A stochastic simulation-based holistic evaluation approach with DEA for vendor selection

Abstract

This paper aims to propose a new vendor evaluation framework by incorporating stochastic discrete event simulation and data envelopment analysis (DEA) approaches. The proposed approach enables the assessment of decision-making units (DMUs) in a holistic manner by adopting a simulation scheme and defining DMUs not as individual vendors, but as entire supply chains. Extensive experimental results show that the efficiency of a supply chain is not critically proportional to the efficiencies of individual suppliers. Moreover, procurement performance depends on the harmonic performance of the entire supply chain that includes vendors, procurement structure, ordering and safety stock policy of buyer, and demand variability rather than each supplier's performance.