Comprehensive and configurable metrics for supplier selection

Abstract

As firms are increasingly becoming outsourcing oriented, supplier selection has become a major strategic decision for original equipment manufacturers (OEMs). Hundreds of publications can be found in the literature that deal with supplier selection. Researchers from business school often emphasize philosophical issues and focus on developing qualitative principles to guide management decision making. On the other hand, engineering researchers mostly treat supplier selection as an optimization problem. While strategic thinking cannot provide quantitative solutions, a mathematically optimal solution has no meaning if it does not match a firm's business strategy. Therefore, there is a need to integrate strategic thinking with quantitative optimization in order to make sound and effective decisions on supplier selection. This paper presents an integration mechanism in terms of a set of comprehensive and configurable metrics arranged hierarchically that takes into account product type, supplier type, and OEM/supplier integration level. Based on a firm's business strategy, the management configures an appropriate set of metrics used to measure supplier performance. An optimal supplier selection decision is then made based on this chosen set of metrics, achieving a strategic fit between the firm's business model and its supply chain strategy. © 2006 Elsevier B.V. All rights reserved.