Supplier Evaluation and Selection. Laura AITER Cengiz Ã‡OKAY GÃ¼ven GÃœL. Agenda. Importance of Supplier Selection Supplier Selection Process Supplier Evaluation Criterias Supplier Evaluation Methods AHP Other Methods. Importance of Supplier Selection - 1.
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A sound supplier selection decision today canreduce or prevent a host of problems tomorrow
Steps in Supplier Selection Process
OUTCOME: list of requirements, objective and criterias to
evaluate the vendors and the way to score different criterias
OUTCOME: vendors pool
OUTCOME: criteria-score list for each vendor
The six classes for the suppliers’evaluation
In order to evaluate if a potential supplier is in good
financial position, a buyer can use indicators such as:
The purchasing department of the firm should choose
its suppliers according to its capabilities:
There are a large number of criteria in this category, such
How does supplier provide a product or service at the
best value, on time and exactly as required from the
For example: is the quality standard of the products met by the production process (preventing defection) or by inspecting the quality of the products after production?
The evaluation criteria of such a category focus on the
long term sustainability of potential suppliers:
For Complex Decisions raher than Correct Decision
Mathematics and Human Psychology
Government, Business, Industry, Healthcare, and Education.
Decomposition of a problem into a hierarchy
Evaluationof various elementscomparing them to one another in pairs
A numerical weight or priority is derived for each element of the hierarchy
Thomas L. Saaty
Deciding how best to reduce the impact of global climate change
Quantifying the overall quality of software systems (Microsoft Corporation)
Deciding where to locate offshore manufacturing plants(University of Cambridge)
Assessing riskin operating cross-country petroleum pipelines(American Society of Civil Engineers)
Deciding how best to manage U.S. Watersheds(U.S. Department of Agriculture)
State the Objectives
Define the Criteria
Pick the Alternatives
Check Consistency Index
Comparison between Criteria and Alternatives
Calculate Final Rankings
Example based on Decision By Objectives (How to convince others that you are
By: Ernest Forman, DSc., George Washington University & Mary Ann Selly, Expert
Pairwise Comparison Matrix
1- Equally preferred
2 - Equally to moderately preferred
3 - Moderately preferred
4 - Moderately to strongly preferred
5 - Strongly preferred
6 - Strongly to very strongly preferred
7 - Very Strongly preferred
9 - Extremely preferred
8 - Very Strongly to extremely preferred
Criteria and Alternatives
Recall Ranking for the Criteria
Calculate Final Rankings
First choice: Shopping Center (59%)
Second choice: The Mall (32%)
Third choice: Main Street (9%)
Precise assessment of values through hierarchical structuring and pair-wise comparison.
Programmable on a computer.
Value assessment, forecasting, alternative selection and resource allocation.
Widely accepted and applied by major business corporations and government agencies world wide.
Human perception can distort pair-wise comparison.
Hierarchy is one directional and it is difficult to accommodate feedback.
Values are highly aggregated and difficultto reflect the degree of uncertainty.
Wang, Huang, and Dismukes (2004) developed an integrated AHPand pre-emptive goal programming (PGP) methodologyto take into account both qualitative and quantitative factorsin supplier selection. While the AHP process matchedproduct characteristics with supplier characteristics inorder to qualitatively determine supply chain strategy,PGP mathematically determined the optimal order quantity from the chosen suppliers.
Weber, Current,and Desai (2000) combined a multi-objective programming(MOP) and DEA method to provide buyers with a tool fornegotiating with vendors that were not selected right away,as well as to evaluate potential suppliers.
Manufacturing supply chain design and evaluation GeWang · Samuel H. Huang · John P. Dismukes
Ghodsypour and O’Brien (1998) proposed anintegration of an AHP and linear programming to considerboth tangible and intangible factors in choosing the bestsuppliers and giving them optimal order quantities so that the total purchasing value is maximized.
Morlacchi (1999) developed a model that combines theuse of a fuzzy set with an AHP and implemented it in orderto evaluate small suppliers in the engineering and machinery sectors.
The Analytic Hierarchy Process (AHP) is a structured technique for helping people deal with complex decisions. Rather than prescribing a "correct" decision, the AHP helps people to determine one. Based on mathematics and human psychology, it was developed by Thomas L. Saaty in the 1970s and has been extensively studied and refined since then. The AHP provides a comprehensive and rational framework for structuring a problem, for representing and quantifying its elements, for relating those elements to overall goals, and for evaluating alternative solutions. It is used throughout the world in a wide variety of decision situations, in fields such as government, business, industry, healthcare, and education.
Several firms supply computer software to assist in applying the process.
Users of the AHP first decompose their decision problem into a hierarchy of more easily comprehended sub-problems, each of which can be analyzed independently. The elements of the hierarchy can relate to any aspect of the decision problem—tangible or intangible, carefully measured or roughly estimated, well- or poorly-understood—anything at all that applies to the decision at hand.
Once the hierarchy is built, the decision makers systematically evaluate its various elements, comparing them to one another in pairs. In making the comparisons, the decision makers can use concrete data about the elements, or they can use their judgments about the elements' relative meaning and importance. It is the essence of the AHP that human judgments, and not just the underlying information, can be used in performing the evaluations.
The AHP converts these evaluations to numerical values that can be processed and compared over the entire range of the problem. A numerical weight or priority is derived for each element of the hierarchy, allowing diverse and often incommensurable elements to be compared to one another in a rational and consistent way. This capability distinguishes the AHP from other decision making techniques.
In the final step of the process, numerical priorities are derived for each of the decision alternatives. Since these numbers represent the alternatives' relative ability to achieve the decision goal, they allow a straightforward consideration of the various courses of action.