The Relative Importance of Supplier Selection Criteria: A Review and Update

Since the late seventies and early eighties, the U.S. market-place has become increasingly global, with foreign competitors gaining market share at the expense of domestic producers. [1] To compete effectively with firms from nations such as Japan and Germany, many U.S. firms are adopting a new operating philosophy that requires a producer to lower costs by increasing the quality of its products. According to Tom Peters, this management paradox requires the people in a firm to change their attitudes about many aspects of business that have been the norm for decades. [2] For example, buyers and sellers traditionally have viewed each other as adversaries where one party wins at the expense of the other. Customer and supplier organizations typically have tended to deal with each other at arms-length. Given this new philosophy, buyers and suppliers now are changing the way they deal with each other. Strategic partnerships are becoming more common, with the buying and selling firms maintaining a more cooperative relationship. One researcher defines such partnerships as mutual, ongoing relationships "involving a commitment over an extended time period, with a sharing of information and the risks and rewards of the relationship. "[3] The way in which buyers make supplier choice decisions is one area that is likely to be affected by the evolution of buyer-seller relationships from a traditional "win-lose" orientation to the "win-win" model of strategic partnerships. For example, the traditional buying process for purchasers was to "get three bids and then award the contract to the supplier offering the lowest price. " Other criteria, such as quality and service capability of a supplier, may or may not have been considered to be as important as price. Recognizing the volatile climate of the industrial market in the United States, the purpose of this study was to explore supplier selection strategies today compared with those of the late seventies and early eighties. Two questions prompted the study. First, do buyers still evaluate suppliers primarily on the basis of price? Second, if not, how have supplier selection criteria changed in relative importance from the mid seventies to the nineties? To address these questions, an empirical study was conducted to determine buyers' current supplier selection strategies--and these results were compared with the results of past studies. In the following section, a brief review of the research on supplier selection strategies is provided. This review highlights three studies that have specifically examined decision criteria used by organizational buyers to select suppliers. DESCRIPTIVE STUDIES OF SUPPLIER SELECTION STRATEGIES Ellram notes that research on supplier selection tends to be either descriptive or prescriptive. [4] Descriptive studies provide information on what buyers actually do in selecting suppliers, while prescriptive studies emphasize what should be done, in a normative sense. The descriptive studies are relevant to the research objective of the present study, since its purpose is to explore the relative importances of supplier selection criteria used by purchasing professionals in the field. Several descriptive studies are reviewed in the following section. For a review of prescriptive research, Ellram's 1990 article provides a thorough discussion. [5] Supplier Choice Criteria A 1966 study by Dickson surveyed buyers to indentify the factors they considered in awarding business to competing suppliers. [6] Although some supplier selection criteria were found to vary in different situations, three common criteria emerged as important regardless of the situation. These were quality, on-time delivery, and supplier performance history. Another study, conducted by Lehmann and O'Shaughnessy in 1982, found that, in a fundamental sense, the key factors generally thought to affect supplier selection decisions were price, quality, delivery, and service. …