supplier selection.pdf

December 5, 2005 13:36 WSPC/ws-ijitm 00057

International Journal of Innovation and Technology ManagementVol. 2, No. 4 (2005) 391–409c© World Scientific Publishing Company

EMPIRICAL STUDY OF SUPPLIER SELECTION PRACTICESIN SUPPLY CHAIN MANAGEMENT IN MANUFACTURING

COMPANIES

DAN WANG∗, YEZHUANG TIAN and YUNQUAN HU

School of ManagementHarbin Institute of Technology

Harbin, China∗[email protected]

Received 30 March 2005Revised 5 August 2005

Accepted 20 September 2005

Supply chain management has seen a wide application since the 1990s in satisfying diver-sified customer demands. To remain competitive on a global scale, manufacturing com-panies greatly increased the scope of their outsourcing activities. Consequently, supplierselection has become a highly prioritized activity with major significance to companies.Previous studies of supplier selection show that there are commonly accepted supplierselection criteria. However, there are insufficient studies on the association between the

manufacturer’s criteria of supplier selection and why it wins orders from its customers.Studies on the differences of supplier selection criteria among manufacturers from dif-ferent countries are insufficient either. Through empirical study this paper tries to findout the association between manufacturer’s criteria in supplier selection and how it winsorders. Considerations of supplier selection criteria in different national background arecompared and the consistency of supplier selection criteria and competitive priority isanalyzed.

Keywords: Supplier selection; supply chain management; manufacturing company;International Manufacturing Strategy Survey (IMSS).

1. Introduction

The increasingly fierce market competition has shortened the product life cycle,which have resulted in a sharp increase in costs and decrease in profits. This hasimposed great pressure on manufacturers and impels them to adapt their busi-ness models and develop their core competencies. The traditional model of keepinglarge amount of stocks and making all the components within their own compa-nies is no long suitable for the market condition. They begin to outsource manyfunctions locally and internationally and keep in-house only those functions theyhave comparative advantage. Purchasing function has been taken by many man-agers as a key strategic tool in the firm’s attempt to achieve positional competitiveadvantage [Gustin, Daugerty and Ellinger (1997)]. How managers make purchasingdecisions will inevitably impact organizational performance by affecting importantactivities including inventory management, production planning and control, cash

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392 D. Wang, Y. Tian & Y. Hu

flow requirements and product/service quality [Narasimhan as quoted in Katsikeas(2004)].

Supplier partnership has been considered as another way of developing compa-nies’ core competencies since late 1980s and early 1990s. This can be attributed tothe success of Japanese companies that have close relationships with their sup-pliers, i.e. the partnership model of supplier management [Dyer (1996); Weberet al. (1991); Womack et al. (1990)]. It is believed that the Japanese model ofpartnership has guaranteed better performance because companies in the partner-ship can share more information and are better at coordinating dependent tasks[Harland (1996); Dyer and Ouchi (1993)]. It also promotes investments in relation-specific assets in order to decrease cost, improve quality and expedite new prod-uct development [Dyer (1996)]. Once a supplier becomes part of a well-managedand established supply chain, it will have a lasting effect on the competitivenessof the entire supply chain [Choi and Hartley (1996)]. Price [1996] also suggeststhat when a company and its supplier have built on long-term, clan-like relation-ships, a company’s supply chain creates one of the strongest barriers to entry forcompetitors.

Given the strategic significance of purchasing and supplier partnership to theiroperation and future development, manufacturers give more emphasis on supplierselection and establishing and maintaining an effective and efficient supplier partner-ship. Choy et al. [2003b] indicate that selecting the right suppliers can significantlyreduces purchasing costs and improves corporate competitiveness. Ittner and hiscolleagues [1999] found that organizations making extensive use of supplier partner-ship practices without making use of appropriate supplier selection and monitoringpractices earn significantly lower profits, have lower product quality and have asmaller proportion of acceptable long-term suppliers than organizations employingsimilar partnership practices but using more appropriate selection and monitoringpractices.

Previous studies show that there are commonly accepted criteria in supplierselection decisions, but insufficient attention has been paid on the consistencybetween the manufacturer’s criteria in selecting suppliers and the customer’s cri-teria in selecting manufacturers, on the impacts of cultures on such criteria andits association with the manufacturer’s competitive priorities. Therefore, it is nec-essary to revisit this fundamental subject. The research in this paper is focusedon investigating the characteristics of supplier selection strategies. The objectiveis to explore the influencing factors in supplier selection and how companies fromdifferent countries vary in supplier selection practices. An empirical study is con-ducted by utilizing the data from International Manufacturing Strategy Survey(IMSS).

