Product-driven supply chain selection using AHP

1. Product-driven supply chain selection using AHP 937806 林伯鴻

2. Reference • Wang Ge., R., Huang S.H., Dismukes J.P., 2004. “product-driven supply chain selection using integrated multi-criteria decision-making methodology,” International Journal of Production Economics vol.91, pp1-15 • Korpela, J., Lehmusvaara. A., Tuominen, M., 2001.”Customer service based design of the supply chain”, International journal of production economics, vol.69, pp193-204 • Ramanathan. R., Ganesh,L.S.,1995. “Using AHP for resource allocation problems,” European Journal of Operation Research vol. 80 pp 410-417 • Satty, T.L.,1980, The analytic Hierarchy Process, New York: McGraw-Hill

3. Agenda • Introduction of AHP • Product characteristics and supply chain strategy • Problem definition and SCOR model • Solution methodology • Illustrative example • Conclusion

4. Introduction of AHP(1/2) • AHP (Analytic Hierarchical Process) 分析層級程序法 (AHP) 是Thomas, L. Saaty 在l971 年發展出的一種多屬性決策方法，能支援個人或群體的決策。分析層級程序法主要是用來協助群體決策的制定，是最常用來協助決策者找出最佳策略方案的工具，例如，資訊系統的評估與選擇，旅遊方案的選擇，資源分配的問題及供應鏈中供應商的選擇。 • AHP的執行步驟可分成三階段： 1.建立各項因素的階層架構 2.由決策者與專家填表以主觀決定相關因素的權重 3.計算出最佳的結果與建議

5. Introduction of AHP(2/2) • AHP與ANP (Analytic Network Process)的差別 分析網路程序法（ANP）於1996年由Saaty所提出，此方法藉由早期之分析階層程序法（Analytic Hierarchy Process, AHP）所衍生而來並加以結合網路系統型態所呈現。主要優勢乃是將分析階層程序法結合一回饋（feedback）之機制而加以闡述及發展之。 過去AHP所求出的是主觀的量化結果，忽略對於準則及方案之間的相互回饋之關係特性，因此運用ANP法來所得之量化結果，可提通作為群體決策及評估結果更具理論及實用基礎之信賴度。其ANP法目前應用的範圍大多在解決研發方案之選擇、資訊系統方案選擇等方面的問題。

6. Product characteristics and supply chain strategy • Generally, product can be categorized into three types : • Functional product: accurately forecasted, market share fairly constant, enjoy a long life cycle • Innovative product: new developed product, more adapted to the customer requirements • Hybrid product mix of functional and innovative product

7. Product characteristics and supply chain strategy • Typically, supply chain can be classified into three categories : • Lean supply chain (LSC) focus on elimination of waste, reduction of set-up times, small quantities, achieving cost reduction, flexibility, customer requirements • Agile supply chain (ASC) focus on achieving a speedier delivery and lead time flexibility • Hybrid supply chain (HSC) focus on “assemble to order”, achieving mass customization by postponing product differentiation

8. Product characteristics and supply chain strategy • Supply chain classification based on product type and product life cycle

9. Problem definition and SCOR model • Problem definition • Company A produce m products. • For each products pi (i=1,2,…,m), it may consists nicomponents, which need to be outsourced. • For each outsource component cij (j=1,2…ni), there are kijpotential supplier to choose from. • Each supplier Sijx (x=1,2,…,kij) has a known production capacity Rijx. • According to the production plan, company A will purchase Tij units of components cij form one or more suppliers

10. Problem definition and SCOR model • Supply chain operations reference (SCOR) model • Supply Chain Council (SCC) constructed a descriptive framework called SCOR (SCC, 1999) • SCOR is a standard supply chain process reference model designed to embrace all industrials. • The SCOR model endorses 12 performance metrics, which fall into four defining categories: • Delivery reliability • Delivery performance (DR1) • Fill rate (DR2) • Order fulfillment lead time (DR3) • Perfect order fulfillment (DR4)

11. Problem definition and SCOR model • Flexibility and responsiveness • Supply chain response time (FR1) • Production flexibility (FR2) • Cost • Total logistics management cost (CT1) • Value-added productivity (CT2) • Warranty cost or returns processing cost (CT3) • Assets • Cash-to-cash cycle time (AT1) • Inventory days of supply (AT2) • Asset turns (AT3)

12. Solution methodology • The developed methodology • To choose most favorable suppliers through qualitative method (AHP) • To order various quantities through quantitative method (preemptive goal programming)

13. Solution methodology • An integrated AHP-PGP algorithm for supplier selection

14. Solution methodology • Step1 : Define decision variables for goal programming • Qx : purchasing quantity form supplier x • Ef : Amount of over-achievement for goal f • Uf : Amount of underachievement for goal f Where • X : supplier index, x=1,2,3,…,kij • f : goal (priority) index, f=1,2,3,….,F • Step2 : Define the parameters • Tij : customer demand for component j of product i • TVP : total value of purchase • TCP : total cost of purchase • Dx : unit purchasing cost of supplier x • Rx : production capacity of supplier x • F : number of goals (priorities) • Kij: total number of potential alternatives for component j of product i • Wx: AHP weight for supplier x

15. Solution methodology • Step3 : State the constraints • Step4 : Determine the preemptive priorities incorporating AHP weights • Priority 1. Maximize the TVP, • Priority 2. Minimize the total cost of purchase

16. Solution methodology • Step5 : Determine the detrimental deviation • P1 : U1 • P2 : E2 • Step6 : State the priority objectives • P1 : min U1 ………(6) • P2 : min E2 ………(7) • Step7 : Find the optimal solution • By using commercial software tool for goal programming, such as WinQSB, Lingo, the optimal solution to the goal programming can be obtained.

17. Illustrative example • GW Inc. is a car manufacturer that can produce various functional components, such as, engine, body, glass components, etc. • Only three components need to be outsourced, i.e. tires, electronics, and peripherals. • Tires : focus on reducing costs, while flexibility and responsiveness are not so important. • Peripherals: focus on rapid changes, while cost is not so important. • Electronics : require mass customization, yet its aggregated demand is stable.

18. Illustrative example

19. Illustrative example

20. Illustrative example • Result

21. Illustrative example • The decision variables • X=1,2,3 • f=1,2 • F=2 • Kij=3 • The constrains are

22. Illustrative example • The priorities are as follows • Priority 1. Maximize TVP • Priority 2. Minimize total cost of purchase (TCP) • Optimal solution can be decided : supplier A1 and A3 are chosen with 400 and 600

23. 補充 • 根據老師上課的指示，要我先去瞭解goal programming並把goal programming轉換成linear programing。 • 轉換過程： • 我有附上Word檔即是詳細的轉換流程，請老師您查閱，謝謝您。

24. Conclusion • The integrated AHP-PGP methodology can select the best set of multiple suppliers to satisfy capacity constraint. • It can be concluded that LSC strategy should be deployed for component tires, ASC for peripherals and HSC for electronics. • The mathematical results from the AHP model perfectly match the above theoretical analysis.

25. Conclusion • Which will influence the final quantity? • Since PGP uses AHP ratings as input, the variations of pairwise comparisons in AHP will influence the final order quantity • To make sure that the decision maker (managers) does not make mistakes that cause conflicting rating, a final inconsistency checking (CR<0.1) is applied.

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