COLLEGE OF BUSINESS

SCHOOL OF TECHNOLOGY MANAGEMENT AND LOGISTICS (STML)

BJMP 3073
PURCHASING MANAGEMENT AND SUPPLY CHAIN
FIRST SEMESTER SESSION 2020/2021

REPORT TOPIC:
CHAPTER 12: SUPPLIER SELECTION
CHAPTER 13: SUPPLIER EVALUATION AND SUPPLIER
RELATIONSHIPS

PREPARED FOR
DR. ADAM BIN MOHD SAIFUDIN

PREPARED BY GROUP 8
(Group A & B)

Name Matric no. Group

Ahmad Zakwan Bin Adam 253811 A
Loh Hue Peng 254707 A
Sofia Binti Saidin 257049 A
Raffidah Binti Mohamad Saad 257043 A
Nur Izzati Binti Sullahaji 254081 B
Nur Suzielawati Binti Ramizan 253025 B
Wan Norhuda Binti Wan Nasri 254871 B
Siti Hajjar Fakhiroh Binti Ahmad Darwis 257127 B
Muhammad Ammar Bin Abd Halim 256516 B
TABLE OF CONTENTS

Contents Page
Chapter 12
1.0 Introduction 1
2.0 Significant of the topic 1-2
3.0 Problems Statement 3
4.0 Objectives 3
5.0 Contribution of the topic 4-6
6.0 Literature Review 7-8
7.0 Process Flow 9-15
8.0 Important Findings 16-19
9.0 Conclusion 20
10. Recommendation 21
0
11. SWOT Analysis 24
0
Chapter 13
1.0 Introduction 25
2.0 Significant of the topic 25
3.0 Problems Statement 26
4.0 Objectives 26
5.0 Contribution of the topic 27-29
6.0 Literature Review 30
7.0 Process Flow 31-34
8.0 Important Findings 35-36
9.0 Conclusion 37
10. Recommendation 38
0
11. SWOT Analysis 39-42
0
CHAPTER 12: SUPPLIER SELECTION

1.0 INTRODUCTION

This chapter will first discuss the identification of potential suppliers, where
to find them, and the collection of information. The next topics include whether to
select single or multiple sources, deal directly with manufacturers or go through
distributors, and choose small or large supplier development provides an alternative to
routine supplier selection. Potential suppliers may be identified through research,
advertising, proposals, open competition (with or without design), selective
competition (with or without design), or through existing relationships such as
framework agreements.

Supplier selection is the process by which firms identify, evaluate, and

contract with suppliers. The supplier selection process deploys an enormous amount
of a firm’s financial resources and plays a crucial role in the success of any
organization. The main objective of the 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. The literature on supplier
selection criteria and methods is full of various analytical approaches.

2.0 SIGNIFICANT OF THE TOPIC

In the topic of supplier selection, the most significant is how to identify the
potential supplier when purchasing decisions were largely viewed as operational
rather than strategic, the analysis of the supplier’s ability to the quality, quantity,
delivery, cost, and service objective governed the supplier selection decision. Some of
the most important suppliers attribute related to these prime status, organization and
management, reputation, systems, procedural compliance, communication, labor
relations, and location.

The organization will focus on the reliability and responsibility of the

supplier through the way from third party information to ensure whether the supplier
has the potential to supply good service to the organization. So, many organizations
use a decision tree to select the effective decision, the supply professional must
identify the options and the criteria for evaluation and assess the probabilities of
success and failure. To identification of potential sources is a key driver of the
ultimate success or failure of the supplier selection effort. The way to collect
information source:

 Trade Directories and Online Resources

 Catalogs
 Trade Journals
 Sales Representatives
 Supplier and Commodity Databases
 Visit to Suppliers
 Samples
 Colleagues
 References

1
 The most critical decision for professional bidding is with the selection of
suppliers. Based on the strategic and operational needs of the organization, short and
long term, supply managers should find the best way to view the market for these
needs. The important part to know is about the single source and multiple sources.
Intermediate and inter-provider business allocation is an essential component of risk
management and building a resilient supply chain. In the selection of suppliers, it has
been assumed that at least one suitable and ready supplier already exists and that the
buyer problem is one of determining the best supplier. The three requirements criteria
are:
 Level 1: Strategic
 Level 2: Traditional
 Level 3: Current Additional

2
3.0 PROBLEMS STATEMENT

The problem statement of this topic are:

i. Challenges in achieving supplier sustainability performance.
ii. Low efficiency in making elections without accumulation.

4.0 OBJECTIVES

These are the objectives of this topic:

i. To identify the potential supplier
ii. To understand the process of supplier selection
iii. To identify the information sources in supplier selection
iv. To understand the arguments in favour of single and multiple sourcing
v. To understand the level of supplier evaluation

3
5.0 CONTRIBUTION OF THE TOPIC

5.1 Theory Supply- Supply chain management theory (SCM)

The term "supply chain management" entered the public domain when Keith
Oliver, a consultant at Booz Allen Hamilton, used it in an interview for the Financial
Times in 1982. The term was slow to take hold and the lexicon was slow to change. It
gained currency in the mid-1990s when a flurry of articles and books came out on the
subject. In the late 1990s, it rose to prominence as a management buzzword, and
operations managers began to use it in their titles with increasing regularity.

Supply chain management is made up of a few components that are very

important as well as critical to the system. We shall discuss each of the components in
brief:

Strategic level
• Strategic network optimization, including the number, location, and size of
warehousing, distribution centers, and facilities.
• Strategic partnerships with suppliers, distributors, and customers, creating
communication channels for critical information and operational improvements
such as cross-docking, direct shipping, and third-party logistics.
• Product life cycle management, so that new and existing products can be optimally
integrated into the supply chain and capacity management activities.

Tactical level
• Sourcing contracts and other purchasing decisions.
• Production decisions, including contracting, scheduling, and planning process
definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.

Operational level
• Daily production and distribution planning, including all nodes in the supply chain.
• Production scheduling for each manufacturing facility in the supply chain (minute
by minute).
• Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
• Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers.

4
 Figure 1: Supply Chain Management Theory

Planning
This is one of the most important stages. Before the beginning of the entire
supply chain, it is essential to finalize the strategies and put them into place. Checking
the demand for the product or service, checking the viability, costing, profit, and
manpower, etc., are vital. Without a proper plan or strategy in place, it will be well-
nigh impossible for the business to achieve effective and long term benefits.
Therefore, enough time has to be devoted to this phase. Only after the finalization of
the plans and consideration of all pros and cons, can one proceed further. Every
business needs a plan or blueprint or a road map based on which the strategies are
made. Planning helps to identify the demand and supply trends in the market and this,
in turn, helps to create a successful supply chain management system.

Sourcing
Suppliers play a very crucial role in supply chain management systems.
Products and services sold to the end-user are created with the help of different sets of
raw materials. It is, therefore, necessary that suitable quality raw materials are
procured at cost-effective rates. If a supplier is unable to supply on time, and within
the stipulated budget, the business is bound to suffer losses and gain a negative
reputation.

Inventory
For a highly effective supply chain management system an inventory must be
kept and thoroughly maintained. An inventory means the ready list of items, raw
materials and other essentials required for the product or service. This list has to be
regularly updated to demarcate available stock and required stock. Inventory
management is critical to the function of supply chain management, because without
proper inventory management the production, as well as sale of the product, is not
possible. Businesses have now started to pay more attention to this component simply
because of its impact on the supply chain.

5
Production
Production is one of the most important aspects of this system. It is only
possible when all the other components of the supply chain are in tandem with each
other. For the process of production to start, it is essential that proper planning and
supply of goods, as well as the inventory, are well maintained. The production of
goods is followed by testing, packaging and the final preparation for delivery of the
finished product.

