A development of vendor selection process for commercial banking industry in Thailand by Fuzzy Analytical Hierarchy Process (FAHP)

Abstract

The ever-changing economic conditions and new disruptive technologies dramatically increase competitiveness among commercial banks. In order to improve their profit, the banks have to continuously improve their efficiency, i.e. focus on developing core business and delegate other business activities to outsourcing vendors. However, price should not be the only criterion for selecting vendors. Other factors such as quality, production lead time, warranty etc. should also be considered. Besides, some factors can be in qualitative forms, which makes the purchasing task even more difficult. The appropriate tools are therefore needed to simplify the task and mitigate the human bias effect in order to get the best supplier selection decsions for each project. A large Thai commercial bank was chosen as the case study in this research. The case study bank has a purchasing department who oversees that purchasing activities for the three main areas: Systems and Maintenance, Building, and Information Technology. Price Performance Ratio (PPR), defined by vendor’s offered price divided by performance, is used by the bank’s procurement department as the main criterion to select a vendor. With PPR as the criterion, vendors with lowest offered price usually win the contract, even though this often lead to less-than-impressive results. In this research, we proposed the application of Fuzzy Analytical Hierarchy Process (Fuzzy AHP) to select vendors based on variety of attributes. Both in quantitative and qualitative forms such as price, quality, operating difficulty, and warranty conditions can be considered. An easy-to-use, yet effective software implementing the Fuzzy AHP was developed and tested on three real cases. The results showed that the program's result might be different from PPR one as the program criteria has been adjusted to reduce importance of the cost criteria and increase on other related criterion.