A STUDY ON BRAND NAME SELECTION THROUGH ANALYTICAL HIERARCHY PROCESS

Transcription

1 A STUDY ON BRAND NAME SELECTION THROUGH ANALYTICAL HIERARCHY PROCESS i P a g e

2 A STUDY ON BRAND NAME SELECTION THROUGH ANALYTICAL HIERARCHY PROCESS PREPARED BY: Nadeem Akhtar Lecturer Faculty of Business Administration Atish Dipankar University of Science & Technology ii P a g e

3 Table of Content List of Content Abstract 1.0 Introduction 1.1 Background and rationale 1.2 Objectives 1.3 Methodology 1.4 Limitations of Study 2.0 Overview of AHP 2.1 What t is AHP? 2.2 Historic Background of AHP 2.3 Primary Functions of AHP 2.4 Steps of Formulation of AHP Model 2.5 Methods for Applying AHP 2.6 Examples of AHP Applications 2.7 Advantages 2.8 Limitations 3.0 Application of AHP in Brand Name Selection 3.1 Overview of Problem 3.2 Conduction of AHP Model Criteria and Sub Criteria Selection Structuring the Hierarchy of Criteria and Sub Criteria Pair wise Comparison of Criteria and Sub Criteria Pair wise Comparison of Alternatives with Criteria and Sub Criteria Synthesizing the Results Conducting Sensitivity Analysis iii P a g e

4 4.0 Conclusion Bibliography Best Alternative Selection List of Figures Figure No. Figure Name 1 Decomposition 2 Hierarchical representation of the AHP model 3 Comparing reliability & product design 4 Comparing price, discount & payment system 5 Comparing continuity, capability & flexibility 6 Comparing service quality, response time & warranty period 7 Comparing the criteria 8 Overall priorities 9 Comparing alternatives based on sub criteria of quality 10 Comparing alternatives based on sub criteria of cost 11 Comparing alternatives based on sub criteria of efficiency 12 Comparing alternatives based on all criteria 13 The first scenario 14 The second scenario iv P a g e

5 15 The third scenario 16 The fourth scenario 17 Performance sensitivity graph List of Tables Table No. Table Name 1 The fundamental scale 2 List of Software 3 List of companies, universities, hospitals v P a g e

6 Abstract For a tool that has such broad applicability, the analytical hierarchy process (AHP) is not as widely known as might be expected. AHP makes assessments, prioritization and selection among options more readily measurable. Thus it is a part of the toolkit for a growing number of practitioners. AHP, which grows out of work that was done in the field of operations research by mathematician Thomas Saaty, has evolved into a rich set of methods with assessment and prioritization at their core. So the AHP is the decision making process by which decision can easily be taken by comparing alternatives according to criteria provided. I have tried to describe the AHP in a short manner and have shown its applicability on the brand name selection. The report is consists of two parts. At the first part of the report I have discussed about the definition of AHP, its features, principles, merits & limitations and tried to illustrate its application over several areas in several institutions. In the second part, I have discussed the application on brand name selection. The selection of brand name in business organizations is an important process - one that has long-lasting effects on an organization s ability to fulfill its requirement. Brand name influence the quality of the products purchased, the effectiveness of the products and activities offered, and the profitability of the purchase processes. Failed searches waste time and incur needless expense. Inadequate searches - those that result in candidates who are poorly qualified or lack organizational fit can have profound negative impact on these three key strategic elements. Acquiring the wrong product may lead to dysfunctional departments, dissatisfied employees, and, eventually, repeat efforts. Applying a sound process, one that structures the search, identifies and relates the selection criteria, allows for qualitative and subjective assessments, and encourages full participation of search committee members, can enhance the desired outcome, i.e., identification of best brand name that will contribute to the quality, effectiveness, and efficiency of the organization. vi P a g e