The paper is divided into six sections. Section 2 offers a literature review on sup-plier selection. Section 3 introduces the framework of this study where hypothesesare put forward. In Sec. 4, the survey instrument and the sample used in the studyare described. Limitations of this survey are analyzed as well. Section 5 discussesthe results of the hypotheses. A conclusion of the study is made in Sec. 6.

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Study of Supplier Selection Practices in Supply Chain Management 393

2. Literature Review

Given the increasing significance of supply chain management and purchasing func-tions, manufacturers become more dependent on suppliers. Consequently, supplierselection becomes one of the most important activities of a company and a majorresearch field.

The supplier selection literature can be categorized into two distinct topicalareas: (1) the promulgation of various supplier selection tools, such as the analytichierarchy process [Narasimhan (1983)] or performance indexes [Monczka and Trecha(1988)]; and (2) research that attempts to determine the relative importance amongthe supplier selection criteria of quality, delivery, cost, and flexibility (e.g. [Dickson(1966); Verma and Pullman (1998)]. The second category of research on supplierselection criteria will be the focus in our literature review as it is more related withthe study of this paper.

Dickson [1966], in one of the early works on supplier selection, identifies over23 different criteria that have been considered by purchasing managers in varioussupplier selection problems. His research was based on a questionnaire sent to 273purchasing agents and managers selected from the membership list of the NationalAssociation of Purchasing Managers. The list included purchasing agents and man-agers from the United States and Canada. A total of 170 (62.3%) responses werereceived. Dickson classified them into four categories with varying importance fromextreme importance and considerable importance to average importance and slightimportance. The criteria with extreme importance include quality, delivery and per-formance history. Since his study, many researchers have identified that importantcriteria vary by industry and buying situations. Weber, Current and Benton [1991]reviewed, annotated and classified 74 related articles which have appeared in majorjournals written in English since Dickson’s study in 1966. They found that 22 ofthe 23 criteria ranked by Dickson were addressed in at least one of the articles. Insome cases, the authors chose to look in detail at just one of the criteria. In thesecases, the authors typically focused on methods to measure the criterion or waysto incorporate it into a larger vendor selection process and were not advocating thesole use of the criterion for vendor selection. The extensive attention to certain cri-teria from researchers implies the importance of these criteria to the manufactureras well as the researcher.

Since Weber and his colleagues’ work in 1991, there have been a number of con-ceptual and empirical articles on supplier selection. Most of the conceptual studiestend to identify supplier selection criteria from the technical, global and strategicperspectives. Some of these researches are listed in Table 1.

Katsikeas, Paparoidamis and Katsikea [2004] suggested that supplier perfor-mance in competitive pricing, reliability (in delivery and product, the supplier’shonesty, regular communication with the buying firm), technological capabilityand service are a primary determinant of successful purchasing decision strategies.Gustin et al. [1997] stressed the importance of supplier efficiency as one of the mosthighly rated purchasing criteria. Manufacturers are aware of the need for a long-term interactive relationship with a vendor and the possession of such capabilities

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Table 1. Supplier selection criteria from different perspectives.

Focuses Authors Criteria

Technical Chao et al. [1993] Quality, delivery speed, reliability, price

Wei, et al. [1997] Supplier’s supply history, product price, technicalability and transportation cost

Krause et al. [2001] Quality, delivery, flexibility, cost, innovation

Lee, Mu-Seong, et al. [2003] Quality, price, delivery

Katsikeas, et al. [2004] Competitive pricing, reliability, technologicalcapability, service

Global Ellram [1990] Future manufacturing capacity

Choi & Hartley [1996] The closeness of the relation and continuousimprovement capabilities

Roodhooft & Konings [1996];Ellram [1996]; Tagaras & Lee[1996]; Ghodsypour et al. [2001]

Total cost analysis

Petroni & Braglia [2000] Supplier capacity in production planning

Strategic Briggs [1994] Joint development, culture, forward engineering,trust, supply chain management, quality andcommunication

Choi, T.Y. et al. [1996] Finance, consistency, relationship, flexibility,technological capability, customer service,reliability, price

Ghodsypour, S.H. et al. [1998] Price & quality, logistical performance

(reliability, flexibility, supply lot, lead time),output, services, HR (design involvement,management ability, culture, etc.)

