Finding Best Supplier Evaluation Criteria- In Manufacturing

Sector- A Case Based Analysis

V.K.Gupta
MANAGEMENT DEVELOPMENT INSTITUTE, GURUGRAM

1.0 Introduction Secondly, the vast majority of the publications found seem to
have been written in the context of selecting a supplier for the purchase of
To start the journey of supplier selection and evaluation
a product to be used in a manufacturing environment. From a point of
criteria we must know what is a supplier and how does it vary from a
view of reflecting purchasing significance in sectors other than
vendor? A vendor is what we find on roadside corner and we will get
manufacturing, e.g. service industry, it would be worthwhile to investigate
product that we see and nothing beyond it in terms of innovation,
and illustrate the specifics of using decision methods in supplier selection
creativity, and commitment to our business success. A supplier is
in those areas as well.
someone which offers beyond the product we see, as per our requirement
and gives an opportunity to extend our business with product innovation
Thirdly, the assignment of methods in our framework of
and development. (Harley Davidson motor company: Enterprise software
supplier selection situations shows that not all methods are equally useful
selection, 2003). Supplier selection process becomes more severe due to
in every possible purchasing situation. However, the existing articles on
direct and indirect consequences of poor selection. Direct consequences
methods for supplier selection do not sufficiently address this contextual
includes increase in raw material cost, delay in time to market, re-
issue. Often they assume, explicitly or implicitly, that their method is
inspection etc. whereas indirect cost includes losing market share due to
applicable in all purchasing contexts. At most, a reference is made to a
poor quality of products, fatigue and losing of an competitive edge. Due to
particular industry in which a method has been empirically tested or the
globalization, enlargement of internet and changing customer preferences
need to change the criteria considered when applying the method to
require a faster and effective selection process. New organizational
another type of product.
structure involves more decision makers and public procurement process /
regulations demand more transparency in decision making make the
The suppliers affect the competitiveness of a firm and hence
supplier selection a complex and important work. In order to increase the
suppliers must be evaluated periodically to verify the effectiveness and
competitive advantage, many companies consider that a well designed and
efficiency of the suppliers. Most of the evaluation models finalize the
implemented supply chain system is an important tool. Under this
supplier selection decision making process on the basis of a set of supplier
condition, building on the closeness and long-term relationships between
performance criteria.
buyers and suppliers is critical success factor to establish the supply chain
2.1 Supplier Selection Criteria
system. Therefore, supplier selection problem becomes the most important The Supplier Selection Problem is defining of models, ways
issue to implement a successful supply chain system and methods to analyze and measure the performance of a set of suppliers
under consideration in order to improve customer business. There are
2.0 Literature Review multiple criteria that are used to evaluate a supplier. With changing
environment, the criteria’s for supplier selection is far more than the
From the analysis of the methods currently being reported for
traditional cost, quality based. As per Dickson (1996) there are 23 criteria
supplier selection and the potential still left unused following conclusions
for supplier evaluation – Quality, Delivery, Performance history,
has been drawn.
Warranties and claim policies, Production facilities and capacity, Price,
First, most attention has so far been paid to the choice phase in
Technical capability, Financial position, Procedural compliance,
the supplier selection process. The phases prior to the choice phase have
Communication system, Reputation and position in industry, Desire for
received far less attention from researchers in operations research or
business, Management and organization, Operating controls, Repair
purchasing and supply. The choice phase often being the most visible
service, Attitude, Impression, Packaging ability, Labour relations record,
phase in the process. However, the quality of the choice phase is largely
Geographical location, Amount of past business, Training aids, Reciprocal
dependent on the quality of the steps prior to that phase. If purchasers
arrangements. Based on company’s Business strategy, these criteria list
strive for sound decision making they should also pay attention to these
could expand or shrink. In our research we shall first prioritize these
early steps. The analysis done did show that several suitable OR-methods
criteria’s and then take a survey from purchaser of manufacturing firm to
are available for problem definition, formulation of criteria and
assign weightage to these criteria’s, there after use these criteria’s for
qualification.
scoring of each supplier.
2.1 Supplier Selection Methods system is an important tool. Under this condition, building on the
closeness and long-term relationships between buyers and suppliers is
There are numerous methods to evaluate a supplier. critical success factor to establish the supply chain system. Therefore,
Since the supplier selection criteria is both qualitative and quantitative in supplier selection problem becomes the most important issue to
nature, the fuzzy TOPSIS method for evaluation can be used. The fuzzy implement a successful supply chain system.
TOPSIS method is quite flexible and as per closeness coefficient, we can
determine not only the ranking order but also the assessment status of all References:
possible suppliers. The most widely applied methodology was data
Luitzen de Boer. 2000, A review of methods supporting supplier
envelopment analysis (DEA), mainly attributed for its robustness. There is
selection,
a need to evaluate the suppliers based on the inputs of the strategic,
Wei-Ning Pi Chinyao Low, 2005, Supplier evaluation and selection via
functional and operational levels. The implication of lean manufacturing
Taguchi loss function and an AHP,
and popularly used JIT approach has forced the researchers to shift the
Renato Passaro, 2012, AHP- Based approaches for supplier evaluation:
focus from the efficiency based model to quality based approach. AHP is
Problems and perspectives,
found to be the most utilized methodology to cope with the supplier
Chen-Tung Chen, 2006, A fuzzy approach for supplier evaluation and
selection problem. In our research we shall use The Analytic Hierarchy
selection in supply chain management,
Process (AHP) methodology. AHP is a general theory of measurement
Monark Bag, 2011, A review of multi criteria decision making techniques
that depends on the values and judgments of individuals and groups. AHP
for supplier evaluation and selection,
is used to evaluate supplier according to different categories to provide
Dickson, G.W. 1966. An analysis of vendor selection system and
consistency in supplier selection.
decisions. Journal of Purchasing 2 (1), 28-41

In order to increase the competitive advantage, many

companies consider that a well designed and implemented supply chain