0.260,0.400)
(0.244,0.404,0.500)
(0.133,0.260,0.400)
C5 (0.180,0.320,0.500)
(0.240,0.400,0.500)
(0.160,0.294,0.467)
(0.180,0.320,0.467)
(0.220,0.374,0.500)
C6 (0.124,0.244,0.404)
(0.124,0.244,0.404)
(0.171,0.311,0.433)
(0.124,0.244,0.404)
(0.155,0.288,0.404)
Step 7: This step is aimed at determining the fuzzy positive ideal solution A+ and the fuzzy
negative ideal solution A-. The value of normalized fuzzy decision matrix is in the range within
the interval [0, 1].which is 1 for positive ideal situation and 0 for negative ideal situation. This is
A+= [(1, 1, 1)] for B, [(0, 0, 0)] for C
A- = [(0, 0, 0)] for B, [(1, 1, 1)] for C
Where B is benefit and C is cost criteria
Step 8: In this step, the n-dimensional separation distances of each alternative i =1, . . . , m to the
fuzzy Positive Ideal Solution di+ and to the fuzzy Negative Ideal Solution di- are computed
according to equation (3.16) and (3.17),as shown in Table no. 4.9.
80
Table 4.9: Distance of alternative from A+ and A Alternative
di+
di-
A1
3.774
2.390
A2
3.417
2.708
A3
3.765
2.410
A4
3.578
2.569
A5
3.762
2.390
Step 9: In this step each alternatives closeness index is calculated by following formula
Ci =
Ci
1]
The optimal alternative have value closeness index closer to 1. According to the closeness
coefficient, the ranking of the alternatives can be determined as shown in Table no. 5.10
Table 4.10: Closeness coefficient and ranking
di+
di-
Ci
Rank
A1
3.774
2.390
0.387
A2
3.417
2.708
0.442
A3
3.765
2.410
0.390
A4
3.578
2.569
0.418
A5
3.762
2.390
0.388
81
Now vendors are rated according to value of closeness coefficient. In table 5.10 vendor A2 has
value of closeness coefficient much nearer to 1, so it is ranked first while the value of closeness
coefficient for A1 is farthest from 1, so it is ranked last. In this way all other vendors also ranked
according to value of their closeness coefficients.
Now after ranking company found the difficulty that not a single vendor can fulfil all its demand.
So company wants to maximize Total Value of Purchase (TVP) to meets its demand so linear
programming is used to solve this problem.
4.4 LINEAR PROGRAMMING AND QUOTA ALLOCATION
Now company has total demand of 15,000 disk brakes and capacity of each vendor is shown in
table
Table 4.11: Capacity constraint and performance coefficient of vendors
Vendor
Capacity
Performance Coefficient
A1
6000 units
0.387
A2
3000 units
0.442
A3
4000 units
0.390
A4
3500 units
0.418
A5
2500 units
0.388
Now company wants to maximize the Total Value of Purchase (TVP), which is our objective
represented by Z and X1, X2, X3, X4, X4 and X5 is the number of units purchased from the ith-
82
vendor. Closeness coefficients are parameters that represent the contribution of a unit of the
respective variable x1, x2,,.. xn to measure the of performance of Z
4.5 Formulation of LPP
Max Z = 0.387X1+ 0.442X2+0.390X3+0.418X4+0.388X5
(TVP)
Subject to
X1+X2+X3+X4+X5= 15000
(Demand Constraints)
X1 6000
(Capacity Constraints)
X2 3000
X3 4000
X4 3500
X5 2500
X1, X2, X3, X4, X4, X5 0
(Non Negativity Condition)
X1, X2, X3, X4, and X5 are quota allocated to vendors A1, A2, A3, A4 and A5 respectively.
Where Z represents total value of purchase
83
4.6 SOLUTION of LPP

Now to solve this LPP we use LINGO 12.0 software which is popular for solving LPP
problems.
Figure 4.1 Objective Max Z (Total Value of Purchase)
84
Figure 4.2 Total Value of Purchase Objective Solution

So from the solution Figure 4.2 our objective function optimizes when company purchase from
five vendors below shown units:
X1= 2000
X2=3000
85
X3=4000
X4=3500
X5=2500
Total Value of Purchase (TVP) = 6093.
4.7 Sensitivity Analysis

The main goal of sensitivity analysis is to gain insight to find out which assumptions are critical,
i.e., which assumptions affect choice. The process involves various ways of changing input
values of the model to see the effect on the output value. In this case the value of the supply
capacity of each vendor have been decreased and increased in percentage as shown in Table no.
4.12.
Table 4.13: Percentage change in capacity

vendors
Percentage decrease in capacity
No
Percentage increase in capacity
-20%
-15%
-10%
5%
change
5%
A1
4600
3950
3300
2650
2000
1350
A2
2400
2550
2700
2850
3000
A3
3200
3400
3600
3800
A4
2800
2975
3150
A5
2000
2125
2250
15%
20%
700
50
3150
3300
3450
3600
4000
4200
4400
4600
4800
3325
3500
3675
3850
4025
4200
2375
2500
2625
2750
2875
2400
86
10%
The graph is plotted between quota allocation and percentage change in vendor capacity. This is
shown below:
Quota allocation v/s % change in capacity

6000
5000
Quota Allocation
4000
A1
A2
3000
A3
A4
2000
A5
1000
0
-20
-15
-10
-5
% change in total Capacity
10
15
20
Figure 4.3 Quota allocations v/s % change in capacity
4.8 Result and discussion

