Value Analysis Studies
Five cases applying AHP to supply chain
risk management
We demonstrate SMART on same data
Finland 2010
Blackhurst, Scheibe & Johnson
International Journal of Physical Distribution & Logistics Management 38:2 [2008]
• Risk by product and by supplier
• Purpose to identify degree of risk for
alternative suppliers
Finland 2010
Blackhurst et al. – SMART Weights
Risk
Defects/million parts
Ease of problem resolution
Timeliness of corrective action
Fire
Product complexity
Labor availability
Supplier bankruptcy
Labor dispute
Political issues
War and terrorism
Value of product
Earthquake
Flood
Rank
1
2-3
2-3
4
5
6-7
6-7
8-10
8-10
8-10
11
12-13
12-13
Finland 2010
Based on 1st
100.0
83.3
83.3
66.7
50.0
33.3
33.3
22.2
22.2
22.2
16.7
11.1
11.1
Weight
0.18
0.15
0.15
0.12
0.09
0.06
0.06
0.04
0.04
0.04
0.03
0.02
0.02
Blackhurst et al. – Scores
Criteria
Defects/million
Ease of resolution
Product complexity
Weights Supplier1 Supplier2
0.18
0.700
0.267
0.15
0.800
0.214
0.09
0.800
0.761
Supplier3
0.850
0.900
0.700
Supplier4
0.900
0.850
0.850
Timeliness to correct
0.15
0.800
0.169
0.850
0.850
Product value
Earthquake
Fire
Flood
Labor availability
Labor dispute
0.03
0.02
0.12
0.02
0.06
0.04
0.700
0.850
0.850
0.950
0.850
0.800
0.686
0.650
0.200
0.650
0.300
0.150
0.650
0.950
0.300
0.800
0.800
0.650
0.750
0.350
0.700
0.600
0.650
0.750
Political issues
0.04
0.800
0.400
0.850
0.600
Supplier bankruptcy
War and terrorism
0.06
0.04
0.950
0.750
0.900
0.400
0.650
0.750
0.650
0.700
Finland 2010
Blackhurst et al. – Value Scores
Supplier
Supplier 1
Supplier 4
Supplier 3
Supplier 2
Score
0.799
0.779
0.746
0.355
Finland 2010
Rank
1
2
3
4
Value Analysis
• Focus on improvement of alternatives
• Supplier 2 clearly inferior – discard
• IF SCORES VERY CLOSE
– Consider additional criteria
– Discard criteria where remaining alternatives have
equal performance
• EITHER WAY
– Consider improving existing alternatives
– Broaden search to find additional suppliers
– Seek actions to improve existing supplier performance
where they are weak
Finland 2010
Implications
• Supplier1 weak on important criteria
– Weakest rating – defects/million parts
• Supplier3 best on production-related criteria
– Slight disadvantage in defects
– Greater disadvantage on product complexity, product
value
– Low on exposure to fire
– Slight disadvantage with respect to labor
– IMPROVE product design, quality
• Supplier4 – weak on external risk
– IMPROVE by relocation?Finland 2010
Wu, Blackhurst & Chidambaram
Computers in Industry 57 350-365 [2006]
• AHP model for inbound supply risk
• Two suppliers
• 18 risk factors
– We selected top 10
Finland 2010
Wu et al. – SMART weights
Risk
Cost
Quality
On-time delivery
Continuity of supply
Engineering/Production
Second Tier supplier
Demand
Internal legal issues
Natural/man-made disasters
Politics/Economics
TOTAL
Rank
1
2
3
4
5
6
7
8
9
10
Finland 2010
Based on 1st
100
94
81
51
17
13
12
11
10
10
399
Weight
0.251
0.236
0.203
0.128
0.043
0.033
0.030
0.028
0.025
0.025
1.0
Wu et al. – Scores & Value
Criteria
Cost
Quality
On-time delivery
Continuity of supply
Engineering/Production
Second Tier supplier
Demand
Internal legal issues
Natural/man-made disasters
Politics/Economics
TOTAL
Weight
Supplier1
0.251
0.801
0.236
0.903
0.203
0.804
0.128
0.907
0.043
0.623
0.033
0.731
0.030
0.929
0.028
0.923
0.025
0.627
0.025
0.917
0.84
Finland 2010
Supplier2
0.801
0.701
0.602
0.507
0.522
0.631
0.612
0.923
0.710
0.917
0.68
Wu et al. - Sensitivity
• Many of their original 18 criteria didn’t
discriminate
• Of the 10 used here, Cost, Internal legal
issues, Politics/economics the same for both
• Supplier1 clear choice
– Quality, delivery, continuity, demand
– Weak on location – might relocate
• Supplier2 needs to improve:
– Product features
Finland 2010
Kull & Talluri
IEEE Transactions on Engineering Management 55:3 [2008]
• Used AHP to evaluate supplier ability to
respond to risks
• Fed into goal programming model
• Three candidate suppliers
• Five risk categories
– 14 specific measures
Finland 2010
Kull & Talluri – SMART Weights
Risk
Quality management
Reliable material availability
Reliable cycle time
Protection against natural disaster
Excess capacity
Legal/Environmental control
Power in the relationship
Flexibility in processes
Cost management capabilities
Stable supply market
Information systems
Relations/Communications
Research capabilities
Stable currency
Category Rank Based on 1st
Quality
1
100
Delivery
2
72.8
Delivery
3
61.2
Delivery
4
19.9
Delivery
5
11.6
Quality
6
11.1
Cost
7
5.2
Flexibility
8
3.4
Cost
9
2.6
Confidence 10
2.1
Confidence
11
0.7
Confidence 12
0.7
Flexibility
13
0.7
Cost
14
0.4
Finland 2010
Weight
0.342
0.249
0.209
0.068
0.040
0.038
0.018
0.012
0.009
0.007
0.002
0.002
0.002
0.001
Kull & Talluri – Scores & Value
Risk
Weight
Supplier A Supplier B Supplier C
Excess capacity
0.040
1.0
0.50
0.25
Reliable material availability
0.249
0.33
1.0
0.33
Reliable cycle time
0.209
1.0
0.33
1.0
Protection against natural disaster
0.068
1.0
0.33
0.33
Cost management capabilities
0.009
0.33
0.33
1.0
Power in the relationship
0.018
1.0
0.33
1.0
Stable currency
0.001
1.0
1.0
1.0
Quality management
0.342
1.0
1.0
1.0
Legal/environmental control
0.038
1.0
0.33
1.0
Research capabilities
0.002
1.0
1.0
1.0
Flexibility in processes
0.012
1.0
0.175
0.413
Information systems
0.002
0.438
0.109
1.0
Stable supply market
0.007
1.0
1.0
0.33
Good relations/Communications
0.002
1.0
0.33
1.0
FINAL SCORE
Finland 2010
0.825
0.737
0.746
Sensitivity
• Criteria that didn’t matter this choice
– Stable currency, quality management, research
– NOT A MATTER OF IMPORTANCE
– A MATTER OF CONTEXT
• Supplier A won – weak on:
– Material availability, cost management, IS
• Supplier C close – needs to improve on:
– Protection against natural disaster, excess capacity,
process flexibility, supply market stability
• Supplier B weak on IS, process flexibility
Finland 2010
Schoenherr, Rao Tummala & Harrison
Journal of Purchasing & Supply Management 14 [2008]
• Considered five outsourcing options
1.
2.
3.
4.
Sourcing finished goods from Mexico
Sourcing finished goods from China
Sourcing parts from China and assembling in the U.S.
Sourcing parts from China, assembling in a Mexican
Maquiladora without investment
5. Sourcing parts from China, assembling in a Mexican
Maquiladora with investment
• 17 Criteria
Finland 2010
Schoenherr et al. SMART Weights
Risk Factor
Sub Obj
Main Obj
Product cost
Cost
Product
Product defect rate
Quality
Order fulfillment risk
Service
Transportation risk
Rank
Relative
Weight
1
100
0.256
Product
2
96.1
0.246
Partner
3
25.4
0.065
Environment
4
24.6
0.063
ANSI compliance
Quality
Product
5
24.2
0.062
Competitor cost
Cost
Product
6
19.9
0.051
Supplier fulfillment risk Service
Partner
7
19.9
0.051
Service
Partner
8
19.9
0.051
Service
Partner
9
16.8
0.043
Environment
10
8.6
0.022
On-time/budget
delivery
Logistics risk
Sovereign risk
Wrong partner risk
Mngt Capabilities
Partner
11
8.2
0.021
Overseas risk
Mngt Capabilities
Partner
12
8.2
0.021
Supplier risk
Mngt Capabilities
Partner
13
7.8
0.020
Finland 2010
Schoenherr et al. Scores, Value
Risk factor
Product cost
weight FGMex
0.256
0.25
FGChi
1.0
Parts Chi, Parts Chi,
US assy
Maq no invest
0.22
0.94
Parts Chi,
Maq w/invest
0.44
Product defect rate
0.246
0.73
1.0
0.62
0.73
0.85
Order fulfillment risk
0.065
0.37
1.0
0.93
0.47
0.53
Transportation risk
0.063
1.0
0.59
0.38
0.33
0.31
ANSI compliance
0.062
1.0
1.0
1.0
1.0
1.0
Competitor cost
0.051
0.09
1.0
0.26
0.49
0.53
Supplier fulfillment risk
0.051
0.25
0.33
0.53
1.0
0.72
On-time/budget delivery
0.051
1.0
0.28
0.31
0.09
0.17
Logistics risk
0.043
1.0
0.49
0.22
0.16
0.16
Sovereign risk
0.022
1.0
0.54
0.54
0.20
0.20
Wrong partner risk
0.021
1.0
1.0
0.63
1.0
0.19
Overseas risk
0.021
0.46
0.125
1.0
0.125
0.23
0.583
0.823 0.505
0.660
0.552
VALUE SCORE
Finland 2010
Sensitivity
• China – big advantage in cost, quality
– Weak – overseas risk, demand risk, natural
disaster, on-time/budget, supplier management
– Could insure against overseas risk, natural disaster
– Hedge against demand risk
– Train or BPR for on-time, supplier management
Finland 2010
Second choice – make in China, Assemble
in Maquiladora, without investment
• Relative advantages:
– Reduce supplier fulfillment risk, wrong partner
risk
• Disadvantages:
– Transportation risk management
– Order fulfillment risk
– On-time deliver
Finland 2010
Third: Outsource to Mexico
• Outsource to Mexico
– Weak: cost (most important)
– Average: product quality (2nd most important)
• Build new facility in Mexico
– Bad on cost
Finland 2010