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IJSTE - International Journal of Science Technology & Engineering | Volume 2 | Issue 6 | December 2015

ISSN (online): 2349-784X

A Vendor Selection Model For A Reverse Supply


Chain Management
Tinu Thomas
PG Scholar
Department of Industrial Engineering & Management
Mangalam college of Engineeering Ettumanoor

Vipin Mathew
Assistant Professor
Department of Mechanical Engineering
Mangalam college of Engineeering Ettumanoor

Abstract
The aim of this paper is to determine the appropriate supplier providing the most customer satisfaction for the criteria identified
in the Reverse supply chain Management. The choice of suppliers and their performance assessment are becoming major
challenges that face supply chain managers or directors especially in Reverse Supply Chain Management. Evaluating suppliers
and selecting one of them are complicated tasks due to the fact that various criteria or objectives must be considered in the
decision making process. Also in many real world cases the criteria are not equally important for the purchase managers. In this
study, we proposed a supplier selection analysis model considering both Shannon Entropy and Technique for Order Preference
by Similarity to Ideal Solution (TOPSIS) method. Subjective and objective opinions of purchase managers/experts is turned into
quantitative form using Shannon Entropy. TOPSIS technique is used for calculating the suppliers ratings.
Keywords: Supplier Selection, , Shannon Entropy, Reverse Supply Chain Management, TOPSIS Method.
________________________________________________________________________________________________________

I. INTRODUCTION
Vendor Selection deals with choosing the right vendor or supplier who will be able to provide the right product at right time at
right price. The purchase manager is ought to consider variety of criteria like cost, quality, technology reuse of resources,
pollution caused etc. Choosing the right vendor based on these criteria is a cumbersome task as profit is a main concern that gets
affected by the selection. In Reverse Supply Chain management, evaluating suppliers and selecting best among them are
complicated tasks due to the fact that various criterias such as Technology, Reuse of resource, Pollutant emission must be
considered in the decision making process.

II. NEED FOR USING SHANNON ENTROPY AND TOPSIS


Shannon Entropy: There are several factors to be dealt with while making decision on the vendor.
Considering the literature we find
1) Among the criteria worth considerable some are quantitative while some are qualitative.
2) Several people are involved in the decision making
3) Criteria are uncertain in practice
4) Decision models can be either compensatory or non-compensatory methods
It is challenging to find the best way to evaluate and select supplier. Shannon entropy provides us a way to overcome these
challenges
TOPSIS: The critical issue is to find a suitable method to identify the best vendor. Technique for Order Performance by
Similarity to Ideal Solution (TOPSIS), provides the basis for developing supplier selection models. It is based upon the concept
that the chosen alternative must have the shortest distance from the Positive Ideal Solution (PIS) and the farthest from the
Negative Ideal Solution (NIS).
Here in this paper the appropriate supplier providing the most customer satisfaction for the criteria identified in the Reverse
supply chain Management is determined.

III. PROBLEM IDENTIFICATION AND PROBLEM STATEMENT


The work was studied in a small scale rubber industry. Company faces some problems due to frequent raw material rejection due
to some impurities in recycled rubber powder (recycled raw material). Production rate is lowered during these times due to
rejection. Due to this the profit earned is being fluctuated per year. The high cost of production due to high cost and
inconsistency in cost of raw materials. In addition to that, improper supplier rating and review system is existing within the
company. Raw material is accepted only based on the availability and cost at the time of ordering. Supplier performance review
is not done within periods, mean while most of the raw material is being rejected at monthly. Unavailability of requested raw

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A Vendor Selection Model For A Reverse Supply Chain Management


(IJSTE/ Volume 2 / Issue 6 / 002)

materials from few suppliers is another problem. Hence rise in the overall cost of Production due to improper supplier evaluation
and review technique seems to be a major problem faced by the company.
The problem statement is Lack of a system to find the quality of recycled raw materials used in the production of rubber
products.

IV. PROBLEM DEFINITION


The major problem faced by the company is the rejection of recycled raw materials due to some impurities in recycled rubber
powder. Production rate is lowered during these times due to rejection

Month

Table 1
Rejection of Raw Materials In Kg
Purchase Demand Wastage Quantity after rejection

Aug-14

25720

25360

840

24880

Sep-14

25600

25320

730

24870

Oct-14

25860

25320

845

25015

Nov-14

25500

25200

820

24680

Dec-14

26000

25400

875

25125

Jan-15

26000

25500

850

25150

Feb-15

26300

25700

900

25400

Mar-15

26300

26000

870

25430

Apr-15

26500

26000

920

25580

May-15

26500

26000

900

25600

Jun-15

25000

24500

825

24175

Jul-15

25000

24500

850

24150

Aug-15

25000

24700

890

24110

The table shows the rate of rejection. The wastage and quantity after rejection is produced in kg is shown. This rejection of
raw materials leads to lowered rate of production, means quantity after rejection doesnt meet the demand.

