The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0025-1747.htm
MD
46,6
918
Received November 2007
Revised March 2008
Accepted March 2008
Management Decision
Vol. 46 No. 6, 2008
pp. 918-932
q Emerald Group Publishing Limited
0025-1747
DOI 10.1108/00251740810882671
A decision-maker-centred
supplier selection approach for
critical supplies
Guido J.L Micheli
Department of Management, Economics and Industrial Engineering,
Politecnico di Milano, Milano, Italy
Abstract
Purpose – The purpose of this paper is to investigate the supplier selection issue as a way to mitigate
the overall supply risk, through the proposition of a new approach which is as practical as a total cost
of ownership approach and, at the same time, a real support for the supplier selection as a decision
making issue, rather than an additional constraint for the decision maker.
Design/methodology/approach – A risk efficiency-based supplier selection (REBaSS) approach is
developed for critical supplies, that allows a decision maker to consider the procurement-related “risk”
and “investment” for mitigation/exploitation interventions.
Findings – A present total cost profile (PTCP) related to every supplier to be assessed is portrayed,
as a function of the possible investments that can be made to exploit the upside and to mitigate the
downside supply risks. A criterion to prioritize interventions is provided, in order to unambiguously
portray the PTCP. Guidelines for the PTCP comparison by a decision maker are also proposed.
Research limitations/implications – The wide set of data needed can be a limitation when the
available time to perform supplier selection is very short.
Practical implications – The proposed REBaSS approach allows a decision maker to deal with a
quantitative and economic evaluation of the potential suppliers. The decisions are not univocal
because they depend on the risk proneness of the decision maker.
Originality/value – The paper’s view is that REBaSS is the only approach that explicitly takes into
account the variability of the output of the supplier evaluation due to the different attitude of every
supplier to make a planned mitigation intervention successful.
Keywords Supplier relations, Decision making, Suppliers, Risk management
Paper type Conceptual paper
Introduction
Nowadays, researchers and practitioners pay great attention to the procurement
process for many reasons.
First of all, globalization and liberalization have caused the broadening of
customers’ and suppliers’ markets, so that suppliers’ markets have become more
competitive. Second, the ICT has contributed to reduce transaction costs (Malone and
Laubacher, 1998; Ronchi, 2003). Third, procurement process is an example of
principal-agent theory application (Eisenhardt, 1989; Lassar and Kerr, 1996); the
buyer-supplier relationship is in fact characterized by the inability of the buyer to
control the behaviours of the supplier and to make its goals conform to a specific
purpose. This lack of control is deemed the basic source of risk in the procurement
process (Zsidisin and Ellram, 2003).
Particularly great attention is paid to the procurement process in the engineer to
order (ETO) environments (Van der Vaart et al., 1996; Cooper et al., 2004; Hallikas et al.,
2005; Ning and Yeo, 2006; Talluri et al., 2006), because critical (in terms of Supplier
specifications of the item, cost, need of co-design, supply market, needs of the client of selection for
the project, impact of the item onto the project – see Kraljic, 1983; Turner, 1990;
Masterman, 1992; Olsen and Ellram, 1997; Bensaou, 1999; Rowlinson, 1999; Franks, critical supplies
1990; Alhazmi and McCaffer, 2000; Gibb and Isack, 2001; Kumaraswamy and
Dissanayaka, 2001; Cagno et al., 2003; Luu et al., 2003) supplies are extremely frequent,
up to the 45 per cent out of the total expenditure in the EPC sector (Engineering, 919
Procurement and Construction – see Cagno et al., 2006).
Due to the relevance of the procurement and of its uncertainty, that affects every
project in an ETO environment (Van der Vaart et al., 1996), this paper aims to
investigate the Supplier Selection issue as a way to mitigate the overall supply risk,
through the proposition of a proper approach for the current situation of the
companies, which has to be as practical as a total cost of ownership (TCO) (see Ellram,
1994) approach and, at the same time, a real support for the supplier selection as a
decision-making issue, rather than an additional constraint for the decision maker
(Matos, 2007).
The paper is structured as follows: a literature review on the supplier selection as a
means of mitigating the supply risks is performed, and the inadequacy of the currently
available approaches with respect to the needs of the practitioners is highlighted. Thus,
a consistent supplier selection approach is proposed, broken down into two main steps:
supplier evaluation, and comparison. The managerial implications are shown, and the
research implications and limitations of the proposed approach are discussed. Finally,
a conclusion is drawn and some suggestions for further research are given.

