An Evaluation of Supplier Selection Methods in Strategic Procurement

Lieferantenauswahlmethoden in der strategischen Beschaffung: ein analytischer Überblick


Research Paper (undergraduate), 2011
30 Pages, Grade: 1,0

Excerpt

Table of Contents

1. Introduction

2. Framing a comparison of supplier selection models
2.1 A strategy perspective on supplier selection
2.2 Supplier selection and the procurement process
2.2 The process of supplier selection

3. Comparing supplier selection options
3.1 Quantitative-monetary approaches to supplier selection
3.3 Qualitative approaches to supplier selection
3.4 Mathematical approaches to supplier selection
3.5 A synopsis of supplier selection methods

4. A perspective on supplier relationship management

5. Summary

References

Bibliography

Table of Figures

Figure 1: Strategic purchasing’s new role as a result of current business challenges

Figure 2: Linking competitive strategies and supplier relationship types

Figure 3: Supplier selection process steps

Figure 4: Sourcing Strategy Options

Figure 5: Overview and description of generic strategic purchasing process

Figure 6: Supplier selection process steps

Figure 7: Overview of supplier selection methods

Figure 8: Overview of frequent supplier selection criteria

Figure 9: Indicative example of profile technique: spider diagram

Figure 10: Comparative overview of discussed supplier selection models

Figure 11: Supplier relationship types and their frequency in practice

1. Introduction

Despite the development of interest in the procurement function over the last two decades, its relevance for strategic management is still questioned (e.g. Mol 2003; Ramsay 2003; Carter and Narasimhan 1996). However, this discussion seems outdated or obsolete if looking at the current pressures in business practice: globalised operations, increased competitive pressures, concentration on core competencies and the resulting outsourcing trend – all of these developments have led to many companies spending over 70% of their revenues on the purchase of external good or services (Boutellier 2003; Venkatesan 1992; Vanteddu, Chinnam and Gushikin 2011; Cox et al. 2005). This strongly enhances the status of the procurement department as the direct link to the supply markets (e.g. van Weele 2010; Moser 2007; Beissel 2003). Here, procurement needs to find suitable suppliers that support the company’s operations or contribute to competitive end-products. With the increased reliance on external (re)sources, the capabilities of a company’s suppliers’ become critical success factors (Cousins and Spekman 2003; Ellram and Carr 1994). Moreover, the function is usually a key player in the decision of whether a product or service should be produced in-house or is sourced externally (Make-or-buy) (Ellram and Maltz 1995). The strategic importance of the procurement function can also be pictured in the light of the above mentioned strategic business challenges:

illustration not visible in this excerpt

Figure 1: Strategic purchasing’s new role as a result of current business challenges

(Source: author’s preparation, based on Boutellier 2003; Brandes 1994; Kotabe 2002; Präuer 2004)

In, brief it can be said that procurement today is involved in strategic management decisions (de Boer, van der Wegen and Telgen 1998). Especially for the decision of selecting and how to subsequently manage suppliers, the procurement function fills a strategic role. To provide an overview of approaches to supplier selection, to categorise and to comparatively discuss them is the aim of this report.

In order to do so, this paper first puts supplier selection in the context of the strategic (purchasing) management process. The subsequent section introduces and compares methods of supplier selection. The results of this comparison are then discussed with a view on supplier management. The report closes with a brief summary of the key findings. A wide range of academic literature was used as the basis for this work.[1]

2. Framing a comparison of supplier selection models

This chapter provides a background for supplier selection approaches from the perspectives of corporate and procurement strategy as well as the procurement and the actual selection process in general.

2.1 A strategy perspective on supplier selection

As discussed, procurement is increasingly considered as a strategic factor. Selection of appropriate suppliers is an important way of supporting implementation of these strategies (Watts, Kim and Hahn 1992). Porter (1980) for example has introduced three basic competitive strategies that all have different implications on what type of supplier (relationship) is sought.[2] This is reflected when aligning Porter’s generic strategies to the generic recommendations on supplier relationships as shown in the following picture:

illustration not visible in this excerpt

Figure 2: Linking competitive strategies and supplier relationship types

(Source: author’s preparation, based on Porter 1980; Landeros and Monczka 1989)

Thus, procurement should use strategy analysis tools as a basis for supplier strategy selection, e.g. SWOT-Analysis or Porter’s Five Forces market analysis.[3] The results determine the supplier strategy and supplier selection respectively (Watts, Kim and Hahn 1992; Ndubisi et al. 2005). The corporate strategy may even provide guidance for choosing supplier selection criteria (Chen 2011).

