Supplier development (SD) is defined as any effort of a buying firm with its suppliers to increase the performance or capabilities of the supplier with a view to meeting the buying firm’s supply needs (Krause & Ellram 1997). Supplier development also refers to an organisation’s efforts to create and maintain a network of competent suppliers (Rajendra, Mahajan & Joshi 2012). Like other market actors such as producers and traders, suppliers have an important role to play in enterprise development. Market development programmes are about increasing and improving market participation of all market actors, including suppliers in the value chain (Lusby 2006). In order to survive, firms must seek to build up relationships with capable suppliers and extract the maximum value from such relationships. Suppliers are primary stakeholders who have a powerful impact on a buying firm. Those suppliers who perform well can greatly improve the buying firm’s position in the market whilst those performing poorly inhibit the buying firm’s performance (Dalvi & Kant 2015; Modi & Mabert 2007). It is acknowledged that, from time to time, current suppliers may not be able to provide a demanded product, or perform according to the desired standard. In that case, the buying firm is faced with some options:

The challenges associated with the first two options leave many buying firms with no other option but to develop their existing suppliers. Of course, whilst supplier development is not without its challenges, buying firms may find it as the most sensible option for their businesses in the long term. In fact, in the long run, supplier development seems to be the best investment for the market as a whole.

At a minimum, a supplier development programme should be aimed at lowering supply chain total cost, increasing profitability of all supply chain participants and increasing product quality at each point in the supply chain (Shokri, Nabhani & Hodgson 2010; Tungjitjarurn, Suthiwartnarueput & Pornchaiwiseskul 2012). Thus, the essence of a supplier development programme or initiative is improving supplier performance in order to increase the buying firm’s competitive presence in the supply chain (Talluri, Narasimhan & Chung 2010). Buying firms must ensure that their supplier performance capabilities and responsibilities equal or surpass those of experienced buying firms’ competitors. Hence, many buying firms have to actively facilitate supplier performance and capability improvement through supplier development. Yet, supplier development programmes have also been implemented to help improve the chances that a small and typically undercapitalised supplier firm can maintain its ground in a competitive supply chain (Edmondson et al. 2008; Tarn, Yern & Beaumont 2002). Mangan et al. (2012:10) define supply chain as a network of all business entities involved, through the upstream and downstream linkages, in the various processes and activities that create value to the end customer in the form of products and services. Thus, supplier development is about creating value through these upstream and downstream linkages.

Supplier development is a multi-dimensional or multi-layered practice. This multi-dimensionality can be seen from various typologies that describe the concept. For example, Rajendra et al. (2012) distinguish between results oriented and process-oriented supplier development programmes. Results-oriented supplier development programmes only focus on solving a specific problem of a supplier, such as in the areas of quality and cost, whereas process-oriented supplier development programmes are for continuous improvement of a supplier, such as helping increase their capabilities for continuous improvement. According to the same authors, many supplier development programmes are results oriented and focus on solving specific problems of suppliers.

Another typology of supplier development programmes is indirect and direct supplier development (SD) programmes. In making a differentiation between the two, Wagner (2010) states that indirect SD programmes involve improvement in suppliers’ product and delivery performance, whereas direct SD programmes are about improving suppliers’ capabilities. In indirect supplier development, the buying firm does not become directly involved but could make use of external market interventions to improve the supplier’s performance. Examples of indirect SD programmes include assessing suppliers, communicating supplier evaluation results and performance goals, increasing a supplier’s performance goals, instilling competition by the use of multiple sources or promising future business (Prahinski & Benton 2004). In the case of direct SD programmes, the buying firm plays a more active role and invests its human and capital resources to a specific supplier to solve respective problems. Interventions of a direct SD programme would include knowledge transfer activities such as on-site consultation, education and training programmes and temporary staff exchange programmes (Wagner 2010). Importantly, Wagner (2010) also recommends that at any given time firms should engage in either indirect or direct supplier development, and not in both.