State of art: literature review

Over last two decades, the evolution of the competitive environment has made
company competitiveness and survival depend more and more on their suppliers (De
Boer et al., 2001). An increasing dependence on suppliers leads companies to be even
more exposed to uncertain events, which is why the supplier selection has become one
of the most important issues for purchasing managers (Coase, 1937; Williamson, 1975;
Ronchi, 2003; Hsu et al., 2006).
In fact, even though the supply risks can be reduced through improved processes
and buffer strategies (Ning and Yeo, 2006), organizations still need to take actions
against unforeseen events because risk cannot be completely eliminated (Fisher, 1997).
In an ETO environment, and for critical supplies in general, buffer strategies cannot be
easily and economically implemented. An effort has to be made at various
organizational levels to implement process improvement strategies to reduce the risk
propensity, for example by forming strategic alliances (Smeltzer and Siferd, 1998;
Giunipero and Eltantawy, 2004), by developing suppliers (Krause and Handfield, 1999),
and by investing in setting up a supply risk management process. To this purpose, in
order to give summary guidelines to identify and manage the uncertainty in the
supply, a number of generic risk sources have been identified (Zsidisin et al., 2000;
Zsidisin, 2003a, b; , Zsidisin and Ellram, 2003), which can be grouped into four main
categories: product-related, market-related, supplier-related, and other sources. A
number of supply risk assessment techniques (Zsidisin et al., 2004) are available to
prioritize the usage of resources necessary for the supply risk management process. In
addition, Zsidisin and Smith (2005) analyze the role of early supplier involvement in
MD mitigating the supply risk. The authors define the early supplier involvement as a way
46,6 of vertical cooperation in which a company involves suppliers at an early stage in the
product development or innovation process, generally at the level of concept and
design. This gives a reduction of new product development lead times, an
improvement of product quality, and the possibility to use supplier technological
expertise. In addition, the authors suggest that another important benefit of early
920 supplier involvement is the mitigation of supply risk both for the customer side (cost,
quality, and lead times) and for the supplier side (technological skills and delivery).
Despite the evolution of the supply risk management process, the management of
the supply risk is still strongly related with risks arising from improper supplier
selection (Smeltzer and Siferd, 1998; Giunipero and Eltantawy, 2004). Unless the
supplier is properly selected, then strategic alliances, supplier development, and early
supplier involvement become more difficult to be implemented, because of the different
attitude of every supplier to collaborate and to be a successful target of a planned
mitigation intervention.
Furthermore, Micheli et al. (2008) highlight that supplier selection, similarly to
supply risk management, is considered a method for supply risk management, but as
an alternative way (see Tang, 2006) in the typical current situation of resource
constraints. This finding implies that a supplier selection approach has to explicitly
consider the variability, due to the supply risks (generally, very high for critical
supplies), of the total cost of the supply, in order to clearly show it and to make the
decision maker (i.e. the buyer) aware of the overall risk he/she is taking. In fact, without
a supply risk management process in place, no risk can be identified, assessed and
managed after the supplier has been selected. This should lead the decision maker to
plan the interventions to mitigate the supply risks before the supplier is selected,
taking into account the (mentioned above) different attitude of every supplier to make a
planned mitigation intervention be successful.
At the moment, there is a plethora of available supplier selection approaches with
the aim of properly assessing the potential suppliers on the basis of a set of criteria:
mathematical programming (Chaudhry et al., 1993; Weber and Current, 1993; Pan,
1989; Turner, 1988; Current and Weber, 1994; Akinc, 1993; Sadrian and Yoon, 1994;
Rosenthal et al., 1995; Benton, 1991; Bender et al., 1985; Degraeve and Roodhooft, 1999),
data envelopment analysis (Weber et al., 1998; Liu et al., 2000), cluster analysis (Holt,
1998; Masella and Rangone, 2000; Petroni and Braglia, 2000; Sarkis and Talluri, 2002),
artificial intelligence models (Vokurka et al., 1996), statistic models (Ronen and
Trietsch, 1988), total cost of ownership (TCO), (Ellram, 1994, 1995a, b), analytic
hierarchy process (AHP) applied to the supplier selection.
Among these number of approaches, the TCO and the AHP are deemed of high
practicality (Bhutta and Huq, 2002), and this explains why these two approaches are
often used by the buyers. Nevertheless, the TCO approach is much more used than the
AHP when the costs related to a supply are high, which is typical in the acquisition of
critical supplies, because it includes and shows all of the costs arising in the whole life
cycle of the supply pertaining to the buyer, so that it allows the decision maker to deal
with the real value (monetary value) of the supply.
For such reasons, the TCO approach is very often used in an ETO environment. But,
despite these positive characteristics, this approach does not allow the decision maker
to plan the interventions to mitigate the supply risks before the supplier is selected,
because it does not take into account the different attitude of every supplier to make a Supplier
planned mitigation intervention be successful. selection for
In addition, Matos (2007) highlights that every currently available supplier selection
approach (the TCO, particularly) is not a support for the supplier selection as a decision critical supplies
making issue. Rather, the decision maker has to choose the supplier selection approach,
then he/she has simply to agree with the output of the approach. The decision maker
has no possibility of making a decision, because there is no immediate information 921
about the risk associated with the output of the approach (i.e. the variability and the
causes of the variability of the output). In this sense, Matos defines the supplier
selection as a “meta decision”. As a way to overcome this problem and to give the
decision maker his/her importance back, in order to exploit his/her skills and
experience and to let him/her to take risk in an aware way, Matos proposes to give the
decision maker two kinds of information as a support: the expected cost (equivalent to
a TCO) and the worst cost associated to the worst scenario of a potential supplier.
Even if the approach proposed by Matos is useful to give the decision maker his/her
importance back and to let him/her to take risk in an aware way, it still does not take
into account the variability of the output due to the different attitude of every supplier
to make a planned mitigation intervention be successful, which a supplier selection
approach must necessarily do when a supply risk management process is not in place.
In conclusion, a new supplier selection approach is necessary as a way to manage
the supply risks, which starts from the TCO, due to its practicality and to the need to
deal with the total cost of a supply, and makes the decision maker the centre of the
approach, giving him/her the possibility of taking risk in an aware way, considering
the fact that every supplier has a different attitude to make a planned mitigation
intervention be successful.

