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www.emeraldinsight.com/0144-3577.htm
IJOPM
31,8 Supplier evaluation processes:
the shaping and reshaping
of supplier performance
888
Kim Sundtoft Hald
Department of Operations Management, Copenhagen Business School,
Received 29 October 2009
Revised 12 July 2010, Frederiksberg, Denmark, and
15 October 2010 Chris Ellegaard
Accepted 28 October 2010
Copenhagen Business School, Center for Applied Market Science,
Herning, Denmark
Abstract
Purpose The purpose of this paper is to illuminate how supplier evaluation practices are linked to
supplier performance improvements. Specifically, the paper investigates how performance
information travelling between the evaluating buyer and the evaluated suppliers is shaped and
reshaped in the evaluation process.
Design/methodology/approach The paper relies on a multiple, longitudinal case research
methodology. The two cases show two companies efforts in designing, implementing, and using
supplier evaluation in order to improve supplier performance.
Findings The findings show how the dynamics of representing, reducing, amplifying, dampening,
and directing shape and reshape supplier evaluation information. In both companies, evaluation
practices were defined, redefined, and re-directed by the involved actors perception and decision
making, as well as organisational structures, IT systems, and available data sources.
Research limitations/implications The identified factors and dynamics could be empirically
tested on larger samples to increase generalisability.
Practical implications The results provide insights into how an evaluating buyer may analyse
and control supplier evaluation processes thereby improving their effects. Managers must know how
performance information is altered before reaching key supplier actors in order to optimise supplier
performance.
Originality/value Current studies on supplier evaluation practices are limited in their focus on
design, implementation, or use. This paper explores all three phases empirically, and proposes a set of
dynamics to better understand and control the often taken for granted link between intentions and
outcome of such practices. In relation to future research, the authors propose a more holistic direction,
which will take the entire supplier evaluation process as its unit of analysis.
Keywords Supplier evaluation, Performance measurement, Buyer-supplier relationship
Paper type Research paper
Introduction
Performance measurement in operations management has received some attention
during the past three decades (Bourne et al., 2003; Evans, 2004; Wouters and Sportel,
International Journal of Operations & 2005). It has been suggested that this attention has been driven by changes in business
Production Management environments (McAdam and Bailie, 2002) and that these changes in turn triggered
Vol. 31 No. 8, 2011
pp. 888-910 a performance measurement revolution (Neely, 1999), fuelled by the inadequacy
q Emerald Group Publishing Limited of previous one-dimensional financially oriented performance measurement practices
0144-3577
DOI 10.1108/01443571111153085 (Bourne et al., 2000).
The increased scope of managing, where companies now seek to control Supplier
inter-organisational activities, is one such change in the business environment evaluation
(Christopher, 1998). To assist in managing the wider supply chain, a multitude of new or
modified managerial tools and practices have been suggested by academic writers and processes
implemented by practitioners (Fugate et al., 2006; Gunasekaran and Kobu, 2007). Several
authors have suggested that previous internally focused performance measurement
practices now need to be broadened and changed. Otherwise they will limit the 889
possibility to optimise dyadic relationships (Lamming et al., 1996) or the supply chain
(Van Hoek, 1998).
As a response, numerous papers in the academic literature have reported on studies
of the development of performance measurement systems addressing the evaluation of
activity outside legal company borders. These papers can be classified into three
different streams of research according to the scope of the system they address as
object of management: supplier evaluation (Simpson et al., 2002; Wilson, 1994),
buyer-supplier relationship evaluation (Medlin, 2003; OToole and Donaldson, 2002), or
supply chain evaluation (Beamon, 1999; Gunasekaran and Tirtirogul, 2001). Parallel to
research on performance measurement inside organisations, most attention in research
on performance measurement between or outside legal company borders is oriented
towards the identification and development of performance measures and models
(Purdy and Safayeni, 2000). A technical rational logic tends to dominate (Elg and
Kollberg, 2009), where improved measures, systems that are aligned with strategy
(Kaplan and Norton, 1992), as well as an optimum performance measurement system
environment (Neely et al., 1995) will result in improved performance in the activities
measured.
