Procurement strategy group decision

making of an organization

P. S. Chakraborty
Adult, Continuing Education & Extension Department, Jadavpur University,
S. Ghosh
Mechanical Engineering Department, Jadavpur University,
G. Majumdar
Mechanical Engineering Department, Jadavpur University,
 Decision taken by a group is always better than
individual decisions as group talent is more than that
of any individual.
 Maximum cases of group decision making
processes are dominated by ‘Yes-No’ voting system,
which may not reflect the decision makers real
intention.
 This paper deals with a case study of procurement
strategy decision making process for a manufacturing
organization with the help of Analytic hierarchy
process based group decision making model
considering preference intensity of individual voters.
 The final decision is taken based on the ratio of
benefit from particular criteria to cost and
associated risk involved on that particular
criterion.

 At the end it is also shown that this model may

not be feasible in dealing with the issues having
interdependencies i.e. when it is must to choose
one of the issues.
Introduction:
 Timely strategic decision makings are having long
time implication on the organization performance
and must be taken considering their future impact on
business and the relationship with existing partners.

 In this fast changing business scenario it is not

possible for any individual to have knowledge on
every aspects of business.
 In maximum number of cases, group decisions
are made based on Yes-No voting system, which
indirectly influences few participants to side with the
majority.

 In some cases few participants can not make up

mind, as they like both the issues up to certain
extent justifying the importance of preference
intensity while decision making.
 For example a participant may like an issue 65%,
but may not like by 35%. In that case under
traditional ‘Yes-No’ voting system he would vote for
‘No’, which does not reflect the real desire or
intention of the voters or participants.

 Saaty and Shang (2007) proposed a conceptual

framework based on AHP to tackle social decision
making. They discussed the deficiencies of
traditional Yes-No voting system, where intensity of
preference of individual voters are not taken into
account.
 If preference intensity or real desire of individual
voter is taken care, then the result may differ from
traditional system.

 The idea expounded and propounded in the

above paper is mostly extended for a manufacturing
organization’s procurement strategy group decision
making.

 It is also found that this model may not be

feasible when there is interdependency between the
issues i.e. when one of the issues must be chosen.
Methodology :

o At first step issues are assessed under benefit,

cost and risk hierarchy.
o In the second step each issue is divided into two
alternatives as ‘to do it’ or ‘not to do it’ under the
benefit, cost and risk hierarchies.
o In the third step ratio of benefit to cost multiply
risk are calculated for ‘to do it’ or ‘not to do it’
alternatives of all the issues.
o These alternatives address the intensity of
preference for the decision maker.
o These ratios assess the expected benefit and
associated cost and risk involved for the issues.
o In the fourth step for each issue, among the two
alternatives ‘to do it’ or ‘not to do it’, which ratio
scores maximum in the third step is the fate for
that issue.
o Detail methodology is available at Saaty and
Shang 2007. Steps are compiled as follows:
Step 1- Compute the weightage of each criterion
under all the hierarchies.
Under each criterion compute the relative
importance of each issue.
Step 2-
Divide each issue into two alternatives.
Compute the relative importance of each alternative.

Step 3-
Calculate the benefit / cost x risk ratio.

Step 4-
Decision based on the above Ratio
Case study:
 This case is the problem of long term strategic
decision making process of an organization. In
this case benefit for particular criteria to cost
involved and associated risk are calculated.
 All the departmental heads of the organization
were asked to take part in this decision making
process.
 Under each hierarchy various criteria are
considered. Under benefit hierarchy various
criteria considered are decrease employee
number, social obligation fulfillment and
 Under cost hierarchy various criteria considered
are productivity cost, capital cost and opportunity
cost.
 Under risk hierarchy various criteria considered
are future competitiveness, product damage and
long lead-time.
 This model was used to solve the problem faced
by an automobile manufacturer to procure critical
component for the assembly.
 Various issues considered for this analysis are
produce at own plant, develop ancillaries and
procure from reputed manufacturer.
 These issues are considered under benefit, cost
and risk hierarchies.
 In AHP pairwise comparison the priority value is
given in a scale of 1 to 9 by asking some simple
questions. One typical question may be “To
decrease the number of employee, how much
important produce at own plant is when compared
to develop ancillaries?”.
 The AHP weightage in all the cases are the
geometric mean of the decision makers, as it was
difficult to arrive at a consensus weight.
 Table 1 shows procedure for generating priority
for benefit hierarchy using AHP.
 Under benefit hierarchy these criteria weights are
written just below the criteria.
 Priority weights were determined from pairwise
comparison. Relative importance of ‘Produce at
own plant’ is calculated as
(0.4 x 0.2) + (0.1x 0.45) + (0.5x0.6) = 0.425.
 Table 2 shows various issues and criteria under
cost hierarchy.
 Similarly in table 3 various issues and criteria
under risk hierarchy are shown.
 Benefit

Decrease Social Competitive

Employee obligation infrastructur
number fulfillment es
0.40 0.10 0.50 Importance

Produce at own 0.20 0.45 0.60 0.425

plant

Develop ancillaries0.30 0.35 0.30 0.305

Procure from 0.50 0.20 0.10 0.270

reputed
manufacturers Table 1: Weightage under benefit hierarchy
 Cost

Productivity Capital Opportunity

cost cost cost
0.40 0.45 0.15 Importance
Produce at own plant 0.35 0.60 0.45 0.478

Develop ancillaries 0.30 0.30 0.30 0.300

Procure from reputed 0.35 0.10 0.25 0.223

manufacturers

Table 2: Weightage under cost hierarchy

 Risk

Future Product Long

Competitivenes damage lead-time
s 0.3 0.4
Importance
0.3

Produce at own 0.5 0.1 0.1 0.220

plant

Develop ancillaries 0.4 0.3 0.3 0.330

Procure from 0.1 0.6 0.6 0.450

reputed
manufacturers
Table 3: Weightage under risk hierarchy
 Benefit

Decrease Social obligation Competitive

Employee number fulfillment infrastructures
0.4 0.1 0.5
Local Overall
Local Global Local Global Local Global rating rating
Produce at own plant 0.9 0.18 0.75 0.3375 0.9 0.54 1.825 0.884

Do not produce at 0.1 0.02 0.25 0.1125 0.1 0.06 0.575 0.461
own plant

Develop ancillaries 0.75 0.225 0.6 0.21 0.6 0.18 1.510 0.736

Do not develop 0.25 0.075 0.4 0.14 0.4 0.12 0.890 0.549
ancillaries

Procure from reputed 0.9 0.45 0.8 0.16 0.75 0.075 1.755 0.904
manufacturers

Do not procure from 0.1 0.05 0.2 0.04 0.25 0.025 0.645 0.467
reputed
manufacturers
Table 4: Overall rating under benefit hierarchy
 Cost

Productivity Capital cost Opportunity

cost 0.45 cost
0.40 0.15

Local Overall
Local Global Local Global Local Global rating rating
Produce at own plant 0.9 0.315 0.8 0.48 0.8 0.36 1.780 0.985

Do not produce at own 0.1 0.035 0.2 0.12 0.2 0.09 0.620 0.530
plant

Develop ancillaries 0.75 0.225 0.7 0.21 0.6 0.18 1.555 0.747

Do not develop 0.25 0.075 0.3 0.09 0.4 0.12 0.845 0.534
ancillaries

Procure from reputed 0.75 0.2625 0.8 0.08 0.6 0.15 1.600 0.721
manufacturers

Do not procure from 0.25 0.0875 0.2 0.02 0.4 0.10 0.800 0.512
reputed manufacturers

Table 5: Overall rating under cost hierarchy

 Risk

Future Product Long

competitiveness damage lead-time
0.3 0.3 0.4
Local Overall
Local Global Local Global Local Global rating rating
Produce at own plant 0.8 0.40 0.75 0.075 0.80 0.08 1.645 0.755
Do not produce at own 0.2 0.10 0.25 0.025 0.20 0.02 0.655 0.416
plant

Develop ancillaries 0.75 0.30 0.75 0.225 0.70 0.21 1.555 0.752
Do not develop ancillaries 0.25 0.10 0.25 0.075 0.30 0.09 0.745 0.459
Procure from reputed 0.6 0.06 0.60 0.36 0.70 0.42 1.360 0.636
manufacturers

Do not procure from 0.4 0.04 0.40 0.24 0.30 0.18 0.940 0.484
reputed manufacturers

Table 6: Overall rating under risk hierarchy

Ratio of ‘Benefit / (Cost x Risk)’ for alternatives
Decision (to do or not to do)

Produce at own plant = 0.884 / (0.985 x 0.755)

= 1.19
Do not produce at own plant = 0.461 / (0.503 x 0.416) No
= 2.21

Develop ancillaries = 0.736 / (0.747 x 0.752)

= 1.31
Do not develop ancillaries = 0.549 / (0.534 x 0.459) No
= 2.24

Procure from reputed manufacturers = 0.904 / (0.721 x 0.636)

= 1.97
Do not procure from reputed = 0.467 / (0.512 x 0.484) Yes
Manufacturers = 1.88

Table 7: Decision on issues based on ratio

Result:
 Table 7 shows the ‘benefit / (cost x risk)’ ratio for
all the six alternatives. The ‘benefit / (cost x risk)’
ratios are the basis for choosing or rejecting the
particular issues.
 In case of ‘Produce at own plant’ alternative this
ratio is less than ‘Do not produce at own plant’
alternative.
 Similarly in case of ‘Develop ancillaries’ this ratio
is less than ‘Do not develop ancillaries’. Both these
issues will not be considered.
 In case of ‘Procure from reputed manufacturers’
this ratio is more than ‘Do not procure from
reputed manufacturer’.
 So this issue will be chosen as procurement
strategy of that particular critical compent.
 Now if the criteria weightage under cost hierarchy
are changed as follows.
 The productivity cost and opportunity cost
weightage are changed from 0.4 to 0.3 and 0.15 to
0.25 respectively, keeping capital cost weighatge
constant.
 Then again ‘benefit / (cost x risk)’ ratio for all the six
alternatives are calculated, which is shown in table 8.

