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International Journal of Innovation and Technology Management Vol. 2, No.

4 (2005) 391409 c World Scientic Publishing Company

EMPIRICAL STUDY OF SUPPLIER SELECTION PRACTICES IN SUPPLY CHAIN MANAGEMENT IN MANUFACTURING COMPANIES
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DAN WANG , YEZHUANG TIAN and YUNQUAN HU School of Management Harbin Institute of Technology Harbin, China danwang@hit.edu.cn Received 30 March 2005 Revised 5 August 2005 Accepted 20 September 2005 Supply chain management has seen a wide application since the 1990s in satisfying diversied customer demands. To remain competitive on a global scale, manufacturing companies greatly increased the scope of their outsourcing activities. Consequently, supplier selection has become a highly prioritized activity with major signicance to companies. Previous studies of supplier selection show that there are commonly accepted supplier selection criteria. However, there are insucient studies on the association between the manufacturers criteria of supplier selection and why it wins orders from its customers. Studies on the dierences of supplier selection criteria among manufacturers from different countries are insucient either. Through empirical study this paper tries to nd out the association between manufacturers criteria in supplier selection and how it wins orders. Considerations of supplier selection criteria in dierent national background are compared and the consistency of supplier selection criteria and competitive priority is analyzed. Keywords : Supplier selection; supply chain management; manufacturing company; International Manufacturing Strategy Survey (IMSS).

1. Introduction The increasingly erce market competition has shortened the product life cycle, which have resulted in a sharp increase in costs and decrease in prots. This has imposed great pressure on manufacturers and impels them to adapt their business models and develop their core competencies. The traditional model of keeping large amount of stocks and making all the components within their own companies is no long suitable for the market condition. They begin to outsource many functions locally and internationally and keep in-house only those functions they have comparative advantage. Purchasing function has been taken by many managers as a key strategic tool in the rms attempt to achieve positional competitive advantage [Gustin, Daugerty and Ellinger (1997)]. How managers make purchasing decisions will inevitably impact organizational performance by aecting important activities including inventory management, production planning and control, cash
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ow requirements and product/service quality [Narasimhan as quoted in Katsikeas (2004)]. Supplier partnership has been considered as another way of developing companies core competencies since late 1980s and early 1990s. This can be attributed to the success of Japanese companies that have close relationships with their suppliers, i.e. the partnership model of supplier management [Dyer (1996); Weber et al. (1991); Womack et al. (1990)]. It is believed that the Japanese model of partnership has guaranteed better performance because companies in the partnership can share more information and are better at coordinating dependent tasks [Harland (1996); Dyer and Ouchi (1993)]. It also promotes investments in relationspecic assets in order to decrease cost, improve quality and expedite new product development [Dyer (1996)]. Once a supplier becomes part of a well-managed and established supply chain, it will have a lasting eect on the competitiveness of the entire supply chain [Choi and Hartley (1996)]. Price [1996] also suggests that when a company and its supplier have built on long-term, clan-like relationships, a companys supply chain creates one of the strongest barriers to entry for competitors. Given the strategic signicance of purchasing and supplier partnership to their operation and future development, manufacturers give more emphasis on supplier selection and establishing and maintaining an eective and ecient supplier partnership. Choy et al. [2003b] indicate that selecting the right suppliers can signicantly reduces purchasing costs and improves corporate competitiveness. Ittner and his colleagues [1999] found that organizations making extensive use of supplier partnership practices without making use of appropriate supplier selection and monitoring practices earn signicantly lower prots, have lower product quality and have a smaller proportion of acceptable long-term suppliers than organizations employing similar partnership practices but using more appropriate selection and monitoring practices. Previous studies show that there are commonly accepted criteria in supplier selection decisions, but insucient attention has been paid on the consistency between the manufacturers criteria in selecting suppliers and the customers criteria in selecting manufacturers, on the impacts of cultures on such criteria and its association with the manufacturers competitive priorities. Therefore, it is necessary to revisit this fundamental subject. The research in this paper is focused on investigating the characteristics of supplier selection strategies. The objective is to explore the inuencing factors in supplier selection and how companies from dierent countries vary in supplier selection practices. An empirical study is conducted by utilizing the data from International Manufacturing Strategy Survey (IMSS). The paper is divided into six sections. Section 2 oers a literature review on supplier selection. Section 3 introduces the framework of this study where hypotheses are put forward. In Sec. 4, the survey instrument and the sample used in the study are described. Limitations of this survey are analyzed as well. Section 5 discusses the results of the hypotheses. A conclusion of the study is made in Sec. 6.

