The role of supplier performance evaluations in mitigating risk: Assessing evaluation processes and behaviors

Given the level of outsourcing, supplier performance evaluation (SPE) is a critical supply chain process. SPEs are used to record supplier performance levels to inform future supplier selections, and thus mitigate the risk of adverse selection. Numerous weaknesses associated with industrial buyers' collection and use of supplier performance information call SPE effectiveness into question. The risk-related factors affecting SPE effectiveness have not been empirically explored, including misuses of the tool. This research identifies the factors affecting SPE risk mitigation effectiveness. It employs a mixed method of qualitative interviews of buyers and suppliers in order to develop a model of SPE risk mitigation effectiveness using structural equations modeling of survey data from a rare sample of 131 performance assessors. Findings implicate the importance of a thoroughly defined scope of work, an accurate SPE, and documented rating justifications. Additionally, dissonance among several performance evaluators and the fear of a supplier's dispute detract from SPE risk mitigation effectiveness. Finally, this research unveils how SPEs are weaponized, pursuing short-term gains and clouding the view of the supplier's performance thereby hindering the long-term, risk-mitigating purpose of SPEs. Two separate forms of opportunism - threat and debt - are discovered and have differing effects.