Supplier selection (abr)

Master of Business Administration [BM 771]
Universiti Teknologi MARA, Bandaraya Melaka
PROPOSAL FOR ABR
SUPPLIER SELECTION: Maxell Tohshin (Malaysia) Sdn. Bhd.
PREPARED BY:
Name : Siti Suryati Bt Bahari
Name : Noorhafizah Bt Badalehshah

Table of content Pages
Abstract 4
CHAPTER ONE- INTRODUCTION
1.1 Background of the industry 5
1.2 Statement of the problem 6
1.3 Objective of the research 8
1.4 Scope of study 9
1.5 Significant of the study 9
1.6 Limitation of the study 9
CHAPTER TWO – LITERATURE RIVIEW
2.1 Background of the research areas 10
2.2 Concept and definition of key components of the research area 10
2.3 Theoretical framework 11
2.4 Summarize to conclude 13
CHAPTER THREE- RESEARCH DESIGN AND METHODOLOGY
3.1 The research design 14
3.2 The population sample 14
3.3 Sampling technique 15
3.4 The fieldwork and data collection method 16
2

3.5 The data analysis 16
CHAPTER FOUR- OVERVIEW OF FUTURE APPLICATION 17
REFERENCES 18
3

Abstract
Supply chain management and supplier selection have become the fastest growing
areas of management especially in the last few years. Although study in the area started in
1960s, it is in the 90s that scholars gained much interest in the area of supplier selection.
The reason is that with heightened global competition that has reduced the profit margins of
most companies, hence cost cutting has become the option and is being focused in logistics
which has become the single largest and most important activity of most firms, both in the for
profit and not-for-profit sectors. As such, quite a significant portion of organizations’ budgets
is spent in these activities. Supplier selection in particular is crucial in management of a
supply chain. The decision is one of the most fundamental and important decisions made by
buyers and organizations. This is because supplier selection and management can be
applied to a variety of suppliers throughout a products’ life cycle from initial raw materials
acquisition to end-of-life service providers (Bai and Sarkis, 2009).
Supplier selection is the process by which firms identify, evaluate and contract with
suppliers. The supplier selection process deploys a tremendous amount of a firm’s financial
resources. In return, firms expect significant benefits from contracting with suppliers offering
high value. This research is to identify selection process: Identifying suppliers, soliciting
information from suppliers, setting contract terms, negotiating with suppliers and evaluating
suppliers. The researchers want to highlights why each step is important, how the steps are
interrelated and how the resulting complexity provides fertile ground for research.
4

CHAPTER ONE- INTRODUCTION
1.1 Background of the industry
Maxell Tohshin (Malaysia) Sdn. Bhd. or “MTM” in short was formed with effective as at 1
January 2006 (an integrated of company between Maxell Electronics (M) Sdn. Bhd. &
Tohshin (M) Sdn). Subsidiary Hitachi Maxell Ltd., Japan a member of the Hitachi Group of
Companies. MTM started with the Plastic Injection Molding of components for camera parts,
Manufactures Optical Lenses, Processing Lens Coating and Assemblies of Micro-Camera
Lens Unit, Manufacturers the 3.5 inch Floppy Diskettes, Assembling and certifying DVD-
RAMs under the renowned name of Maxell and in addition to this. MTM also punches Disk
Sheets (cookies) for the 3.5 inch Floppy Diskettes. Registered office at Lot 1, Batu
Berendam free Trade Zone Phase III, Batu Berendam 75350 Melaka, Malaysia.
1.1.1 The concept of supplier selection and procurement
Supplier selection and evaluation have become one of the major topics in production and
operations management literature (Motwani et al., 1999).It is the process by which firms
identify, evaluate and contract with suppliers. The supplier selection is one part of the value
chain that is now considered to deploy tremendous amount of an organization’s resources
and for this reason, much is expected in terms of high value from suppliers (Beil,
2009).These are part of what is today called supply management in the supply chain
management function in an organization. Supply management refers to “the process of
identification, acquisition, access, positioning, and management of resources an
organization needs or potentially needs in the attainment of its strategic objectives” (Institute
of Supply Management). Weber et al. (1991) define supplier selection as the search for
potential providers where the providers are sorted (evaluated) into potential ad non potential
providers. Typical criteria for supplier selection could be price structure, delivery which
5