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2. Literature Review Given the increasing signicance of supply chain management and purchasing functions, manufacturers become more dependent on suppliers. Consequently, supplier selection becomes one of the most important activities of a company and a major research eld. The supplier selection literature can be categorized into two distinct topical areas: (1) the promulgation of various supplier selection tools, such as the analytic hierarchy process [Narasimhan (1983)] or performance indexes [Monczka and Trecha (1988)]; and (2) research that attempts to determine the relative importance among the supplier selection criteria of quality, delivery, cost, and exibility (e.g. [Dickson (1966); Verma and Pullman (1998)]. The second category of research on supplier selection criteria will be the focus in our literature review as it is more related with the study of this paper. Dickson [1966], in one of the early works on supplier selection, identies over 23 dierent criteria that have been considered by purchasing managers in various supplier selection problems. His research was based on a questionnaire 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. Dickson classied them into four categories with varying importance from extreme importance and considerable importance to average importance and slight importance. The criteria with extreme importance include quality, delivery and performance history. Since his study, many researchers have identied that important criteria vary by industry and buying situations. Weber, Current and Benton [1991] reviewed, annotated and classied 74 related articles which have appeared in major journals written in English since Dicksons study in 1966. They found that 22 of the 23 criteria ranked by Dickson were addressed in at least one of the articles. In some cases, the authors chose to look in detail at just one of the criteria. In these cases, the authors typically 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 vendor selection. The extensive attention to certain criteria from researchers implies the importance of these criteria to the manufacturer as well as the researcher. Since Weber and his colleagues work in 1991, there have been a number of conceptual and empirical articles on supplier selection. Most of the conceptual studies tend to identify supplier selection criteria from the technical, global and strategic perspectives. Some of these researches are listed in Table 1. Katsikeas, Paparoidamis and Katsikea [2004] suggested that supplier performance in competitive pricing, reliability (in delivery and product, the suppliers honesty, regular communication with the buying rm), technological capability and service are a primary determinant of successful purchasing decision strategies. Gustin et al. [1997] stressed the importance of supplier eciency as one of the most highly rated purchasing criteria. Manufacturers are aware of the need for a longterm interactive relationship with a vendor and the possession of such capabilities

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D. Wang, Y. Tian & Y. Hu Table 1. Supplier selection criteria from dierent perspectives.

Focuses Technical

Authors Chao et al. [1993] Wei, et al. [1997] Krause et al. [2001] Lee, Mu-Seong, et al. [2003] Katsikeas, et al. [2004]

Criteria Quality, delivery speed, reliability, price Suppliers supply history, product price, technical ability and transportation cost Quality, delivery, exibility, cost, innovation Quality, price, delivery Competitive pricing, reliability, technological capability, service Future manufacturing capacity The closeness of the relation and continuous improvement capabilities Total cost analysis

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Global

Ellram [1990] Choi & Hartley [1996] Roodhooft & Konings [1996]; Ellram [1996]; Tagaras & Lee [1996]; Ghodsypour et al. [2001] Petroni & Braglia [2000]

Supplier capacity in production planning Joint development, culture, forward engineering, trust, supply chain management, quality and communication Finance, consistency, relationship, exibility, technological capability, customer service, reliability, price Price & quality, logistical performance (reliability, exibility, supply lot, lead time), output, services, HR (design involvement, management ability, culture, etc.) Price, delivery, quality, quantity, revenue maximization, customer satisfaction

Strategic

Briggs [1994]

Choi, T.Y. et al. [1996]

Ghodsypour, S.H. et al. [1998]

Hong, et al. [2005]

by the supplier is essential for the manufacturers attempt to gain competitive advantage. Empirical articles try to nd out the most important criteria for purchasing managers when selecting suppliers. Apart from Dicksons empirical study, other researches suggest that managers perceive quality to be the most important supplier attributes [Verma and Pullman (1998)]. Some researchers focus on the purchasing managers preference from the cultural perspective. In an empirical study by Mummalaneni, Dubas and Chao [1996], the preference of Chinese purchasing managers in supplier selection is studied. The result presented in their study indicates the relative importance of various attributes to purchasing managers from China, which are: Quality, on-time delivery, responsiveness to customer needs, price, relationship with supplier and the professionalism of the salesperson. The studies by Billesbach et al. [1991] indicate that in spite of considerable similarities between them, purchasing practices in the US and the UK also exhibit subtle dierences that need to be understood by marketers. However, in spite of the large number of conceptual and empirical researches on supplier selection criteria and decision methods, there are insucient studies on the association between supplier selection criteria the manufacturer uses and how it wins orders from its customers or the association between the manufacturers

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supplier selection criteria and competitive priorities. Studies on the dierences of supplier selection criteria among manufacturers from dierent countries are insucient either. The widespread discussions and insucient empirical evidence on supplier selection considerations and practices lead to our three research questions: (1) Is there any relationship between the manufacturers supplier selection criteria and priority in selecting suppliers and its customers considerations in placing orders? (2) Is there any dierence among manufacturers from dierent countries in making supplier selection decision? If there does exist dierence, what is it? (3) Is there any association between the manufacturers supplier selection criteria and competitive priorities? 3. The Framework The proposed model in Fig. 1 incorporates four variables: Supplier selection criteria the manufacturer uses, the customers criteria in selecting the manufacturers, competitive priorities, and cultural and economic background the manufacturer operates. The model posits that the manufacturers supplier selection criteria are consistent or impacted by the latter three variables. The proposed model is based on the premise that all manufacturers are subject to the external environment, such as competitive environment, cultural and economic environment, etc. Therefore, it is compulsory for the manufacturer to adapt their overall and operations strategies to the environment if it is to survive or achieve sustainable development in the marketplace. The intensive global competition among manufactures to co-ordinate with and respond quickly the industry value chain from suppliers to customers has made relationship management between the manufacturer and their suppliers an important task in the new era. Supplier selection as the starting point in the supply chain is one of the most important functions in supplier relationship management (SRM) and is of great signicance to the success of supply chain management. To forge competitive advantage, the manufacturer needs to incorporate its customers need and preference in selecting a manufacturer into its own supplier selection strategies. Choy and Lee [2003a] have noted that there exists an interesting and satisfying symmetry between the role of CRM (customer relationship management) and SRM

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Customers criteria

Supplier selection criteria

Competitive priorities

Cultural and economic background

Fig. 1. The conceptual framework.

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Consistent

Selection criteria Supplier Materials & components Manufacturer

Selection criteria Customer Product

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Fig. 2. Simplied model of a supply chain.

(supplier relationship management). Knowing and responding to the customers preference and demands and tuning them into supplier selection practices can facilitate the manufacturer to better satisfy the customer, forge a close relationship with the customer and consequently winning out in the competition. Therefore, it is hypothesized that the criteria of supplier selection of a company are consistent with its customers consideration in selecting manufacturers. This hypothesis can be illustrated with the simplied model of a supply chain in Fig. 2. Hypothesis 1: The manufacturers supplier selection criteria are in consistency with its customers consideration in selecting manufacturers. It is an acknowledged fact that companies are subject to the external environment where they operate in. Companies need to adjust their strategies according to the political, economic, social and technological environments. Cultural backgrounds and the economic development situation have particular impacts on the overall and operations strategies of the company. These impacts are naturally shown in supplier selection practices. As a result, companies from dierent countries have dierent considerations in making supplier selection [Billesbach et al. (1991); Cusumano and Takeishi (1991); Mummalaneni et al. (1996)]. Therefore, it is hypothesized that manufacturers from dierent countries may have dierent considerations in making supplier selection decisions and therefore, the priority of supplier selection criteria may vary. Hypothesis 2: The priority of supplier selection criteria varies among manufacturers from dierent countries. Another of the manufacturers considerations in supplier selection is the alignment of the companys competitive strategy to the competitive environment. The competitive strategy refers to the basis on which the company can achieve and maintain a competitive advantage through dierentiation, cost leadership, and response [Miller and Roth (1994)]. It is the competitive strategy that guides the choice and development of competitive priorities and species how the operations function provides a manufacturer with a competitive advantage in the marketplace. Competitive priorities refer to the dimensions of manufacturing strategy or the content of manufacturing strategy [Fine and Hax (1985); Swamidass and Newell (1987)]. Skinner [1974] rst suggested that the choice of competitive priorities includes cost,

