Supplier Selection Using Fuzzy Logic

S.Boobalan(1), Dr.N.Mohandas Gandhi(2) Student(1), Professor(2), Department of Mechanical Engineering (Kumaraguru college of Technology Coimbatore) E-mail: balan1085@gmail.com mob-9597805793

Abstract: Two supplier ranking models that use linguistic variables are presented. The first model was developed using the traditional methods of rule definition of fuzzy logic, while Combs method was used in the second. Combs method maps the problem space using a significantly reduced rule base, hence making the size of the model manageable in terms of computing time and resources. This paper will show how these models use natural language (i.e. linguistic variables) to rate and rank suppliers in order to facilitate the supplier selection task. Comparison of both models is presented along with the results of statistical analysis. Key-Words: Fuzzy Logic, Combs method, Supplier selection

1 Introduction
In the face of global competition, buyers must maintain a dynamic list of criteria for the selection of suppliers. These criteria have traditionally been quantitative values such as price and on-time delivery. More recently qualitative criteria such as quality and service have been added to this list [1]. Many leading companies list value-added criteria among their selection criteria [2-5]. The following is a list of most commonly shared criteria in the supplier selection process: 1) value-added to buyers business (i.e. willingness to have a longterm, mutually beneficial working relationship, dedication to buyers success), 2) quality management and commitment to continuous improvement, 3) technological competitiveness, 4) financial viability, 5) knowledge of buyers line of business, 6) customer service and satisfaction, 7) competitive pricing, and 8) sharing similar values and ethics as the buyer. Most of the criteria are in fact vague. For example how would one measure the suppliers ethics and values? Or how would one determine quantitatively if the supplier were willing to invest in a mutually beneficial relationship with the buyer? It is criteria like these that depend on the human instinct, gut feeling, or experience. As mentioned in [4], Selecting a supplier is a quantitative and qualitative process. A supplier should offer more than just parts that meet spec". It is these types of data that have been very difficult to incorporate in mathematical models. In fact, modeling decision making scenarios has captured engineering interest for over two decades [6]. Several techniques were developed for modeling decision-making [7]. Until the inception of fuzzy logic and the analytic hierarchy process (AHP), the available models only considered the

tangible data (i.e. data that we can quantify). However, systems based solely on quantitative data will not reproduce the desired behavior. This is due to the fact that systems in the real world usually rely on quantitative as well as on qualitative data. The decision makers need models that mimic human decision making to be able to evaluate suppliers using both qualitative and quantitative data. The more comprehensive the decision-making models are and the closer they are to human decision-making behavior, the more flexibility the buyers have at their disposal. Fuzzy logic is a method that models imprecise, ambiguous, or vague data [8]. It is based on human common sense. It can easily handle vagueness, imprecision, or what is commonly known as partial truths in the data. Fuzzy logic has been used in similar decision making applications. Wang and Lin propose a system for ranking different configuration items for software development [9]. They further develop consensus measures to determine group acceptability of the ranking orders. Another application of ranking using fuzzy logic is that performed by Beccali et al. where they present fourteen sets of actions (alternatives) to be ranked according to twelve criteria [10]. Out of the twelve criteria, seven are qualitative. They use fuzzy logic on the seven qualitative criteria in order to come up with a rank for each alternative. This paper aims at modeling the behavior of evaluation and selection of criteria used in the supplier selection from the buyers side. Two models are developed using fuzzy logic demonstrating the power of this approach in dealing with qualitative data. The structure of the remainder of the paper is as follows. In Section 2 background literature on

fuzzy logic will be reviewed. The models will be discussed in Section 3. Research results will be discussed in Section 4 followed by conclusions and recommendations for future research in Section 5.

