Supplier Evaluation Using AHP
-
Upload
api-26872269 -
Category
Documents
-
view
192 -
download
3
Transcript of Supplier Evaluation Using AHP
Supplier Evaluation using Analytic Hierarchy Process (AHP)
BySubhani ShaikM.Tech 2nd Year, 05IM6013Dept. of Industrial Engineering and Management.IIT Kharagpur.
Under Guidance of Prof. V.N.A. Naikan
Company Information
Problem Definition
Project Objective
Project Scope
Methodology
Literature
As-Is Process Map
Data Collected
Analysis
Work Completed
Future Plan of Work
Company Information
Honeywell Technology Solutions Lab (HTSL) is an integral arm of
Honeywell International.
HTSL provides value to Honeywell businesses through Product
Solutions, New Product Introduction, Advanced Research &
Technology and IT & Business Process Solutions.
HTSL supports and develops products in two key areas of Honeywell
businesses. 1. Aerospace 2. Automation and Control Solutions.
Company Information…
In Aerospace HTSL develop and support ‘safety critical aerospace
systems’ like Flight Management Systems, Flight Panel Displays,
and Engine Control Systems to its aerospace clients Airbus and
Boeing.
In Automation and Control Systems , HTSL products are Access
systems , Burglar Alarms, Switches and Sensors.
HTSL also develops necessary IT & Business Process Solutions
for its products.
Problem Definition Honeywell Technology Solutions Lab (HTSL), Bangalore is a Product
Development and Research Lab. For its new product development, the
company is forecasting the demand for its customers. The designers
are developing drawings for each part of a product using computer aided
techniques like CAD. HTSL is sending its part drawings to its different
suppliers for their prototype development. The suppliers are
manufacturing prototypes as per the drawings provided.
In Honeywell there is no proper system to evaluate the prototype
suppliers based on their performance.
HTSL needs proper system to evaluate its prototype suppliers.
Project Objective
Evaluation of prototype suppliers based on their performance.
The dissertation work covers the evaluation of prototype
suppliers of mechanical components of Sensing & Control
department.
Project Scope
Methodology
Find the current process of evaluation of suppliers
Identify the key supplier performance factors
Identify the methods to measure supplier performance factors
Data collection from the existing system
Analyze the data collected
Measure supplier performance factors
Identify best method to evaluate overall performance of suppliers
Find the overall performance of the suppliers
Ranking the suppliers based on their overall performance
Review supplier performance continuously
Literature
Key Supplier Performance Factors
Supplier Evaluation Methods
Performance Factor - Quality
Performance Factor - Delivery
Performance Factor - Cost
Performance Factor - Service
Literature : Key Supplier Performance Factors Quality
Delivery
Cost
Service
Supplier Management Capability
Overall Personal Capabilities
Financial Capability and Stability
Information System Capability
Environmental Regulation Compliance
Supplier Purchasing Strategies and Policies
Long Term Relationship Potential
Literature : Supplier Evaluation MethodsMethod Reference Quantitative /
Qualitative Parameters
Advantages Disadvantages
Categorical Timmerman(1986)
-Quality-Delivery-Service-Price
-The evaluationprocess is clear and systematic-Inexpensive-Requires a minimumPerformance data
-Attributes areWeighted equally-Subjective-Imprecise
WeightedPoint
Timmerman(1986)
-Quality-Delivery-Service-Price
-Attributes weighted by Importance
-Subjective-Difficult to effectively consider qualitative criteria
Cost Ratio Timmerman(1986)
-Quality-Delivery-Service-Price
-Subjectivity is reduced-Flexibility
-Complexity and requirement for a developed cost accounting system-Performance Measures (cost ratios) are artificiallyexpressed in the sameUnits
Literature : Supplier Evaluation Methods…
Method ReferenceQuantitative /Qualitative Parameters
Advantages Disadvantages
Total cost of ownership
Ellram(1995)
-Price-Quality Costs-Unreliable Delivery Costs-Transport Cost-Ordering Cost-Reception Cost-Inspection Cost
-Substantial Cost savings-Allows various purchasing policies to be compared with one another
-Complex
AnalyticHierarchy Process(AHP)
Nydick & Hill (1992)
-Quality-Delivery-Price-Service
-Simplicity-Captures both qualitative and quantitative criteria
-Inconsistency on the method
Principal Component Analysis
Petroni &Braglia (2000)
-Quality-Delivery-Price-Reliability
Considers simultaneously multiple inputs and outputs without priori assignment of weights
-Knowledge of advanced stati-stical method is required
Neural Networks
Wei(1997)
-Performance-Quality-Geography-Price
-Saves a lot of time and money of the system development
Lack of experts and Requires a software
Literature : Performance Factor - Quality
Traditional Definition : Quality means fitness for use.
