**4. AHP applied to SCM by a chemical corporation**

Outsourcing is an increased business practice. Instead of directly providing to customers, suppliers may contract third-party companies to perform non-core activities. Functions often outsourced include accounting, human resources, and marketing [14]. Logistics of finish goods to resellers is 100% outsourced by a chemical corporation in Brazil. That is, Third-Party Logistics (3PL) providers transport all items produced in the Brazilian plants to distribution centers. Land transport is the dominant mode of transport, and there are three 3PL providers. When a plant requires a new transportation, from the corporate office, located in Sao Paulo City, one of four buyers selects a 3PL provider. There is no structured method to select 3PL providers. Then, the Supply Chain Manager decided to apply AHP to select a 3PL for a new transportation order.

Desired attributes for a 3PL provider include [15, 16]:


The SCM team grouped 27 attributes, relevant for 3PL of the chemical corporation, in a BOCR model (**Figure 3**).The fourteen attributes regarding to Benefits were grouped as structural benefits or technological benefits.

**Figure 3.** Hierarchy of attributes for third-party logistics provider.

As in the previous case of blank dies supplier selection, the chemical corporation's SCM team decided that each major aspect of BOCR should equally contribute for the decision. Then, the overall priorities for Benefits, Opportunities, Costs, and Risks are also 25% each. Every member of SCM, including the Supply Chain Manager, compared the attributes inside the aspects. They input their judgments in an AHP web-based software. This software enables comparison values with two decimal points, as 2.33 (**Table 12**).

Desired attributes for a 3PL provider include [15, 16]:

10 Applications and Theory of Analytic Hierarchy Process - Decision Making for Strategic Decisions

The SCM team grouped 27 attributes, relevant for 3PL of the chemical corporation, in a BOCR model (**Figure 3**).The fourteen attributes regarding to Benefits were grouped as structural

As in the previous case of blank dies supplier selection, the chemical corporation's SCM team decided that each major aspect of BOCR should equally contribute for the decision. Then, the

**•** Costs.

**•** Quality.

**•** Risks.

**•** Workforce.

**•** Responsiveness.

**•** Financial performance.

**•** Geographical location.

**•** Information technology.

**•** Operations performance.

benefits or technological benefits.

**Figure 3.** Hierarchy of attributes for third-party logistics provider.


**Table 12.** Pairwise comparisons for attributes on benefits according to one member of supply chain management team.

Comparisons made by every SCM member were individually aggregated, by geometrical mean, resulting in aggregated comparison matrices, which resulted in the local priorities for the attributes (**Table 13**).


**Table 13.** Pairwise comparisons for attributes on costs aggregated to all member of supply chain management team.

The local priorities for all attributes can be obtained normalizing the right eigenvector for the aggregated comparisons matrices. The overall priorities for the attributes A29–A41 are obtained weighting local priorities by 25%; for A15–A28, local priorities must be weighted by 12.5%, since local priorities for structural benefits and technological benefits are 50% each (**Table 14**).



**Table 14.** Overall priorities of attributes for 3PL providers.

In this case, AHP must be applied with absolute measurement and ideal synthesis, since RR is not desired. The rating of 3PL providers will be based on a five-level scale from Poor to Excellent performance (**Table 15**).


**Table 15.** Levels of performance [16].


#### By consensus, the SCM team rated three 3PL providers, for every attribute (**Table 16**).

**Table 16.** Rated 3PL providers according to benefits.

**Attribute Overall priority**

12 Applications and Theory of Analytic Hierarchy Process - Decision Making for Strategic Decisions

Quality conformity (A23) 0.8% Communication systems (A24) 2.7% Customers complaint (A25) 2.7% Electronic data interchange (A26) 2.1% Information technology (A27) 2.1% Quality of facilities (A28) 2.9% Delivery reliability (A29) 5.8% Delivery time (A30) 5.4% Key performance indicators (A31) 3.6% Projected investments (A32) 3.9% Value added (A33) 6.3% Performance extras (A34) 6.5% Price (A35) 9.9% Technical extras (A36) 8.6% Information sharing (A37) 4.3% Long-term relations (A38) 4.9% Market share (A39) 5.1% Order cancellation (A40) 6.3% Services portfolio (A41) 4.4%

**Table 14.** Overall priorities of attributes for 3PL providers.

Excellent performance (**Table 15**).

**Table 15.** Levels of performance [16].

In this case, AHP must be applied with absolute measurement and ideal synthesis, since RR is not desired. The rating of 3PL providers will be based on a five-level scale from Poor to

**Level L1 L2 L3 L4 L5 L6 Priority** Excellent (L1) 1 2 3 5 7 9 1 Between excellent and very good (L2) 1/2 1 3 4 7 8 0.75 Very good (L3) 1/3 1/3 1 5 6 8 0.49 Between very good and good (L4) 1/5 1/4 1/5 1 6 8 0.25 Good (L5) 1/7 1/7 1/6 1/6 1 3 0.10 Poor (L6) 1/9 1/8 1/8 1/8 1/3 1 0.06

Local priorities regarding every criterion are obtained with the priorities of levels L1–L6. Overall priorities for 3PL providers (**Table 17**) are obtained weighting local priorities by the priorities of attributes.


**Table 17.** Local and overall priorities for 3PL provider.

Overall priorities for 3PL providers indicate medium performances for the suppliers. SP8, SP9 and SP7 are almost tied with respective overall priorities equal to 0.57, 0.54 and 0.52. However, these priorities were obtained with balanced priorities for the major aspects of BOCR model.

**Figure 4.** Sensitivity analysis of 3PL providers' overall priorities to priority of costs.

The current Brazilian scenario, with economic recession, suggests unbalances favoring Costs and Risks. Then, after sensitivity analysis (**Figure 4**), SP8, SP9 and SP7 were prioritized in this order. That is, when available SP8 will be chosen as 3PL provider; SP7 will provide 3PL only when both SP8 and SP9 were not available.

The SCM team validated the results. The experts considered the AHP based model as appli‐ cable in practice. Besides the results are considered adequate, the steps of AHP were perceived as a better practice for supplier selection to logistics.
