Improving the supplier selection criteria of Global Home company in Vietnam

MBAVB4 TON NU DIEU TRAM IMPROVING THE SUPPLIER SELECTION CRITERIA OF GLOBAL HOME COMPANY IN VIETNAM MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION PART-TIME Tutor’s Name: Dr... Fo

MBAVB4

TON NU DIEU TRAM

IMPROVING THE SUPPLIER SELECTION CRITERIA OF

GLOBAL HOME COMPANY IN VIETNAM

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

(PART-TIME)

Tutor’s Name: Dr TRINH THUY ANH

Ho Chi Minh City

(2011)

COMMITMENT

I hereby committed that the thesis content was prepared and written by myself with information obtained from reliable sources for the partial fulfillment of the requirement for the degree of Master in Business Administration program

Ho Chi Minh City, February, 2012

Ton Nu Dieu Tram

ACKNOWLEDGEMENT

First of all, I would like to express my deepest gratitude to Dr TR NH THÙY ANH who gave

me a lot of valuable comments and guidance during this thesis

Secondly, I would like to express my sincere acknowledgement to Belgian professors from Solvay Brussels School of Economics and Management who taught me not only valuable knowledge and experiences on business administration but also analytical, creative thinking and professional working methods

I appreciate all Vietnamese professors from Ho Chi Minh City Open University who transfer me knowledge, experiences and spirit which guided me during this program I also would like to thank Mr Serge Bywalski, Ms Hien and Ms Ha – program coordinators for their supports

My deepest appreciation to my colleague in helping me collecting information

And my heartiest gratitude to my parents in supporting me

I also thanks to the company suppliers who have given me their advices and dedication for the thesis research

I thank to my MBAVB4 classmates for the great exchange both knowledge and experience during the course

Your contributions are great encouragement for me to write the thesis

Thank you very much

ABSTRACT

Vietnam has been developing rapidly With an existing global demand for lower cost furniture and other wood products, an abundant and inexpensive, skilful labor supply, industrial wage structures, infrastructure in place and easy access to global shipping and sourcing of materials and supplies, the prospects of the Vietnamese furniture industry look promising Global Home is one of the hundreds foreign company realized the strength for the wood processing industry in Vietnam, come to Ho Chi Minh in 2007, ordering from manufactures and has shipped more than 40foot Containers per month Global Home has worked with more than 20 suppliers but at the end of 2011 Global Home has just more than ten suppliers The company continuously replaced their suppliers because those factories were late in delivery with a lot of defective goods At this moment company is facing a lot of issue such as lack of capacity and substandard quality control due to the suppliers are not goods as requested Global Home are now aware that supplier selection is one of the most crucial activities performed by the organizations because of its strategic importance And vendor selection decisions are complicated by the fact that various criteria must be considered in the decision making process For the stable growth, Global Home must improve its criteria in selection suppliers as soon as possible

This study is about analyzing all the problems with company’s suppliers and discussing about the origin of them With the literature review and the advices from the experts, the study recommended that supplier selection criteria must considers multi factors such as Prices,Quality,Delivery, Warranties and claim policies, Reliability of Vendor, Experience

of the Vendor, Assets/ Facilities, Operation Control Global Home also should create the manufacturing and supply agreement to legally control its suppliers with penalty clause

In addition the study suggested that Global Home should give the marks for its suppliers every 6 months and have solutions for the worst suppliers soonest