V. PROCEDURE
A. Stage 1
Supplier rating process
Supplier rating shall be calculated by giving due weight-age for each of the following.
1) Quality rating : 60 points
2) Delivery rating : 15 points
3) Service rating : 20 points
4) Organizational rating : 5 points
SR=QR+DR+SR+OR
1) Quality rating(QR): Quality rating for a consignment/lot is given below.
QR= (Q1+ x*Q2/Q)*60
Where Q1=quantity accepted, Q2= quantity accepted with deviation, Q =total quantity supplied, X=demerit fact
2) Delivery rating
DR=(D1/D)*15
Where D1=promised delivery time, D= actual delivery time
3) Service rating
SR=S1+S2+S3+S4
Where S1=cooperation and readiness to help emergencies promptness in reply S2= readiness to replace rejected materials and
providing supporting documents S3= cooperation in delivery, developing and implementing measures of improvement, S4=
attractive credit statement
4). Organizational Rating (OR): Due weight age shall be given for government organization and other organizations having
ISO9000 certification. Maximum 5 points shall be awarded for governmental / ISO certified Organizations.

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A Vendor Selection Model For A Reverse Supply Chain Management


(IJSTE/ Volume 2 / Issue 6 / 002)

B. Stage 2:
The proposed method for vendor fixation uses Shannon entropy and takes into six criteria viz. Cost, Service
Technology, Quality, Reuse Of Resource and Pollutant Emission.
Steps of Shannon Entropy for fixation of Vendors are:
1) Scale the Criteria according to the goal and represent in the form of a matrix
2) Normalize the matrix
3) Compute the entropy matrix Ej using the formula :
m

e j e0 Pij ln Pij

j 1,2,3,......, n

i 1

Where e0 is the entropy constant and is considered equal to

e0 (ln m) 1
Table - 2
Entropy Matrix
Criteria/ supplier

CC

CS

CQ

CT

CR

CP

0.1831

0.1285

0.1796

0.1667

0.1250

0.1516

0.1323

0.2016

0.1667

0.1156

0.1551

0.1879

0.1627

0.1796

0.1008

0.1824

0.1763

0.1516

0.1627

0.1285

0.1796

0.1667

0.1907

0.1730

0.1961

0.1588

0.1895

0.1667

0.1551

0.1217

0.1323

0.1588

0.1499

0.1824

0.1763

0.1879

ej

0.9690

0.9559

0.9662

0.9803

0.9785

0.9738

1) Compute the degree of diversification from the entropy matrix


j=1,2,3......m
2) Compute the weight of all criteria
Table - 3
Weight of Criteria
Criteria

Cost

Service

Quality

Technology

Reuse of Resources

Pollutant Emission

Weight

0.1759

0.2502

0.1919

0.1115

0.1218

0.1487

C. Stage 3:
Once the weight of all criteria are obtained we can use TOPSIS, which is a simple and useful technique to rank the number of
suppliers needed to be considered.
Steps in TOPSIS are:
1) Calculate the Decision matrix.
2) Normalize the Decision matrix.
3) Calculate the weighted normalized decision matrix.
Table - 4
Weighted Normalized Matrix
0.1759 0.2502 0.1919 0.1115

0.1218

0.1487

Criteria/ Supplier

CC

CS

CQ

CT

CR

CP

0.0806

0.0813

0.0859

0.0460

0.0378

0.0561

0.0582

0.1276

0.0797

0.0319

0.0469

0.0696

0.0716

0.1137

0.0482

0.0503

0.0533

0.0561

0.0716

0.0813

0.0859

0.0460

0.0576

0.0640

0.0863

0.1005

0.0907

0.0460

0.0469

0.0450

0.0582

0.1005

0.0717

0.0503

0.0533

0.0696

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A Vendor Selection Model For A Reverse Supply Chain Management


(IJSTE/ Volume 2 / Issue 6 / 002)

1) Find the Positive Ideal Solution and Negative Ideal Solution.


2) Determine the Euclidean distance of each alternatives from the ideal and negative-ideal solution
3) Calculate the relative closeness of the ith alternative to ideal solution using the following equation:

RC i

di

di di
*

i= 1,2,3.,n

4) Based on the closeness of ith , the ranks of vendors are determined.


d*

d-

Ci

Rank

0.0528

0.0474

0.4731

0.0369

0.0618

0.6259

0.0491

0.0439

0.4722

0.0493

0.0506

0.5066

0.0383

0.0569

0.5977

0.0436

0.0459

0.5129

D. Stage 4:
The combined Shannon Entropy and TOPSIS method can be coded in MATLAB, so that any company can use this method to
find the best vendor. Also since the number of vendors is to be entered by the user, this method can be applied to find the best
among any number of suppliers.

VI. RESULT
The combination of Shannon Entropy and TOPSIS method is very well suited to find the suitable vendor multiple alternatives.
When comparing the existing method that gives more weightage for ISO certified vendors, the proposed Shannon EntropyTOPSIS method takes into consideration various criteria and helps in choosing the right vendor with maximum profit and
customer satisfaction.

VII. CONCLUSION
Main purpose of this paper is to combine Shannon Entropy and TOPSIS methods to determine supplier providing the most
customer satisfaction for the criteria identified in the Reverse supply chain Management. By proper supplier selection using
Shannon Entropy and TOPSIS best supplier is selected ,so that quality and supplier selection problem in reverse supply chain
management can be improved ,so that rejection rate of raw materials can be decreased.

REFERENCES
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Mazaher Ghorbani , S. Mohammad Arabzad , Mahdi Bahrami 2012 Implementing Shannon Entropy, SWOT and Mathematical Programming for Supplier
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