REBaSS: goals, rationales, and domain of application

Goals
In the following, a risk efficiency based supplier selection (REBaSS) approach is
proposed, that starts from the TCO approach and overcomes its weaknesses. It allows
the decision maker to take risks and to make, whenever possible, risk-efficient
decisions (Chapman and Ward, 2003). Similarly to the existing supplier selection
approaches in the literature, the REBaSS approach is composed of two subsequent
phases: supplier evaluation, which gives as an output an assessment of every potential
supplier, and comparison, which aims at comparing the assessed potential suppliers in
order to rank them and to select the most appropriate one. As far as the evaluation
phase is concerned, a cost profile of the potential supplier is provided instead of a
single value, which clearly shows the effect of the mitigation/exploitation
interventions, with regard to every potential supplier separately. As far as the
comparison phase is concerned, the decision maker can compare the cost profiles that
give him/her information about the variability of the total cost, besides the single value
of the TCO, related to every possible intervention that can be performed to exploit the
upside and to mitigate the downside supply risks.

Rationales for a risk efficiency based approach

The concept of risk-efficiency originates in the research field of the project risk
management (Chapman and Ward, 2003). Its innovative use in the supplier selection
MD lets the outcome of the supplier selection process have a high level of information,
46,6 through the concurrent dimensions of the Expected Value (EV) and of Probability
distribution (p), and aims at allowing the decision maker to make risk-efficient
decisions, when through mitigation/exploitation interventions a cost profile of a
potential supplier is the best one both in EV and in Probability distribution.
The use of Probability distribution, in addition to the EV, allows visibility on the
922 effect of uncertain events in the analysis. Therefore, mitigation/exploitation
interventions and their uncertain success can be clearly shown. Second, it allows
easy portrayal of different cost profiles (i.e. scenarios) of the potential suppliers, where
each cost profile represents an uncertain future evolution of every buyer-supplier
relationship. Third, it allows the decision maker to make consistent decisions, because
every decision is based on the subjective analysis of uncertain scenarios, and it is
strictly linked to the decision maker’s risk proneness.

Domain of application
As far as the domain of application, the REBaSS approach supports the selection
process when a supply risk management process is not in place, or critical supplies
have to be procured. In fact, when critical supplies have to be procured, the selection
process has to be highly accurate in order to control the related cost, quality, time, and
supply risks in general.

REBaSS: the framework

Supplier evaluation
The expected outcome of the supplier evaluation process is a present total cost profile
(PTCP) for every potential supplier, which gives guidelines about the present total cost
variability due to the possible mitigation/exploitation interventions.
The input data of the process are:
.
Procurement-related costs for every potential supplier.
.
Breakdown of the uncertain (risk-related) costs for every potential supplier in
terms of Impact (I) and of Probability distribution (p) of the Impact (Table I).
.
Breakdown of the possible mitigation/exploitation interventions in terms of
Intervention Cost (IntC), Post Intervention Impact (PInt-I) and of Post
Intervention Probability distribution (PInt-p) of the Post Intervention Impact
(Table II).

Figure 1 depicts the evaluation process of the REBaSS. The process is composed of six
subsequent steps, and it is briefly described in the following.

RRC description Impact (I) Probability distribution (p)

RRC 1 I1,1; I1,2; . . .; I1,n p(I1,1); p(I1,2); . . .; p(I1,n)

RRC 2 I2,1; I2,2; . . .; I2,n p(I2,1); p(I2,2); . . .; p(I2,n)
... ... ...
Table I. RRC i Ii,1; Ii,2; . . .; Ii,n p(Ii,1); p(Ii,2); . . .; p(Ii,n)
RRC breakdown ... ... ...
Every procurement related cost must be alternatively considered a certain cost or an Supplier
uncertain one. The risk-related costs (RRC), i.e. the uncertain costs, have to be broken selection for
down into their positive or negative Impact (I) and their Probability distribution (p);
therefore, possible mitigation/exploitation interventions have to be identified and
critical supplies
described, for every RRC. Every identified Intervention has to be broken down into its
Cost (IntC), the Post Intervention Impact of the related RRC (PInt-I) and the Post
Intervention Probability distribution (PInt-p) of the Post Intervention Impact, 923
independently from the other possible interventions. Then, the likely interventions
are prioritized, and this leads to the portrayal of the present total cost profile.
Every procurement related cost has to be considered with regard to every supplier,
besides the expected price of the supply, including for example the cost of the audits,
the receiving, invoicing and transportation costs, the additional cost arising from a
product failure in the performance or in the specifications, the additional cost due to a

Int
RRC description Int cost PInt-Impact (PInt-I) Probability distribution (PInt-p)

RRC 1 Int1,1 IntC1,1 PInt-I1,1,1; PInt-I 1,1,2;. . .; PInt-I 1,1,n PInt-p(I1,1,1); PInt-p(I1,1,2); . . .; PInt-p(I1,1,n)
... ... ... ...
Int1,k IntC1,k PInt-I 1,k,1; PInt-I 1,k,2; . . .; PInt-I 1,k,n PInt-p(I1,k,1); PInt-p(I1,k,2); . . .; PInt-p(I1,k,n)
RRC i Inti,1 IntCi,1 PInt-I i,1,1; PInt-I i,1,2; . . .; PInt-I i,1,n PInt-p(Ii,1,1); PInt-p(Ii,1,2); . . .; PInt-p(Ii,1,n) Table II.
... ... ... Interventions breakdown

Figure 1.
Supplier evaluation
process
MD delay, etc. Every cost is a present cost, because the time-window of a supply in some
46,6 particular ETO environments can be nowadays over two years wide (Cagno et al.,
2006).
The details of the six subsequent steps of the evaluation process are described
below:
Step 1: costs sorting. Every procurement related cost must be alternatively
924 considered a certain cost or an uncertain cost (i.e. risk-related cost), because of a
number of reasons: possible lack of efficiency or effectiveness of the potential supplier,
lack of coordination, lack of communication, opportunities to be exploited, et cetera. If
every cost is considered uncertain, the insight of the supplier evaluation grows up.
Nevertheless, required input data, time and resources needed for the supplier
evaluation process increase. Therefore, if a cost has not a noticeable variability due to
any risk, it must be sensibly considered a “certain cost”.
Step 2: risk-related costs breakdown. Every risk-related cost (RRC) has to be broken
down into its description, its both positive or negative Impact (I) (estimated in present
monetary values) and the Probability distribution (p) of the Impact (Table I).
This breakdown allows calculation of the Expected Risk Value E(RV) for each RRCi,
as in (1):
X
EðRV Þi ¼ j
pðI i;j Þ £ I i;j ð1Þ

The sum of certain costs and Expected Risk Values for every RRC gives as a result an
initial Expected Present Total Cost (EPTC), which is equivalent to a Total Cost of
Ownership (2), if the same procurement-related costs are considered. The EPTC is the
starting value of the Present Total Cost Profile of a potential supplier.
X
EPTC ¼ CC þ i
EðRVÞi ð2Þ

Step 3: possible interventions identification. At this stage, possible mitigation/

exploitation interventions have to be identified and described, for every RRC
(Table II).
Step 4: interventions breakdown. Every Intervention has to be broken down into its
Cost (IntC), the Post Intervention Impact of the related RRC (PInt-I) and the Post
Intervention Probability distribution (PInt-p) of the Post Intervention Impact (Table II),
independently from the other possible interventions. The use of non-conditional
probabilities (i.e. the interventions are considered, at the step 4, independent) is
necessary in order to make the REBaSS approach easy to be implemented. There is
evidence that practitioners do not like to spend time estimating many data to have
support for their decisions. In addition, in case conditional probabilities would be used,
practitioners would probably hardly assess those probabilities, which is due to the
complexity of the problem. The interdependence of the possible interventions is
considered through an iterative process (see step 6).
This breakdown allows calculation of a different (Post Intervention) Expected Risk
Value (ERV) for each RRCi due to any possible intervention (k), as in (3):
X
PIntk EðRV Þi ¼ j
PInt k pðI i;k;j Þ £ PIntk I i;k;j ð3Þ
At this stage, the expected effect of every Intervention (k) on a RRCi is calculated, as in (4): Supplier
DEðRV Þi;k ¼ EðRV Þi 2 Int k EðRV Þi selection for
X X critical supplies
¼ j
pðI i;j Þ £ I i;j P 2 j
PInt k pðI i;k;j Þ £ PIntk I i;k;j ð4Þ

