Abstract
Supplier evaluation and selection is one of the most critical strategic decisions for developing a competitive and sustainable organization. Companies have to consider supplier related risks and threats in their purchasing decisions. In today’s competitive and risky business environment, it is very important to work with reliable suppliers. This study proposes a clustering based approach to group suppliers based on their risk profile. Suppliers of a company in the heavy-machinery sector are assessed based on 17 qualitative and quantitative risk types. The weights of the criteria are determined by using the Best-Worst method. Four factors are extracted by applying Factor Analysis to the supplier risk data. Then k-means clustering algorithm is applied to group core suppliers of the company based on the four risk factors. Three clusters are created with different risk exposure levels. The interpretation of the results provides insights for risk management actions and supplier development programs to mitigate supplier risk.
Highlights
Procurement and purchasing are vital functions that have strategic importance for the success of an organization
Risk should be decreased at the beginning of the procurement function by eliminating unreliable and risky suppliers. This can be achieved by considering risk levels of the suppliers in the supplier selection process
Cluster 3 had the highest risk scores for most of the risk types. This supplier cluster can be labeled as “suppliers with a high risk level”. These results are compatible with the spider web diagram of the cluster centers for the four factors (See Figure 6)
Summary
Procurement and purchasing are vital functions that have strategic importance for the success of an organization. Evaluation and selection of suppliers is one of the most critical strategic decisions for developing a competitive and sustainable organization [2]. Supplier selection problem incorporates approaches from different disciplines and goes beyond traditional cost minimization and profit maximization objectives [3,4,5]. Supplier-related risks are among the most frequently discussed risks in the supply chain (SC) literature [10,11]. Supplier-related risks such as disruption of production, customer dissatisfaction, financial losses, loss of sales, damages to corporate image, and bankruptcy may have serious consequences for companies and their entire SC networks [13]. Companies have to consider supplier-related risks and threats in their purchasing decisions. Supplier risk measures have to be defined and incorporated into the supplier evaluation and selection process to mitigate supply risk [1,14,15]
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