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quality, delivery, and exibility. Other studies [Hill (2000); Wheelwright and Bowen (1996)] have since added various dimensions of competitive priorities such as service and innovation. Given the increasing importance of purchasing in a companys strategic and operations management, supplier selection, the starting point of the purchasing function, is usually taken as a premise of achieving strategic purchasing objectives. It is thus hypothesized that the competitive priorities are reected in the manufacturers criteria of supplier selection. Hypothesis 3: The criteria of supplier selection are a reection of the competitive priorities. 4. Methodology 4.1. The survey instrument The data used in the empirical study comes from the International Manufacturing Strategy Survey (IMSS), which was initiated by London Business School and Chalmers University of Technology in 1992. IMSS is an international research network consisting of 20 countries and 600 companies around the world, including developed countries, i.e. USA, Japan, British, Germany, and developing countries, i.e. China, Argentina, Mexico. The participant companies are from the manufacturing industry within the Division of Fabricated Metal Products, Machinery and Equipments, i.e. the International Standard Industry Classication (ISIC) 38. Up till now, three rounds of survey have been accomplished. The rst round of IMSS covered 600 companies in 20 countries. The second round of the survey was conducted during 19961997 and gathered observations from 703 companies in 18 countries. Data collection for the third round nished in the middle of 2003. The purpose of this survey was to explore and identify the strategies and practices utilized by manufacturing companies around the world. The survey questionnaire consists of four parts: (1) Strategies, objectives and costs; (2) current manufacturing and integration practices; (3) past and planned manufacturing activities; and (4) manufacturing performance. Supply chain management, as an important and eective way in reducing production cost, improving and fostering performance and competitiveness of the company, is of great strategic signicance to the manufacturing industry. Therefore, this survey makes supply chain management practices an important part, particularly in the third round of the survey. Among the total 400 plus questions in the questionnaire, about 80 questions are on supply chain management. There are also some 160 questions that are indirectly related. This provides a sucient database for the research. In the questionnaire, the design of questions on supply chain management was based on past literature and published surveys. To address supplier selection practices, the works of Dickson [1966], Weber, Current and Benton [1991] was used as references in building up the supplier selection criteria. Shin, Collier and Wilson [2000] note that improved supplier performance has a direct and positive impact on quality and delivery-related buyer performance. This idea has also been incorporated into IMSS questionnaire with regard to supplier selection criteria. With the changing competitive and market environment, manufacturers have to adjust their strategies

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accordingly. As strategic management decisions impact every area of a manufacturer, the criteria for making subsequent operational decisions must, therefore, be re-examined in compliance with such decisions. Supplier selection naturally needs new criteria and/or a re-emphasis of exiting criteria to incorporate new strategic directions. Therefore, new criteria are included to incorporate the changing external environment and changes in companies strategies. Such criteria include: Evaluation of supplier potential and willingness to disclose cost/other information. The rationale of adding these two criteria in supplier selection considerations is the increasing importance of supplier relationship management and supplier partnership. The criterion of evaluation of supplier potential mainly examine the situation whether the supplier has a development plan and what their past performance records are. Such evaluation can give the manufacturer an idea about whether the supplier is an appropriate and trustworthy partner in future cooperation. The criterion of willingness to disclose cost and/or other information is used to examine the suppliers willingness to cooperate. Sharing cost and other information on production and management reduces suspicion of opportunistic behaviors [Jap (2001)] from both parties and thus, it is benecial to the establishment of a closer relationship or partnership. 4.2. The sample The research reported in this paper is based on the data from the third round of IMSS survey (hereinafter referred to as IMSS 2003). Data collection methods varied from country to country. In some countries, sample selection was at the coordinators convenience, and others used random sampling. Phone contact was followed in most of the participating countries, except for the Netherlands. The questionnaires were forwarded to participating companies via mailing, fax or on-site interview. In those countries where English is not used, the questionnaire was translated into local native languages. Translation work was done by participants from the corresponding countries who have a good command of English. The informants of the questionnaires include general managers or high-rank operations executives in the industries mentioned in Sec. 4.1 of this paper. Participating countries sent their data to the coordinator who forwarded the nal database to all participants. The total sample size is 558, with the average return rate exceeding 35%. The number of samples for each scale item is well above 500 with Cronbach coecient over 0.6. Likert ve-point rating scale is used for most of the items in the survey, where 1 indicates the least important and 5 the most important. The sample proles for 17 participating countries are presented in Table 2. 4.3. Limitations The sample selection in some countries is at the coordinators convenience instead of random sampling. In addition, non-response bias could conceivably exist given the response rate of 35%. Although some phone calls have been made to encourage non-respondents, the length of the survey questionnaire, which contains some 400 questions, have denitely discouraged the achievement of a higher response rate.

