International Journal of Operations & Production Management

Application of Analytical Hierarchy Process in Operations Management

Fariborz Y. Partovi, Jonathan Burton, Avijit Banerjee,
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Fariborz Y. Partovi, Jonathan Burton, Avijit Banerjee, (1990) "Application of Analytical Hierarchy
Process in Operations Management", International Journal of Operations & Production Management,
Vol. 10 Issue: 3, pp.5-19, https://doi.org/10.1108/01443579010134945
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 Application of Analytical Application of
Analytical
Hierarchy Process in Hierarchy

Operations Management 5
Fariborz Y. Partovi, Jonathan Burton and Avijit Banerjee
Drexel University, Philadelphia, USA Received February 1989
Revised July 1989
Introduction
The use of qualitative judgements in multi-factor decision models is receiving
increasing attention and a variety of approaches have been developed which
cover a wide range of techniques. One method which has received increasing
attention in the literature is the relatively recently developed Analytical Hierarchy
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Processf[1]. This method has been widely documented in a variety of problem

areas[2]. With the exception of a few cases, this qualitative decision-making
model has not been used extensively in operations management. This article
briefly reviews the Analytical Hierarchy Process (AHP), cites published work
in a number of production and operations management areas, and suggests
further potential applications. We outline in general terms the problems
addressed, and provide a description of the resulting hierarchy.
Practitioners generally believe that many problems in production and operations
management are so complicated that it is necessary to think in a complex way
in order to solve these problems. Traditional operational research models, using
techniques such as cost minimisation, are mathematically elegant and often
helpful in providing clues to the right decision. However, in most cases, relatively
few such approaches are complete and can be directly employed in practice[3].
Traditionally, alternatives or complements to these operational research
techniques have been managers' ad hoc decisions which are based on their
experience or feelings. These ad hoc decisions, although sometimes very
effective, are not always logical and may not consider all of the factors and
alternatives that may be relevant. One major contribution of AHP is its focus
on overcoming these drawbacks. The AHP models presented here are qualitative
techniques which rely on the judgement and experience of managers to prioritise
information for better decisions.

The Analytical Hierarchy Process: A Review

The Analytical Hierarchy Process is a decision-aided method which decomposes
a complex multi-factor problem into a hierarchy, in which each level is composed
of specific elements. The overall objective of the decision lies at the top of the
hierarchy, and the criteria, subcriteria and decision alternatives are on each
descending level of this hierarchy. The hierarchy does not need to be complete,
i.e., an element in a given level does not have to function as a criterion for
all the elements in the level below. Thus, a hierarchy can be divided into
subhierarchies sharing only a common topmost element.
 IJOPM Once the hierarchical model has been structured for the problem, the
10,3 participating decision makers provide pair-wise comparisons for each level of
the hierarchy in order to obtain that level's weight factor with respect to one
element in the next higher level. This weight factor provides a measure of the
relative importance of this element for the decision maker. To compute the
priorities of the element in each matrix, we solve the eigen-vector value problem
6 for each matrix. This new vector is then weighted with the weight factors of
the higher level element which was used as the criterion in making the pair-
wise comparison. The procedure is repeated by moving downwards along the
hierarchy, computing the weights of each element at every level, and using these
to determine composite weights for lower levels [1]. The optimal solution will
be the alternative with the greatest cumulative weight. The procedure is
illustrated below.
Example
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An engineer must decide among three alternative engine fuel control systems
as part of a special aircraft engine design. The three alternative control systems
are mechanical (MEC), electromechanical (ELECMEC), and electronic
(ELECTRON). The criteria considered are direct cost, flow time, reliability,
and performance. The first step in AHP is to develop a graphical representation
of the problem in terms of the overall goals, criteria and the decision alternatives.
Figure 1 shows the hierarchy for the fuel control system selection problem.
The top level of the hierarchy is the overall goal; determination of the best fuel
control system. The second level shows the four criteria stated above that
contribute to the achievement of the overall goal. The three decision alternatives,
mechanical, electromechanical, and electronic fuel control systems are shown
at the third level.
 In using AHP, the decision maker must specify his judgements of the relative Application of
importance of each criterion's contribution towards achieving the overall goal. Analytical
The evaluations would then be solicited using questions such as "What is Hierarchy
the importance of cost reduction relative to an increase in reliability in
accomplishing our overall goal?". Similar pair-wise comparisons for other criteria
can be done to generate Saaty's pair-wise comparison matrix[4]. From this
evaluation we develop a preference matrix, a corresponding set of weights (the 7
eigen-vector, W, determined by a computer program), and a consistency ratio
(CR) for the first level of the model, as shown below. The consistency ratio
is the ratio of the decision maker's inconsistencies and inconsistencies resulting
from randomly generated preferences.