entails timeliness and cost, product and services quality. It is the ongoing process of
searching and evaluating process to find a supplier of essential goods and services required
in an organization for normal operations.
The term procurement is used in the place of purchasing however, and encompasses
activities of specifications and development, expediting, supplier quality control and some
logistic activities (Wisner,Tan,and Leong,2008).Some scholars have postulated that supply
management is today a mainstream value adding process that is viewed as most
strategic(Cousins,2005). The main objective of supplier selection process is to reduce
purchase risk, maximize overall value to the purchaser, and develop closeness and long-
term relationships between buyers and suppliers (Li et al., 1997 as cited in Tahriri, Osman,
Ali and Yusuff, 2008). According to Benyoucef et al (2003), supplier selection process is
continuous in order to upgrade the existing variety and typology of their product range. It is
necessitated by the fact that most products generally have short lifecycle of 3 to 4 years.
1.2 Statement of the problem
Two different aspects characterize the supplier selection problem:
The first aspect is the determination of the number of the suppliers and the mode of relations
with them. Considering the characteristics of the company, product and market, its strategic
plan can encourage a large number of suppliers or not. Today, we are involved in a “co-
operative logistic” environment. The company seeks a strong co-operation with its principal
suppliers. Indeed, a strong co-operation with high number of suppliers is very difficult to
manage. An area of current research focuses on the classification of components or parts or
process to externalise in order to establish a suitable relation with the suppliers of each
category. For example, the company can consider a relation of partnership or even a
strategic alliance with a supplier who provides a part or a component and with which it
wishes to have a durable co-operation. On the other hand, this company can have a
hierarchical relation and a significant number of suppliers for the standard parts in order to
establish a competition between them and thus to reduce the cost of purchasing. Second
6

aspect is the selection of the best suppliers among the existing alternatives. In this work, we
consider this aspect of the problem and thus we assume that the number of the suppliers to
be selected is already given.
Issue in MTM under Procurement Department with the vender that influence the team
to search and find the alternative supplier and involve with the supplier selection.
1) Lead time-
Some of the supplier required the lead time more than 3 month. This is because their
material incoming from the overseas take about 1-2 month and the production lead
time takes about 1 month (depends to the production plan from their side.
2) Price-
Prices based on the material itself and also the terms. Some of the prices based on
the exwork , DDU, FOB, CIF and others. Certain country the prices based on the
currency and exchange rate. Sometimes, MTM facing the un-flexible prices,
especially the commodity item.(wire, plastic, spare part and etc.)
3) Quality
The quality must be meet the MTM requirement. If there is any quality issue, MTM
will request the supplier to send the replacement, or send the man power to do
sorting at MTM. However, the supplier also request to return the lot, but due the MTM
located at the FTZ area, any incoming or outgoing must be apply the custom
exemption. Normally to get the approval, it will take about 2-3 days. If there is no
customs officer at the office, the application will drack until a week. The issue will be
happen when the supplier do not have stock to send out the replacement and
required the MTM to return ASAP, but due the requirement for the rules and
regulation, MTM alternative plan to proceed the line sorting.
4) Delivery/mode of transport
The delivery can divided with 3 normal types; by sea, air, courier, or land transport. If
by sea, each country does have their lead time.
5) Payment terms
7