TABLE OF CONTENTS

COMMITMENT ii

ACKNOWLEDGEMENT iii

TUTOR’S COMMENT Error! Bookmark not defined. ABSTRACT iv

TABLE OF CONTENTS v

ABBREVIATION viii

LIST OF FIGURES ix

LIST OF TABLES x

1 CHAPTER I – PROJECT OVERVIEW 1

1.1 Introduction 1

1.2 The research objective 1

1.3 Scope of the study 2

1.4 Methodology 2

1.5 Structure of the project: 3

2 CHAPTER II - INTRODUCTION ABOUT GLOBAL HOME 4

2.1 Organization: 4

2.2 Products 5

2.3 Markets and customers: 6

2.4 Targeting for the year 2012 6

2.5 Global Home’s suppliers - the year 2011 6

2.6 Current criteria in selection a suppliers 8

2.7 The procedure to select a vendor 9

2.8 Advantage and Disadvantage for the current criteria in selection vendor 10

2.8.1 Advantage: 10

2.8.2 Disadvantage: 11

2.9 SWOT of the current criteria in selection suppliers of Global Home : 11

3 CHAPTER III – LITERATURE REVIEW 13

3.1 Outsourcing 13

3.2 Supply chain 14

3.3 Vendor selection criteria 15

3.3.1 Dickson’s Supplier Evaluation Criteria 15

3.3.2 Weber’s supplier evaluation criteria: 18

3.3.3 Vendor Selection Using Analytical Hierarchy Process 21

3.3.4 Strategic element of outsourcing 24

4 CHAPTER IV- RESEARCH METHODOLOGY 27

4.1 Research Methodology: 27

4.2 Type of Research 27

4.3 Data collection 28

4.4 The Criteria are suitable to be applied for Global Home company 28

5 CHAPTER V: ANALYZING THE REAL SITUATION OF GLOBAL HOME CRITERIA IN SELECTION ITS SUPPLIERS 32

5.1 Problematic factories 2011 32

5.2 Problems facing: 34

5.2.1 Late in delivery: 34

5.2.2 Bad Quality control: 36

5.2.3 Lost in Turnover: 39

5.2.4 The factories stop working with us after the first orders 41

5.3 Global Home and Its suppliers: 42

5.3.1 Global Home suppliers – Type of Business 42

5.3.2 Global Home suppliers- Capacity and realistic capacity: 43

5.3.3 Cubic Metter Prices: 45

5.3.4 Global Home’s suppliers 47

5.4 Ranking Global Home’s Suppliers 48

6 CHAPTER VI- CONCLUSION AND RECOMMENDATION 52

6.1 Conclusion 52

6.2 Recommendation 53

6.2.1 Criteria: 53

6.2.2 Prices & Prices for Cubic Meter woods 53

6.2.3 Manufacturing & Supply Agreement: 54

6.2.4 Ranking Global Home suppliers every 6 months 56

FOB: Free On Board

BOM: Bill of Materials

CBM : Cubic Metter

UK: United Kingdom

MCDM: Multiple Criteria Decision Making

CSCMP : Council of Supply Chain Management Professionals AHP: Analytical Hierarchy Process