Step 5: feasibility analysis. The interventions identified and analyzed have to be filtered 925
through feasibility analysis, which consists of two checks:
(1) IntCi,k , threshold imposed by the budget (or by the common practice); this
depends on the fact that the decision makers can seldom make large
investments to mitigate the supply risks in advance: they tend to solve the
problems when the risks occur;
(2) Gain Net (Gnet i,k, as in (5)) . 0; this check allows to consider only the cases
where the expected effect of the intervention is bigger than the cost of the
intervention. When an intervention “k” has impact on “m” RRCs (1 , m # i),
the total Gnet related to the “k” intervention is the sum of the “m” Gnet i,k (6).
Gneti;k ¼ DEðRVÞi;k 2 IntCi;k ð5Þ
X
Gnetk ¼ ½DEðRVÞm;k 2 IntCm;k
ð6Þ
m

Step 6: interventions prioritization. Gain Net is also a criterion to prioritize the likely
interventions. The higher is Gnet, the higher is the effect of the intervention, ceteris
paribus. Table III shows a simple example.
If the effects of the interventions are not independent, once the first (in the priority
list) intervention has been identified, step 4 to 6 have to be run again in order to check
and assess again the effects of the dependent interventions, avoiding considering the
effects of the one earlier prioritized. Therefore, the priority list has to be updated and
the process run again until likely dependent interventions exist.
Outcome: Present Total Cost Profile (PTCP). Once EPTC, IntCi,k, DE(RV)i,k, and the
priority list have been defined, Figure 2 can be portrayed for every supplier.
In the PTC axis, Present Total Costs are represented. In the “interventions” axis, Int.
1 is the first intervention in the priority list, and so on.
PTCPess represents the expected present total cost in a pessimistic scenario, when
the investment has been made but the risk does not occur. In this case, the cost
sustained by the Purchasing Department is bigger than the EPTC. The pessimistic
scenario is a necessary benchmark, because the decision makers generally tend to be
risk averse.

Intervention Effect (ke) DE(RV)i,k Intervention cost (ke) IntCi,k Gnet (ke) Priority

Int1,1 1,7 0,2 1,5 2

... Table III.
Int1,k 2,6 0,4 2,2 3 Interventions
... ... ... ... ... prioritization – a simple
Inti,2 3,8 0,6 3,2 1 example
MD
46,6

926

Figure 2.
Present total cost profile

PTCLike represents the expected present total cost in a likely scenario, when the
investment has been made and the risk occurs, and the difference in terms of risk value
is equal to the DE(RV)i,k. It must be noticed that there can be the case where PTC can be
smaller than PTCLike.
Thus, the PTCP outlines an area which describes the variability of the total cost of a
supply in a risk-averse way (the most common within the decision makers in the
purchasing departments). Through the PTCP, the variability due to the possible
investments for mitigation/exploitation interventions is clearly shown.

Comparison
Once the PTCPs of the potential suppliers have been portrayed, the comparison phase
aims at comparing the PTCPs in order to rank them and to select the most appropriate
one.
The comparison process (Figure 3) is based on a filtering process of the “n” PTCPs
and on a subsequent comparison made by the decision maker of all of the PTCPs that
have passed the filtering process, two by two. The outcome of the process is the
identification of the most appropriate supplier for the supply, and a list of the
interventions to be performed to mitigate the supply risks.

Figure 3.
Supplier comparison
process
As for the filtering process, all of the PCTPs are compared at the same time. From all of Supplier
the PTCPs, only the lowest ones (in terms of EPTC, PTCPess profile, and PTCLike selection for
profile) and the PTCPs that intersect them are used in the subsequent analysis, because
they are objectively the best ones. In this way, the filtering process makes it possible to critical supplies
exclude situations as in Figure 4(a).
In the subsequent comparison phase, PTCPs have to be compared two by two. The
framework does not suggest a strict criterion to choose the first couple of suppliers to 927
be compared, but comparing very similar or parallel profiles at early stages is strongly
advisable, because this allows the decision maker to easily reject PTCPs clearly (to
him/her) poorer than others (Figure 4(b)). In the other cases, comparison situations
have a high degree of subjectivity, as shown in Figure 4(c) and Figure 4(d).
Suppliers are compared two by two because of the nature of the outcome of the
supplier evaluation process. In fact, in the REBaSS comparison phase, cost profiles are
compared instead of single values. Therefore, a comparison of many profiles at the
same time would be difficult and unclear.
If compared with the TCO and the AHP, where the comparison phase simply
consists on the ranking of the outcomes of the evaluation phase, the high degree of
subjectivity of the comparison phase of the REBaSS is the key feature that allows to
give the decision maker his/her importance back, in order to exploit his/her skills and
experience and to let him/her to take risk in an aware way.

Managerial implications
The proposed REBaSS approach allows a decision maker to deal with a quantitative
and economic evaluation of the potential suppliers, as needed by the practitioners, and,
at the same time, to make decisions taking risk in an aware way.
The decisions are not univocal because they depend on the risk proneness of the
decision maker. When the decision maker is neutral or risk prone, then he/she will
make a decision according to PTCLike; when he/she is risk averse, he/she will make a
decision according to the area of the profile (i.e. the smaller the area, the smaller the
variability). This feature of the REBaSS is a powerful way to exploit the skills and the
experience of the decision maker, who is the centre of the approach: the approach is a
real support for the supplier selection as a decision making issue, rather than an
additional constraint for the decision maker.
As the PTCP can be portrayed according to the available budget for
mitigation/exploitation interventions, it is possible to consider on the “interventions”
axis a set of interventions for which the sum does not exceed the budget.

