What Drives Supplier Selection Decisions? – A Firm-Level Investigation in the Automotive Industry

Abstract

Supplier selection decisions are key decisions for many manufacturing firms. Lack of innovation, poor product quality, and high costs are consequences of poor supplier selection decisions. An industry especially dependent on its suppliers is the automotive industry. A single car consists of 2,000 to 4,000 different components of which as much as 80% are bought from external suppliers. Volkswagen, for example, purchases parts and indirect materials of more than U.S.$70bn per year. Thereby, supplier selection decisions become essential drivers of firm performance.

Research about supplier selection mostly utilizes surveys, case studies, and experiments but does not make use of operational decisions linked to firm-level data. Our goal is to close the gap between theoretical supplier selection criteria and supplier selection decisions in practice. With real-world supplier selection decisions we link criteria developed from theory with selection criteria applied in the automotive industry. We apply a data set with more than 60,000 supplier selection decisions made in the global automotive industry from 1999 to 2013. We present an analytical model using firm-level data to examine the supplier selection decision process on a subsector level.  Not only do we provide, to the best of our knowledge for the first time, empirical evidence how firm-level drivers influence the supplier selection decisions but we are also able to show differences in selection criteria depending on exogenous variables, e.g. during recessions and differences between premium and non-premium strategies of automotive OEMs. We find that relationship strength, economies of scale, market share, and financial stability all have a positive influence on the supplier selection decision. Finally, we apply our model to a hold-out sample and show that using only firm-level data we are able to predict supplier selection decisions reasonably well.

About the presenter

Florian Badorf is a PhD candidate in the field of Supply Chain and Operations Management at the Kühne Logistics University. He holds a M.Sc. degree in Business Administration – Supply Chain Management and a B.Sc. in Business Administration with specializations in Supply Chain Management and Finance from the University of Cologne. During his studies, he worked as a student assistant at the Department of Supply Chain Management and Management Science at the University of Cologne and at the Kühne Logistics University where he gained first experiences in academic research. His research at the KLU focuses on supply chain analytics and supply chain optimization. This stream of research leverages data and statistical methods to create new insights and to improve understanding for better decision making in all activities across the supply chain.

more info about Florian Badorf

About the Seminar

The KLU research seminar series is a regular meeting of PhD students, Post-Docs and professors who conduct research in the field of logistics and supply chain management. The research seminar is open to the public and we happily welcome guests.