Transportation
Transportation is vital in terms of carrying raw materials to the
manufacturing unit and delivering the final product to the market. At each stage,
timely transportation of goods is mandatory to sustain a smooth business process. Any
business which pays attention to this component, and takes good care of it, will
benefit from the production and transportation of its goods on time.

Return of goods
Among the various components that create a strong supply chain is a facility
for the return of faulty/malfunctioning goods, along with a highly responsive
consumer grievance redress unit. The last components discussed here are
interdependent and ensure a smooth supply chain management system. It ensures the
success and reputation of a business. A business must focus on all these components
in order to create a flawless supply chain.

6
6.0 LITERATURE REVIEW
Supplier selection shows a very important role in the success of an organization.
In today's global scenario, it is necessary to reduce the risk of buying, maximize
overall value to buyers and build a relationship approach to maintain and sustain high
competition. Researchers and practitioners describe supplier selection as a
procurement activity in supply chain management. This is because it demonstrates the
supplier's attitude towards price, quality and delivery in achieving the supply chain
objectives. (Kagnicioglu,2006). Over the last two decades, the evolution of the
competitive environment has made company competitiveness and survival depend
more and more on their suppliers (De Boer et al., 2001). Increasing dependence on
suppliers leads companies to be even more exposed to uncertain events, which is why
the supplier selection has become one of the most important issues for purchasing
managers (Coase, 1937; Williamson, 1975; Ronchi, 2003; Hsu et al., 2006).

Supplier selection is a decision-making process that needs to be emphasized. This

is because if an organization chooses the right supplier, all the supply problems of the
organization will be resolved. The decision to place a certain amount of business with
the supplier should be based on the appropriate criteria. The criteria that a company
must make in terms of supplier selection must be based on qualitative and quantitative
factors. Qualitative criteria were determined using fuzzy analytic network process
(FANP). Quantitatively, the qualitative selection criterion has been converted into the
quantitative criterion by which FANP is used as output. To select the best suppliers it
is necessary to make a Trade-Off between these tangible and intangible factors. It has
been well focused by Dickson since 1996.

In the supplier selection, there are many criteria for evaluating suppliers. But how
to choose the right supplier that will be used to choose the best solution. Ellram
(1990) seeks to increase the importance of criteria by dividing it into 4 groups and
aspects namely financial, organizational culture and strategic and technology issues.
However, the majority of research on supplier selection issues is more focused on
Dickson studies. Dickson emphasized his importance by setting 23 criteria by which
the best selection would be possible. In 1966, the most important criteria were the
quality of the product, the history of the supplier's performance and the guarantee
policy used by the supplier.

According to the Bei et al.,2006, Talluri 2002, supply selection is classified into
three categories which are conceptual approach, empirical study and analytical
models

7
 Supplier Selection

Conceptual Approach Empirical Study Analytical Models

Conceptual Approach
The supplier selection process is of paramount importance in any supply
chain. A supply chain is said to be successful or efficient if the right quantity and
desired quality of the final product are delivered at the right place at the right time
(Mandal and Deshmukh, 1994). Supply Chain Management is the link between every
element in the manufacturing and supply processes, starting from the raw material to
the end consumer (New and Payne, 1995; Scott and Westbrook, 1991). Supplier
selection is a process which contains many steps, the first starting with the realization
of the need for a supplier; determination and formulation of the decision criteria;
initial screening and drawing up a shortlist of potential suppliers (pre-qualification);
final supplier selection and finally, continuous evaluation and assessment of the final
suppliers (De Boer and Wegen, 2003). Supplier selection procedures are divided into
pre-selection, selection and the post-selection procedures (Davidrajuh, 2003). The
model classified selection into three-phase: pre-selection, evaluation and
development. Thus, supplier selection has become a key critical strategic
consideration.

Empirical Study
Empirical study classification of the supplier selection process deals with the
relationships of various entities or attributes with each other involved in the process of
supplier selection of supply chain. There exists a fair amount of literature regarding the
empirical study of supplier selection process. It may deal with the buyer-supplier
relationship or the relation between efficiency of the supply chain and the sourcing
strategy.According to Chapman and Carter (1990) and Stamm and Golhar (1993)
discussed the just-in-time (JIT) concept in general and identified the attributes related
to JIT purchasing. Thereby, the benefits and problems with JIT purchasing are
determined. They further provide insight into the change in the relative importance of
JIT purchasing depends on whether customer inventory or supplier inventory is used
as the dependent variable.

Efficient Supply Chain Management practices can lead to enhanced competitive

advantage and improved organizational performance. A major factor in supplier
management involves the type of relationship the firm develops and maintains with its
suppliers. Manufacturing companies place a strong emphasis on the role of supply
chain management which is the management of supplies, suppliers, inventory and
distribution. The supplier selection criteria are very vital in the success of the supply
chain and hence, of the organization and their relationships are critical in the selection
of the supplier.
7.0 PROCESS FLOW

Diagrams 1 : Identification of Potential Sources for New Need

There are three potential supply options for any new need/requirement of an
organization: (1) the make/buy decision; (2) acquire from a current supplier; and (3)
search for new potential suppliers.We discussed the make/buy decision during the
strategic cost phase. This involves doing a cost analysis between to cost to make and
the cost to buy. If a firm decides to buy, then it will either choose from a current
approved supplier or a new supplier. This decision is based upon the product and the
its specialized nature. When no suitable supplier can be found, the supply professional
still has the option of using supplier development or redesign or re-specification to see
if a suitable source can be found or developed. There is a remote chance that, despite
all efforts, no solution is found. The supply professional then gets together with the
requisitioned to see if an alternative or substitute solution can be found.
 
Diagrams 1 showed three potential supply options for any new need or
requirement of an organization. We should make our own decision which is can we
make in house, can a current supplier meet or we should find potential new supplier.
The make option , or doing it in-house, may be realistic for some need or if buy an
organization can try a current supplier meet. There are many reason that organization
may lead to produce a good and services in house rather that purchase. The second
action is to acquire the new need from a current supplier or other requirements. Most
supply professionals would prefer to pursue this option. Assuming past dealings with
the current supplier have been value proposition on the total set of requirement
supplied. Current good or superior suppliers have a right to expect additional volumes
of business as a reward for their performance on current and past business. Both
purchaser and supplier stand to benefits from this understanding. The third option
option is if organization can meet current supplier. An organization can find potential
new supplier. If there have no supplier can meet, one supplier can meet and two or
more supplier can meet. Therefore, an organization did no have supplier can meet, an
organization can use supplier development to create their own supplier. If no an
organization can redesign or re-specify so that existing or new supplier can meet. If
resign cannot meet supplier an organization can make in-house again and then if also
cannot an organization need to rethink.

7.2 SUPPLIER DEVELOPMENT/REVERSE MARRKETING

THE MARKETING CONTEXT

Marketing initiative

Purchasing response Purchaser

Supplier
THE SUPPLIER
DEVELOPMENT CONTEXT
Sales response
Supplier Purchaser
Purchasing
initiative

Diagrams 2 : Supplier Development Initiative with the Purchaser

It is possible in the supplier selection process that no suitable source is

available and the purchaser may have to create a source. In this context, the purchaser
does not initiate supplier development as an appropriate tool, but as the only
alternative other than making the part or producing the product or service in house.

Reverse marketing or supplier development has a broader point of view. The

purchaser is aware that benefits will accrue to both the purchaser and the supplier,
benefits the supplier might not yet be aware. The benefits may be limited to the
particular order at hand, or they may include more far-reaching aspects, such as
technical, financial, and management processes, skills, or quality levels; reduction of
marketing effort; use of long term forecasts or permitting smoother manufacturing
levels and a minimum of inventory.

