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

Abdollah Noorizadeh, Kamran Rashidi and Antti Peltokorpi

Construction Management and Economics, 2018, vol. 36, issue 9, 487-506

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.

Date: 2018
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DOI: 10.1080/01446193.2017.1416151

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