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2012 Using A Multi-Criteria Decision Making Approach (ANP-TOPSIS) To Evaluate Suppliers in Iran's Auto Industry

This document summarizes a research paper that proposes an integrated Analytic Network Process (ANP) and Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) approach to evaluate suppliers and determine optimal order allocation in Iran's automotive industry. The study identifies seven criteria to evaluate suppliers based on interviews with industry experts. It then uses a multi-objective linear programming model to allocate orders among selected suppliers based on objectives of both suppliers and the automotive company. Results showed that the two-phase ANP-TOPSIS methodology provides advantages like long-term relationships and consistent quality at lower costs.

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0% found this document useful (0 votes)
39 views12 pages

2012 Using A Multi-Criteria Decision Making Approach (ANP-TOPSIS) To Evaluate Suppliers in Iran's Auto Industry

This document summarizes a research paper that proposes an integrated Analytic Network Process (ANP) and Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) approach to evaluate suppliers and determine optimal order allocation in Iran's automotive industry. The study identifies seven criteria to evaluate suppliers based on interviews with industry experts. It then uses a multi-objective linear programming model to allocate orders among selected suppliers based on objectives of both suppliers and the automotive company. Results showed that the two-phase ANP-TOPSIS methodology provides advantages like long-term relationships and consistent quality at lower costs.

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Arun Mozhi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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International Journal of Applied Operational Research

Vol. 2, No. 2, pp. 37-48, July 2012

Journal homepage: www.ijorlu.ir

Using a multi-criteria decision making approach (ANP-TOPSIS) to


evaluate suppliers in Iran’s auto industry
K. Shahroudi*, H. Rouydel

Received: January 9, 2012; Accepted: May 28, 2012

Abstract Supplier selection is a multi-criteria problem which includes both tangible and intangible
factors in these problems if suppliers have capacity or other different constraints two problems will
exist: which suppliers are the best and how much should be purchased from each selected supplier?
The objective of this paper is to present an integrated model and a supporting approach for effective
supplier selection decisions and determined optimum order allocation. Therefore, an integrated
approach of ANP- TOPSIS (Analytic Network Process and Technique for Order Preference by
Similarity to Ideal Solution) is proposed in choosing the best suppliers and defined the optimum
quantities order among selected suppliers by using a mathematical model (Multi-Objective Linear
Programming). Hence, after library studies and interview with experts, managers and specialists in
supply chain management filed, decision criterion was identified through brain storming contains of
seven main criteria for suppliers selection process. Then in the second section for order allocation to
every selected suppliers in first section; we used a (MOLP) Multi-Objective Linear Programming
model. Therefore objectives and subjective of suppliers and Automotive Company were identified in
this section. Results show that applying a two phase ANP-TOPSIS methodology causes to some
important advantages such as: Long-term relationship, consist quality, lower cost, special attention and
etc.

Keywords Supplier Evaluation, TOPSIS, ANP, Order Allocation.

1 Introduction

Quality, flexibility, diversity, quick response and competition in the global environment have
become important for the manufactures in regard to customer satisfaction in today’s
competition environment [1]. Therefore, the success of a company is determined to a greater
degree by the abilities of its suppliers [2]. The suppliers’ selection is one of the most critical
activities of a company and a strategic purchasing decision that commits significant resources
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(40-80 percent of total product cost) and impacts the total performance of the firm [3].
Suppliers are an integral part of the supply chain of an Organization. Supply chain
management integrates suppliers, manufactures and distribution centers to get the right
products to the right place at the right time and in the right condition [4]. Generally the
primary goal of supply chain management will be to reduce supply chain risk, reduce

* Corresponding Author. ()


E-mail: [email protected] (K. Shahroudi)

K. Shahroudi
Assistant professor, Department of Industrial Management, Islamic Azad University, Rasht Brunch, Rasht, Iran.

H. Rouydel
Young Researchers Club, Islamic Azad University, Rasht Brunch, Rasht, Iran.
38 K. Shahroudi, H. Rouydel / IJAOR Vol. 2, No. 2, 37-48, July 2012 (Serial #5)

production costs, make the maximum revenue, improve customer service, optimize inventory
levels, improve business processes which ends in increasing competitiveness, customer
satisfaction and profitability [5].
The remainder of the paper is organized into five sections. Section 2 represents the main
research’s problem, Section 3 reviews previous work on supplier selection and order
allocation. Section 3 lays out research methods, processes, and data sources in five steps.
Finally, conclusions are presented in Section 5.

2 Problem statement

Basically the issues related to supplier selection are two types. The first type (single
sourcing), in which a supplier is able to meet all buyers’ needs including demand rate, quality,
and delivery time. In this condition the management should just decide which supplier is the
best? In type II (multiple sourcing) a supplier alone is not able to meet all needs of buyer and
buyer must meet their demands through several suppliers. In this case, management should
take two types of decisions: first, which suppliers are the best? And second, how much should
be purchased from each supplier? [6,7].
In many cases, organizations usually choose more than one supplier for their products,
until facing with non-competence of one supplier to ensure continuity of supply. They can
also compare prices and services from various suppliers during the period of time. Hence, in
present study we discuss solving the selection of supplier in the state of multiple sourcing.
Increasingly importance of selecting appropriate supplier, as a critical decision in supply
chain management, leads organizations in different industries to use systematically formed
models to choose suppliers and allocate orders to them. One of these industries is automotive
manufacturing industry which had been significant progress in Iran during the recent years.
The study is doing at an automotive manufacturing company which despite spending energy,
time and cost to select the appropriate suppliers, unfortunately is facing with deficiencies and
drawbacks in its supply chain. Therefore, the present study using the suggested model is done
to remove these deficiencies and to answer two main research questions:
Which suppliers are the best and how much should be purchased from each selected supplier?

3 Review of the supplier selection methods

The problem of supplier selection is not new. Selection of appropriate suppliers is one of the
fundamental strategies for enhancing the quality of output of any organization, which has a
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direct influence on the company’s reputation [8]. Nowadays, supply chain management tries
to obtain the long-term participation with suppliers and use fewer numbers but more reliable
suppliers [9]. Therefore, to choose appropriate suppliers is something more than just looking
at the list of suppliers’ suggested prices and suppliers selection depends on to many
qualitative and quantitative factors [10]. Hence several methods have been proposed for
solving supplier selection problem such as: Analytic Hierarchy Process (AHP), Analytical
Network Process (ANP), Artificial Neural Networks (ANN), Case-Based Reasoning (CBR),
Data Envelopment Analysis (DEA), Genetic Algorithm (GA), Fuzzy Set Theory,
Mathematical Programming (MP), Simple Multi–Attribute Rating Technique (SMART) and
mixed technique.
Using a multi-criteria decision making approach (ANP-TOPSIS) to … 39

At least four journal articles have already reviewed the literature related to suppliers’
evaluation and selection models [11,12,13,14].
There are many studies about the supplier selection process. Traditional methodologies of
the supplier selection process in research literature include the cost-ratio method, the
categorical method, weighted-point evaluations, mathematical programming models and
statistical or probabilistic approaches [15]. Table 1 shows various decision making
approaches have been proposed to tackle the supplier selection problem.

Table 1 Category of approaches of supplier selection [14]

