In this paper, co-authored with Srinivas Talluri and Ram Narasimhan, we present an approach to evaluate vendor performance by explicitly considering the variability in vendor attributes. A model (chance-constrained data envelopment analysis (CCDEA) model) is used to evaluate vendors by considering multiple performance measures that are stochastic. The model is applied to a case data of a division of a Fortune 500 pharmaceutical company, which is involved in the implementation of a JIT system. Management has considered product price, quality, and delivery as the three most important factors in evaluating alternative vendors. Price is represented on a per unit basis for each delivered item. Quality is represented as the percentage of shipped units that are rejected, and delivery is measured as the percentage of ordered units that are delayed. A set of six vendors is considered in the evaluation process.
Our analysis utilized price as the input factor, and quality and delivery performance as the output factors. Price is considered as an input because it represents the amount paid by the buyer. Quality and delivery performance are treated as outputs since they represent the benefits derived by the buyer.
Implications:
We observe that the vendor rankings in a stochastic analysis, as used in this paper, differ from that obtained from a deterministic model. The profile of efficient and inefficient vendors changes when uncertainty is introduced.
The citation for the paper is as follows:
Talluri, Srinivas, Narasimhan, Ram and Nair, Anand. 2006. Vendor performance with supply risk: A chance-constrained DEA approach. International Journal of Production Economics, 100(2): pp. 212-222.