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Jkpark 2010 IMDS AnIntegrativeFrameworkforSupplierRelationshipManagement
Jkpark 2010 IMDS AnIntegrativeFrameworkforSupplierRelationshipManagement
Jkpark 2010 IMDS AnIntegrativeFrameworkforSupplierRelationshipManagement
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An integrative
An integrative framework framework
for supplier relationship for SRM
management
495
Jongkyung Park
Department of Industrial Engineering, Seoul National University, Received 6 August 2009
Seoul, South Korea Revised 5 October 2009
Accepted 3 December 2009
Kitae Shin
Department of Industrial and Management Engineering,
Daejin University, Pocheon City, South Korea
Tai-Woo Chang
Department of Industrial and Management Engineering,
Kyonggi University, Suwon, South Korea, and
Jinwoo Park
Department of Industrial Engineering, Seoul National University,
Seoul, South Korea
Abstract
Purpose – There have been many studies on topics related to supplier relationship management
(SRM), namely purchasing strategy, supplier selection and development, and collaboration with
suppliers. However, these studies have not suggested a solution based on an integrative concept, as
they focus only on domain-specific problems. To overcome this limitation, the purpose of this present
paper is to suggest a framework for an integrative SRM system by analyzing comprehensive
approaches to overall SRM functions.
Design/methodology/approach – The paper reviewed and analyzed studies related to SRM from
an integrative viewpoint, proposed a framework for an integrative SRM system, and performed a case
study based on the analytical hierarchy process with a field survey.
Findings – The paper expects that the proposed framework can play a major role in enhancing the
efficiency and effectiveness of SRM by adopting an integrative concept because the functions of
SRM are highly interrelated. Furthermore, it verifies the applicability of the framework via a case
study.
Research limitations/implications – Not many approaches are available for organizing
evaluators or evaluation sheets, which are used for selecting criteria, providing weight, and
evaluating supplier performance, that can secure objectivity of the evaluation; thus, when applying
this framework to the industry, special consideration is needed.
Practical implications – The proposed framework allows the purchasing members to scrutinize
key features of SRM before and during the SRM system operation.
Originality/value – The paper provides useful knowledge about the role of SRM systems by Industrial Management & Data
holistically approaching SRM-related processes while suggesting criteria and recommendations to a Systems
purchasing manager. Vol. 110 No. 4, 2010
pp. 495-515
Keywords Supplier relations, Purchasing, Buyer-seller relationships q Emerald Group Publishing Limited
0263-5577
Paper type Research paper DOI 10.1108/02635571011038990
IMDS 1. Introduction
110,4 Owing to the globalization of markets, the diversification of customer needs, and the
complexity of product components, the efficiency of supply chain management has
become an important factor in an enterprise’s competitiveness. It is recognized
that properly managing the supply chain cannot only diminish risks and uncertainty,
but can also optimize the inventory level and process cycle time, so that enterprises are
496 able to satisfy customers and make a good profit (Simchi-Levi et al., 2003). In order for
supply chain management to perform successfully, the purchasing function must be
properly considered, where the significance of the purchasing function increases as
the purchasing and outsourcing costs assume a greater portion of the total costs of the
manufacturing process. In response to this effect, companies have focused more
interest on the supplier relationship management (SRM) system. However, until
recently, researchers in this area have dealt with the SRM system by focusing solely on
specific subjects, such as purchasing strategy, supplier selection, collaboration, and
supplier development. Interestingly, these subjects are rarely dealt with from a holistic
perspective. In regard to purchasing and related activities, it is critical that the relevant
departments cooperate, and thus it is also very important to build an information
system (IS). To build an integrative system, managers should be equipped with a
comprehensive knowledge of each team’s work, how the related works influence each
other, and what is important in each department to provide a good overall result.
We suggest a framework for an integrative SRM system that consists of purchasing
strategies, considerations for suppliers, collaboration in product development and
production activities, and supplier assessments. In addition, this system should
support collaboration tasks by seamlessly connecting with an advanced planning and
scheduling (APS) system, an enterprise resource planning (ERP) system, a
manufacturing execution system (MES), a warehouse management system (WMS),
a product lifecycle management system, and a legacy system. To this end, we have
developed an SRM system architecture that effectively achieves collaboration.
