Supplier selection under uncertainty: a switching options perspective
| Date | 13 March 2009 |
| Published date | 13 March 2009 |
| DOI | https://doi.org/10.1108/02635570910930091 |
| Pages | 191-205 |
| Author | Liang‐Chuan Wu |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Supplier selection under
uncertainty: a switching options
perspective
Liang-Chuan Wu
Institute of Electronic Commerce, National Chung Hsing University,
Taichung, Taiwan
Abstract
Purpose – The purpose of this paper is to analyze supplier selection from an economic perspective.
The conventional view of cost benefit analysis is that the cost dimension is static, and companies are
urged to pursue the lowest bid price when choosing suppliers. However, this perspective does not
consider uncertainty, which is an important characteristic of supply chains. To overcome this
shortcoming, a model is proposed that views supplier selection under uncertainty.
Design/methodology/approach – The study proposes a model that analyzes supplier selection
from an economic standpoint based on the switching options approach.
Findings – The results show that, contrary to the conventional wisdom, the buyer’s choice of
supplier makes a significant difference under conditions of uncertainty, and naı
¨vely accepting the
lowest bid price is not necessarily the best option.
Research limitations/implications – The study extends the literature by quantifying previous
studies of the buyer-supplier relationship. This enhances understanding by quantifying the
relationship under conditions of uncertainty, a topic that has been largely ignored by previous works.
Practical implications – The economic perspective, which considers uncertainty, helps managers
examine their supply chain relationships in depth when choosing suppliers. In addition, this study
could also help buyers access alternative supply chain partners. Managers can make the calculations
easily by using Microsoft Excel software.
Originality/value – The paper presents an original discussion about viewing supplier selection
from the switching options perspective. The modeling and analysis of switching options help
managers better understand the supplier selection process from an economic perspective, and improve
competitiveness by helping them to make appropriate decisions.
Keywords Suppliers, Supplychain management, Strategic choices,Uncertainty management
Paper type Research paper
1. Introduction
Buyer-supplier relationships play a key role in the success of a supply chain (Ch en and
Paulraj, 2004; Lin et al., 2001; Storey and Emberson, 2006); however, organizations
often face the problem of choosing appropriate suppliers (Pagell and Sheu, 2001;
Chen and Paulraj, 2004; Wadhwa et al., 2006; Phusavat et al., 2007). In most industries,
the cost of raw materials is the main overhead; in some cases, it can account for up to
70 percent of a company’s overall costs (Ghodsypour and O’Brien, 1998). The problem
of choosing suppliers so that profits can be maximized has become increasingly critical
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0263-5577.htm
The author wishes to thank the two anonymous reviewers for their valuable comments and
suggestions.
Supplier
selection under
uncertainty
191
Received 8 May 2008
Revised 31 August 2008
Accepted 16 September
2008
Industrial Management & Data
Systems
Vol. 109 No. 2, 2009
pp. 191-205
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570910930091
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