Probabilistic Approach to Multi-Stage Supplier Evaluation: Confidence Level Measurement in Ordinal Priority Approach

A popular framework of the supplier selection process is usually characterized by problem definition, criteria formulation, supplier screening, and supplier selection. The literature review suggested limitations of this framework as it ignores the screening of criteria (beyond criteria weighing) and evaluators (buyers) and its inability to guide the supplier selection problems where a measure of confidence or trust is needed to confirm the reliability of the selected supplier. While extending de Boer’s influential supplier selection framework, the current study argues that the supplier selection problem is not merely about ranking suppliers based on given criteria; instead, it involves evaluating criteria and evaluators as well. Guided by the theory of statistics and the Ordinal Priority Approach (OPA), the study pioneers a probabilistic approach of supplier evaluation and selection under incomplete information using a novel Confidence Level measure. The study suggests, the probability that a supplier shortlisted for selection is actually the optimum choice or not can be explained through a probability distribution, called W-distribution, therefore, confidently preventing the decision-makers from selecting the sub-optimum suppliers. The study presents a novel contribution to the theory of multiple-attribute decision-making through the OPA. The proposed approach can help build intelligent decision support systems to aid managers while providing them with early warning tools and suggestions to improve confidence in their selection.