Study of Supplier Selection Practices in Supply Chain Management Table 2. Sample prole for participant countries. Average size (Number of employees) 281 253 381 579 1227 560 397 1194 545 377 671 207 161 664 645 546 5705

399

Country Argentina Australia Belgium Brazil China Croatia Denmark Germany Hungary Ireland Italy Netherlands Norway Spain Sweden United Kingdom USA Total

Sample size 14 40 19 35 30 35 38 32 58 32 60 14 51 20 19 47 14 558

Distribution across countries (%) 2.52 7.17 3.41 6.27 5.38 6.27 6.81 5.73 10.4 5.73 10.75 2.51 9.13 3.58 3.41 8.42 2.51 100

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The actual method of collecting the data, the environment and knowledge of the responding person, and possible translating problems could result in uncertainty in such an international survey. However, the rich database as a counter-value is quite useable in empirical analyses.

5. Results and Discussion 5.1. Hypothesis 1 Variables of the manufacturer winning orders from its customers and those of the manufacturer selecting suppliers are adopted to testify their consistency. Variables of the manufacturer winning orders include product design and quality, delivery performance, superior service and lower selling price. Other variables are the manufacturers abilities to provide a wider product range, oering newer products more frequently, providing great order size exibility and oering environmentally sound products. With regards to the manufacturers criteria of supplier selection, quality, delivery performance and price bid are important variables. Logistic costs, ability to provide innovation and co-design, physical proximity, willingness to disclose cost and/or other information, legal/contractual terms and evaluation of supplier potential are other criteria the manufacturer uses in supplier selection. Logistic costs include those costs occurred in transportation, storage and handling. Evaluation of supplier potential mainly considers the situation if the supplier has a specic development program and how good their past performance records are. The means and standard deviation of each group of criteria are analyzed with results shown respectively in Tables 3 and 4.

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D. Wang, Y. Tian & Y. Hu Table 3. Factors facilitate winning orders order of priority. Sample size Product design and quality Delivery performance Superior customer service Lower selling price Greater order size exibility A wider product range More frequent newer products Environmentally sound products 528 535 518 537 519 513 518 502 Mean 4.22 4.04 3.90 3.74 3.35 3.32 3.20 2.93 Standard deviation 0.868 0.862 1.007 1.084 1.218 1.099 1.153 1.174

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Table 4. Criteria of supplier selection order of priority. Sample size Quality of products/services Delivery performance Price bid Evaluation of supplier potential Logistic costs Ability to provide innovation and co-design Willingness to disclose cost/other info. Physical proximity/within region Legal/contractual terms 532 536 529 515 516 518 517 521 513 Mean 4.45 4.34 3.80 3.44 3.15 3.04 2.93 2.87 2.85 Standard deviation 0.649 0.705 0.961 1.041 0.941 1.092 1.066 1.025 1.094

The results of the survey show that the manufacturer obtains orders from their customers because it excels their competitors in oering better product design and product quality, faster and more reliable delivery, superior customer service and lower selling prices. The manufacturers criteria of selecting suppliers are in consistent with its customers consideration in selecting manufacturers. The top two priorities of the manufacturers in supplier selection are quality and delivery followed by price bid and evaluation of supplier potential. This result is similar with the ndings by Mummalaneni and his colleagues [1996]. The result is easy to understand because at a competitive marketplace, the way to succeed is to study and satisfy customers need and preference. This is particularly true since late 1990s when customer relationship management (CRM) is becoming more and more important in the competitive environment [Choy, Lee and Lo (2002)]. Incorporating the customers criteria in selecting manufacturers into the manufacturers supplier selection criteria enhances the manufacturers capabilities in satisfying the customers demand and forges its competitive advantage over its competitor. Only when the ranking of the manufacturers criteria in selecting suppliers is in consistency with those of the customer can the manufacturer win the order. The manufacturers abilities to oer greater order size exibility, a wider product range and newer products more frequently than their competitors are also important factors in winning orders. This is because in a highly competitive market, the customers demands are considerably uncertain and diversied. Therefore, satisfying their demands requires the manufacturer to be more exible in order size and products ranges. The ability to oer new products more frequently facilitates