Figure 4.
Example of comparison
situations
MD Finally, in order to support the selection process, it is useful to notice that the area
46,6 within the profile represents the variability of the total cost to be sustained due to the
possible investments. Therefore, this area is an indicator of the risk/opportunity
related to the expected variability of the effects of the interventions depending on the
potential supplier.

928 Research implications and limitations

The contribution of this research to the existing literature is threefold.
On the one hand, to the knowledge of the author, this is the only supplier selection
approach that explicitly takes into account the variability of the output of the supplier
evaluation due to the different attitude of every supplier to make a planned mitigation
intervention successful. This is something that a supplier selection approach must
necessarily do when a supply risk management process is not in place, in order to
mitigate the overall supply risk.
On the other hand, this very practical supplier selection approach, similar to the
TCO, is no more a “meta-decision”, thanks to the concurrent dimensions of the
Expected Value (EV) and of the Probability distribution (p) of the total cost of the
supply.
Finally, for the first time the concept of risk-efficiency (that originates in the
research field of the project risk management) has been shifted into the research field of
the procurement: by using the REBaSS, the decision maker can make risk-efficient
decisions, when through mitigation/exploitation interventions a cost profile of a
potential supplier is the best one both in EV and in Probability distribution.
In order to give this kind of output, the approach needs a wide set of data to be
estimated. This can be a limitation when the available time to perform supplier
selection is very short. In addition, the approach is expected to perform well if the
estimations are good, and this strongly depends on the skills and on the experience of
the decision maker.