QC: Quality Control

GH : Global Home Company

KV : Khai Vy factory

MT: Minh Tien Factory

SDC: Sai Gon Development Corporation

VM: Viet My Factory

VP : Viet Phat Facatory

LIST OF FIGURES

Figure 2.1.1: Global Home Organization 4

Figure 2.3.1 Global Home target market 2011-2012 6

Figure 2.5.1 Global Home’s Suppliers in Oct, 2011 6

Figure 3.3.3.1 The various criterial that are important for vendor selection 21

Figure 5.3.1.1 Suppliers - Type of Business and location 43

Figure 5.3.2.1 The percentage of the capacity factories could not make 44

Figure 5.3.3.1 Factories’ ideas - Global Home BOM & CBM 46

Figure 5.3.4.1 The reasons factories want to be Global Home’s suppliers .47

Figure 5.4.2 Factory spread sheet – 2012 48

LIST OF TABLES

Table 3.3.1.1 Dickson’s Supplier Evaluation Criteria 16

Table 3.3.2.1 Weber’s Supplier Evaluation Criteria 20

Table 3.3.3.2 The Average Matrix for the Criteria of Vendor Selection 22

Table 3.3.3.3 The Priority Matrix for the Criteria of Vendor Selection 23

Table 3.3.5.1 Criteria that are suitable for Global Home and Their Weights 30

Table 5.2.1.1 Sai Gon Development Corporation ( SDC) late in delivery 34

Table 5.2.1.2 Minh Tien factory (MT) late in delivery 34

Table 5.2.1.3 Khai Vy factory (KV) late in delivery: 34

Table 5.2.2.1 Defective items ratio from July to Dec 2011 36

Table 5.2.2.2 Last inspection for Montreal range 16 November 2011 37

Table 5.2.2.3 Fault per factory From July 2011 to Dec 2011 37

Table 5.2.2.4 Average ratio of defective products from July 2011 to Dec 2011 39

Table 5.2.3.1 Global Home Lost in Turnover in 2011 39

Table 5.3.2.1 Capacity and realistic capacity: 43

Table 5.4.1 Criteria that are suitable for Global Home and Their Weights 48

Table 5.4.2 Global Home suppliers 2012 , ranking .51

1 CHAPTER I – PROJECT OVERVIEW

Currently, The company is time and again receives claims from its customers because of late delivery and substandard products , obviously it lost much of its profit

Furthermore, due to economic inflation and shortage of workforce and also the bad management system, the manufacturers have asking the price increase is very often and they cannot give any prices guarantee

Company needs eliminating the un sufficient venders and urgently looking for more good factories It is a Must that company has to improve the vendor selection criteria to survive and to expand the business as the speed

To review the problems that Global Home is dealing with factories and how much they are affected its profits

To analysis the existing suppliers selection criteria of Global Home and the consequences

To set up the criteria for Global Home in suppliers selection that enhance the efficiency

of factories selection

1.3 Scope of the study

The project focuses on existing criteria for five suppliers selected in Ho Chi Minh city which Global Home is facing enormous problems leaded to the damage on its business to find out the solution to improve the limitation on supplier selection criteria The proposal will be presented for the period from 2012 to 2015

1.4 Methodology

The study methodology has been based on the other studies were published about vendor selection combined with real then situation and experts interview to conclude the factors that affect the decision in supplier selection for the company

Data: Interviewing, group discussing and surveying will develop primary data during research Primary data is needed and gathered for the first time for the study if the secondary data cannot answer questions being asked

Conclusions

Hypothesis

Case studies Analysis

Primary Data

Secondary Data

Secondary data will be extracted from the internal Global Home information with its service , products, the contract value for each factory, its business results , the number of the customers and their purchase orders and their claims value ; from external information such as magazines, books and other publishing

There are two types of research, quantitative and qualitative This project will be applied both types with survey, secondary data, information from site visit for auditing

1.5 Structure of the project:

Chapter 1 : Project Introduction

Chapter 2: Introduction about Global Home

Chapter 3 : Literature review

Chapter 4 : Research methodology

Chapter 5: Analysis and Discussion the real situation of Global Home criteria in selecting

it suppliers

Chapter 6 : Conclusion and Recommendation

2 CHAPTER II INTRODUCTION ABOUT GLOBAL HOME

Global Home was established in 17/09/2006, the head office located in Czech Republic

It is a trading company Designing and ordering furniture from manufactures in South and Middle of Vietnam

2.1 Organization:

Figure 2.1.1: Global Home Organization

The Sourcing manger is playing an important role and he works independently and give the reports to the owner He is the one to make the decision that which factory should be reported to the owner and others are not It makes the factory selection is very simple and fast however it is also has a lot of issue to be discussed in chapter 5

Owner (Managing Director- CEO)

Financial Director Design Director

Designer &

Technician team

Sourcing cum Quality control manager

Warehouse + logistics team

Quality Control team

Human resource &

Admin staffs

The Acacia ranges such as Darlinghust range and Tamwoth range (15 container per month) is produced at Tien Dat factory which is located in Quy Nhon, Seville range( 7 container ) is made at Khiet Nguyen

The Pine ranges such as Christchurch range ( 5 containers) at Viet Phat factory Dorset range (5container )at Sai Gon Development Corporation factory, Tuscan range (5 container ) at the Country factory

For the most convenience in product distribution for mix container program the company has a warehouse 10.000 m2 and a showroom 1.000 m2

Once the vendors deliver products to bonded warehouse, our customer could choose which items for 20’’ / 40’’ container, the minimum quantity for each item is ONE

Satisfying customers with the best products and services, all products are guaranteed in

