2

European Journal of Operational Research50 (1991) 2-18 North-Holland

Invited Review

Vendor selection criteria and methods

Charles A. Weber, John R. Current and W.C. Benton Faculty of Management Sciences, College of Business, The Ohio State University, 1775 College Road, Columbus, OH 43210-1399, USA

Abstract: The vendor selection process has undergone significant changes during the past twenty years. These include increased quality guidelines, improved computer communications, and increased technical capabilities. Given radical changes in the purchasing selection process, it is appropriate to review the past research and to determine its relevance to the supplier selection decision. This paper reviews, annotates, and classifies 74 related articles which have appeared since 1966. Specific attention is given to the criteria and analytical methods used in the vendor selection process. In response to the increased interest in Just-In-Time (JIT) manufacturing strategies, and analysis of JIT's impact on vendor selection is also presented. Finally, conclusions and potential areas for future research are presented.

Keywords: Materials planning, production planning, supply management

1. Introduction Strategic management decisions impact all areas of a firm. Once such decisions have been made, the criteria for making subsequent operational decisions must be re-examined. New strategic directions may require new criteria a n d / o r a re-emphasis of existing criteria used in making the operational decisions necessary to implement them. An important area of operational decision making is that of purchasing. In this paper, we review the purchasing literature published since Dickson (1966) in order to provide a comprehensive view of the criteria that academicians and practitioners have found to be important in vendor selection. We limit this review to vendor selection by industrial purchasers because such environments formed the basis of the Dickson study and most of the research since then.

Received August 1990

One major aspect of the purchasing function is vendor selection, the acquisition of required material, services and equipment for all types of business enterprises. By its very nature the purchasing function is a basic part of business management. In today's competitive operating environment it is impossible to successfully-produce low cost, high quality products without satisfactory vendors. Thus one of the most important purchasing d~isions is the selection and maintenance of a competent group of suppliers. The selection of competent suppliers has long been regarded as one of the most important functions to be performed by a purchasing department. For example, Howard Lewis in one of the early purchasing texts (1943), stated: " I t is probable that of all the responsibilities which may be said to belong to the purchasing officers, there is none more important than the selection of a proper source. Indeed, it is in some respects the most important single factor in purchasing" (Lewis, p. 249). For many firms, purchases from outside

0377-2217/91/$03.50 1991 - ElsevierSciencePublishers B.V. (North-Holland)

C.A. Weber et al. / Vendor selection criteria and methods

vendors account for a large percentage of their total operating costs. The raw material purchased for most U.S. firms constitutes 40-60% of the unit cost of a product. For large automotive manufacturers, the cost of components and parts purchased from outside vendors may total more than 50% of sales. Purchased material and services represent up to 80% of total product costs for high technology firms (Burton, 1988). Coal purchases for large electric utilities, such as TVA, approach $1 billion annually (Bender et al., 1985). Vendor selection decisions are complicated by the fact that various criteria must be considered in the decision making process. The analysis of criteria for selection and measuring the performance of vendors has been the focus of m a n y academicians and purchasing practitioners since the 1960's. In his seminal work, Dickson (1966) suggests: " F r o m the purchasing literature, it is fairly easily to abstract a list of at least 50 distinct factors (characteristics of vendor performance) that are presented by various authors as being meaningful to consider in a vendor selection decision" (Dickson, p. 5). The primary purpose of this paper is to review the literature since the Dickson study in order to provide a comprehensive view of the criteria that academicians and purchasing practitioners feel are important in the vendor selection decision. Annotations for 74 articles are presented in the next section. In the third section, a review of criteria is presented. Since the Dickson article was published the world of purchasing has undergone some significant changes. A significant impetus for these changes has been the increased interest in, and implementation of, Just-In-Time (JIT) manufacturing strategies. The implementaion of J I T may impose a reordering of the criteria by which vendors are selected (see Ansari and Modarress, 1986; Bender et al., 1985; Burton, 1988; H a h n et al., 1983; Manoochehri, 1984; Newman, 1988). Given the recent interest in J I T manufacturing strategy, a review of J I T ' s impact on vendor selection is presented in the fourth section. In view of the economic importance, and inherent complexity of purchasing decisions, such decisions are an appropriate area for the application of quantitative analysis. Consequently, any quantitative methods for vendor selection presented in the various articles are listed in the annotations.

In addition, these approaches are categorized and discussed in the fifth section of this paper. Conclusions, potential areas for future research, and a summary are presented in the final section. It should be noted that this literature review includes only articles published in major journals written in English. Consequently, working papers, books, Master's and Doctoral theses and non-English articles are not reviewed. Every effort has been made to be thorough and any oversights are unintentional and regretted.

2. Annotation

The structure of this study will be to categorize the articles based on the 23 vendor selection criteria of the Dickson study shown in the Appendix. It should be noted that categorization of some articles into one of the Dickson study's criteria was not clear cut and required some judgement. These decisions were based on our perception of the article's primary focus. For example, ' p e r f o r m a n c e history' of vendors m a y be captured in the vendor's 'delivery' or 'quality' performance. Similarly, 'warranties and claim' policies may be reflected in a vendor's 'price' structure. Finally, one additional caveat is in order. The Dickson results were based on a survey of purchasing agents and managers whereas this review is primarily based on academic literature. Consequently, any comparisons between our findings and those of Dickson must be made with the realization that the two studies were based on two different 'populations'. In spite of this, however, we believe that the Dickson study is a valid benchmark from which to identify possible trends in the importance of various vendor selection criteria. The Dickson study was based on a questioneer sent to 273 purchasing agents and managers selected from the membership list of the National Association of Purchasing Managers. The list included purchasing agents and managers from the United States and Canada. A total of 170 (62.3%) responses were received. Table 1 summarizes the findings of Dickson's study regarding the importance of the 23 criteria for vendor selection. In general, the articles in this review examine more than one of Dickson's criteria. In s o m e cases, the authors chose to look in detail at just one of the criteria. In these, the authors typically

C.A. Weber et al. / Vendor selection criteria and methods

Table 1 Dickson's vendor selection criteria a Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Factor Quality Delivery Performance history Warranties and claim policies Production facilities and capacity Price Technical capability Financial position Procedural compliance Communication system Reputation and position in industry Desire for business Management and organization Operating controls Repair service Attitude Impression Packaging ability Labor relations record Geographical location Amount of past business Training aids Reciprocal arrangements Mean
rating

Evaluation Extreme importance

3.508 3.417 2.998 2.849 2.775 2.758 2.545 2.514 2.488 2.426 2.412 2.256 2.216 2.211 2.187 2.120 2.054 2.009 2.003 1.872 1.597 1.537 0.610

Considerable importance

purchasing environment mentioned, an entry of 'general industrial purchasing' is given. The final subentry briefly describes any techniques or analytical methods which were used to measure or analyze the criteria. If specific techniques were not used, the study was categorized as either ' c o n c e p t u a l ' or 'empirical'. In total, 74 articles were reviewed. The annotations are n o w presented in alphabetical order by the author's last name: Ansari and Modarress (1986), "Just-in-time purchasing: Problems and Solutions", - quality, delivery, net price, geographical location, attitudes,
JIT,

Average importance

- conceptual. Ansari and Modarress (1988), " J I T purchasing as a quality and p r o d u c t i o n centre", - quality, delivery, net price, geographical location, attitude, packaging,
JIT,

Slight importance

a See Dickson (1966).

focused on methods to measure the criterion or ways to incorporate it into a larger vendor selection process and were not advocating the sole use of the criterion for v e n d o r selection. In the following annotation each entry includes author(s), year of publication, and title of the article. The full citations are provided in the Reference section at the end of the article. Each annotation lists three subentries. The first subentry identifies which of Dickson's 23 vendor selection criteria were discussed in the article. The keyword(s) for the criteria used by Dickson are used. T h e second subentry describes the purchasing environment in which the criteria are discussed. Possible purchasing environments include J I T or M R P , a specific industry or items, large project purchases, etc. In cases where there is no specific

- conceptual. A n t h o n y and Buffa (1977), "Strategic purchasing scheduling", - delivery, net price, general industrial purchasing, - linear p r o g r a m m i n g model based on transportation model. Banerjee (1986), " A joint economic-lot-size model for purchaser and vendor", - net price, delivery, general industrial purchasing, - joint e c o n o m i c lot sizing model conceptually developed. Banerjee (1986), " O n " A quantity discount pricing model to increase v e n d o r profits .... , - net price, - , general industrial purchasing, EOQ. Bender, Brown, Isaac and Shapiro (1985), " I m proving purchasing productivity at I B M with a normative decision support system", - q u a l i t y , delivery, p r o d u c t i o n facilities and capacity, net price, - I B M for wide range of commodities, -mixed integer optimization p r o g r a m m i n g model as part of a decision support system. Benton (1983), " P u r c h a s e quantity discount procedures and M R P " , - net price, MRP,

CA. Weber et a L / Vendor selection criteria and methods

- EOQ, Least Unit Cost procedure, McLaren's Order Moment procedure studied by a simulation model. Benton (1985), "Multiple price breaks and alternative purchase lot-sizing procedures in material requirements planning systems". - net price, MRP, - EOQ, Least Unit Cost procedure, McLaren's Order Moment procedure studied by a simulation model. Benton (1985), "Purchase lot sizing research for MRP systems", - net price, MRP, - review of lot sizing techniques. Benton and Krajewski (1990), "Vendor performance and alternative manufacturing environments", - quality, delivery, service, - MRP/JIT, simulation. Benton and Whybark (1982), "Material requirements planning (MRP) and purchase discounts", - net price, MRP, - EOQ, Least Unit Cost procedure, McLaren's Order Moment procedure studied by a simulation model. Bernard (1989), "Managing vendor performance", - quality, delivery, net price, management and organization, service, general industrial purchasing, - conceptual. Bragg and Hahn (1982), "Material requirements planning and purchasing", - delivery, production facilities and capacity,
M R P ,

