SUPPLIER/ CONTRACTOR SELECTION

Supplier/ Contractor Selection



Executive summary

The purpose of this paper is to present a four-phase dynamic model for supplier/contractor selection. Supply chain is commonly used as a response to increasingly dynamic markets. However, partner selection in supply chain is inherently more complex and difficult under conditions of uncertainty and ambiguity as supply chains form and re-form. It incorporates modern techniques to overcome the information processing difficulties inherent in selecting from amongst large numbers of potential suppliers and contractors against multiple criteria in conditions of uncertainty. The enables decision makers to make efficient and effective use of the vastly increased amount of data that is available in today's information-driven society and it offers a comprehensive, systematic and rigorous approach to a complex problem.

Executive summary2

Literature Review4

Criteria for Selecting a Supplier/ Contractor10

Phase 1 - Partner Selection Preparation11

(1) General hierarchy criteria formulation12

(2) Industry-oriented hierarchy criteria formulation13

(3) Optimal hierarchy criteria formulation13

Phase 2 - Pre-Classification13

Phase 3 - Final Selection16

(1) Calculating the priorities of the different evaluation criteria17

(2) Optimizing the allocation of order quantities to the most suitable partners18

Phase 4 - Application Feedback20

Procurement Process22

Key Performance Indicators (KPIs)24

Five projects25

Conclusion28

References31

Appendix34

Supplier/ Contractor Selection

Literature Review

Partner selection is the process of choosing which supplier an organisation should purchase its requirements of resource inputs from. It is one of most important tasks in operations management. The choice of supplier can affect the quality, quantity, availability and price of goods purchased. The term “partner”, which has been gaining currency over “supplier”, recognises the dependency of a supply chain on its constituent members. Partner selection has become increasingly important in an environment in which competition is increasingly between supply chains rather than between individual firms (Abratt, 1986, pp.293-8).

Partner selection is a complex problem as it is multi-objective in nature. In what is now considered classic research, Dickson (1966) identified 23 criteria that might be applied in such decision making. Subsequent researchers have sought to modify the number and relative importance of these criteria in the light of the changing business environment. Although there is broad agreement that partner selection criteria should relate to operational performance and competitive priorities such as cost, quality, delivery and flexibility, increasingly demanding business conditions point to the need for a wider range of criteria (Baker, 2008, pp.27-41). The partner selection process is particularly complex when viewed from a supply chain perspective as it involves a series of inter-related decisions about suppliers, which impact both the formation and the performance of the supply chain as a whole.

As business environments have become more turbulent and dynamic, the response of many firms has been to adopt the concept of the supply chain. Although the concept of agility arose from the manufacturing environment it has been increasingly applied to the entire supply chain. Supply chain is a network of member companies that is capable of responding rapidly to changing market conditions. The successful operation of a supply chain depends on its ability to select the most appropriate supply partners in any given situation. However, in supply chain, the partner decision-making process involves increased ...