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Value Analysis Studies

This article presents five case studies that apply Analytic Hierarchy Process (AHP) to supply chain risk management. The cases demonstrate the use of SMART (Simple Multi-Attribute Rating Technique) and discuss the implications of the analysis.

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Value Analysis Studies

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  1. Value Analysis Studies Five cases applying AHP to supply chain risk management We demonstrate SMART on same data Finland 2010

  2. Blackhurst, Scheibe & JohnsonInternational Journal of Physical Distribution & Logistics Management 38:2 [2008] • Risk by product and by supplier • Purpose to identify degree of risk for alternative suppliers Finland 2010

  3. Blackhurst et al. – SMART Weights Finland 2010

  4. Blackhurst et al. – Scores Finland 2010

  5. Blackhurst et al. – Value Scores Finland 2010

  6. Value Analysis • Focus on improvement of alternatives • Supplier 2 clearly inferior – discard • IF SCORES VERY CLOSE • Consider additional criteria • Discard criteria where remaining alternatives have equal performance • EITHER WAY • Consider improving existing alternatives • Broaden search to find additional suppliers • Seek actions to improve existing supplier performance where they are weak Finland 2010

  7. Implications • Supplier1 weak on important criteria • Weakest rating – defects/million parts • Supplier3 best on production-related criteria • Slight disadvantage in defects • Greater disadvantage on product complexity, product value • Low on exposure to fire • Slight disadvantage with respect to labor • IMPROVE product design, quality • Supplier4 – weak on external risk • IMPROVE by relocation? Finland 2010

  8. Wu, Blackhurst & ChidambaramComputers in Industry 57 350-365 [2006] • AHP model for inbound supply risk • Two suppliers • 18 risk factors • We selected top 10 Finland 2010

  9. Wu et al. – SMART weights Finland 2010

  10. Wu et al. – Scores & Value Finland 2010

  11. Wu et al. - Sensitivity • Many of their original 18 criteria didn’t discriminate • Of the 10 used here, Cost, Internal legal issues, Politics/economics the same for both • Supplier1 clear choice • Quality, delivery, continuity, demand • Weak on location – might relocate • Supplier2 needs to improve: • Product features Finland 2010

  12. Kull & TalluriIEEE Transactions on Engineering Management 55:3 [2008] • Used AHP to evaluate supplier ability to respond to risks • Fed into goal programming model • Three candidate suppliers • Five risk categories • 14 specific measures Finland 2010

  13. Kull & Talluri – SMART Weights Finland 2010

  14. Kull & Talluri – Scores & Value Finland 2010

  15. Sensitivity • Criteria that didn’t matter this choice • Stable currency, quality management, research • NOT A MATTER OF IMPORTANCE • A MATTER OF CONTEXT • Supplier A won – weak on: • Material availability, cost management, IS • Supplier C close – needs to improve on: • Protection against natural disaster, excess capacity, process flexibility, supply market stability • Supplier B weak on IS, process flexibility Finland 2010

  16. Schoenherr, Rao Tummala & HarrisonJournal of Purchasing & Supply Management 14 [2008] • Considered five outsourcing options • Sourcing finished goods from Mexico • Sourcing finished goods from China • Sourcing parts from China and assembling in the U.S. • Sourcing parts from China, assembling in a Mexican Maquiladora without investment • Sourcing parts from China, assembling in a Mexican Maquiladora with investment • 17 Criteria Finland 2010

  17. Schoenherr et al. SMART Weights Finland 2010

  18. Schoenherr et al. Scores, Value Finland 2010

  19. Sensitivity • China – big advantage in cost, quality • Weak – overseas risk, demand risk, natural disaster, on-time/budget, supplier management • Could insure against overseas risk, natural disaster • Hedge against demand risk • Train or BPR for on-time, supplier management Finland 2010

  20. Second choice – make in China, Assemble in Maquiladora, without investment • Relative advantages: • Reduce supplier fulfillment risk, wrong partner risk • Disadvantages: • Transportation risk management • Order fulfillment risk • On-time deliver Finland 2010

  21. Third: Outsource to Mexico • Outsource to Mexico • Weak: cost (most important) • Average: product quality (2nd most important) • Build new facility in Mexico • Bad on cost Finland 2010

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