7 1.0 Introduction vii P a g e

8 1.1 Background and rationale Modern business world is much updated. Now a day, businesspeople plan and take decisions by using several calculations. So precision of planning, organizing, decision making process, operations and controlling systems are crucial for business development. Strategy becomes a vital part of business cycle over whole world. In order to take precise decisions, to utilize resources and capabilities properly and to develop position of business, Analytic Hierarchy Process (AHP) becomes an effective process. AHP allows organizations to minimize common drawbacks of decision making process, such as lack of focus, planning, participation or ownership, which ultimately are costly distractions that can prevent teams from making the right choice. In this study, I have tried to explain the overall concepts of AHP, its structuring and decision making methodologies derived from AHP. I have also tried to demonstrate how it can be applied in brand name selection. 1.2 Objectives Main objectives: Main objective is to conceptualize the framework of AHP and to encourage the implementation of analytic hierarchy process in our business cycle. Specific objectives: To maximize the opportunity. To minimize time and money. To maximize the precision of decision. To identify the appropriate criteria. viii P a g e

9 To select best alternative. To diminish guessing. 1.3 Methodology This research is basically an investigative as well as theoretical in nature because the attempt of the research paper is to develop a concept regarding AHP and to apply it in brand name selection. At first, the project paper will describe the objective, scope, methodology. Second part describes the overall view and formulation process of AHP. Third part will describe the implementation in brand selection. Lastly, recommendation and conclusion will be given. All data are collected from secondary sources, such as articles, books and internet. I have used a software in the implementation phase in this paper which is named Expert Choice. The main function of this software is to show the most effective decision according to data provided. 1.4 Limitations of Study Scarcity of information. Software use is complicated. Lack of experts on the software ix P a g e

10 2.0 Overview Of AHP x P a g e

11 `2.1 What is AHP? Analytic hierarchy process (AHP) is a tactic for précised decision making. Meanwhile, précised decision is a very important factor for any situation. By organizing and assessing alternatives against a hierarchy of multifaceted objectives, AHP provides a proven, effective means to deal with complex decision making. Indeed, AHP allows a better, easier, and more efficient identification of selection criteria, their weighting and analysis. Thus, AHP reduces drastically the decision cycle. It has been applied to a wide range of problem situations, such as, selecting among competing alternatives, the allocation of scarce resources and forecasting. 2.2 Historic Background of AHP In the late 1960s,Thomas L. Saaty, an OR pioneer, was directing research projects for the Arms Control and Disarmament Agency at the U.S. Department of State. Saaty's research agenda-and very generous budget-enabled him to recruit some of the world s leading game and utility the- orists and economists. In spite of the talents of the people recruited (three members of the team, Gerard Debreu, John Harsanyi, and Reinhard Selten, have since won the Nobel Prize), Saaty was disappointed in the results of the team's efforts. Saaty (1996) later recalled: "Two things stand out in my mind from that experience. The first is that the theories and models of the scientists were often too general and abstract to be adaptable to particular weapon tradeoff needs. It was difficult for those who prepared the U.S. position to include their diverse concerns... and to come up with practical and sharp answers. The second is that the U.S. position was prepared by lawyers who had a great xi P a g e

12 understanding of legal matters, but [who] were not better than the scientists in accessing the value of the weapon systems to be traded off." Years later, while teaching at the Wharton School, Saaty was still troubled by the apparent lack of a practical systematic approach for priority setting and decision making. He was thus motivated to develop a simple way to help DMs to make complex decisions. The result was the Analytic Hierarchy Process. There is ample evidence that the power and simplicity of the AHP has led to its widespread use throughout the world. In addition to the popular Expert Choice software, there have been several other commercial implementations of the AHP. Many of the world's leading information technology companies now use the AHP in the form of decision models provided by the Gartner Group's Decision Drivers ( The American Society for Testing and Materials (ASTM) has adopted the AHP as standard practice for multi-attribute decision analysis of investments related to buildings and building systems. The AHP is now included in most ORJMS texts and is taught in numerous universities. It is used extensively in organizations that have carefully investigated the AHP s theoretical underpinnings, such as the Central Intelligence Agency. (Source: The Analytic Hierarchy Process: An Exposition by Ernest H. Foreman & Saul I. Gass) 2.3 Primary Functions of AHP AHP model has three primary functions, which are as follows. xii P a g e

13 I. Structuring complexity: At first, the main purpose or objective should be identified. Then the criteria should be identified. If there are any other sub criteria, those must be enlisted under criteria. In this way, a model has to be structured. II. Measurement on a ratio scale: In this part, sub criteria and criteria must be compared with each other. Weights must be put on every criteria and sub criteria while comparing each other. In this way, managers will be to structure a matrix and will get appropriate value. A ratio scale has been invented by which priorities or criteria can be compared and can be given weights. III. Synthesis: AHP synthesizes (combine the parts into whole) the individual results and complete the matrix. That is how; appropriate weight of each criterion can be obtained from the matrix. Then selected alternatives are compared with each other in accordance with the matrix. Finally best alternative is achieved. 2.4 Steps of Formulating AHP Model Generally four steps are used in the formulation of AHP model. Those are: (A) Decomposing Develop the hierarchical representation of the problem. At the top of the hierarchy is the overall objective and the decision alternatives are at the bottom. Between the top and bottom levels are the relevant attributes of the decision problem, such as selection criteria and the various ``actors'' (individuals, agencies and organizations), if appropriate, that provides significant input on the decision process. The number of levels in the hierarchy depends on the complexity of the problem and the analyst/decision maker model of the problem hierarchy. The following figure illustrates the decomposition or structuring complexity. xiii P a g e

14 Figure 1: Decomposition (B) Weighing Generate relational data for comparing the alternatives. This requires the analyst (decision maker) to make pair wise comparisons of elements at each level relative to each activity at the next higher level in the hierarchy. In AHP a relational scale of real numbers from 1 to 9 is used to systematically assign preferences. When comparing two attributes (or alternatives) A and B, with respect to U in a higher level, the following numerical relational scale is used: Intensity of importance Definition Explanation 1 Equal importance Two activities contribute equally to the objective 3 Moderate importance Experience & judgment slightly favor one activity to another 5 Strong importance Experience & judgment strongly favor one activity to another xiv P a g e

15 7 Very strong importance Experience & judgment very strongly favor one activity to another; its dominance is demonstrated in practice 9 Extreme importance The evidence favoring one activity over another is of the highest possible order of affirmation 2,4,6,8 Foe compromise between the above values Sometimes one needs to interpolate a compromise judgment numerically because there is no good word to describe it Table 1: The fundamental scale (source: An AHP application in vendor selection by Ozden Bayazit & Birsen Karpak (C) Evaluating Score alternatives and compare each one to others. Using AHP, a relative score for each alternative is assigned to each leaf within the hierarchy, then to the branch the leaf belongs to, and so on, up to the top of the hierarchy, where an overall score is computed. (D) Selection Compare alternatives and select the one that best fits the requirements. 2.5 Methods for Applying AHP There are two methods or ways by which AHP model can be formulated. Manual method: Anyone can manually formulate the matrix and draw AHP model. Software: The following softwares can be used in AHP formulation: xv P a g e

16 Company Software Webpage InfoHarvest Criterium DecisionPlus Arlington Software Corporation ERGO Expert Choice Expert Choice Helsinki University of Technology HIPRE 3+ Krysalis Ltd. OnBalance Catalyze Ltd. Hiview Table 2: List of Software 2.6 Examples of the AHP Applications The following companies, universities, hospitals used the AHP model and succeeded their mission. Feature of decision Name Choice Xerox Corporations British Colombia Ferries NASA's Lyndon B. Johnson Sapce Center Edgewood Research & Engineering Center Evaluation University of Santiago of Chile Rockwell Inernational Apex International, Inc. Alaska Fish & Game Department Fulcrum Ingenia Ltd., Chile Resource allocation Northeast Fisheries Science Center xvi P a g e

