Elsevier

Omega

Volume 26, Issue 6, December 1998, Pages 739-750
Omega

An analysis of the supplier selection process

https://doi.org/10.1016/S0305-0483(98)00023-1Get rights and content

Abstract

Customers select suppliers based on the relative importance of different attributes such as quality, price, flexibility, and delivery performance. This study examines the difference between managers' rating of the perceived importance of different supplier attributes and their actual choice of suppliers in an experimental setting. We use two methods: a Likert scale set of questions, to determine the importance of supplier attributes; and a discrete choice analysis (DCA) experiment, to examine the choice of suppliers. The results indicate that although managers say that quality is the most important attribute for a supplier, they actually choose suppliers based largely on cost and delivery performance.

Introduction

During recent years supply chain management and the supplier (vendor) selection process has received considerable attention in the business management literature. In one of the widely cited articles on operations strategy, Miller et al.[35] classify supply strategies as one of the strategic operating choices. Additionally, with the increase in use of total quality management (TQM) and just-in-time (JIT) concepts by a wide range of firms, the supplier selection question has become extremely important. In a recent study, Flynn et al.[18] found supplier involvement to be an important dimension of quality management. Bankar and Khoska[4] classify the supplier selection process as an important operations management (OM) decision area. They suggest that OM research should attempt to identify the supply chain management practices that provide competitive advantage. Karmarkar[29] also identifies supply chains as multi-disciplinary in nature and recommends an integrated OM/marketing approach.

Dickson[15], in one of the early works on supplier selection, identified over twenty supplier attributes which managers tradeoff when choosing a supplier. Since then, a number of conceptual and empirical articles on supplier selection have appeared[43]. The conceptual articles by Ansari and Modarress2, 3, Benton and Krajewski[6], Bernard[7], Browning et al.[9], Burton[10], Hahn et al.[24], Jackson[28], Kraljic[30], Sheth[38], and Treleven[39] are examples of publications emphasizing the strategic importance of the supplier selection process. The above articles (and several others) highlight the tradeoff among quality, cost and delivery performance measures in the supplier selection process.

Weber and Current[42] proposed a multiobjective approach to vendor selection. Their methodology provides a useful decision support system for a purchasing manager faced with multiple vendors and tradeoffs such as price, delivery reliability, and product quality. In Weber and Current's[42] approach, the goal is to determine an acceptable set of solutions (number of vendors and order size from each vendor).

A number of empirical articles on supplier selection have also appeared. Based on empirical data collected from 170 purchasing managers, members of the National Association of Purchasing Managers, Dickson[15] identified quality, cost, and delivery performance history as the three most important criteria in vendor selection. Cardozo and Cagley[11], Chapman[12], Chapman and Carter[13], Dempsey[14], Hakansson and Wootz[26], Monczka et al.[36], Wagner et al.[41] and several other authors have evaluated the relative importance of quality, cost, delivery performance, and other supplier attributes. According to a review of 74 articles discussing supplier selection criteria, quality was perceived to be most important followed by delivery performance and cost[43]. In summary, most of the articles referenced above suggest that managers perceive quality to be the most important supplier attribute. The conceptual articles emphasize that managers should not select suppliers based on low cost only but should consider quality, delivery performance and other attributes.

While the supplier selection literature is rich in terms of: (a) conceptual and empirical work and (b) decision support methods for purchasing managers, none of the articles cited above has studied how managers actually choose suppliers. The past empirical articles are based on the managers' rating of the perceived importance of different supplier attributes. An actual choice of supplier involves evaluating the characteristics of the suppliers based on their attributes and selecting one or more supplier(s) that best suit the needs of the firm.

It can be argued that it is extremely difficult for any one supplier to excel in all dimensions of performance. For example, a high quality supplier might not be the one with lowest cost components. It is also possible that the components delivered by a particular supplier excel in a few quality dimensions (reliability, features) while some other supplier might be superior in other quality dimensions (for example, durability or aesthetics). Therefore an actual choice generally involves tradeoff among the attribute levels of different suppliers5, 32.

The objective of this study was to test how managers actually choose suppliers. The empirical results presented later in this article show that the relative importance of different supplier attributes in actual choice of suppliers are not the same as the perceived importance of the attributes. For example, it appears that managers perceive quality to be the most important attribute but they assign more weight to delivery performance and/or cost when actually choosing a supplier. These results imply that even though the managers believe that several attributes (for example, quality) are important for supplier selection, in actual practice the low cost supplier is selected. We believe that these results have important implications for operations strategy implementation and supply chain management. To our knowledge, none of the published studies has presented such analyses of the supplier selection process.

Specifically, we examine the perceived importance of supplier selection criteria (quality, cost, delivery performance) and identify the relative weights of the attributes in actual selection of suppliers. In addition to quality, cost, and delivery we also identify the relative importance of flexibility, the fourth operations objective identified by Hayes and Wheelwright[27] and other operations strategy researchers1, 16. The following two research questions explore the above ideas:

Research Question I: What are the perceived importance of quality, cost, delivery, and flexibility attributes in the supplier selection process?

Research Question II: How do managers tradeoff among quality, cost, delivery and flexibility attributes when actually choosing a supplier?

We used two different data collection and analyses procedures to explore the above research questions. A survey instrument containing Likert-type scale questions was used to explore Research Question I. We used an econometric procedure known as discrete choice analysis (DCA) for quantifying the relative weights of attributes when actual supplier choice is made (Research Question II). The following sections describe the research design, data collection and analyses procedures, and discuss the empirical results.

Section snippets

Research method

An empirical study was designed to evaluate the supplier selection process. The sample group consisted of manufacturing companies, specifically metal processing and producers of small machine tools and tooling in the western United States. The population included 323 companies with SIC codes of 33, 34, and 35 registered with two western states (Utah and Arizona) in 1994. The actual data from the managers were collected during the first half of 1995.

Operations managers or the managers with

Data analysis procedure

The data collected from the Likert type scale questions can be assumed to be on an interval scale and hence means can be compared as a measure of relative perceived importance of the supplier attributes[17]. Past empirical studies have used this analysis procedure. (Alternatively, medians can be compared if the data cannot be assumed to be interval scaled).

The data collected by the discrete choice analysis are categorical in nature. The multinomial logit (MNL) regression is the appropriate

Results

The survey was mailed to 139 managers and 58 completed useable surveys were received for a response rate of 41.7%. Table 5 presents the descriptive statistics of data collected by the Likert-Type Scale questions. The results show that managers perceive “Quality” to be most important supplier attribute, followed by “On Time Delivery” and “Unit Cost of Parts”. This result is consistent with the past studies, which have shown that managers perceive quality to be the most important supplier

Discussion

The results of the Likert-Type scale questions (Table 5) show that the managers perceive quality to be the most important attribute when selecting a supplier. This result is consistent with the past research on the topic. The standard deviations for all the variables are relatively large, therefore except quality, statistically there are no significant differences among the mean scores for the other four variables. On the other hand, the estimated logit model developed from the DCA data

Conclusions and directions for future research

Leading publications in business management emphasize the need for understanding manufacturing decisions and practices for improving the competitive position of a firm. Various publications argue that it is necessary for the manufacturing decisions and choices to be consistent with the corporate strategy for effective operations management. The objective of this research was to understand one strategic operating decision area: the supplier selection process. As more manufacturing organizations

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