Supplier evaluation and selection via Taguchi loss functions and an AHP

The purchasing function directly affects the competitive ability of a firm. Purchasing managers need to periodically evaluate supplier performance in order to retain those suppliers who meet their requirements. The importance of incorporating multiple attributes such as quality, on-time delivery, price and service, into vendor evaluation are well established in the literature. This report provides a more accurate and easier method for quantifying the supplier’s attributes to quality-loss using a Taguchi loss function, and these quality losses are also transferred into a variable for decision-making by an analytical hierarchy process (AHP). An example for supplier evaluation and selection is also presented to demonstrate the functional application of the model.