One of the most important arguments in favor of reverse marketing not yet
mentioned arises from future considerations. If the supply role is envisaged
encompassing not only the need to fill current requirements but also the need to
prepare for the future, reverse marketing is valuable in assuring future sources of
supply.
7.3 EVALUATING POTENTIAL SOURCES

The evaluating of an existing supplier is substantially easier than the

evaluation of a new source. It is because checking out new supplier often requires an
extensive amount of time and resources. However there are three level in evaluating
potential sources of the supplier.

Figure: Three levels in supplier evaluation and selection

Level 1: Strategic

Effective sourcing decisions from the basis of sound supply for any organization.
These decisions should be driven by a sourcing strategy that is directly linked to
organizational strategy, goals, and objectives. Many organizations use this strategic
sourcing because they want to build the linkage between sourcing strategy and
organizational strategy. A strategic sourcing process is a sourcing process considers
suppliers and the supply base integral to an organization’s competitive advantage.
Strategic purchase is one of the critical to the organizational. This because good or
service has the potential to help or hinder attainment of the organization’s mission.

Categorizing purchases into strategic and nonstrategic buckets is the first step in
the strategic sourcing process. Without categorizing, may over invest resources in
tactical or operational purchases and under-invest in strategic ones.

1) Linking Sourcing with strategy

The first level for this analysis is identifying which supplier can be able to
meet the buying organization’s requirements. Second level is determining
which of these the supply manager or sourcing team is willing to consider
 seriously as a source. For the items that have high risk and high value, the
investigation may be drawn out and extensive, requiring the collaboration of
supply, internal users, and technical expert such as engineering, operations,
quality control, system and maintenance on a formal or informal team.

2) Risk Assessment
Every organization’s management makes decisions about the risk that are
willing to take in light of the expected returns. It takes action to avoid,
mitigate, transfer, insure against, limit or explicitly assume risk. For the supply
manager, it is essential to consider each decision in the context of the
organization’s risk profile. Other than that, the risk is seen to be higher with
unknown material, parts, equipment or services, or suppliers and with
increased dollar amount.

3) Strategy Development

Level 2: Traditional

This level is to evaluation criteria of quality, quantity, delivery, prices, and

services is still a fundamental assessment task in evaluating potential suppliers. For a
manufactured good, there are typically evaluated based on the technical, engineering,
manufacturing and logistics strengths of the potential suppliers. Then for the service,
these are typically evaluated on the basis of service design, operation and delivery
strengths of the potential suppliers.

1) Technical, engineering, manufacturing and logistics

Technical, engineering, manufacturing strength, impinges on a number of
supply concern. The most importance factor is the quality capability of the
supplier. The company capable of meeting current quality standards may still
lack the engineering and technical strengths to stay current with technological
advance. The reason for selecting one supplier over another is that of greater
strengths in areas of importance to the purchaser. The evaluation of the
supplier, company should focus not only on current capability, but also on the
 supplier’s future strengths.

2) Service design, operations and delivery

The quality capability of the supplier is determined to a large extent on its
ability to design services that meet the quality standards of the users as defined
in the statement of work (SOW). In the manufacturing, a services provider
may not have the capability to meet future quality standard because the
supplier is not able to attract and retain high quality employees or fails to
upgrade the technology. A supplier’s service operations and service delivery
system may lack the capacity to expand or the flexibility to meet a variety of
requirements. For example, to be eligible for a contract, a management
consulting company may need to have a physical presence in a specific
country, supported staff fluent in the local language and familiar with the
culture.

3) Management and financial evaluation

As the tendency toward greater reliance on single sources for a longer
period of time continues, along with greater interest in lean operation, lean
supply and strategic sourcing, a potential supplier’s management strengths
take on added significance. A functional assessment of strength and
weaknesses in area such as marketing, supply, accounting and so on will
substantiate the overall picture. Supplier documentation and personal visits by
the sourcing team are typically required. For large contracts in large
organizations, the sourcing team’s formal report detailing the management
strengths and weaknesses of potential suppliers may be the deciding factor in
the selection process. The short-term alternatives may lessen the risk, the
strategic nature of the purchase indicates the need for complete understanding
of the long-term risk and opportunities from the supplier’s financial situation.

Level 3: Current additional

The current additional criteria which includes financial considerations,

sustainability, innovation, regulatory compliance and political factors.

1) Financial considerations
Financial considerations other than price may impact the supplier
selection decision. The financial health of the supplier as part normal supplier
assessment process when the prime concern is the supplier’s viability as an
ongoing enterprise in the long term. An opportunistic perspective is used to
find potential was of strengthening the purchasing organization’s financial
statements beyond obtaining a lower price. For example is it possible to have
the supplier manage and own inventories so that they do not show up on the
financial statement of the purchasing organization.

2) Sustainability
Sustainability is an added value to complexity where value added refers to
the addition of quality, quantity, delivery, price and service. Thus,
sustainability is also influenced by a number of factors including pressure
from stakeholders groups, such as customers, non-governmental organizations
(NGOs), local communities and regulators, firms are paying close attention to
 the sustainability performance of their supply chains. In the company
concerned about sustainability, performance is no longer measured by income
statement and balance sheet. This is because, they use the concept of Triple
Bottom Line (TBL), otherwise referred to as the three Ps namely profit, planet
and people.

3) Environmental sustainability
This is to measure the performance of the organizational of the ecological
stewardship and management of the natural resources. The goals is to
minimize the environmental footprint of the organization and conserve. It is
importance to protect the natural environment for the future generation. From
this, there are preferred several hierarchy that is:
a) Source reduction-design or use less
b) Reuse-multiple use of same item, such as a package or container
c) Recycle-reprocess into raw material
d) Incinerate-at least extract energy, but keep CO2 emissions at a
minimum
e) Landfill-requires space and transportation to stores with potential
impact on land and water.

4) Social sustainability
Social sustainability in supply chain management represents product and
process issues that affect human safety and welfare, community development
and protection from harm. In addition, most large organizations use formal
supplier codes of conduct to set social sustainability standards and
expectations for their suppliers. Strategic supply management is all about
maximizing opportunities and minimizing risks. By being ahead of, rather than
behind, legislative requirements and customer expectations, supply managers
may find opportunities to tap government financial support and public
recognition for innovative initiatives.

5) Innovation
It is required for evidence to continue the improvement, managerial and
technical competence. In this part strategic innovation acquisition may involve
mergers and acquisitions, patents, licensing, and contracts.

6) Regulatory compliance
The supply professional obviously does not want the supply arrangements
because lack of supplier attention to regulatory compliance. Lack of citation
can be seen as a one sort of the evidence so, we can speed of the correction in
the case of citations.

7) Political factors
For political factors, the questions always arises about how much that
premium should be paid to conform with the political directives. For the
private industry such as aerospace and telecommunication industry are often
contingent the ability to arrange the subcontracting for the customer’s homes
country.

7.4 FORMAL SUPPLIER EVALUATION

 Good performance
 Quality
 Quantity
 Delivery
Fair performance
 Price
 Service
Unsatisfactory performance

There are 5 traditional criteria that use in supplier evaluation for quality, quantity,
delivery, price, and service.
1) Quality – Quality is the most important criteria in supplier selection and
evaluation. It is because before customers purchase the product they will
choose the high quality. This means that they want to avoid the quality of
product are durable. So that company need to be careful when choose the
supplier.

2) Quantity - The quantity supplied has to be sufficient to meet demand.

3) Delivery - It is also important in timing of the delivery to meet the purchasing

company’s need. This delivery can be fast or slow and be punctual as
promised.

4) Price - The purchasing company need to determine the price that supplier
offer either it is suitable with the material that they supplied.

