Supplier Selection and Assessment: A Review and Empirical Study

The Importance of Supplier Management

Intense competitive pressure to improve delivery performance, quality, and responsiveness, while simultaneously reducing cost, have forced many organizations to re-examine their strategic priorities. For many, this has included recognizing the need to re-focus on core competencies and outsource non-core activities. Not only does this allow firms to downsize and utilize resources more effectively, it allows them to take advantage of the capabilities and technologies of suppliers. In doing so, they can enhance the product development process, improve product quality, reduce product development times, and more rapidly integrate technological breakthroughs of their suppliers into their own products (Monczka et al, 1994; Burt and Soukup, 1985; Ragatz et al, 1997). Expanding the use of outsourcing however implies that organizations are increasingly reliant on suppliers and must manage them effectively (Prahalad and Hamel, 1990). For some companies, this has meant reducing and streamlining the supplier base so they can better manage relationships with strategic suppliers (Tully, 1995). For others, it has meant developing cooperative relationships with suppliers (Mason, 1996; Copacino, 1996). 

Two key elements in managing the supplier base are supplier selection and supplier assessment Selecting and assessing suppliers involves both an information dimension and a process dimension. The information dimension, the focus of this study, consists of determining the criteria to be used in selection and assessment decisions. The process dimension involves developing and implementing corresponding decision-making processes. The issue of which criteria to use in selecting suppliers has been examined extensively. A number of studies have empirically examined the relative importance and prevalence of selection criteria for different purchase and product scenarios (Table I). The conclusion to be drawn from these studies is that while price, quality, delivery reliability, and service are typical determinants of supplier selection, the specific criteria used and their relative importance are highly dependent on the type of purchase being made and the circumstances surrounding the purchase. Moreover, while there may be a tendency to focus on measurable selection criteria such as price, "soft", intangible criteria such as management compatibility can and should play an important role in selection decisions. In contrast, the issue of how to assess supplier performance has received less attention in the literature. Studies that have empirically examined assessment criteria (e.g. Billesbach et al, 1991; Sibley, 1978; Simpson et al., 2002; Walton et al., 1998) however suggest that while cost is the most commonly used metric, quality, delivery, and service are also important assessment metrics. 

Managing the Supplier Base

Given the increasing importance of outsourcing, one would expect that how suppliers are selected and assessed, and in particular, the criteria used to guide these decisions, will impact the buying firm's performance. A greater onus exists on firms to ensure that would be suppliers can create value for the buying organization, and that once selected, supplier performance is consistent with the buying firm's expectations. However, little is known about the relationships between supplier selection and assessment and a buying firm's performance. Vonderembse and Tracey (1999) observed that supplier selection tactics positively impact a buying firm's manufacturing performance. They also demonstrated that high performing companies attach greater importance to key supplier selection criteria such as quality and delivery performance than low performing companies. They did not however attempt to relate supplier selection to broader measures of business performance. The supplier assessment literature makes no reference to studies linking assessment criteria and the performance of the buying firm. 

Related to the question of how supplier selection and assessment impact a buying firm's performance is the question of whether common trends exist for firms in different parts of the world. Much of the extant literature on supplier base management is based on the experience of US firms. While a handful of studies have examined supplier base management elsewhere in the world, few have attempted to contrast practices in multi-national settings. None however have examined relationships between supplier selection and assessment and the buying firm's performance. In terms of size, the USA and Europe represent two of the largest economic markets. To date, however, only one study has attempted to compare supplier selection in these two markets (Lehmann and O'Shaughnessy, 1974). This study considered firms in the UK but did not include firms elsewhere in the region. Moreover, this study was conducted over 25 years ago when supply management did not have the same strategic importance as it does today. A study by Billesbach et al, (Billesbach et al, 1991) compared supplier assessment practices of companies in the USA and the UK. Neither study examined relationships with the buying firm's performance. An additional limitation of both studies is that they focused only on specific selection/assessment criteria. No attempts were made to identify and compare underlying dimensions of supplier selection/assessment in the two populations. 

Enlarge this image.

Reviewing the pertinent literature reveals that a number of questions remained unanswered. Specifically: 

(1) Are purchasing and materials managers from the USA and Europe similar in their assessment of the importance of specific supplier selection and assessment criteria? 

(2) What are the underlying dimensions of supplier selection and assessment that managers consider to be important in making purchase decisions and are they the same for managers in the USA and Europe? 

(3) How do these dimensions impact the business performance of buying firms, and do they impact performance in a similar way in both the USA and Europe?