Applications of benchmarking and classification framework for supplier risk management

Abstract

Purpose – The purpose of this paper is to develop a supplier risk framework. The framework provides the information about the risk level in which a supplier is classified. This study is part of the company’s one- department-one-improvement policy. This policy encourages all departments to look for way to improve process management. For this study, the Purchasing Department attempts to extend its supplier management practices by integrating the risk consideration. Design/methodology/approach – This work is considered as a case study. The study integrates the benchmarking and classification concepts for this extension. The involvement from the company’s purchasing department is critical. There are several steps that have been undertaken. Included are the selection of the supplies to be considered (i.e. packaging), the analysis of the formal complaints by the ratio-format indicator, the four criteria used for the classification, the risk level identification, and the next steps for improving supplier management. The results are verified by the use of cluster analysis. The data are from departmental staffs and manager. Findings – Based on the results, with the four agreed criteria (e.g. regional location, ownership type, joint venture, and registered capital and size), there are altogether four risk levels which are high, medium, low, and minimal.. For the packaging materials, most suppliers belong to the low and minimal risk levels (or 19 out of 27 suppliers). Future activities are then developed and added into the company’s ISO 9001: 2008 manual. Practical implications – The suppliers’ risk levels with corresponding future actions represent positive contributions to the purchasing department. Integrating supplier risk is based on the applications of benchmarking (i.e. the use of the ratio-format indicators) and classification (i.e. the need to understand the nature of the risk level) frameworks. Future actions to mitigate the risk are also proposed and incorporated into the purchasing department’s procedure. Originality/value – The project underlines the roles and importance of benchmarking in strengthening the supplier management processes. It also highlights the practicality and benefits of benchmarking when linking with the classification concept for addressing today business problems.