- goal programming optimization model. Burton (1988), "JIT/Repetitive sourcing strategies: 'Tying the knot' with your suppliers", - quality, delivery, production facilities and capacity, net price, technical capability, packaging ability, geographic location, training aids, management and organization, operational controls,
J I T ,

- conceptual. Cardozo and Cagley (1971), "Experimental study of industrial buyer behavior", - net price, delivery, quality, reputation and position in industry, past business, - general industrial purchasing, - empirical. Chakravarty and Martin (1988), "An optimal joint buyer-seller discount pricing model", - net price, - general industrial purchasing, EOQ. Chapman (1989), "Just-in-time supplier inventory: An empirical implementation model", - q u a l i t y , delivery, production facilities and capacity,
J I T ,

- empirical. Chapman and Carter (1990), " S u p p l i e r / customer inventory relationships under just-intime", - delivery, quality,
J I T ,

- conceptual. Browning, Zabriskie and Huellmantel (1983), "Strategic purchasing planning", - delivery, net price, technical capability, production facilities and capacity, general industrial purchasing, - conceptual. Buffa and Jackson (1983), " A goal programming model for purchase planning", - quality, delivery, performance history, net price, general industrial purchasing,
-

- multiple regression analysis. Cooper (1977), " A total system for measuring delivery performance', - delivery, - general industrial purchasing, - delivery performance analysis worksheet with linear weighted model. Croell (1980), "Measuring purchasing effectiveness", - quality, delivery, net price, general industrial purchasing, - conceptual. Dada and Srikanth (1987), "Pricing policies for quantity discounts", - net price, - general industrial purchasing, EOQ. Dempsey (1978), "Vendor selection and the buying process", - delivery, quality, net price, repair service,
-

C.A. Weber et al. / Vendor selection criteria and methods

technical capability, performance history, production facilities and capacity, training aids, operational controls, reputation and position in industry, financial position, attitude, communication system, bidding procedural compliance, management and organization, packaging capability, labor relation record, geographical location, - electronics manufacturing and electric utilities industries, - empirical. Edwards (1967), "Supplier management evaluation", management and organization, - general industrial purchasing; 9 case scenarios presented, - empirical. Frazier, Spekman and O'Neal (1988), "Just-intime exchange relationships in industrial markets", - quality, delivery, net price, technical capability, management and organization,
JIT,

JIT,

- conceptual. Hahn, Pinto and Bragg (1983), " 'Just-in-time' production and purchasing", - q u a l i t y , delivery, production facilities and capacity, net price, geographical location,
JIT,

- conceptual. Gaballa (1974), "Minimum cost allocation of tenders", - net price, productoin facilities and capacity, two classes of items, - mixed integer optimization models. Goyal (1987), "Comment on: A generalized quantity discount pricing model to increase supplier's profits", - net price, - general industrial purchasing,
EOQ.

- conceptual. Hakansson and Wootz (1975), "Supplier selection in an international environment - An experimental study", - price, quality, geographical location, production facilities and capacity, - international industrial purchasing, - empirical. Hinkle, Robinson and Green (1969), "Vendor evaluation using cluster analysis", - quality, delivery, net price, technical capability, - general industrial purchasing, - cluster analysis. Ho and Carter (1988), "Using vendor capacity planning in supplier evaluation", - production facilities and capacity, MRP, - conceptual. Hwang, Moon and Shinn (1990), " A n E O Q model with quantity discounts for both purchasing price and freight cost", - net price, - general industrial purchasing,
EOQ.

Gregory (1986), "Source selection: A matrix approach", - quality, delivery, performance history, production facilities and capacity, net price, technical capability, bidding procedural compliance, reputation and position in industry, management and organization, geographical location, - general industrial purchasing, - s o u r c i n g worksheet with linear weighting model. Hahn, Kim and Kim (1986), "Costs of competition: Implications for purchasing strategy", - quality, delivery, production facilities and capability, net price, technical capability, geographical location,

Jacobson and Aaker (1987), "The strategic role of product quality", - quality, - general industrial purchasing, - empirical. Jackson (1983), "Just-in-time production: Implications for logistics managers", - quality, delivery, geographical location, attitude,
JIT,

- conceptual. Jordan (1987), "Purchasing decisions regarding future price increases: An empirical approach", - net price, - general industrial purchasing,
EOQ.

Kingsman (1986), "Purchasing raw materials with uncertain fluctuating prices", - net price,

C.A. Weber et al. // Vendor selection criteria and methods

- commodity purchasing, - l i n e a r and dynamic programming models conceptually discussed. Kraljic (1983), "Purchasing must become supply management", - quality, delivery, production facilities and capacity, technical capability, - general industrial purchasing, - conceptual. LaForge (1985), " M R P lot sizing with multiple purchase discounts", - net price, MRP, - EOQ, POQ, LUC, PPA, IPPA models. Lamberson, Diederich and Wuori (1976), "Quantitative vendor evaluation", - quality, delivery, performance history, production facilities and capacity, net price, technical capability, financial position, management and organization, general industrial purchasing, analysis worksheet with linear weighting model. Lamm and Vose (1988), "Seller pricing strategies: A buyer's perspective", - net price, general industrial purchasing, - conceptual. Lee and Rosenblatt (1986), "A generalized quantity discount pricing model to increase supplier's profits", - net price, generalized industrial purchasing, EOQ. Levy and Cron (1985), "A decision support system for determining a quantitative discount pricing policy", - net price, generalized industrial purchasing, - EOQ placed in a decision support system framework. Manoochehri (1984), "Suppliers and the justin-time concept", - q u a l i t y , delivery, production facilities and capacity, net price, geographical location, attitudes,
d e c i s i o n J I T ,

- conceptual. Markowski and Markowski (1988), " A n alternative criterion for the quantity discount decision", - net price,

- general industrial purchasing, - conceptual. Mazurak, Rao and Scotton (1985), "Spreadsheet software applications in purchasing", - quality, delivery, net price, financial position, - general industrial purchasing, - spreadsheet vendor evaluation system using linear weighting model. McFillen, Reck and Benton (1983), "An experiment in purchasing negotiations", - price, quality, delivery, service, - general industrial purchasing, - empirical. McGinnis and Hollon (1978), "Packaging: Organization, objectives, and interactions", - packaging, - general industrial purchasing, - empirical. Monahan (1984), "A quantity discount pricing model to increase vendor profits", - net price, - general industrial purchasing, EOQ. Monczka, Giunipero and Reck (1981), "Perceived importance of supplier information", - quality, delivery, performance history, production facilities and capacity, net price, financial position, reputation and position in industry, management and organization, labor relations record, geographical location, - rankings provided for 6 industry types, - empirical. Monczka and Trecha (1988), "Cost-based supplier performance evaluation", - quality, delivery, net price, management and organization, general industrial purchasing, - develops service factor ratings and overall supplier performance index based on linear weighting model. Moore and Fearon (1973), "Computer-assisted decision making in purchasing", - quality, delivery, net price, general industrial purchasing, - linear programming approach discussed as part of computer-assisted vendor evaluation. Narasimhan (1983), " A n analytical approach to supplier selection", - q u a l i t y , delivery, production facilities and capacity, net price,
-

C.A. Weber et a L / Vendor selection criteria and methods

- general industrial purchasing, - analytical hierarchical process. Narasimhan and Stoynoff (1986), "Optimizing aggregate procurement allocation decisions", - production facilities and capacity, net price, - general industrial purchasing, - m i x e d integer optimization programming model. Newman (1988), "Insuring quality: Purchasing's role", - quality, - Statistical Process Control, - concept. Newman (1988), "The buyer-supplier relationship under just-in-time", - quality, delivery, production facilities and capacity, net price, technical capability, packaging ability, geographical location,
J I T ,

net price, - generalized industrial purchasing,

E O Q .

conceptual. Newman and Scodro (1988), "Price analysis for negotiation", - net price, general industrial purchasing, - conceptual. Pan (1989), "Allocation of order quantity among suppliers", - net price, quality, delivery, general industrial purchasing, - single objective linear programming model. Payne (1970), "Development of a supplier evaluation technique utilizing financial information", financial position, general industrial purchasing; 5 case scenarios presented, - empirical. Roberts (1978), "A vendor delivery rating model", - delivery, general industrial purchasing, - linear weighting model for delivery performance. Ronen and Trietsch (1988), "A decision support system for purchasing management of large projects", - delivery, net price, - large projects, - stochastic, stationary inventory model. Rubin, Dilts and Barton (1983), "Economic order quantities with quantity discounts",
-

