A novel hybrid MCDM approach for outsourcing vendor selection: A case study for a semiconductor company in Taiwan
Introduction
In the severe business competitiveness of today, outsourcing has become a main stream practice in global business operations (Bailey, Masson, & Raeside, 2002). Traditionally, outsourcing is an abbreviation for “outside resource using” (Arnold, 2000, Bühner and Tuschke, 1997, Quinn and Hilmer, 1994). By this means, companies release non-core business or processes to outside vendors, then the enterprise can focus on the most value-added and professional activities in the whole value chain (Lei and Hitt, 1995, Loh and Venkatraman, 1992, Quinn, 1999). The outsourcing items covered a wide range, including: R&D, design, manufacture, facility set up, marketing, and etc. The major benefits that enterprises outsource business to vendors are cost reduction, quality and service performance improvement (Bailey et al., 2002, Barthélemy, 2001, Sharpe, 1997).
In the outsourcing operation model, vendor selection is one of the critical factors affecting the final success. Therefore, the vendor selection issues has been widely studied and determined as a multiple criteria decision making (MCDM) issue. The papers also proposed some MCDM methods to cope with this topic including the Analytic Hierarchy Process (AHP), Data Envelopment Analysis (DEA), Analytic Network Process (ANP) and extended fuzzy approaches (Chen et al., 2006, Degraeve et al., 2000, Ha and Krishnan, 2008, Lee, 2009, Onut et al., 2009, Shyur and Shih, 2006, Wu and Lee, 2007, Wu et al., 2009, Yang et al., 2008). The AHP is widely utilized in vendor selection problem, but has been recognized that is not suitable to solve the case that contains complex interacting evaluation criteria and dimensions due to each individual criterion is not always completely independent in the complicated evaluation model (Leung et al., 2003, Shee et al., 2003, Wu and Lee, 2007). In order to better solve the above-mentioned problems, this paper proposes a hybrid novel MCDM technique that can provide a better decision making quality. There are two major differences of this paper. First, Warfield’s Interpretive Structural Modeling (ISM) method is utilized to construct a relation map which can help to clarify the interrelations amongst the criteria and to apply this relation map to the ANP method for deriving the weighting of each criterion of the complex vendor selection problem. Second, ANP is employed to obtain the weightings which is able to overcome the problem of interdependence and feedback amongst criteria. Thus, the overall scores for each vendor in each criterion can be obtained and the selection decision can be made accordingly. This paper also conducted an empirical case study as an illustration to demonstrate how a Taiwan semiconductor company can implement this solution.
The Semiconductor industry has evolved along with the worldwide outsourcing trend and thereby transformed their manufacturing strategy, releasing many of the manufacturing steps to outsourced subcontractors (Frederix, 1996, OhUallachain, 1997). The semiconductor industry is now composed of independent IC design houses, wafer foundry fabrication, wafer-testing, and IC packaging. The wafer-testing step tests the function and performance of the ICs. If wafer-testing companies fail to distinguish between good and defective ICs, good ICs might be scrapped and cause money loss. An even worse scenario is when wafer-testing companies fail to detect defective ICs, then erroneously sending them for packaging and ultimately, delivery to customers. When this occurs, not only is packaging cost wasted, but even more importantly, the potential loss in reputation and then business is quite hazardous. Since Integrated Device Manufacturing (IDM) companies and IC design houses concentrate on their core business functions, wafer-testing outsourcing demand to professional wafer-testing houses is a mainstream and the market is increasing (Lee, 2006). Consequently, how to evaluate and select the most suitable wafer-testing subcontractor is crucial. Then reason to use Taiwan’s semiconductor industry as an empirical case study is because Taiwan’s semiconductor industry is considered a global paragon (Chu, Teng, Huang, & Lin, 2005). And Taiwan’s professional wafer-testing houses, ASE, SPIL, KYEC, Ardentech and etc., have 60% of the worldwide market share (IDB, 2007). Through interviews with experts in the Taiwanese semiconductor industry we observed that the semiconductor companies tend to use the existing subjective experience for wafer-testing outsourcing vendor evaluation and selection. Therefore, setting up a thorough evaluation model, criteria and method for evaluating and selecting wafer-testing outsourcing vendors is a critical topic and we will demonstrate the proposed solution to better solve this problem.
The remainder of this paper is organized as follows: In Section 2, the related researches of vendor selection criteria are reviewed. Additionally, the evaluation dimensions and criteria are established from our conclusions. Section 3 is the research methods’ introduction of ISM and ANP. Section 4 is the empirical case study taking a Taiwan wafer foundry fabrication company as an example for demonstrating the wafer-testing vendor evaluation and selection from the proposed model, procedure and method. The results of the empirical research are also analyzed. Section 5 is the conclusion of this research.
Section snippets
Vendor evaluation and selection issues
In this section, our research briefly introduces the study of vendor evaluation and selection through review of relevant academic papers in Section 2.1. In Section 2.2, we introduce the process of selecting the dimensions and criteria for semiconductor companies to evaluate and select their wafer testing outsourcing vendors.
Interpretive structural modeling (ISM)
Interpretive structural modeling was proposed by Warfield, 1974a, Warfield, 1974b, Warfield, 1976 as a computer assisted methodology (Agarwal et al., 2007, Huang et al., 2005, Sharma et al., 1995). It is used to derive an understanding of the interrelationships amongst complex elements, and allows a set of different and directly related elements to be structured into a comprehensive systemic model (Fontela, 2003). Mandal and Deshmukh (1994) utilized ISM to identify the interrelationships
Empirical case study of the vendor evaluation and selection for wafer-testing outsourcing
In this section, we illustrate this novel hybrid evaluation and selection process by using an empirical case study in Taiwan’s semiconductor industry as an example. There are four steps needed for this study. The first step is to construct the evaluation model from Section 2 by a literature review and interviews with the experts in Taiwan’s semiconductor industry. Through this process, we obtained four dimensions and fourteen criteria which are suitable to evaluate a wafer-testing vendor. The
Conclusion
This paper proposes a novel hybrid method to cope with the problem of the different dimensions’ interdependence and feedback in vendor selection problem. Although there are numerous supplier selection solutions available, but this proposed hybrid method can provide a better understanding of the interrelationship amongst evaluation and selection dimensions and solve a complex interacting vendor selection issue which can enhance the quality of decision making.
A case study of a Taiwan
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