Flow
Cost Rel. Perf. time
Cost
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Reliability CR = 0.078 W=
Performance
Flow time

The decision maker believes, for example, that reliability is four times as
important as cost. Consequently, cost is 1/4 as important as reliability, as shown
above. The next step is to make pair-wise comparisons of each fuel system
alternative, with respect to each of the criteria. We will illustrate this with respect
to the second attribute, reliability.

MEC ELECMEC ELECTRON

MEC
ELECMEC CR = 0.016 W=
ELECTRON

Here, the decision maker believes, for example, that the electronic system is
three times as reliable as the mechanical system. Similarly, pair-wise
comparisons must be made with respect to each of the other three attributes.
The overall consistency results for each of the alternatives with respect to each
criterion are presented in the following matrix.

Fuel System
MEC ELECMEC ELECTRON
Cost 0.544 0.278 0.178
Reliability 0.210 0.240 0.550
Performance 0.075 0.183 0.742
Flow time 0.458 0.416 0.216
 IJOPM Finally, the best fuel system alternative is found by determining the product
10,3 of the criteria priorities and the alternative weights as shown below.
Cost Reliability Performance Flow time

MEC
8 ELECMEC =
ELECTRON

The composite score indicates that the electronic fuel system is the best
alternative. The evaluation proposed here is not intended to be an "answer"
to the fuel system design decision but serves to illustrate the steps entailed
when using AHP.

Axioms of AHP
Saaty[4] and Harker and Vargas [5] give a formal statement of the axioms of
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AHP. We provide here a short, simplified version of these axioms:

(1) Reciprocal condition axiom: This axiom derives from the intuitive idea
that, if alternative or criterion A is n times preferred to B, then B is
\ln times as preferred as A.
(2) Homogeneity: This axiom states that comparisons are meaningful if the
elements are comparable. In other words, we cannot compare automobiles
with apples.
(3) Dependence. This axiom allows comparisons among a set of elements
with respect to another element at a higher level. In other words,
comparisons at the lower level depend on the element at the higher level.
(4) Expectations: This axiom simply states that any change in the structure
of the hierarchy will require new evaluations of preferences for the new
hierarchy.
Narasimhan[6] outlines the following benefits of using AHP: (a) it formalises
and renders systematic what is largely a subjective decision process and thereby
facilitates "accurate" judgements; (b) as a by-product of the method,
management receives information about the implicit weights that are placed
on the evaluation criteria; and (c) the use of computers makes it possible to
conduct sensitivity analysis on the results. Another advantage of using AHP
is that it results in better communication, leading to clearer understanding and
consensus among the members of decision-making groups so that they are likely
to become more committed to the alternative chosen[5].
AHP differs from other multi-criteria methods in its ability to identify and
take into consideration the decision maker's personal inconsistencies. Decision
makers are rarely consistent in their judgements with respect to qualitative
issues. The AHP technique incorporates such inconsistencies into the model
and provides the decision maker with a measure of these inconsistencies. A
consistency ratio is derived from the ratio of the consistency of the results being
tested to the consistency of the same problem evaluated with random numbers.
 This ratio provides the user with a value that can be used to judge the relative Application of
quality of the results. If a consistency ratio of less than 0.10 is obtained, the Analytical
results are sufficiently accurate, and further evaluation is not required. Hierarchy
Conversely, if the consistency ratio is greater than 0.10, the results may be
unpredictable and the priorities should be re-evaluated.
In the remainder of this article, various published and potential applications 9
of AHP in the area of operations management will be discussed. It should be
noted that in each of the following cases the user can tailor the hierarchy to
meet the needs of a specific environment. Thus it is possible to eliminate or
add new criteria when necessary.

Existing AHP Models for Operations Management

Supplier Selection Decision
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Most techniques for finalising the supplier selection decision utilise a candidate-
ranking process based on a number of relevant criteria. The task is to identify
the "key factors" involved in the selection and assign weights to the factors
based on their importance. The candidate suppliers are then "scored" for each
factor[7]. Figure 2, which is adapted from Narasimhan[6], shows the hierarchy
for supplier selection in an AHP framework.
In this figure, the goal is to select the best supplier; their price structure,
delivery, quality and service make up the elements in the second level of the
hierarchy. The next level of the hierarchy further subdivides each of the above
criteria into measurable subcriteria. For example, the delivery criterion is
subdivided into timeliness and costs. The last level of the hierarchy shows the
alternative vendors, A, B and C.

