Vendor rating in purchasing scenario: a confidence interval approach

Vendor rating is a process having strategic implications for managing a supply chain. Vendor rating can be done using analytic hierarchy process either by a single decision maker or by a group of decision makers. This approach may suffer from some drawbacks including bias in estimation process. A methodology is proposed in this paper which makes use of estimation of the rating by a group on an individual basis following the principle of anonymity. A statistical analysis is carried out to determine the confidence intervals for the estimates of the composite rating of the vendors. The procedure presented here helps in identifying those members whose opinions may significantly deviate from that of the group. Emphasis is placed on establishment of confidence limits in group decision‐making. Participants in group decision making, whose opinions fall outside the group’s confidence limit, are further studied to understand the source of variation. Implementation guidelines have also been provided to account for the dynamic nature of the vendor evaluation process and to take appropriate actions in managing the vendor rating process in the overall supply chain.