Integrated Multi-criteria Decision Approach for Supplier Selection and Order Quantity Allocation Based on Differentiated Sourcing Strategies

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Effective supply chain design relies on robust analytical models and decision tools. Many such models and tools have been developed to address the supplier selection and order allocation (SSOA) problem, ranging from simple techniques such as weighted scoring models to more complex models that employ mathematical programming techniques. However, most of the traditional SSOA tools and models have failed to consider: (1) Comprehensive and a standardized set of metrics, to guide the decision making process, ranging from suppliers attributes to strategic advantages, across the entire purchasing items categories, and (2) Linking products sourcing attributes to organizations sourcing strategies and goals priorities, in a common framework. The above two issues are addressed by presenting a structured framework with two separate but dependent phases. The first phase relates product's sourcing characteristics to organizations sourcing strategy and goals, and adopt a common set of metrics (qualitative and quantitative) to evaluate the relative efficiency of the suppliers - defined in terms of how the suppliers strength and its association transforms to organizations strategic benefits and ultimately to customers satisfaction. This evaluation is done using analytic hierarchy process (AHP) models. In the second phase the SSOA decision is made using a preemptive goal programming (PGP) - a multi-criteria decision-making methodology - with AHP ratings as its coefficients. The goal priorities chosen are representative of the sourcing strategy formulated for three categories of purchasing items: Strategic and Bottleneck, Leverage, and Routine. Strategic and Bottleneck purchasing items are difficult to manage while Leverage purchasing items are high value. Routine purchasing items are neither difficult to manage nor have high value. The contribution of this study is threefold: (1) It provides a structured decision making approach in the form of a comprehensive framework comprising of interrelated analytical mathematical models to select suppliers and determine their order size for different category of purchasing items. (2) It provides illustrative numerical examples and demonstrates the applicability, compliance and effectiveness of the developed integrated decision making approach, including models robustness and optimality of the decisions to changing parameters (Budget) and priorities (goals). (3) It contributes to the literature in the area at the intersection of strategic sourcing and SSOA with a comprehensive decision approach, which may be of interest to the corporate world to come to grips with the complexities of strategic sourcing.

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