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.

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 requirement. Four attributes are frequently used as performance criteria. These attributes are quality, on-time delivery, price and service. An evaluation and selection system of suppliers using Taguchi loss functions is proposed in this paper based on these four attributes. These four attributes are transferred to the quality loss and combined to one decision variable for decision making. It is useful to make supplier evaluation and selection for promoting the competitive ability of a firm. An example of application to supplier evaluation and selection is also presented.