unlicensed late delivery of equipment the case study of korea national oil corporation vietnam office

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CHAPTER 1: PROBLEM IDENTIFICATION (7)
- 1.1 Company background (7)
- 1.2 Problem symptoms (8)
- 1.3 Problem definition and importance of the problem (11)
- 1.4 Problem existence (12)
- 1.5 Potential causes of problem and the justification (0)
  - 1.5.1 Ineffective company policy (12)
  - 1.5.2 Inappropriate procurement procedure (15)
Chapter 2: ALTERNALTIVE SOLUTION (23)
- 2.1 Solutions (23)
- 2.2 Solution comparison (23)
- 2.3 Solution selection (24)
- 2.4 Solution details (25)
Chapter 3: ACTION PLAN (32)

Nội dung

When interviewing procurement manager, the writer realizes that procurement department is facing with lots of problems including late delivery of equipment, poor quality of equipment, wr

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UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

MASTER OF BUSINESS ADMINISTRATION

LATE DELIVERY OF EQUIPMENT - THE CASE

STUDY OF KOREA NATIONAL OIL CORPORATION VIETNAM OFFICE

LE THI TUNG ID: 20150077

Ho Chi Minh City - 2017

Trang 2

CONTENTS

Excecutive summary 2

Introduction 3

Overview of oil & gas industry in Vietnam 4

CHAPTER 1: PROBLEM IDENTIFICATION 6

1.1 Company background 6

1.2 Problem symptoms 7

1.3 Problem definition and importance of the problem 10

1.4 Problem existence 11

1.5 Potential causes of problem and the justification 11

1.5.1 Ineffective company policy 11

1.5.2 Inappropriate procurement procedure 14

Conclusion 19

Cause and effect map 21

Chapter 2: ALTERNALTIVE SOLUTION 22

2.1 Solutions 22

2.2 Solution comparison 22

2.3 Solution selection 23

2.4 Solution details 24

Chapter 3: ACTION PLAN 31

Appendix A: In depth Interview information 32

Appendix B: Terms and conditions 38

Appendix C: Procurement Procedure 48

Reference 61

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EXCECUTIVE SUMMARY

Korea National Oil Corporation is production sharing contract with Petro

Vietnam

Its activities take place in exploration

,

development

,

and production of oil & gas in Block 11-2

,

approximately 320 kilometers offshore Vietnam

Procurement of equipment is considered one of the most importance works of the company such as a factor determinant of revenues

,

expenditure costs

To build and

maintain a significant effect to organization

,

the procurement department needs to know that problems are affecting its business

When interviewing procurement manager

,

the writer realizes that procurement department is facing with lots of problems including late delivery of equipment

,

poor quality of equipment

,

wrong item

Among many issues

,

late delivery of equipment will create significant impact to the project objective

,

specifically for the project in the remote area such as offshore where access for transportation and delivery is geographically limited

Its existence

,

importance and causes have also been justified by interviewing with KNOC’s Procurement Manager

The consequences are clarified late delivery of equipment leads to cost overrun and poor production capacity

Moreover

,

in order to find

solution for central problem

,

the writer makes an attempt to discover its possible causes which are ineffective company policy and inappropriate procurement procedure

From those points

,

the solution for central business problem is determined to build a process for supplier selection and performance evaluation in order to work well for further purchase orders

The company will take action on the third quarter of 2017

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INTRODUCTION

Global business trends have led the oil and gas industry to seek better solutions to overcome the emerging challenges and critical issues

,

such as the need for procurement process based on new values and contextual factors including multi-cultural complexity

One way to overcome some of these critical issues is to adopt new innovative approaches

to suit different locations

,

countries or regions while trying to incorporate the differences

in business philosophy

,

culture or values within the oil and gas organization themselves into these approaches

New innovative approaches to procurement process are also required to meet the contextual needs found in different locations and countries around the world

These approaches also need to accommodate specific project needs and different values either in the business philosophy or culture within the oil and gas organization themselves

Oil and gas exploration and production is a highly risky business in a very complicated industry

It links government

,

owners of the natural resources with operators

,

investors of private capital

,

technology and equipment necessary for resource development

,

in a single industry where the stakes and risks

,

as well as the possible profit margins

,

can be very high

Effective procurement of equipment will have an impact on company's competitive advantage

The quality of equipment inputs to finish products’ quality as well as

stakeholders’ satisfaction and revenue

If the procurement process management is not

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effective and efficient input costs will rise and be a large part of the total cost