Another consideration in determining the supplier (selection) strategy is the product (or service) to be purchased (Axelsson and Wynstra 2002). Depending on its importance to the company, finding and managing the right supplier is critical. This puts further emphasis on the selection process (de Boer, Labro and Morlacchi 2001). A portfolio approach that uses supply item criticality (via profit impact and supply market position) as the basis for development of supply strategies has been developed by Kraljic (1983), please see the following figure.

illustration not visible in this excerpt

Figure 3: Supplier selection process steps

(Source: Kraljic 1983, slightly modified)

Its wide use in practice and research makes it a standard tool in selecting supply strategies (Caniels and Geldermann 2007). The implication for the selection process is that the more important an item is considered, the more emphasis is put on finding the right supplier (e.g. devoting resources, breadth of methods used) (de Boer, Labro and Morlacchi 2001).

These remarks demonstrate a clear link between corporate strategy, procurement strategy and supplier selection.

2.2 Supplier selection and the procurement process

Whereas the above discussion showed a connection between supplier strategy, selection and management, the terms still need to be differentiated. First, the elements of the purchasing strategy need to be selected with a view on the item to be purchased. A popular framework for procurement strategy selection has been presented by Arnold and Essig (2000), introducing the various options in a morphological box:

illustration not visible in this excerpt

Figure 4: Sourcing Strategy Options

(Source: Arnold and Essig 2000, slightly modified)

It is foreseen that depending on the item to be purchased, one option from each of the elements should be selected to form the specific procurement strategy – which determines many important aspects of the actual procurement process (including selection). The figure below shows such a process. The overarching element of supplier strategy impacts how the process is carried out. The term supplier management however is used differently in the literature (Park et al. 2009; Bevilacqua and Petroni 2002; Cusumano and Takeishi 1991). This report follows the idea that supplier management consists of various aspects of the procurement process, such as supplier selection, supplier evaluation and development or supplier relationship management (Park et al. 2010; Carr and Pearson 1999).

illustration not visible in this excerpt

Figure 5: Overview and description of generic strategic purchasing process

(Source: Monczka, Handfield and Giunipero 2009, p. 32)

The focus of this report is supplier selection. However there is a strong connection between how a supplier is selected and subsequently managed. Therefore, chapter 4 will provide some considerations on this.

2.2 The process of supplier selection

Supplier selection as a step in the procurement process itself consists of a number of activities or process steps, please also see Figure 5 below (Chen 2011; Weber, Current and Desai 2000). First, an analysis of the specific purchasing situation needs to be conducted. This includes both confirming the requirements for the good to be purchased (i.e. the specification) as well as determining the supply strategy as discussed above (de Boer, Labro and Morlacchi 2001). Another consideration is the supply history of the good: whether it has been purchased before, or is re-bought (in a modified way) will have a major impact on the selection process (Iyer 1996).

[...]


[1] Following the approach of Tranfield, Denyer and Smart (2003) the initial literature research was done by searching the EBSCO database using search terms such as „supplier selection“ etc. and judging on their relevancy in a step-by-step process. Sources deemed relevant have been read. Secondary references collected thereby were also considered and analysed accordingly.

[2] The strategies comprise product differentiation , with a focus on innovative and high quality products, cost leadership, with a strong focus on offering reasonable quality at lowest possible cost, and niche market focus, where the company concentrates its efforts on serving segmented market niches (Porter 1980; Finlay 2000)

[3] SWOT-Analysis: combines internal strengths and weaknesses (SW) with external opportunities and threats (OT) to allow the development of strategic actions from this (see e.g. Finlay 2000). Porter’s Five Forces market analysis, amongst other factors, explicitly analyses the power of buyers as well as suppliers to provide a basis for strategic action (Porter 1980). Their application could for example guide procurement to critical situations in the supply market which may speak in favour of seeking close relationships with suppliers (high supplier power). An identified overcapacity at suppliers may be seen as an opportunity to bargain (low supplier power).

Excerpt out of 30 pages

Details

Title
An Evaluation of Supplier Selection Methods in Strategic Procurement
Subtitle
Lieferantenauswahlmethoden in der strategischen Beschaffung: ein analytischer Überblick
College
Robert Gordon University Aberdeen  (Aberdeen Business School)
Course
Strategic Purchasing
Grade
1,0
Author
Year
2011
Pages
30
Catalog Number
V190096
ISBN (eBook)
9783656145721
File size
874 KB
Language
English
Notes
Deutsches Abstract, Text in Englisch, Quellen gemischt Deutsch-Englisch
Tags
Strategischer Einkauf, Beschaffung, Lieferantenauswahl, Lieferantenmanagement
Quote paper
Florian C. Kleemann (Author), 2011, An Evaluation of Supplier Selection Methods in Strategic Procurement, Munich, GRIN Verlag, https://www.grin.com/document/190096

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