We position this contribution outside the scope of the technical rational logic and
contribute to the emerging and growing literature exploring how organisations handle
performance measurement and make use of the data collected (Elg, 2007; Kennerley
and Neely, 2002). The study represents a shift in focus from studying the
measurements themselves to how they are used in real face-to-face situations (Elg and
Kollberg, 2009). Understanding how supplier evaluation practices are designed,
implemented, and used in and between organisations is critical for managers because it
generates insight into the effective management of suppliers through performance
measurement devices. The objective of the present study is to explore how supplier
evaluation practices are linked to their effects. More specifically, we are interested in
how activities in the supplier evaluation process shape supplier performance outcome
and the following research question forms the basis of the investigation:
RQ. How is performance measurement information, travelling between the
evaluating buyer and evaluated suppliers, shaped and reshaped in the
evaluation process?
We report on two longitudinal case studies where supplier evaluation practices where
developed, implemented, and used in order to manage and influence suppliers.
The paper is organised as follows. First, the literature on supplier evaluation is
reviewed. Following a description of the research methodology, the two case studies
are presented and analysed. The paper concludes with a discussion on the contribution,
managerial implications, limitations, and prospects for future research.
IJOPM Supplier evaluation
31,8 We define supplier evaluation as the process of quantifying the efficiency and
effectiveness of supplier action (Neely et al., 1995). Supplier evaluation is a
quantification process designed to stimulate the decision process inside the evaluating
buying company or through the incentives it invokes, to stimulate a change in
behaviour in the evaluated supplying company (Neely et al., 1997). We explore supplier
890 evaluation practices as instruments designed to influence supplier action (Schmitz and
Platts, 2003, p. 719). The underlying assumption is that if such an influence attempt is
successful, it will manifest itself in changed supplier behaviour aligned with
the evaluating companys interests, improved supplier capabilities and performance,
and that this in turn will benefit the evaluating buying company (Prahinski and
Benton, 2004).
Taking the categorisation of performance measurement literature offered by
Bourne et al. (2000, p. 758) as our starting point, we adopt a three-phase model of
supplier evaluation:
(1) The design of the supplier performance evaluation system. Key objectives to be
measured are defined and performance measures are selected (Choi and Hartley,
1996; Simpson et al., 2002; Tan et al., 2002; Willis and Huston, 1990; Wilson,
1994).
(2) The implementation of the supplier performance evaluation system. Systems
and procedures are put in place to collect and process the data that enable the
measurements to be made regularly (Araz and Ozkarahan, 2007; Forker and
Mendez, 2001; Morgan and Dewhurst, 2007; Muralidharan et al., 2001; Ross et al.,
2006; Teng and Jaramillo, 2005; Vokurka et al., 1994).
(3) The use of the supplier performance evaluation system. Performance data are
collected, reviewed, and acted upon (Dumond, 1991, 1994; Prahinski and
Benton, 2004; Prahinski and Fan, 2007).
This study contributes to the specific part of the performance measurement literature
occupied with the behavioural implications of supplier evaluation. This literature
explores how buying company evaluators and evaluated suppliers activate and
respond to assessed and communicated supplier performance ratings and how their
behaviours in turn are influenced (Cousins et al., 2008; Dumond, 1991, 1994; Prahinski
and Benton, 2004; Prahinski and Fan, 2007; Purdy et al., 1994). Using experiments as
research instrument, Dumond (1991, 1994) founds that different measures produce
different procurement manager decisions. Prahinski and Benton (2004) explored how
suppliers perceived the buying firms supplier evaluation communication process and
how this in turn impacted supplier performance. Prahinski and Fan (2007) added to
this understanding by exploring how content and frequency in communication
impacted suppliers commitment to change behaviour. Cousins et al. (2008) explored
the role of socialization mechanism in mediating the relationship between supplier
performance measures and performance outcomes. Socialization mechanisms provide
an avenue for dialogue to act upon issues identified through the performance
measurement control process (Cousins et al., 2008, p. 240). Interestingly, the authors
concluded that it is not the performance measurement system, but rather the mediating
effect of buyer-supplier socialization mechanisms that is critical to firm performance.
