Strategic and operational supplier selection in a supply chain

This study develops a new strategic and operational supplier selection approach for a company in a supply chain to select suppliers for meeting its strategic and operational needs. The strategic needs involve the strategic goals and long-term expectations that the company wants to achieve for ensuring its long-term growth and survival, while the operational needs reflect the short-term requirements of an individual customer order of the company. An optimal group of strategic suppliers is first determined by the strategic supplier selection approach for meeting the strategic needs of the company. For meeting the operational needs of a specific customer order, the best supplier is then selected from the optimal group of strategic suppliers by the operational supplier selection approach. An empirical study on an auto parts manufacturing company in South Korea (referred to as the KAP company) is conducted to present the strategic and operational supplier selection approach in this study. Based on KAP’s strategic plan of developing long-term strategic suppliers from the existing suppliers and new suppliers, the strategic and operational supplier selection approach is developed for both cases. To meet the strategic needs of KAP, an optimal group of strategic suppliers that best meets both strategic goals and operational requirements of KAP is determined by the strategic supplier selection approach. The approach is developed by integrating multicriteria decision making (MCDM) models and an optimisation model. For developing strategic suppliers from the existing suppliers, the potential contribution of available suppliers to the strategic goals with regard to the long-term benefit-based criteria is evaluated. For developing strategic suppliers from the new suppliers, the potential contribution of available suppliers to the strategic goals with regard to the long-term benefits, opportunities, costs, and risks (BOCR) dimensions and their associated criteria is evaluated. An MCDM model with a new strategic goal dependent weighting method is developed to evaluate the contribution of the suppliers. After evaluating the contribution of the available suppliers to the goals, a set of feasible groups of strategic suppliers among the available suppliers is determined to meet KAP’s strategic needs and operational requirements by developing an optimisation model. The strategic needs contain a specified number of suppliers required by KAP and required for each product, and operational requirements contain required production capacities of suppliers for meeting the demand of products and required minimum total turnover of suppliers to be selected. An optimal group of strategic suppliers among the feasible groups is then determined by considering management costs, competition benefits, and a triadic buyer-supplier-supplier relationship of the groups, and the relative importance values of products, using pairwise comparisons in the analytic hierarchy process. To meet the operational needs of KAP, the supplier that best meets a specific customer order of KAP is determined from the optimal group of strategic suppliers by the operational supplier selection approach. MCDM models with a new customer order dependent weighting methods are developed in the approach. To determine the best supplier for meeting the customer order, a feasible group of suppliers that best meets the requirements of the customer order with regard to the information security dimensions and their associated criteria is first determined. Then, the supplier that best meets the requirements of the customer order with regard to the short-term benefit-based criteria is determined from the feasible group of suppliers. With the development of the strategic and operational supplier selection approach using MCDM and optimisation models, this study makes significant conceptual and methodological contributions. Instead of managing and selecting from a large number of suppliers for specific customer orders, the strategic supplier selection approach represents an original contribution to the methodological development for determining an optimal and manageable group of strategic suppliers that best meets both strategic goals and operational requirements of a company. The new strategic goal dependent weighting method in the approach provides a novel methodology for determining the criteria weights by considering how the long-term benefit-based criteria and long-term BOCR dimensions contribute to the strategic goals of a company. A new optimisation model together with pairwise comparisons enables a company to determine an optimal group of strategic suppliers that meets resource constraints and performs best as a group by considering both qualitative and quantitative criteria reflecting the strategic needs and operational requirements. The operational supplier selection approach represents a novel conceptual and methodological framework for determining the supplier that best meets a specific customer order of a company. In the approach, a new customer order dependent weighting method is developed for measuring weights of the information security dimensions and short-term benefit-based criteria by considering the impact of a specific customer order on the dimensions and criteria. The weighting method provides a formal methodology for consistently weighting the dimensions and criteria, depending on the requirements of a specific customer order. The strategic supplier selection approach has general application in determining an optimal group of strategic suppliers for companies that have different strategic goals with regard to different long-term benefit-based criteria, long-term BOCR criteria, and strategic needs and operational requirements. The operational supplier selection approach is applicable to select the best supplier for companies that have the requirements of various customer orders with regard to different information security dimensions and their associated criteria, and short-term benefit-based criteria.