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the manufacturer to meet the customers needs better. Only when the manufacturer excels in these aspects can they win out in the competition. When selecting suppliers, the manufacturer not only considers quality, delivery performance and prices that suppliers oer, evaluation of supplier potential is also of great importance. Suppliers with great potential of development and excellent past performance records are usually preferred because they can help the manufacturer to get a suciently exible production volume with good quality and reliable delivery. Reliable suppliers with great potential of development can thus facilitate the manufacturer to forge competitive advantage over its competitors. Chi-square analysis is conducted to test the statistical signicance of the association between the manufacturers criteria of supplier selection and customers consideration in selecting manufacturers. The chi-square statistic of the manufacturers criteria of supplier selection is 13.682 and asymptotic signicance is 0.134, well above the signicance level of 0.05. The chi-square statistic of the customers consideration in selecting manufacturers is 13.995 and the asymptotic signicance is 0.083, also well above the signicance level of 0.05. As analyzed above, Hypothesis 1 is proved and conclusion can be drawn that the manufactures criteria of supplier selection are in consistency with its customers consideration in selecting manufacturers. 5.2. Hypothesis 2 Five countries are chosen from dierent parts of the world to analyze whether manufacturers from dierent national and cultural backgrounds have dierent considerations in supplier selection. These countries are Australia from Oceania, China from Asia, Germany from West Europe, Norway from North Europe and the United States from North America. Data from IMSS 2003 on manufacturers criteria in supplier selection are used to analyze the dierences in the rankings of these criteria. The descriptive statistics are shown in Table 5. The variables BSC21 to BSC29 respectively stand for criteria of lowest price bid, delivery performance, quality of products/services oered, logistic costs, ability to provide innovation and co-design, physical proximity/within region, willingness to disclose cost and/or other information, legal/contractual terms and evaluation of supplier potential. The result illustrates that manufacturers from all the ve countries are taking quality of products and/or service oer and delivery performance as the top two priorities when selecting suppliers. The top one priority for manufacturers in China, US and Australia is quality followed by delivery performance, whereas it is just the opposite for manufacturers in Germany and Norway. However, it should be noted that even though manufacturers in the latter two countries consider quality less important than to delivery performance, it does not indicate that quality is not as important for them as for the rst three countries. This can be explained by the means of quality, which, for German and Norwegian manufacturers, are both equal to or well above 4.50, higher than that of Australian and the US manufacturers. Willingness to disclose cost/other information is taken as a least important criterion by manufacturers from all the ve countries with only minor dierences in that

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Table 5. Criteria of supplier selection order of priority comparison. BSC21 3 3.84 0.834 5 3.72 1.032 3 3.69 0.850 3 4.08 0.767 4 3.36 0.497 2 4.21 0.699 1 4.43 0.756 5 2.86 0.663 6 2.86 1.099 1 4.53 0.616 2 4.50 0.619 4 3.49 0.944 7 2.93 1.143 8 2.87 1.036 8 2.79 0.975 1 4.60 0.498 2 4.57 0.504 8 3.13 1.074 4 3.47 1.167 5 3.20 0.887 9 3.03 0.765 9 2.82 0.947 9 2.64 1.008 2 4.33 0.606 1 4.61 0.567 (7) 3.36 0.995 6 3.63 1.043 9 3.08 0.909 8 3.28 1.173 (4) 3.77 0.992 7 3.13 1.008 6 2.96 1.043 7 2.86 1.167 2 4.16 0.646 1 4.27 0.693 4 3.16 8.866 7 2.68 0.973 6 2.86 1.058 8 2.65 0.978 9 2.54 0.900 BSC22 BSC23 BSC24 BSC25 BSC26 BSC27 BSC28 BSC29 5 3.14 1.058 (3) 3.78 1.103 6 3.13 1.106 5 3.21 1.036 (3) 3.43 1.284

Country

Variables

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Australia

Rank Mean S.D.

China

Rank Mean S.D.

Germany

Rank Mean S.D.

Norway

Rank Mean S.D.

US

Rank Mean S.D.