Whether the 60 days or 30 days. Or even advance payment
6) Rules and regulation
Customs exemption, documentation requirement (K1, K2,K8 etc.)
7) Documentation
Invoices and delivery order. According to the standard info
8) Services and pic involvement
The service provided and the response of any comment or issue from the ‘window’.
1.3 Objective of the research
The ﬁrst stream dominates the purchasing literature and identiﬁes appropriate criteria and
methods supporting supplier evaluation. The primary goals are to help the buyer decide what
its objectives are, what dimensions to evaluate suppliers over, and how to evaluate suppliers
using these dimensions. The second stream assumes that the buyer knows what it wants
and has an existing methodology for evaluating suppliers. It focuses on decisions such as
what types of negotiation formats or contracts to employ, and how to elicit information that
suppliers may be reluctant to reveal.
1.3.1 Research questions
The research questions for the study shall be:
What are some of the factors that determine supplier selection in the procurement process in
Maxell Tohshin? Is the supplier size a criterion for selection as a supplier in the procurement
process by Maxell Tohshin? To what extent does quality of supplies determine the supplier
selection in the procurement process in the Maxell Tohshin? Is cost a factor in the selection
of suppliers by the Maxell Tohshin? What is the overall effect of bribery and connections in
the supplier selection decision Maxell Tohshin?
8

1.4 Scope of Study
The focused on effectiveness and efficiency of selecting supplier selection method
determination of quality performance supplier selection criteria and the between supplier
selection techniques and quality performance of organization.
1.4.1 Geographical Scope
The study was conducted in Maxell Tohshin industries located on plot industries area Batu
Berendam, Melaka.
1.5 Significance of the Study
1. To contribute to the field of knowledge about supplier selection and quality
performance.
2. The research will benefit organization recognize the importance of supplier selection
in enhancing quality performance.
3. The study will provide organization with the various tools of supplier selection that
can enhance quality performance.
1.6 Limitations of the study
The researcher envisages a number of limitations such as the inability of the respondents to
adequately fill the questionnaires as required, the inadequacy of the research instrument to
capture all the required information, and failure of some respondents to fill the questionnaire,
and the inherent weakness in the research design.Also,the study is limited in that it only
focuses on Maxell Tohshin supplier selection determinants, yet there are many other
company that also rely on local suppliers. The findings in this study might not be adequate
representation of the supplier selection determinants in the Maxell Tohshin; hence the
results cannot be generalized to all.
9

CHAPTER TWO – LITERATURE RIVIEW
2.1 Background of the research areas
This chapter the principles and concepts that has been explore and brought out by various
authors in an existing literature on suppler selection and quality performance of organization
in Maxell Tohshin industries.The literature is reviewed under the following sub headings. The
supplier selection process, determinants of quality performance of organization, and the
relationship between suppliers selection technique and quality performance in Maxell
Tohshin industries.
2.2 Concept and definition of key components of the research area
Supplier selection criteria for a particular product or service category should be
defined by a “cross-functional” team of representatives from different sectors of your
organization. In a manufacturing company, for example, members of the team typically
would include representatives from purchasing, quality, engineering and production. Team
members should include personnel with technical/applications knowledge of the product or
service to be purchased, as well as members of the department that uses the purchased
item. With increasing significance of the purchasing function, purchasing decisions become
more important. As organisations become more dependent on suppliers the direct and
indirect consequences of poor decision-making become more severe. For example, in
industrial companies, purchasing’s share in the total turnover typically ranges between 50-
90% (Telgen, 1994), making decisions about purchasing strategies and operations primary
determinants of probability. In addition, several developments further complicate purchasing
decision-making. Globalisation of trade and the Internet enlarge a purchaser’s choice set.
Changing customer preferences require a broader and faster supplier selection. Public
procurement Public Procurement regulations demand more transparency in decision-
making. New organisational forms lead to the involvement of more decision-makers.
.
10

