VENDOR: A structured approach to vendor selection and negotiation

Abstract

The article presents a structured approach for analyzing vendor selection decisions based on standard operations research techniques, which has been termed as VendOR. Outsourcing decisions are often critical to a firm's success in the global economy. Once the decision has been made to outsource, the logistics manager must then select the vendor who will supply the product, service, or function. The potential vendors' performance on the relevant selection criteria obviously influences the selection but their performance also influences the outsourcing decision. It has been assumed that the need has been determined, although it may range over a large variety of supply chain decisions, from selecting the best carrier for a specific delivery to the best vendor to provide the firm's transportation needs. The ultimate goal is to form a partnership with the selected vendors. VendOR overcomes the weaknesses in traditional vendor selection approaches. First, the results are repeatable. Second, although choices need to be made by the buyer throughout the process, these same choices are required for traditional multi-criteria techniques. Third, VendOR uses data typically already collected by firms, so there is no need for a comprehensive cost accounting system.