Note: Figures in brackets indicate greater dierence from others.

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manufacturers in Australia and China take it as second least important criteria in supplier selection. The criterion of evaluation of supplier potential is also taken as an important consideration by manufacturers, especially for Chinese and US manufacturers. This is because supplier partnership is given greater attention to by manufacturers as a means of improving their competitiveness. For the Chinese manufacturer, it can also be attributed to their social and cultural backgrounds where people value, to a great extent, the friendly and reliable relationship with their business partners. In some situations, relationship, or guanxi, (the Chinese name for relationship) is even more important than other criteria. This nding has been noted by Mummalaneni et al. [1996]. Guanxi can make business partners trust each other and facilitate business transactions. But on the other hand, it may also bring along uncertainty. Therefore, Chinese manufactures need to reduce the uncertainty resulted from Guanxi and get protected by means of legal and/or contractual terms. That explains why legal/contractual terms are one of the prioritized considerations in selecting suppliers by Chinese manufacturers. It is interesting to note that for companies in Australia, Germany and Norway, price bid is the third important criteria in selecting suppliers while it only ranks the fth by Chinese manufacturers. Similarly, logistic costs are less important for Chinese manufacturers than for manufacturers from Australia, Norway, and the US Lower labor cost in China can explain this phenomenon. Other dierences can be traced from the ranking of priorities by Australian, German and Chinese manufacturers. The German manufacturers put ability to provide innovation and co-design as the fourth important criterion while manufacturers from the other countries put this criterion in the 6th or 7th place. It indicates that German companies give sucient emphasis on innovation in their operation and they require their suppliers be innovative and able to participate in design activities. The above analysis also shows that there are greater dierences in priorities of supplier selection criteria between China and the other four countries than among the latter four. This is because the other four are developed western countries and they have more in common in their economic, social and cultural backgrounds, while China is more distinctive from them in these aspects though the dierences are decreasing with the global economic integration. To sum up, manufacturers from dierent countries have dierent considerations in supplier selection while they also share some similarities. Therefore, Hypothesis 2 that the priority dierences of supplier selection criteria vary among manufacturers from dierent countries is partially supported by the empirical study.

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5.3. Hypothesis 3 Competitive environment determines the corporate strategy, which in turn determines the objective of a manufacturing company. These objectives include quality, delivery, product variety, volume exibility and cost [Sharma et al. (2003)]. Krause et al. [2001] suggest that operations strategies are composed of choices along the

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D. Wang, Y. Tian & Y. Hu Table 6. Supplier selection criteria Degree of importance. Sample size Standard deviation 0.649 0.705 0.961 1.041 0.941 1.092 1.066 1.025 1.094

Mean 4.45 4.34 3.80 3.44 3.15 3.04 2.93 2.87 2.85

Evaluation Extreme important Considerable important Average important

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Quality of products/services Delivery performance Price bid Evaluation of supplier potential Logistic costs Ability to provide innovation and co-design Willingness to disclose cost/other information Physical proximity/within region Legal/contractual terms

532 536 529 515 516 518 517 521 513

Slight important

competitive priorities to support the overall operational mission and business strategy. Purchasing function has been viewed as a pattern of decisions related to acquiring required materials and services to support operations activities that are consistent with the overall corporate competitive strategy [Watts et al. (1992)]. Supplier selection as a signicant part of the purchasing function becomes a natural reection of the companys competitive strategy and competitive priority. Since the 1980s, quality as a competitive priority has helped companies win orders in the marketplace [Dilworth (1993)]. Delivery, exibility, cost, service and innovation are also important competitive priorities noted by researchers [Skinner (1974); Wheelwright and Bowen (1996); Hill (2000)]. More recently, time-based competition has emerged as the winning strategy. These objectives and considerations have been reected in the criteria of supplier selection. Based on the data from IMSS 2003, descriptive analysis is performed to classify the degree of importance of these supplier selection criteria at the more recent time frame. The results of both analyses are shown in Table 6. The above result shows that the quality of product/service and delivery performance (including delivery reliability, speed and exibility) are taken as the most important factors considered in selecting suppliers by manufacturers. Both elements are fundamental for the manufacturer to become competitive in the marketplace. Comparatively, cost is not as important as the above two elements. It also holds true with logistic cost. Whether the supplier has the ability to provide innovation and co-design and whether he is willing to disclose cost and other information are becoming more important than before when manufacturer-supplier partnership has great impact on the companys performance and establishment of competitive advantage. The development and construction of Boeing-777 is a successful example in this aspect [Pearce II and Robinson, Jr. (2003)]. Physical proximity of the supplier is taken as less important to manufacturers. This tendency is the consequences of economic and technical changes. Improved facilities for international communications, transportation and logistics oer wider scope than ever before for globalization of business. These increased opportunities bring with them ercer competition at both domestic and international markets.

