Supplier Rationalization: A Sourcing Decision Model

We draw on extant literature on strategic sourcing and supply base rationalization to anchor our argument that measuring supplier performance diversity is germane to executing an effective supply base rationalization strategy. We explicate how a novel approach to data envelopment analysis (DEA) efficiency assessment can be utilized to measure this performance diversity. More specifically, our methods are anchored in cross efficiency analysis in DEA that allows for evaluating the efficiency of a supplier with respect to the optimal weights (strengths) of its peers. This methodology is applied to an actual supplier dataset of a large multinational telecommunications company in categorizing their supply base into groups for effective supplier rationalization. We conclude that measuring and analyzing the performance diversity within the framework of DEA provides a mechanism for firms to better balance a rationalized and diversified supply base with unique skills.

[1]  Srinivas Talluri,et al.  A note on "A methodology for supply base optimization" , 2005, IEEE Transactions on Engineering Management.

[2]  Paul E. Green,et al.  Vendor Evaluation Using Cluster Analysis , 1969 .

[3]  Robert E. Spekman,et al.  Outcome-driven supply chains , 2010 .

[4]  M. Braglia,et al.  Vendor Selection Using Principal Component Analysis , 2000 .

[5]  Hark Hwang,et al.  An EOQ model with quantity discounts for both purchasing price and freight cost , 1990, Comput. Oper. Res..

[6]  Abraham Charnes,et al.  Measuring the efficiency of decision making units , 1978 .

[7]  L. Ellram.  Total cost of ownership: an analysis approach for purchasing , 1995 .

[8]  Keki R. Bhote.  Strategic supply management , 1989 .

[9]  R. Ramanathan.  Supplier selection problem: integrating DEA with the approaches of total cost of ownership and AHP , 2007 .

[10]  Ranga V. Ramasesh,et al.  Sole Versus Dual Sourcing in Stochastic Lead-Time s, Q Inventory Models , 1991 .

[11]  Edward N. Timmerman.  An Approach to Vendor Performance Evaluation , 1986 .

[12]  Fong-Yuen Ding,et al.  Using data envelopment analysis to compare suppliers for supplier selection and performance improvement , 2000 .

[13]  J. Jayaram,et al.  Relationship building, lean strategy and firm performance: an exploratory study in the automotive supplier industry , 2008 .

[14]  Srinivas Talluri,et al.  Multiproduct, Multicriteria Model for Supplier Selection with Product Life-Cycle Considerations , 2006, Decis. Sci..

[15]  James R. Kroes,et al.  Outsourcing congruence with competitive priorities: Impact on supply chain and firm performance , 2010 .

[16]  M. J. Rosenblatt,et al.  A generalized quantity discount pricing model to increase supplier's profits , 1986 .

[17]  R. Dyson,et al.  Reducing Weight Flexibility in Data Envelopment Analysis , 1988 .

[18]  T. Sexton,et al.  Data Envelopment Analysis: Critique and Extensions , 1986 .

[19]  Mary J. Benner,et al.  Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited , 2003 .

[20]  Dilay Çelebi,et al.  An integrated neural network and data envelopment analysis for supplier evaluation under incomplete information , 2008, Expert Syst. Appl..

[21]  S. Talluri,et al.  A Model for Strategic Supplier Selection , 2002 .

[22]  Jeremy F. Shapiro,et al.  Improving Purchasing Productivity at IBM with a Normative Decision Support System , 1985 .

[23]  M. Y. Bayrak,et al.  A fuzzy approach method for supplier selection , 2007 .

[24]  Srinivas Talluri,et al.  A methodology for strategic sourcing , 2004, Eur. J. Oper. Res..

[25]  Madeleine E. Pullman,et al.  AN ANALYSIS OF THE SUPPLIER SELECTION PROCESS , 1998 .

[26]  Filip Roodhooft,et al.  VENDOR SELECTION AND EVALUATION AN ACTIVITY BASED COSTING APPROACH , 1997 .

[27]  C. Carter,et al.  Sustainable supply chain management: Evolution and future directions , 2011 .

[28]  Amiya K. Chakravarty,et al.  An optimal joint buyer-seller discount pricing model , 1988, Comput. Oper. Res..

[29]  Ram Narasimhan,et al.  Is Purchasing Really Strategic , 1996 .

[30]  John N. Pearson,et al.  Strategically managed buyer–supplier relationships and performance outcomes , 1999 .

[31]  W. Deming.  Improvement of quality and productivity through action by management , 1981 .

[32]  Gary W. Dickson,et al.  AN ANALYSIS OF VENDOR SELECTION SYSTEMS AND DECISIONS , 1966 .

[33]  Kenneth N. Thompson,et al.  Vendor Profile Analysis , 1990 .

[34]  Rodney H. Green,et al.  Efficiency and Cross-efficiency in DEA: Derivations, Meanings and Uses , 1994 .

[35]  R. Hill,et al.  Using the Analytic Hierarchy Process to Structure the Supplier Selection Procedure , 1992 .