Now from Table 4.10 we can see that vendor A2 is ranked 1st while vendor A1 is ranked 5th. As
per fuzzy TOPSIS methodology the vendor having value of closeness coefficient nearest to 1 is
ranked 1 while vendor having closeness coefficient farthest from 1 is ranked last. In table 4.10
value of closeness coefficient of A2 is 0.442, which is highest, so vendor is ranked 1st while A1
have value 0.387 which is lowest, so it ranked last. In this way all other vendors also ranked
according to their closeness coefficient.
87
In quota allocation we found that vendor A1 having highest capacity though quota allocated to
A2 is lowest. This is all due to the poor ranking of the vendor while all other vendor used their
all capacity due to their better ranking in comparison to A1.
Now from the graph between quota allocation and capacity change we found that as capacity of
vendors is increasing the quota allocation to A1 is decreasing. At 20% increase in capacity
vendor A1 has not allocated any quantity. This is due to poor ranking of vendor A1. Also from
seeing graph it is clearly visible as the capacity of vendors increases the quantity allocated to
poor rated vendor is decreasing. As shown in graph quota allocation to vendor A5 also
decreasing as it ranked 4th.
But when capacity of vendor is decreased quota allocation to A1 is increasing because capacity
of other vendor is not sufficient to fulfill the demand. So to meet the demand when capacity of
high rated vendor is decreased poor rated vendor also get more quota allocation.
88
CHAPTER 5
CONCLUSION
Many practitioners and researchers have presented the advantages of supply chain management.
In order to increase the competitive advantage, many companies consider that a well designed
and implemented supply chain system is an important tool. Under this condition, building on the
closeness and long-term relationships between buyers and suppliers is critical success factor to
establish the supply chain system. Therefore, vendor selection problem becomes the most
important issue to implement a successful supply chain system.
Vendor selection is a fuzzy multi criteria decision making problem in which all the information
and data available are not crisp and precise for decision making. So to make decision in
uncertain condition we used Fuzzy TOPSIS methodology to evaluate and rank the vendors. In a
decision making process, the use of linguistic variables in decision problems is highly beneficial
when performance values cannot be expressed by means of numerical values. In other words,
very often, in assessing of possible suppliers with respect to criteria and importance weights, it is
appropriate to use linguistic variables instead of numerical values.
In this work, some of the important criteria for vendor evaluation are indentified namely, cost,
quality, delivery, flexibility, financial capability and reputation. Fuzzy weights for criteria and
performance rating of alternative is done on the basis of linguistic variable as done in fuzzy
problems. Then fuzzy TOPSIS methodology is applied to select best alternative and rank the
89
various alternatives. For quota allocation, linear programming methodology has been used.
Which is appears a right decision to achieve the goal.
Fuzzy TOPSIS method is very flexible. The closeness coefficient, not only the ranks the
alternatives but also gives the assessment status of all the possible suppliers. Significantly, the
proposed method provides objective information for supplier selection and evaluation in a supply
chain system.
Future scope
The systematic framework for supplier selection in a fuzzy environment presented in this work
can be easily extended to the analysis of other management decision problems. However,
improving the approach for solving supplier selection problems more efficiently and developing
a group decision support system in a fuzzy environment can be considered as a topic for future
research.
90
REFERENCES
1.
Achrol, R.S. (1997), Change in the theory of inter-organisational relation in market toward
network paradigm, Journal of Academy of Marketing Science, Vol. 25, No. 1, pp. 56-71.
2.
Akarte, M. M., Surendera, N. V., Ravi, B., and Rangraj, N., Web based casting supplier
evaluation using analytical hierarchy process, Journal of Operational Research Society,
Vol. 52, No. 5, pp. 511-522.
3.
Albino, V., Garavelli, A.C., Gorgoglione, M., (1998), Fuzzy logic in vendor rating: A
comparison between a fuzzy logic system and a neural Network, Fuzzy Economic Review,
Vol. 32, pp. 25-47.
4.
Ballou, R.H., Gilbert, S.M., and Mukherjee, A. (2000), New managerial challenges from
supply chain opportunities, Industrial Marketing Management, Vol. 29, pp. 7-18.
5.
Barad, M. and Sipper, D. (1988), Flexibility in manufacturing systems: definitions and

perti-net modeling, International Journal of Production Research, Vol. 26, No. 2, pp. 23748.
6.
Barbarosoglu, G., and Yazgac, T. (1997), An application of analytical hierarchy process to

