1. Objective
The Analytic Hierarchy Process (AHP) is often used in decision-making scenarios where multiple criteria must be evaluated to choose the best alternative. For an inventory management project, here are 7 potential criteria and 4 Alternatives you can use.
2. Determining the model, criteria and alternative
In this step, the model, criteria and alternatives are determined:
Criteria:
1. Cost – The price of the inventory item.
2. Demand Forecast Accuracy – The accuracy in predicting how much of the item will be needed.
3. Lead Time – The time it takes for the inventory to be replenished.
4. Storage Space – The amount of space the inventory occupies.
5. Supplier Reliability – The reliability of the supplier in delivering the items on time and without defects.
6. Quality – The quality level of the item in stock.
7. Carrying Costs – The costs associated with storing the inventory, such as warehousing and insurance.
Alternatives:
1. Product A – A high-demand product.
2. Product B – A perishable product with a short shelf life.
3. Product C – A slow-moving but high-margin product.
4. Product D – A low-cost bulk item
3. Pairwise comparison table
After determining the criteria and alternatives, the Pairwise comparison table matrix is formed. In the paired comparison table, the parameters (criteria or alternatives) are compared in pairs .The table below shows the pairwise comparison tables:
| Cost | Demand Forecast Accuracy | Lead Time | Storage Space | Supplier Reliability | Quality | Carrying Costs | |
| Cost | 1 | 1 | 5 | 5 | 4 | 3 | 2 |
| Demand Forecast Accuracy | 1 | 1 | 4 | 2 | 3 | 2 | 4 |
| Lead Time | 1 | 4 | 4 | 4 | 5 | ||
| Storage Space | 1 | 2 | 5 | 3 | |||
| Supplier Reliability | 1 | 2 | 3 | ||||
| Quality | 1 | 3 | |||||
| Carrying Costs | 1 |
| Table2: Alternative pairwise comparisons with respect to Cost | |||||
| A | B | C | D | ||
| A | 1 | 4 | 5 | 2 | |
| B | 1 | 2 | 4 | ||
| C | 1 | 1 | |||
| D | 1 | 1 | |||
|
Table3: Alternative pairwise comparisons with respect to Demand Forecast Accuracy |
|||||
| A | B | C | D | ||
| A | 1 | 2 | 2 | 1 | |
| B | 1 | 2 | 3 | ||
| C | 1 | 3 | |||
| D | 1 | ||||
|
Table4: Alternative pairwise comparisons with respect to Lead Time |
|||||
| A | B | C | D | ||
| A | 1 | 3 | 3 | 3 | |
| B | 1 | 2 | 2 | ||
| C | 1 | 2 | |||
| D | 1 | ||||
|
Table5: Alternative pairwise comparisons with respect to Storage Space |
|||||
| A | B | C | D | ||
| A | 1 | 4 | 2 | 3 | |
| B | 1 | 2 | 2 | ||
| C | 1 | 2 | |||
| D | 1 | ||||
|
Table6: Alternative pairwise comparisons with respect to Supplier Reliability |
|||||
| A | B | C | D | ||
| A | 1 | 3 | 3 | 3 | |
| B | 1 | 2 | 2 | ||
| C | 1 | 3 | |||
| D | 1 | ||||
|
Table7: Alternative pairwise comparisons with respect to Quality |
|||||
| A | B | C | D | ||
| A | 1 | 2 | 2 | 3 | |
| B | 1 | 2 | 2 | ||
| C | 1 | 2 | |||
| D | 1 | ||||
|
Table8: Alternative pairwise comparisons with respect to Carrying Costs |
|||||
| A | B | C | D | ||
| A | 1 | 3 | 3 | 1 | |
| B | 1 | 2 | 3 | ||
| C | 1 | 2 | |||
| D | 1 | ||||
4. Run software
The data is placed in the software and the software is executed. The following video shows the implementation of the software:
5. Get Result
In this step, you can see the result of the report. The report is presented in three types of formats: online report, Excel and Word. You can view or download three types of formats below. In the output report, there are all the steps of AHP step by step along with the relevant table.
You can also run your project in AHP online software: