Supplier Selection Using Weighted Utility Additive Method

Abstract

Supplier selection is a multi-criteria decision-making (MCDM) problem which mainly involves evaluating a number of available suppliers according to a set of common criteria for choosing the best one to meet the organizational needs. For any manufacturing or service organization, selecting the right upstream suppliers is a key success factor that will significantly reduce purchasing cost, increase downstream customer satisfaction and improve competitive ability. The past researchers have attempted to solve the supplier selection problem employing different MCDM techniques which involve active participation of the decision makers in the decision-making process. This paper deals with the application of weighted utility additive (WUTA) method for solving supplier selection problems. The WUTA method, an extension of utility additive approach, is based on ordinal regression and consists of building a piece-wise linear additive decision model from a preference structure using linear programming (LP). It adopts preference disaggregation principle and addresses the decision-making activities through operational models which need implicit preferences in the form of a preorder of reference alternatives or a subset of these alternatives present in the process. The preferential preorder provided by the decision maker is used as a restriction of a LP problem, which has its own objective function, minimization of the sum of the errors associated with the ranking of each alternative. Based on a given reference ranking of alternatives, one or more additive utility functions are derived. Using these utility functions, the weighted utilities for individual criterion values are combined into an overall weighted utility for a given alternative. It is observed that WUTA method, having a sound mathematical background, can provide accurate ranking to the candidate suppliers and choose the best one to fulfill the organizational requirements. Two real time examples are illustrated to prove its applicability and appropriateness in solving supplier selection problems.