Purdy et al. (1994) and Purdy and Safayeni (2000) explored suppliers perceptions
of the effectiveness of buyers evaluation processes. Three main conclusions were Supplier
drawn. First, the majority of suppliers felt that their effectiveness was not accurately evaluation
reflected in the evaluation. Rather, it seemed as a test of how much their organisation
looked like the buying organisation. Second, the evaluating buying organisation did processes
not utilise the information gathered through the audit process properly. Instead,
suppliers felt that price and politics were the bottom line of the purchasing decision
(Purdy et al., 1994, p. 102). Finally, suppliers felt that scoring high on the evaluation 891
chart was more a question of game playing and showmanship of repackaging
material to fit a different format rather than one of looking for ways to improve (Purdy
et al., 1994, p. 102). The article rejects the undisputed power of the measurement system
(i.e. the technology), stating that simply having the required systems and procedures
in place does not necessarily ensure an effective or good supplier (Purdy et al., 1994,
p. 102), thereby attributing interpretive and transformative power to the actors
involved in activating and responding to the technology.
In this research, we build on the contention that performance measurement
practices and their performance effects are best understood and controlled as a holistic
process (Kuwaiti, 2004). We explore supplier evaluation practices as potentially
including all steps from alignment with strategic objectives, data capture, data
analysis, interpretation, and evaluation to decision making, communication and
information transfer, and taking action (Bourne et al., 2005). This study contests
technology-centred thinking, which implies that simply putting a supplier evaluation
practice in place, which is aligned with strategy, will produce the desired effect.
Instead, it is assumed that supplier evaluation practices cannot be engineered as a move
from one well-defined point of being (state A) to another (state B) (Quattrone and
Hopper, 2001). This implies that we are looking for obstacles to the unproblematic
implementation or the mechanisms shaping and reshaping such practices (Elg, 2007;
Waggoner et al., 1999). We further position our research in the wider accounting
change literature and focus on the forces that put the supplier evaluation practices
under study into motion (Andon et al., 2007; Hopwood, 1987, p. 207).
Methodology
We chose to design the investigation as a qualitative case-based study. The study
object was the supplier evaluation process, which made a qualitative research design
superior (Van Maanen, 1983a). In addition, the how research question qualified the
case study methodology as the ideal instrument for the investigation (Voss et al., 2002;
Yin, 1994). The aim of the study was to extend existing concepts and understandings
within the field of supplier evaluation, which made case research a highly appropriate
choice (Stuart et al., 2002; Voss et al., 2002). The two buying organisations were
intensely investigated, which allowed data retrieval of the sequential relationship of
events (Voss et al., 2002). The interaction and the decisions made by actors engaged in
the evaluation processes, as well as the changes in information, supplier behaviour,
and performance resulting from the evaluations were studied through the phases
design, implementation, and use.
Studied companies
The supplier evaluation practices of two large corporations producing industrial
systems (A) and electronic appliances (B), were studied. Both companies were major
IJOPM competitors in their industries. Their complex supply needs meant that the
31,8 management and evaluation of supplier performance were particularly challenging,
representing intense cases of the studied phenomenon (Miles and Huberman, 1994,
p. 28). Performance information travelled a long distance and was subject to decisions
and interferences made by a multitude of actors. Both companies were open and
granted full access to employees, documents, meetings, and decision making.
892 The researchers played no active part in the design, implementation, and use of the
supplier evaluation practices under study.
