2.

Web-based Three-step of
Decision Approach for Logistics
Project and Make-or-Buy Decision
3. SW for Logistics Project Management

2007. 7. 9.

韓國, 東明大學校, 港灣物流學部

Prof. Heung Suk Hwang(黃 興 錫)

e-mail: hshwang@tu.ac.kr
1
Tel: +82-51-620-3486
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 Contents
1. Introduction

2. Properties of Make-or-Buy Decision Problem

3. Web-based Three-step Approach of Decision

Alternative Analysis,

4. Model Application to Cellular Manufacturing

System

5. Resource Allocation in Logistics System

6. Summary and Conclusions

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 1. Introduction

Schematic Diagram of 3-step Algorithm

3 -Step3단계 알고리즘
Algorithm
3-step 적용을 통
forfor
Algorithm 한
최적 솔류션
Optimal 선 정
Solution
Optimal Solution

Brainstorming AHP, Aggregate

Fuzzy-AHP
- Priorities

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 Schematic Diagram of 3-step Algorithm

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Text Book Published:

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 Web-based
Decision Support System

Web-based Information
Group-Joint Web-based Integrated
Integrated
Work System
Decision
Decision Support
Support System
System
Internet/Intranet

Web-based Integrated Decision Support System

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 Step 1 : Individual Evaluation of Alternatives
1) Brainstorming to Generate Alternatives and - Web-based
to Define the Performance Factors Internet/Intranet
2) Evaluation of Alternatives Using AHP and Solution Builder
Fuzzy AHP methodologies
- GUI-type
Program
Step 2 : Integrate the Individual Analysis
- Heuristic Model 1, 2 - Integrated
- Fuzzy Set Priority Method decision
support
Step 3 : Application, Resource Allocation Model
system
- LP formulation using AHP weighted value
- Developed Computer Program
Figure 2 . Three-step Approach of the Evaluation Model

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 2. Properties of Make-or-Buy Decision
Problem

☞ Properties and issues responsible for differentiating one

type of make-or-buy decision problem .
- What backgrounds trigger a make-or-buy decision problem?
- What factors could be considered in make-or-buy decision
problem ?
- Along which dimensions should make-or-buy decision
problem be categorized ?

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 Table 1. Major factors Influencing make-or-buy decision
problem (by literatures)
Performance Examples of measurement
Measure Parameters
Criteria
• Cost - Total unit cost
• Quality - Internal failure cost-scrap,
rework, rejected
• Delivery speed - Delivery lead time
• Delivery reliability - Percentage of on-time delivery
• Volume flexibility - Average volume fluctuation
• Product flexibility - Number of component
substitutions made over a given
time period.

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 Make Low High

Full Ownership

Partial Ownership
Flexibility Control
Retainer

Short Term Contract

Spot Market

Buy High Low

Figure 3. Range of Source Structure of make-or-buy

decision problem

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Table 2. Example of performance Evaluation of make-or-buy
decision problem
Item Major Factors
- Importance of technology for
Manufacturing competitive advantage
Technology - Maturity of technology
- Technology uncertainty
- Probability of future improvements
Out Source Risk - Appropriation risk
- Technology diffusion
- End-product degradation
- Benchmarking
Managerial - Workforce stability
Issues - Complexity level in planning, control, or
supervision
- Assurance and reliability of supply
Financial Issues -
- Benchmarking
Cost
- Investment
- Return on investment
Operational - Manufacturing capability
Issues - Quality
- lead time
- Volume uncertainty
 3. Web-based Three-step Approach of
Decision Alternative Analysis
Step
단계11 :: Brainstorming Model
Stochastic Set-
- Generate
? 적정보급센터의Alternatives and -- Visual Program
소요Factors
- Define the Performance 시각화
보급센터의
- Relationship 위치결정
Between Factors • GYI-Type
GUI-Type
적정 보급지원수준결정 프로그램개발
?•프로그램개발
SW Developed
사용자위주의
?•사용자 위주의
Customer
Step
단계22 :: AHP,Analytic Hierarchy
Secter-Clustering Model Process Responsive
프로그램개발
프로그램개발
- Construction Evaluation Structure
- Evaluation of Alternatives Using AHP -- Web-based
Web
통합화 기반의
and보급지원 영역활당
Fuzzy AHP methodologies Network
Netork
Zone-Based • System System
System
System
Step 33 :: Aggregating
GA-VRP Model Model • Flexibility
확장성
확장성 ,
-Evaluation • Usability
- 개별 of Alternatives Using AHP 활용성
활용성
and Fuzzy set ranking methodologies
- 종합우선순위산출
- Prioritize the Prioritized
운송 Mode 의 선정 Sets
Fig 3. Web-based Integrated Decision Model
 3.1 Brainstorming

☞ Construct decision structure and Derive out the

evaluation alternatives
- the group decision ideas, the creative ideas
☞ we used a brainstorming method
and developed a GUI-type program
☞ To create the ideas of project evaluation
alternatives and methods for decision support system
analysis,
☞ we construct decision structure using the brainstorming
file in the internet/intranet–based environment

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 3.2 Fuzzy -AHP Method
☞ The concepts and rules of fuzzy decision making provide us with
the necessary tools for structuring a decision from a kind of
information.
☞ From the Shannon's summed frequency matrix for complementary
cells,
-
☞ an additional fuzzy set matrix was made by considering A ij = 1 – Aji
for all cells. The fuzzy matrix complement cell values sum to 1 and
fuzzy set difference matrix is defined as follows :
R - RT = U(A, B)-U(B, A), if U(A, B) > U(B, A),
= 0 otherwise
where, for U(A, B) quantifies, A is preferable to B.

