A prototype expert system for the evaluation and selection of potential suppliers.

Introduction

A basic part of business management is the purchasing function. Within the purchasing function, one of the prime responsibilities is the evaluation and selection of suppliers. This is true for all types of business enterprise, both manufacturing and service firms, and for the acquisition of all types of product and service, including major materials and equipment. In today's highly competitive, global operating environment, it is impossible to produce low cost, high quality products successfully without satisfactory suppliers[1].

The selection of competent suppliers has long been regarded as one of the most important functions to be performed by a purchasing department. For example, in one of the earliest purchasing texts which was published in 1943, Lewis[2] states that: "It is probable that of all the responsibilities which may be said to belong to the purchasing officers, there is none more important than the selection of a proper source. Indeed, it is in some respects the most important single factor in purchasing".

The cost of raw materials, component parts and services purchased from external suppliers is significant for most manufacturing firms. On average, manufacturers' purchases of goods and services amount to 55 per cent of revenues; this is in contrast to labour costs of 6 per cent and overhead expenses of 3 per cent of revenues[3]. For high-technology firms, purchased material and services represent up to 80 per cent of total product costs[4]. The total dollar magnitude of purchases by US businesses exceeds the gross national product (GNP). In a study done on 1982 data, total purchases of goods and services from all US industries were conservatively estimated at approximately $4.211 trillion. This figure is in excess of 37 per cent above the 1982 GNP figure of $3.073 trillion. The manufacturing sector accounted for approximately $1.2 trillion of this total with materials and supplies comprising over 80 per cent of these purchases[5].

Even though many organizational purchases are viewed to be simple and routine and require only the monitoring of continued satisfaction with the product's attributes (e.g. quality, delivery, price), all of a firm's purchases were at some time a "first time" purchase requiring the evaluation and selection of a supplier[6]. Commonly known as MRO (maintenance, repair, and operating supplies) items, US business spends $250 billion a year on these items and as an example of the impact, they add about $530 to the cost of a typical Ford automobile[3]. Also, situations may merit occasional review and selection of a different supplier for an existing product being purchased.

Supplier selection decisions are complicated by the fact that various criteria must be considered in the decision-making process. In his seminal work, Dickson[7] suggests: "From the purchasing literature, it is fairly easy to abstract a list of at least 50 distinct factors (characteristics of vendor performance) that are presented by various authors as being meaningful to consider in a vendor selection decision". Dickson did reduce the list to 23 factors in his empirical study of supplier selection decision making.

The supplier decision-making problem is complicated by several other factors. The criteria used may vary across different product categories and situations[8]: trade-offs may exist among the various criteria and these tradeoffs may not be readily apparent[9]; often the data are not available or their validity is suspect[10], and often the relevant objectives are in conflict[11]. Additionally, multiple participants are involved in the supplier selection process. In some products or phase of the selection process a user may have more influence, whereas at other times the buyer may have more influence[6].

The past few years have seen the relationship between the buyer and the supplier change. Many firms are now looking to their suppliers to help them achieve a stronger competitive position[12]. Historically, an adversarial or quasi-adversarial relationship between the buyer and the seller often existed. However, recent business trends, including shortened product life cycles, increased rates of technological change and foreign sourcing[13], have given rise to a growing trend towards improved communication and co-operation between the two parties, as well as the possibility of single sourcing rather than multiple sourcing[14]. The implications of these recent developments are that the supplier selection decision is becoming even more important. If buyers are less willing to change suppliers, the choice of an unacceptable supplier is more damaging than it was previously. In addition, once an acceptable supplier is identified, the buyer has an opportunity to establish a long-term relationship with the supplier, which may provide a strategic advantage. As firms become involved in strategic partnerships with their suppliers, a new set of selection criteria comes into consideration, equally as important as the more traditional criteria. This new set of criteria considers "soft" factors that are difficult to quantify[15].

Over the past several years, many firms have worked towards the concept of just-in-time (JIT) purchasing with one of the benefits being a "long-term, mutually beneficial relationship with fewer but better suppliers[16]". In JIT purchasing, the single most important step in the process is the selection of suppliers. The objective is to find the best supplier, not the lowest price or the shortest delivery. In reducing the number of suppliers, companies usually reduce their current supplier base by cutting out all but one or two of their current suppliers, and not looking outside their current universe of suppliers. One study showed that, when companies objectively and formally evaluated all possible suppliers (including suppliers that were disqualified in the past), at least 50 per cent of the time the supplier of choice will not be the one with which the company is currently doing a significant amount of business. Or, in other words, companies which do not look beyond their current supplier base will have less than a 50 per cent chance of ending up with the best supplier[17]. Therefore, the evaluation and selection of suppliers becomes an important decision for all sourcing. This includes those purchases perceived to be simple and routine and those with a reduced base of suppliers.

The source-selection decision is highly complex and purchasing's most difficult responsibility. It requires substantial judgement to assess the wide range of trade-offs present, to recognize all the alternatives available and to make a decision which balances both the short- and long-term needs of an organization. Additionally, as organizational requirements and market conditions change, a decision which may have made perfect sense in the past may have to be resolved in a totally different manner in the future[18].

In light of the importance of the supplier selection decision and its growing complexity, this study proposes to incorporate expert system technology into a decision-support framework. The specific intent is to develop a working prototype of an expert decision-support system for the evaluation and selection of potential suppliers.

The non-expert system decision process in the evaluation and selection of potential suppliers

The traditional approach to the evaluation and selection of potential suppliers is to consider a variety of factors and then to weigh up these factors based on either a formal system or an informal system based on the buyer's experience and judgement. A seminal study by Dickson[7] stated that "from the purchasing literature it is fairly easy to abstract a list of 50 distinct factors". His study of purchasing agents listed 23 factors commonly used in the supplier selection decision. These factors are shown in Table I.

The factors used are …