Data collection
Various forms of inquiry were employed to produce a plausible interpretation of the
supplier performance evaluation phenomenon. Hence, triangulation ensured the
validity of the research findings (Denzin, 1978; Yin, 1994). Employees in the two
buying companies, such as purchasers, product developers, process engineers,
production planners, managers, and executives, were interviewed on the supplier
evaluation process (Table I). In addition, supplier actors, such as sales employees and
key account managers, involved in the supplier evaluation process, were interviewed.
These actors were selected based on supplier importance to the focal buying companies
and their observed involvement in the supplier evaluation process. Our inquiry covered
the decisions and events affecting the performance information flow, and the expected
evaluation outcomes.
A main challenge was to let the interviewee guide the interview, but simultaneously
find ways to ensure that the conversation uncovered all the pertinent data (Stuart et al.,
2002). Hence, we collected the interview data through in-depth open-ended
dialogue-type interviews, where the interviewees were allowed to account for their
stories, experiences, and opinions regarding the supplier evaluation process.
The interview guide only contained basic keywords ensuring that all key aspects
were covered in the interview. Interviewees accounted for the evaluation process and
performance information flow and keyed together decisions made and interaction
encounters. Furthermore, documents and electronic files (e.g. evaluation databases,
exchange agreements, supply strategies, evaluation reports, and suppliers own
performance measurement devices) were studied, which was useful especially to
generate insight into the implementation phase. Finally, observation was a key inquiry
method. Meetings between buyer and supplier personnel, direct observations of work
procedures involved in the use of supplier evaluation systems, as well as internal
meetings between actors in the buying organisations were attended. Observation
allowed the monitoring of behaviour and interaction between actors. It also prevented
the sole reliance on individual actors own accounts. The interview data (presentational
data), as presented by the informants, were complemented with operational data,
describing the activities observed by the researchers, to provide a richer empirical base
Data analysis
We relied on several of the coding procedures and tools offered by Miles and
Huberman (1994). First, a basic first-level coding of every interview and observation
was made. This was done in order to identify all events and decisions influencing the
information flow. The outcome was a comprehensive partially ordered data display for
further analysis (Miles and Huberman, 1994). Further, the documents created by the
involved actors were studied in order to identify the information flowing between the
actors involved in the supplier evaluation process. Based on the partially ordered data
display, we then performed within case analysis on the two cases. Here, we analysed all
first-level coded data in the initial document in order to bracket and identify the factors
affecting the information flow. Factors refer to the underlying causes of information
shaping or reshaping, which can be in the form of organisational dimensions, systems
limitations/circumstances, cognitive barriers and/or actor preferences among others.
We then carried out cross-case analysis to determine if similarities could be found
among the two cases. The richness of the data meant that we derived some factors that
were unique to each of the cases. Across the cases, we identified 13 factors having a
shaping effect on the performance information flow. Referring to research question,
however, we were also interested in how the factors affected the information flow.
Hence, we analysed the 13 factors to establish how they shaped the performance
information. For each of the factors, we made a description of the effect on the
information flow and assigned labels to these effects. With these descriptions and
labels as a basis, we made cross factor comparative coding to determine overall
categories of effects. This led to the identification of five types of effects, which we
chose to term dynamics. A dynamic simply refers to a cause of change. Finally, to tie
the knot back to the discussion on the effects of performance measurement, we
identified the actor reactions to the identified dynamics.
B On-time-delivery 5 25 1.25
C Cooperation 2 15 0.30
Figure 1.
The basic evaluation D Environment 1 10 0.10
scheme used by company
E Total cost development 5 25 1.25
A (with evaluation
example) Total Grade 3.9
The inclusion of different functions in the group was intended to produce the best
representation of supplier performance, incorporating business, process, and product
considerations. However, the exercise was dominated by purchasing objectives,
focusing on short-term financial performance. The category manager had the final
decision-making authority and took charge in the evaluation design meetings. The
product developer was very clear in his opinion regarding the design process:
[. . .] purchasing just says 10% savings but they do not know the product architecture and
the possibilities for benefiting otherwise we could gain a lot from focusing more on joint
development.