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 Five Steps Fuzzy AHP :
To obtain fuzzy preferences, the following five steps were considered:
Step 1 : Find the summed frequency matrix ( using Shannon method )
Step 2 : Find the fuzzy set matrix R which is the summed frequency
matrix divided by the total number of evaluators
Step 3 : Find the difference matrix
R - RT = U(A, B)-U(B, A), if U(A, B) > U(B, A),
= 0 otherwise
X 1.ColA

where, for U(A, B) quantifies, A is preferable to B.

Step 4 : Determine the portion of each project that is not dominated
as follows :
ND
AColA X 1.ColA X, 2.ColA
= 1 - max( ,…
X n,.ColA )
Step 5 : The priority of the fuzzy set is then the rank order of XND
values with a decreasing order.

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 An example is shown as follows :
⎡ 0 .0 0 .8 0 .6 0 .0 ⎤
⎢ 0 .2 0 .0 0 .0 0 .4 ⎥
R= ⎢ ⎥
⎢ 0 .4 0 .1 0 .0 0 .4
⎥
⎢⎣ 0 .4 0 .6 0 .6 0 .0 ⎥⎦
⎡ 0 .0 0 .2 0 .4 0 .4 ⎤
RT = ⎢ 0 . 8 0 .0 0 .1 0 .6 ⎥
⎢ 0 .6 0 .0 0 .0 0 .6
⎥
⎢ ⎥
⎢⎣ 0 . 6 0 . 4 0 . 4 0 . 0 ⎥⎦

⎡0.0 0.6 0.2 0.2 ⎤

⎢0.0 0.0 0.0 0.0 ⎥
R−R =⎢
T
⎥
⎢0.0 0.1 0.0 0.0
⎥
⎢⎣0.0 0.2 0.2 0.0 ⎥⎦

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 ND
XB = 1 - Max(0.0) = 1 - 0.0 = 1.0
ND
XA = 1 - Max(1.0) = 1 - 1.0 = 0.0
ND
XC = 1 - Max(0.2) = 1 - 0.2 = 0.8
ND
XD = 1 - Max(0.2) = 1 - 0.2 = 0.8

The fuzzy set priority score : 1.0 > 0.0 > 0.8 > 0.8

and the alternative priority : A > C > D > B.

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 3.3 Integration of Individual Evaluation

☞ For the integration of the results of individual evaluations,

prioritized sets, we used two Heuristic models 1, Model 2 and
Fuzzy set priority method

1) Heuristic Model 1 :
- For example of the Heuristic Method 1, a sample result with
- N = 5 evaluators and M = 3 alternatives is given as :
Evaluator 1 : B > A > C, Evaluator 2 : B > C > A,
Evaluator 3 : C > A > B, Evaluator 4 : C > B > A,
Evaluator 5 : C > B > A

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 ☞ Heuristic Method 1 rank order is given by
C(0.467) > B(0.400) > A(0.133).

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2) Heuristic Model 2 :
- The evaluator frequency matrices were added to form a summed
frequency matrix
- Then, the preference matrix was developed by a comparison of the
scores in the component cells(A, B versus B, A).
- If the A, B value equals B, A, then each component cell in the matrix
is given by 1/2. On the other hand if the A, B value is greater than the
B, A , then A, B is given by one and B, A cell of the preference matrix
is given by 0.

☞ By applying the Heuristic Model 2 to the same example of

Heuristic Method 1, the result is given by
C(0.450) > A(0.392) > B(0.158) .

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 3) Fuzzy Set Priority Method
. The fuzzy matrix complement cell values sum to 1 and fuzzy
set difference matrix is defined as follows :
R-RT = U(A, B) - (B, A), if U(A, B) > U(B, A),
= 0, otherwise
To obtain fuzzy preferences, following five steps are considered :
Step 1 : Find the summed frequency matrix (using heuristic method 2)
Step 2 : Find the fuzzy set matrix R which is the summed frequency matrix
divided by the total number of evaluators
Step 3 : Find the difference matrix
R - RT = U(A, B) - U(B, A), if U(A, B) > U(B, A),
= 0, otherwise
where, for U(A, B) quantifies, A is preferable to B.
Step 4 : Determine the portion of each part
Step 5 : The priority of the fuzzy set is then the rank order of values in
decreasing.
The sample problem result by fuzzy set priority method is given by
C(0.492) > B(0.387) > A(0.121).
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 3.4 In ternet /intranet Based Solution Builder
for Decision Support System

☞ Developed a solution builder using GUI-type Simulation

Software.