Yet another typology of SD programmes is narrow and broad perspective SD programmes. A narrow perspective of a SD programme applies where the goal is to develop a new supplier that is outside the buying firm’s supply chain or a new source of supply altogether (Hahn, Watts & Kim 1990). However, if a firm develops a supplier who is already on the supply chain and currently supplies products, the SD programme is said to take a broad perspective (Hahn et al. 1990). In general, narrow SD programmes represent passive programmes that focus on preparing suppliers to come on board of the buying firm’s supply chain, as it were. At this level, the key activities would include supplier identification, supplier evaluation and supplier selection with the goal of aligning potential suppliers with the buying firm’s supply chain needs and requirements. Accordingly, supplier evaluation represents a set of activities and indicators that constitute improvement requirements that suppliers need to fulfil in order to collaborate with the buyer (Hahn et al. 1990). These observations are corroborated by the empirical evidence from a study by Wagner and Krause (2009), which found that although supplier evaluation and feedback is performed by respondent firms, the evaluations alone are considered insufficient investments when the goal is to build suppliers’ capabilities.

On the other hand, broader SD programmes represent activities undertaken by the buyer towards active supplier development. These activities are carried out with the aim of improving the supplier’s capabilities for long-term mutual benefit of both parties (Sako 2004). The broader SD perspective is aligned with the view of direct supplier development programmes characterised by financial and human capital investment by a buyer and playing an active role in developing a supplier. When making investments in the buyer–supplier relationship, the buying firm should determine what goals it has for the relationship (Dyer & Singh 1998; Wagner & Krause 2009).

Supplier development is not a new concept. According to Wagner (2006), supplier development was practised as early as during and after the Second World War by Toyota in Japan and started to gain traction in the West as recently as the 1990s when firms began to focus on their core competencies and consequently outsourced activities they did not consider core to their operations. Thus, managing suppliers became a strategic issue for buying firm (Krause & Scannell 2002). Yet, the philosophies and approaches underpinning supplier development continue to be vastly different between the East and the West (Giannakis 2008). For example, the Eastern cultures of close working ties meant closer and more intense supplier development practices while the arm’s length relationship in the case of Western cultures traditionally used competitive bidding (Langfield-Smith & Greenwood 1998). Although certain Western firms have more recently modified their approach to suppliers by emulating certain Eastern (notably Japanese) practices, there is still a vast distinction (Langfield-Smith & Greenwood 1998). Michailova and Jormanainen (2011) also observed the difference between Russian and Western firms in the area of absorptive capacity, which, as mentioned later in the article, is vital for supplier development.

Research on supplier development has largely drawn from theories such as transaction cost economic theory (Humphreys et al. 2011; Humphreys, Li & Chan 2004; Krause & Scannell 2002; Wagner 2006), resource-based view of the firm (Dyer & Hatch 2006; Krause et al. 2000) and communication theory (Carr & Kaynak 2007; Joshi 2009; Prahinski & Benton 2004). Very few studies drew from the knowledge-based view of the firm (Modi & Mabert 2007), the relational view and supplier adaptation theory. This article draws from the supplier adaptation, relational view, and learning and perspective theory as a theoretical basis for the proposed ESD implementation framework. The next section discusses these theories underpinning the proposed ESD implementation framework.

The notion of adaptation was introduced by the relationship marketing literature, which is important for inter-firm relationships. ‘Adaptation’ refers to processes in which firms adjust their business practices exclusively for the other party in the collaborative exchange (Blonska, Rozemeijer & Wetzels 2008). Brennan, Turnbull and Wilson (2003) took the notion of adaptation further by introducing the concept of dyadic adaptation, which refers to either behavioural or organisational modifications implemented by one organisation in order to fulfil the specific needs of another organisation. Thus, a buying firm that invests in supplier development would expect some benefits in return, thereby creating reciprocation debts with the supplier which could be lessened by rewarding the buyer with a preferential buyer status (Blonska et al. 2008). An achievement of a favourable B-BBEE status by a buying firm should be a good enough incentive to invest in a supplier development programme, thus calling on the buying firm to implement some behavioural and organisational modifications on its part. Thus, it is imperative for the buying firm and the supplier to be willing to undertake some behavioural or organisational modifications for ESD to become effective.

