A Modified-Weighted Point Evaluation Method For Vendor Selection
Joel Knowles, Professor of Management, California State University, Sacramento, 6000 J Street, Sacramento, CA 95819, 916/278-6895, firstname.lastname@example.org.
Mary Knowles, Instructor of Management, California State University, Sacramento, 6000 J Street, Sacramento, CA 95819, 916/278-6895, email@example.com.
83rd Annual International Conference Proceedings - 1998
Abstract. The Weighted Point Evaluation Method frequently used by the purchasing world for vendor selection has been around for more than half a century. Its longevity attests to its continued usefulness. As competition continues to intensify, every business decision must exact the maximum benefit for the organization. This is especially true in the acquisition of materials. This presentation describes a modification to the traditional weighted point evaluation method. It uses a multi-criteria decision model called Electre which allows subjective evaluation to complement the traditional evaluation procedure. The results leads to better vendor selection.
Preface. In the movie, The Last Crusade, Professor Jones was confronted with the problem of selecting the "correct" goblet from many. He was admonished to "choose wisely." The goblets displayed a wide array of characteristics -- wide, tall, short, thin, thick, gold, pewter, ceramic, etc. Putting all of the disparate bits of information together, Dr. Jones somehow chose the correct goblet. He chose wisely. Every purchaser faces the same problem daily.
Usually, for every raw material, piece part, sub assembly or major component, there are a large number of vendors ready to supply your needs. Most purchasing organizations quickly discover that many of these potential sources do not come even close to meeting their companies' needs. Excluding this group normally leaves several highly competitive vendors. In the past this often resulted in multiple sourcing. In today's purchasing environment such a situation frequently leads to single sourcing. A method for identifying a single, best source from among many is the subject of this paper.
Background. Ranking vendors from best to worst is not a new task for the purchaser. A review of the literature disclosed many methods used throughout the post-World War II era. However, one method has been described throughout that period in an unbroken chain of reputable publications. This is the weighted point evaluation method (WPEM).
The WPEM weights various factors or criteria of concern to total 100 percent. Suppliers are then rated on each of the criteria as to how each stacks up against the criterion's maximum. Finally, a total rating is computed which is the sum of the rated weights. Vendors are compared by the single, total rating number. The supplier with the highest total number is the best, the second highest number is second best, and so on. Dobler and Burt state, "The approach is widely used in practice and generally leads to a fair and reasonably objective result." [4, 254]
Beginning with the 1958 Purchasing Handbook, the weighted point evaluation method (WPEM) was given good grades for its usefulness and effectiveness.[2, 5-16] From the outset, this multi-criteria evaluation model had the advantages of simplicity, understandability and ease of implementation. The 1973 version of the same work continued to tout the method. [1,6-28] In 1996 Dobler and Burt continued to offer the WPEM as "an effective and efficient method of evaluating suppliers." [4, 254] With such longevity and acceptance among the purchasing world, who could question such an objective and fair method? Its disadvantages are not so discernible.
The WPEM does not allow consideration of subjective evaluation. If, for example, Choice A is better than Choice B in the majority of decision criteria, and, there is no criterion where A is clearly worse than B, then Choice A outranks Choice B. This implies 1) the majority of criteria favor Choice A and 2) no criterion favors Choice B excessively. But, if either of these two conditions is not true, then the single WPEM value does not always lead to the correct choice if subjective evaluation is allowed.
The Modified-Weighted Point Evaluation Method (Mod-WPEM) described in this presentation calculates Concordance Coefficients indicating to what extent one choice is better than another and Discordance Coefficients indicating to what extent a choice might be unsatisfactory. These coefficients are used in conjunction with subjectively set concordance and discordance thresholds to determine if Choice A outranks B, (or C, D, E, etc.) , that A ranks equal to B, (or C, D, E, etc.) or the situation is indeterminate. An application example will clarify the Mod-WPEM. (Note: The multi-criteria model used for this example is Electre as described in reference 2, pages 157-167.)
Ms. Acebuyer, head of purchasing for the Karl Company, is searching for a single vendor for D-Quarks. She has narrowed the field down to three vendors who are very close overall. These three are: Verkaeufer, Marchand and Avtomat.
The criteria used to judge the three vendors are: Quality, Reliability, Reputation, Price and Service. These were weighted out of a total of 100 as follows:
Quality = 15, Reliability = 15, Reputation = 20, Price = 30, Service = 20
Ms. Acebuyer graded each vendor for each criterion using the following table.
NOTE: This example shows that the grading scale need not be uniformly spaced.
The following scores were awarded to each vendor for each criterion.
Using a straight Weighted Point Evaluation Method (WPEM), the points for the three were:
Verkaeufer = 69.83, Marchand = 67.50, Avtomat = 66.83
Verkaeufer was the winner. Using the Mod-WPEM, the results are entirely different.
Using the Electre program with the Concordance Threshold set at .8 and the Discordance Threshold set at .3, the Outranking Matrix looks as follows.
The Outranking Matrix is a binary representation of the one-to-one comparisons of the three vendors. A one (1) means one vendor clearly outranks another (read left to right). A zero (0) means that neither vendor is clearly better. In the above Outranking Matrix, Avtomat is clearly better than Verkaeufer. Nothing can be said about the relationships of the others.
The setting of the Concordance and Discordance Thresholds is more of an art than a science. The question is, "How much better do I want Vendor A to be better than B (or C or D, etc.) to clearly define "the best." In the example, if the Concordance and Discordance Thresholds are set at .6 and .3, the Outranking Matrix looks as follows:
In this case, Avtomat clearly outranks Verkaeufer and Marchand.
SUMMARY. The basic Weighted Point Evaluation Method (WPEM) has been a valuable tool for purchasers for many decades. Like all tools, the WPEM must change with the changing times. The incorporation of a multi decision model that allows subjective evaluation is such a change. The modified WPEM (Mod-WPEM) enhances the purchasing manager's discrimination ability when determining which vendor to choose from a pool of highly qualified suppliers. It allows the purchaser to set the limits by which one vendor must be better than the others to be considered "the best."
Aljian, George W., Purchasing Handbook, 3rd Edition, New York: McGraw-Hill, 1973.
Aljian, George W., Purchasing Handbook, 1st Edition, New York: McGraw-Hill, 1958.
Bui, X,T., Executive Planning With Basic, Berkeley: Sybex, 1982.
Dobler, Donald and David Burt, Purchasing and Supply Management, New York: McGraw-Hill, 1996.