17 Korea Telecommunication Authority Air Products & Chemicals Inc. Air Force Medical Services Benchmarking IBM Rochester, Minnesota Quality management Latrobe Steel Company Public policy Alaska Fish & Game Department Environmental & Policy Institute, East West Center, Honululu, HawaHawaii Health care Madigan Army Medical Center of Tacoma, Washington Rochester General Hospital, Rochester, NY Strategic planning University of Washington Table 3: List of companies, universities, hospitals 2.7 Advantages Forces the decision maker to think about comparisons they might not make otherwise. The hierarchy helps to formulate the decision in a logical way. Highlights inconsistent ratings. Well designed software is available. Flexible with changing environment. 2.8 Limitations of AHP Pairwise comparisons are sometimes difficult and lengthy. A software limit on the number of Hierarchy levels that can be used (specially in trial version). xvii P a g e

18 The 9 grade linear rating scale (numeric or linguistic) does not always translate well marginal differences of importance. Several other rating scales have been proposed that may solve this problem. Human psychology is different from one to others. That is why, results may be totally different even when criteria and alternatives are same in any decision making process. xviii P a g e

19 3.0 Application of AHP in Brand Name Selection xix P a g e

20 3.1 Overview of Problem Here I assume that XYZ is a company that produces and sells pharmaceutical products. Its administration or corporate office is situated somewhere in Dhaka city. The corporate office building is five storied building. After a need assessment, the company identifies that it needs to purchase 20 air conditions which are medium in size. Now the manager cannot decide which brand will be appropriate for the company. But he selects four well reputed brands by analyzing collected information. Those are: General Whirlpool Samsung Singer Now the manager wants to select the best brand name and to order that company. As he understands the AHP, he decides to apply it for best alternative brand selection. At the beginning of selection process, he forms a committee with some of his analysts and arranges a workshop for introducing them to familiarize the concept of the AHP. 3.2 Conduction of AHP Model The committee selects the following step by step process which indicates the AHP model that should be followed. i. Criteria and sub criteria selection ii. iii. iv. Structuring the hierarchy of criteria and sub criteria Pair wise comparison of criteria and sub criteria Pair wise comparison of alternatives with criteria and sub criteria xx P a g e

21 v. Synthesizing the results vi. vii. Conducting sensitivity analysis Best alternative selection The steps taken by the committee are explained in the following part Criteria and Sub Criteria Selection The main objective is the brand name selection. Under this objective, the committee conducted a research regarding criteria selection. Primarily, they selected 6 criteria and after a thorough evaluation of some factors, they finally selected 4 criteria. Under 4 criteria they identified several sub criteria which affects criteria. These criteria are both qualitative and quantitative. The criteria and sub criteria areas follows: Quality: Quality is the attributes that increase the utility. The committee categorized the quality into two parts: product design and reliability. Cost: This criterion is the most important criteria in this case according to the committee. Because the company wants to purchase air conditions at cheap price. Again cost is affected by three factors: price, discount and payment system. Payment system is considered because many companies schedule a flexible payment pattern or system in case of high amount purchases. Efficiency: It is a noticeable factor that how every air condition efficiently performs the job. Under efficiency, the factors are: capability, flexibility and continuity. xxi P a g e

22 After sales service: This is an important criterion because the company needs to minimize hazards and maximize the obtained service. The committee selects three different factors: warranty time, response time and service quality. Service quality is the attribute given by the supplier company after sales Structuring the Hierarchy of Criteria and Sub Criteria The hierarchy recommended by the committee is a two level hierarchy. As the goal is to select brand name, the committee puts it at the top. Then it descends from the general criteria to sub criteria. General criteria level has four criteria which are quality, cost, efficiency and after sales service. Every criterion contains several sub criteria. The committee has decided that factors that have influence on each criterion will be considered as sub criteria. For example, the criterion cost has three sub criteria: price, discount and payment system. Figure 2 shows a hierarchical representation of the model. xxii P a g e