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These developments are in turn leading companies towards the procurement of materials and components from foreign sources to improve their competitive performance. Traditionally, most companies made the majority of their purchases from domestic or regional markets and only from abroad when there is a lack of local availability or when there are signicant purchase price advantages. The emergence and widespread use of the Internet allows the search of suppliers from the smallest company to largest corporations on a global base. This has resulted in the availability of a large number of qualied suppliers who can satisfy customers requirements [Choy et al. (2005)]. Now international or global purchasing is viewed as a strategic weapon in the quest for improved performance and protability through greater availability, enhance technology, price advantage and so on [Helper (1991)]. Whether the supplier is willing to disclose cost and/or other information is a criterion that the manufacturer would consider in selecting suppliers because it makes it possible for both parties to share strategic planning and production information and utilizing each others expertise in product and process design, thereby creating synergies between them. A conclusion can be drawn that the supplier selection criteria are a reection of the competitive priority. Hypothesis 3 is supported by the empirical study with IMSS 2003 database. 6. Conclusion This study analyzes the characteristics of the manufacturers practice in supplier selection and the relationship between the manufacturer and their supplier from the supply chain perspective. Based on the variables extracted from the IMSS 2003 database, this study has empirically veried the relationship between the competitive advantage of the manufacturer in winning orders and his criteria in selecting suppliers. This empirical study has found that manufacturers from dierent countries have dierent priorities with regard to the supplier selection criteria. This situation can be attributed to their corresponding cultural inuences and economic environments. The empirical study also shows that the supplier selection criteria are the reection of competitive priority of the manufacturer. The results of the study reveal the following: (1) The manufacturers supplier selection criteria are in consistency with its customers consideration in selecting manufacturers. (2) Due to the cultural and economic backgrounds, manufacturers from dierent countries have dierent considerations in making supplier selection decisions and therefore, the priority of supplier selection criteria may vary. (3) The manufacturers supplier selection criteria are a reection of the competitive priority. There are some future issues to be considered. Do supplier selection criteria that the manufacturer uses have any impacts on its performance? Do these criteria have any impacts on supplier partnership? Do highly protable manufacturers have dierent considerations in supplier selection from those unprotable ones? Future research will be needed to address these issues.

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Acknowledgment We would like to thank the editor and anonymous reviewers for their helpful comments. Without them, this paper would not have been in print. Funding for this research was provided by the Harbin Commission of Science and Technology, Project No. 2002AFLXJ007. The project is also supported by the China National Science Foundation (Project No. 7043303) and Project 863 (2003-AA-423260).

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Biography Dan Wang is an associate professor of organizational theory of the School of Management at Harbin Institute of Technology. She received her Master degree in business administration from Brisbane Graduate School of Business at Queensland University of Technology, Australia and is currently pursuing her PhD in Harbin Institute of Technology. She teaches undergraduate and graduate courses in organizational behavior and business planning. Her research interests are in organizational theory and supply chain management. She has published dozens of papers in these elds in journals and at international conferences. Yezhuang Tian is a professor of human resources management of the School of Management at Harbin Institute of Technology. He received his Bachelor degree of Psychology in Hangzhou University, China, Master and PhD in management of engineering from the School of Management at Harbin Institute of Technology. He teaches undergraduate and graduate courses in human resources management and innovation management. His research interests are in HRM and manufacturing strategies. He has published several books and dozens of papers in these elds in journals and at international conferences. Yunquan Hu is a professor of operational research in the School of Management at Harbin Institute of Technology. He was a visiting professor in the Department of Industrial Engineering at the University of Wisconsin during 1987 to 1989.

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He teaches undergraduate and graduate courses in operational research and quantitative methodology in management decisions. He has published four textbooks in these elds which are very popular among university students in China. His research interests are in transportation and application of economics and management. He has published over a hundred papers in these elds in journals and at international conferences.

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