2 Fuzzy Logic Overview

In 1965, Lotfi Zadeh published his theory of fuzzy set mathematics and by extension, fuzzy logic [11]. Fuzzy logic is based on the concept of fuzzy sets, whose values are in the range [0 1] with 0 representing absolutely false and 1 representing absolutely true. All other values in between represent degrees of truth. The degree of truth of a statement as it relates to the fuzzy set would be determined by the associated membership function. In the supplier evaluation case, the qualitative expression the level of trust can be classified in the fuzzy set Trust. In comparison with traditional Boolean logic, Fuzzy logic is similar in that it operates on very stable rules composed of a series of IF-THEN statements. The similarity to Boolean logic, however, stops at the word logic. In fact, where Boolean logic is based on crisp numbers, fuzzy logic is based on fuzzy numbers that can take on linguistic values such as cloudy, short, empty, etc. how cloudy the weather is or how short the person is or how empty the glass is will take on degrees of truth. In this way, the fuzzy logic system (FLS) can accommodate an entire range of values. There are several good definitions about fuzzy logic systems (FLS). The one used here is Mendels. He defines a FLS as a non-linear mapping of an input into an output [12]. A rule based FLS contains four parts: rules, fuzzifier, inference engine, and output processor, that are all interconnected. Once the rules have been established, a FLS can be viewed as a mapping from inputs to outputs, and this mapping can be expressed quantitatively as y = f(x). Rules are a collection of IF-THEN statements, where the IF part of the rule is the antecedent and the THEN part of the rule is the consequent. FLSs interchangeably, referred to as fuzzy logic controllers, may be used in a variety of decisionmaking applications as discussed in [13-15]. Besides its application in control areas, FLSs may be used in manufacturing, science and medicine, medical diagnostic systems, health monitoring and automated interpretation of experimental data [16], business finance [17], credit evaluation, and stock market analysis [18]. Fuzzy logic is used in a biological resource management system. The system uses information to

predict stream/watershed quality for fish habitat [19]. Fuzzy logic has also been used in the banking sector [18]. Banks review an applicant history and decide on the level of risk s/he poses with the aid of a fuzzy logic decision making system. DeTurris et al. reports on the use of Fuzzy Logic in the control of a flying eye that floats down carrying a camera sending pictures of its surroundings to the user [20].

3 Supplier Ranking Models

Two supplier ranking models that are developed using Fuzzy Logic are presented in this section. The first model was developed using the standard method, while Combs method was used in the second.

Criteri Suppli a er

Decision maker D1 M G V G M G G M G G V G G G G M G G D2 M G V G M G G M G G V G G G V G M G G D3 M G V G G G M G G V G M G G V G M G G

S1

C1

S2

S3 S4 S1 S2 C2 S3

S4 S1 S2 C3 S3 S4

S1 S2 C4 S3 S4

G G G G

G G G G

G G G V G
C1 P A G E P M-N M-N M-Y M-Y

C2 A M-N M-Y M-Y M-Y G M-Y M-Y M-Y M-Y E M-Y M-Y M-Y Y

3.1

Model I Complete System

This model consists of four inputs C1, C2, C3, and C4 and one output (score). The inputs are the criteria used in evaluating the supplier, and the output is the score obtained for each of the suppliers prior to ranking them. Examples of criteria could be factors such as trust, relationship, flexibility, quality, service, and ethics [21]. Fuzzy-set values for the input and output are specified as shown in Table 1. Table 1. Fuzzy set values of inputs and output Input Output C1 C2 C3 C4 Score P (Poor) P P P No A (Average) A A A M-N (Maybe Not) G (Good) G G G M-Y (Maybe Yes) E (Excellent) E E E Yes Rules are then developed to describe relationships between inputs and outputs. example rule is provide below: the An

Computer Model: A computer model was developed using the Fuzzy Logic Toolbox of Matlab. The four criteria C1 through C4 were entered into the system as fuzzy set inputs and score as an output set, as shown in Figure 1.