Hong, et al. [2005] Price, delivery, quality, quantity, revenue maxi-mization, customer satisfaction

by the supplier is essential for the manufacturer’s attempt to gain competitiveadvantage.

Empirical articles try to find out the most important criteria for purchasingmanagers when selecting suppliers. Apart from Dickson’s empirical study, otherresearches suggest that managers perceive quality to be the most important sup-plier attributes [Verma and Pullman (1998)]. Some researchers focus on the purchas-ing managers’ preference from the cultural perspective. In an empirical study byMummalaneni, Dubas and Chao [1996], the preference of Chinese purchasing man-agers in supplier selection is studied. The result presented in their study indicatesthe relative importance of various attributes to purchasing managers from China,which are: Quality, on-time delivery, responsiveness to customer needs, price, rela-tionship with supplier and the professionalism of the salesperson. The studies byBillesbach et al. [1991] indicate that in spite of considerable similarities betweenthem, purchasing practices in the US and the UK also exhibit subtle differencesthat need to be understood by marketers.

However, in spite of the large number of conceptual and empirical researcheson supplier selection criteria and decision methods, there are insufficient studies onthe association between supplier selection criteria the manufacturer uses and howit wins orders from its customers or the association between the manufacturer’s

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supplier selection criteria and competitive priorities. Studies on the differences ofsupplier selection criteria among manufacturers from different countries are insuffi-cient either.

The widespread discussions and insufficient empirical evidence on supplier selec-tion considerations and practices lead to our three research questions:

(1) Is there any relationship between the manufacturer’s supplier selection criteriaand priority in selecting suppliers and its customer’s considerations in placingorders?

(2) Is there any difference among manufacturers from different countries in makingsupplier selection decision? If there does exist difference, what is it?

(3) Is there any association between the manufacturer’s supplier selection criteriaand competitive priorities?

3. The Framework

The proposed model in Fig. 1 incorporates four variables: Supplier selection crite-ria the manufacturer uses, the customer’s criteria in selecting the manufacturers,competitive priorities, and cultural and economic background the manufactureroperates. The model posits that the manufacturer’s supplier selection criteria areconsistent or impacted by the latter three variables.

The proposed model is based on the premise that all manufacturers are subject tothe external environment, such as competitive environment, cultural and economicenvironment, etc. Therefore, it is compulsory for the manufacturer to adapt theiroverall and operations strategies to the environment if it is to survive or achievesustainable development in the marketplace.

The intensive global competition among manufactures to co-ordinate with andrespond quickly the industry value chain from suppliers to customers has made rela-tionship management between the manufacturer and their suppliers an importanttask in the new era. Supplier selection as the starting point in the supply chain isone of the most important functions in supplier relationship management (SRM)and is of great significance to the success of supply chain management. To forgecompetitive advantage, the manufacturer needs to incorporate its customer’s needand preference in selecting a manufacturer into its own supplier selection strategies.Choy and Lee [2003a] have noted that there exists an interesting and satisfyingsymmetry between the role of CRM (customer relationship management) and SRM

Supplier selectioncriteria

Customer’scriteria

Competitivepriorities

Cultural and economicbackground

Fig. 1. The conceptual framework.

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Supplier Manufacturer Customer

ProductMaterials &components

Selectioncriteria

Selectioncriteria

Consistent

Fig. 2. Simplified model of a supply chain.

(supplier relationship management). Knowing and responding to the customers’preference and demands and tuning them into supplier selection practices can facil-itate the manufacturer to better satisfy the customer, forge a close relationshipwith the customer and consequently winning out in the competition. Therefore, itis hypothesized that the criteria of supplier selection of a company are consistentwith its customer’s consideration in selecting manufacturers. This hypothesis canbe illustrated with the simplified model of a supply chain in Fig. 2.

Hypothesis 1: The manufacturer’s supplier selection criteria are in consistencywith its customer’s consideration in selecting manufacturers.

It is an acknowledged fact that companies are subject to the external environ-ment where they operate in. Companies need to adjust their strategies accordingto the political, economic, social and technological environments. Cultural back-grounds and the economic development situation have particular impacts on theoverall and operations strategies of the company. These impacts are naturallyshown in supplier selection practices. As a result, companies from different coun-tries have different considerations in making supplier selection [Billesbach et al.(1991); Cusumano and Takeishi (1991); Mummalaneni et al. (1996)]. Therefore,it is hypothesized that manufacturers from different countries may have differentconsiderations in making supplier selection decisions and therefore, the priority ofsupplier selection criteria may vary.