According to the relational view (RV) theory, productivity gains in the value chain are possible when partners are willing to invest in specific relationships and combine their resources in an inimitable way (Wieland & Marcus 2012). The inter-organisational knowledge-sharing routine is a source of relational rents that requires partners to share their knowledge with each other in order to learn and develop a competitive advantage. Inter-organisational information sharing routine is a regular pattern of inter-firm interactions that allow transfer, recombination or creation of specialised knowledge (Rosenzweig 2009). According to this theory, the greater the partners’ investment is in inter-firm knowledge-sharing routines and relation-specific assets, the greater the potential will be for relational rents (Wieland & Wallenburg 2013). However, knowledge sharing is also facilitated by trust among partners (Adler 2001), proper identification of partners (Zollo, Reuer & Singh 2002) and the mechanism of alliance governance (Heimeriks & Schreiner 2010; Lavie 2006).

Equal power relations are more likely to yield exchanges, positive emotions, perceptions of relational cohesion and behavioural acts of commitment (Thye, Yoon & Lawler 2002). Equally, Krause and Ellram (1997) emphasise that the success factors for supplier development include buyers perceiving their suppliers as partners. In the literature, there is much evidence to suggest that buyer and supplier perspectives differ on the question of what leads to relationship success (Ambrose, Marshall & Lynch 2010). Relationship management requires significant resource investment on both sides and practitioners are particularly interested in how best to allocate resources to maintain successful relationships. For the supplier, knowing the buyer is a key challenge.

A relational view of competitive advantage is based on the observation that a firm’s critical resources span the boundaries of a firm and may be embedded in inter-firm processes and resources (Asare et al. 2013). Interestingly, in his study on the relationships between large purchasing organisations and small ethnic minority suppliers, Theodorakopoulos (2013) observed that small firms and ethnic minority suppliers that are fit to supply buying firms need to develop relational capabilities that enable the improvement of their product or process capabilities.

According to Wang and Ahmed (2003), successful implantation of organisational learning requires an effective blend of focuses within the organisation’s context. The learning and knowledge perspective (LKP) theory postulates that supply chain partners establish network or alliance relationships to exploit opportunities that reveal knowledge creation and organisational learning (Cao 2007). According to the LKP theory, there are two types of learning activity that take place in supply chain collaborations: exploitation and exploration learning (Cao 2007; Subramani 2004). Exploitation learning results from the supply chain collaboration activities aimed at improving a firm’s existing capabilities (Subramani 2004), whereas exploration learning results from supply chain collaboration activities aimed at discovering new opportunities for the firm, for example, improving a firm’s absorptive capacity (Subramani 2004).

As noted earlier in the RV theory, the absorptive capacity of a firm is the primary determinant of its learning ability through supply chain collaboration, employee quality, knowledge base, organisational culture and the quality of information systems (Cao 2007). Tavani, Sharifi and Ismail (2013) opine that firms with low absorptive capacity will not only find it difficult to recognise the value of new ideas generated from close relationship with its suppliers, but may also lack adequate ability to assimilate ideas into product innovation. Michailova and Jormanainen (2011) argue that the ability of a firm to transfer knowledge depends on its ability to recognise the value of local knowledge and develop mechanisms for knowledge transfer appropriate in the local context.

Michailova (2011) cautions that knowledge transfer involves a set of dynamic processes that depends on cognitive preferences, structural circumstances, historical legacies and ideological conditions and should thus not be approached in mechanistic and de-contextualised ways. Not surprisingly, Nagati and Rebolledo (2011) advise that as knowledge transfer is particularly challenging, the buying firm, customer and supplier should cooperate and use appropriate channels to facilitate it. In this regard, Giannakis (2008) concluded that knowledge transfer within SD programmes requires not only financial commitment and strategic decision-making, but also appropriate design and execution of certain processes and a distinctive governance structure. Rezaei-Zadeh and Darwish (2016) observed that although research has been conducted in the area of absorptive capacity, it still requires further investigation and understanding, and have accordingly conceptualised a model that requires further testing.

Every firm should determine sound reasons for adopting supplier development initiatives. Reasons vary from push and pull factors. Table 1 describes the push and pull factors for supplier development.

In addition to the above-mentioned reasons, supplier development may be implemented to create competition for a highly priced product or service that currently dominates the marketplace, or to establish and develop new routes to supply. In both cases, the reasons are positive because they are not reactions to a manifest challenge. They are simple, proactive steps taken to improve the firm’s supply chain activities. Usually, supplier development is expected to lead to substantial improvements in the total added value emanating from the supplier in regard to important business factors, such as the product or service offering, business processes and performance, improvements in lead times and delivery.

Reasons for supplier development include to improve supplier capabilities and enable them to provide better quality and delivery, lower cost products and services on time, bring in innovation to support client’s sourcing and procurement targets and sustainable development objectives, at the same time increasing supplier profitability as an extension of the benefits delivered to their customers (Arroyo-Lo´pez, Holmen & De Boer 2012; Chen, Ellis & Suresh 2016; Dalvi & Kant 2015; Gupta & Margolis 2011).

The decision to place a certain volume of businesses with the supplier should always be based on a reasonable set of criteria as firms can improve their supplier selection procedures and criteria by ensuring that selected suppliers match the profile of their enterprises (Pooe, Mafini & Loury-Okoumba 2015). Normally, the buying firm’s perception of the supplier’s ability to meet satisfactory quality, quantity, delivery, price and service objectives will govern this decision (Leenders et al. 2002). It is therefore argued that the selection and evaluation of suppliers is the most important activity of the purchasing and supply chain professional. In supply chain management, performance measurement is vital for decision making, identifying success factors potential areas for opportunities as well as determining the effectiveness of strategies employed. (Chan & Qi 2003). Supplier performance measurement refers to processes and methods of data collection meant to measure and determine the supplier’s performance on an ongoing basis (Monczka, Trent & Handfield 2005). Supplier performance can also be measured against factors such as quality, quantity, and delivery times, among other things (Wu, Choi and Rungtusanatham 2010). The pre-determined criteria for suppler performance management remove bias and subjectivity from the process and thus help to improve supplier relationships (Monczka et al. 2005).

Performance measurement goes beyond assessing information based on sales figures or inventory levels and determines whether there is fit between the buying firm and suppliers’ strategies (Wisner, Keong Leong & Tan 2005). A supply chain performance management system is designed to monitor and evaluate purchasing performance using both quantitative and qualitative dimensions (Monczka et al. 2005). Hence, such a performance management system requires an integrated database and efficient information. Customer service and value addition need to be the bases of the performance management system since the two aspects are at the heart of a modern supply chain. It is critical for buying firms to assess their suppliers’ performance, whether they employ some basic key performance indicators (KPIs) or more sophisticated data gathering and on-site assessment programmes (Gordon 2005). The point is that they should have some form of a performance management system, and can only improve on what they have.

The next section proposes an enterprise and supplier development (ESD) framework.

According to the framework, this is a very important step in ESD. As companies operate in different markets and are characterised by different organisational cultures, and may even be at different stages on the maturity curve, it is imperative that they consider a number of factors for determining their readiness for ESD. These include the company’s overall strategy and existing dynamics in supplier relationships, such as the nature and extent of information sharing with the suppliers, the level of collaboration and the trust enjoyed with the suppliers. It is at this point that a buying firm needs to identify its reason for participating in ESD and satisfy itself of ‘what’s in it for it’ in ESD, a notion earlier referred to as ‘dyadic adaptation’ (Brennan et al. 2003).

That said, the buying firm should never lose sight of the fact that increasing its competitive presence in the supply chain should be the overriding reason for engaging in the ESD. Part of determining readiness is for a buying firm to build a credible case for ESD. It is vitally important that buying firms not view ESD as just a matter of compliance. Only once the buying firm has identified critical areas for development and has built a credible business case for it should it proceed to set aside funds for such a programme. Referring to the minority supplier development programmes in the USA, Edmondson et al. (2008) recommended that:

Once a company has determined its readiness, it is imperative that it develops an ESD policy. The ESD policy will typically articulate a company’s philosophy on ESD with a view to guide the enterprise development policy (EDP), supplier development policy (SDP) and other related initiatives. Primarily, the policy will ensure that ESD initiatives are aligned with the corporate strategy. The policy will also give everyone involved comfort that ESD enjoys the support from the highest level, as far as the board in the organisation. The ESD policy will also set parameters in terms of budget and the nature of ESD activities. It might also define the governance around ESD. Importantly, the policy will distinguish between enterprise development and supplier development activities. The framework views enterprise development as indirect supplier development activities meant for suppliers outside the buying firm’s supply chain, whereas supplier development is viewed as activities meant to develop suppliers within the buying firm’s supply chains.