23 Figure 2: Hierarchical representation of the AHP model Pair wise Comparison of Criteria and Sub Criteria Software named Expert Choice (version no. 11.5) has been used to rate and compare pair wise the criteria and sub criteria. This software provides various options for comparing criteria, sub criteria and alternatives: numerical, verbal and graphical. In numerical option, decision makers can put values between 1 and 9. Verbal option provides semantic terms. Graphical option consists of graphical bar which decision makers change according to weights. Here the committee has decided to use the graphical options. First of all they compare between sub criteria. They evaluated the sub criteria of quality and the results are illustrated in the figure 3. xxiii P a g e

24 Figure 3: Comparing reliability & product design It shows that their emphasis is more on reliability with 0.75 weights than design. Then the sub criteria of cost have been evaluated. Figure 4: Comparing price, discount & payment system Here the committee emphasized more on price with weights. After that efficiency was considered. The result shows that continuity is the prime consideration with weights. xxiv P a g e

25 Figure 5: Comparing continuity, capability & flexibility Finally sub criteria of after sales service was considered. They put more emphasis on continuity rather than capability. Figure 6: Comparing service quality, response time & warranty period After that the committee compared between criteria and put weights on them. Figure 7 illustrates the result. Figure 7: Comparing the criteria xxv P a g e

26 Here quality received highest priority. Because it was considered that air conditioners would go for long run. So quality got weights of Efficiency achieved the second highest priority with weights. Now the following figure shows the overall priority conditions within sub criteria and criteria. Figure 8: Overall priorities Pair wise Comparison of Alternatives with Criteria and Sub Criteria In this stage, every alternative has been compared with sub criteria and criteria. In comparing the four brand names (General, Whirlpool, Samsung and Singer), the committee analyzed the data derived from different sources. xxvi P a g e

27 At first, sub criteria of quality was utilized which are shown in the following figure. Figure 9: Comparing alternatives based on sub criteria of quality Here it is clear that General got the highest value in both sub criteria of quality with weights. In comparing sub criteria of cost, Singer came out best alternative with the weights of 0.570, 0586 and 0.6 in respect to price, discount and payment system. General came out as in the last position in all sub criteria comparison. The result is shown in figure 9. xxvii P a g e

28 Figure 10: Comparing alternatives based on sub criteria of cost Again General dominated in comparing sub criteria of efficiency. It achieved 0.535, and in respect to continuity, capability and flexibility. In case of these sub criteria, Singer obtained last position. It got the weights of 0.075, and in respect to continuity, capability and flexibility. Figure 11 illustrates the result. xxviii P a g e

29 Figure 11: Comparing alternatives based on sub criteria of efficiency Then all of the alternatives have been compared with the sub criteria of after sales service. Here Singer achieved the top position in case of warranty period and response time with the weights of and But General achieved the top position in service quality with weights. Figure 12 shows the result Synthesizing the Results Expert Choice provides two ways of synthesizing (combining) the results: ideal mode and distributive mode. In the distributive mode, the weight of a criterion reflects the importance that the decision maker attaches to the dominance of each alternative relative to all other alternatives under that criterion (source: An AHP Application in Vendor Selection by Ozden Bayazit & Birsen Karpak). In our case, distributive mode would be the way to synthesize the resilts. xxix P a g e

30 After deriving all sub criteria of criteria and alternatives through pair wise comparison, the weights of criteria are synthesized to calculate the overall priorities of decision alternatives.. Figure 11 illustrates the result. Figure 12: Comparing alternatives based on all criteria General appears to the rest of the alternatives with respect to quality, cost, efficiency and after sales service. As a result, General came out as the top choice with a preference rating of Conducting Sensitivity Analysis The man purpose of sensitivity analysis is to check how sensitive the alternatives are if any changes are occurred in criteria. The facility enriches the flexibility of the Analytic Hierarchy Process (AHP) model. From sensitivity analysis, decision makers can easily identify the strength and weakness of the alternatives. It also can help them by showing the result of an unanticipated or uncalculated environment. At first Dynamic sensitivity of Expert Choice was performed which is used to dynamically change the weights of criteria in order to determine how it react to the alternatives. Figures indicates that no sensitive change has been occurred in the ratings of brand names while changing the priorities of cost, efficiency and after sales service. xxx P a g e