Being an important factor in determining revenues and cost

,

it is obviously seen that procurement has recently been receiving more attention within business industries

A comprehensive procurement guideline on selection processes to be used by decision makers in the industry should be developed and produced comprising a set of phases and critical steps that needs to be followed and performed during the selection process

The thesis will focus to identify and validate the existence of problem of KNOC and to improve the procurement procedure

Overview of oil & gas industry in Vietnam

Petroleum is currently one of Vietnam’s most promising areas for foreign

investment

,

and it could be the engine that carries the nation into the ranks of Asia's newly industrialized countries

As a source of desperately needed hard currency and a catalyst for private sector growth

,

the petroleum industry could play a vital role in Vietnam’s

economic development

Oil and gas projects in Vietnam are implemented through joint ventures

partnerships involving multinational companies like British Petroleum

,

Petronas

,

Nippon

,

Chevron etc

Such partners supply capital and high technologies needed for oil and gas projects which Vietnamese partners are still lacking

The participation of foreign partners makes the projects suffer from risks such as differences in practices between domestic and foreign partners

,

policy and political risks

,

financial risks

,

legal and political risks

The inflation rate in Vietnam is quite high; while the national currency is relatively weak

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Vietnam is located in South East Asia

,

a region considered the most dynamic and challenging in the world

The quality of management in Vietnam is still below world standard as the country is emerging from a planned economy

The oil and gas construction projects in Vietnam pose lots of risks that can cause adverse impacts on project

implementation

Today

,

the industry continues to grow strongly implying demands for construction

of new oil and gas facilities

Oil and gas construction projects are often capital intensive

Hence

,

their successful implementation is strategically important

However

,

oil and gas construction projects are exposed to risks because of large capital investment

,

involvement

of many stakeholders

,

using of complex technology

,

high environmental and social impact

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CHAPTER 1 PROBLEM IDENTIFICATION 1.1 Company background

The Vietnamese full name: Korea National Oil Corporation- VPĐH tại Vietnam

The English name: Korea National Oil Corporation - Vietnam office

Address: 10th Floor

,

Diamond Plaza

,

34 Le Duan Street

,

District 1

,

HCM city

,

Vietnam

Korea National Oil Corporation Vietnam office (KNOC VN) began its operation in Block 11-2 by signing a production sharing contract (PSC) in May 1992

After confirming gas reserves in the block through the drilling of three explorative wells

,

the company signed a tentative gas sales agreement with Petro Vietnam to secure a stable sales channel

in December 2004

It soon concluded a construction contract and placed a construction order

,

beginning full development of the block

As the sole operator

,

KNOC VN carries out exploration

,

development

,

and

production activities in Block 11-2

,

approximately 320 kilometers offshore Vietnam

KNOC VN holds 75% of participating interest in this block on behalf of the Korean Consortium which consists of LG International Corp

.,

Daesung Industrial Com

.,

Daewoo International Corp

.,

Hyundai Corp

.,

Samwhan Corp

.,

and Seoul City Gas Co

Ltd

PetroVietnam Exploration and Production Company (PVEP) holds the remaining 25% of the interest in the block

Production began on December 25

,

2006

The average daily production of natural gas from the seven production wells in the block reaches 171 million standard cubic feet

The block’s recoverable volume is 770 billion standard cubic feet

Production will

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continue until 2024

Total reserves are 770 billion cubic feet

Daily production is 108 million cubic feet

Production period is from 2007 to 2024 (17 years)

It is KNOCVN’s first overseas operating project

Successful production in the Rong Doi and Rong Doi Tay fields marked a milestone not only for the company

,

but for Korea’s oil and gas industry

KNOC VN employees were involved in all stages of

exploration

,

development

,

and production

,

including important negotiations

,

drilling

,

reserve estimation

,

and engineering and construction of offshore facilities

Number of employees: 164

Departments: 4 (Admin & Finance

,

Operations

,

Drilling

,

Sub-Surface)

Procurement Team belongs to Operations Department

Procurement team has five members (one Procurement Manager and one

Sr

.

Procurement Officer

,

three Procurement Officers) take care of purchasing mechanical equipment

,

electrical equipment

,

logistic services and consumable

All are generally called equipment

remains unchanged

Report for yearly flight

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Year Description

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Report for transportation cost of chopper

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Late delivery of equipment is the first reason cause to cost overrun

Year Description

The third reason is wrong item

The equipment has not been delivered correctly part number in accordance with the purchased order

It will take time to return back and receive the replacement

In accordance with report and information

,

it can be concluded that the issue of late

in delivery materials and equipment is the central problem

1.3 Problem definition and importance of the problem

Al-Momani 1 stated that late delivery of equipment was a major cause of project delays along with notices to proceed being later to site

Ismail et al 2 indicated that late or

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irregular delivery or wrong types of material delivered during construction can lead to poor productivity and cost overrun

Flyvbjerg et al 3 defined that cost overrun is the difference between the actual cost at completion and initial budgeted cost

1.4 Problem existence

Based on the definition and information of interview

,

the company is now dealing with cost overrun

From 2007 to 2012

,

the transportation cost from onshore to offshore was still the same for each year

The company had been used equipment from spare parts that were purchased with main machinery of project phrase

From 2013 to 2015

,

company has paid a lot of money of each year for transportation cost from onshore to offshore for adhoc chopper

Those each adhoc choppers have been using to carry critical equipment due to late delivery

Compared with Rosneft Vietnam (former TNK-BP Holding)

,

they recruited

qualified and skillful employees for procurement team

Rosneft also has appropriated procurement procedure to apply for worldwide offices

With high resource of human capital and supportive system

,

their procurement team has been working very efficiency

They are seldom using adhoc chopper or supply boat to carry equipment onshore to

offshore for emergency case

1.5 Potential causes of problem and justification

1.5.1 Ineffective company policy

In accordance with the interview with Ms

Giang

,

The function of procurement is responsible to support company to procure equipment of the right quality

,

at the most cost

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effective price and ensure that equipment is available when needed

All equipment is purchased and delivered to KNOC warehouse at Vung Tau city

According to the need of end-users on Rong Doi Platfrom offshore

,

the equipment will be sent to offshore by supply boat or chopper

Normally

,

the company runs two regular supply boats for every month to carry cargoes such as foods

,

equipment to offshore

,

and two regular choppers on Monday and Thursday of every week to bring manpower and small items of equipment to offshore

All equipment is required delivery on-time in accordance with choppers’ schedule as well

as supply boat’s schedule

Among five members of the procurement team

,

there are two staff was shifted from document controlling department

Those two staff has been assigned procurement works without experience and background

Their contributions were not met the

requirements

In accordance with job assignment

,

procurement officer is assigned a key person to act as the primary point of contact for suppliers on a daily basis maintaining pro- active communication channels with suppliers to ensure the equipment on-time delivery

But some purchase orders were not on-time delivered

It is resulted from low response and decision making from procurement officers

When the seller informed issues of purchase orders

,

they do not know who to dealing with and take lot of time to make decision

informing to seller

Some critical orders were failed when dealing with vendors because lack of communication and support within internal parties

Negotiation skill is a must for procurement staff

Negotiation can solve the disputes

of day to day works

Negotiation can be required as a result of procurement role in

challenging user identified requirement

This is important because through negotiations

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procurement professionals can ensure that the requirements are commercially sound and add value

Negotiations can also be applicable as a means of conflict resolution between the buyer and the supplier

In successful negotiation

,

a negotiator will obtain something of greater value in exchange for something on which he or she places a lower relative value

Lack of negotiation skill was leaded to lengthy process results in which delays in the award of projects that lead increase in costs

From 2013 upto now

,

the company is facing with oil price deceasing

Company do not have training budget for staff

Without proper training

,

employees both new and

current do not receive the information and develop the skill sets necessary for

accomplishing their tasks at their maximum potential

Employees refer to training programs that provide information

,

new skills

,

or professional development opportunities in order to fulfill their responsibilities

Therefore

,

training program is a necessity in the workplace

Effective training and development programs aimed at improving the employees’ performance

The company is used the MBO (Management by objectives) program to evaluate employees’ performance

However

,

staff has not been received any feedback from human resource department for the result as well as salary increasing

Company did not increase salary for staff by 2014

Evaluating and ranking the employees working in organization are challenging tasks involving several factors

Each employee achieves certain performance levels in various factors and the resulting information can be overwhelming

An effective program should do more than set salary and promotion decisions on past performance

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In many cases the procurement is technically very complex and uncertain as each project is unique

This means that procurement is a very important aspect within the industry and has an enormous impact on the profitability

Procurement activities are often depicted as a sequential process which reflects the different decisions made by different people with different authorities

Procurement process covers all activities from deciding

on a business need to committing to a supplier to satisfy that need

,

and ensuring that the outcome is acceptable

Shehzad 4 stated that among the five most frequent causes of oil & gas construction project delays were identified is shortage of skilled labor

Derek et al 5 explained on human capital and ways in which its effectiveness can be leveraged through procurement systems

Human capital consists of the skills

,

competences and knowledge and creative energy that employees bring an organization

1.5.2 In-appropriate procurement procedure

According to the article 7

.