Hypothesis 2: The priority of supplier selection criteria varies among manufac-turers from different countries.

Another of the manufacturer’s considerations in supplier selection is the align-ment of the company’s competitive strategy to the competitive environment. Thecompetitive strategy refers to the basis on which the company can achieve and main-tain a competitive advantage through differentiation, cost leadership, and response[Miller and Roth (1994)]. It is the competitive strategy that guides the choice anddevelopment of competitive priorities and specifies how the operations functionprovides a manufacturer with a competitive advantage in the marketplace. Com-petitive priorities refer to the dimensions of manufacturing strategy or the contentof manufacturing strategy [Fine and Hax (1985); Swamidass and Newell (1987)].Skinner [1974] first suggested that the choice of competitive priorities includes cost,

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quality, delivery, and flexibility. Other studies [Hill (2000); Wheelwright and Bowen(1996)] have since added various dimensions of competitive priorities such as ser-vice and innovation. Given the increasing importance of purchasing in a company’sstrategic and operations management, supplier selection, the starting point of thepurchasing function, is usually taken as a premise of achieving strategic purchasingobjectives. It is thus hypothesized that the competitive priorities are reflected inthe manufacturer’s criteria of supplier selection.

Hypothesis 3: The criteria of supplier selection are a reflection of the competitivepriorities.

4. Methodology

4.1. The survey instrument

The data used in the empirical study comes from the International Manufactur-ing Strategy Survey (IMSS), which was initiated by London Business School andChalmers University of Technology in 1992. IMSS is an international research net-work consisting of 20 countries and 600 companies around the world, includingdeveloped countries, i.e. USA, Japan, British, Germany, and developing countries,i.e. China, Argentina, Mexico. The participant companies are from the manufac-turing industry within the Division of Fabricated Metal Products, Machinery andEquipments, i.e. the International Standard Industry Classification (ISIC) 38. Uptill now, three rounds of survey have been accomplished. The first round of IMSScovered 600 companies in 20 countries. The second round of the survey was con-ducted during 1996–1997 and gathered observations from 703 companies in 18 coun-tries. Data collection for the third round finished in the middle of 2003.

The purpose of this survey was to explore and identify the strategies and prac-tices utilized by manufacturing companies around the world. The survey question-naire consists of four parts: (1) Strategies, objectives and costs; (2) current manu-facturing and integration practices; (3) past and planned manufacturing activities;and (4) manufacturing performance. Supply chain management, as an importantand effective way in reducing production cost, improving and fostering performanceand competitiveness of the company, is of great strategic significance to the manu-facturing industry. Therefore, this survey makes supply chain management practicesan important part, particularly in the third round of the survey. Among the total400 plus questions in the questionnaire, about 80 questions are on supply chainmanagement. There are also some 160 questions that are indirectly related. Thisprovides a sufficient database for the research.

In the questionnaire, the design of questions on supply chain management wasbased on past literature and published surveys. To address supplier selection prac-tices, the works of Dickson [1966], Weber, Current and Benton [1991] was used as ref-erences in building up the supplier selection criteria. Shin, Collier and Wilson [2000]note that improved supplier performance has a direct and positive impact on qualityand delivery-related buyer performance. This idea has also been incorporated intoIMSS questionnaire with regard to supplier selection criteria. With the changingcompetitive and market environment, manufacturers have to adjust their strategies

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accordingly. As strategic management decisions impact every area of a manufac-turer, the criteria for making subsequent operational decisions must, therefore, bere-examined in compliance with such decisions. Supplier selection naturally needsnew criteria and/or a re-emphasis of exiting criteria to incorporate new strategicdirections. Therefore, new criteria are included to incorporate the changing externalenvironment and changes in companies’ strategies. Such criteria include: Evaluationof supplier potential and willingness to disclose cost/other information. The ratio-nale of adding these two criteria in supplier selection considerations is the increasingimportance of supplier relationship management and supplier partnership. The cri-terion of “evaluation of supplier potential” mainly examine the situation whetherthe supplier has a development plan and what their past performance records are.Such evaluation can give the manufacturer an idea about whether the supplieris an appropriate and trustworthy partner in future cooperation. The criterion of“willingness to disclose cost and/or other information” is used to examine the sup-plier’s willingness to cooperate. Sharing cost and other information on productionand management reduces suspicion of opportunistic behaviors [Jap (2001)] fromboth parties and thus, it is beneficial to the establishment of a closer relationshipor partnership.