the supplier problem, Production and Inventory Management Journal, Vol. 31, pp. 14-21.
7.
Beamon, B. M. (1998). "Supply chain design and analysis: Models and methods."
International Journal of Production Economics, Vol. 55, No. 3, pp. 281-294.
8.
Bei, W., Wang, S. and Hu, J. (2006), An analysis of Supplier Selection in Manufacturing
Supply Chain Management.
9.
Bellman, R.G., Zadeh, L.A., (1970), Decision Making a fuzzy environment, Management
Sciences, Vol.17, pp. B141B164.
10. Benitez, JM, Martin, JC and Roman, C. (2007), Using fuzzy number for measuring quality
of service in the hotel industry, Tour Management, Vol. 28, pp. 544555.
11. Bhote, K.R. (1989), Strategic Supply Management, Amacom, New York, NY.
12. Bhutta, K.S. and Huq, F. (2002) Supplier selection problem: a comparison of the total cost
of ownership and analytic hierarchy process approaches Supply Chain Management, Vol.
7, No. 3, pp. 126-35.
91
13. Boer, L. d., Labro, Eva, and Morlacchi, P. (2001), A review of methods supporting
supplier selection, European Journal of Purchasing & Supply Management, Vol. 7, pp. 7579.
14. Brierly, S. (2001), Beyond the buzzword: single sourcing, Intercom, Vol. 49, No. 1, pp.
15-18.
15. Chen C.T., Lin C.T., Huang S.F. (2006),A fuzzy approach for supplier evaluation and
selection in supply chain management, International Journal of Production Economics,
Vol.102, No.2, pp. 289301.
16. Chen, C.T. (2000), Extensions of the TOPSIS for group decision-making under fuzzy
environment, Fuzzy Sets and Systems, Vol. 114, pp. 1-9.
17. Chen, S. M. and Hsu, C.C. (2004), A New Method to Forecast Enrollments Using Fuzzy
Time Series, International Journal of Applied Science and Engineering, Vol. 2, pp. 234244.
18. Chen, S.J. and Hwang, C.L. (1992), Fuzzy Multiple Attribute Decision Making: Methods
and Applications, Springer-Verlag, Berlin.
19. Choi, T. Y. and Hartley, J. L. (1996), An exploration of supplier selection practices across
the supply chain, Journal of Operations Management, Vol. 14, No. 4, pp. 333-343.
20. Chopra, S., and Meindl, P., Supply chain management, strategy, planning & operation,
2007- edition, PHI, Delhi.
21. Chopra, S., Meindl, P. (2003), Supply Chain Management: Strategy, Planning and
Operation Prentice Hall.
22. Chopra,S., Meindl.P., (2001), Supply Chain management .Strategy, Planning and Operation,
Pearson Education Asia.
23. Chou, S.Y., Shen, C.Y., and Chang, Y.H., (2006), Vendor selection in a modified re-buy
situation using a strategy aligned fuzzy approach, International Journal of Production
Research, Vol.21, pp. 1-21.
24. Choy, K. L. and Lee, W. B. (2003), A generic supplier management tool for outsourced
manufacturing, Supply Chain Management, Vol. 8, No. 2, pp.140-154.
25. Christopher, M., (1998), Logistics and supply chain management, 2nd edition, Prentice
hall; London.
92
26. Chu TC (2002), Selecting plant location via a fuzzy TOPSIS approach, International
Journal of Advance Manufacturing Technology, Vol. 20, pp. 859864.
27. Chu, T.C. and Lin,Y.C.(2003), A Fuzzy TOPSIS Method for Robot Selection Journal of
Advance Manufacturing Technology, Vol. 21, pp. 284290.
28. Clayton, R. (1998), Insource or outsource?, Electronic Publishing, Vol. 22, No. 5, pp. 534.
29. Cohen, S., Roussel, J. (2005), Strategic Supply Chain Management, McGraw-Hill.
30. Cooper, M. C., Lambert, D. M., and Pagh, J. D. (1997), SCM: More Than a New Name for
Logistics, The International Journal of Logistics Management, Vol. 8, No.1, pp.113.
31. Copacino, W. C. (1997), Supply chain management: The basics and beyond, Boca Raton:
St. Lucie Press.
32. Cutting-Decelle, A., Das, B., Young, R., Rahimifard, S., Anumba, C., Bouchlaghem, N.
(2006). "Building Supply Chain Communication Systems: A Review of Methods and
Techniques", Data Science Journal, Vol. 5, pp. 1-23.
33. Dahel, N. E. (2003), Vendor selection and order quantity allocation in volume discount
environments, Supply Chain Management: An International Journal, Vol. 8, No. 4, pp.
335-342.
34. De Boer, L., Labro, E., & Morlacchi, P. (2001), A review of methods supporting supplier
selection, European Journal of Purchasing and Supply Management, Vol. 7, pp. 7589.
35. Degraeve, Labro and Roodhooft (2001), Constructing a Total Cost of Ownership
Methodology based on Activity Based Costing and Mathematical Programming, The 10th
International Annual IPSERA Conference, pp. 267-285.
36. Degraeve, Z., Labro, E., Roodhooft, F., (2000), An evaluation of supplier selection
methods from a Total Cost of Ownership perspective, European Journal of Operational
Research, Vol. 125, No. 1, pp. 34-59.
37. Degraeve, Z., Roodhooft, F., (2000), A mathematical programming approach for
procurement using activity based costing, Journal of Business Finance and Accounting,
Vol. 27, pp. 69-98.
38. Deng, H. (1999), Multi-criteria analysis with fuzzy pair-wise comparison, International
Journal of Approximate Reasoning, Vol. 21, pp. 215-231.
93
39. Deng, H., Yeh, C. and Willis, R.J. (2000),Inter-company comparison using modified
TOPSIS with objective weights, Computers & Operations Research, Vol. 27, pp. 963-73.
40. Dzever, S., Merdji, M. & Saives, A. (2001), Purchase decision making and buyer-seller
relationship development in the French food processing industry, Supply Chain
Management: An International Journal, Vol. 6, No. 5, pp. 216-229.
41. Dickson, G, (1966), An analysis of vendor selection systems and decisions, Journal of
purchasing, Vol.12, No.2, pp. 28-41.