31 When the importance of the cost is increased from to 0.413, General is the best brand name. In second sensitivity analysis, efficiency is increased from to In this analysis, the overall result remains same. In the third scenario, after sales service is increased from to and General remains in the top position as well. In the last scenario, quality is reduced from to Again General achieves the top position. Figure 13: The first scenario Figure 14: The second scenario xxxi P a g e

32 Figure 15: The third scenario Figure 16: The fourth scenario Expert Choice also provides performance sensitivity graph by which graph displays how the alternatives perform with respect to all objectives as well as overall. xxxii P a g e

33 Figure 17: Performance sensitivity graph From the above figure, General achieved more priorities than others in case of quality, efficiency and after sales service criteria. In pair wise comparison of criteria, quality and efficiency had top priorities. But after sales service criterion had the lowest priority. Whirlpool achieved second position as it had average priorities in all criteria. Although Singer had the highest priorities in cost criterion, the overall weights took it to the third position Best Alternative Selection After analyzing the AHP model, the committee has decided to select General for purchasing 20 air conditions. Because General obtained top position in AHP model and also it would not change due to changes in weights on criteria. xxxiii P a g e

34 4.0 Conclusion xxxiv P a g e

35 AHP helps capture both subjective and objective evaluation measures, providing a useful mechanism for checking the consistency of the evaluation measures and alternatives suggested by the team thus reducing bias in decision making. AHP allows organizations to minimize common pitfalls of decision making process, such as lack of focus, planning, participation or ownership, which ultimately are costly distractions that can prevent teams from making the right choice. When an organization approaches to select certain brand name for purchasing machines, the decision is often very complex. This paper has presented the AHP as a decision making tool in brand name selection problems. I have proposed AHP model to select best brand name that fits for the company for office work. The AHP develops a hierarchical relationship among decision levels. Four criteria and fourteen sub criteria have been used to develop the model. I concluded that General is the brand name for air condition purchase with priorities. This selection process includes group decisions, criteria and sub criteria selection, rating, pair wise comparison and final evaluation. The software used in this process supports the every sub criterion and criterion rating into final judgments. I have conducted sensitivity analysis which indicates the overall result changed in case of any change happens in any criterion or sub criterion. I have found that the overall did not change when changes have occurred in weighing any criterion. The main advantage I found from the AHP is that it can be applied with both of qualitative and quantitative data. This study showed the interested people that the AHP can be used to solve complex problems and can be used as a decision making tool in order to support Decision Support System. xxxv P a g e

36 Bibliography xxxvi P a g e

37 1. Bayazit, Ozden and Karpak, Birsen, 2005, An AHP Application In Vendor Selection, ISAHP, Honolulu, Hawaii. 2. Bodin, Lawrence and Gass, Saul I, Exercises for Teaching the Analytic Hierarchy Process, Robert H. Smith School of Business, University of Maryland, College Park, MD Foreman, Ernest H. and Gass, Saul I, 2007, The Analytic Hierarchy Process-An Exposition, Operations Research, Vol. 49, No. 4 (July-August), pp Frair, Les,2006, Student Peer Evaluations Using the Analytic Hierarchy Process Method., Department of Industrial Engineering, P.O. Box No , University of Alabama Tuscaloosa, AL Lionheart Publishing homepage, viewed 27May2009 < 6. Expert Choice homepage, viewed 28may2009 < 7. Virginia Tech homepage, viewed 25may2009 <://airweb.org/page.asp?page=295> 8. Wikipedia, viewed 29may2009 < 9. Association For Institutional Research, viewed 29may2009 < 10. Inforrms (Transaction on education) homepage, viewed 3june2009 < xxxvii P a g e