The lack of any measures on joint development and product innovation demonstrated
limited technological attention in the supplier evaluation system. Despite the apparent
disagreement, the product developer did not object to the scheme, possibly to avoid
conflict, or because it was deemed futile since purchasing would have the final word
anyway.
The weights allocated in the scheme (Figure 1) illustrate the prioritisation of quality,
delivery, and cost development over environment and cooperation. Cooperation and
environment were rarely discussed at the meetings with suppliers. Focus was on total
cost development, with quality and on-time delivery playing a role only in case of
urgent problems or when brought into play to negotiate lower prices.
in the evaluation sheet. This way, both current (last years) performance and
expectations to the upcoming year was assessed.
900
IJOPM
Table III.
evaluation practices
Factors and dynamics
in companies A and B
shaping and reshaping
the outcome of supplier
Identified dynamics
Company A Company B Representing Reducing Amplifying Dampening Directing
Reducing
Reducing is defined as the act of making an object smaller or less in amount, degree, or
size. Here the object of reduction is the information contained in the supplier
performance data travelling between the evaluating buyer and the evaluated supplier.
Several factors, mostly occurring in the design and implementation phase, reduced the
supplier performance information. As a result, the evaluating actors produced a set of
performance signals to the evaluated suppliers that was inadequate in its scope and
strategic attention. Concerns about assessability/measurability of data, as well as
resource consumption in updating the supplier performance data led to a reduction in
the feasible set of supplier performance dimensions. Also, the rating/translation
Transmitted supplier performance information
Amplifying
Amplification is defined as the act of making an object more marked or intense.
Amplification increases the strength of performance signals as communicated
to suppliers. Amplification was identified as an inherent dynamic working in both
implementation and use of supplier performance measurement systems and here it
shaped and reshaped supplier performance as transmitted to evaluated suppliers.
Buyers logics on how to motivate suppliers were found to provoke a change in the
scales used to translate good, bad, or average supplier performance outcomes.
Also, in the use phase, when informing evaluated supplier representatives, buyers
sometimes added or dosed information in portions that fitted into their own ideas and
agendas on how best to provoke a behavioural change in the supplier organisation and
a resulting improvement in supplier performance. The key effect of amplification
however was de-motivation. Suppliers felt unfairly treated and found it difficult to
accept performance impressions, which had been inflated beyond reasonable demands.
Dampening
Dampening is defined as the act of restraining or depressing an object. Dampening, in
supplier evaluation processes is a dynamic in opposition to amplification and it
involves the softening of performance expressions, typically because of fear of
suppliers reactions to the transmitted performance data. We found that dampening
took place in interactive encounters between the evaluating buyer and the evaluated
and objecting supplier. In order to avoid relational damage and de-motivation of
supplier actors, the evaluating buyer admitted that the performance impression was
not as grave as the impression implied. Hence, dampening is a withdrawal following
past amplification, taking the performance signal back towards a more neutral level.
We propose that dampening occurs typically when the relationship has entered severe
problems. By dampening the signal, buying company actors may succeed to some
extent in restoring face and goodwill. However, the dampening dynamic may also
confuse evaluated suppliers and make them question the accuracy, reliability, and
seriousness of the entire evaluation exercise.
Directing
The final identified dynamic is directing or re-directing. Directing is defined as the act
of assigning a route for an object. Directing, in supplier evaluation processes, is a
dynamic where the actor consciously or unconsciously affects the route that supplier
performance information will follow. A re-direction could imply that new or alternative
actors will receive the supplier performance data or it could mean that the data will be Supplier
blocked or hindered in reaching its intended audience. We found evidence that both evaluation
buying and supplying actors can take part in directing supplier performance
information. We propose that directing can be a serious inhibitor of supplier processes
performance improvement, as it can inhibit information from reaching its target.
The target being the supplier employees that needs to change their behaviour to
improve performance. In severe instances, such as the one documented in company B, 905
it may even result in a complete blockade of information.
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Corresponding author
Kim Sundtoft Hald can be contacted at: ksh.om@cbs.dk