Criteria

Decision maker D1 (0.8, D2 (0.8, 0.9, 1.0) (0.8, 0.9, 1.0) (0.9, 1.0, 1.0) (0.8, 0.9, 1.0) D3 (0.8, 0.9, 1.0) (0.9, 1.0, 1.0) (0.9, 1.0, 1.0) (0.9, 1.0, 1.0)

C1

0.9, 1.0) (0.9,

C2

1.0, 1.0) (0.9,

C3

1.0, 1.0) (0.8,

If Relationship is Excellent AND Flexibility is Good AND Quality is Excellent AND Service is Good Then Score is Yes. In developing the model the following methodology was used: FLS Mapping: In order to cover all the possible combinations of rules a mapping of the FLS was developed. There are 256 rules in this model determined by the complete enumeration of four membership functions in each of four criteria. Table 2 shows a decision rule matrix example where C1 and C2 vary between "Poor" and "Excellent", C3 in this case is "Average" and C4 is "Excellent". As seen, the output values vary from "Maybe not" to "Yes". 16 tables such as this example were developed to cover all possible combinations. Table 2. Sample Decision Rule Matrix

C4

0.9, 1.0)

Figure 1. Computer Model I Membership Functions: Each criterion was assigned its set of membership functions as appropriate (see example in Figure 2). The membership functions are all triangular functions with a range from 0 to 1. Figure 2. Membership Functions for Criteria i Rules: Rules were entered in accordance with the mapping discussed earlier. The "And" method used is based on "product", the aggregation on "maximum" and the defuzzification on "centroid".

3.2

Model II with Reduced Rule Set

William E. Combs developed an alternative rule configuration for mapping problem spaces in control situations. He presented his findings on a truck backer-upper comparison of the two methods: the standard method (or as Combs refers to it the Intersection Rule Configuration), and the Union Rule Configuration method [22]. The latter, which will be referred to as Combs' method, is simpler to build and faster to process. The idea is based on the following equivalence: [(p q) => r] [(p => r) V (q => r)] where p and q are the antecedents and r is the consequent. In the above equation represents the intersection or the logical AND and V represents the union or the logical OR (for further detail see [2226]. In Combs method each implication has only one antecedent and one consequent. An example of an implication using Combs' method is: If Relationship is High Then Score is High As recommended by Mendel in his comments [24], this paper aims at going past the mathematical proof of the logic and verifying whether it is possible to use Combs' method in areas other than controls (i.e. in the area of supplier selection). To do so, the inputs (C1, C2, C3, and C4) and the output (score) from Model I were maintained. Similarly, the same fuzzy set values for both inputs and output were maintained. In order to maintain consistency and a basis for comparison, the methodology used in Model I was used again with the exception of the FLS mapping. FLS Mapping: In Combs' method, every antecedent

consequent. In other words, every membership function of every criterion implies an output. These implications are then aggregated using the logical OR. The problem space mapping is shown in Table 3.

Criter ia

Decision maker D1 (0.437 9, D2 (0.210 2, 0.263 4, 0.262 7) (0.210 2, 0.263 4, 0.262 7) (0.263 4, 0.262 7, 0.262 7) (0.210 2, 0.263 4, 0.262 7) D3 (0.151 9, 0.170 9, 0.189 9) (0.170 9, 0.189 9, 0.189 9) (0.170 9, 0.189 9, 0.189 9) (0.170 9, 0.189 9, 0.189 9)

C1

0.492 7, 0.547 4) (0.492 7,

C2

0.547 4, 0.547 4) (0.492 7,

C3

0.547 4, 0.547 4) (0.437 9,

C4

0.492 7, 0.547 4)

is directly mapped to a

It should be noted that we are not using Combs method with a strict sense of mathematical completeness. As pointed out in [25], for Combs method to be universally equivalent to the traditional FLS, it must be modified with corrective rules if the rule matrix is not additively separable. In our

example we violate this condition and do not use the corrective rules, however we believe we obtain reasonable results without absolute mathematical rigor. Table 3. Combs' Method Decision Rule Matrix
If Or Or C3 Or C4 Then Output No M-N M-Y Yes P A G E P A G E C1 C2 P P A A G G E E

H1: D 0 The t statistic was computed and found to be equal to 1.918469. For n = 50, and level of significance = 0.05, t49 = 2.0096. Therefore, since t < t49, there was failure to reject the null hypothesis and it was concluded that there was evidence to suggest that there was no difference in the population means. The three dimensional control surfaces in Figure 3 show the output Score that corresponds to select combinations of sets of inputs.