Modern Definition : Quality is inversely proportional to variability (Douglas C. Montgomery)
Quality can be measured in one of the following ways:
1. Defective Parts Per Million ( PPM)
2. Sigma Quality Level / Process Sigma
3. Process Capability
4. Rating Method
PPM for Continuous Data :
Let p= Prob. that produced items not meeting requirements
p= P(X<LSL ) + P(X>USL)
PPM =p * 1,000,000
PPM for Discrete Data :
Total no of defective itemsPPM = ------------------------------ X 1,000,000 Total no of items produced
Literature : Performance Factor – Quality…
Sigma Quality Level / Process Sigma
Six Sigma Quality Level means “All parts or processes within six standard deviations on each side of mean are acceptable. “
For the given Six Sigma Quality Level:For Normal Distribution centered at Target (i.e. Mean = Target ) 99.9999998% parts are acceptable. i.e. Only 2 parts per billion(0.002 parts per million) are defective.
SigmaQuality Level Percent Accepted Defective PPM
6σ 99.9999998% 0.002 5σ 99.999943 0.57 4σ 99.9937 63 3σ 99.73 2700 2σ 95.45 45500 1σ 68.27 317300
Note : 3.4 parts per million are defective if the mean is shifted by 1.5σ from Target for the given Six Sigma Quality Level.
Literature : Performance Factor – Quality…
Process Capability : It is the capability of a process to produce a product relative to the stated tolerances. Cp and Cpk are two statistics used to define process capability.
Cp compares the width of the data set variation to the width of the specification.
Where as Cpk compares the width and centring of the data set to the specification target , upper and lower values.
Literature : Performance Factor – Quality…
USL – LSL R-Bar
Process Capability Ratio Cp = --------------- Where σ = Estimated Sigma = ---------
6 * σ d2
min (USL-μ, μ-LSL)
Process Capability Index Cpk = --------------------------
3 * σ
Rating Method :
In Rating Method, we are allocating weights to different sub factors of quality.
• Incoming / Manufacturing Results (60%)
Defective Parts Per Million (PPM) (or)
Sigma Quality Level (or)
Process Capability
• Response to Quality Audit Observations (20%)
• Response to Corrective Actions Requests (20%)
Literature : Performance Factor – Quality…
Quality Rating = 0.6 * Incoming Result + 0.2 * Response to Quality Audit Observations + 0.2 * Response to Corrective Actions Requests
Delivery can be measured in the following methods
Defective Parts Per Million (PPM)
Rating System
Defective Parts Per Million (PPM)
No of times delivery is not on timePPM = ------------------------------------------ X 1,000,000
Total No of times delivered
Rating System (Delivery before / after delivery date)
1 3 5 7 9
More than Up to 3-4 days 1-2 days On time
One week One Week
Literature : Performance Factor - Delivery
Literature : Performance Factor - Cost
Cost : Sub-factors Max Points
i. Cost Reduction Suggestions 5
ii. Net Cost Reduction Performance 5
iii. Cost Management Initiative 5
iv. Performance during product delivery process
5
Total Points 20
Cost factor in supplier evaluation process can be measured by Rating method as follows.
Literature : Performance Factor -Service
Service factor in supplier evaluation process can be measured by Rating method as follows.
Service : Sub-factors Max Points
i. Proactive Communication 10
ii. Responsiveness 10
iii. Extraordinary Arrangements 5
iv. Accessible / Diligent 5
v. Flexibility 5
Total Points 35
As-Is Process Map : Current Inspection Process
As-Is Process Map : Current Supplier Evaluation Process
Data Collection Quality related data collected from Quality Control department .
Prototype Samples Dimensions Response to Quality Audit Observations Response to Corrective Actions Requests.
On time delivery information of suppliers was collected from Stores Department.