42. Dickson, G.W. (1966), An analysis of vendor selection systems and decisions, Journal of
Purchasing, Vol. 2, No.1, pp. 517.
43. Drucker, P. F. (1998): Managements New Paradigms. Forbes Magazine, pp. 152177.
44. Ellram, L. and Billington, C. (2001), Purchasing leverage considerations in the outsourcing
decision, European Journal Of Purchasing and Supply Management, Vol. 7, No. 1, pp. 1528.
45. Ellram, L.M. (1990), The supplier selection decision in strategic partnerships, Journal of
Purching and Material Manaement, Vol. 26, No. 4, pp. 8-14.
46. Ernst, R., Kamrad, B. and Ord, K. (2007), Delivery performance in vendor selection
decisions, European Journal of Operational Research, Vol. 176, pp. 534-541.
47. Erol, I., William, G., Ferrell Jr., W.G., (2003), A methodology for selection problems with
multiple, conflicting objectives and both qualitative and quantitative criteria, International
Journal of Production Economics, Vol. 86, pp. 187199.
48. Fiorito, S.S., Giunipero, L.C., Yan, H. (1998), "Retail buyers perceptions of quick response
systems", International Journal of Retail & Distribution Management, Vol. 26, No.6, p.23746.
49. Freeman, V.T. and Cavinato, J.L. (1990), Fitting purchasing to the strategic firm:
frameworks, processes and values, Journal of Purchasing and Materials Management,
Vol. 26, No. 4, pp. 6-10.
50. Gadde, L.E. and Hakansson, H. (2001), Supply Network Strategies, John Wiley & Sons,
Chichester.
51. Gattorna, J. (2006). "Supply Chains are the Business", Supply Chain Management Review.
52. Gerwin, D. (1993), Manufacturing flexibility: a strategic perspective, Management
Science, Vol. 39, No. 4, pp. 395-410.
94
53. Ghobadian, A., Stainer, A., & Kiss, T. (1993), A computerized vendor rating system, In
Proceedings of the First International Symposium on Logistics, (pp. 321328),
Nottingham, UK: The University of Nottingham.
54. Ghodsypour, S.H. and OBrien, C. (2001), The total cost of logistics in supplier selection,
under conditions of multiple sourcing, multiple criteria and capacity constraints,
International Journal of Production Economics, Vol. 73, pp. 15-27.
55. Ghodyspour, S.H. and O`Brien, C., (1998), A decision support system for supplier
selection using an integrated analytic hierarchy process and linear programming,
International Journal of Production Economics, Vol. 56-57, pp. 199-212.
56. Goffin, K., Szwejczewski, M. and New, C. (1997), Managing suppliers: when fewer can
mean more, International Journal of Physical Distribution & Logistics Management, Vol.
27, No. 7, pp. 422-36.
57. Golmohammadi, D., Creese, C.R., Valian, H. and Kolassa, J. (2009), Supplier selection
based on neural network model using genetic algorithm, IEEE Transactions on neural
network, Vol. 20, No. 9, pp. 1504-1519.
58. Govindan, K., Kanan, D. and Haq A.N. (2009), Analyzing supplier development criteria
for an automobile industry, Industrial Management & Data Systems, Vol. 110, No. 1, pp.
43-62.
59. Ha, S.H., Krishnan, R..(2008), A hybrid approach to supplier selection for the maintenance
of a competitive supply chain, Expert Systems with Applications, Vol.34, No. 2, pp.1303
1311.
60. Handfield, R. B. and Nicolas, E. L. (1999), Introduction to supply chain management,
Upper Saddle River, N.J: Prentice Hall.
61. Handfield, R. B., Walton, Steven V., Sroufe, Robert and Melynyk, Steven A. (2002)
Applying environmental criteria to supplier assessment: a study in the application of the
analytical hierarchy process, European Journal of Operational Research, Vol. 141, pp. 7087.
62. Handfield, R. B. (1994), US global sourcing patterns of development, International
Journal of Operation and Production Management, Vol. 14, pp. 40-51.
63. Harland, C.M. (1996), Supply chain management: relationships chains and networks,
British Journal of Management, Vol. 7, pp. S63-S80.
95
64. Haywood, J.B. (2001), The Outsourcing Dilemma: The Search for Competitiveness,
Pearson Education, Upper Saddle River, NJ.
65. Ho, W., Xu, Xiaowei and Parshanta, K.D. (2010), Multi-criteria decision making
approaches for supplier evaluation and selection: A literature review, European Journal of
Operational Research, Vol. 202, pp. 16-24.
66. Holt, G.D., (1998), Which contractor selection methodology?, International Journal of
project management, Vol. 21, No.16, pp. 153-164.
67. Hwang CL, Yoon K (1981) Multiple attributes decision making methods and applications.
Springer, Berlin.
68. Jahanshahloo GR, Hosseinzadeh LF, Izadikhah M. (2006), Extension of the TOPSIS
method for decision-making problems with fuzzy data, Applied Mathematics Computer
science, Vol. 181, pp. 15441551.
69. Jee, D. and Kang, K. (2000), A method for optimal material selection aided with decision
making theory, Materials and Design, Vol. 21, pp. 199-206.
70. Juttner, U., Christopher, M. and Baker, S. (2007), Demand chain management integrating
marketing and supply chain management, Industrial Marketing Management, Vol. 36 No.
3, pp. 377-92.
71. Kahraman, C., Cebeci, U. and Ulukan, Z. (2003), Multi-criteria supplier selection using
fuzzy AHP, Logistics Information Management , Vol. 16, No. 6, pp. 382-394.
72. Karpak, B., Kumcu, E., Kasuganti, R., (1999), An application of visual interactive goal
programming: a case in vendor selection decisions, Journal of Multi-Criteria Decision
Analysis, Vol. 8, pp. 93-105.
73. Karpak, B., Kumcu, E., Kasuganti, R.R., (2001), Purchasing materials in the supply chain:
Managing a multi-objective task, European Journal of Purchasing and Supply
Management, Vol. 7, No. 3, pp. 209216.
74. Kelle, P. and Miller, P.A. (2001), Stockout risk and order splittin, International Journal of
Production Economics, Vol. 71, Nos 1-3, pp. 407-16.
75. Khoo, L.P., Tor, S.B., Lee, S.S.G., (1998), The potential of intelligent software agents in
the World Wide Web in the automated part procurement, International Journal of
Purchasing and Materials Management, Vol. 34, No. 1, pp. 46-52.
96
76. Kieskin, G. A., IIhan, S. and Ozkan, C. (2010), The Fuzzy ART algorithm: A
categorization method for supplier evaluation and selection, Expert system with
applications, Vol. 37, pp. 1235- 1240.
77. Krajeweski, L. & Ritzman, L. (2006), Operations Management-Strategy and Analysis.
Reading, MA: Addison Wesley.
78. Kulchitsky, T.D. (1998), Single sourcing and supplier certification: performance and
relationship implications, Industrial Marketing Management, Vol. 27, No. 9, pp. 73-82.
79. Kumar, M., Vrat, P., and Shankar, R., (2006), A fuzzy programming approach for vendor
selection problem in a supply chain, International Journal of Production Economics, Vol.
101, No. 2, pp. 273-285.
80. Lambert Douglas M. (2005) An Evaluation of Process-oriented Supply Chain
Management Frameworks, The International Journal of Business Logistic, Vol.26, No.1,
pp. 25-45.
81. Lambert, D. M., Cooper, M. C., and Pagh, J. D.(1998 ), SCM: Implementation Issues and
Research Opportunities, The International Journal of Logistics Management, Vol. 9, No.2,
pp.119.
82. Lambert, D.M. and Cooper M.C. (2000), "Issues in Supply Chain Management," Industrial
Marketing Management, Vol. 29, No. 1, pp. 65-83.
83. Lancaster, S., Yen, D., and Yuan K. C. (2006), Information Management, Computer
Security, Vol.14, No. 2, pp. 167-184.
84. Larson, P.D. and Kulchitsky, T.D. (1998), Single sourcing and supplier certification:
performance and relationship implications, Industrial Marketing Management, Vol. 27,
No. 1, pp. 71-84.
85. Lee, H. L. (2000). "Creating Value through Supply Chain Integration". Supply Chain
Management Review, Vol. 4, No 4, pp. 30-36.
86. Leenders, M. L., Fearon, H. E. (1997), Purchasing and Supply Management, 11th edition
New York: McGraw-Hill.
87. Li, C.C., Fun, Y.P., Hung, J.S., (1997), A new measure for supplier performance
evaluation, IIE Transactions on Operations Engineering, Vol. 29, pp. 753758.
97
88. Lummus, R.R., D.W. Krumwiede and R.J. Vokurka (2001), "The Relationship of Logistics
to Supply Chain Management: Developing a Common Industry Definition," Industrial
Management Data Systems, Vol. 101, pp. 426-431.
89. Lummus, R.R., Vokurka, R.J. (1999), "Defining SCM: a historical perspective and practical
guidelines", Industrial Management & Data Systems, Vol. 99, No.1, pp.11-17.
90. Lynch, C. (2001), Developing a strategy for outsourcing, Logistic Manangement and
Distribution, Vol. 40, No. 6, pp. T3-T7.
91. Malagoli, S. and Magni, C.A. (2007) "The use of fuzzy logic and expert systems for rating
and pricing firms: A new perspective on valuation", Managerial Finance, Vol. 33, No. 11,
pp.836 852.
92. Mandal, A., Deshmukh, S.G., (1994), Vendor selection using Interpretive Structural
Modelling (ISM), International Journal of Operations and Production Management, Vol.
14, No. 8, pp. 52-59.
93. Martin, C.(2000), "The Agile Supply Chain: Competing in Volatile Markets," Industrial
Marketing Management, Vol. 29, No. 1, pp. 37-44.
94. Masella, C. and Rangone, A. (2000), A contingent approach to the design of vendor
selection systems for different types of co-operative customer/supplier relationship,
International Journal of Operations & Production Management, Vol. 20, No.1, pp. 70-84.
95. McCutcheon, D. and F.I. Stuart (2000) ", Issues in the Choice of Supplier Alliance
Partners," Journal of Operations Management, Vol. 18, No. 3, pp. 279-301.
96. McIvor,R. (2000), A practical framework for understanding the outsourcing process
Supply Chain Management: An International Journal, Vol.5, No. 1, pp.22 36.
97. Michel, P., Reast, J. and Lynch, J. (1998), Exploring the foundation of trust, Journal of
marketing management, Vol. 14, No. 1-3, pp. 159-72.
98. Min, H., (1994), International supplier selection: a multi-attribute utility approach,
International Journal of Physical Distribution & Logistics Management, Vol. 24, pp. 24-33.
99. Mohanty, R.P., and Deshmukh, S.G. (2005), Supply chain management: theories and
practices, Biztantra Publication, Delhi.
100. Morlacchi, P., (1997), Small and medium enterprises in supply chain: a supplier
evaluation model and some empirical results, In: Proceedings of IFPMM Summer
School, August, Saltsburg.
98
101. Muoz, M.J., Rivera, J.M. and Moneva, J.M. (2008) "Evaluating sustainability in
organisations with a fuzzy logic approach", Industrial Management & Data Systems, Vol.
108, No. 6, pp.829 - 841.
102. Narasimhan, R., (1983), An analytic approach to supplier selection, Journal of
Purchasing and Materials Management Winter, Vol. 21, pp. 2732.
103. Narasimhan, R., Mahapatra, S. (2004). "Decision models in global supply chain
management", Industrial Marketing Management, Vol. 33, No.1, pp. 21-27.
104. Nassimbeig, G., Battain, F., (2003), Evaluation of supplier contribution to product
development:fuzzy and neuro-fuzzy based approaches, International Journal of
Production Research, Vol. 41, No. 13, pp. 2933-2956.
105. Ng, W.L. (2008), An efficient and simple model for multiple criteria supplier selection