Facility Location Decision

Facility location decisions provide another potential application for AHP. There
are many operations research based models available to assist decision makers
in solving facility location problems. These models rely almost exclusively on
the use of fixed costs and variable transportation costs. However, there are
certain qualitative issues regarding plant locations that are not easily quantifiable.
Wu and Wu[8] identified nine issues related to plant location, some of which
are qualitative. They are manufacturing costs at present value (MFG-C), freight
costs based on last year's volume (FRT-C), community attitude towards industry
(COM-A), water availability (W-A), availability of labour (A-L), probability of
a union within ten years (PR-U), cultural attributes (CUL-A), schools (SCH),
and airline service (AIR-S). Figure 3 represents the model suggested by Wu
and Wu[8]. As shown by this hierarchy, the integration of qualitative and
quantitative aspects of a decision in a rational and consistent manner represents
a major strength of AHP.
 IJOPM
10,3

10
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Time Series Forecasting Adjustments

Time series forecasting is another area where AHP techniques can be applied.
Traditionally this method of forecasting applies various models and formulae
to extrapolate into the future, using a series of observed data. Commonly used
time series forecasting techniques in operations management include trend
analysis, exponential smoothing, and moving average methods. Although a great
deal of effort has gone into the study of such methods, no statistical or
mathematical technique can model the sensitivity and quality of human judge-
ments.
 Most time series forecasting models must be tempered by managerial Application of
experience and knowledge. These forecasting adjustments are necessary owing Analytical
to the external and internal factors that impact on the system at any given time. Hierarchy
The influence of new product designs, marketing promotions, price changes
or service upgrades must be estimated and converted into quantitative
adjustments. In addition, external factors such as changes in the economy, new
government regulations, anticipation of competitors' actions, and other 11
environmental activities must be evaluated to assess their influence on forecasted
values. Wolfe[9] has suggested a hierarchy for finding adjustment ratios in an
accounting context. We outline the same framework but substitute factors
suggested by Krajewski and Ritzman[10] which are perhaps more appropriate
criteria for evaluating adjustment ratios in operations management. Figure 4
illustrates the hierarchy used to define the forecast adjustment ratio for each
period.
The goal of the process is to find the right adjustment ratio. In the second
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level we separate the major factors affecting the forecast into internal and external
factors. The internal factors can be further subdivided into: product design (PD),
 IJOPM price and advertising promotions (PA), packaging design (PKD), salesperson
10,3 quotas or incentives (SQ), expansion or contraction of geographically targeted
market (EC), product mix (PM), and backlog policy (BP). The external factors
consist of the state of the economy (SE), consumers' taste (CI), service image
(SI), competitors' actions (CA), governments' actions (GA), and the availability
of complementary products (CP). These criteria and subcriteria will not be
12 defined here; the interested reader should refer to Krajewski and Ritzman[10].
The lowest level in the hierarchy contains, as alternatives, the range of
percentages which can be used to adjust a forecast. AHP can be used in this
case to combine human judgements with time series forecasting methods to
enhance the quality of the forecast. In Figure 4 the alternatives represent the
various percentage ranges that can be used to adjust the forecast. In this case,
each of the final alternatives was selected to have an arbitrary width of ten per
cent. Different percentage ranges are selected for specific situations, which are
selected so that the ranges are narrow enough to make fine adjustments to a
forecast, yet wide enough to make comparisons feasible. The questioning is
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straightforward in this hierarchy; decision makers participating in the forecasting

process are asked to rank the relative importance of each criterion affecting the
forecast adjustments over a specific period. For example, the decision maker
would be asked to rank the importance of internal versus external factors with
respect to the overall goal. Finally, questioning would focus on ranking the range
of percentages with respect to each of the factors affecting the forecast.

Choice of Technology
Capital-budgeting models, such as payback, net present value and internal rate
of return, are commonly used models when choosing new technology in
manufacturing[11,12]. These models have been used extensively in industry
 owing to their ease of use, their tacticalfinancialassumptions, and their treatment Application of
of the time value of money. Although these models may provide a good technique Analytical
for the evaluation of tactical issues in project selection, they fail to consider Hierarchy
long-term, strategical, non-monetary factors in technological decision making.
Kleindorfer and Partovi[13] have suggested an AHP relating manufacturing
strategy to the choice of technology (see Figure 5).
This hierarchical model begins with competitive strategy based on the internal 13
and external analysis of the firm. Below competitive strategy, there are three
general groups of elements. Thefirstgroup, manufacturing strategy elements,
consists of competitive forces such as cost, quality, dependability, and flexibility.
The second group is an intermediate group linking the forces driving competition.
This group is identified with specific activities in the value chain, including
inbound logistics, design, process, outbound logistics, sales, and customer
service. Thefinalgroup is related to the technology projects themselves, as
they influence specific value chain activities and are evaluated with respect to
the specific manufacturing strategy.
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Some New AHP Models for Operations Management

