Modeling and Analysis of Supplier Selection Method Using Analytical Hierarchy Process (AHP)

Abstract

This research paper deals with the development of supplier selection methodology for an organization. In today’s dynamic environment supplier selection decision presents organizations with a complex scenario and the age old tradition of selecting suppliers based on solitary criteria, mainly price and the practice of engaging in adversarial relation with suppliers is only history. Supplier evaluation and selection is recognized as a multi-criteria decision problem and the use of analytical and mathematical models is highly emphasized by professionals and researchers alike. However, in these parts of the world the application of tools and models for supplier selection problem is yet to surface and the banking and finance industry here in Ethiopia is no exception. Thus, the purpose of this research was to address supplier selection problem through modeling and application of analytical hierarchy process (AHP). As the result a model was developed via AHP and run using a historical data from AIB’s (Awash International Bank S.C.) generator purchase and the result indicated that quality/technical has higher rank (46%), price/cost (25%), and followed by after sale service (11%). Furthermore, delivery, financial position and reputation have all equal importance and attribute 6% each. The use of such technique will reduce the level of subjectivity in supplier evaluation and selection, and allows one to reach an optimal selection decision.