3 of procurement procedure

,

selection of bidders is required work before sending inquiry to supplier

Suppliers (Bidders) shall be selected based on their technical and financial capabilities

The following criteria may be considered for companies to be included in the Bidder List: experience

,

track

record

,

previous performance

,

financial statement

,

key personnel experience of company

But there is no systematic process to select and evaluate supplier performance in KNOCVN procurement procedure

There is no logical and strategic decision on the supplier selection process

Most of the sourcing is based on experience of each individual

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procurement officer

Equipment will generally be procured from the familiar suppliers and/or suppliers in the record of Purchase Order and Contract

In addition

,

there is no record of the performance on other dimensions such as product quality

,

delivery delay

,

and etc

The procurement process of KNOC VN starts from the purchase requisitions generated by offshore engineers or onshore engineers

The purchase requisition is the document which contains the information of the required materials

,

such as quantity

,

description

,

specification

,

required on site date

,

drawing

,

and etc

In the purchase

requisition

,

the manufacturer or brand of each item will be clearly identified

For the standard or generic items

,

the purchase requisition creator may not specify the brand or manufacturer name

After receiving purchase requisition

,

procurement officer will request for quotations from the suppliers

Subsequently

,

engineer will conduct technical evaluation

of supplier’s quotation

,

if required

,

while procurement officer will carry out price

comparison

The purchase order will be awarded to the technically acceptable supplier who proposed lowest cost

There are many purchase orders with small value

The end-user raised a lot of purchase requisitions

Procurement officer sends all small inquiries to big suppliers but they do not combined all in one

The procurement officer does not realize that big

suppliers are busy and often do not pay their attention to small orders

Because

procurement officer required for many small purchase orders with small value

,

supplier does not agree to apply penalty clause

With unsuccessful dealing with big supplier

,

procurement officer placed purchase order to the supplier which is a trading company

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without knowing that trading company does not have stock item until they got the

purchase order from their client

During purchase order processing

,

procurement officer did not require supplier send them shipping document for checking before sending to shipping agent

If any

mistake on these documents

,

it could delay customs clearance

Purchase order closeout is the last step in procurement procedure of KNOCVN

It does not include the step of supplier performance evaluation

Equipment required for maintenance work will be sourced from local and oversea suppliers

Therefore

,

suppliers are one of the most essential components of the procurement process

,

effective supplier selection and performance evaluation is considered to be one of the important

responsibilities of procurement

The benefits of supplier evaluation are expressed in

various ways

Carr et al6 represented one common view when arguing that supplier

evaluation provides the buying firm with a better understanding of which suppliers are performing well and which suppliers are not performing well

Without tracking suppliers performance can lead to wrong supplier selection and poor supplier performance

Sambasivan 7 stated that poor supplier performance is one of the most significant causes in causing the construction delays

“Inefficient and poor performance of supplier” was identified as an important risk to address in the oil and gas industry of Vietnam

KNOC VN is not exception

The competence of supplier is always a source of concern for owners

In Vietnam projects often suffer from time delays

,

cost overrun

,

low productivity

,

and low quality due to suppliers failure to performance due to lack of financial ability

,

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relevant experience

,

trained manpower

,

technology and equipment

,

good management skills

,

good construction methods and inadequate resource availability

Typically in huge projects

,

there are many sub-suppliers working under main suppliers

If the sub-supplier is capable

,

the project can be completed on time as planned

The project can be delayed if the sub-supplier under performs because of inadequate experience or capability

High degree of sub-supplying leads to high risk of delays and leads to inefficiencies in the oil & gas industry

Poor sub-supplier performance was identified on the top five reasons for delays Oil

& Gas construction project

The performance of the sub-supplier is one of the most

important factors governing project performance

,

as they physically carry out the work not the main contractor

Many sub-suppliers lack qualifications or proper training

They reiterated further that it is difficult to identify their workers and properly train them and to endeavor to enhance their welfare and safety