In the remainder of the article we will propose four new hierarchy models for
operations management.
Product Design Decision
Product design requires that crucial decisions be made regarding manu-
facturability, cost, performance, reliability, conformance, durability, serviceability,
safety, aesthetics, flexibility, and through-put time[14]. An effective product design
requires an understanding of these factors, and the ability to resolve trade-offs
among them to meet different customer needs. AHP can be a useful tool for
analysis of trade-offs and interpretation of product characteristics rather than
product formulation. In other words, once the conceptual design has been
established, AHP can be employed to select the particular characteristics of
design from among several alternatives. Figure 6 shows our suggested hierarchy.
At the highest level of the hierarchy, the designer seeks to select the best
design possible for a particular product. At the second level, the key factors
or criteria affecting the decision and trade-offs are identified. We will use Garvin's
framework[14], as well as others, to define some of these criteria.
Product cost consists of direct and indirect costs. Direct cost relates to the
production of the product, and includes material and direct labour. Indirect costs
are non-volume sensitive, such as fixed overhead costs. Performance refers
to the primary operating characteristics of the product. In most cases
performance characteristics are measurable and, as a result, different designs
can be compared objectively with respect to performance. Product features
are the secondary characteristics that supplement the product function. Features,
like product performance, are objective criteria. Reliability is the probability
of a product failing within a specified period of time. Durability is a characteristic
very closely linked to reliability. Durability is the amount of use one gets from
 IJOPM
10,3

14
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a product before it physically deteriorates. Conformance is the degree to which

a product and its operating characteristics meet pre-established standards.
Aesthetics refers to the product's look, feel, sound, taste, or smell.
Manufacturability is another important design consideration. In the past,
designers have dealt with this issue near the final stage in the product
development cycle when designs have been completed. The new team approach
involves people from manufacturing, marketing, and purchasing early in the
product design process[15].
Design for manufacturability consists of two parts: (a) design in producibility
consists of designing products to fit existing machinery and processes in
fabrication, and (b) design for assembly which considers the ease of product
assembly. The serviceability aspect of product design pertains to how quickly
and easily the product can be repaired, as well as considering possibilities for
future add-ons to the design. Some aspects of service can be measured
objectively. Flexibility in design allows products to have a variety of applications
without the need to design several different products. Through-put time is
another major design concern because often products fail, not because of their
cost, performance, or aesthetics, but because they are not available when the
customer needs them[15].
In general, to obtain meaningful responses to criteria comparisons, these
factors have to be explicitly bench-marked. Such bench-marks typically follow
from a strategic goal with respect to design. A strategic goal, for example, might
be stated as the reduction of a product's price or cost by 10 per cent compared
with a decrease in through-put time of 20 per cent or an increase in reliability
of 15 per cent. The lowest level of the design hierarchy (Figure 6) consists of
different design alternatives.

Plant Layout Design

Another potential application for AHP is in designing a plant layout. A satisfactory
layout provides a sound basis for maintaining effective use of employees,
machines, space and providing safety. This layout, in turn, contributes to the
 firm's efforts to maintain low material-handling costs, low inventory costs, and Application of
a better factory environment. Analytical
Traditionally, layout design problems can be divided into two basic Hierarchy
categories[16]. The first category is characterised by its use of material-handling
distances, loads or costs. The second category is characterised by its qualitative
approach to the relative positions of departments. An effective technique for
developing a process layout under such conditions is known as SLP (systematic 15
layout planning) [17]. Analytical Hierarchical Process can integrate the load-
distance-cost method and the relationship method into one hierarchy. Figure
7 illustrates how a simple AHP was developed to generate and evaluate various
layout configurations. Specifically, Figure 7 illustrates an AHP hierarchy for
generating and evaluating spatial relations between pairs of facilities. This
information, together with the characteristics of the facilities in general, can
then be developed into a floor plan.
The hierarchy focuses on the ideal layout configuration. At the second level
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the various factors affecting a decision maker's judgements are presented. These
factors are safety (SAF), flexibility of layout to incorporate future design changes
(FLEX), noise (NOISE ), aesthetics (AES ), floor space utilisation (FS-U),
through-put time (TP-T), manpower utilisation (MP-U), in-process inventory
(IP-I), and load-distance score (LD-S )[18]. As in the previous cases, the criteria
must be quantified as in the following: 2,000 units per plant operation hour
(through-put time); $50,000 per product model changeover (flexibility); 85 per
cent utilisation of available space (floor space utilisation); 70 per cent utilisation
of each worker (manpower utilisation); and two minor injuries per 1,000 man-
hours worked (safety). Once these criteria are defined it is possible to compare
the relative importance of each in determining the ideal plant design. When
evaluating the alternatives in the lowest level of the hierarchy, the proximity
 IJOPM of a pair of facilities will be compared with another pair with respect to the
10,3 above criteria. It should be noted that, once an alternative has been chosen
as the ideal layout, that alternative should be removed from the hierarchy.
Consequently, the remaining alternatives of the modified hierarchy require new
evaluations with respect to all criteria (fourth AHP axiom).
16 Preventive Maintenance Frequence Determination
The proper maintenance of equipment is essential for the smooth running of
operations. In most organisations, maintenance activities involve repairs and
preventive maintenance. The timing of preventive maintenance is important for
operations to function efficiently. The decision to schedule certain preventive
maintenance activities, quarterly, monthly, weekly or daily, depends on a number
of different criteria.
We will use Dhavale and Otterson's[19] framework for defining appropriate
criteria and subcriteria for evaluating preventive maintenance frequency. An
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AHP-based hierarchy for preventive maintenance strategy is illustrated in

