NED University of Department of

Engineering & Industrial &

Technology Manufacturing
Engineering
Batch: 2005-
2006Project
Final Year
Presentation
A Supplier Selection Methodology using Analytic
Hierarchy Process
Presented By:
Faizan Ahmed IM-05023
Muhammad Umair Khanzada IM-05027
Hassan Hameed IM-05029
Wali ul Islam Hashmi IM-05042

Project Industry: Crescent Steel and Allied Products

Limited
Internal Advisor: Mr. Sayed Muhammad Irfan
Associate Professor

External Advisor: Mr. Fahham Hasan Qaiser

AM Buying
Crescent Steel And Allied Products Limited
 Problem Background
 To select the best supplier of Hot Rolled Steel Coils for
Crescent Steel & Allied Products Limited using the
multi criteria approach of Analytic Hierarchy Process.

 The suppliers to be evaluated are:

 Shanghai Baosteel Group Corporation
 Saudi Iron & Steel Company (Hadeed)
 Taiyuan Iron & Steel (Group) Co., Ltd. (TISCO)

 The existing supplier selection method uses nine criteria,

having an equal weight. Suppliers are rated using a 1-5
scale and an average score is calculated

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 The Supplier Selection Problem
 It is a comparison of suppliers using a common set of
criteria and measures, to identify suppliers with the highest
potential for meeting the needs of the firm consistently

 Selecting the right supplier significantly reduces the

purchasing cost and improve corporate competitiveness

 Commonly adopted Supplier Selection Techniques are:

 Categorical
 Weighted Point
 Cost Ratio
 Analytic Hierarchy Process (AHP)

 Supplier selection problems are often:

 Multi criteria
 Unstructured
 Involve both quantitative and qualitative factors

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 What is AHP?
 AHP was developed by Thomas L. Saaty in the 1970s, it is designed
to solve complex multi-criteria decision problems.

 It is based on the human ability to make sound judgments about

small problems

 It breaks down a problem into its smaller constituent parts and

brings in simple pair wise comparison judgment to obtain the
priorities in the hierarchy

 Advantages of AHP:
 AHP can deal with complex and unstructured problem
 Its simple to use and understand
 Can handle subjective judgements of individuals

 Used by: Xerox, IBM, British Airways, Ford Motor Company,

American Army etc

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 Steps in Implementing AHP
 Decomposition: Identify Supplier Selection criteria and sub
criteria and structure them into a hierarchy
 Comparative judgment: Compare two criteria in a cluster
at a time and state their relationship using a numerical score
 Synthesis: Derive relative weights of supplier selection
criteria from the pair wise comparisons
 Evaluate Alternatives (Suppliers) on basis of each lowest
level criteria using pair wise comparisons or quantitative
values and synthesize relative performance
 Perform Sensitivity Analysis
 Make a decision

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 Decomposition: The Supplier Selection
Hierarchy
Level 1:
Objective

Level 2:
Primary
Criteria
Level 3:
Secondary
Criteria

Level 4:
Baosteel Hadeed TISCO
Alternatives

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 Comparative Judgment
Quality
A judgment or comparison is the numerical Technical Capability
 Is strongly more preferred than representation
of relationship between two elements
The Fundamental Scale of
 TheAHP:
set of all
Verbal such judgments
statement of for all elements
Rating of a cluster is
preference matrix
called a comparison
Equally preferred 1
Weak or slight 2
Moderately preferred 3
Moderately preferred 3
Moderate
Strongly plus 4
1 1/3 1/5 1/7 5 1/2 1/3
Strongly 5
Very
StrongStrongly
plus 3 1 1 1/5 7
6 5 1
Very Strongly 5 1 1 1/5 7 5 1
Extremely 9
7 5 5
If activity i has1
Very, very strong 8
Reciprocals of above one of5the above
4
Extremely 2 1/5 zero
non 1/5 1/5 9assigned
numbers 1/5
to it
when compared with
1
Reciprocals of above If activity i has one ofactivity j, then
the above
3 1
jnon the1reciprocal
haszero 1/4 assigned
numbers 5 when
value 1
to it
compared with i
when compared with activity j, then
j has the reciprocal value when
compared with I
A Supplier Selection Methodology Using Analytic Hierarchy Process 7 of 21
 Synthesis: Deriving priorities
 To extract numerical values of importance out
of the comparisons

 Normalization converts ratio scale into

absolute scale

 The weights can be determined by :

 Normalizing the Comparison Matrix
By dividing each element in a column by the sum of
that column for whole matrix.
 Determine the relative weights
Take average of each row of the Normalized Matrix
which gives the priorities of the corresponding
elements in the form of a priority vector.

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 Synthesis: Deriving priorities
(Contd..)

Priority
Vector
0.05
1 0.03
1/3 0.02
1/5 0.08
1/7 0.02
1/2 0.04
1/3
0 9 4 3 3 4 4.384%
0.15
3 1
0.11 0.11
1 0.09
1/5 0.23
5 0.13
1
50 7 9 9 3 3 14.179%
0.25 0.11
1 1
0.11 1/5
0.09 0.23
5 1
0.13
15.845%
70 57 59 9 3 3
0.30 0.58 0.59 1
0.49 5
0.23 4
0.53 45.676%
20 6
1/5 5
1/5 6
1/5 3 1
1/5
0.10 0.02 0.02 0.09 1
0.04 0.02 5.325%
30 13 14 9
1/4 57 7
0.15 0.11 0.11 0.12 0.23 1
0.13 14.592%
0 7 9 4 3 3
20 8.53 8.4 2.01 21.5 7.53
3 7 3

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 Consistency of Judgments
 Human judgment is inevitably inconsistent, approximate and
intransitive.
 Forcing perfect consistency can reduce accuracy.
 Given that w1, w2 … wn are weights of the criteria, we can recover the
scale w using the following equation:
A1 A2 ….. An
A1 1 w1/w2 ….. w1/wn w1 nw1

w2 nw2
A2 w2/w1 1 ….. w2/wn x =

..…
..…
wn nwn
.….