5) Service - According to the selection ad evaluation the supplier, company must

look for the services that supplier provide to this company that it is good or
not.

8.0 IMPORTANT FINDINGS

Additional supplier selection decisions

The supplier selection need to focused on the potential and information of

the suppliers. There have to focus five of additional decisions that have been
state.
1. Should use a single source, dual sources, or more than two?
2. Should we buy from a manufacturer or a distributions?
3. Where should the supplier be located?
4. Relative to organization, should the supplier be small, medium, or large?
5. If no supplier can be found, should we use supplier development?
Single Sourcing Versus Multiple Sourcing

Manufacturer Versus Distributor

Geographical Location of Sources

Supplier Size

1. Should use a single source, dual sources, or more than two?

Single Sourcing
 Prior commitments and successful past relationship
 Exclusive of supplier may be the available source
 Outstanding in the quality of products or service to the value
 Order too small to split
 Concentrating the buying may make possible certain discounts or lower
freights
 Supplier will be more cooperative to the more important customer
 Cost of duplication prohibitive (tools and dies)
 Deliveries may be more easily scheduled
 JIT, stockless buying, or systems contracting
 Resources required for supplier relationship management
 Prerequisite to partnering

Multiple sourcing
 Been traditional practice
 Knowing the competitors may the supplier more alert for the giving value
 Assurance of supply
 Capable of deal with multiple suppliers
 Avoid supplier dependence on the customer
 Obtain greater flexibility
 Back-up the situation arrangements
 Strategic considerations
 Government regulations
 Limited supplier capacity
 Opportunity to test a new supplier
 2. Should we buy from a manufacturer or a distributions?

A manufacturing focus on generally lower cost and purchasing unfinished

build materials directly from a factory or giving to customers the ability to purchase
directly from a third party, the main advantage of purchasing direct is lower costs. As
an example, the United State Department of Justice has observed that automobile
purchases are typically inflated by a full one until third of their actual price in order to
account for the added costs of distributors and dealers. Manufacturing also can get
direct feedback from customers. Direct purchases also mean fewer barriers to
receiving practical, actionable, and regular feedback from the customers. For
example, it’s pretty common for manufacturers to issue literature with their products,
imploring end customers to contact the manufacturer rather than the store or
distributor from whom they purchased the product with problems or service requests.
Dealing directly with customers eliminates quite a bit of this communication
confusion and ensures that are the party receiving the feedback, rather than a
distributor who may not have the capability or the authorization to deal with issues
themselves.

Purchase to the distributor ability to purchase in smaller quantities. For the

most part, the products and components required by manufacturers are sold by direct
suppliers in large batches. This can make life difficult for small companies or those
performing custom work in smaller batches. Purchasing from a distributor offers a
clear advantage for manufacturers because distributors, as a go between perform the
bulk purchasing so that we don’t have to. They furnish the warehouse space and sell
from their large inventories to a variety of smaller parties, including, thereby reducing
minimum purchase threshold for materials and components. Easier Scalability and a
Wider Audience. When we sell directly to our end-users, a great deal of the
operational burden falls on our shoulders. Scaling up a manufacturing business when
we sell directly to our own customers may seem like an easy route, as this keeps
everything in-house. But when we have multiple distributors selling our products,
scaling up is as easy as adding another vendor. This means that we can choose a
business partner that already has an audience and, most likely, a geographical or
online presence of its own.

3. Where should the supplier be located?

a. Onshore (Local, Regional and National)

Onshore sources are domestic suppliers. They may be local, regional, or

national. For example, a company in Vancouver may prefer to do business with
suppliers in Vancouver (local), or Western Canada (regional), Canada (national). The
advantages of onshore hiring an onshore company is that they are close to our
business. That means it can be easier for monitor the projects that have outsourced.
The best thing about working with an onshore company is that communicate in the
same language. Therefore, we can understand each other very well, and there is no
time zone complications. Dealing with an onshore company means that we are both
governed by the same regulations. Therefore, it is easy to tell if the onshore company
does not comply with country’s regulation and raise an alarm.

b. Offshore (Near Shore and Far Shore)

Offshore refer suppliers are located in another country. Near shore refers to
a location that is closer in term of travel time and time zones. Outsourcing the
operations of the company to other companies that are located in a foreign country,
and most likely have a different language and culture. Offshore outsourcing offers
benefits like higher cost savings and access to highly skilled labor. The main
advantage of outsourcing to an offshore is that the labor cost is low compared to
hiring domestic workers. Offshore companies have skilled workers that offer quality
services which can meet all specific requirements. Offshore communication
companies always remain in touch with their customers either via phone or email.

4. Relative to organization, should the supplier be small, medium, or large?

The size and nature of the requirement may also affect the decision, because
it general wisdom that larger the requirement, the larger the supplier should be.
However, smaller suppliers tend to be local for smaller requirements where flexibility,
speed of response, and availability tend to be more price. Large suppliers tend to be
more appropriate for high volume requirements where technology, quality, and total
cost of ownership may be critical, medium suppliers fall in between. Small suppliers
tend to fill niches that the larger ones cannot or may have chosen not to cover. Small
suppliers have shown a loyalty and service deemed impossible from larger suppliers.
Small suppliers tend to depend on the management of a key owner manager, and this
person health and attitude will affect the risk of doing business. Larger organizations
tend to have greater stability and resources, reducing the day to day risk of supplier
performance.
 5. If no supplier can be found, should we use supplier development?

It is possible in the supplier selection process that no suitable source is

available and the purchaser may have to create a source. In this context, the purchaser
does not initiate supplier development as an appropriate tool, but as the only
alternative other than making the part or producing the product or service in house.

Supplier development has a broader point of view. The purchaser is aware

that benefits will accrue to both the purchaser and the supplier, benefits the supplier
might not yet be aware. The benefits may be limited to the particular order at hand, or
they may include more far-reaching aspects, such as technical, financial, and
management processes, skills, or quality levels reduction of marketing effort use of
long term forecasts or permitting smoother manufacturing levels and a minimum of
inventor.
9.0 CONCLUSIONS

In this chapter of supplier selection, the discussion focused on the identification

of potential suppliers and information. We learn how to choose the best supplier with
the supplier decision, identifying potential sources, additional supplier selection
decisions, evaluating the potential sources and ranking the potential suppliers. The
supply manager has to find the best way of matching the market place to these needs.

In addition, finding the potential suppliers and gathering the relevant information
about them are the standard tasks prior to supplier selection. The identification of the
potential issues is a key of success or failure of the supplier election effort.
Furthermore, option of in-house, existing supplier and new supplier need to be
considered as well as single or multiple sourcing, dealing with the manufacturer or the
distributor, domestic or offshore supplier and small or large supplier in choosing the
supplier.
10.0 RECOMMENDATIONS

i. Do the quality and reliability.

Quality selection is very important in supplier selection. Product quality needs to
be consistent to meet specified needs. This is because it directly affects the quality of
the finished goods. Besides, reliability is also the main features of suppliers. For
example, delivery lead-time should be reliable, otherwise, production may be
interrupted by a lack of raw materials.

ii. Choose the right location.

Geographical location is an important factor in the selection of suppliers. This is
because it affects delivery lead time, transportation and logistics costs. Some
organizations require their suppliers to be within their reach. For example, there are
two types of the geographical location of sources where an organization's suppliers
can be located either onshore or offshore. Onshore sources are domestic suppliers.
They may be local, regional or national. The advantages of local sourcing have been
more dependable such as shorter distances and fewer dangers of transport
interruptions. Then, offshore means suppliers are located in another country. Near
shore refers to a location that is closer in terms of travel time and time zones. So, the
organization should choose the right location for a selection of suppliers.

iii. Setting the supplier selection scorecards.

During the selection process, organizations sometimes need a structured way to
evaluate alternatives. This can be particularly hard when the criteria include not just
quantitative measures but other more qualitative factors. So, a supplier selection
scorecard may be used as a decision support tools in each category resulting in a final
performance score

iv. Monitor the supplier performance

Sometime the reliable supplier also can occasionally slip up in their performance.
Then the company need to make sure that the supplier have a direct contact point at
this company and conduct the regular performance reviews. This way can help the
company and can make sure supplier fulfilling their end of the agreement. These
reviews also help the company when it comes time to talk about contract renewal, so
company can know where they stand in the business.
11.0 SWOT ANALYSIS

L’OREAL SWOT AVON

 Packaging innovative and
environmentally friendly
 Offer more than 25 brands
in International market.
 Best R&D facilities
 Profit margin smaller
 Difficult to meet its sales
targets
 The advertising campaigns
different in each market
 Has a very little presence
in emerging markets
 Products very
emphasis
 Competition is emerging
from relatively smaller
players
 Animal testing
Strength  Reliable suppliers.
 Superb Performance in New
Markets.
Weakness  Financial planning is not done
properly and efficiently.
 Mass-market competition
Opportunities  Product development
 New environmental policies
little
Threats  Changing consumer buying
behaviour
 Long-term trade-up

SWOT ANALYSIS OF L’OREAL

Strengths
1. LOREAL is one of the highest selling cosmetic brands in the world.
2. LOREAL offer more than 25 brands in International market.
3. It has been able to record $ Billions of revenue during year.
4. LOREAL has one of the finest and best R&D facilities in the industry which are
helping to roll out new products according to the requirements of the customers.
5. It has well defined business areas of cosmetics, dermatology as well as
Pharmaceuticals. This allows the company to distinctively focus on each activity
in order to maintain quality.

Weaknesses
1. LOREAL is a decentralized company with many subdivisions working as strategic
 business units however, due to this, the overall control of the managerial activities
has become difficult to exercise.
2. The overall profit margin earned by the company are considered as smaller as
compared to other smaller players in the market mainly due to the fact that the
company engages itself into extensive advertising.
3. The advertising campaigns of the company are different in each market therefore
consumers often find it difficult to ascertain what actually the message of the
company which it wishes to communicate to the customers.
4. LOREAL largely operates into EU and US region with little presence in other parts
of the world. Due to current crisis in those regions, L’OREAL may be finding it
difficult to meet its sales targets because of reduced consumer spending.

Opportunities
1. L’OREAL has a very little presence in emerging markets such as India, Russia,
Brazil as well as other smaller economies. Through local partnerships, it can make
successful entry into such economies to extend its market share.
2. Most of the products are for young men and women with very little emphasis being
placed on developing cosmetic products for children. L’OREAL can very well
capture the children market by rolling out products for them.

Threats
1. Animal testing is one of the most emerging threats faced by the industry at large as
growing number of ethical consumers are demanding the banning of animal testing.
2. Competition is emerging from relatively smaller players which particular target
different niches of the market. Due to their size and typical marketing strategies,
they are posing a serious threat to LOREAL. 

SWOT ANALYSIS OF AVON

Strengths

1. Reliable suppliers – It has a strong base of reliable supplier of raw material

thus enabling the company to overcome any supply chain bottlenecks.
2. Superb Performance in New Markets – Avon Products has built expertise at
entering new markets and making success of them. The expansion has helped
the organization to build new revenue stream and diversify the economic cycle
risk in the markets it operates in.

Weaknesses
1. Financial planning is not done properly and efficiently -The current asset ratio
and liquid asset ratios suggest that the company can use the cash more
efficiently than what it is doing at present.
2. Mass-market competition – although the company is keen to readjust its
positioning, Avon remains a mass brand. This part of the cosmetics and
toiletries market came under extreme price pressure from mass merchandisers
such as Wal-Mart and credible private label offers from chained retailers such
as Boots. This has hurt value development over the review period.

Opportunities
 1. Product development – the company’s solid history of product development
will continue to be a strong source of potential growth. Unlike several of its
competitors, its product portfolio appears to be as important to the company as
the development of distributor bases.
2. New environmental policies – The new opportunities will create a level
playing field for all the players in the industry. It represents a great
opportunity for Avon Products to drive home its advantage in new technology
and gain market share in the new product category.

Threats
1. Changing consumer buying behaviour- From online channel could be a threat
to the existing physical infrastructure driven supply chain model.
2. Long-term trade-up – consumer spending power in the company’s emerging
markets will inevitably improve in the long term, as will the retail structures
which have supported the growth of multinational cosmetics and toiletries
brands over the review period. Avon may see sales slacken as consumers trade
up to more conventional retail formats – on top of this, rising incomes may
also make the recruitment of independent representatives harder, as consumers
have less need to add to their finances.

CHAPTER 13:SUPPLIER EVALUATION AND SUPPLIER RELATIONSHIPS

1.0 INTRODUCTION

In this chapter, we are talking about supplier evaluation and supplier

relationships. Supplier evaluation is the process to access new or existing supplier
based on their delivery, price, production, and quality management, technical and
services. Supplier evaluation can be used for the existing and potential suppliers. The
supplier evaluation framework can help to set up a benchmark and corrective action
plan for the existing supplier. Company can decide to reward supplier based on their
excellence performance and penalizing or de-listing them if the performance is not in
standard. It is also a process applied to current suppliers in order to measure and
monitor their performance for the purposes of reducing costs, mitigating risk and
driving continuous improvement. Effective performance feedback is a key component
of long-term supplier partnerships. This course introduces strategies for monitoring
performance and maintaining productive long-term supplier relationships.

2.0 SIGNIFICANT OF THE TOPIC

The topic in supplier performance evaluation and relationship management are

important to contract and enables continuous improvement for both the buyer and the
seller. There are two key decision in this chapter is evaluate supplier performance and
manage relationship. This information also allows for intelligent decisions about
sources for future purchases and useful feedback to current suppliers about
opportunities for improvements. The sign in this topic is the supplier evaluation
process can be informal or highly structured and formalized, depending on the nature
of the acquisition. In this section, several methods are discussed, including informal
and semi formal, categorical and weighted point evaluation. Collection and analysis
of performance data are basis for determining how good a job the supplier is doing.
The performance indicators (KPIs) is directs measures quantify supplier performance
at the time work is completed.

Many organization rate supplier by assigning points and scales to each factor
and each rating. Where several sources supply the same goods or services, such
schemes permit cross-comparisons. The supplier relationship management is the
satisfaction-stability matrix underlines the need for extensive communications
between both parties in the buying-selling relationship. The art of supplier
relationship management from a supply perspective is to bring both sides into an
effective working relationship.

3.0 PROBLEMS STATEMENT

In this chapter, supplier performance evaluation and supplier relationship

management are integral parts of the supply process. Performance evaluation are
enables continuous improvement for both buyer and seller. Supplier relationship
management are like customer relationship management that contributes long term
organizational stability.

However, based on Katerina Pikousova (2013), supplier evaluation is an issue

of strategic importance for any company. Measuring supplier performance is essential
to ensure a well-functioning supply chain and company competitiveness. The goal is
to improve performance mainly of the key suppliers. Understanding supplier
performance will both prevent risk and improve cooperation. Evaluation is necessary
to know what the supplier is doing well in each area of action.

4.0 OBJECTIVES

The objectives of this report are:

1. To evaluate supplier performance and their relationship

2. To improve relationships with the supplier.
3. To understand about strategic supplier relationship management.
4. To understand how supplier evaluation is accomplished.

5.0 CONTRIBUTION OF THE ARTICLES OR CHAPTERS

 The quality trilogy was presented by Dr. Joseph M. Juran in 1986 as mean to
manage for quality in supplier evaluation and supplier relationships. The quality
trilogy is important to this topic because it has become the basis for most quality
management best practices around the world. There are the similar quality in quality
management such as quality planning, quality control and quality improvement.

The chart also shows that in due course the chronic waste was driven down to
level far below the original level. This gain came from the third process in Juran
trilogy improvement. In effect, it was seen that the chronic waste was an opportunity
for improvement, and steps were taken to make that improvement. The Juran Trilogy,
in essence is a common way of thinking about quality. It suits all roles, all rates and
all lines of product and service. The underlying concept consists of three basic
processes to control for quality:

a) Quality Planning
b) Quality Control
c) Quality Improvement

Quality Planning
 The design process allows creativity to happen by designing products good,
services, or information to create the final outputs together with the processes
including controls. Many today call this Quality by Design or Design for Six Sigma
(DFSS) The Juran Quality by Design model is a standardized method used to develop
innovative design features that lead to the needs of process of customers.

Quality Control

Once the processes have been established, it is now the duty of operations to
comply with the processes and requirements specified by the product and service. For
this reason, regular checks and inspections need to be carried out, the metrics need to
be carried out, the metrics need to be controlled, to ensure that the process is in
control and that requirements are met, and the metrics need the target set. Whenever a
defect occurs, a corrective and preventive action must be taken, and the root cause
must be arrived at. The concept was to broaden the approach to achieving quality,
from the then-prevailing after-the-fact inspection (detection control) to what call
“prevention” as proactive control. The term quality control and compliance. The goal
is to comply with international standards such as ISO 9000.

Quality Improvement

In every organization even among the poor performer improvement happen

everyday. That how companies survive in the short terms. Improvement is an activity
in which each organization, day after day, executes activities to make changes. There
are chances, however reliable the process design and product features are, that it may
fail to meet customer requirements and design goals. It may be due to some of the
specific factors present in the system and may be due to changes in business
conditions, consumer demands, completion of the market and many more forces.

Practical

- PLANNING
1. Understanding the customer
2. Determining the customer need
3. Defining the product/ service feature, specification
4. Designing the product and service
5. Devising the processes that will enable to meet the customer needs

- CONTROL
1. Once the processes are defined, the responsibility is with operation, to the
processes and specifications required by the product / service
2. Checks and inspection has to be done, metrics need to be tracked- to ensure
that process is in control and meet specification and the metrics need the set
target
3. Defect a corrective and preventive action needs to be done
4. The deviation in the metrics and process audit results need to be monitored
and corrected for meeting the required target as a specified by the processes

- IMPROVEMENT
 1. Identify and prove the need improvement from exiting performance level even
though meet the target
2. Achieve the new target and implement successfully

6.0 LITERATURE REVIEW-CONCEPTUAL THEORIES

 The supplier evaluation process can be informal or highly structure and
formalized, depending on the nature of the acquisition. Supplier selection methods are
the models, or approaches to conduct the selection. The methods chosen are extremely
important to the overall selection process and can have a significant influence on the
selection results. Linear-weighting model evaluate potential suppliers using several
equally weighted factors, and then allow the decision-maker to choose the supplier
with the highest total score (Timmerman, 1986). In addition, these models weight the
criteria equally, that rarely happens in practice (Min, 1994; Ghodsypour and O’Brien,
1998). Min (1994) used Multiple Attribute Utility Theory (MAUT) to deal with the
problem of selection of international suppliers. The criteria used were described as
financial, quality, risks, service, partnerships, cultural and communication, and trade
restrictions.

Several researchers have used AHP to deal with the supplier selection issue.
These include Nydick and Hill (1992), Barabarosoglu and Yazgac (1997), Tam and
Tummala (2001), Bhutta and Huq (2002), and Handfield et al (2002). De Boer et al.
(1998) proposed an outranking method (ELECTRE I) for supplier selection. In
supplier selection includes a number of subjective criteria that can be described as
those criteria based on personal judgment, such as, “quality” or “attitude”. Subjective
criteria can be complicated to measure and generally, tend to be less accurate than
objective criteria. A number of research studies have been conducted focusing on the
importance of choosing the right criteria for supplier selection.

Weber et al (1991) study reviewed seventy-four different articles written between

1966 and 1991, concerning different supplier selection criteria and methods. Among
the most important selection criteria, Net price, delivery precision, quality, production
& capacity, and location were found by this study. Weber et al’s study also concluded
that it would be impossible to successfully produce low cost, high quality products
without the use of satisfactory suppliers and appropriate selection and maintenance of
suppliers.

Supplier plays a vital role in effective Supply Chain Management to produce the
finished goods with right quality. It is essential to make sure that raw materials are
supplied with right quality, at right time and at right cost to the manufacturers. These
objectives can be achieved by choosing the efficient suppliers and calls for effective
supplier selection process. Kumar et al (2004) stated that strategic partnership with
better performing suppliers should be integrated within the supply chain for
improving the performance in many directions including reducing costs by
eliminating wastages, continuously improving quality to achieve zero defects and
reducing lead time at different stages of the supply chain. Choi and Hartley (1996)
explained that supplier selection was ever more acknowledged as a critical decision in
supply chain management in manufacturing industries.

In such industries, raw materials and outsourced components were typically the
two largest costs, and the purchasing department often plays a vital role in reducing
purchasing cost and selecting appropriate suppliers. Ghodsypour and O’brien (1998)
found that in most industries the cost of raw materials and parts of components made
up main cost of a production such that in some cases it could account for up to 70 %.
7.0 PROCESS FLOW
7.1 CATEGORICAL EVALUATION AND RATING

Categorical method is the most uncomplicated method. The list of relevant

performance variables or factors are defined. The buyers will assign performance
ratings of each evaluating attribute in category terms such as “excellent”, “good”,
“fair” and “poor”. The ratings are judged by agreement between various
representatives from several functions in the company such as procurement, logistics
and production. The supplier who obtains highest score will be the best performance.

Excellent: a. Meets delivery dates without expediting.

b. Requested delivery dates are usually accepted.

Good: c. Usually meets shipping dates without substantial follow-up.

d. Often is able to accept requested delivery dates.

Fair: e. Shipments sometimes late, substantial amount of follow-up

required.

Poor:
f. Shipments usually late, delivery promises seldom met, constant
expediting required.

Figure 1: Example of Categorical Evaluation and Rating

Based on figure 1, delivery performance of a current supplier is fairly easily be

tracked if good records exist of delivery promises and actual receipts and few
modifications have been made on an informal basis. For organizations that use JIT
deliveries from suppliers, nonperformance on delivery is just as critical as
unsatisfactory quality, and actual delivery is closely monitored. In the example above,
different levels of delivery performance are described and assigned a category rating
such as excellent, good, fair and poor.

7.2 SUPPLIER RELATIONSHIPS

 Customer Satisfaction

Strategic Traditional Other Additional

Needs Needs Needs

Suppliers

Figure 2: Customer Satisfaction Depends on Supplier Performance

Supply Internal Customer

Link Link Link

Figure 3: Simplified Supply Chain Perspective Showing the three Core Links

Figure 2 shows that the key strategic decisions in supply management center
which supplier to pursue and what kinds of relationships need to maintain with
suppliers. Strategic supply management is founded on the conviction that a significant
competitive edge can be gained from the suppliers an organization has developed and
its supply systems and supplier relationships. Any organization’s desire to satisfy its
customers and to provide continuing improvement in its customer service is
dependent on its suppliers to help it accomplish this goal. This show in figure 2 which
is the customer satisfaction depends on supplier performance. Supplier performance
has a greater impact on the organization’s efficiency, profitability and
competitiveness than most managers do. Recent trends to buy instead of make, to
outsource instead of continuing to make, to improve quality, to lower inventories, to
integrate supplier and purchaser systems and to create cooperative relationships such
as partnership have underlined the need for outstanding supplier performance.

Figure 3 shows that the perspective supply chain management, the link
between the buying organization and its direct suppliers is one of the two primary
external ones. The other link, between the buying organization and its customers,
continues the chain on the exit, or distribution side. The ability of any organization to
connect these two external links through its organization will, to a large extent,
determine the effectiveness of its supply chain. The weakest link determines the
strength of the whole chain, it is important that the strength of each link be equal and
congruent. This also a simple perspective that greater strength in any one link can
create a customer-dominant, internally dominant, or supplier-dominant chain. The
prime objective in supplier relationships is to develop a supply link that will provide a
short and long term strategic competitive advantage.

7.3 THE BUYER-SUPPLIER SATISFACTION MATRIX

Figure 4: A simple buyer supplier satisfaction matrix

One of the major assessment a purchaser must make is whether the current
relationship with a supplier is a satisfactory or not. This relationship is highly
complex, and different people inside the purchasing organization have different
perception. For a new supplier of a small order where no deliveries have been made,
the perception of satisfaction can be based on an assessment of the agreement and the
buyer’s impression of the salesperson. For a long term supplier of major needs, the
assessment will be based on past and current performance, professional relationships
and even future expectations.

Obviously, any buyer-supplier relationship could fall into any of the four
quadrants in the matrix. However, only quadrant A represents a desirable region in
which a reasonably stable relationship can be maintained. In each of the other
quadrants, attempts by buyer or supplier or both to increase satisfaction may worsen
the satisfaction may worsen the satisfaction of the other, thereby lowering stability in
the relationship. In addition, quadrant D with both parties dissatisfied, represents a
highly undesirable and unstable relationship.
8.0 IMPORTANT FINDINGS
Tools and Techniques for Moving Positions

When current buyer-supplier relationship came to an undesirable situation in term

of satisfaction, there are some tools and techniques applicable to shift positions on the
satisfaction chart. The use of some these will adversely affect the perceptions of other
party, which might called as “crunch” tools or negative measures. The others are
likely to be viewed in less severe terms and might called as “stroking” methods or
positive approaches.

a) Examples of “crunch” or negative tools for purchaser:

1. Complete severance of purchases without advance notice.
2. Refusal to pay bills.
3. Refusal to accept shipments.
4. Use or threat of legal action.

b) From the supplier perspective, the examples could be:

1. Refusal to send shipments as promised.
2. Unilateral price increase without notice.
3. Insistence on unreasonable length of contract, take or pay commitments, onerous
escalation clauses, or other unreasonable terms and conditions and use of take it or
leave it propositions.

c) Examples of “stroking” or positive techniques by the purchaser could be:

1. Granting substantial volumes of business, long-run commitments, or 100 percent
requirements contracts.
2. Sharing internal information on forecasts, problems, and opportunities to invite a
mutual search for alternatives.
3. Evidence of willingness and ability to work toward changed behavior in the
purchasing organization to improve seller’s position.
4. Rapid positive response to requests from suppliers for discussions and adjustments
in price, quality, delivery and service.

d) From the supplier perspective, examples could be:

1. Willingness and ability to make rapid price, delivery, and quality adjustments in
response to purchase requests without a major hassle.
2. Invitation to the purchaser to discuss mutual problems and opportunities.
3. Giving notice substantially in advance of pending changes in price, lead times, and
availability to allow purchaser maximum time to plan ahead.

There are always a considerable confusion exists concerning the meaning of

partnership.
View of Buyer-Supplier Relationship

Traditional Partnership
Lowest price Total cost of ownership
Specification-driven End customer-driven
Short-term, reacts to market Long term
Trouble avoidance Opportunity maximization
Purchasing’s responsibility Cross-functional teams and top
management involvement
Tactical Strategic
Little sharing information on both sides Both supplier and buyer share short and
long-term plans
Share risk and opportunity
Standardization
Joint ventures
Share data

Partner Selection

Effective partnerships require hard work from both buyer and sellers. Besides, it
takes time to develop partnerships, therefore some organizations may be ill prepared
for the amount of time it takes before seeing the desired results. Nevertheless,
successful partnerships could bring substantial benefits and opportunities for both
sides. On top of that, successful partnerships provide a short term and long-term
strategic competitive advantage. Below shows some characteristics of successful
buyer-supplier partnerships.

Characteristics of Successful Buyer-Supplier Partnerships

 Stable, long-term business relationships, supported by business processes, not
personalities
 Cooperative non-adversarial relationships
 Formal governance system
 Senior management support in the buyer and supplier organizations
 Alignment of short and long-term goals
 Open and frequent communication at multiple levels of the organizations
 Willingness to share information, including costs and product/service designs
 Creation of joint business plans that identify strategic initiatives and resources
required by both parties
 Focus on total cost of ownership, not prices, as a means of continuous
improvement
 Transparent method of performance evaluation and feedback for both the
buyer and supplier
 Sharing of risks and rewards
 Objective of mutual profitability and success
 Joint accountability for ethical conduct

9.0 CONCLUSIONS
 In conclusion, supplier performance evaluation and supplier relationship
management are integral parts of the procurement process. Performance evaluation
ensures that suppliers are always fulfill the obligation stated in the contract and it
promotes continuous improvement for both buyer and the seller. Through chapter 13
(supplier evaluation and supplier relationship management), we get to learn the
evaluation method, which included informal evaluation and rating, semi formal,
executive round table discussions and formal supplier evaluation and rating and
method applied are depends on the size, requirements of buying organization. Other
than that, we also learn how to rank suppliers on scale from unacceptable to
exceptional.

Supplier relationship management is as important as customer relationship

management. In addition, supplier relations are not merely the responsibility of supply
professionals but it also requires organizational commitment. Without internal
collaboration and a congruent strategic internal approach to the improvement of
supplier relationships, supplier relationship management is unreliable.A buyer-
supplier satisfaction matrix is a useful method to identify the perception of
satisfaction of both supplier and buyer so that remedy action can be applied to
improve the perceptions of both parties which assure long-term stability in
relationship management. Buyer-supplier partnerships require a high degree of
cooperation and satisfaction among each other to gain competitive advantage and
mutual benefits. There are two type of partnerships and alliances, which are
operational and strategic. Even though partnerships provide a lot of advantages to
both buyer and seller, but at the same time, the dark side of buyer-supplier
relationship should be careful monitor. Besides, extending the relationship to multiple
tiers in global supply chain and network expose challenges for supply professionals.

10.0 RECOMMENDATIONS
 Collection and analysis of supplier performance data is essential to determine
how good a job the supplier is doing. However, there should be a clear link between
data and decisions to avoid expending excessive resources obtaining information that
is never used by decision makers. For weighted point evaluation system, the selection
of factors, weights and form of measurement will require considerable thought to
ensure the consistency between organization’s priorities for this product class and the
rating scheme’s ability to identify superior suppliers correctly. For different product
class, different factors, weights and measures should be applied to reflect varying
impact on the organization.

Outstanding supplier performance require substantial communication and

cooperation between various representatives of buying organization and the selling
organization over a long time period. Furthermore, perceptions of satisfaction from
both side should be at least achieved at the middle position (5, 5) on buyer-supplier
satisfaction matrix and few agreements should be reached by the purchaser without
achieving this minimum level. Seller’s and purchaser’s personnel need to understand
their own and others organization very well so that both side are able to work together
on continuing improvement for mutual benefit. Besides, internal cooperation is crucial
to the improvement of supplier relationships. The members of internal team are the
ones who have to deal directly with the appropriate counterparts on the supplier side.
Immediate and concerted action should be taken whenever either side discovers
problems or sees opportunities.

Partnerships and alliances come in many form and are structured for many
purposes. Two types of typical relationships are operational and strategic. In
partnerships, it is necessary to clearly define the goals of the partnerships, the level of
commitment of both sides to continuing to develop the relationship, the specific
situation of of the companies. A supplier relationship management requires
understanding and identification of value. Value is the benefit that deliver to user of
the product or service acquired. Even though there are many benefits can be grabbed
from partnerships, there is also dark side of buyer-supplier relationships that call for
attention. Hence, careful monitoring the benefits of partnership is essential.

11.0 SWOT ANALYSIS

 L’OREAL SWOT AVON

 Long-term, transparent
relationship with high-
 Supplier code of conduct
quality suppliers
Strength  Social responsibility
 From paper to electronic
guidebook
for better supplier
management

 Lack of new technology

 Low profit margin Weakness  Complex distribution
system

 Partnerships with suppliers

 Selling through online
for innovation
Opportunities  Need for extra income
 Demand for organic
cosmetic

 Pressure from
 Dynamic nature of competitors
Threats
cosmetic industry

SWOT ANALYSIS OF L’OREAL

Strength

 Long term, transparent relationship with high quality suppliers

To establish long term, transparent relationship with high quality supplier,
L’Oreal ensures that they adhere to their commitments and carried out the
regular evaluation. In order to do that, L’Oreal has built the relationship with
their supplier. The company of L’Oreal need high quality suppliers in order to
make a better product. Instead of that, L’Oreal also wants the supplier involve
with social and environmental responsibility. The company ensures that its
supplier adhere to current legislation, human rights and their actions ensure the
protection of the environment and the occupational health and safety of their
workers.

 From paper to electronic for better supplier management

Supplier relationship are key for L’oreal. The company has made
innovation from paper to electronic. They has create a new software system
that allowed the suppliers to manage their data and information. Moving from
paper to the electronic was a change for the team and supplier to cooperate and
 ensure the data was update accurately and timely.

Weakness

 Low profit margin

L’Oreal heavily invest in Research and Development, organic processes
as well as huge expenses of distribution. This means that L’Oreal gains a bit
lower in profit margins when compared to competitors.

Opportunities

 Partnerships with supplier for innovation

Partnership with supplier for innovation one of the top priorities of the
group is to offer consumers innovation productions. The ability is its supplier
to purpose new solutions and technology and to develop innovative products
and services in partnership with L’oreal teams and makes a direct contribution
to the success of the new products. This collaborative process is based on trust
in an ever more competitive economic climate. L’oreal using the opportunity
establishes an open dialog that stimulates and accelerates innovation for the
benefit of consumers. This is fruitful process of co-development is
systematically supported and encouraged by L’oreal, as demonstrated by the
“Cherry Pack” in the packing sector.

 Demand for organic cosmetic

As Peta and other animal right activists are becoming active, the demand for
organic cosmetics is on the rise. This demand is a positive sign for the likes of
L’oreal which have used organic method of R&D since start.

Threats

 Dynamic nature of cosmetic industry

The cosmetic industry change quickly. With regular updation being
demanded in cosmetics industry, keeping up with such demand is very
difficult. In addition, the competition is not going to keep quiet and the
competitors will always coming up with smart tactics of their own.

 Cash Crunch
L’Oreal has countless products and many sub brands. The profits are
divided into these different segments. Therefore, if the economy slumps, the
company will face problems. Economy will not always be steady and this will
affect L’Oreal’s company cash flow. In addition, it is very difficult to manage
cash flow and working capital during economy slumps.

SWOT ANALYSIS OF AVON

Strength

 Supplier code of conduct

The supplier code of conduct set forward Avon minimum expectations of
supplier throughout facilities where Avon products are manufactured. It help
ensure compliance with applicable local laws and regulations, as well as
alignment with the internal standards regarding product safety and quality.
These code forms is the part of their contract agreements with suppliers.

 Social responsibility guidebook for suppliers

Avon provide all supplier with the following Social Responsibility
Guidebook for suppliers, which is include the information on the corporate
responsibility programme and related sourcing policies. The guidebook
outlines suppliers’ responsibilities enabling them to assess their policies and
practices to make improvement.

Weakness

 Lack of new technology

Given the scale of expansion and different geographies the Avon is
planning to expand into, Avon needs to invest more in technology to integrate
the processes across the board. Investment in technologies now in Avon is not
at par with the vision of the company.

 Complex distribution system

Avon still remains a mass brand even it is keen in adjusting its
positioning. This part of the cosmetics and toiletries market suffer from
extreme price pressure from mass merchandisers such Wal-Mart and credible
private label offers from chained retailers such as Boots. This has hurt value
development over a period.

Opportunities

 Selling through online portals

In addition to direct selling, Avon can also use the support online retailers like
Amazon or Flipkart to get the products to customers. This is will help them target
bigger markets in a cost-effective manner.

 Need for extra income

As the rate of inflation increase people who are employed are also looking for
an extra source of income to supplement their basic source. This gives a lot of
scopes for multi-level marketing companies to widen their network which in turn
will mean more business.

Threats
  Pressure from competitors
Avon faced fierce competition from multinationals such Procter & Gamble,
Unilever L’Oreal and Beiersdorf. Avon also faced competition from supermarket
and specialist retailer chains. Consumer are easy to access private label products
which offer high quality and value for money.

LOG BOOK
Group Meeting Attendance with Dr. Adam

Date Activity Venue

17/2/2020 Briefing on project report Dr Adam’s room
(Tuesday) (STML 3040)
2pm – 4pm
3/3/2020 (Tuesday) Discuss of Chapter 12 and Chapter 13 Dr Adam’s room
3:00pm – 4:30pm (STML 3040)

Date: 3/3/2020 (Tuesday)

Time: 3:00pm – 4:30pm
Venue: STML Room 3040
Attendance: All Presents
Activity:
 Understand about the Assignment 2 which is Group Report & Presentation
(Chapter 12 & Chapter 13) and the way to write or prepare the report.
 Getting know the rules on how to write the logbook for every group
discussion.
 Getting suggestion from Dr Adam about the companies that we need to study
for the SWOT analysis for our report which is L’oreal and Avon.

Group Meeting Attendance with Group Members

Members /Date Matric No 22/2 2/3 10/3
Group A
Ahmad Zakwan Bin Adam 253811   
Loh Hue Peng 254707   

Sofia Binti Saidin 257049   

Raffidah Binti Mohamad 257043   

Saad
Group B
Nur Izzati Binti Sullahaji 254081   
Nur Suzielawati Binti 253025   
Ramizan
Wan Norhuda Binti Wan 254871   
Nasri
Siti Hajjar Fakhiroh Binti 257127   
Ahmad Darwis
Muhammad Ammar Bin 256516   
Abd Halim

Group Discussion 1
Date: 22/2/2020 (Saturday)
Time: 9:00am – 12:00pm
Venue: Library
Attendance: All Presents
Activity:
 Discuss about the topic and separate works
 Discuss about the important finding

Group Discussion 2

Date: 2/3/2020 (Monday)

Time: 8:30pm – 11:30pm
Venue: Smart Reading Room
Attendance: All Presents
Activity:
 Briefly discuss about the SWOT Analysis
 Discuss about the Logo for Delivery Day
 We follow up the progress of chapter report
Group Discussion 3

Date: 10/3/2020 (Tuesday)

Time: 2:30pm – 6:00pm
Venue: Library
Attendance: All Presents
Activity:
 Discuss about the SWOT question for company site visit
 Find YouTube videos.
 Check and combine the report
 Discuss and prepare the slide presentation.