problem, European Journal of Operational Research, Vol. 186, No.3, pp. 10591067.
106. Nguyen, H. T. and Walker, E. A. (2000), A first course in fuzzy logic, Chapman &
Hall/CRC Florida.
107. Nydick and Hill (1992), Using the Analytic Hierarchy Process to Structure the Supplier
Selection Procedure, International Journal of Purchasing and Materials Management,
Vol. 28, No. 2, pp. 31-36.
108. Oke, S.A. and Charles-Owaba, O.E. (2006) "Application of fuzzy logic control model to
Gantt charting preventive maintenance scheduling", International Journal of Quality &
Reliability Management, Vol. 23, pp.441 459.
109. Ordoobadi, S.M. (2008) "Fuzzy logic and evaluation of advanced technologies", Industrial
Management & Data Systems, Vol. 108, No. 7, pp.928 946.
110. Parkan, C. and Wu, M. (1999),Decision-making and performance measurement models
with applications to robot selection, Computers & Industrial Engineering, Vol. 36, pp.
503-23.
111. Pearson, J. N. and Ellram, L. M. (1995), Supplier selection and evaluation in small versus
large electronics firms, Journal of Small Business Management, Vol. 9, pp.53-65.
112. Petroni and Braglia (2000), Vendor Selection Using Principal Component Analysis, The
Journal of Supply Chain Management: A Global Review of Purchasing and Supply, Vol.
23, pp. 63-69.
99
113. Petroni, A. & Braglia, M. (2000), Vendor selection using principal component analysis,
Journal of Supply Chain Management, Vol. 36, No. 2, pp. 63-69.
114. Pfaffman, E. and Stephan, M. (2001), How Germany wins out in the battle for foreign
direct investment: strategies of multinational suppliers in the car industry, Long Range
Planning, Vol. 34, No. 3, pp. 336-55.
115. Porter, M. (1980). Competitive Strategy, New York, Free Press.
116. Romano, P., Vinelli, A. (2001), Quality management in a supply chain perspective:
Strategic and operative choices in a textile-apparel network, Operations & Production
Management, Vol.21, No.4, pp. 446- 460.
117. Ronen, B., Trietsch, D., (1988), A decision support system for purchasing management
of large projects, Operations Research, Vol. 36, pp. 882-890.
118. Rosenthal, E.C., Zydiak, J.L., Chaudhry, S.S., (1995), Vendor selection with bundling,
Decision Sciences, Vol. 26, No. 1, pp. 35-48.
119. Roth, A.V.,Tsay AA., Pullman M.E. and Gray J.V. (2008), "Unraveling the Food Supply
Chain: Strategic Insights from China and the 2007 Recalls," The Journal of Supply Chain
Management, Vol. 44, No.1, pp. 22-39.
120. Sahay, B.S., Jatinder N.D. Gupta, Mohan,R., ; 2006. Managing supply chains for
competitiveness: the Indian scenario. Supply Chain Management: An International
Journal, Vol. 11, No. 1, pp. 15-24.
121. Sarkis, J., & Talluri, S. (2002), A model for strategic supplier selection, Journal of
Supply Chain Management, Vol. 38, No.1, pp. 1828.
122. Sarkis, J., Talluri, S., (2000), A model for strategic supplier selection, In: Leenders, M.
(Ed.), Proceedings of the 9th international IPSERA Conference. Richard Ivey Business
School, London, Ontario, pp. 652-661.
123. Schorr, J.E. (1992), Purchasing in the 21st Century, Oliver Wight Publications,
Brattleboro, VT.
124. Schroeder, R.G. (2000), Operations Management, Contemporary Concepts and Cases,
McGraw-Hill, Irwin, New York, NY.
125. Semih, O., Efendigil, T. and Kara, S.S. (2009), A combined fuzzy MCDM approach for
selecting shopping center site: An example from Istanbul, Turkey Expert Systems with
Applications, Vol. 37, pp. 19731980.
100
126. Sharma, J.K. (1997), Operations research theory and applications, Macmillan India Ltd.
127. Shlrouyehzad, H., Hossieinzadeh, F. and Dabestani, R. (2009), A date envelopment
analysis approach based on service quality concept for vendor selection, Vol. 978, No. 1,
pp. 426-430.
128. Shore, B., Venkatachalam, A.R. (2003) "Evaluating the information sharing capabilities of
supply chain partners: A fuzzy logic model", International Journal of Physical
Distribution & Logistics Management, Vol. 33, No.9, pp.804 824.
129. Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2003), Designing and Managing the
Supply Chain: Concepts, Strategies, and Case Studies, McGraw-Hill, New York.
130. Soukup, W.R., (1987), Supplier selection strategies, Journal of Purchasing and
Materials Management, Vol. 23, No.3, pp. 7-12.
131. Sriram, V. and Mummalaneni, V. (1990), Determinants of source loyalty in buyer-seller
relationships, Journal of Purchasing and Materials Management, Vol. 26, No. 4, pp. 216.
132. Stock, J.R., and Lambert, D.M. (2001), Strategic logistics management, 4th edition,
McGraw-Hill Irwin; Boston; MA.
133. Stork, K. (1999a), A best practice that should be used more: single sourcing,
Purchasing, Vol. 127, No. 4, pp. 27-8.
134. Suarey, F., Cusumano, M.A. and Fine, C.H. (1991), Flexibility and Performance: A
Literature Critique and Strategic Framework, Sloan School, MIT, Cambridge, MA.
135. Subramani, M. (2004), How Do Suppliers Benefit From Information Technology Use In
supply chain Relationships?, MIS Quarterly, Vol. 23, No. 1, pp. 45-73.
136. Sun,Chia-Chi and Lin,T.R.,Grace (2009), Using fuzzy TOPSIS method for evaluating the
competitive advantages of shopping websites, Expert Systems with Applications, Vol.36,
pp.1176411771.
137. Tahriri, F., Osman, M.R. and Ali A. (2008) AHP approach for supplier evaluation and
selection in a steel manufacturing company, Journal of industrial engineering and
management, Vol. 1, No. 3, pp. 54-76.