4.2. The sample

The research reported in this paper is based on the data from the third round ofIMSS survey (hereinafter referred to as IMSS 2003). Data collection methods variedfrom country to country. In some countries, sample selection was at the coordina-tors’ convenience, and others used random sampling. Phone contact was followed inmost of the participating countries, except for the Netherlands. The questionnaireswere forwarded to participating companies via mailing, fax or on-site interview. Inthose countries where English is not used, the questionnaire was translated intolocal native languages. Translation work was done by participants from the corre-sponding countries who have a good command of English. The informants of thequestionnaires include general managers or high-rank operations executives in theindustries mentioned in Sec. 4.1 of this paper. Participating countries sent theirdata to the coordinator who forwarded the final database to all participants. Thetotal sample size is 558, with the average return rate exceeding 35%. The numberof samples for each scale item is well above 500 with Cronbach coefficient over 0.6.Likert five-point rating scale is used for most of the items in the survey, where1 indicates the least important and 5 the most important. The sample profiles for17 participating countries are presented in Table 2.

4.3. Limitations

The sample selection in some countries is at the coordinator’s convenience insteadof random sampling. In addition, non-response bias could conceivably exist giventhe response rate of 35%. Although some phone calls have been made to encour-age non-respondents, the length of the survey questionnaire, which contains some400 questions, have definitely discouraged the achievement of a higher response rate.

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Table 2. Sample profile for participant countries.

Average size (Number ofCountry Sample size employees) Distribution across countries (%)

Argentina 14 281 2.52Australia 40 253 7.17Belgium 19 381 3.41Brazil 35 579 6.27China 30 1227 5.38Croatia 35 560 6.27Denmark 38 397 6.81

Germany 32 1194 5.73Hungary 58 545 10.4Ireland 32 377 5.73Italy 60 671 10.75Netherlands 14 207 2.51Norway 51 161 9.13Spain 20 664 3.58Sweden 19 645 3.41United Kingdom 47 546 8.42USA 14 5705 2.51

Total 558 100

The actual method of collecting the data, the environment and knowledge of theresponding person, and possible translating problems could result in uncertainty insuch an international survey. However, the rich database as a counter-value is quiteuseable in empirical analyses.

5. Results and Discussion

5.1. Hypothesis 1

Variables of the manufacturer winning orders from its customers and those of themanufacturer selecting suppliers are adopted to testify their consistency. Variablesof the manufacturer winning orders include product design and quality, deliveryperformance, superior service and lower selling price. Other variables are the man-ufacturer’s abilities to provide a wider product range, offering newer products morefrequently, providing great order size flexibility and offering environmentally soundproducts.

With regards to the manufacturer’s criteria of supplier selection, quality, deliveryperformance and price bid are important variables. Logistic costs, ability to provideinnovation and co-design, physical proximity, willingness to disclose cost and/orother information, legal/contractual terms and evaluation of supplier potential areother criteria the manufacturer uses in supplier selection. Logistic costs includethose costs occurred in transportation, storage and handling. Evaluation of supplierpotential mainly considers the situation if the supplier has a specific developmentprogram and how good their past performance records are.

The means and standard deviation of each group of criteria are analyzed withresults shown respectively in Tables 3 and 4.

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Table 3. Factors facilitate winning orders — order of priority.

Sample size Mean Standard deviation

Product design and quality 528 4.22 0.868Delivery performance 535 4.04 0.862Superior customer service 518 3.90 1.007Lower selling price 537 3.74 1.084Greater order size flexibility 519 3.35 1.218A wider product range 513 3.32 1.099More frequent newer products 518 3.20 1.153Environmentally sound products 502 2.93 1.174

Table 4. Criteria of supplier selection — order of priority.

Sample size Mean Standard deviation

Quality of products/services 532 4.45 0.649Delivery performance 536 4.34 0.705Price bid 529 3.80 0.961Evaluation of supplier potential 515 3.44 1.041Logistic costs 516 3.15 0.941Ability to provide innovation and co-design 518 3.04 1.092Willingness to disclose cost/other info. 517 2.93 1.066Physical proximity/within region 521 2.87 1.025Legal/contractual terms 513 2.85 1.094