[36]  Fred Sollish,et al.  Supplier Evaluation and Selection , 2012 .

[37]  Varun Grover,et al.  Examining the Impact of Interorganizational Systems on Process Efficiency and Sourcing Leverage in Buyer-Supplier Dyads , 2005, Decis. Sci..

[38]  Kuen-Suan Chen,et al.  Supplier selection by testing the process incapability index , 2006 .

[39]  John R. Current,et al.  VENDOR: A STRUCTURED APPROACH TO VENDOR SELECTION AND NEGOTIATION , 2000 .

[40]  Y. Sheffi,et al.  A supply chain view of the resilient enterprise , 2005 .

[41]  Barry A. Wray,et al.  Using Neural Network Analysis to Evaluate Buyer‐Seller Relationships , 1994 .

[42]  Srinivas Talluri,et al.  Vendor Performance With Supply Risk: A Chance-Constrained DEA Approach , 2006 .

[43]  Andreas C. Georgiou,et al.  A goal programming model for partner selection decisions in international joint ventures , 2002, Eur. J. Oper. Res..

[44]  Ray Bert,et al.  Book Review: \IThe World Is Flat: A Brief History of the Twenty-First Century\N by Thomas L. Friedman. New York: Farrar, Straus and Giroux, 2005 , 2006 .

[45]  R. Narasimhan.  An Analytical Approach to Supplier Selection , 1983 .

[46]  Jennifer Blackhurst,et al.  The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities , 2007, Decis. Sci..

[47]  John R. Current,et al.  Application of facility location modeling constructs to vendor selection problems , 1994 .

[48]  David R. Rink,et al.  Strategic Procurement Planning across the Product’s Sales Cycle: A Conceptualization , 1999 .

[49]  S. Chopra,et al.  Managing Risk To Avoid Supply-Chain Breakdown , 2004 .

[50]  W. C. Benton,et al.  Vendor selection criteria and methods , 1991 .

[51]  Thomas Y. Choi,et al.  Building deep supplier relationships , 2004 .

[52]  L. Ellram,et al.  Supplier Selection Using Multi‐objective Programming: A Decision Support System Approach , 1993 .

[53]  Srinivas Talluri,et al.  Supplier Evaluation and Rationalization via Data Envelopment Analysis: An Empirical Examination , 2001 .

[54]  David L. Olson,et al.  Supply chain risk, simulation, and vendor selection , 2008 .

[55]  Kaitlin S. Dunn,et al.  An Empirically Derived Framework of Global Supply Resiliency , 2011 .

[56]  Zeger Degraeve,et al.  Determining sourcing strategies: a decision model based on activity and cost driver information , 1998, J. Oper. Res. Soc..

[57]  Robert Porter Lynch,et al.  Supply chain challenges. building relationships. , 2003, Harvard business review.

[58]  Khalid M. Dubas,et al.  CHINESE PURCHASING MANAGERS' PREFERENCES AND TRADE-OFFS IN SUPPLIER SELECTION AND PERFORMANCE EVALUATION , 1996 .

[59]  Zeger Degraeve,et al.  An evaluation of vendor selection models from a total cost of ownership perspective , 2000, Eur. J. Oper. Res..

[60]  A. Yeung.  Strategic supply management, quality initiatives, and organizational performance , 2008 .

[61]  R. J. Kuo,et al.  Developing a supplier selection system through integrating fuzzy AHP and fuzzy DEA: a case study on an auto lighting system company in Taiwan , 2010 .

[62]  Madeleine Järsjö,et al.  Purchasing Must Become Supply Management , 2013 .

[63]  J. March.  Exploration and exploitation in organizational learning , 1991, STUDI ORGANIZZATIVI.

[64]  Emmanuel Thanassoulis,et al.  Weights restrictions and value judgements in Data Envelopment Analysis: Evolution, development and future directions , 1997, Ann. Oper. Res..

[65]  Wade M. Jackson,et al.  A GOAL PROGRAMMING MODEL FOR PURCHASE PLANNING , 1983 .

[66]  Danny Berry,et al.  Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain , 1999 .

[67]  Jennifer Blackhurst,et al.  Supplier evaluation and selection: an augmented DEA approach , 2009 .

[68]  R. Narasimhan,et al.  An Empirical Investigation of the Contribution of Strategic Sourcing to Manufacturing Flexibilities and Performance , 1999 .

[69]  S. Deshmukh,et al.  Vendor Selection Using Interpretive Structural Modelling (ISM) , 1994 .

[70]  John E. Beasley,et al.  Restricting Weight Flexibility in Data Envelopment Analysis , 1990 .

[71]  Chiang-nan Chao,et al.  An Assessment of Supplier Selection: Chinese Purchasing Managers′ Criteria and Their Implications for Western Marketers , 1993 .

[72]  Hau L. Lee.  The triple-A supply chain. , 2004, Harvard business review.