Cost related data collected from Purchase Department. Cost Reduction Suggestions Net Cost Reduction Performance Cost Management Initiative Performance during product delivery process
Service related data collected from Purchase Department. Proactive Communication Responsiveness Extraordinary Arrangements Accessible / Diligent Flexibility
Analysis Quality
Defective Parts Per Million (PPM) (60%) Response to Quality Audit Observations (20%) Response to Corrective Actions Requests (20%)
Delivery PPM
Cost Cost Reduction Suggestions (5 Points) Net Cost Reduction Performance (5
Points) Cost Management Initiative (5 Points) Performance during product delivery process (5 Points)
Service Proactive Communication (10 Points) Responsiveness (10 Points) Extraordinary Arrangements (5 Points) Accessible / Diligent (5 Points) Flexibility (5 Points)
Analytic Hierarchy Process
Analysis : Quality - How to find PPM ?
Prototype Sample Data
Analytic Hierarchy Process (AHP) Analytic Hierarchy Process (AHP) is a multi criteria decision technique that
can combine qualitative and quantitative factors for prioritizing, ranking and evaluating alternatives.
AHP reduces complex decisions to a series of one-on-one comparisons, then synthesizes the results.
AHP Measurement Scale Comparing objective i and objective j We set aii = 1. if we set aij = k, then aji =1/k
Verbal Judgment of Preference Numerical Rating
Objectives i and j are of equal importance 1
Objective i is weakly more important than j
3
Objective i is strongly more important than j
5
Objective i is very strongly more important than j 7
Objective i is absolutely more important than j 9
2,4,6,8 are Intermediate Values provided additional level of discrimination
Analytic Hierarchy Process (AHP) Steps
1.Specify the set of criteria for evaluating the supplier’s proposals.
2.Obtain the pair wise comparisons of the relative importance of
the criteria in achieving the goal, and compute weights of the criteria
based on this information.
3.Obtain measures that describe the extent to which each supplier
achieves the criteria.
4.Using the information in step 3, obtain the pair wise comparisons of
the relative importance of the suppliers with respect to the criteria,
and compute the corresponding weights.
5.Using the results of steps 2 and 4, compute the priorities of
each supplier in achieving the goal of the hierarchy.
Work Completed Theoretical Framework Documenting Existing Process Data Collection Analysis AHP to Evaluate Supplier Overall Scores Ranking of Suppliers
Work to be done Consistency Checking of AHP
Future plan of work
This dissertation work can be expanded to other sectors like manufacturing
Additional Criteria can be considered for supplier evaluation
Compare supplier evaluation issues with ISO 9000 standards
Study of other supplier evaluation methods like Principal Component Analysis (PCA) , Neural Networks etc.
References
DOUGLAS C MONTGOMERY (2004)Introduction to Statistical Quality Control - Fourth Edition John Wiley & Sons, Inc
ELLRAM (1995)“Total Cost of Ownership: An Analysis Approach for Purchasing”, International Journal of Physical Distribution and Logistics, pp. 163-184.
EUGENE L GRANT AND RICHARD S LEAVENWORTHStatistical Quality Control -Seventh Edition.
NYDICK AND HILL (1992)“Using the Analytic Hierarchy Process to Structure the Supplier Selection Procedure”, International Journal of Purchasing and Materials Management, 1992, pp.31-36. PETRONI AND BRAGLIA (2000)“Vendor Selection Using Principal Component Analysis”, The Journal of Supply Chain Management: A Global Review of Purchasing and Supply, pp. 63-69.
RICHARD A JOHNSON AND DEAN W.WICHERN Applied Multivariate Statistical Analysis - Fifth Edition
SAATY (1980)The Analytic Hierarchy Process. NY: McGraw-Hill
SIMPSON, SIGUAW AND WHITE (2002)“Measuring the Performance of Suppliers: An Analysis of Evaluation Processes”, The Journal of Supply Chain Management, pp. 29-41.
TIMMERMAN(1986)“An Approach to Vendor Performance Evaluation”, The Journal of Supply Chain Management, pp. 2-8.
WEBER, CURRENT AND BENTON (1991)“Vendor Selection criteria and methods”, European Journal of Operation Research, pp. 2-18.
WEI, JINLONG AND ZHICHENG (1997)“A Supplier Selecting System using a Neural Network”, IEEE International Conference on Intelligent Processing Systems, pp.468-471.
References…
Thank You