138. Talluri, S. and Narasimhan, R. (2003), A methodology for strategic sourcing, European
Journal of Operations Research, Vol. 154, pp. 236-50.
101
139. Talluri, S. and Sarkis, J. (2002), A model for performance monitoring of supplier,
International journal of production research, Vol. 40 No. 16, pp. 4257-4259.
140. Tanner, J.F. (1999), "Organizational Buying Theories: a Bridge to Relationships Theory,"
Industrial Marketing Management, Vol. 28 No. 3, pp. 245-255.
141. Tempelmeier, H. (2002), A simple heuristic for dynamic order sizing and supplier
selection with time-varying data, Production and Operation Management, Vol.11 No. 4,
pp. 499-515.
142. Thaver, I. and Wilock, A. (2006), Identification of overseas vendor selection criteria
used by Canadian apparel buyers Is ISO 9000 relevant? Journal of Fashion Marketing
and Management, Vol. 10 No. 1, pp. 56-70.
143. Timmerman, M. (1986), An approach to vendor performance evaluation, J. Purchasing
Mater. Manag., vol. 22, No. 4, pp. 28.
144. Tracey, M. and Tan, C. L. (2001), Empirical analysis of supplier selection and
involvement, customer satisfaction, and firm performance, Supply Chain Management:
An International Journal, Vol. 6, No. 4, pp.174-188.
145. Triantaphyllou, E. and Lin, C.T. (1996), Development and evaluation of five fuzzy
multiattribute decision making methods, International Journal of Approximate
Reasoning, Vol. 14, pp. 281-310.
146. Tsaur, S.H., Chang, T.Y. and Chang-Hua Yen, C. (2002) The evaluation of airline
service quality by fuzzy MCDM, Tourism Management, Vol. 23, pp. 107-15.
147. Upton, D.M. (1995), What really makes factories flexible?, Harvard Business Review,
July/August, pp. 74-84.
148. Verma, A. (1997) "Construction of offender profiles using fuzzy logic", Policing: An
International Journal of Police Strategies & Management, Vol. 20, No. 2, pp .408 418.
149. Vickery, S., Calantone, R. and Droge, C. (1999), Supply chain flexibility: an empirical
study, The Journal of Supply Chain Management, pp. 16-25.
150. Walker, W.T. (2001) Synchronizing supply chain operations, The Journal of Enterprise
Resource Management, First Quarter, Vol. 5, No. 1, pp. 1521.
151. Wang TC, Chang TH (2007), Application of TOPSIS in evaluating initial training
aircraft under fuzzy environment, Expert System Application, Vol. 33, No. 4, pp. 870
880.
102
152. Wang, G., Huang, S. H. e Dismukes, J. P. (2004), Product-driven supply chain selection
using integrated multi-criteria decision-making methodology,International Journal of
Production Economics, Vol. 91, pp. 1-15.
153. Wang, Y.J., Lee H.S. (2007), Generalizing TOPSIS for fuzzy multi-criteria group
decision making, Computer and Math Applications, Vol. 53, pp. 17621772.
154. Wang, Y.-M., & Elhag, T. M. S. (2006). Fuzzy TOPSIS method based on alpha level sets
with an application to bridge risk assessment, Expert Systems with Applications, Vol. 31,
No. 2, pp. 309319.
155. Weber C.A., C.R. John and Desai A. (1998) , Non-cooperative negotiation strategies for
vendor selection, European Journal of Operational Research, Vol.108, No.1, pp208-223.
156. Weber, C. A., Current, J. R., & Benton, W. C. (1991), Vendor selection criteria and
methods, European Journal of Operational Research, Vol. 50, No.1, pp. 218.
157. Weber, C. A., Current, J. R., & Desai, A. (2000), An optimization approach to
determining the number of vendors to employ, Supply Chain Management, An
International Journal, Vol.5, No.2, pp. 9098.
158. Weber, C. A., Current, J. R., Desai, A. (1998), Non-cooperative negotiation strategies for
vendor selection, European Journal of Operational Research, Vol.108, pp. 208223.
159. Weber, C.A., Desai, A., (1996), Determination of paths to vendor market e$ciency using
parallel co-ordinates representation: a negotiation tool for buyers, European Journal of
Operational Research, Vol. 90, pp. 142-155.
160. Weber, C.A., J.R. Current, and Desai A. (2000), An optimization approach to
determining the number of vendors to employ, Supply Chain Management: An
International Journal, Vol.2, No.5, pp. 90-98.
161. Wilson, D.T., (1995), An integrated model of buyer-supplier relationship, Journal of
academy of marketing science, Vol. 23, No. 4, pp. 335-45.
162. Wilson, E.J. (1994), The relative importance of supplier selection criteria: A review and
update, International journal of purchasing and material management, Vol. 30, No.3, pp.
35-45.
163. Wu, T., Shunk, D., Blackhurst, J., Appalla, R. (2007), AIDEA: A methodology for
supplier evaluation and selection in a supplier-based manufacturing environment,
International Journal of Manufacturing Technology and Management, Vol. 11, No2, pp.
174192.
103
164. Xiaobo Zhao, Deju X., Hanqin Z. and Qi-Ming H.,(2006), Modeling and analysis of a
supplyassemblystore chain, European Journal of Operational Research, Vol. 176, No.
1, pp.275-294.
165. Yong D (2006), Plant location selection based on fuzzy TOPSIS Int J Adv Manuf
Technology, Vol. 28, pp. 839844.
166. Zadeh LA (1965), The concepts of linguistic variable and its application to approximate
reasoning, Inf Sci, Vol.8, No.1, pp.199249.
167. Zeng, A. Z. (2000), A synthetic study of sourcing strategies, Industrial Management &
Data Systems, Vol. 100, Nos 5/6, pp. 219-26.
168. Zenz, G., 1981. Purchasing and the Management of Materials. Wiley, New York.
169. Zimmermann, H. J. (1978), Fuzzy programming and linear programming with several
objective functions, Fuzzy Sets and Systems, Vol.1, pp. 4555.
104