Approaches Techniques Authors


Liu et al, (2000)- Narasimhan et al,
Data Envelopment Analysis (DEA) (2001)- Talluri and Sarkis, (2002), Sedel,
(2006), Saen, (2007)
Mathematical Programming
Talluri and Narasimhan, (2003 & 2005)-
 Linear Programming
Ng, (2008)
 Integer Liner Programming Talluri, (2002)- Hong et al, (2005)
 Integer Non-Liner Programming Ghodsypour and O’Brien, (2001)
 Goal Programming Karpak et al, (2001)
Individual
1 approaches Narasimhan et al, (2006)- Wadhwa and
 Multi-Objective Programming
Ravindran, (2007)
Chan, (2003)- Liu and Hai, (2005)- Chan
Analytic Hierarchy Process (AHP)
et al, (2007)- Hou and Su, (2007)
Case Based Reason (CBR) Choy and Lee, (2002)- Choy et al, (2005)
Sarkis and Talluri, (2002)- Bayzit, (2006)-
Analytic Network Process (ANP)
Gencer and Gurpinar, (2007)
Sarkis and Mohapatra, (2006)- Florez
Fuzzy Set Theory (FST)
Lopez, (2007)
Generic Algorithm (GA) Ding et al, (2005)
Ramanathan, (2007)- Saen, (2007)- Sevkil
AHP-DEA
et al, (2007)
AHP-DEA- Artificial Neural Network
Ha and Krishnan, (2008)
(ANN)
Cebi and Bayraktar, (2003)- Percin,
Integrated AHP-GP (2006)- Kull and Talluri, (2008)- Mendoza
2 approaches et al, (2008)
AHP-Multi-Objective Programming Xia and Wu, (2007)
ANN-CBR Choy et al, (2003, 2004)
ANN-GA Lau et al, (2006)
ANN- Multi-Objective Programming Demirtas and Ustun, (2008)
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DEA- Multi-Objective Programming Weber et al, (2000)- Talluri et al, (2008)

4 Methodology

The research was carried out in automotive industry. Overall, this study is doing in five steps.
In the first steps, after reviewing the research literature, interview with the experts, and survey
the managers, in a company custodian to automotive supply chain management group,
decision-making criteria were identified, through the brainstorming method including seven
criteria affecting on suppliers selection. Then, the degree of interdependent relationship
between different criteria is determined by the expert group in second steps. In third and forth
40 K. Shahroudi, H. Rouydel / IJAOR Vol. 2, No. 2, 37-48, July 2012 (Serial #5)

steps in order to calculate the weight of each indices and final ranking of desired parts
suppliers, integrated ANP-TOPSIS techniques were used. hence we answered the first
question of the research: how to select best suppliers. In the fifth steps, in order to answer the
second question of the research concerning allocation quantity of orders to each supplier,
multi-objective linear programming model (MOLP) was used. First, the multi-objectives of
the company were identified then suppliers’ and buyers’ constraints were considered. Finally
the equations solved by LINGO software and the optimum amount of order to each supplier
identified. Fig. 1 shows the process of the research.

Identify evaluating criteria through


Step1 Brain storming method

Determine interdependence relationship


Step2 between different criteria

Perform the consistency test

Step3 Calculate the criterion weights by ANP

Conduct TOPSIS procedure by using the


weights calculated by ANP

Calculate negative and positive ideal


Step4 solutions and separation measures

Ranking suppliers

Identify automotive company’s goals and


constraints
Step5
Determine of order allocation

Fig. 1 The overall research processes


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Step 1: Identification of necessary criteria for supplier selection


In decision-making models, one of the most important parts is to determine the criteria and
measuring indicators. Selecting criteria and indicators is for this purpose that the important
aspects and characteristics of suppliers being measured. In fact, suppliers’ selection indices
indicate the present status and present/future supplier’s performance. Therefore, the design
and selection of indices as the input of decision-making model have a direct impact on model
efficiency [16]. As in companies and organizations the criteria and sub-criteria affecting on
suppliers’ selection processes differ based on their objectives, in our case study, automotive
company used brainstorming in order to identify criteria, with regard to their strategic goals.
Therefore, the automotive company in a meeting consists of 32 managers, experts and
Using a multi-criteria decision making approach (ANP-TOPSIS) to … 41

specialists in supply chain area identified the criteria influencing on the process of appropriate
suppliers selection due to their industry targets by using brain-storming method. The criteria
were identified as follows:
(C1) PPM (Part Per Million) customers: measuring the number of returned parts per million
delivered parts which is returned by automobile-maker.
(C2) Quality: The quality of goods provided by the suppliers.
(C3) Price/ cost: The amount paid by the enterprise to buy goods from its suppliers.
(C4) standardization: to standardize the maker production process, as the first step to
improve production process and to form process control program.
(C5) Service: The after-sales service and support provided by a supplier.
(C6) Flexibility: The ability of a supplier to accommodate changes in the enterprise’s
production plans.
(C7) On time delivery: How well a supplier succeeds in delivering goods according to
schedule?
Step 2: Recognition of the interdependence between criteria
Next, in order to reflect the interdependence property between the criteria, we need to identify
the exact relationship in a network structure of ANP. Another brainstorming process is taken
to construct the relationship based on the following two recognitions:
Price/cost may be influenced by the quality of products and the on time delivery.
Product quality may be influenced by standardization.
Fig. 2 represents the relationship of interdependency.

