2.

Choice of supplier
Traditional choice of supplier decision problem includes the choice of supply
source which can be manufacturer or mediator that functions in distribution network
of manufacturer’s service (own or contract). Exact procedure of supply source choice
requires multi-criterion evaluation method. This method can be realized by a few
scenarios. In general, general evaluation objectification of supplier can be realized in
two ways or as a combination of these two ways:
 introduction of weighting coefficients for individual criteria evaluation;
 specification of some partial indicators of evaluation criteria.
Thus, the typical structure of criteria should enable to evaluate each source in
complex: price, quality, typical delivery options (terms, reliability, flexibility etc.);
additionally services.
Specification of some partial indicators may imply such evaluation indicators:
 price: price level concerning competitors; payment conditions; flexibility;
 quality: quality level; durability; reliability;
 delivery conditions: delivery terms; delivery reliability; restrictions on delivery
consignment.
This specification avoids the need to establish "importance" of each criterion,
since this function is performed by structured performance criteria that included in
the overall evaluation.
Selecting prospective provider is determined not only by price parameters, but
long duration supply prospects regarding warranty quantitative and qualitative
development of parts and items, their further recycling and utilization.
Suppliers evaluation and their subsequent choice is multi-criterion approach, the
use of which requires implementation of the following algorithm:
 possible significant criteria system formation (phase 1);
 conflict-free criteria system formation (phase 2);
 importance evaluation (“weight”) of each criterion (phase 3);
 each suppliers evaluation regarding selected criterions (phase 4);
 calculation of the integral criterion and suppliers choice (phase 5).
The suppliers’ choice logistics decision based on next algorithm:
 1. We should make a choice of one of possible suppliers from a specific list.
Using qualitative analysis form the system of possible criteria for evaluating
each supplier, for example: K1 – product price; K2 – distance to final producer;
Kn – product quality; K9 – possibility to deliver “just-in-time”; K 10 – possibility
to combine information systems.
2. For further application of these criterions to form conflict-free system of
independent criterions necessary to test their logical freedom from
contradictions and relative independence. Pairwise comparison of each
criterion makes it possible to identify other as dependent (when one of the
criterion embraces another) and conflict (when one contraries the other
criteria).
3. Evaluation importance of each criterion can be achieved by a group of experts
to form half-matrix in cells whose numbers are the criteria that are most
important in pairwise comparison with others. The resulting number of benefits
for each criterion is normalized, that determines the “weight” of each criterion.
Note that the pairwise comparison criteria is largely subjective evaluation, but
is less subjective compared to the direct method of evaluation importance of
established group of experts (table 2.1).
Table 2.1
Half-matrix for determining the importance of individual criteria
K1 K2 … Kn … K9 K10 Number Importance Ranking
of ,% by
benefits importance
indicator
K1
K2
…
Kn
…
K9
K10
∑ 100 ×

The last column in Table creates consistency criteria, considering their

importance for overall supplier evaluation.
 4. Each supplier evaluation for selected criterions includes expert’s method.
Expert estimations are given on a ten scale so that low price is estimated plenty
of points, and the long distance to supplier - a small number of points. Experts
can evaluate criterions by three options:
 unambiguous (expected) estimation;
 maximum (optimistic) Kmax and minimum (pessimistic) Kmin estimations
and their expected Kexp value, calculated by the formula:
3 K min+ 2 K max
К оч =
5 (2.1)
 maximum (optimistic) Kmax , most likely Km.l. and minimum (pessimistic)
Kmin estimations and their expected Kexp value, calculated by the formula:
K min +4 K n. b .+2 K max
К оч =
6 (2.2)
Expected estimations for the four suppliers submitted in the table (table 2.2).
Table 2.2
Evaluation matrix for supplier choice
А В С
of the criteria
or part, % (I)
importance
Criterion

expert (B)

expert (B)

expert (B)
weighted

weighted

weighted
The

(К)

(К)

