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Application of Taguchi loss functions for supplier selection

Sharon Ordoobadi (Operations Management Faculty, College of Business, University of Massachusetts‐Dartmouth, North Dartmouth, Massachusetts, USA)

Supply Chain Management

ISSN: 1359-8546

Article publication date: 23 January 2009

2764

Abstract

Purpose

This paper seeks to provide a tool for decision makers to make more informed decisions regarding their outsourcing decisions and selection of the appropriate supplier.

Design/methodology/approach

The method uses the Taguchi loss function for the inclusion of intangibles in the evaluation and selection of suppliers. Intangibles are defined as factors that have an impact on the selection of an appropriate supplier but are not easily quantified to be included in the financial evaluation. These intangibles are classified as the benefits and risks of using a supplier to perform the outsourcing function. A decision maker has certain expectations regarding these intangibles and a loss occurs when a supplier's performance does not meet the decision maker's expectations. The Taguchi loss function has been selected as a means of measuring the loss. The decision maker defines the target value and the specification limits for each benefit and risk category. The weighted loss scores are calculated where the weights are the importance ratings assigned to benefit/risk categories by the decision maker. Based on this analysis each supplier will receive a weighted loss score for all the pertinent benefit categories and one weighted loss score for all the risk categories. To achieve a single measure, the aforementioned weighted loss scores are combined to determine a single aggregate loss score for each supplier, which is then used to rank them. The supplier who receives the highest ranking (minimum loss score) will be selected to perform the outsourcing function.

Findings

The procedure proposed here can help companies to identify the best supplier to perform an outsourcing function.

Originality/value

The paper presents a phased decision model that begins with economic evaluation and then uses Taguchi functions to measure the impact of intangibles.

Keywords

Citation

Ordoobadi, S. (2009), "Application of Taguchi loss functions for supplier selection", Supply Chain Management, Vol. 14 No. 1, pp. 22-30. https://doi.org/10.1108/13598540910927278

Publisher

:

Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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