Figure 8.
In this Figure the criteria are divided into two groups: maintenance planning
and productivity. The subcriteria under maintenance planning are related to
everyday decisions of the maintenance department and include age of the
equipment (AE ), ease of repair (ER ), maintenance history (MH), likelihood
of breakdown (LB ), danger of machine failure (MF), tolerance (TOL ), machine
deterioration (MD ), and availability of spare parts (SP). Productivity relates
to the overall objectives of the production system and consists of the following:
the number of available machines (AM), normal in-process inventory (IPI),
investments in machines (MI), average length of repair (LR ), average projected
machine load (ML ), and operator idle time (IT). The bottom of the hierarchy
consists of the various maintenance frequencies. With the hierarchy thus
constructed, we generate the appropriate pair-wise comparison matrices and
as a result we will identify the appropriate maintenance frequency.

Choice of Logistic Carrier

The logistics of delivering finished goods or picking up raw materials involves
choosing a carrier. The performance of various carrier services can be evaluated
based on several criteria. Many authors[20,21,22,23] conceptualised a number
of variables that are important in the carrier selection process. Recently, Bagchi,
Raghunathan and Bardi[24] statistically validated these variables and grouped
them into four categories using factor analysis. These criteria are rate related
factors; customer service, claims handling, equipment availability, and service
flexibility. Each of these categories can be subdivided into finer criteria
distinctions: door-to-door transportation rates or cost (A ); willingness of the
carrier to negotiate rate changes (B ); transit time reliability or consistency
(C ); total door-to-door transit time (D ); claims processing (E ); freight loss
and damage (F); shipment tracing (G); pick-up and delivery service (H);
shipment expediting (I); equipment availability (J); special equipment (K);
quality of operating personnel (L ); line-haul service (M); and schedule flexibility
(N)[24].
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Application of
Hierarchy

17
Analytical
 IJOPM Figure 9 illustrates the hierarchy of logistic carrier selection. As before, the
10,3 criteria at each level in the hierarchy are shown. In a similar manner, the
alternatives in this case include three carriers, and the optimal solution involves
choosing the carrier alternative with the greatest cumulative weight.

Conclusions
18 This article has presented the use of AHP in eight decision areas of operations
management. Decision hierarchies have been suggested for: (1) product design
decisions, (2) plant layout design decisions, (3) preventive maintenance frequency
selection, and (4) choice of logistic carrier. Furthermore, published AHP
application hierarchies in (5) facility location planning, (6) supplier selection
decision, (7) choice of technology, and (8) time series forecasting adjustments
have been reviewed. The eight hierarchies presented in this article illustrate
the wide range of multi-factor operational decisions to which AHP can be applied.
AHP offers a unique and valuable method for integrating judgements with the
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traditional quantitative methods used in operations management. This integration

will facilitate the application of operations management techniques in
manufacturing and service organisations' practices. Several interesting questions
remain to be explored in future research. First, the evaluation of these
hierarchical models usingfieldstudies is desirable. Secondly, the extent to which
the suggested AHP models would offer a better procedure than ad hoc or other
existing approaches is an empirical question that needs field or laboratory testing.
What we have attempted to provide here is an introductory framework to serve
as a foundation for further refinements and additions.

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