Enterprise development can be defined as any activity meant to develop suppliers outside the buying firm’s supply chain. In effect, enterprise development should be seen as an ‘indirect’ (Wagner 2010) or ‘narrow’ (Hahn et al. 1990) definition of supplier development whose aim is to align potential suppliers outside the supply chain with the buying firm’s supply chain needs and requirements. Through supplier identification, supplier evaluation and supplier selection, these potential suppliers would be placed on an enterprise development (ED) programme. The buying firm and the supplier identified can now formalise the relationship by agreeing on certain performance expectations, inputs, processes and deliverables. Such a performance agreement with the supplier will form the basis for the supplier development programme. Over and above the performance agreement, the programme will include further details such as who will be responsible for the training and development of which area, the nature and extent of development, what aspects of training will be delivered on-site and what will be delivered off-site. The programme will also outline the buying firm’s and the supplier’s responsibilities.

Supplier evaluation represents a set of activities and indicators that constitute improvement requirements that suppliers need to fulfil in order to collaborate with the buyer (Hahn et al. 1990). This phase of enterprise development will help the buying firm to determine the potential supplier’s absorptive capacity and ability to recognise the value of new information, assimilate and apply it to commercial ends (Cao & Zhang 2010). Thus, this phase involves proper identification of partners (Zollo et al. 2002). According to the proposed framework, successful candidates would only graduate into the buying firm’s SD programme.

According to the proposed framework, supplier development involves any activity meant to develop the capabilities of suppliers within the buying firm’s supply chains. As discussed earlier, SD can be either ‘results-oriented’, in which case its focus lies on solving a specific problem of a supplier, such as in the areas of quality and cost, or ‘process-oriented’, which is meant for continuous improvement of a supplier, such as helping increase their capabilities for continuous improvement (Rajendra et al. 2012) for the long-term mutual benefit of both parties (Sako 2004). Unlike initiatives focused on solving a supplier’s specific problem, SD for continuous improvement is a resource-intensive process which requires relatively huge financial and human investments. This might involve helping the supplier to evaluate and redesign their corporate strategy with a view to aligning the supplier very closely and on a long-term basis with the buying organisation in a strategic alliance or joint venture (Tate 2013).

Supplier segmentation is perhaps the most important step in the supplier development phase as it enables the buying firm to make some objective decisions with respect to the nature and extent of SD activities. According to Nayak (2011), the benefits of supplier segmentation include ensuring optimal allocation of limited management time and resources, helping determine what kind of relationships can be developed for different types of suppliers, and helping clarify and manage supplier expectations. Here, suppliers are classified according to the criteria most important for supply chain management. Different criteria may be used for supplier segmentation, for example, the level of spend by amount, the type of products and services supplied, the supplier technology capability and strategic importance of the supplier. Figure 2 illustrates an example of a matrix that may be used for supplier segmentation considering the levels of procurement spend and B-BBEE compliance.

The matrix in Figure 2 might be useful in the context of B-BBEE, where the more compliant suppliers are, the better the B-BBEE score will be for the buying firm. Therefore, such a buying firm might find that using the criteria of procurement spend and compliance to B-BBEE will provide a better perspective of the amount of procurement spend and on which suppliers the spend goes to. A buying firm might find that it makes more sense to focus their supplier development on suppliers found in quadrants 2 and 3, who are already B-BBEE compliant, so as to improve its B-BBEE score in the short to medium term. Ring suppliers in Quadrant 4, Arroyo-Lo´pez et al. (2012), assert that some strategic suppliers may require little assistance from the buying firm or the ratio of expected benefits to investment in improving supplier position may not be sufficiently high to justify larger investments in supplier development.