Academic journal article Journal of Supply Chain Management

Measuring the Performance of Suppliers: An Analysis of Evaluation Processes

Academic journal article Journal of Supply Chain Management

Measuring the Performance of Suppliers: An Analysis of Evaluation Processes

Article excerpt

Over the past decade, a growing emphasis on establishing long-term channel relationships, driven by competitive pressures and business complexity, has encouraged many firms to become highly selective in their choice of suppliers (Holmlund and Kock 1996). Firms now expect suppliers to attain and maintain established standards of product quality, service, distribution, promotion, and partnering. However, without careful monitoring of supplier performance, a firm is unable to accurately assess whether its current suppliers are meeting the needs of the firm, and suppliers are unable to respond to unexpressed partner needs.

Those firms that do choose to routinely evaluate their suppliers may experience evaluation design and content issues. Indeed, prior researchers have expressed several major concerns with the existing state of supplier/buyer evaluations. First, the supplier evaluation literature suggests that some instruments for assessing suppliers were almost exclusively created to measure product quality, at the very least, and other quantitative measures, such as price and service, at the very most (Doney and Cannon 1997; Wilson 1994). As a result, many existing supplier evaluation measures may fail to consider a myriad of other variables, mostly qualitative in nature, which may affect the value of a channel relationship from a channel partner perspective (Weber and Current 1991). Second, existing evaluative measures often do not rank potential suppliers on a relative basis to assist firms in the channel partner selection and retention process. Finally, many methods of evaluation rely largely on industry or national certif ications (e.g., ISO 9000) as heuristic indicators of superior supplier performance. Yet, as more suppliers obtain these certifications and achieve the same standards of quality, these awards will not be sufficient to distinguish one supplier from another.

These issues associated with supplier evaluations are especially problematic given that a supplier can be instrumental in providing value to a firm and can serve as a source of competitive advantage. For example, a supplier that creates a strong brand image for its product(s) through high quality standards and creative advertising can dramatically increase the sales of the reseller, or a supplier utilizing electronic data interchange can dramatically reduce costs for a buyer. This value derived from a channel partnership is termed channel equity, and "may be in part a result of long-standing and successful business relationships between the firm and key channel members" (Srivastava, Shervani, and Fahey 1998). Moreover, these authors suggest that channel equity, like brand equity, is a relational market-based asset that may be vitally important to firm performance and increasing shareholder value. To optimize channel equity, however, a firm must be able to identify the suppliers that provide the greatest busin ess synergy through some systematic evaluative process.

Previous research strongly indicates the importance of the supplier evaluation process and the instrumentality of superior channel partners in creating value for one another (Srivastava, Shervani, and Fahey 1998). However, before researchers can normatively prescribe how buyers should be assessing suppliers -- dimensions to be included, effects, etc. -- the current state of evaluative procedures must be understood. The purpose of the research at hand, then, is to identify the degree to which companies across a broad spectrum of industries are formally evaluating their suppliers and to identify the key supplier competencies currently assessed. This study is warranted from a buyer perspective because it allows firms to benchmark their own methods of supplier evaluation against those of competitive firms and assists in determining which factors may be most important in supplier selection. The study also pinpoints those variables that have been identified by research as crucial elements of a channel relationship, but which may be frequently omitted in the supplier evaluation process. …

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