Sharma, Benton and Srivastave (1989), "Competitive strategy and purchasing decisions", - net price, quality, delivery, - generalized industrial purchasing, - non-linear goal programming model. Sheth (1973), "A model of industrial buyer behavior", - quality, delivery, net price, production facilities and capacity, service, reputation and position in industry, reciprocal agreements, technical capability, impression, general industrial purchasing, - conceptual. Shore (1981), "A micro-computer based purchasing information system", - quality, delivery, net price, general industrial purchasing, - criteria reported as part of a micro-computer based information system for purchasing. Soukup (1987), "Supplier selection strategies", - q u a l i t y , delivery, production facilities and capacity, net price, technical capability,. financial position, desire for business; management and organization, attitude, geographical location, general industrial purchasifig, linear weighting model using probabilities. Timmerman (1986), "An approach to vendor performance evaluation", - quality, delivery, performance history, net price, technical capability. general industrial purchasing, - linear weighting model. Treleven (1987), "Single sourcing: A management tool for the quality supplier", - quality, delivery, production facilities and capability, net price,
J I T ,

- conceptual. Turner (1988), "An independent system for the evaluation of contract tenders", net price, production facilities and capacity, - general industrial purchasing, mixed integer optimization model. Wagner, Ettenson and Parrish (1989), "Vendor selection among retail buyers: An analysis by merchandise division", - industrial purchasing factors: quality, service,
-

C.A. Weber et al. / Vendor selection criteria and methods

delivery, net price, geographic location, reputation and position in industry, -retail purchasing factors: reputation and position in industry, service, delivery, quality, markup, fashionability, country of origin, selling history, - study concerned with retail purchasing in women's clothing, acessories and home products markets, - empirical. Wieters (1976), "Influences on the design and use of vendor performance rating systems", - production facilities and capacity, technical capability, financial position, reputation and position in industry, management and organization, operational controls, repair service, geographical location, - 6 specific industries, empirical. Wind and Robinson (1968), " T h e determinants of vendor selection: The evaluation function approach", - quality, delivery, net price, reputation and position in industry, geographical location,
Table 2 Journal outlets of the annotated bibliography Journal Journal of Purchasing and Materials Management Journal of Purchasing a Management Science Decision Sciences Production and Inventory Management Computers and Operations Research Journal of Business Logistics International Journal of Production Research Journal of Marketing Journal of Marketing Research Journal of Operational Research Society European Journal of Operational Research Journal of Retailing Industrial Marketing Management Journal of Operations Management Interfaces Harvard Business Review Operations Research Decision Sciences Institute Conf. Proc. International Journal of Production Management Operational Research Quarterly a Includes Dickson's article. Number of articles 33 5 5 4 3 3 3 3 3 2 1 1 1 1 1 1 1 1 1 1 1 (%)

reciprocal arrangements, performance history, technical capability, communication system, - general industrial purchasing, - generalized linear weighting model. Table 2 presents a list of the journals in which these articles appeared. As one might expect, the majority of them (45%) appeared in the Journal of Purchasing and Materials Management. Given the complexity and economic importance of vendor selection decisions, it is somewhat surprising how few articles have appeared in operations research/ management science oriented journals. This issue is discussed in more detail in Sections 5 and 6.

3.

Review

of

criteria

45 6 6 5 4 4 4

The criteria included in each article are presented in Table 3. Again, the 23 criteria presented in Dickson (1966) were used. It is interesting to note that 47 of the 74 articles or 64% discussed more than one criteria and that in one article, Dempsey (1978), 18 criteria are discussed. This demonstrates the inherently multi-objective nature of many vendor selection decisions. Also, 42 of the 74 articles or 57% have appeared since 1985. This appears to reflect a growing interest in the vendor selection process in the last 5 years. Table 4 lists the number of articles in which each criterion was addressed as well as the rank and rating of the criteria in the Dickson study. To the extent that publication in the literature reflects interest in, and importance of, the various criteria, some observations may be made from this table. For example, Table 4 indicates that net price, delivery and quality were discussed in 80, 59 and 54% of the articles respectively. These three criteria were rated as having 'extreme' or 'considerable' importance by Dickson. Production facilities and capability, geographical location, and technical capability were discussed in 31, 22 and 20% of the articles respectively. Production facilities and capability, and technical capability were categorized as having 'considerable importance' by Dickson while geographical location was considered to have only 'average importance' in Dickson's ranking. Warranties and claim policies was deemed to have 'considerable importance' in the Dickson study; however, it was not specifically discussed in any of the articles included in this review. Certainly, this

Table 3 Vendor selection criteria 2 X X X X X X X X X X X 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Article

Year

X X

X X X X X X X X X X X X X

.q

X X X X X X X X X X X X X X X X X X X X X X X X X X X X X x X X X X X X X X X X X X X X X X X X X X X X X X X X

X X X X X

X X X X X X X X

X X

t~ I:L

q~

L~ x x

X X X X X

X X X X X X X X

X X

Ansari and Modarress Ansari and Modarress Anthony and Buffa Banerjee Banerjee Bender et al. Benton Benton Benton Benton and Krajewski Benton and Whybark Bernard Bragg and Hahn Browning et al. Buffa and Jackson Burton Cardozo and Cagley Chapman Chapman and Carter Chakravarty and Martin Cooper Croell Dada and Srikanth Dempsey Edwards Frazier et al. Gaballa Goyal Gregory Hahn et al. Hahn et al. Hakansson and Wootz Hinkle et al. Ho and Carter Hwang et al. Jacobson and Aaker Jackson Jordan Kingsman Kraljic LaForge