2.3 Theoretical framework
Consumers buy products based on a combination of cost, quality, availability, maintainability,
and reputation factors. The companies along with their supply chains, which can provide
these desired things, will ultimately be successful (Wisner, J.et al, 2008).But when
confronted with risky purchase decisions, most firms consider first and foremost, sellers or
suppliers with proven track record with the firm are favoured as familiar suppliers help
reduce perceived risks (Hutt and Speh, 2009).
Quantitative approaches used in supplier selection range from simple linear weighting
models to complex mathematical programming models. Linear weighting models are
essentially scoring models which place a weight on subjectively a determined criterion and
provide a total score for each supplier. Mathematical programming models use linear
programming, mixed-integer programming and goal programming to determine supplier
selection (Chaundry et al. as cited in Wissenschaftsverlag, 2007).
According to Beil (2009) supplier selection assists organizations in identifying, evaluating
and contract with suppliers for strategic partnership. Organizations will only achieve their
sourcing objectives once they get the right suppliers who will deliver goods and services on
time. Weber et al (1993) considered supplier selection to be long term process and suggests
that suppliers should be evaluated based on core competences and strategic needs.
2.3.1 Empirical Review
Literature review shows that from empirical front, comprehensive efforts have been made to
develop decision methods and techniques for supplier selection. Weber et al(1991) reviewed
and classified 74 articles that appeared since 1966 with regard to particular criteria used in
supplier selection ( as cited in Mendoza, 2007).In these papers, what comes out as the
major supplier selection determinants include price, delivery, quality, and production capacity
and location. Holt presented a review of contractor evaluation and supplier section
methodologies such as multi-attribute analysis, multi-attribute utility theory, and cluster
11

analysis where he discusses applications of each of these techniques. Degraeve et al uses
the Total Cost of Ownership (TCO) as the framework for comparing supplier selection
models. But it is De Boer et al study that is comprehensive enough as it looks at supplier
selection literature by even classifying the existing literature in a framework. The framework
enumerates steps preceding supplier selection decision. These steps are, problem definition,
formulation of selection criteria, pre-qualification, and final selection. The other unique thing
about their analysis is the classification of supplier selection literature according to different
purchasing situations namely first time buys, modified re-buys, and straight
rebuys(Mendoza,2007).Yet, this analysis though comprehensive leaves crucial gaps as it
does not clearly state the supplier selection determinants, but instead dwells on the selection
procedures.
Dickinson (1966) in his pioneering work on supplier selection identified and ranked 23
supplier selection criteria as collected from a questionnaire given to purchasing agents.
Quality, delivery, and performance history rank top with net price ranking a distant sixth. This
seems to concur with previous studies, but one notable discrepancy is that price curiously
ranks lower than quality. Again, net price is deceptive as other related costs such as
packaging and freight cost could raise the total cost. Total cost covers everything hence
should be the one listed and not net cost. Ellram (1990) proposed three criteria for supplier
selection. These are: the financial statement of the supplier, organizational culture and
strategy of supplier, and the technological state of supplier.
Omar & Sim (2010) in a study on supplier selection criteria conducted on Malaysian
Manufacturing firms found that cost followed by quality ranked higher than any other
determinants. Delivery ranks third based on their analysis.
12

2.4 Summarize to conclude
One of the highly ranked supplier selection determinants from the available literature is the
quality of supplies. Pioneering works of Dickinson (1966) which surveyed 300 commercial
organizations ranked quality as the highest determinant for supplier selection. Quality refers
to conformance to requirements or fit to use. Conformance quality is also viewed as absence
of defects (APICs, 1999).Since the early studies of 60s on supplier selection all through to
90s, quality has consistently ranked top among the various supplier selection determinants.
Purchasers would like to buy only those goods and services that are of high quality. The
other critical factor for supplier selection beside quality is delivery. Meeting delivery
deadlines is critical so as to avoid operations disruptions for lack of supplies. hoi(19960 as
cited in Cheraghi et al. delivery together with quality constitute what might be considered the
threshold criteria for supplier selection.
Performance history of a supplier is also a critical determinant in supplier selection as
literature adduces. In particular, for those goods and services that are of great value or
involving huge cost outlay, then the purchaser tends to go for that supplier whom they are
sure about their past performance. This is basically to reduce risks associated with failure of
unknown suppliers to deliver goods or execute their part of contract.
According to Weber et al. (1991) cost is one of the key determinants for supplier selection.
Cost of supplies like delivery and quality constitutes the traditional determinants of supplier
selection, also known as order qualifiers. Most organizations both in business and Non-
governmental organization world consider the lowest cost offer since the purchaser aims to
minimize on cost of procurement while trying to maximize on the quality and quantity of
purchases. Service factors such as after sales service, repairs capacities, change and
supply of parts, easy assessable, customer service, technical capacity, and warranty of the
product (Omar & Sim, 2010).For this reason, most purchasers tend to consider these service
factors capacity in a potential supplier. Any supplier with the capacities to provide these
services ultimately gets selected as a supplier to most organizations.
13

