The Analytic Hierarchy Process (AHP) is a structured decision-making technique often used to prioritize or rank alternatives when dealing with complex decision criteria. For an inventory management example, let’s assume you’re trying to evaluate potential suppliers for your inventory. Here are three criteria with three objective sub-criteria for each:
1. Cost
1.1 Purchase Price: The direct cost of acquiring inventory from the supplier.
1.2 Shipping/Logistics Cost : The cost of delivering goods to your warehouse.
1.3 Total Ownership Cost: The overall cost, including maintenance, storage, and handling.
2. Quality
2.1 Defect Rate: The percentage of defective products received from the supplier.
2.2 Durability: The expected lifespan of the inventory items before requiring replacement or repair.
2.3 Compliance with Standards: The extent to which the inventory meets industry or regulatory quality standards.
3. Reliability
3.1 On-time Delivery: The consistency with which the supplier delivers inventory on or before the promised delivery date.
3.2 Supplier Reputation: The supplier’s overall track record in the industry, based on reviews or past experiences.
3.3 Stock Availability: The ability of the supplier to meet demand consistently without stockouts or delays.
These criteria and sub-criteria are commonly used to evaluate inventory suppliers in a business context, where cost, quality, and reliability are crucial factors for maintaining smooth operations.
Here are three potential alternatives (suppliers) for the AHP evaluation in the context of inventory management:
1. Supplier A: GlobalTech Supplies
– A well-established international supplier with competitive pricing and a vast product range, including tech-related inventory.
– Known for offering lower prices due to economies of scale but may have longer shipping times due to being located overseas.
– Historically strong on product quality, though occasionally reports of delays in delivery.
2. Supplier B: LocalWare Distributors
– A local supplier with faster delivery times due to proximity and more personalized customer service.
– Typically more expensive but highly reliable in terms of on-time delivery and stock availability.
– Quality of products is good, but may not offer the same breadth of inventory as larger suppliers.
3. Supplier C: EcoGoods Inc.
– Specializes in eco-friendly and sustainable inventory, with a strong focus on quality and environmental compliance.
– Prices are higher, particularly for the sustainability premium, but the defect rate is very low.
– Delivery times are average, with a good reputation for maintaining stock and consistent availability.
These alternatives present a mix of strengths and weaknesses across cost, quality, and reliability, making them suitable candidates for an AHP analysis to determine the best supplier for your inventory needs.
To construct the pairwise comparison matrices for AHP, you would evaluate the relative importance of each criterion (and sub-criteria) against each other. The values typically used in AHP pairwise comparisons are based on Saaty’s scale (1–9 scale), where:
- 1 = Equally important
- 3 = Moderately more important
- 5 = Strongly more important
- 7 = Very strongly more important
- 9 = Extremely more important
- 2, 4, 6, 8 = Intermediate values
I’ll now create the pairwise comparison tables for the criteria, sub-criteria, and alternatives. For simplicity, I’ll assign hypothetical values that could be adjusted based on the decision-maker’s actual preferences.
1. Pairwise Comparison of Criteria
Let’s assume you have three criteria: Cost (C1), Quality (C2), and Reliability (C3). Here’s a hypothetical comparison matrix for them
Here are the pairwise comparison tables in HTML format with the appropriate titles above each table:
Pairwise Comparison of Criteria
| Criteria | Cost (C1) | Quality (C2) | Reliability (C3) |
|---|---|---|---|
| Cost (C1) | 1 | 3 | 5 |
| Quality (C2) | 1/3 | 1 | 3 |
| Reliability (C3) | 1/5 | 1/3 | 1 |
Pairwise Comparison of Sub-Criteria for Cost
| Sub-Criteria | Purchase Price (C1.1) | Shipping Cost (C1.2) | Total Ownership Cost (C1.3) |
|---|---|---|---|
| Purchase Price (C1.1) | 1 | 2 | 3 |
| Shipping Cost (C1.2) | 1/2 | 1 | 2 |
| Total Ownership Cost (C1.3) | 1/3 | 1/2 | 1 |
Pairwise Comparison of Sub-Criteria for Quality
| Sub-Criteria | Defect Rate (C2.1) | Durability (C2.2) | Compliance (C2.3) |
|---|---|---|---|
| Defect Rate (C2.1) | 1 | 3 | 5 |
| Durability (C2.2) | 1/3 | 1 | 3 |
| Compliance (C2.3) | 1/5 | 1/3 | 1 |
Pairwise Comparison of Sub-Criteria for Reliability
| Sub-Criteria | On-Time Delivery (C3.1) | Supplier Reputation (C3.2) | Stock Availability (C3.3) |
|---|---|---|---|
| On-Time Delivery (C3.1) | 1 | 2 | 5 |
| Supplier Reputation (C3.2) | 1/2 | 1 | 3 |
| Stock Availability (C3.3) | 1/5 | 1/3 | 1 |
Pairwise Comparison of Alternatives for Purchase Price (C1.1)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 3 | 5 |
| Supplier B | 1/3 | 1 | 3 |
| Supplier C | 1/5 | 1/3 | 1 |
Pairwise Comparison of Alternatives for Shipping Cost (C1.2)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/5 | 3 |
| Supplier B | 5 | 1 | 7 |
| Supplier C | 1/3 | 1/7 | 1 |
Pairwise Comparison of Alternatives for Total Ownership Cost (C1.3)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 3 | 4 |
| Supplier B | 1/3 | 1 | 3 |
| Supplier C | 1/4 | 1/3 | 1 |
Pairwise Comparison of Alternatives for Defect Rate (C2.1)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/3 | 1/7 |
| Supplier B | 3 | 1 | 1/3 |
| Supplier C | 7 | 3 | 1 |
Pairwise Comparison of Alternatives for Durability (C2.2)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/3 | 1/5 |
| Supplier B | 3 | 1 | 1/2 |
| Supplier C | 5 | 2 | 1 |
Pairwise Comparison of Alternatives for Compliance with Standards (C2.3)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 2 | 3 |
| Supplier B | 1/2 | 1 | 2 |
| Supplier C | 1/3 | 1/2 | 1 |
Pairwise Comparison of Alternatives for On-Time Delivery (C3.1)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/3 | 1/7 |
| Supplier B | 3 | 1 | 1/3 |
| Supplier C | 7 | 3 | 1 |
Pairwise Comparison of Alternatives for Supplier Reputation (C3.2)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/2 | 1/4 |
| Supplier B | 2 | 1 | 1/3 |
| Supplier C | 4 | 3 | 1 |
Pairwise Comparison of Alternatives for Stock Availability (C3.3)
| Alternatives | Supplier A | Supplier B | Supplier C |
|---|---|---|---|
| Supplier A | 1 | 1/3 | 1/5 |
| Supplier B | 3 | 1 | 1/3 |
| Supplier C | 5 | 3 | 1 |
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