1986 1988 1987 1986 1986 1985 1983 1985 1985 1990 1982 1989 1982 1983 1983 1988 1972 1989 1990 1988 1977 1980 1987 1978 1967 1988 1974 1987 1986 1986 1983 1975 1969 1988 1990 1987 1983 1987 1986 1983 1985

Table 3 (continued) Vendor selection criteria 1 X X X X X X X 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Article

Year

X X X X X X X X

X X X X X X X X X X

.q

t~

X X X X X X X X X X X X X X X X X X X X X X X

X X X

X X

t~

X X X X X X X X X X X X

X X X X

X X

X X X X X X X X X X X X X X X

X X X X X

X X X X X X X X X X X X X

X X

Lamberson et al. Lamm and Vose Lee and Rosenblatt Levy et al. Manoochehri Markowski and Markowski Mazurak et al. McFillen et al. McGinnis and Hollon Monahan Monczka et al. Moore and Fearon Narasimhan Narasimhan and Stoynoff Newman Newman Newman and Scodro Pan Payne Roberts Ronen and Trietsch Rubin et al. Sharma et al. Sheth Shore Soukup Timmerman Turner Treleven Wagner et al. Wieters Wind and Robinson X X X

1976 1988 1986 1985 1984 1988 1985 1983 1978 1984 1981 1973 1983 1986 1988 1988 1988 1989 1970 1973 1988 1983 1990 1973 1981 1987 1986 1988 1987 1989 1976 1968

12

C.A. Weber et al. / Vendor selection criteria and methods

does not imply that warranties and claim policies no longer have any importance in vendor selection. Rather, it is more likely that this criterion has been included as a component of other criteria or that this criterion is discussed in publications not considered in this study (e.g., legal publications). Table 5 lists the criteria by year of publication of the articles. This table indicates the existence of some possible trends. Table 5 indicates that net price, delivery, and quality have received the greatest amount of attention in the last five years, appearing respectively in 86, 53 and 51% of the articles published in that time frame. As Table 4 indicates, these three criteria were discussed more than any other criteria since 1969. On the other hand, several criteria have received little attention in the last five years. During the last five years no citations could be found for warranties and claim policies, communication system, impression, labor relations record, amount of past business, and reciprocal agreements; only one citation was found for bidding procedural compli-

ance, desire for business, operating controls, packaging ability, training aids; and only two citations were found for performance history, financial position, and reputation and position in industry. Table 5 also indicates that production facilities and capacity, geographical location, financial position, and management and organization generated an intermediate amount of attention in the past five years appearing respectively in 26, 16, 16 and 9% of the citations during that time frame. The recent attention to geographical location is especially interesting with 7 of 14 citations appearing since 1985 and 10 of 14 citations appearing since 1980.

4. Impact of JIT on criteria

As stated earlier, strategic management decisions may affect the criteria used in making subsequent operational decisions. A review of JIT criteria for vendor selection appears appropriate

Table 4 Criteria discussed in annotated bibliography Dickson's study Rank 6 2 1 5 20 7 13 11 8 3 15 16 18 14 22 9 19 10 23 17 12 21 4 Rating a 1 1 1A 1 2 1 2 2 1 1 2 2 2 2 2 2 2 2 3 2 2 2 1 Net price Delivery Quality Production facilities and capacity Geographic location Technical capability Management and organization Reputation and position in industry Financial position Performance history Repair service Attitude Packaging ability Operational controls Training aids Bidding procedural compliance Labor relations record Communication system Reciprocal arrangements Impression Desire for business A m o u n t of past business Warranties and claims 2 = Average importance. 3 = Slight importance. Criteria N u m b e r of articles 61 44 40 23 16 15 10 8 7 7 7 6 3 3 2 2 2 2 2 2
1

(%)

80 58 53 30 21 20 13 11 9 9 9 8 4 4 3 3 3 3 3 3
1

1 0

1 0

a Ratings: 1A = Extreme importance. 1 = Considerable importance.

