A decision framework for supplier rating and purchase allocation: A case in the semiconductor industry

By using a case study of the semiconductor industry, this paper proposes a framework which integrates the analytic hierarchy process (AHP) and integer programming to rate suppliers’ performance regarding incoming raw materials in the context of supplier management and then to allocate periodical purchases. Our findings are such that the rating weights of primary criteria and sub-criteria for each supplier should be flexibly considered in peak and off seasons to meet actual requirements. However, the current practical method rates the suppliers subjectively using fixed weights regardless of peak or off seasons. Therefore, how to develop an objective and flexible method for reviewing each criterion is grounded in empirical work. A detailed case study is presented in which five wafer suppliers are evaluated. The outcomes of peak and off seasons by the AHP reflect the practical strategy and tradeoffs of decision makers while rating suppliers via five perspectives of quality: cost, delivery, service, and environment (QCDSE). Additionally, the average cost per wafer is shown to be reduced by $0.455, which increases the gross margin, most notably, in the off season. Results indicate that the proposed methodology can lead to substantial improvements in supplier management.