 From table 8 it is clear that all the issues will be

rejected.
Ratio of ‘Benefit / (Cost x Risk)’ for alternatives
Decision (to do or not to do)

Produce at own plant = 0.884 / (0.921 x 0.755)

= 1.27
Do not produce at own plant = 0.461 / (0.412 x 0.416) No
= 2.70

Develop ancillaries = 0.736 / (0.665 x 0.752)

= 1.47
Do not develop ancillaries = 0.549 / (0.446 x 0.459) No
= 2.69

Procure from reputed manufacturers = 0.904 / (0.636 x 0.636)

= 2.23
Do not procure from reputed = 0.467 / (0.422 x 0.484) No
Manufacturers = 2.29

Table 8: Decision on issues based on ratio after weightage modification

 Conclusion:
In this case procurement strategy was chosen
considering the intensity of preference of individual
participants, not as per traditional Yes-No voting
system. The objective as well as subjective judgment
considering multiple issues is taken care off using
AHP methodology. This model is suitable for any
other kind of decision making process, though people
may not yet be ready for such voting system, instead
traditional Yes-No voting system. It can also be
concluded that this model may not be proved feasible
in case of interdependence between the issues i.e.
when one of the issues must be chosen.
 Acknowledgement:
This project has been funded by Jadavpur
University (Jadavpur University Research Grant-
Ref. No. P1 / 1730/ 05 dated 28.10.2005)

References:

• Bhattacharya A, Sarkar B, Mukherjee S K. A new method

for plant location selection: a holistic approach.
International Journal of Industrial Engineering: Theory
Application and Practice 2004; 11; 330-338.

• Chakraborty P S, Majumder G, Sarkar B. Performance

evaluation of existing vendors using Analytic Hierarchy
Process. Journal of Scientific and Industrial Research
2005; 64; 648-652.
3. Choudhury A K, Shankar R, Tiwari M K. Consensus-
based intelligent Group decision –making model for the
selction of advance technology. Decision Support systems
2006; 42; 1176-1799.
4. Fan Z P, Ma J, Jiang Y P, Sun Y H, Ma L. A Goal
programming approach to Group decision making based
on multiplicative preference relations and fuzzy preference
relations. European Journal of Operational Research
2006; 174; 311-321.
5. Gerwin D. Manufacturing flexibility: a strategic
perspective. Management Science 1993; 39; 395-410.
6. Ghodsypour S H, O’brien C. A decision support system for
supplier selection using an analytic hierarchy process and
linear programming. International Journal of Production
Economics 1998; 56-57; 199-222.
7. Hua Z S, Jiang W, Liang L. Adjusting inconsistency
through learning in group decision making and it’s
application to China’s MBA recruiting interviews. Socio-
Economic Planning Sciences 2007; 41; 195-207.
8. Kraus S. Strategic Negotiations in Multi-agent
Environments. Massachusetts Institute of Technology
Press: Cambridge; 2001; 17-29.
9. Lootsma F A, Schuijt H. The multiplicative AHP, Smart
and Elctre in a common context. Journal of Multi-Criteria
Decision Analysis 1997; 6.
10.Mirani R, Moore D, Weber J A. Emerging technologies
for enhancing supplier-reseller partnerships. Industrial
Marketing Management 2001; 30(2); 101-114.
11.Mich L, Gaio L, Fedrizzi M. On Fuzzy logic-based
consensus in group decision, Procedings IFSA 1993; 698-
700.
12.Mikhalov L. Group prioritization in the AHP by fuzzy
preference programming method. Computers and
Operations Research 2004; 31.
13.Ragatz G L, Handfield R B Scannell T V. Success
factors for integrating suppliers into new product
development, Journal of Poduct Inovation Management
1997; 14; 190-202.
14.Saaty T L. The Analytic Hierarchy Process. McGraw-Hill:
New York; 1980.
15.Saaty T L, Shang J S. Group decision-making: Head-
count versus intensity of preference. Socio-Economic
Planning Sciences 2007; 41; 22-37.
16.Sarkar B, Choudhary J P, Mukherjee S K. Selection of
professionals using Analytic Hierarchy approach. Journal
of Institute of Engineers (India). Interdisciplinary Division
2000; 16-18.
17.Shih H S, Shyur H J, Lee E S. An extension of TOPSIS
for Group decision making. Mathematical and Computer
Modelling 2007; 45; 801-813.
18.Srdjevic B. Linking AHP and Social choice methods to
support group decision making in water management.
Decision Support System 2007; 42; 2261-2273.
19.Wanyama T, Far B H. A protocol for multi-agent
negotiation in a group-choice decision making process.
Journal of Network and Computer Applications 2007; 30;
1173-1195.
20.Weele A V. Purchasing and Supply Chain Management:
Analysis, Planning and Practice. Thomson Learning:
London; 2000.