Conclusion and further research

In conclusion, the proposed REBaSS approach can be used as an effective way to
manage the supply risks through the supplier selection. It moves from the practicality
of the TCO approach and from the need of the practitioners to deal with the total cost of
a supply, and it makes the decision maker the centre of the approach. In other words,
the REBaSS gives the decision maker the possibility of taking risk in an aware way
when selecting the most appropriate supplier.
For the first time, a supplier selection approach allows consideration of the fact that
every supplier has a different attitude to make a planned mitigation intervention be
successful. This also implies that guidelines for immediate and later interventions are
given, once the potential supplier has been selected.
Finally, further research could test the different performance of the REBaSS and of
the TCO approach in terms of total cost of the supply. In terms of expected results, due
to the fact that a list of prioritized interventions, customized for every potential
supplier, is needed for the evaluation phase, once the supplier has been selected a list of
the best possible mitigation intervention is immediately available, which is expected to
bring an average reduction of the total cost of the supply.
References Supplier
Akinc, U. (1993), “Selecting a set of vendors in a manufacturing environment”, Journal of selection for
Operations Management, Vol. 11, pp. 107-22.
critical supplies
Alhazmi, T. and McCaffer, R. (2000), “Project procurement system selection model”, Journal of
Construction Engineering and Management, Vol. 126 No. 3, pp. 176-84.
Bender, P.S., Brown, R.W., Isaac, M.H. and Shapiro, J.F. (1985), “Improving purchasing
productivity at IBM with a normative decision support system”, Interfaces, Vol. 15 No. 3, 929
pp. 106-15.
Bensaou, M. (1999), “Portfolios of buyer-supplier relationships”, Sloan Management Review,
Vol. 40 No. 4, pp. 35-44.
Benton, W.C. (1991), “Quantity discount decisions under conditions of multiple items, multiple
suppliers and resource limitations”, International Journal of Production Research, Vol. 29
No. 10, pp. 1953-61.
Bhutta, K.S. and Huq, F. (2002), “Supplier selection problem: a comparison of the total cost of
ownership and analytic hierarchy process approaches”, Supply Chain Management:
An International Journal, Vol. 7 No. 3, pp. 126-35.
Cagno, E., Di Giulio, A., Micheli, G. and Trucco, P. (2003), “Il procurement nelle società EPC:
pianificazione strategica e gestione operativa”, Proceedings of the XXX Convegno ANIMP
OICE UAMI, Rapallo (GE) Italy (in Italian).
Cagno, E., Di Giulio, A., Micheli, G. and Trucco, P. (2006), “Doing procurement in the Italian
Engineering & Contracting sector: an evolving scenario”, Proceedings of the European
Operations Management Association (EurOMA) Conference, Glasgow, Scotland.
Chapman, C. and Ward, S. (2003), Project Risk Management: Process, Techniques and Insights,
Wiley & Sons, New York, NY.
Chaudhry, S.S., Forst, F.G. and Zydiak, J.L. (1993), “Vendor selection with price breaks”,
European Journal of Operational Research, Vol. 70, pp. 52-66.
Coase, R.H. (1937), “The Nature of the Firm”, Economica, Vol. 4, pp. 386-405.
Cooper, D.F., Grey, S., Raymond, G. and Walker, P. (2004), Project Risk Management Guidelines:
Managing Risk in Large Projects and Complex Procurements, Wiley & Sons, New York,
NY.
Current, J. and Weber, C. (1994), “Application of facility location modelling constructs to vendor
selection problems”, European Journal of Operational Research, Vol. 76, pp. 387-92.
De Boer, L., Labro, E. and Morlacchi, P. (2001), “A review of methods supporting supplier
selection”, European Journal of Purchasing and Supply Management, Vol. 7, pp. 75-89.
Degraeve, Z. and Roodhooft, F. (1999), “A mathematical programming approach for procurement
using activity based costing”, Journal of Business Finance and Accounting, Vol. 27,
pp. 69-98.
Eisenhardt, K.M. (1989), “Agency theory: an assessment and review”, Academy of Management
Review, Vol. 14 No. 1, pp. 57-74.
Ellram, L.M. (1994), Total Cost Modelling in Purchasing, Center for Advanced Purchasing
Studies, Tempe, AZ.
Ellram, L.M. (1995a), “Activity-based costing and total cost of ownership: a critical linkage”,
Journal of Cost Management, Vol. 8 No. 4, pp. 22-30.
Ellram, L.M. (1995b), “Total cost of ownership: an analysis approach for purchasing”,
International Journal of Physical Distribution & Logistics, Vol. 25 No. 8, pp. 4-23.
MD Fisher, M.L. (1997), “What is the right supply chain for your product?”, Harvard Business Review,
Vol. 75 No. 2, pp. 105-16.
46,6
Franks, J. (1990), Building Procurement Systems – A Guide to Building Project Management,
Chartered Institute of Building, Ascot.
Gibb, A.G.F. and Isack, F. (2001), “Client drivers for construction projects: implication for
standardization”, Engineering, Construction and Architectural Management, Vol. 8 No. 1,
930 pp. 46-58.
Giunipero, L.C. and Eltantawy, R.A. (2004), “Securing the upstream supply chain: a risk
management approach”, International Journal of Physical Distribution & Logistics
Management, Vol. 34 No. 9, pp. 698-713.
Hallikas, J., Puumalainen, K., Vesterinen, T. and Virolainen, V.M. (2005), “Risk-based
classification of supplier relationships”, Journal of Purchasing and Supply Management,
Vol. 11, pp. 72-82.
Holt, G.D. (1998), “Which contractor selection methodology?”, International Journal of Project
Management, Vol. 3, pp. 153-64.
Hsu, C.C., Kannan, V.R., Leong, G.K. and Tan, K.C. (2006), “Supplier selection construct:
instrument development and validation”, The International Journal of Logistics
Management, Vol. 17 No. 2, pp. 213-39.
Kraljic, P. (1983), “Purchasing must become supply management”, Harvard Business Review,
Vol. 61, pp. 109-17.
Krause, D.R. and Handfield, R.B. (1999), Developing a World-Class Supply Base, Center for
Advanced Purchasing Studies, Tempe, Arizona.
Kumaraswamy, M. and Dissanayaka, S. (2001), “Developing a decision support system for