..…

..…

..…

A w /w wn/w2 ..... 1 ..…

 Or, Aw =n nw n 1
 This is analogous to the Eigen value problem: Ax = λx
 Thus the Eigen vector is equal to the priority vector and the Eigen value
is equal to the order of the matrix

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 Consistency of Judgments
(Contd..)
 For slightly inconsistent comparison matrix, the value of
maximum positive Eigen value will deviate from the order of the
matrix

 Mathematically, the consistency of a comparison matrix is its

Consistency Ratio (C.R.)

 C.I. is the consistency index of the comparison matrix

 R.I. is the Random Consistency Index

 Values of C.R. less than or equal to 0.1 are acceptable

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 Consistency of Judgments
(Contd..)
Priorit
Comparison y
1 Matrix
1/3 1/5 1/7 1/2 1/3 0.0438
Vector 0.2741
3 1 1 1/5 5 1 0.9352
5 1 1 1/5 5 1 0.1418 1.0229
7 5 5 1 5 4 x = 3.0708
0.1584
2 1/5 1/5 1/5 1 1/5 0.3215
3 1 1 1/4 5 1 0.4568 0.9580

λ max 6.582
0.0532
6.5828 − 6 = 8
C .I . = = 0.1164
6 −1 0.1459
1.98(6 − 2)
R.I . = = 1.32
6

0.1164 Since CR<0.1,

C.R. = = 0.0883 Therefore Comparisons are
1.32
consistent
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Development of MS Excel Spread
Sheets
 MS Excel spread sheets were developed to facilitate
decision maker for performing pair wise comparisons

 Consistency Ratio for each comparison matrix is

calculated using real time inputs

Pair Wise Comparison Form-Level 2.xlsx

Pair Wise Comparison Form-Level 3.xlsx

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 Result of comparisons: Relative Weights
of Criteria

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 Supplier Evaluation
 It is the process in which each supplier is accessed and
evaluated on the basis of each lowest level criteria

 Different evaluation techniques are used, based on the

nature of each criteria:
 Pair wise Comparisons
 Pair wise Comparisons using Equivalent Scale
 Direct Input of Quantitative Data

 Supplier Evaluation forms were developed and data and

comparisons were provided by the CSAPL buying personnel

Supplier Evaluation Form.xlsx

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 Result of Supplier Evaluation

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 Sensitivity Analysis
 Identifies the impact of changes in the priority of criteria on the
suppliers' performance.
 Decision maker might want to know the consequences of variation in
weights of criteria, because:
 Some influence could have been underestimated
 A slight variation in one criteria weight could lead to a different
decision
 Increase in the weight of one criterion n the cluster results in a
proportional decrease in all other criteria of the cluster
 Excel spread sheets were developed to perform the sensitivity Analysis
 Two sensitivity analysis techniques were used:
 Performance Sensitivity
 Gradient Sensitivity
Sensitivity Analysis.xlsm

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 Recommendation
 Supplier evaluation and sensitivity analysis
showed that Shanghai Baosteel Group
Corporation was the best supplier out of
the three suppliers of Hot Rolled Coils and
should be selected

A Supplier Selection Methodology Using Analytic Hierarchy Process 18 of 21

 Visual Basic Application for Supplier
Selection

 Visual Basic Application designed to provide a

flexible and structured solution to the supplier
selection problem
 24216 pure lines of coding using Visual Basic 6
 User can define Hierarchies, perform comparisons
and evaluate suppliers.
 Following software were used in the development of
the application
 Microsoft Visual Basic 6
 Microsoft Excel 2007
 IcoFX 1.6.4
 Inno Setup Compiler

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 Contd..
 Some of the features are:
 Up to four different Hierarchies can be defined and edited
 Each Hierarchy can be structured into three levels of criteria.
Altogether a hierarchy can have up to 360 criteria
 Calculation of Consistency Ratio, most inconsistent judgments and
proposed modifications in those judgments
 Each hierarchy can have up to 10 alternatives (suppliers).
 Different supplier evaluation methods can be used for supplier
evaluation (Pair wise, Quantitative, Factor rating)
 Generation of an automated MS EXCEL spread sheet containing
summary of Vendor Ranking

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 Conclusion
 The Supplier Selection Model using AHP improves Supplier
Selection Process:
 Both tangible and intangible factors can be included in the process
 Using pair wise comparisons reduced dependency of the system on
human judgment
 The organizational preferences and policies are reflected in the
relative weights of the criteria
 Analysis of several “what-if” scenarios is possible using the sensitivity
analysis techniques
 The Visual Basic application, designed specifically for the
supplier selection problem using AHP approach, provides
flexibility and ease in model formulation for future
purchasing requirements and to accommodate varying
needs and requirements

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