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Categorizing suppliers for development investments in construction: application of DEA and RFM concept

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  • Abdollah Noorizadeh
  • Kamran Rashidi
  • Antti Peltokorpi

Abstract

Supplier development plays a significant role in the cost, quality and delivery improvements of construction projects. However, there is limited research on analytical methods of categorizing and prioritizing a high number of suppliers for effective allocation of scarce development resources. This research aims to develop an objective model to categorize a general contractor’s suppliers. To do so, we use three concepts from different research backgrounds – recency, frequency and monetary value (RFM); data envelopment analysis (DEA); and the customer pyramid – and add the number of projects (P) shared with each supplier as a context-related variable to build a novel RFMP model. The model categorizes suppliers into four levels of the supplier pyramid, utilizing historical data on supplier–contractor transactions. To test the model in practice, we adopt a case study of an international construction company in Finland. The results reveal that a supplier’s RFMP score reflects its contribution to the contractor’s business; therefore, development investments should vary, based on a supplier’s position in the supplier pyramid. This research contributes to the knowledge on supply chain management in construction by combining three approaches – RFM, DEA and the customer pyramid – into a single objective model to categorize suppliers for effective development investments.

Suggested Citation

  • Abdollah Noorizadeh & Kamran Rashidi & Antti Peltokorpi, 2018. "Categorizing suppliers for development investments in construction: application of DEA and RFM concept," Construction Management and Economics, Taylor & Francis Journals, vol. 36(9), pages 487-506, September.
    • Handle: RePEc:taf:conmgt:v:36:y:2018:i:9:p:487-506
    DOI: 10.1080/01446193.2017.1416151
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    Cited by:

    1. Resende, Carlos Henrique Lopes & Lima-Junior, Francisco Rodrigues & Carpinetti, Luiz Cesar Ribeiro, 2023. "Decision-making models for formulating and evaluating supplier development programs: A state-of-the-art review and research paths," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).
    2. Finger, Gustavo Strauch Wilin & Lima-Junior, Francisco Rodrigues, 2022. "A hesitant fuzzy linguistic QFD approach for formulating sustainable supplier development programs," International Journal of Production Economics, Elsevier, vol. 247(C).
    3. Noorizadeh, Abdollah & Kuosmanen, Timo & Peltokorpi, Antti, 2021. "Effective purchasing reallocation to suppliers: insights from productivity dynamics and real options theory," International Journal of Production Economics, Elsevier, vol. 233(C).

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