☞ Three steps of this solution builder.

3-step Algorithm for Optimal Solution

Brainstorming AHP, Aggregate

Fuzzy--AHP Priorities

Figure 2. 3-step approach of Decision Support System

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 4. Application Make-or-Buy Decision Analysis
in Logistics System

☞ Applied to Special decision problems; multi-objective,

multi-criterion, and multi-attributes structures for
Cellular manufacturing system
1) Make-or-buy decision making,
2) Determine the weighted value of each decision factors,
3) Resource allocation in manufacturing process,

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 4.1 Cellular Manufacturing System

☞ Generally, the cellular manufacturing system uses many

kinds of machines and tools
☞ manufacturing process is a little bit complicated than
conventional production system
☞ In this study we used an oil pan manufacturing cell
☞ produces oil pan by 120 lot size, two workers,
and CNC machine:
- milling machine,
- boring machine,
- multi-spindle and drilling,
☞ CNC cell produces oil pan by 120 lot sizes.

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 ☞ Sample Example :
Oil pan manufacturing cell layout

CNC Drilling, Multi-spindle,

And tapping Machine

Governer
Assembly Oven CNC Boring
Area Machine

Finished Casting CNC Milling,

Oil pans (Raw Material) Machine

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 Figure 5. Sample output of AHP Structure
(Oil Pan Manufacturing Cell)

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AHP Structure

Figure 6. Sample Output of AHP structure of Cellular manufacturing System

 Level 1 A1 Final Object
(Final Object)

0.74 0.20 0.06

Level 2 Make Partial Make Buy
B1 in house B2 tech import B3 outsourcing
(Acq. Method)

0.38 0.26 0.19 0.12 0.05

Level 3 P1 Proj. 1 P2 Proj. 2 P3 Proj. 3 P4 Proj. 4 P5 Proj. 5
(Alternative)
B1 0.19 0.29 0.21 0.29 0.02
B2 0.39 0.32 0.21 0.06 0.04
B2 0.58 0.16 0.15 0.07 0.04

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 Integration of Individual Evaluations :
Using the Heuristic 1, Heuristic 2, AHP, and Fuzzy Set Ranking methods,
we integrated the results of the individual reviewers as following,
where, B1: make in house not outsourcing,
B2: partial make in house and partial out sourcing for technology,
B3: all outsourcing,
P1, ···, P5 : cellular manufacturing alternatives
Table 4. Results of Integrated Priority
Majority Rule used Priority by Alternative

Methods Priority by Alternatives

B1 (0.70), B2 (0.18), B3 (0.12)
1. Heuristic Model
P1 (0.29), P2 (0.30), P3 (0.18), P4 (0.15), P5
1
(0.08)
B1 (0.73), B2 (0.23), B3 (0.05)
2. Heuristic model
P1 (0.36), P2 (0.27), P3 (0.13), P4 (0.15), P5
2
(0.09)
B1 (0.74), B2 (0.20), B3 (0.06)
3. Fuzzy Set
Ranking P1 (0.38), P2 (0.26), P3 (0.19), P4 (0.12), P5
Method (0.05)

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 5. Resource Allocation in Logistics System
☞ Using the AHP weighted value in resource allocation of
manufacturing works for Cellular manufacturing system
☞ For the budget allocation problem for this cellular
manufacturing works (alternatives) using the weighted
values of level 2, we formulated as following
optimization problem.

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 n m
M ax∑ ∑ W ij X ij
i =1 j =1

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Formulation:
Max Z = 0.19X11 + 0.29X12 + 0.21X13 + 0.29X14 + 0.02X15
+ 0.39X21 + 0.32X22 + 0.21X23 + 0.06X24 + 0.04X25
+ 0.58X31 + 0.16X32 + 0.15X33 + 0.07X34 + 0.04X35

s.t. 11000X11 + 9000X12 + 12000X13 + 8000X14 + 7000X15 ≤ 25000

4000X21 + 5000X22 + 6000X23 + 5000X24 + 3000X25 ≤ 18000
4000X31 + 3000X32 + 5000X33 + 2000X34 + 1000X35 ≤ 11000

where, Xij = 0, 1 ∀i, j

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 6. Summary and Conclusion
☞ Web-based three-step approach of web-based make-or-buy decision
model for multi-structured decision support system:
1) Brainstorming to define the alternatives and performance
evaluation factors,
2) Individual evaluation of the alternatives using fuzzy-AHP,
heuristic and fuzzy set reasoning methods, and
3) Integration of the individual evaluations using majority rule
method.
☞ Developed a systematic and practical program
☞ The model was applied to a cellular manufacturing system problem
for the purpose of comparative validation.
☞ The results of various multi-structured decision support examples
for make-or-buy decision analysis and also resource allocation
problems are shown
☞ By the sample results, the proposed model is a good method for the
performance evaluation of multi-attribute and multiple goals for
make-or-buy decision problems.
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 Thank You

Prof. Heung Suk Hwang (黃 興錫)

韓國, 東明大學校, 港灣物流學部

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