Developing and applying a supplier selection model to account for supplier risk impacts

ABSTRACT

In this article, we develop a model to analyse and evaluate impacts of supplier selection decisions on total purchasing costs – that is total landed cost including a supplier risk premium. The newly developed model allows transferring risks related to supplier selection into a monetary value. This will allow managers to add a risk premium to actual costs, allowing more informed sourcing decisions. We reviewed scientific literature, for this purpose, to derive important criteria and methods in the supplier selection process and defined multiple indicators to measure a company’s purchasing performance. To refine our model, we applied it on a case study on the Chinese’s entity of a globally operating manufacturing firm that recently replaced its global suppliers with local Chinese suppliers.

KEYWORDS:

• Decision making
• risk management
• supplier selection

Acknowledgements

This research project was rendered possible by the generous funding of the Kuehne Foundation. Furthermore, the authors gratefully acknowledge the valuable comments and suggestions offered by all practitioners who participated in this study.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This research project was rendered possible by the generous funding of the Kuehne Foundation.

Notes on contributors

Frank Straube

Frank Straube (Dr.-Ing., Technische Universität Berlin) is the head of the Department of Logistics at the Technische Universität Berlin. Prior to his current position, he taught at the St. Gallen University, Switzerland and the University Paris II. Frank has 10 years of work experience as CEO of an international consulting company. He is currently a member of the faculty council and the commission for the degree programme Industrial Engineering, the largest degree programme at the TU Berlin and Vice Dean of the Faculty of Economics and Management. Frank is also a member of the German Logistics Association (BVL) and was vice chairman from 1997 to 2009. He is also a member of the Global Expert Knowledge Network of the World Bank, as well as a member of advisory boards of renowned companies such as BLG Logistics Group AG & Co. KG (BLG), Bremen. Furthermore, he is the founder of the International Transfer Center for Logistics (ITCL), which is implementing innovative planning and professional development operations for companies.

Christian F. Durach

Christian F. Durach (Dr.-Ing., Technische Universität Berlin) is a senior researcher at the Technische Universität Berlin and manager of the Kühne Foundation Center for International Logistics Networks. Christian has published several peer-reviewed journal articles and sits on the Editorial Advisory Board of the International Journal of Physical Distribution & Logistics Management. He graduated from the Zurich University of Applied Sciences, the Worcester Polytechnic Institute and the Technische Universität Berlin. Christian is a frequently invited speaker at both business and research conferences. He is a member of the Beta Gamma Sigma International Honor Society, Council of Supply Chain Management Professionals (CSCMP), European Operations Management Association (EurOMA), German Logistics Association (BVL) and Global Manufacturing Research Group (GMRG).

Jonny Phung

Jonny Phung is a lead buyer at AUDI in Ingolstadt/Germany. He received his Dual Master Degree in Industrial Engineering & Management from Berlin University of Technology and Tongji University in Shanghai. His prior degree is in the field of general mechanical engineering and production. Jonny Phung received a DAAD scholarship for his studies on supply chain management in China & Chinese language and culture at Tongji University.