12 months from the day of delivery

Product positioning: Global Home provides Products with the smartest designs saving material in very economical way although still keeps high standard quantity and dynamic products for the low and middle class user

2.3 Markets and customers:

Global Home supplies middle class end users around United Kingdom, Ireland, Australia and New Zealand via whole sales and sales agents

Figure 2.3.1 Global Home target market 2011-2012

2.4 Targeting for the year 2012

Quality:Quality has also improved dramatically and Global Home can safely say that they have now reached an acceptable level Acceptable is good, but not good enough Quality Control aim over the next 6 months to further improve the level, until Global will be considered VERY GOOD by its clients

Capacity:Production capacity has increased and Global Home must handle a 50% increase in sales compared to 2011

Figure 2.5.1 Global Home’s Suppliers in Oct, 2011

2.6 Current criteria in selection a suppliers

There are 5 criteria Global Home use to select its suppliers

The first is the capacity that the supplier could agree to offer Global Home However it is just depend on the information the factory informed Global Home

Then most import criterion is that the factory has to agree to work on the Cubic Metter Prices principle, that means Global Home and factory just discussed one time about how many USD for one Cubic meter (CBM) for each kind of wood that are going to make the products After that Global Home will send their design and board of material calculated how much material we need to use to make an items

Third is the CBM Prices have meet with the target prices the CBM price is highly likely the same for all factories Global Home orders as it is not depended on which designs are but just basing on which material used only

Next is the fixed deposit that means Global Home will send 10.000usd or 20.000usd for all rolling orders Global Home never sends deposit for individual order That fixed deposit will stay with the factory until Global Home stopped order from the supplier and the amount will be deducted in the last payment

The company also has the some other criteria such as : factory management and delivery however these criteria could not just before working with them

2.7 The procedure to select a vendor

Global Home is five year old trading company and it has been developing dramatically from 2010- 2011 The criteria to choose vendors are still very simple, and decisions normally are made basing on the personal feeling

Following is the steps to decide to work with factory or not

Global Home has one guy who is handling the duty that is the sourcing new factories That guy is also a Quality control manager He will come to a factory which he thinks it would be potential vendor for a range The first step he will discuss with the owner the principle agreement to be Global home supplier The Agreement was written by company owner cum managing director in Dec 2010)

packaged and delivered goods, and strictly based on the agreed board of material and the agreed quality All furniture to be delivered to the Global Home bonded warehouse in Vietnam, The factory in case of delivery to the warehouse pays for local charges

(** Appendix 01- BOM for reference )

20.000) deposit This deposit will remain with the factory for the duration of the relationship Global Home will pay for all deliveries in full The deposit will be deducted from the final order

and completed until Thursday 10 days prior Deliveries that arrive later than Thursday will be paid the next Monday We will only process completed deliveries and all paperwork must contain the required details

in 3 stages of production: parts/assembly, finishing, hardware/packaging The factory will

cooperate fully with the QC team, granting them access to all parts of the production Without QC approval NOTHING can leave the factory QC manuals specifying the required quality will be agreed between Global Home and the factory and will determine the required standard

** Appendix 02 - Agreement For Cooperation With Global Home - 2011

If the factory agrees with the terms, the second step is that the sourcing manager will discussed the factory the prices and the capacity which been requested by the factory owner

After everything confirmed, the sourcing manager will send the reports with some picture

to company owner and he will make the final decision whether it is workable

** Appendix 03 : factory profile 2011

2.8 Advantage and Disadvantage for the current criteria in selection vendor

Factory accepts the small fixed deposit for all order Global home is not to waste a lot unproductive capital

The time to make decision is quick This can help Global Home not to miss any goods factory

Saving a lot of time in developing a range in the factory because as soon as the agreement

is settled up, global home will transfer deposit immediately

It is very much fast to have to cost prices if Global Home has the CBM prices from its supplier, it help Global Home to create the prices for their customers quickly

2.8.2 Disadvantage:

Global Home could easily make wrong decision as basically basing on the information factory give to company

Global Home is asking for the cubic meter prices and the company itself makes the Board

of Material (BOM) and drawing Factory cannot make much profit basing on that then it

is difficult to find the factory likes this principle

Global Home doesn’t have the evaluated information and factory didn’t give the accurate

so it could happen that factory just need Global home order in very short time

2.9 SWOT of the current criteria in selection suppliers of Global Home :

(Strengths, weaknesses, Opportunities, Threats)

Table 2.9.1 SWOT of Global Home criteria

Strength

The criteria is simple and clear to

understand, no confusion

It is save time for factory to make decision

It is help Global Home to save a lot of time

Weakness

There is Not official binding agreement

No term to force factory to keep the price valid for a request period

There are the term capacity and working

to select a factory way that could not examine at the beginig

No comparison, no mathematics survey between factories to determine the best

Opportunities

Clear term to work with Global Home for

a factory to approach and accept the

orders

Global Home and Factory could gain the

great benefit because it is simple and fair

principle

The criteria are simple and flexible to have

enough supplier when the Global Home

sales go up and up

Threats

All the factories could do the cheat to keep the deposit and keep delay the delivery or cancel without compensation

It is easy that sourcing manager could give the not correct information because he likes

or dislike the factory, or he could corporate with the factory

The factories could cancel the order after received all drawing and board of material and could supply the information to Global Home’s competitors

3 CHAPTER III – LITERATURE REVIEW

3.1 Outsourcing

Outsourcing has become a recognized figure of industrial and commercial activities and business around the world It continues to grow in popularity and make its mark as a prime mover in cutting costs and generating efficiency by buying in best practice and economies of scale

Outsourcing has become a main stream practice in global business operations ( Bailey, Masson, & Raeside, 2002) Traditionally, outsourcing is an abbreviation for outside resourcing using” ( Arnold, 200; Buhner& Tuschuke, 1997, Quinn&Quinn& Hilmer, 1994) By this means, companies release non- core business or processes to outside vendors, then the enterprise can focus on the most value-added and the most value- added and professional activities in the whole value chain ( Lei&Hitt, 1995, Loh& Venkatraman,1992; Quinn, 1999) The outsourcing items covered a wide rage including :R&D, design , manufacture, facility set up market marketing and atc, the major benefits that enterprises outsource business to vendors are cost reduction, quality and service performance improvement (Bailey at al., 2002, Barthelemy,2001; Sharpe, 1997)

In the out sourcing operation model, vendor selection is one the criteria factors affecting the final success Therefore, the vendor selection issues have been widely studies determined as a multiple criteria decision making issue (Steve Simonson, 2000)

Most businesses today are either outsourcing certain functions or considering it But this

is a major decision, and the benefits can be difficult to define The benefits discussion typically centers on cutting costs Outsourcing has been sold by the market or by clients

as a way to cut costs by reducing overhead and having a professional perform the

operation While this benefit is attainable, it is not the only advantage and should not be the only reason a company decides to outsource

The benefits of outsourcing can be divided into two types First, there are the direct benefits—those that have an immediate impact Then, there are the indirect benefits—the impact that outsourcing has on the processes that have remained in house

The direct benefits of outsourcing are those related to reduced costs, decreased cycle times, and improved customer perception and satisfaction They include:

Focus on core competency

Reduction in the cost of manufacturing and logistics services

Reduction in head count of hourly workers and management

Improved accuracy

Flexibility and wider range of services

Access to global networks and superior technology

Improved service

Improved quality

Reduced capital investment and increased cash flow.i

Source: Uncover the Hidden Benefits of Outsourcing, By Steve Simonson, Partner, Tompkins Associates

supply chain management integrates supply and demand management within and across companies

A customer focused definition is given by Hines ,2004"Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value Throughout efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value The supply chain system must be responsive to customer requirements."ii

The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers, who work together to design, manufacture, distribute, market, sell, and service a product The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands

3.3 Vendor selection criteria

3.3.1 Dickson’s Supplier Evaluation Criteria iii

Dickson (1966) in order to provide a comprehensive view the criteria that academicians and practitioners have found to be important in vendor selection Vendor selection decisions are complicated by the fact that various criteria must be considered in the decision making process The analysis of criteria for selection and measuring the performance of vendors has been the focus of many academicians and purchasing practitioners since 1960s In his seminal work, Dickson 1966 suggests “from the purchasing literature, it is fairly easily to abstract a list of at least 50 distinct factors

(characteristics of vendor performance that are presented by various authors as being meaningful to consider in a vendor selection decision ( Dickson, p.5)

The majority of research about supplier selection problem mentions Dickson’s study It

is based on a questionnaire sent to 273 purchasing agents and managers selected from the membership list of the National Association of Purchasing Managers, which include agents and managers from the United States and Canada Dickson’s study describes the importance of 23 criteria for supplier selection which are classified with respect to their importance observed in the beginning of the sixties At that time (1966), the most significant criteria are quality of the product, the on-time delivery, the performance history of the supplier and the warranty policy used by the supplier

The Dickson study was based on the questioner sent to 273 purchasing agents and manager selected from the member list of the National Association of Purchasing Managers Total 170 responses was received Table 3.3.2.1 summarizes the findings of Dickson’s Study regarding the importance of the 23 criteria for vendor selection.iv

Table 3.3.1.1 Dickson’s Supplier Evaluation Criteria

Reputation and position in the industry

Desire to do the business

Management and organization

3.3.2 Weber’s supplier evaluation criteria: v

Weber et.al (1991) reviewed 74 articles which address vendor selection criteria in

manufacturing and retail environment published from 1966 to 1991 They provided a comprehensive view of the criteria that might be considered in supplier selection decisions They showed that quality, delivery and net price have received the great amount of attention Production facility, geographical location, financial position and capacity generated an intermediate amount of attention

Weber listed the number of articles in which each criterion was addressed as well as the rank and rating of the criteria in the Dickson study To the extent that publication in the literature reflects interest in, and importance of, the various criteria, some observations may be made from this table For example, the table indicates that net price, delivery and quality were discussed in

80, 59 and 54% of the articles respectively These three criteria were rated as having 'extreme' or 'considerable' importance by Dickson Production facilities and capability, geographical location, and technical capability were discussed in 31, 22 and 20% of the articles respectively Production facilities and capability, and technical capability were categorized as having 'considerable importance' by Dickson while geographical location was considered to have only 'average importance' in Dickson's ranking Warranties and claim policies was deemed to have 'considerable importance' in the Dickson study; however, it was not specifically discussed in any

of the articles included in this review Certainly, this does not imply that warranties and claim policies no longer have any importance in vendor selection Rather, it is more likely that this criterion has been included as a component of other criteria or that this criterion is discussed in publications not considered in this study (e.g., legal publications)

The study indicates that net price, delivery, and quality have received the greatest amount of attention in the last five years, appearing respectively in 86, 53 and 51% of the articles published

in that time frame Aslo, these three criteria were discussed more than any other criteria since

1969 On the other hand, several criteria have received little attention in the last five years During the last five years no citations could be found for warranties and claim policies,

communication system, impression, labor relations record, amount of past business, and reciprocal agreements; only one citation was found for bidding procedural compliance, desire for business, operating controls, packaging ability, training aids; and only two citations were found for performance history, financial position, and reputation and position in industry Weber also indicates that production facilities and capacity, geographical location, financial position, and management and organization generated an intermediate amount of attention in the past five years appearing respectively in 26, 16, 16 and 9% of the citations during that time frame The recent attention to geographical location is especially interesting with 7 of 14 citations appearing since 1985 and 10 of 14 citations appearing since 1980

The most important three criteria presented by his study, were, “quality”, “delivery” and “price”

Table 3.3.2.1 Weber’s Supplier Evaluation Criteria

7 Management & Organization

8 Reputation & industry position

3.3.3 Vendor Selection Using Analytical Hierarchy Processvi

(Business Intelligence Journal - August, 2009 Vol 2 No 2 - Sanjay Kumar)

