Companies are now encouraging the outsourcing of their non-core activities, and are concentrating and allocating more resources on core activities that influence their dependence more on supplies. Therefore, it is necessary to develop a methodology for supplier selection and performance evaluation which depends on several criteria, including both quantitative and qualitative criteria. This paper presents how an Analytical Hierarchy Process (AHP)-based model is formulated and applied to a real case study for supplier performance evaluation and ranking. Four key criteria have been identified in the supplier performance evaluation process, using Pareto analysis. The suppliers are ranked based on the priority weights calculated for each supplier. The three top ranked suppliers are selected and the weak criteria associated with these suppliers are also identified.

Most manufacturing enterprises are organized as networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products, and distribute the finished products to customers (Lee and Billington, 1992). Supply Chain Management (SCM) administers these networks. Operation of different entities in a supply chain is restricted by different sets of constraints and objectives. The short-term objective of SCM is primarily to increase productivity and reduce the entire inventory and the total cycle time, while the long-term objective is to increase customer satisfaction, market share and profits for all organizations in the supply chain—suppliers, manufacturers, Distribution Centers (DCs), and customers (Tan et al., 1998).

The coordination between a focal company and suppliers is an important link in the distribution channel of supply chains. Since suppliers are manufacturer’s external organizations, the coordination with the suppliers is not easy unless systems for cooperation and information exchange are integrated. Coordination between supplier and manufacturer is important, the lack of which results in excessive delays and ultimately leads to poor customer services. Accordingly, accumulation of inventories of incoming parts from suppliers or those of finished goods at the focal company and distribution centers may be observed. Therefore, the total cost of the entire supply chains will increase.

There has been a shift in manufacturing companies away from vertical integration towards smaller operations and outsourcing. Companies have reduced their capacities, and focus on main activities and try to achieve competitive advantages from suppliers’ competencies. Many organizations have reduced their supplier base to more effectively manage relationship with strategic suppliers (Tully, 1995), and developed cooperative, mutually beneficial relationships with all suppliers. In order to ensure the uninterrupted supply of items, it has been observed that in a supply chain, more than one supplier or vendor is available for each item. Periodic evaluation of supplier’s quality is carried out to ensure the meeting of relevant quality standards for all the incoming items.

Supply Chain Management Journal, Suppliers’ Performance Evaluation, An Analytical Hierarchy Process-Based Approach, Supply Chain Management, Existing Supplier Performance Evaluation Models, Multi-Criteria Supplier Selection, Multi-Criteria Decision-Making, The AHP Model Phase, Structuring the Supplier Selection Problem.