Hybrid MCDM and simulation-optimization for strategic supplier selection

Abstract

Supplier selection for strategic items requires a comprehensive framework dealing with qualitative and quantitative aspects of a company’s competitive priorities and supply risk, decision scope, and uncertainty. In order to address these aspects, this study aims to tackle supplier selection for strategic items with a multi-sourcing, taking into account multi-criteria, incorporating uncertainty of decision-makers judgment and supplier–buyer parameters, and integrating with inventory management which the past studies have not addressed well. We develop a novel two-phase solution approach based on integrated multi-criteria decision-making (MCDM) and multi-objective simulation-optimization (S-O). First, MCDM methods, including fuzzy AHP and interval TOPSIS, are applied to calculate suppliers’ scores, incorporating uncertain decision makers’ judgment. S-O then combines the (quantitative) cost-related criteria and considers supply disruptions and uncertain supplier–buyer parameters. By running this approach on data generated based on previous studies, we evaluate the impact of the decision maker’s and the objective’s weight, which are considered important in supplier selection.