Evaluation and selection of vendors is a typical multiple criteria decision making (MCDM) problem involving multiple criteria that can be both qualitative and quantitative (Sonmez, M., 2006) Vendor Selection problem involves tangible and intangible criteria These criteria may vary depending on the type of product being considered and include many judgmental factors (Sarkis, Alluri, 2002), (Jayaraman, Srivastava, Benton, 1999) The various criteria that are important for vendor selection, as evident in literature and from discussions with experts, are price, transportation cost, quality, quality certification, lead time, buffer stock needed, goodwill and reliability of the vendor, experience of the vendor in the same field etc as shown in figure 3.3.2.1 (Weber et al, 1991; Bajaj et al, 2005)

Figure 3.3.3.1 The various criterial that are important for vendor selection

The problem is how to select vendors who can perform optimally on the desired criteria AHP (Analytical Hierarchy Process) is one of the most extensively used MCDM methods

because of ease with which it handles the multi criteria The criteria based on which the vendor selection problem has been solved in this paper have been tabulated in Table with their used abbreviations

Table 3.3.3.2 The Average Matrix for the Criteria of Vendor Selection

The maximum value of eigen vector for the above matrix, max = 12.63

Consistency index, C.I = ( max -n)/ (n-1) = 0.45

Random Index for the matrix of order 9, R.I = 1.45

Consistency Ratio, C.R = C.I./ R.I = 0.3, which is greater than 0.1

The responses being taken over from a wide range of experts from various fields, the consistency ratio is found to be greater than the desired value

The pair-wise comparison of all the criteria of vendor selection problem generates a priority matrix as given in the table

Table 3.3.3.3 The Priority Matrix for the Criteria of Vendor Selection

The above table shows that Reliability of the Vendor (RV), Quality of the Product (QP) and the Experience of the Vendor in the same field (EV) are top three in the vendor selection problem

The globalization of market after the economic reforms have led to drastic changes in the approach of small, medium and large scale organizations for formulating their strategies and priorities for investments and developing competencies In such a dynamic environment, organizations that are able to continually build new strategic assets faster and cheaper than those of competitors will create long-term competitive advantage (Singh et al, 2005)

3.3.4 Strategic element of outsourcing vii

According to Kemal Guven Gulen in “Supplier Selection and out sourcing strategies in supply chain management” the most successful manufactures have developed sourcing strategies with their vendors that produce shared opportunities They have created formal strategice alliences bound by homogeneous goals investment , obligation and mutual trust The most common strategic elements of outsourcing are as follows:

Global Strategies that impact Outsourcing: in an outsourcing program, management

must understand global strategic issues and the external and internal drivers that impact sourcing decision On the external side It is particularly imporatant to understand the industry structure, there are some definitions about the suppliers such as defining the suppliers in the industry, analyzing the supplier’s bargaining power, selecting the emergin technologies and substitute products forecasting the new entransts may enter the market analyzing the customer’s bargaining power

On the internal side, it is important to understand the company strategic direction and the tactical actions that are being pursued in the areas of technology development, engineering, materials management, manufacturing, distribution and field service

An out sourcing program should be designed around a company’s overall corporate strategy so that products can be brought to the marketplace at the right time, at a competitive quality and price and with a reliable level of performance

Procurement Specifications : Procurement objectives should be developed around

considerations such as facility locations and focus, vertical integration , technology life cycles, and other related elements of the total manufacturing infrastructure In addition, the metrics of competitive performance must also be considered as part of a Just In Time purchasing program,For example, competing on the basis cost, delivery ,quality , flexibility or innovation may have a major impact on procurement objectives and the subsequent daily activities of buyers

Supplier Management Plan: During this task the best source are determined and the

vendor base is consolidated Manufacturer/supplier relationships are established and the purchasing objectives are communicated and agreed up on The vendors chosen are integrated into the manufacturing process through:

Joint training and education activities aimed at learning each other’s products, manufacturing processes and customer service issues (within security limitations of the industry)

Long- term contracts and blanket orders with multiple release dates

Joint involvement in product/process design, value analysis, quality improvement, cost reductions

Open exchange of information such as schedules, design data, quality results and cost structures