Table 5 Vendor selection criteria by year

Year 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Vendorselection criteria 22 23 ~x I 1 2 1

1 1 3 1 3 1 1 1 2 1 1 1 1 1 1 1 1

1 2 2 1 3 1 1 1

1 4 2 3 1

1 2 1 1

2 5 6 3 4 2 1 6 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 1 2 1 1 1 1 1 1 1 1 1 1

1 4 11 6 9 6 2 7

2 1

2 5 6 3 5 2 1 7 1 2 1 1 1 1

e~

2, e,,
t.,,

1 1

2 1 1

2 1 1 2

1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967

1 1

1 1

14

C.A. Weber et al. / Vendor selection criteria and methods

in light of the recent movement of many firms toward this manufacturing philosophy. Of the 74 articles reviewed, 13 looked specifically at JIT. All 13 articles recognized that vendor selection under JIT is a multi-objective task. Table 6 lists the criteria addressed in these articles. Quality and delivery were discussed in all 13 of the articles. This is consistent with the Dickson study which listed these criteria as the two most important criteria for vendor selection. Production facilities and capabilities was also recognized in the articles as an important JIT criterion. In the Dickson study, this criterion ranked fifth. Net price was discussed in eight of the articles. Most authors however chose to handle net price as one component of 'total vendor cost' rather than as a separate component. In the Dickson report, net price ranked sixth. Geographical location is another important criterion for vendors in JIT systems. This is not surprising given the emphasis on local suppliers in JIT systems. This is in marked contrast to the Dickson report where geographical location ranked twentieth in importance. Other criteria that were mentioned for consideration in the JIT vendor selection process are technical capability, attitude, management and organization, operational controis, service and packaging.

5. Quantitative approaches to vendor selection

In the third subentry of each annotation are listed any quantitative approaches to vendor selec-

tion,that were presented in the article. These approaches may be grouped into three general categories: (1) linear weighting models, (2) mathematical programming models, and (3) statistical/probabilistic approaches. By far, the most utilized approach has been linear weighting models. Linear weighting models place a weight on each criteria (typically subjectively determined) and provide a total score for each vendor by summing up the vendor' s performance on the criteria multiplied by these weights. Wind and Robinson (1968) endorsed using a weighted linear model of multiple criteria for vendor selection. Other authors have followed suite, including Lamberson (1976) and Mazurak (1985). Timmerman (1986) and Gregory (1986) have linked this approach to a matrix representation of data. Cooper (1977) and Roberts (1978) used linear weighting models to evaluate vendors on delivery performance. Narasimhan (1983) employed the analytical hierarchical process to generate weights for such models. Most recently, Monczka (1988) developed multiple criteria vendor service factor ratings and an overall supplier performance index using linear weighting models. Given the inherent importance and complexity of vendor selection, it is somewhat surprising that only ten articles have proposed the use of mathematical programming techniques for vendor selection and order quantity decisions. The proposed techniques are linear programming, mixed integer programming, and goal programming.

Table 6 JIT Criteria for vendor selection Dickson's study Rank 1 2 6 20 5 7 16 13 18 14 15 Rating a 1A 1 1 2 1 1 2 2 2 2 2 Quality Delivery Net price Geographical location Production facilities and capacity Technical capability Attitude Management and organization Packaging Operational controls Repair service 2 = Average importance. 3 = Slight importance. Criteria Number of articles 13 13 8 7 7 4 4 2 2 1 1 (%)

100 100 62 54 54 31 31 15 15 7 7

a Ratings: 1A = Extreme importance. 1 = Considerable importance.

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Our literature review indicates that Moore and Fearon (1973) was the first of four articles to discuss the possible use of linear programming models for vendor selection. While the article did not provide an actual mathematical formulation, the objective of the conceptual model was to optimize the mix of vendor awards based on price, with constraints relating to the amount of business that any vendor could be awarded. Anthony and Buffa (1977) formulated a linear programming model to minimize total purchasing and storage costs in the scheduling of vendor deliveries. This model included budget, demand satisfaction and storage capacity constraints. Kingsman (1988) proposed, but did not formulate, the use of linear programming for commodity buying situations. Most recently, Pan (1989) formulated a linear programming model to minimize total purchase price. This model included constraints on quality, lead time and service. Four of the articles proposed the use of mixed integer optimization models for vendor selection. Gaballa (1974) formulated mixed integer optimization models to determine vendors and order quantities for two classes of items ordered by the Australian Post Office. The objective in these models was to minimize total purchase costs where price and value discounts were present. Bender et al. (1985) described, but did not formulate, a mixed integer optimization model to minimize the sum of purchasing, transportation and inventory costs over multiple time periods. The model is constrained by vendor capacity and policy constraints. Narasimhan and Stoynoff (1986) formulated a mixed integer optimization model to determine vendors and order quantities for multiple production plants. The objective in this model is to minimize the sum of total costs associated with transportation and inefficient utilization of vendor capacities. Constraints in the model address demand satisfaction, contract requirements and vendor capacities. Turner (1988) discussed a mixed integer optimization model used by British Coal for vendor selection. The objective in this model is to minimize total contract cost. Constraints in this model address demand satisfaction, vendor capacities, minimum and maximum order quantities, and geographic region purchasing constraints. Two articles structured the vendor selection problem in terms of multi-objective mathematical

programming techniques. Buffa and Jackson (1983) formulated the problem as a goal program. Goals in the model addressed quality, price, and delivery criteria. Sharma et al. (1989) also formulated the problem as a goal program. Goals in the model addressed price, quality, lead time, demand and budget considerations. Given the multi-objective nature of the vendor selection problem, it appears this is a fruitful area for the development of additional multi-objective modeling approaches. The third category, statistical approaches, includes three articles. Hinkle et al. (1969) used cluster analysis to generate vendor ratings. Ronen and Trietsch (1988) developed a stochastic EOQ model as part of a decision support system for purchasing of items for large projects. Soukup (1987) modified the linear weighting method by using probabilities for the criterion weights.

6. Summary and conclusions The multi-objective nature of vendor selection has been well documented since Dickson (1966) ranked the importance placed on 23 criteria by purchasing agents and managers. In this article, we have reviewed 74 articles which address vendor selection criteria in manufacturing and retail environments. Twenty-two of the 23 criteria ranked by Dickson were addressed in at least one of the articles. Forty-seven of the articles discussed more than one criteria. Clearly, strategic management decisions effect the relative importance that the various criteria have in the vendor selection process. A recent trend in manufacturing strategy is the implementation of the Just-In-Time (JIT) philosophy. Thirteen of the articles reviewed were specifically related to JIT manufacturing. All thirteen articles addressed the criteria of quality and delivery, eight of them mentioned net price, and six mentioned production facilities and capacity. These criteria ranked 1, 2, 5, and 6 in importance in the Dickson study. It is interesting to note, however, that geographical location was addressed in seven of these articles, yet this criteria ranked twentieth on the Dickson list. Increased concern over the geographical location of vendors is clearly one major change brought about by the implementation of

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C.A. Weber et al. / Vendor selection criteria and methods

JIT strategies. Also, Dickson's third and fourth ranked criteria, performance history and warranties and claims policies, were not discussed in any of the JIT oriented articles. These changes in criteria importance brought about by JIT indicate that the impact of strategic management decisions on the vendor selection process appears to be a fruitful area for future research. Given the complexity and economic importance of vendor selection, it is somewhat surprising how little attention has been paid in the literature to the application of quantitative methods to vendor selection. In light of the multi-objective nature of this problem, it would appear that the application of multi-objective programming techniques is another fruitful area of research in the vendor selection process. Such techniques would allow purchasers to systematically examine the tradeoffs among the various criteria when selecting specific vendors. Such analysis would enable purchasers to select the vendors who best satisfy the requirements necessary to implement management strategy. Finally, the analysis of strategic decision-making in vendor selection is another important area for future research. Once solely considered an operational function within companies, many companies are now examining the purchasing function with a strategic orientation (Adamson, 1980; Sharma, 1989; Browning et al., 1983; Farmer, 1978; Spekman, 1981; Spekman and Hill, 1980). Decisions such as length of contracts, number of vendors employed and location of vendors should be analyzed in light of their strategic implications. Given the inherent multi-objective nature of vendor selection decisions and the financial importance of such decisions in highly competitive environments, it appears that multi-objective programming techniques could prove extremely useful in such strategic planning.

Appendix
Factors used in Dickson's study 1
(1) The net price (including discounts and freight charges) offered by each vendor.

(2) The ability of each vendor to meet quality specifications consistently. (3) The repair service likely to be given by each vendor. (4) The ability of each vendor to meet specified delivery schedules. (5) The geographic location of each vendor. (6) The financial position and credit rating of each vendor. (7) The production facilities and capacity of each vendor. (8) The amount of past business that has been done with each vendor. (9) The technical capability (including research and development facilities) of each vendor. (10) The management and organization of each vendor. (11) The future purchases each vendor will make from your firm. (12) The communication system (with information on progress data of orders) of each vendor. (13) The operational controls (including reporting, quality control, and inventory control systems) of each vendor. (14) The position in the industry (including product leadership and reputation) of each vendor. (15) The labor relations record of each vendor. (16) The attitude of each vendor toward your organization. (17) The desire for your business shown by each vendor. (18) The warranties and claims policies of each vendor. (19) The ability of each vendor to meet your packaging requirements for his product. (20) The impression made by each vendor in personal contacts with you. (21) The availability of training aids and educational courses in the use of the product of each vendor. (22) Compliance or liklihood of compliance with your procedures (both bidding and operating) by each vendor. (23) The performance history of each vendor.

Acknowledgement
The authors wish to express their gratitude to the National Association of Purchasing Managers

i See D i c k s o n (1966).

C.A. Weber et aL / Vendor selection criteria and methods

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for partially funding this research under its Doctoral Grant program.

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