(К)
I×B I×B I×B

Criterions, I×B I×B I×B

arranged in
descending I×B I×B I×B
order of I×B I×B I×B
importance
I×B I×B I×B

 100   

5. In the same table using the "weight" of each criterion we calculate the integral
criterion. The following are a number of suitability of generalizing criteria
10
К 3   K i i
( i1 ).
 Example:
1. Please make a choice of one of four possible suppliers A, B, C and D of
some detail or product part. Using qualitative analysis we form the system of
possible criteria for evaluating each supplier:
K1 – product price;
K2 – distance to the final producer;
K3 – transport flexibility of delivery;
K4 – product quality;
K5 – possibility to deliver “just-in-time”;
K6 – dynamics of flexibility regarding to supplier;
K7 – possibility of further product development;
K8 – possibility of further recycling (utilization);
K9 – possibility of connection into manufacture system of transportation,
packaging, warehousing at final manufacturer;
K10 – possibility of information systems connection;
K11 – possibility of intermediate warehousing at supplier;
K12 – common manufacture planning and management.
The current system of evaluation criteria according to adopted for
implementation logistics supply strategy should comprehensively characterize
suppliers market concentrating on such issues:
 which technological changes observed in the environment;
 who is the market leader;
 which supplier has tangible benefits over competitors;
 which supplier offers the lowest costs;
 which supplier controls costs structure.
2. For further application of these criterions to form conflict-free system of
independent criterions necessary to test their logical freedom from contradictions and
relative independence. Pairwise comparison of each criterion makes it possible to
identify other as dependent (when one of the criterion embraces another) and conflict
(when one contraries the other criteria). Criterion K11 is in contradiction to K6
criterion, because it denies supplier flexibility to requirements changes and we can
eliminate K11 criterion from evaluation. The same we can do with K12 criterion. To
simplify the calculations, we assume that the remaining 10 criterions form a conflict-
free system.
Table 2.3
Half-matrix for determining the importance of individual criteria
K1 K2 K3 K4 K5 K6 K7 K8 K9 Number Importance Ranking
of ,% by
benefits importance
indicator
K1 K1 K1 K4 K5 K1 K1 K8 K1 K1 6 13,3 2
K2 K3 K4 K5 K2 K7 K8 K9 K2 2 4,4 5
K3 K4 K5 K3 K3 K3 K9 K3 5 11,2 3
K4 K4 K4 K4 K4 K4 K4 9 20 1
K5 K5 K7 K5 K5 K10 6 13,3 2
K6 K6 K8 K6 K6 3 6,7 4
K7 K8 K7 K10 3 6,7 4
K8 K8 K8 6 13,3 2
K9 K10 2 4,4 5
K10 3 6,7 4
∑ 45 100 ×

3. Evaluation importance of each criterion can be achieved by a group of experts

to form half-matrix in cells whose numbers are the criteria that are most important in
pairwise comparison with others. The resulting number of benefits for each criterion
is normalized, that determines the “weight” of each criterion. Note that the pairwise
comparison criteria is largely subjective evaluation, but is less subjective compared to
the direct method of evaluation importance of established group of experts (table
2.3).
The last column in Table creates consistency criteria, considering their
importance for overall supplier evaluation.
4. Each supplier evaluation for selected criterions includes expert’s method.
Expert estimations are given on a ten scale so that low price is estimated plenty of
points, and the long distance to supplier - a small number of points. Experts can
evaluate criterions by three options:
 unambiguous (expected) estimation;
 maximum (optimistic) Kmax and minimum (pessimistic) Kmin estimations
and their expected Kexp value, calculated by the formula:
 3 K min+ 2 K max
К оч =
5 (2.1)
 maximum (optimistic) Kmax , most likely Km.l. and minimum (pessimistic)
Kmin estimations and their expected Kexp value, calculated by the formula:
K min +4 K n. b .+2 K max
К оч =
6 (2.2)
Expected estimations for the four suppliers submitted in the table (table 2.4).
Table 2.4
Evaluation matrix for supplier choice
А В C D
The importance of
the criteria or
part, % (I)

weighted (К)

weighted (К)
weighted (К)

weighted (К)
Criterion

expert (B)

expert (B)

expert (B)

expert (B)
K4 20 7,3 8,2 9,3 5,3
K1 13,3 6,7 7,5 6,3 6,3
K5 13,3 5,3 7 6,3 5
K8 13,3 8,1 7,6 7,3 8,5
K3 11,2 4,3 5,7 6,8 4,3
K6 6,7 4,2 5 4,7 6,4
K7 6,7 5,3 6 6,2 4
K10 6,7 7,1 8,1 7,5 6,5
K2 4,4 5,3 5,4 4,7 6,8
K9 4,4 6,3 8,2 9 8,5
 100 59,9 68,7 68,1 61,6

5. In the same table using the "weight" of each criterion we calculate the integral
criterion. The following are a number of suitability of generalizing criteria
10
К 3   K i i
( i1 ). Suitability of suppliers will be next:
 TASK 2:
Enterprise should choose a supplier.
Estimate for each The relative Overall
criterion from 1 to 100 importance of estimate -
Criterion for estimation
points the criteria weighted
А B (in %) (А) (B)
1. Price 80 60 30
2. Quality 60 80 40
3. Delivery terms 50 60 14
4. Additional services 40 50 16