Supplier Selection: Impact of Multi-Tier Supplier Visibility

Abstract

1. IntroductionIn order to survive in a global business environment a firm must maintain suppliers that are dependable and support the key mission of the firm. Usually a firm maintains a form of supplier relationship management (SRM). Most supply chains are multi-tier supplier networks. For example, the first-tier supplier is the OEM's immediate supplier. The OEM's second-tier suppliers are their first-tier suppliers' immediate suppliers. According to Jolayemi et al., 2013, maintaining lower-tier supplier visibility (LTSV) in SRM encompasses the ability to - on a continuous basis - know and understand the environmental situations, the financial health, the capabilities, the operational performance, the practices, and the strategic and operational activities of all tier suppliers who are the OEM's critical business links.In order to properly implement an SRM, OEM firms must distinguish which suppliers are more important to the core and continuity of its business. In other words, firms usually categorize or stratify their first-tier suppliers (Kraljic, 1983; Monczka et al., 2009; Day et al., 2010; Li et al., 2014). Although various stratification schemes exist in the literature, the most common are strategic, custom, collaborative and commodity suppliers (Li et al., 2014). When selecting suppliers, firms use a set of evaluation criteria. The number of such supplier selection criteria that have been identified and used in the literature far exceeds 50 (Chen, 2011; Hsu et al., 2006; Kannan & Tan, 2002; Dickson 1996; Weber et al, 1991). However, the emphasis put on various criteria may differ based on whether the supplier is strategic, collaborative, and custom or commodity (Li et al., 2014).Another dimension is the practice of maintaining lower-tier supplier visibility (LTSV) whereby a firm may select its first-tier suppliers by also taking into account the performance and capabilities of their lower-tier suppliers (Jolayemi et al., 2013). For example, a firm that emphasizes quality and reliability of supply may want to investigate more these issues at the lower-tier supplier level of its strategic suppliers. Therefore, the questions that form the focus of this study are:1. Would a company that seeks lower-tier visibility (LTSV) in evaluating its first tier suppliers have significantly different expectations of some of the evaluation criteria than a firm that does not seek LTSV?2. Would the significantly different expectations in (1) above, if they exist, be maintained for a given evaluation criterion for all types of stratified supplier levels (strategic, custom, collaborative and commodity suppliers)?2. BackgroundThe three issues that converge to form the basis of this research are (1) supplier selection criteria, (2) supplier stratification and (3) seeking lower-tier visibility in a multi-tier supply chains. This section will provide a brief review of the previous work in each of the three areas. It is pertinent to state that there is a rich literature in each of (1) and (2), but much fewer in (3). Therefore, this paper will not provide any exhaustive background in (1) and (2); instead, it will provide a brief overview of some directly related work sufficient to show how the issues addressed in this paper are impacted. It is to be noted here that many elements of literature review presented in this section are common to those provided by co-authors on related research as published in Jolayemi et al. (2013), Fan et al (2013) and Li et al. (2014).2.1. Supplier Selection CriteriaThe literature on supplier selection is extensive, comprising of both empirical studies of actual practice and prescriptive studies of how suppliers should be selected. However, there is lack of clarity over what exactly constitutes effective supplier selection and the appropriate criteria to use in different situations (Hsu et al., 2006). Consequently, the number of supplier selection criteria that have been identified and used in the literature far exceeds 50. …