Vinod Thesis PDF

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Vinod Thesis PDF

Hochgeladen von

Copyright:

Verfügbare Formate

VENDOR SELECTION AND QUOTA

ALLOCATION USING FUZZY TOPSIS AND

UNDER THE SUPERVISION OF

DR. R.K. SINGH

PROF. PARVIN KUMAR

DEPARTMENT OF MECHANICAL AND PRODUCTION ENGINEERING

Prof. Parvin Kumar

Department of Mechanical and Production Engineering

1.2 Supply chain

1.3 Supply chain management (SCM)

1.4 Aim of SCM

1.5 Major drivers of supply Chain

1.6 Supply chain decision phases

1.7 Supply chain management problems

1.8 Vendor Selection Problem in SCM

1.9 Objective of project

CHAPTER 2 : LITERATURE REVIEW

2.2 Supply chain management

2.3 Importance of supply chain management

2.4 Supply chain management approaches

2.6 Vendor selection in supply chain

2.7 Vendor selection criteria

2.8 Vendor selection methods

2.9 Fuzzy approach in vendor selection

CHAPTER 3: RESEARCH METHODOLOGY

3.2 Fuzzy logic

3.3 Fuzzy set theory

3.4 Fuzzy Numbers

3.5 Algebraic operations on TFNs

3.7 Fuzzy TOPSIS

3.8 The fuzzy TOPSIS methodology algorithm

3.9 Linear programming

3.10 General structure of linear programming

3.11 General mathematical model of linear programming problem

CHAPTER 4: CASE ILUSTRATION

4.2 Company profile

4.3 Case illustration

4.4 Linear programming and quota allocation

4.5 Formulation of LPP

4.6 Solution of LPP

4.7 Sensitivity analysis

4.8 Result and discussion

Supply chain stages

Major drivers of supply chain

Major question to be addressed

Supply chain network

Types of channel relations and flows across a supply chain

Cost-Responsiveness Efficient Frontier and Zone of Strategic Fit

A triangular fuzzy number

Objective Max Z (Total Value of Purchase)

Total Value of Purchase Objective Solution

Quota allocations v/s % change in capacity

Quantified benefit of supply chain

Definitions of supply chain

Important vendor selection criteria used by various researchers

Linguistic variable for importance of weight of each criterion

Fuzzy rating of vendors

Fuzzy weight importance given by three decision makers

Aggregated fuzzy weights for criteria

Fuzzy rating of vendors given by decision makers

Aggregated rating of vendors (fuzzy decision matrix)

Normalized decision matrix