A novel development of a Strategic Sourcing Supplier Selection for Capital Equipment (S4 – CapEq) decision-making framework: a case study of a government-linked company in Malaysia

Abstract

Malaysian Electricity Supply Industry (ESI) is increasingly using strategic sourcing as a means to control costs and risks. Consequently, supplier selection has become a major strategic decision for buyers. Supplier selection is a multi-criteria decision-making problem which includes both qualitative and quantitative factors. A reliable supplier selection method should be able to handle this need in order to support modern procurement requirement of having a systematic and transparent decision-making approach. This mandate, as well as the need for an increasingly strategic focus of corporate supply chain management departments, provides the basis for the current research. This study examines the appropriate strategic sourcing supplier selection metrics for procurement of capital equipment in the ESI in Malaysia. It identifies metrics contributing to the successful procurement of capital equipment which is seen as one of the many management practices that contribute to corporate success.

A mixed methods approach comprising qualitative and quantitative survey was used. A case study of Tenaga Nasional Berhad (TNB), the key player in the Malaysian ESI formed the basis of the study with questionnaire survey and semi-structured interviews. The study intended to identify and define the metrics that key stakeholders at TNB believed should be used for supplier selection. From the mixed methods approach, the metrics and their underlying definitional dimensions for selecting suppliers for capital equipment products was formulated. The outcomes foresee the possible initiatives to bring procurement in TNB to a strategic level. Firstly, although TNB seems to be formally implemented a governing procurement policy and procedures, the status of organizational supplier selection judgment is generally average. There was an identified need for improving organizational supplier selection effectiveness through an urgent introduction of a standard set of supplier selection metrics and corresponding definitional dimensions. Secondly, results suggested executives in TNB view supplier selection metrics from two different perspectives: supplier competitiveness and supplier attractiveness. Thirdly, the metrics ranked according to their importance level for strategic sourcing supplier selection in the ESI were product quality, delivery, price, support services, safety awareness, performance history and customer focus. Consequently, this study developed S4 – CapEq decision-making framework for policy makers, practitioners, and researchers in the ESI which incorporates elements of rational decision-making and corporate governance. Finally, future developments for this framework were posited.