Suppliers management, representing the

upstream relationship in SCM is a key area in

operations management having its impact,
particularly on a companys costs, its quality,
customer service, innovation and its
competitive position.
Role of suppliers in improving performance of
an industrial organization has now been widely
recognized and accepted.
A survey had shown that in 1995, 20% of purchasing
and material managers deemed supplier management
to be extremely important and 65% of them expected it
to be exceptionally important by 1997.
Effective suppliers management directly contribute to
the efficiency of the supply chain, as management of
suppliers may account for as much as 60% to 80% of
production cost, particularly in manufacturing sector.
Suppliers management, in general, includes the
following three areas of decision making.

I. How many suppliers are too many
or how many suppliers are too
less?
II. How to select the right type of
suppliers?
III. What type of relationship to be
maintained with the suppliers?
Two extremely opposite classical models
1) American
2) Japanese
The former is based on market, which accepts the fact the
market competition prevails in suppliers base creation and the
suppliers are to show their performance to get included in a base
which is meant for a short-term contract, whereas, the later is
based on long-term partnership. In former case the selection is
made from a large base and the later one emphasizes on
maintenance of a small suppliers base. Although it is quite logical
for firm to follow a middle path, empirical evidence shows
shifting of companies towards reduction of suppliers base.
Risk vs Transaction costs and Benefits from collaboration

Example: Motorola and Xerox of US have reduced the number of
suppliers significantly and 59% of US automakers are now going
for single supplier. It is almost the similar picture in other
developed and developing countries.



Identification of appropriate criteria seems
to be the first stage in this process of suppliers
section, which are used for evaluating the
suppliers in subsequent stage, followed by
their integration so as to finally identify the
supplier(s) to be chosen for the organization.


The most popular selection criteria used by
management practitioners are Price, delivery and quality.

Price: Manufacturers in UK automotive sector have
recently put great pressure on their suppliers to reduce
price. It is true in India as well.

Delivery and Quality: Delivery and quality are next most
important criteria due to the fact that the reputed
organizations aspire for implementing TQM and orient
towards JIT-based operations system.







Supplier location may also be considered as another
criterion, having significant impact on cost of
transport, availability and response time for
replenishment of orders.

As per the seminal empirical study by
Dickson (1996), quality and delivery seem to be
extremely important and next to be considered is price
and technical capabilities of suppliers. However
change of management viewpoint is quite evident in
the study of Weber, Current and Benton (1991), which
shows that price, delivery and quality are the most
important selection criteria, followed by proximity of
the supplier.

1. Linear Weighting Model/Vendor Point Rating



where, wi importance of i
th
criterion
pi suppliers performance as per i
th

criterion

i
i i
w
p w
2. Dimensional Analysis (DA)



Where,
xi criterion performance score of supplier x
yi criterion performance score of supplier y

DA > 1 x > y


[
=
|
|
.
|

\
|
=
n
i
w
i
i
i
y
x
DA
1
3. Standardized Unitless Rating (SUR)
Fuzzy bag approach for qualitative criteria
Given a line segment [0,1], evaluator marks
xij : How unsatisfactory performance of ith supplier w.r.t. jth
criterion
yij : How satisfactory performance of ith supplier w.r.t. jth
criterion
Average score aij = (xij + yij)/ 2
Inconsistency rij = | xij yij|





aj , amax,j & amin,j Mean, maximum & minimum values
among all suppliers w.r.t. jth criteria



| |

=
=
(
(
(
(

(
(

=
n
j
n
j
j
j
ij
j j
j ij
i
w
w
r
a a
a a
SUR
1
1
min, max,
1
4. Analytic Hierarchy Process (AHP)
Supplier Selection

Quality Delivery Technical Capability


Percentage Inspection Awareness
Rejection model of TQM
On-time Delivery Delay
Delivery Delay Variations
Product Process Flexibility
s
1
s
2
s
3

s
1
s
2
s
3

.
5. Multiple Objective Programming Model
Min z = (z1, z2, z3)
Subject to xj s min (vjU, wjU) yj for all j
xj > max (vjL, wjL)yj for all j


x
j
> 0 for all j
y
j
e (0, 1) for all j

=
>
n
j
j
D x
1

=
=
n
j
j
p y
1

=
=
n
j
j j
x A z
1
1
=
=
n
j
j j
x B z
1
2
=
=
n
j
j j
x C z
1
3
yj = 1; if vendor j is selected
= 0; otherwise
xj = Quantity purchased from vendor j during the period
n = number of competing vendors
p = number of vendors to be selected
Aj = per unit purchase cost from vendor j
Bj = percentage of items late for vendor j
Cj = percentage of rejected items for vendor j
D = Aggregate demand for the material during the planning
period
VjU = Maximum amount of business to be given to vendor j
VjL = Minimum amount of business to be given to vendor j
WjU = Maximum order quantity vendor j is capable to supply
WjL = Minimum order quantity vendor j is capable to supply
Goal Programming

Minimize F = d
1
+
+ d
2
+
+ d
3
+
n
Subject to A
j
x
j
+ d
1
-
- d
1
+
= T
1

j=1

n
B
j
x
j
+ d
2
-
- d
2
+
= T
2

j=1

n
C
j
x
j
+ d
3
-
- d
3
+
= T
3

j=1


n
x
j
D x
j
min(v
j
U
, w
j
U
) y
j for all j
j=1

x
j
max(v
j
L
, w
j
L
) y
j for all j


n
y
j
=p x
j
0 for all j

j=1

y
j (0,1)
for all j

Where the three T s are target or expected values.

Development and maintenance of suppliers relations
involve various issues of strategic importance
entangled with the SCM strategies of the organization.
However the following may be considered as the
important guidelines in this endeavor.

Information and know-how sharing in general
Training programs for engineers and managers of supplier
firms
Exchange of information on process and technology
development
Collaboration in forecasting, research and innovations in
product design and development
Mutually beneficial policies on rates, delivery, storage, etc.

A survey result shows the integration of
manufacturers with suppliers in various ways.
On an average number of suppliers has been
reduced by 20% in 5 years, 60% of the
manufacturers opt for JIT delivery for key
suppliers and 54% of them ask for cost
reduction. 80% of the manufacturers under
survey involve key suppliers in product design
and almost 50% has developed software
linkages with suppliers.