building project procurement”, Building and Environment, Vol. 36 No. 3, pp. 337-49.
Lassar, W.M. and Kerr, J.L. (1996), “Strategy and control in supplier-distributor relationships: an
agency perspective”, Strategic Management Journal, Vol. 17 No. 8, pp. 613-32.
Liu, J., Ding, F.Y. and Lall, V. (2000), “Using data envelopment analysis to compare suppliers for
supplier selection and performance improvement”, Supply Chain Management: An
International Journal, Vol. 5 No. 3, pp. 143-50.
Luu, D.T., Ng, S.T. and Chen, S.E. (2003), “Parameters governing the selection of procurement
system – an empirical survey”, Engineering, Construction and Architectural Management,
Vol. 10 No. 3, pp. 209-18.
Malone, T.W. and Laubacher, R.J. (1998), “Are big companies becoming obsolete? The dawn of
the e-lance economy”, Harvard Business Review, Vol. 76, pp. 144-52.
Masella, C. and Rangone, A. (2000), “A contingent approach to the design of vendor selection
system for different types of co-operative customer/supplier relationship”, International
Journal of Operations & Production Management, Vol. 20 No. 1, pp. 70-84.
Masterman, J.W.E. (1992), An Introduction into Building Procurement Systems, E. & F.N., Spon,
London.
Matos, M.A. (2007), “Decision under risk as a multi-criteria problem”, European Journal of
Operational Research, Vol. 181, pp. 1516-29.
Micheli, G.J.L., Cagno, E. and Zorzini, M. (2008), “Supply risk management vs. supplier selection
to manage the supply risk in the EPC supply chain”, Management Research News, Vol. 31
No. 12.
Ning, J.H. and Yeo, K.T. (2006), “Managing uncertainty in major equipment procurement in
engineering projects”, European Journal of Operational Research, Vol. 171 No. 1, pp. 123-34.
Olsen, R.F. and Ellram, L.M. (1997), “A portfolio approach to supplier relationships”, Industrial Supplier
Marketing Management, Vol. 26 No. 2, pp. 101-13.
selection for
Pan, A.C. (1989), “Allocation of order quantities among suppliers”, Journal of Purchasing and
Materials Management, Vol. 25 No. 3, pp. 36-9. critical supplies
Petroni, A. and Braglia, M. (2000), “Vendor selection using principal component analysis”,
The Journal of Supply Chain Management: A Global Review of Purchasing and Supply,
Vol. 36 No. 2, pp. 63-9. 931
Ronchi, S. (2003), The Internet and the Customer-supplier Relationship, Ashgate Publishing
Limited, Aldershot.
Ronen, B. and Trietsch, D. (1988), “A decision support system for purchasing management of
large projects”, Operations Research, Vol. 36 No. 6, pp. 882-90.
Rosenthal, E.C., Zydiak, J.L. and Chaudhry, S.S. (1995), “Vendor selection with bundling”,
Decision Sciences, Vol. 26 No. 1, pp. 35-48.
Rowlinson, S. (1999), “Selection criteria”, in Rowlinson, S. and McDermott, P. (Eds), Procurement
Systems: A Guide to Best Practice in Construction, E&FN Spon, London, pp. 276-99.
Sadrian, A.A. and Yoon, Y.S. (1994), “A procurement decision support system in business
volume discount environments”, Operations Research, Vol. 42 No. 1, pp. 14-23.
Sarkis, J. and Talluri, S. (2002), “A model for strategic supplier selection”, Journal of Supply Chain
Management, Vol. 38 No. 1, pp. 18-23.
Smeltzer, L.R. and Siferd, S.P. (1998), “Proactive supply management: the management of risk”,
International Journal of Purchasing and Materials Management, Winter, pp. 38-45.
Talluri, S., Narasimhan, R. and Nair, A. (2006), “Vendor performance with supply risk:
a chance-constrained DEA approach”, International Journal of Production Economics,
Vol. 100, pp. 212-22.
Tang, C.S. (2006), “Perspectives in supply chain risk management”, International Journal of
Production Economics, Vol. 103, pp. 451-88.
Turner, A. (1990), Building Procurement, Macmillan Surveying Series, London.
Turner, I. (1988), “An independent system for the evaluation of contract tenders”, The Journal of
the Operational Research Society, Vol. 39 No. 6, pp. 551-61.
Van der Vaart, J.T., de Vries, J. and Wijngaard, J. (1996), “Complexity and uncertainty of
materials procurement in assembly situations”, International Journal of Production
Economics, Vol. 46-47, pp. 137-52.
Vokurka, R.J., Choobineh, J. and Vadi, L. (1996), “A prototype expert system for the evaluation
and selection of potential suppliers”, International Journal of Operations and Production
Management, Vol. 16 No. 12, pp. 106-27.
Weber, C.A. and Current, J.R. (1993), “A multi-objective approach to vendor selection”, European
Journal of Operational Research, Vol. 68 No. 2, pp. 173-84.
Weber, C.A., Current, J.R. and Desai, A. (1998), “Non cooperative negotiation strategies for
vendor selection”, European Journal of Operational Research, Vol. 108 No. 1, pp. 208-23.
Williamson, O.E. (1975), Market and Hierarchies: Analysis and Antitrust Implication: A Study in
the Economics of Internal Organization, The Free Press, New York, NY.
Zsidisin, G.A. (2003a), “A grounded definition of supply risk”, Journal of Purchasing & Supply
Management, Vol. 9, pp. 217-24.
Zsidisin, A. (2003b), “Managerial perceptions of supply risk”, The Journal of Supply Chain
Management, Vol. 39 No. 1, pp. 14-25.
MD Zsidisin, A. and Ellram, L.M. (2003), “An agency theory investigation of supply risk
management”, The Journal of Supply Chain Management, Vol. 39, pp. 15-27.
46,6 Zsidisin, G.A. and Smith, M.E. (2005), “Managing supply risk with early supplier involvement: a
case study and research propositions”, The Journal of Supply Chain Management, Fall,
pp. 44-57.
Zsidisin, G.A., Panelli, A. and Upton, R. (2000), “Purchasing organization involvement in risk
932 assessments, contingency plans, and risk management: an exploratory study”, Supply
Chain Management: An International Journal, Vol. 5 No. 4, pp. 187-98.
Zsidisin, G.A., Ellram, L.M., Carter, J.R. and Cavinato, J.L. (2004), “An analysis of supply risk
assessment techniques”, International Journal of Physical Distribution & Logistics
Management, Vol. 34 No. 5, pp. 397-413.

Corresponding author
Guido J.L. Micheli can be contacted at: guido.micheli@polimi.it

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints