SUPPLIER SELECTION UNDER UNCERTAINTY

University essay from Högskolan i Jönköping/Internationella Handelshögskolan; Högskolan i Jönköping/Internationella Handelshögskolan

Abstract:

The role of purchasing in supply chain management has received and continues to receive increasing attention as the years go by. Purchasing enhances efficiency and competitiveness among other benefits but to realize these benefits it is imperative to select and maintain competent suppliers. However, many factors affect a firm’s ability to choose the right supplier. Uncertainty is an issue that has received great attention. It affects all functions of a company consequently affecting purchasing and supplier selection. This thesis seeks to provide an understanding of the supplier selection process and criteria under circumstances of uncertainty in the case where the potential supplier under evaluation is a newly created company. The authors try to find out if uncertainty varies with firm’s age and tested the suitability of existing criteria on the selection of newly created firms. They also sought ways by which uncertainty can be reduced.One of the realisations of this thesis is that there is a relationship between the characteristics or problems faced by new firms and uncertainty. Uncertainties created by new firms include lack of trust and commitment, inadequate finance, poor quality, unreliable delivery times, inadequate logistic technological capabilities. No new types or sources of uncertainty were discovered however, it was found that uncertainty was certainly higher when working with new firms. The criteria delivery, quality, cost/price, financial position and communication and technology were recognized as the commonly used criteria a fact confirmed from empirical results as well as in previous literature. However other criteria such as ISO certification, reliability, credibility, good references and product development were also identified. These criteria had existed before but did not receive the same attention in previous studies. This show that focus is shifting from solely relying on quantitative factors to include qualitative criteria. The study identified that some methods of minimising uncertainty could include detailed financial analyses, site visit, intensive verification, close relationships, ISO certification, good references and recommendations. It is worth noting that uncertainty cannot be entirely eliminated in all situations

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