PPM customer (C1)


S1

Quality (C2)

S2
Price (C3)
selection
Supplier

Standardization (C4)
S3
Service (C5)

Flexibility (C6) S4

On time delivery (C7)


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Fig. 2 The interdependent relationship among the selected criteria

Step 3: Determination of the weights of criteria by ANP technique


To determine the relationship of the degree of interdependence, the ANP technique, which is
an extension of AHP, is used to address the relative importance of the criteria. ANP is
developed to generate priorities for decisions without making assumptions about a
unidirectional hierarchy relationship between decision levels [17]. To take the place of a
42 K. Shahroudi, H. Rouydel / IJAOR Vol. 2, No. 2, 37-48, July 2012 (Serial #5)

linear top-to-bottom form of strict hierarchy, the ANP model provides a looser network
structure and possibly represents any decision problem. The relative importance or strength of
the impacts on a given element is measured on a ratio scale, which is similar to AHP. In
comparison to AHP, ANP is capable of handling interrelationships between the decision
levels and attributes by obtaining the composite weights through the development of a
“supermatrix”. The supermatrix is a partitioned matrix, where each submatrix is composed of
a set of relationships between two components or clusters in a connection network structure
[18].
It should be noted that despite the frequency of the number of suppliers and parts, in
order to test the model, some parts makers (suppliers) who had the highest evaluation (grade
A) and were able to produce four parts with codes A, B, C, and D were selected.
After the hierarchical structure drew; in order to determine the criteria, and sub-criteria
weights, a questionnaire concerning to pair-wise comparisons matrix was given to 42
managers, experts, and specialists in the field of supply chain management. Then the data
gathered from them, entered into specialized software of Supper Decision to calculate the
weight of suppliers indices and to ensure the accuracy of judged and inconsistency rate.
Because of smaller inconsistency rate from 0.1 the accuracy of judgments was confirmed.
Three steps will be done with three activites described as follows:
First, Without assuming the interdependence among criteria, the decision makers or
experts are asked to evaluate all proposed criteria pair-wise. Table 2 shows the weights
obtained for each of the criteria.

Table 2 The pair-wise comparison matrix for criteria

C1 C2 C3 C4 C5 C6 C7 Vector weights
C1 1 4 4 2 5 6 4 0.361
C2 1/4 1 3 1/2 2 4 2 0.142
C3 1/4 1/3 1 1/3 1/2 2 1/4 0.055
C4 1/2 2 2 1 4 4 2 0.207
C5 1/5 1/2 1/2 1/4 1 2 1/2 0.070
C6 1/6 1/4 1/4 1/4 1/2 1 1/5 0.037
C7 1/4 1/2 1/2 1/2 2 5 1 0.128

Next, the effects of the interdependence among the criteria are resolved. The group
members will examine the impact of all criteria on each other by pair-wise comparisons too,
as shown in table 3.
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Table 3 Degree of relative impact for evaluation criteria

C1 C2 C3 C4 C5 C6 C7
C1 1 0 0 0 0 0 0
C2 0 0.657 0.865 0 0 0 0
C3 0 0.325 0 0 0 0 0.633
C4 0 0 0.135 1 0 0 0
C5 0 0 0 0 1 0 0
C6 0 0.018 0 0 0 1 0.367
C7 0 0 0 0 0 0 0
Using a multi-criteria decision making approach (ANP-TOPSIS) to … 43

Now we can obtain the interdependence priorities of the criteria by synthesizing the
results from the previous two steps as follows:

c1  1 0 0 00 00  0.361  0.361


c 2 0 0.657 0.865 0 0 00  0.142  0.141
       
c3  0 0.325 0 00 0 0.633  0.055  0.127
       
wc  c 4  0 0 0.135 1 0 00   0.207   0.214
c5  0 0 0 01 00  0.070  0.070
       
c6  0 0.018 0 00 10  0.037  0.040
c7  0 0 0 00 0 0.367  0.128  0.046
  

According to the vector from decision maker, C1, C2, C4 and C3 (in series: PPM
Customer, Quality, Standardaization, Price) are four of the most important factors related to
the evaluation supplier selection process.
Finally, decision makers are asked to establish the decision matrix by comparing
candidates under each criterion separately. Table 4 shows the result of performance of each
alternative with respect to each criterion.

Table 4 Performance of each alternative with respect to each criterion

C1 C2 C3 C4 C5 C6 C7
S1 0.475 0.435 0.479 0.542 0.379 0.571 0.600
S2 0.425 0.446 0.524 0.475 0.525 0.452 0.585
S3 0.552 0.543 0.325 0.313 0.500 0.452 0.432
S4 0.535 0.396 0.463 0.570 0.422 0.356 0.596

Step 3: Ranking suppliers by TOPSIS technique


TOPSIS is a widely accepted model that proposed by Huang and Yoon in 1981, and then in
1992 was developed by Chen and Huang. In this method, alternatives are ranking based
shortest distance from the positive ideal solution and the farthest distance from the negative
ideal solution.
In this step, TOPSIS technique played its role. The weight obtained by the AHP
technique using equations (1) and (2) As Table 5 is shown converted to normalized weighted
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matrix.

rij
nij 
m (1)
2
 rij
i 1
V  N D  wn  n (2)
44 K. Shahroudi, H. Rouydel / IJAOR Vol. 2, No. 2, 37-48, July 2012 (Serial #5)

Table 5 The weighted normalized decision matrix

C1 C2 C3 C4 C5 C6 C7
S1 0.700 1.658 3.771 3.397 0.231 7.316 1.564
S2 0.310 0.131 1.118 0.523 8.106 1.948 0.689
S3 0.113 0.589 0.202 6.898 4.645 0.560 3.272
S4 0.052 0.131 1.118 0.532 1.154 3.482 0.294

Then, using equations (3) and (4) positive and negative ideal solutions are obtained the
results obtained are shown in Table (6).

A   {( max Vij j  J ), (min Vij j  J ` )}  {V1 , V2 ,..., Vn } (3)

A   {( min Vij j  J ), ( max Vij j  J )}  {V1 , V2 ,..., Vn } (4)

Table 6 The ideal solution and negative solution

C1 C2 C3 C4 C5 C6 C7
A 0.052 0.131 0.202 6/896 0.231 0.560 1.564

A 0.814 1.658 3.771 0.523 8.106 7.419 0.294

The next step of TOPSIS technique, as shown in Table 7 is to calculate the Euclidean
distance of each alternative. The positive and negative ideals, using equations (5) and (6).

n
d i  { (V ij V j ) 2 }0.5 (5)
j 1
n
d i  { (V ij V j ) 2 }0.5 (6)
j 1

Table 7 Separation of each alternative to positive and negative solution

S1 S2 S3 S4
d i 13.176 10.035 11.123 13.854
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d i 7.224 12.569 14.566 7.136

In the final stage, relative closeness of suppliers to ideal solution using equation (7)
obtained and ranked according to relative approximately descending order of suppliers. Table
8 represents the ranking of suppliers based on combining two techniques of AHP and
TOPSIS.
d
CLi   i  0  CLi  1 i  1,2,..., m (7)
(d i  d i )
Using a multi-criteria decision making approach (ANP-TOPSIS) to … 45

Table 8 Final ranking in two-phase ANP-TOPSIS approaches

Alternatives S1 S2 S3 S4
C j 0.313 0.515 0.329 0.460
Ranking 4 1 3 2

Step 5: Mathematical Modeling


As observed, in the first phase of this study using two techniques of ANP and TOPSIS in
integrated form, suppliers were classified with regard to selected criteria.While in the step
five, using a mathematical model it was identified that how much order should be allocated to
each supplier. Thus, these steps are included designing a multi-objective linear programming
model. Table 9 is briefly described the symbols used in equations.

Table 9 Introducing mathematical parameters model

Decision variables Definition


xij Order quantity of the jth part from the ith supplier
parameters
d ij Average defect rate of jth part from the ith supplier
t ij Average delivery delay of the jth part from the ith supplier
pij The price of jth part that be suggested by ith supplier to automotive company
Bj Purchasing budget for the jth part
Dj demand for jth part
S ij Lowest quantity supply of jth part from the ith supplier
Sij Highest quantity supply of jth part from the ith supplier
zi Objective function
Kj capacity of a vehicle for carried the jth part in terms of kg
U ij Weight of the jth part that bought from the ith supplier

Multi-objective linear programming model was designed this way, that at first,
automotive company multiple targets are formulated as three objectives function that
includes:
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The first objective function (Z1): purchase costs


m n
Min Z 1   p ij  X ij
i j

The first objective function (Z1) which is expressed as a minimum, indicates the
minimizing of costs to buy its pieces which are from its supplier.
46 K. Shahroudi, H. Rouydel / IJAOR Vol. 2, No. 2, 37-48, July 2012 (Serial #5)

The second objective function (Z2): Quality

m n
Min z 2   d ij .x ij
i 1 j 1

The second objective function (Z2) expressed minimizing of the amount due to defects
and disadvantages in the parts.

The third objective function (Z3): Delivery

m n
Min z 3   t ij .x ij
i 1 j 1

The third objective function (Z3) expressed the minimizing of total deviation from the
delivery date which is determined according to the contract.
Then the limitation of company's suppliers and automotive company are specified in
seven constraints as follows.

First limitation: shopping budget

p
i 1
ij .x ij  B j j  A , B ,C , D i  1,2,3,4

The first limitation represents budget constraints of purchase by the automotive company.
This limitation is as ≤ because the total payments to buy parts to suppliers should not be
higher from the set budget.

Second limitation: product demand (pieces)

X
i 1
ij  Dj j  A, B, C, D

The second restriction indicated limits of demand for the product by automotive
company.
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The third limitation: production capacity

S ij  x ij  S ij j  A , B ,C , D i  1,2,3, 4,5


This restriction shows that how much the highest and lowest production which supplier is
able to meet it.

Fourth limitation: vehicle weight capacity

u ij .x ij  K j j  A , B ,C , D i  1,2,3, 4,5
i 1
Using a multi-criteria decision making approach (ANP-TOPSIS) to … 47

This restriction indicates constraints in available transportation capacity. In the above


limitation, KJ is expressed in terms of kg, so weight of customized parts should be less than
or equal to vehicle capacity in terms of kg.

Fifth limitation: non-zero limit (integer)

X ij  Integer j  A , B ,C , D i  1, 2,3, 4,5

After gathering data about decision variables and parameters of mathematical model, the
information obtained to resolve was entered into software (LINGO). Table 10 shows that
automotive company in order to minimize the purchase costs, returned rate from defects, and
delivery time, must buy from any supplier in the amount specified by the model.

Table 10 The order quantity allocation

Alternative Part A B C D Total


Supplier 1  1500 5300  6800
Supplier 2 5500 3700 6800 4100 20100
Supplier 3 1100 2200 4800 3600 11700
Supplier 4 2100 2500 3500 4500 12600
Z1= 581262300 Z2= 86 Z3= 13

5 Conclution

Supplier selection and evaluation are very important to the success of a manufacturing firm.
This is because of the cost and quality of goods and services sold are directly related to the
cost and quality of goods and services purchased. Therefore, purchasing and supplier
selection play an important role in supply chain management. Therefore, the selection of
appropriate suppliers is a very important problem for any organization, and requires
consideration of a multitude of factors, some of which can be quantitative, while some can be
qualitative. Results show that applying a two phase ANP-TOPSIS methodology causes to
some important advantages such as: Long-term relationship, consist quality, lower cost,
special attention and etc.
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