The results of the survey show that the manufacturer obtains orders from theircustomers because it excels their competitors in offering better product design andproduct quality, faster and more reliable delivery, superior customer service andlower selling prices. The manufacturer’s criteria of selecting suppliers are in con-sistent with its customer’s consideration in selecting manufacturers. The top twopriorities of the manufacturer’s in supplier selection are quality and delivery followedby price bid and evaluation of supplier potential. This result is similar with the find-ings by Mummalaneni and his colleagues [1996]. The result is easy to understandbecause at a competitive marketplace, the way to succeed is to study and satisfycustomers’ need and preference. This is particularly true since late 1990s whencustomer relationship management (CRM) is becoming more and more importantin the competitive environment [Choy, Lee and Lo (2002)]. Incorporating the cus-tomers’ criteria in selecting manufacturers into the manufacturer’s supplier selec-tion criteria enhances the manufacturer’s capabilities in satisfying the customers’demand and forges its competitive advantage over its competitor. Only when theranking of the manufacturer’s criteria in selecting suppliers is in consistency withthose of the customer can the manufacturer win the order.

The manufacturer’s abilities to offer greater order size flexibility, a wider prod-uct range and newer products more frequently than their competitors are alsoimportant factors in winning orders. This is because in a highly competitive mar-ket, the customer’s demands are considerably uncertain and diversified. Therefore,satisfying their demands requires the manufacturer to be more flexible in order sizeand products ranges. The ability to offer new products more frequently facilitates

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the manufacturer to meet the customer’s needs better. Only when the manufacturerexcels in these aspects can they win out in the competition.

When selecting suppliers, the manufacturer not only considers quality, deliveryperformance and prices that suppliers offer, evaluation of supplier potential is alsoof great importance. Suppliers with great potential of development and excellentpast performance records are usually preferred because they can help the manufac-turer to get a sufficiently flexible production volume with good quality and reliabledelivery. Reliable suppliers with great potential of development can thus facilitatethe manufacturer to forge competitive advantage over its competitors.

Chi-square analysis is conducted to test the statistical significance of the asso-ciation between the manufacturer’s criteria of supplier selection and customer’sconsideration in selecting manufacturers. The chi-square statistic of the manufac-turer’s criteria of supplier selection is 13.682 and asymptotic significance is 0.134,well above the significance level of 0.05. The chi-square statistic of the customer’sconsideration in selecting manufacturers is 13.995 and the asymptotic significanceis 0.083, also well above the significance level of 0.05.

As analyzed above, Hypothesis 1 is proved and conclusion can be drawn that themanufacture’s criteria of supplier selection are in consistency with its customer’sconsideration in selecting manufacturers.

5.2. Hypothesis 2

Five countries are chosen from different parts of the world to analyze whethermanufacturers from different national and cultural backgrounds have different con-siderations in supplier selection. These countries are Australia from Oceania, Chinafrom Asia, Germany from West Europe, Norway from North Europe and the UnitedStates from North America. Data from IMSS 2003 on manufacturers’ criteria in sup-plier selection are used to analyze the differences in the rankings of these criteria.The descriptive statistics are shown in Table 5.

The variables BSC21 to BSC29 respectively stand for criteria of lowest price bid,delivery performance, quality of products/services offered, logistic costs, ability toprovide innovation and co-design, physical proximity/within region, willingness todisclose cost and/or other information, legal/contractual terms and evaluation ofsupplier potential.

The result illustrates that manufacturers from all the five countries are takingquality of products and/or service offer and delivery performance as the top twopriorities when selecting suppliers. The top one priority for manufacturers in China,US and Australia is quality followed by delivery performance, whereas it is just theopposite for manufacturers in Germany and Norway. However, it should be notedthat even though manufacturers in the latter two countries consider quality lessimportant than to delivery performance, it does not indicate that quality is not asimportant for them as for the first three countries. This can be explained by themeans of quality, which, for German and Norwegian manufacturers, are both equalto or well above 4.50, higher than that of Australian and the US manufacturers.“Willingness to disclose cost/other information” is taken as a least important crite-rion by manufacturers from all the five countries with only minor differences in that

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Table

5.C

rite

ria

ofsu

pplier

sele

ctio

n—

ord

erofpri

ori

tyco

mpari

son.

Countr

yVari

able

sB

SC

21

BSC

22

BSC

23

BSC

24

BSC

25

BSC

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manufacturers in Australia and China take it as second least important criteria insupplier selection.

