Applying Two-Level DEA for Supplier Selection in Supply Chain Risk Management

Identifying risk factors and selecting the suppliers based on these factors appears to be one of the main challenges for manufacturers. As a result, in this paper a distinctive framework for evaluating suppliers based on these risk factors is proposed and solved by multi-criteria decision making (MCDM) techniques and two-level data envelopment analysis (DEA) approach. The measures have been identified by reviewing the literature and the assistance of the experts in this area. Consequently, they have been categorized by Factor Analysis (FA). The measures in each group are then respectively weighted based on the expert's evaluation of the measures and by Analytical Hierarchy Process (AHP) technique. In the next step, the two-level Data Envelopment Analysis (DEA) was applied to rank 12 presumptive suppliers of a manufacturer according to risk measures in two levels. The advantage of applying two-level DEA would be the direct inclusion of risk sub-factors in the computations. This technique benefits from more accurate results, whereas in the other evaluation approaches, in case of many factors and sub-factors, some might be integrated in to others or omitted.