Supplier selection is one of the most important components of production and logistics management for many organizations. Suppliers provide materials in raw, semi-finished or finished state to the end-users according to their requirements to meet the organizational goals. For those organizations who spend a high percentage of their sales revenue on parts and material supplies, and whose material costs represent a larger portion of the total cost, savings from supplies is of particular importance. Selecting the right supplier significantly reduces the purchasing cost, improves competitiveness in the market and enhances end-user satisfaction. Apart from cost reduction, organizations should continuously work with the suppliers to remain competitive by reducing product development time, improving product quality and reducing lead time. On the other hand, selecting the wrong suppliers may cause operational and financial problems. Supplier selection is the process by which suppliers are reviewed, evaluated and chosen to become a part of the organization’s supply chain.
For many years, the traditional approach to supplier selection has been to choose suppliers solely on the basis of price. However, as the organizations have learned that price as a single criterion for supplier selection is insufficient, they have turned into more comprehensive Multi-Criteria Decision-Making (MCDM) techniques. Recently, these criteria have become increasingly complex as environmental, social, political, and customer satisfaction concerns have been added to the traditional factors of quality, delivery, cost and service. Some authors have also identified other criteria, like net price, historical supplier performance, capacity, communication systems and geographic location for supplier selection. All these evaluation criteria involve tradeoffs and are a key issue in the supplier assessment process since they measure the performance of suppliers. For example, one supplier may offer inexpensive components of slightly below average quality, while another supplier may offer higher quality components, with uncertain delivery thus setting up tradeoffs. In addition, the importance of each criterion varies from one purchase to the next and is complicated further by the fact that some criteria are quantitative (price, quality), while others are qualitative (service, flexibility). Thus, a technique is needed that can adjust for the decision maker’s attitude towards the importance of each criterion, and incorporates both qualitative and quantitative factors. The selection process mainly involves evaluation of different alternative suppliers based on different conflicting criteria. This process is essentially considered as an MCDM problem. Hence, an effective and competent supplier selection method is essential to obtain a proper supplier from the available alternative suppliers and it should have the characteristics of comprehensiveness, objectiveness, reliability, flexibility, and finally, it has to be mathematically straightforward.
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