Discuss about the Literature Review On Supplier Selection And Its Influence On Organization Performance.
Suppliers are firms and individuals providing goods and services for organizations at certain price. Their identification and engagement in work performance depends on supplier evaluation process. Deng, Hu, Deng & Mahadevan (2014, p.158) define ‘supplier selection as a process of assessing suppliers performance in order put them in a supplier base lists or award them contracts.’ A number of models and techniques are used to make assessments of suppliers. The authors further outline a carter model of using 10’c to evaluate supplier’s performance. The 10’c include; competency, capacity, character, capital, clean, collateral, consistency, cash, cost, control and culture. Suppliers are evaluated on the basis of the criteria in which the highest is awarded the contract. Rajesh & Ravi (2015, p.348) state that ‘supplier form a critical component in production process of any organization it is then critical for organizations to identify and select suitable suppliers who can perform efficiently and effectively.’ The suitable criteria’s of suppliers that is relevant to organization performance during selection process is capacity, product delivery, price and informational assessments.
In many organizations the process of selecting suppliers is done annually, or in real time, and it is performed by a committee representing organizational needs. Each supplier is given equal chance to present their own performance in a supplier evaluation process. A marking criterion is put in place and all suppliers submitting request work performance are subjected to an interview process. Even though their certain models used in evaluating suppliers it is difficult to ignore external or internal forces. Rajesh & Ravi (2015, p.350) argue that ‘in other cases the supplier evaluation is influenced directly or indirectly with organizational environmental factors within and outside. Such influence is established to have positively or negatively affected the supplier evaluation process. Studies have pointed that effective supplier evaluation is not an easy endeavor because it requires structured goals and policies to be implemented.
Concept of organization performance
Hogan & Coote (2014, p.1609) defines organization performance as ‘improvement of a firm’s productivity, profitability, growth and market share in certain period of time.’ Financial analysts state that organization performance is mainly analyzed using performances emanating from the market, shareholder value, production capacity, and financial performance. Increase in market share through growth can be a measure of organization performance. Financial performance is through profits and improved capital based from the operations while production capacity represents work performance in terms of how much produce is channeled out. ‘Organizations are able to establish their performance by making assessments of the factors influencing performance (Igarashi, de Boer & Michelsen 2015 p.443).’ The two authors state further that organizations can improve their performance if only they ensure their procedures are performed effectively and efficiently. In relation to the study organization performance is presumed to increase if proper methods and techniques are employed in evaluating suppliers.
Supplier evaluation and organization performance
Sarkis & Dhavale (2015 p.179) in a case study review on supplier selection for sustainable operations found that organization productivity in terms of brands and reputations increases if supplier evaluation is done well. The study conducted by the authors noted further that customers become loyal to certain brands increasing revenue for the respective organizations. Hogan & Coote (2014, p.1611) in there study stated that supplier evaluations creates value by involving and collaborating with suppliers evaluation process. The evaluation process creates a marking scheme in which suppliers can correct their performance. Based on culture one of the carter’s criteria of supplier evaluation, suppliers would be chosen on the basis they promote or possess culture similar to that of the organization. The mentioned studies provide empirical facts on how supplier selection can lead to building reputations and image but they lack empirical facts to directly link with organization performance metrics.
Supplier evaluation process enables organization to identify and work with suitable vendors thus it reduces risks and disruptions in the production process. There are several risks that are associated with supplier selection and performance. Examples of such risks are supplier refusal to supply, supplying non-quality items, inconsistency in supplies, and changes in pricing. Winter & Lasch (2016 p.645) mentions that if suitable suppliers are selected based on previous performance, character and consistency it enables productivity not to stop and reduces risk of losing opportunities. Studies have shown that flow of materials is important in measuring organization productivity. Firms with consistent productivity are firms who do not lack supply of inputs and raw materials. Hogan & Coote (2014, p.1612) supports further the argument by stating that ‘if supplier evaluations and assessments are done poorly it leads to disruptions in productivity levels and hence lower organization performance. The authors in their studies are in support that supplier evaluation leads to continuous productivity in organizations. It is then worth to try to clarify further if the productivity can lead to organization performance.
