Supplier selection using integrated multi-criteria decision-making methodology

Selecting the right suppliers significantly reduces the purchasing cost and improves corporate competitiveness. There are various techniques for selecting suppliers/partners, such as mathematical techniques. In this paper, we relate product characteristics (engine housing for the Escorts, Maruti Suzuki, etc.) to supply chain strategy and adopt supply chain operations reference model level-I performance metrics as the decision criteria. This paper, an integrated analytic hierarchy process (AHP) and data envelopment analysis (DEA) linear programming- (LP-) based multi-criteria decision-making methodology, is then developed to take into account both qualitative and quantitative factors in supplier selection. While the AHP process matches product characteristics with supplier characteristics (using supplier ratings derived from pair-wise comparisons) to qualitatively determine supply chain strategy, DEA mathematically determines the efficient supplier from the chosen suppliers. Since DEA and LP uses AHP ratings as input, the variations of pair-wise comparisons in AHP will influence the final order quantity. Therefore, users of this methodology should put greater emphasis on the AHP-DEA-LP progress to ensure the accuracy of supplier ratings and efficiency of the supplier.