The Supplier Selection Decision in Strategic Partnerships

The Supplier Selection Decision in Strategic Partnerships The concept of partnerships between buyers and suppliers is receiving increasing attention in American industry. This article examines the issue of supplier selection in situations where the firm is considering a partnership type of relationship with potential suppliers. The argument is made that partnerships are different in nature than traditional buyer-supplier relationships, and thus require the consideration of additional factors in supplier selection. This study combines a literature review with the use of case studies of firms involved in buyer-supplier partnerships to develop additional factors that should be considered in the selection of supply partners. Four categories of additional factors are developed: (1) financial issues, (2) organizational culture and strategy, (3) technology, and (4) a group of miscellaneous factors. The issues included in these categories tend to be longer term and more qualitative than factors included in traditional supplier selection models. The article suggests that these additional factors supplement, rather than replace, the more traditional factors in developing strategic partnerships with suppliers. BACKGROUND Most of the research in the area of supplier selection focuses on the quantifiable aspects of the supplier selection decision - issues such as cost, quality, delivery reliability, and other similar factors. These are important criteria that should be considered in virtually any supplier selection decision. However, firms are becoming increasingly involved in "evergreen" or "strategic partnership" type relationships with suppliers. The purchasing literature suggests that this trend toward partnership activity can benefit the firm and, in many cases, should be pursued. [1] A strategic partnership between a buying and a supplying firm is defined here as a mutual, ongoing relationship involving a commitment over an extended time period, and a sharing of information and the risks and rewards of the relationship. As firms become involved in strategic partnerships with their suppliers, a new set of supplier selection criteria comes into consideration, equally as important as the more traditional criteria mentioned above. This new set of criteria considers "soft" factors that are difficult to quantify. These soft factors include issues such as management compatibility, goal congruence, and strategic direction of the supplier firm. With these issues in mind, the objective of this article is threefold. First, the article provides a brief review of the relevant literature and research in the area of supplier selection. Second, it discusses the difference in emphasis required in seeking a partnership type of buyer-supplier relationship, rather than a traditional, arms-length relationship. Third, through the use of an empirical case study of five manufacturing firms, the article explores the new, additional set of issues that becomes relevant to supplier selection when the firm seeks a "partnership" type of relationship with a supplier. REVIEW OF SUPPLIER SELECTION LITERATURE Supplier selection models may be based on the way in which model proponents believe a decision should be made (prescriptive/normative) or the way they believe decisions are actually made (descriptive). Most of the supplier selection models reviewed here fit in to the second category. Descriptive Research The key descriptive studies reviewed are summarized in Table 1. [2] All of these studies represent empirical, survey based research. Table : Table I SUMMARY OF DESCRIPTIVE RESEARCH REVIEWED Study Methodology Focus Technical Marketing Survey Separates purchasing decisions into three categories: Consultants (1985) (1) direct materials,(2) capital, (3) indirect materials and services White (1978) Survey Understand the relationship between product categories and buying situations Dickson (1966) Survey Understand the factors considered in supplier selection, and attempt to determine the most important factors The first study, conducted by Technical Marketing Consultants, examines industrial purchasing trends and practices. …