Supplier selection approach: Integrating analytic hierarchy process and supplier risk analysis

Supply chain management (SCM) has taken, over the past few years, a critical function within organisations, involving fundamental activities such as the management of relationships with suppliers, the supplier involvement in the business process and strategic management, while also, focusing on the quality of the best alternative supply. It is known that the process of supplier selection can significantly affect the global performance of the company. Generically, selection of suppliers is the process by which suppliers are analysed, evaluated and chosen to integrate the supply chain organisation. This paper focuses on the selection process of suppliers, conducted by purchase sector of a pharmaceutical company, based on the multi-criteria decision techniques, using for this purpose the method of analytic hierarchy process (AHP). The study purposes a multi-criteria optimisation approach combining AHP with risk sensitivity analysis (RSA) during selecting the suppliers of supply chain network. The novelty of this study lies in the application of a hybrid approach to a real industry case, where supplier risk analysis was used as a complement to the multi-criteria analysis. Drawing on a real case, this study concludes that the AHP-RSA method outperforms the AHP method for supplier selection with respect to restricted supplier selection criteria.