Formal vendor evaluation that incorporates in process controls, multiple measurements, continuous feedback and joint corrective action

Quality Commitment: The objective of quality commitment is to push incoming

inspection activities back to the supplier where it is controllable and correctable Several companies have mandated that their vendors implement statistical process teams to improve control and encourage joint problem- solving teams to improve quality Ultimately, manufacturers evolve to formal vendor certification and ship to stock programs which are designed to eliminate the cost associated with producing, handling reworking and /or returning substandard materials

Schedule Stability: The impact of schedule changes increases as you move up stream

from the ultimate customer In other words, a moderate schedule change within a manufacturer’s plant can be dramatic to a supplier, particularly if he is small and approaching capacity

Predictable delivery schedule allows suppliers to implement just in time techniques in their own process and eliminates costs associated with excess inventory buffers, overtime and expediting Thus improvements in the supplier’s process can be passed on to manufacturers in the form of flexibility and price reduction

*Supplier selection and outsourcing strategies in supply chain management-Kemal Guven Gulen

4 CHAPTER IV RESEARCH METHODOLOGY

Step 5: Select supplier selection criteria, Structure the hierarchy of the criteria and weight of criteria

Step 6: Case Studies: Ranking Global Home’s Suppliers 2012 to eliminate the worst supplier

Step 7: Recommendation and Conclusion

4.2 Type of Research

There are two types of research, quantitative and qualitative This project will be applied both types with survey, secondary data, information from site visit for auditing

Survey, Secondary Data,

Primary data, Expert’s

advice

Criteria to be considered

Case studies Conclusion

A questionnaire was designed and sent to the decision makers, experts who currently working at indoor outsourcing furniture industry to determine the criteria for supplier selection which are suitable for Global Home at this moment Such as People used to worked for Global Home, the CEO of the company that Global Home supply products , the CEO of the company who is working in Vietnam furniture manufacture , the manufacture owner who is Global Home owner’s ( Appendix 4)

Also another Questionnaire will take the research on the current issued criteria that Global Home applies when selecting its suppliers in Vietnam The survey is aimed to illustrate the problem analysis of current supplier selection

The questionnaire consists of 14 questions which are categorized into three sections (see Appendix 5) The first section gathers profile information of respondents such as company scale, nationality, market target The second section collects Global Home suppliers ideas that how they feel about Global Home criteria The third section collects the reason why they would like

to be Global Home suppliers

4.4 The Criteria are suitable to be applied for Global Home company

After consulting from several experts who understand very well Global Home business and indoor furniture trend that Global Home is small trading company with strongest

point that are selling the products with simple and beautiful design and very economics prices Global Home has simple organization and principle to working with Global Home normally mostly approaches the small and medium side of private company in Ho Chi Minh and in South provinces But it is not easy that a manufacturer could agree with the working way and the target prices that Global Home requires because the economic down turns, all materials and labor cost are going up and the banking Interest rate are so high Even Global Home needs to make quick decision to select new suppliers, however

in such circumstances , the experts’ advice that is Global Home must use at least several criteria to select it suppliers

The questionnaire was created with the criteria taken from Dickson , Weber and the conclusion from AHP:

The criteria from Dickson: Prices, quality, warranty and claims policies, Performance History, Technical capability, Production facilities, Financial position , Procedural compliance , Communication system, Reputation and position in the industry, Desire to

do the business, Management and organization, Operating control

The criteria from Webber: Production facilities & cap, Geographical location, Technical capabilities

The criteria from AHP of Sanjay Kumar Sanjay Kumar, Neeraj Parashar, Abid Haleem are Reliability of the Vendor, Quality of the Product and the Experience of the Vendor in the same field

The questionnaire to be sent to 15 experts For all criteria just have 15 marks to give for all criteria The extremely important criterion will have the 5 marks, The very important will have 4 marks, The fairly important will have 3 marks The criterion that is goods to have but not important will get 2 marks The criterion that is not suitable to use for

Global Home at this moment will get one point

There are fifteen feedbacks from experts collected by interview, phone call and email