CHAPTER THREE- RESEARCH DESIGN AND METHODOLOGY
3.1 The research design
The sources used for study consisted of scientific refereed journals, textbooks and doctoral
dissertations. Publications in languages other than English and non-refereed professional
publications were not included. The search keys used were supplier selection, vendor
selection, purchasing decision-making.
Qualitative methods may include tools for visualising and analysing the decision-maker’s
perception of a problem situation and tools for brainstorming about possible (alternative)
solutions. The collection of quantitative methods comprises a wide variety of approaches.
Data mining techniques can be used to analyse similar decisions made in the past in order
to derive general patterns and decision rules that may subsequently be used to improve the
efficiency and effectiveness of future decisions.
Furthermore, we only included articles that report on a method or technique that specifically
aims at supporting a decision-maker in one or more of the four steps of the supplier
selection process. This implies that articles merely describing the supplier selection process
o the relevant criteria have not been included. Also, articles reporting on methods for
monitoring an existing supplier relationship were excluded.
3.2 The population sample
A population is the total collection of elements about which inferences are made and refers
to all possible cases which are of interest for a study (Sekaran, 2003).The target population
for the study is the 10 Maxell Tohshin department based in Batu Berendam, Melaka. The
study will target the chief procurement and logistics officers in these agencies as the unit of
analysis. These are selected because they are the ones tasked with the responsibility of
sourcing for suppliers of goods and services to their organizations.
14

3.3 Sampling Technique
Sampling refers to the systematic selection of a limited number of elements out of a
theoretically specified population of elements. The rationale is to draw conclusions about the
entire population. According to Kothari (2004), the ultimate test of a sample design is how
well it represents the characteristics of the population it purports to. The reason for sampling
in this study is to lower cost, accessibility of study population and the greater speed of data
collection.
A sample size of 50% of the population will be taken to give a total sample of 9 Maxell
Tohshin department. This is informed by the principle that if the elements of a population are
quite similar, only a small sample is necessary to accurately portray the characteristics of
interest Stratified random sampling will be used where the sample size of 50% shall be taken
from each of the three categories (strata) of the population. Stratified random sampling will
be used because it ensures a greater statistical efficiency, and reduce sampling
error.Kothari(2003) supports random sampling as it satisfies the law of statistical regularity ‘if
a sample is chosen at random, on average it has the same characteristics and composition
as the population’.
Table 3.2: Sample Size
Target Population Sample Percentage Sample Units
Headquartered 2 50 1
Regional Offices 14 50 7
Others 2 50 1
Total 18 9
Source: Author (2012)
15

3.4 The field of work and data collection method
The overall aim of the study is to establish the determinants of supplier selection among
international organizations, specifically the Maxell Tohshin in Batu Berendam Melaka. The
bulk of data collected will therefore be primary in nature. The questionnaire will be the main
instrument, alongside face to face interviews. The use of questionnaires for primary data
collection has been supported by many scholars among them; Mugenda (1999),and Peil
(1995).A questionnaire is easier to administer, less costly, and ensures greater depth of
response, according to Mugenda (1999).A questionnaire also helps capture factual
information effectively. For the purpose of this study, the questionnaire will be used for the
mainly economical, and appropriateness reasons. A pilot study shall be conducted using
questionnaires to be administered to respondents from four Maxell Tohshin departments.
Those questions that will not be clear or are ambiguous will be revised so as to collect the
desired information. A senior academic from the school of Business of University
Technology MARA will assess the validity and reliability of the instrument.
Research Procedure
The researcher will first obtain a letter of introduction from Universiti Teknologi Mara. The
letter will help in identification in the various Maxell Tohshin premises while approaching
respondents. The questionnaires shall be personally administered through drop and pick
method.
3.5 Data Analysis and Presentation
The statistical method used in this study is descriptive and inferential statistics. Data analysis
will be done using Statistical Package for Social Sciences computer software
(SPSS).Tables, pie charts and graphs will be used to present the results on various
variables in the study. Descriptive statistics such as mode, mean and median shall be used
to present the various characteristics for data sets after the descriptive analysis. For this kind
of study, descriptive analysis is the best and has been supported by such scholars as
Schindler (2001), and Crawford (1995).
16

CHAPTER FOUR: OVERVIEW OF POSSIBLE FUTURE APPLICATION
The previous section has made clear that support in the phase of problem definition is an
underdeveloped area in supplier selection since we did not come across any model in the
purchasing literature that pays attention to this important phase. Some approaches in the
operations research literature deal explicitly with problem definition but have thus far not
been used in the purchasing literature. We also identified three additional methods that
seem particularly suitable for supplier qualification phase. These three models are elucidated
in Table 4.
Table 4
Methods for supporting pre-qualification of supplier
Method Typical feature
Conjunctive screening
(Hwang and Yoon, 1981)
A supplier is acceptable if the supplier equal
or exceeds a minimum score on each
criterion
Disjunctive screening
A supplier is acceptable if the supplier at
least equals or exceeds a minimum score on
one criterion.
Lexicographical screening
Criteria are ranked in order of importance.
Suppliers are first evaluated on the most
important criterion. Suppliers that pass this
criterion are then evaluated on the second
criterion and so on.
REFERENCES
17

Bai, C. and Sarkis, J. (2009).Supplier selection and sustainability: A Grey Rough
Set evaluation (Working paper 2009-05).Clark University, George Perkins Marsh Institute.
Beil, D. (2009).Supplier selection (unpublished research paper).Stephen M. Ross School of
Business. University of Michigan, Michigan, USA. Available at
www.personal.umich.edu/.../Supplier Selection_...
Bonhestaut, A. (Ed.). (2008).Procurement and supply in Kenya: The market for Small and
Medium Enterprises. Nairobi: Strategic Business Advisors (Africa Ltd).
Cheraghi, S.H.et al. (n.d).critical success factors for supplier selection. Journal of
Applied Business Research, 20, 2
Crawford, I. (1995).Marketing research and information systems. Rome: FAO.
Creswell, J.W. (2003).Research design: Qualitative, quantitative and mixedMethod
approaches.Carlifornia: Sage Publishers.
Delfmann, W. and Wissing-horsten, K. (2007).Strategic supply chain design: Theory,
concepts and applications.
Ellram (1990).The supplier selection decisions in strategic partnerships. Journal
of Purchasing and Materials Management.8-14
Hutt, M.D., and Speh, T.W. (2009).Business marketing management: B2B(10th
ed.).Mason,
OH: Cengage Learning South-Western.http://www.un.org
Mendoza, A. (2007).Effective methodologies for supplier selection and order Quantity
allocation (PHD thesis, The University of Michigan, Michigan.
Motwani, J. and Youssef, M. (1999). Supplier selection in developing countries: a model
development. Emerald, 10(13):154-162.
Mugenda, O.M & Mugenda, A.G. (1999).Research methods: Quantitative and
18

qualitative Approaches: Nairobi: ACTS Press.
Omar, M.K.and Sim, H.K.(2010,December).A survey of supplier selection criteria in the
manufacturing industry in Malysia.The 11th
Asia Pacific Industrial
Engineering and Management systems conference, Melaka, Malysia.
Orodho, J.A. (2004).Techniques of writing research proposals and reports ineducation and
social sciences. Nairobi: Masola Publishers.
Peil, M. (1995).Social science research methods handbook for Africa. Nairobi: East African
Educational Publishers.
Tahriri,F.,Osman,M.R.,Ali,A.,&Yussuff,R.M.,(2008).A review of supplier election methods in
manufacturing industries.Suranaree Journal of Scienceand Technology, 15(3),201208.
Weber, et al. (1991).Vendor selection criteria and methods.European Journal Of Operational
Research, 50, 2-18.
19

Supplier selection (abr)

More Related Content

What's hot

Similar to Supplier selection (abr)

Recently uploaded

Supplier selection (abr)