The criterion of “evaluation of supplier potential” is also taken as an importantconsideration by manufacturers, especially for Chinese and US manufacturers. Thisis because supplier partnership is given greater attention to by manufacturers as ameans of improving their competitiveness. For the Chinese manufacturer, it can alsobe attributed to their social and cultural backgrounds where people value, to a greatextent, the friendly and reliable relationship with their business partners. In somesituations, relationship, or guanxi, (the Chinese name for relationship) is even moreimportant than other criteria. This finding has been noted by Mummalaneni et al.[1996]. Guanxi can make business partners trust each other and facilitate businesstransactions. But on the other hand, it may also bring along uncertainty. There-fore, Chinese manufactures need to reduce the uncertainty resulted from Guanxiand get protected by means of legal and/or contractual terms. That explains whylegal/contractual terms are one of the prioritized considerations in selecting sup-pliers by Chinese manufacturers. It is interesting to note that for companies inAustralia, Germany and Norway, price bid is the third important criteria in select-ing suppliers while it only ranks the fifth by Chinese manufacturers. Similarly,logistic costs are less important for Chinese manufacturers than for manufacturersfrom Australia, Norway, and the US Lower labor cost in China can explain thisphenomenon.

Other differences can be traced from the ranking of priorities by Australian,German and Chinese manufacturers. The German manufacturers put “ability toprovide innovation and co-design” as the fourth important criterion while manufac-turers from the other countries put this criterion in the 6th or 7th place. It indicatesthat German companies give sufficient emphasis on innovation in their operationand they require their suppliers be innovative and able to participate in designactivities.

The above analysis also shows that there are greater differences in priorities ofsupplier selection criteria between China and the other four countries than amongthe latter four. This is because the other four are developed western countries andthey have more in common in their economic, social and cultural backgrounds,while China is more distinctive from them in these aspects though the differencesare decreasing with the global economic integration.

To sum up, manufacturers from different countries have different considerationsin supplier selection while they also share some similarities. Therefore, Hypothesis 2that the priority differences of supplier selection criteria vary among manufacturersfrom different countries is partially supported by the empirical study.

5.3. Hypothesis 3

Competitive environment determines the corporate strategy, which in turn deter-mines the objective of a manufacturing company. These objectives include quality,delivery, product variety, volume flexibility and cost [Sharma et al. (2003)]. Krauseet al. [2001] suggest that operations strategies are composed of choices along the

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Table 6. Supplier selection criteria — Degree of importance.

Sample Standardsize Mean deviation Evaluation

Quality of products/services 532 4.45 0.649 Extreme importantDelivery performance 536 4.34 0.705Price bid 529 3.80 0.961 Considerable importantEvaluation of supplier potential 515 3.44 1.041Logistic costs 516 3.15 0.941 Average importantAbility to provide innovation and 518 3.04 1.092

co-designWillingness to disclose cost/other 517 2.93 1.066 Slight important

informationPhysical proximity/within region 521 2.87 1.025Legal/contractual terms 513 2.85 1.094

competitive priorities to support the overall operational mission and business strat-egy. Purchasing function has been viewed as a “pattern of decisions related toacquiring required materials and services to support operations activities that areconsistent with the overall corporate competitive strategy” [Watts et al. (1992)].Supplier selection as a significant part of the purchasing function becomes a natu-ral reflection of the company’s competitive strategy and competitive priority. Sincethe 1980s, quality as a competitive priority has helped companies win orders inthe marketplace [Dilworth (1993)]. Delivery, flexibility, cost, service and innova-tion are also important competitive priorities noted by researchers [Skinner (1974);Wheelwright and Bowen (1996); Hill (2000)]. More recently, time-based competi-tion has emerged as the winning strategy. These objectives and considerations havebeen reflected in the criteria of supplier selection.

Based on the data from IMSS 2003, descriptive analysis is performed to classifythe degree of importance of these supplier selection criteria at the more recent timeframe. The results of both analyses are shown in Table 6.

The above result shows that the quality of product/service and delivery perfor-mance (including delivery reliability, speed and flexibility) are taken as the mostimportant factors considered in selecting suppliers by manufacturers. Both elementsare fundamental for the manufacturer to become competitive in the marketplace.Comparatively, cost is not as important as the above two elements. It also holdstrue with logistic cost. Whether the supplier has the ability to provide innova-tion and co-design and whether he is willing to disclose cost and other informationare becoming more important than before when manufacturer-supplier partnershiphas great impact on the company’s performance and establishment of competitiveadvantage. The development and construction of Boeing-777 is a successful examplein this aspect [Pearce II and Robinson, Jr. (2003)].