Many sub-suppliers are not registered

,

operated with a minimum of paid up capital

Aliya et al 8 concluded that subcontracting led to problems including unsatisfactory time and cost performance

There was the lesson learnt for sub-supplier on the nitrogen purging leak test equipment on shutdown campaign of 2013

When main supplier was awarded for contract

,

they called their sub-supplier to provide manpower to perform service

When he arrived at KNOC VN warehouse to check equipment for before sending to offshore

,

he did not pay attention to the tag on pressure valve that not met the technical specification as per on the contract

After sending to working site at offshore

,

his crew recognized that the pressure of

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the valve is under pressure and unable to install to processing system

Therefore

,

main supplier has hand-carried another pressure valve from oversea to Vung Tau and the

company had been one addhoc chopper to send this valve to offshore to perform service in accordance with shutdown campaign schedule

There was another case of poor performance by sub-supplier

It was for leak test Nitrogen purging leak test equipment on shutdown campaign of 2014

Contactor submitted lifting certificates for nitrogen tanks which were still valid

However

,

the equipment was arrived KNOC warehouse

The HSE team of KNOC VN conducted a visual inspection all the gears were corroded so much

Therefore

,

main supplier was requested to do lifting service again and requested to change all new gears

Linh et al 9 concluded that to meet the high technology in the construction part

,

especially in oil and gas and petrochemical industry

,

the role of foreign

contractors/manufacturer is decisive

Almost equipment is purchasing from developed countries such as USA

,

UK

,

Europe and Singapore etc

The procured items shall be used for the area of maintenance

,

repair

,

and operations such as booster compressors

,

valves

,

pipes and fittings

,

controllers etc

Those are critical items and very importance for rig operating

They are required long lead-time and delivery from oversea to Vietnam

To achieve the goal

,

it is required skillful employee and appropriated procurement procedure

Yik et al 10 identified fluctuation in prices of raw materials is in the top three factors of cost overrun

In addition

,

there are significant challenges that exist in

commodity volatility associated with major raw material inputs into oil and gas

exploration as well as downstream capital projects

,

including fabricated steel

,

nickel

,

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copper and other major commodities

This requires significant effort to hedge prices for these commodities

,

as well as to monitor and to plan for purchases against uncertain project schedules

,

leading to significant shortfalls between supply and demand

To prove for this issue

,

Ms

Giang informed that on the year of 2013

,

the company placed order for one unit of anti-surge valve with inlet 12 inches and outlet 10 inches

,

gross weight is around 1300kg

The material of valve body is duplex stainless steel type A995 Gr

4A

Due to the fact of fluctuation in prices of raw materials

,

the manufacturer has spent more time to procure

Therefore

,

the delivery time was pro-longed for more than two months

When the equipment was arrived KNOC VN warehouse in Vung Tau city

,

it had not been catched-up the supply boat schedule

Therefore

,

the company has paid for adhoc supply boat to carry it from onshore to offshore in order to meet shutdown plan

Conclusion

The cause of delivery problems of purchased materials is often related to late requisitioning by other departments In practice this leads not only to a higher price being paid (as a result of extra work, speed of delivery, buying from stock-keeping wholesalers), but also in many cases to higher organizational costs and operational problems (the delivered materials do not comply with the specification, many deliveries, postponed delivery of critical parts)

The delay in supplying of equipment by suppliers which is found at KNOC VN caused to the cost overrun in transportation from onshore to offshore

The quality of supplied materials is another problem found

The writer believed that one of the causes of the aforementioned problems is that there is no systematic supplier’s measurement put in

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place

Equipment sourcing based on experience of the procurement officer does not always guarantee that the company will award contract to the suppliers who have high

performance

From these results

,

again

,

it is noted that most causes of delay and cost overrun relates to the qualification of staff and procurement procedure problems

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The initial cause and effect map is showed as below:

21

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CHAPTER 2 SOLUTION 2.1 Solutions

The company is now facing with cost overrun for transportation from onshore to offshore

It is caused by the qualification of staff and procurement procedure

There any many solutions to solve this problem such as provide to staff necessary training courses

,

stock equipment

,

provide clearly supplier selection and performance evaluation process to procurement staff