4 Results and Discussion

50 quadruplet values were randomly generated for the four criteria. Due to the lack of "random fuzzy value generators" a random number generator was used to provide as much input data as needed to establish a basis for the comparison of the two models. Each quadruplet emulates an expert opinion of a supplier. The data was then entered into both models. A statistical analysis of the results from the two models was performed. In order to establish whether or not there is evidence of a statistically significant association between the two sets of outputs, the coefficient of correlation r was computed and found as r = 0.8075. This value of r indicates a positive association between the two sample outputs. Once the association between the samples was established, the hypothesis that there was no association between the population outputs was tested. Let be the population coefficient. H0: = 0 (there is no correlation) H1: 0 (there is correlation) The t statistic was computed and found to be equal to 9.482888. For n = 50, and a level of significance = 0.05, t48 = 2.0106. Therefore, since t > t48, the hypothesis was rejected and it was concluded that there was evidence of association between the two methods. Having established evidence of association between the two methods, a paired t-test was conducted. The hypothesis that there is no difference in the means of the two methods was tested. H0: D = 0 (D = 1 2)

Figure 3. Surface Plot of Output When the scores from both models were ranked, the results showed some differences. For instance, if the first 5 ranks were to be examined, it would be noted that Model I provided the following sequence: S25, S33, S20, S16, and S18. Model II provided the following sequence of ranking: S20, S25, S18, S33, S31. S16 was ranked as # 4 in Model I but ranked as # 8 in Model II. S31 was ranked # 5 in Model II and equally # 5 in Model I (S18 and S31 were both ranked # 5). Although the models do not provide perfect duplication in rankings, the same suppliers are clustered at the top for each method. Similarly, when considering the lowest ranking suppliers, Model I provided the following sequence: S49, S50, S47, S2, and S5. Model II ranks the lowest ranking suppliers in the following sequence: S2, S4, S10, S49, and. S4 and S10 both ranked equally as # 34 in Model I. S47 and S50 ranked as # 32 and # 40 respectively in Model II. Both the statistical analysis and the ranking of the results suggest that there is an association between the two models. Both methods show the same 4 out of 5 selected suppliers in the top 5 group.

5 Conclusion and Recommendations

Both models developed provides two advantages: (1) the flexibility of changing weights assigned to each criteria as company policy changes or as other factors are incorporated in the decision-making, and (2) the flexibility for different experts to independently rate suppliers. Both models developed provide a flexible ranking tool that takes into consideration the dynamic nature of decisionmaking. They provide flexibility for policy change as well as individual choice and preference. The model is easy and simple enough to implement in any decision-making process, from supplier ranking, to choosing a spouse. Generally, fuzzy logic has the advantage of being understandable, logical, and closer to human reasoning that crisp logic. The advantages of Combs method in mapping problem spaces are the speed of design and computation and the simplicity in mapping (easier to get expert opinion and feedback). We recognize that the supplier selected by these methods may not the unanimous choice of all experts. However these methods do provide a methodology for selection with subjective criteria. Since the design of these models relies solely on the knowledge and expertise of the designer, we recommend that both models be tested and verified through expert opinion. We also recommend the incorporation of the corrective rules as outlined in [25] to verify that exact equivalance between the two methods would be obtained. Acknowledgements: We are thankful to Jon Ervin for introducing us to Combs method, and for providing feedback on the manuscript. We also are indebted to the students in the graduate level simulation class in Spring 2003 for their insightful comments. References: [1] Siguaw, Judy A. And Penny Simpson, Usage and Importance of Supplier Selection, Retention, and Value-Added Criteria, 2002. Available online at <www.hotelschool.cornell.edu/chr/research/working /supplierselection.pdf>, Last accessed June, 2003. [2] Marathon Oil Company, Website http://www.marathon.com/Values/Diversity/Supplie r_Selection_Criteria/ [3] Johnson & Johnson, Website at http://www.jnj.com/supplier_resources/policies/sele ction_criteria.htm [4] Watlow Company, Website at

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