Physical proximity of the supplier is taken as less important to manufacturers.This tendency is the consequences of economic and technical changes. Improvedfacilities for international communications, transportation and logistics offer widerscope than ever before for globalization of business. These increased opportunitiesbring with them fiercer competition at both domestic and international markets.

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These developments are in turn leading companies towards the procurement ofmaterials and components from foreign sources to improve their competitive per-formance. Traditionally, most companies made the majority of their purchases fromdomestic or regional markets and only from abroad when there is a lack of localavailability or when there are significant purchase price advantages. The emergenceand widespread use of the Internet allows the search of suppliers from the smallestcompany to largest corporations on a global base. This has resulted in the availabil-ity of a large number of qualified suppliers who can satisfy customers’ requirements[Choy et al. (2005)]. Now international or global purchasing is viewed as a strate-gic weapon in the quest for improved performance and profitability through greateravailability, enhance technology, price advantage and so on [Helper (1991)]. Whetherthe supplier is willing to disclose cost and/or other information is a criterion thatthe manufacturer would consider in selecting suppliers because it makes it possiblefor both parties to share strategic planning and production information and utiliz-ing each other’s expertise in product and process design, thereby creating synergiesbetween them.

A conclusion can be drawn that the supplier selection criteria are a reflectionof the competitive priority. Hypothesis 3 is supported by the empirical study withIMSS 2003 database.

6. Conclusion

This study analyzes the characteristics of the manufacturer’s practice in supplierselection and the relationship between the manufacturer and their supplier fromthe supply chain perspective. Based on the variables extracted from the IMSS 2003database, this study has empirically verified the relationship between the compet-itive advantage of the manufacturer in winning orders and his criteria in selectingsuppliers. This empirical study has found that manufacturers from different coun-tries have different priorities with regard to the supplier selection criteria. Thissituation can be attributed to their corresponding cultural influences and economicenvironments. The empirical study also shows that the supplier selection criteriaare the reflection of competitive priority of the manufacturer. The results of thestudy reveal the following:

(1) The manufacturer’s supplier selection criteria are in consistency with its cus-tomer’s consideration in selecting manufacturers.

(2) Due to the cultural and economic backgrounds, manufacturers from differentcountries have different considerations in making supplier selection decisionsand therefore, the priority of supplier selection criteria may vary.

(3) The manufacturer’s supplier selection criteria are a reflection of the competitivepriority.

There are some future issues to be considered. Do supplier selection criteriathat the manufacturer uses have any impacts on its performance? Do these criteriahave any impacts on supplier partnership? Do highly profitable manufacturers havedifferent considerations in supplier selection from those unprofitable ones? Futureresearch will be needed to address these issues.

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Acknowledgment

We would like to thank the editor and anonymous reviewers for their helpful com-ments. Without them, this paper would not have been in print. Funding for thisresearch was provided by the Harbin Commission of Science and Technology, ProjectNo. 2002AFLXJ007. The project is also supported by the China National ScienceFoundation (Project No. 7043303) and Project 863 (2003-AA-423260).

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Biography

Dan Wang is an associate professor of organizational theory of the School ofManagement at Harbin Institute of Technology. She received her Master degree inbusiness administration from Brisbane Graduate School of Business at QueenslandUniversity of Technology, Australia and is currently pursuing her PhD in HarbinInstitute of Technology. She teaches undergraduate and graduate courses in organi-zational behavior and business planning. Her research interests are in organizationaltheory and supply chain management. She has published dozens of papers in thesefields in journals and at international conferences.

Yezhuang Tian is a professor of human resources management of the School ofManagement at Harbin Institute of Technology. He received his Bachelor degreeof Psychology in Hangzhou University, China, Master and PhD in managementof engineering from the School of Management at Harbin Institute of Technology.He teaches undergraduate and graduate courses in human resources managementand innovation management. His research interests are in HRM and manufacturingstrategies. He has published several books and dozens of papers in these fields injournals and at international conferences.

Yunquan Hu is a professor of operational research in the School of Managementat Harbin Institute of Technology. He was a visiting professor in the Departmentof Industrial Engineering at the University of Wisconsin during 1987 to 1989.

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He teaches undergraduate and graduate courses in operational research and quan-titative methodology in management decisions. He has published four textbooks inthese fields which are very popular among university students in China. His researchinterests are in transportation and application of economics and management. Hehas published over a hundred papers in these fields in journals and at internationalconferences.

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supplier selection.pdf

Documents

wider product range

human resources management

supplier selection process

supplier selection practices

sloan management review

supply chain management

past performance records

corporate competitive strategy