- To enhance the ability

of employees to perform their jobs at peak level

- Available to use at any time

- To control the production capacity

- To select the right supplier

- To build a good relationship with supplier

Boundary

conditions

- Local in-house courses

Every item needs to

be available at

On job training by Sr

Procurement Officer /

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- Professional development courses from oversea centers

warehouse using for one replacement

Procurement Manager

Benefit USD 234

,

090 USD 468

,

180 USD 234

,

090

2.3 Solution selection

With above comparison

,

the writer believes that the best way to solve the

company’s problems that the company should built-up a supplier selection and

performance evaluation process

It is a crucial process to identify strengths and

weaknesses of suppliers which can help the company to manage their suppliers

The supplier selection and performance evaluation process can also be applied to monitor day- to-day operations with the suppliers

It has been recognized it as a key process that contributes to the competitive advantage of the firms

Organizations have started focusing on their core competencies and outsourcing the remaining activities to outside suppliers

Suppliers have even been responsible for design of new products

,

sub-assemblies and component parts

Hotabe et al 11 found that supplier’s competency

,

service quality control

,

transaction cost-drivers

,

supplier’s brand image and supplier’s country characteristics are more important than others

The supplier selection and evaluation performance process

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should not only consider price but also a wide range of factors such as quality

,

organization and relationship with a view to decision making by considering the whole supplier capability in a long term and strategic way

Shenhar et al 12 suggested that adopting effectiveness measures will more often lead to project success

,

by relating success to long-term impacts to the business

2.4 Solution details

Qualifying and selecting new suppliers method

To survive in the intensely competitive global economy

,

it is often critically important to not only develop existing suppliers but also to discover new suppliers

There are many factors make new suppliers important

First

,

there may exist new suppliers that are superior in some way to a firm’s existing suppliers

Or a new supplier may have a structural cost advantage over existing suppliers

,

for example

,

due to low labor costs or favorable import/export regulations in its home country

Second

,

existing suppliers may

go out of business

,

or their costs may be increasing

Third

,

the buyer may need additional suppliers simply to drive competition

,

reduce supply disruption risks or meet other

business objectives such as supplier diversity

Production delays due to parts shortages and recalls of faulty products produced by noncompliant suppliers have cost buyer firms millions of dollars through recalls

,

warranty costs

,

and associated inventory adjustments

,

and have inflicted untold damage on their reputations and future sales potential

Trang 26

Lopez stated that supplier selection is one of the most crucial components of the purchasing function of a firm

It becomes a strategic decision when the purchasing

organization attempts to establish a long-term and win-win business relationship with its suppliers

In order to select the right supplier

,

comprehensive and configurable metrics for supplier selection must be outlined early in the process

Depend on each industry

,

the supplier selection criteria is being considered

The proposed model here takes from company’s strategy incorporating top level policies and requirements

To develop a fundamental framework for Supplier Portfolio management

,

including supplier selection and empowerment

,

based on the company’s corporate and procurement strategies

It is used to combine similar requirements from various projects into attractive package of business for suppliers who are then selected not only based on their price and quality but also by strategic partnership initiatives and long- term development outlooks

In this model

,

outsourced items are grouped into two distinct 80-20% Pareto sets

The first set

,

80% of non-critical items

,

with 20% price

,

may still be purchase with simple or traditional methods

The second set

,

20% of is chosen within Supplier Portfolio methodologies looking at corporate

,

business

,

and procurement strategic elements

The guidance regarding the performance criteria used to evaluate potential sources

of supply or to evaluate an existing supplier for an item not traditionally provided by suppliers

Management wants to make sure that supplier selection occurs only after

purchasing thoroughly reviews all criteria

Supplier selection criteria include the following:

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‐ Price/cost competitiveness

‐ Product quality

‐ Delivery performance

‐ Financial condition

‐ Engineering and manufacturing technical competence

‐ Management of its own suppliers

‐ Management capability

‐ Ability to work with the customer

‐ Potential for innovation

Supplier performance evaluation method

Teng 14 stated that there are a number of approaches being used to assist the supplier performance evaluation

Four commonly-used traditional methods stated in several studies are categorical method

,

weighted-point method

,

cost ratio approach and dimensional analysis model

,

analytic hierarchy process (AHP)

The AHP model approach was selected with a strong credence that this approach can respond and fulfill the objective of company

This is due to the fact that each

evaluation criterion has difference relative level of importance when compares with homogenous criteria