Selection of a right supplier is viewed to reduce sourcing costs and increase a firm’s competitive advantage. Any supplier selection decision involves using qualitative and quantitative criterion’s which in most cases conflict. ‘Quantitative methods involve using capital base, performance trends, and prices while qualitative is using criteria like quality, character, and clean and consistency to select suppliers (Hada, Grewal & Lilien, 2014 p.36).’ Current sourcing findings have shown that pricing is the most preferred criterion in supplier selection. Sourcing using prices is non-competitive in the long run because organizations lose other opportunities thus suffering from lack of competitive edge in the market. ‘the organizations will be required to employ a more strategic criterion in its decision making for selecting suppliers that would improve their competitive edge’ (Sarkis & Dhavale 2015 p.178).
Studies have shown that the biggest challenge facing managers in choosing suppliers emanates from the environment. Decisions to choose the right supplier are influenced by certain external and internal factors outside managerial controls. Dalvi & Kant (2015, p.654) in there study on criteria, benefits of supplier evaluation and development found that procurement manager and teams decisions are influenced with internal uncontrollable organizational factors. The authors state further that there is significant relationship between the procedure used for selecting supplier and their performance. Their argument is supported by Soh, Jayaraman, Yen & Kiumarsi (2016, p.184) who say that if supplier is selected efficiently they perform well and vice versa. From the mentioned findings it is clear that selection of suppliers is influenced by certain forces but it is even better to find out if those forces of choosing a supplier can lead to positive or negative organization performance.
Other studies have negatively argued that the process of selecting suppliers is tedious and bureaucratic and affects productivity of organizations. The studies mention that managers spend more of their valuable time on supplier evaluation meetings instead of making policies relevant to management of suppliers. Hada, Grewal, & Lilien (2014, p.36) on an empirical study on supplier referrals and its consequences opine that the process of identifying suppliers is a slow, costly and tedious process that limits organizational productivity. More time and resources is spent in evaluating suppliers which takes significant time that could have been used for production process. Chinomona & Hove ( 2015 p.64) did a study to establish if supplier evaluation process can contribute to organizational relationship and found that it does supplier evaluations do not contribute to organization relationships. The study found that there are other factors that can promote organization relationship. Both studies findings were linking supplier selection and organization relationship which differs with the current study which seeks to establish how supplier evaluations can contribute to organization performance.
Chinomona, R. and Hove, P., 2015. The influence of supplier involvement on communication, relationship longevity and business performance in small, medium and micro enterprises in South Africa. Journal of Economics and Behavioral Studies, 7(3), p.63-78.
Dalvi, M.V. and Kant, R., 2015. Benefits, criteria and activities of supplier development: a categorical literature review. Asia Pacific Journal of Marketing and Logistics, 27(4), pp.653-675.
Deng, X., Hu, Y., Deng, Y. and Mahadevan, S., 2014. Supplier selection using AHP methodology extended by D numbers. Expert Systems with Applications, 41(1), pp.156-167.
Hada, M., Grewal, R. and Lilien, G.L., 2014. Supplier-selected referrals. Journal of Marketing, 78(2), pp.34-51.
Hogan, S.J. and Coote, L.V., 2014. Organizational culture, innovation, and performance: A test of Schein's model. Journal of Business Research, 67(8), pp.1609-1621.
Igarashi, M., de Boer, L. and Michelsen, O., 2015. Investigating the anatomy of supplier selection in green public procurement. Journal of Cleaner Production, 108, pp.442-450.
Rajesh, R., & Ravi, V. (2015). Supplier selection in resilient supply chains: a grey relational analysis approach. Journal of Cleaner Production, 86, 343-359.
Sarkis, J. and Dhavale, D.G., 2015. Supplier selection for sustainable operations: A triple-bottom-line approach using a Bayesian framework. International Journal of Production Economics, 166, pp.177-191.
Soh, K.L., Jayaraman, K., Yen, T.S. and Kiumarsi, S., 2016. The role of suppliers in establishing buyer-supplier relationship towards better supplier performance. International Journal of Productivity and Quality Management, 17(2), pp.183-197.
Winter, S. and Lasch, R., 2016. Recommendations for supplier innovation evaluation from literature and practice. International Journal of Operations & Production Management, 36(6), pp.643-664.