AHP is designed to break down a complicate

,

multiple criteria problem into levels of hierarchy

With its flexibility and systemization

,

it can signify the elements of a complicate problem

Performance evaluation criteria are also selected to form the conceptual framework

The performance of many suppliers will be measured

by referring to four main-criteria

,

namely: quality

,

delivery

,

service

,

and flexibility

,

and eighteen sub-criteria under those four main- criteria

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AHP can be considered as a problem-solving tool with flexibility and systemization

to signify the elements of a complicate problem

The AHP is designed to break down a complicate

,

multiple criteria problem into levels of hierarchy with the top level as the objective

,

the intermediate levels as the criteria and sub-criteria

,

with the lowest level as alternatives

The relative importance of each criterion determining which criterion has the highest priority

Ordoobadi et al 15 stated that a series of pair-wise comparisons of all criteria

,

the weights of the criteria are determined and can be used to construct a supplier evaluation system

Supplier Performance Evaluation Criteria

The most important part in supplier performance evaluation process is identifying the evaluation criteria which are related to the supplier performance

There are many major criteria for supplier performance evaluation

Kwong et al 16 pointed out that the supplier performance is not just related to price or quality

,

instead

,

supplier performance evaluation requires a multi-criteria

evaluation process

However

,

it is fair to accept that the quality will be on the top priority

to satisfy the customer

,

but there are other attributes which are important and need to be considered

Therefore

,

the buying companies need to select and identify the evaluation criteria which will serve the company’s objectives

,

activities

,

and to satisfy the

customers

Cormican et al 17 concluded that it is very important to identify the criteria and metrics which are objectively relevant to the company at all levels

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packaging/packing

Supplied goods are properly packed and packaging is suitable for transportation & storage Supporting Required supporting document and material Delivery On-time delivery Goods are delivered to the required destination as

Delivery accuracy Goods are delivered accurately with no missing or

Non-splitting delivery Goods are delivered in large lot and with no

Advance informing of delivery

Supplier informs in advance if the delivery schedule is not as planned

Shipping document accuracy

Shipping document is issued correctly and accurately

Ability to arrange replacement

Supplier promptly arranges replacement delivery

if defect or discrepancy is found Service Responsiveness to

request for quotation

Supplier promptly submits quotation after receiving a request for quotation

Responsiveness to Supplier quickly responses back when

Information sharing Supplier willingly supports and shares

information

,

e

.

g

Quality of sales person Salesperson is knowledgeable about the goods and

accurately and courteously to support company’s Communication

systems

Supplier has good and reliable communication system

,

e

.

g

email system

,

document tracking

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Inventory availability Supplier always has inventory on-hand to fulfill

customer’s demand

Flexibility

Capacity to respond to Supplier always has inventory on-hand to meet Order customization Supplier has ability to customize order as per Negotiability Supplier is willing to negotiate on price and

delivery schedule

Supplier evaluation often follows a rigorous

,

structured approach using formal surveys

An effective supplier survey should have certain characteristics

First

,

the survey should be comprehensive and include the performance categories considered important to the evaluation and selection process

Second

,

the survey process should be as objective as possible

This requires the use of a scoring system that define the meaning each value on a measurement scale

A third characteristic is that the items and the measurement scales are reliable

The supplier performance evaluation should be proceed yearly by the end of the year

The result needs to be informed to all procurement officers in order for implementing incoming orders

The reason for these problems usually can be traced back to unclear specification

or a careless supplier selection Another reason may be that suppliers are not

systematically evaluated, as a result of which troublesome suppliers stay on board and delivery problems occur time after time

The presented purchasing model may help manager to structure their purchasing decision-making processes and the optional processes involved The results will not only

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pay off in terms of lower prices paid for materials and services, but certainly also in lower organizational costs and a higher productivity

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CHAPTER 3 ACTION PLAN

The best way to ensure supplier is to achieve a common view of the potential for improvement and systematically track the implementation of purchasing

The process of supplier selection and performance evaluation should be applied

It will help both buyer and seller understand each other’s

The program needs to be implemented as soon as possible

According to the current company’s financial status

,

the program will be drafted by

Sr

Procurement officer with reviewed and commented by Procurement Manager

The timeline is as below:

1 Draft the process of supplier

selection and performance evaluation

process

Sr

Procurement officer 31 March 2017

2 Review and comment Procurement Manager 21 April 2017

Ngày đăng: 23/10/2022, 22:27