In addition, like almost every IS, the SRM system must continuously develop through a
feedback process, and therefore this study suggests a framework for continuous
improvement (CI).
This paper is structured as follows. Section 2 provides a review of the literature.
In Section 3, we elaborate on the processes of the framework for the integrative
SRM system. In Section 4, we conduct a case study. Finally, we conclude our study in
Section 5.
2. Literature review
An SRM system strategically aims for collaboration with suppliers, so that a company
can develop a new product competitively and produce goods efficiently. Accordingly,
topics such as shaping the purchasing strategy, supplier selection, collaboration, and
supplier management have been widely studied. This section examines how these
issues have been presented in the literature.
2.3 Collaboration
Studies on the collaboration between the supplier and the buyer can be reviewed in two
ways: by focusing on the collaboration strategy or by using an SRM system to carry
out the collaboration strategy. The collaboration strategy can be explored according to
the participation phase of new product development and production.
In many industries, companies encourage suppliers to be involved in seeking ways
to shorten the development time, improve quality, reduce cost, and release new
products smoothly. Previous studies have examined the participation time (Handfield
et al., 1999), the responsibility level in cooperative development (Petersen et al., 2005),
and the type and strength of a contractual relationship (Fliess and Becker, 2006).
The most well known collaboration techniques are JIT purchasing ( JITP), which
makes the customer’s JIT operation possible (Gunasekaran, 1999; Kaynak and Hartley,
2006); vendor managed inventory (VMI), where suppliers take responsibility for a
range of contracts and manage the buyer’s inventory (Simchi-Levi et al., 2003); and
collaborative planning, forecasting, and replenishment (CPFR), which involves
integrating the supply chain.
Finally, studies that have investigated SRM systems for collaboration include
system-oriented concepts, such as using an integrative case-based supplier selection
method (Choy et al., 2004), a web-based enterprise collaboration platform (Lee et al.,
2003), and a collaboration framework from the viewpoint of business strategy (Cox
et al., 2003; Moeller et al., 2006, Day et al., 2008).
Adopt competitive
strategy
(Supply-risk is
low)
Classify Develop action
Figure 2.
items plans
An activity diagram of the
steps used for shaping the (Supply-risk is
purchasing strategies high) Adopt cooperative Analyze supplier
strategy relationships
Supplier
Defining supplier selection criteria pool
Phase 2
for partner selection
Figure 4. Collaboration
The framework for
supplier selection
Supplier assessment and development
3.3 Collaboration
Collaboration (supplier involvement) is achieved via a collaboration strategy and ISs
that allow purchasing managers to collaborate with other department members and
suppliers. In addition, the collaboration strategy can be divided into two stages:
(1) the product development stage; and
(2) the production stage.
3.3.1 Collaboration strategies. For a win-win situation between the supplier and
manufacturer, they must share roles and profits through modularization and introduce
an advanced method that connects the supplier and manufacturer via shared
information. Furthermore, a company’s internal collaboration is vital.
When suppliers are in the product development stage, key considerations are optimum
supplier selection and effective collaboration system implementation. Effective
collaboration is achieved by involving the supplier early in the product development
stage and fostering effective interfacing with a concurrent engineering system. The
important supplier selection criteria are as follows: product, process, production, quality,
trust, design expertise, communication, and innovativeness. The considerations for
collaboration include choosing the extent of the supplier’s involvement in product
development, such as timing the supplier’s involvement, information exchange in design, An integrative
and making buyer-supplier relationship decisions regarding issues such as the supplier’s framework
contract length, contract management, and an information exchange strategy, for
example, the level of information exchange and the cost transparency. for SRM
The evaluation of both the supplier selection and the collaboration is important in
the production stage. Collaboration with the supplier in the production stage fosters
lean manufacturing by providing materials at the right time, in the right amount, and 503
of the correct quality. Because customers’ demands can be capricious, agile
manufacturing should be realized by providing flexibility and responsiveness. Some
well-known collaboration tools are JITP, VMI, and CPFR. To suit their own
collaboration strategies, companies can adopt the appropriate collaboration tool. The
important criteria at the collaboration level consist of relationship activities,
commitment, trust, reward/cost sharing, communication, and information sharing.
3.3.2 Architecture of the SRM system. An IS is needed to support the purchasing
managers and to foster collaboration with the suppliers. An SRM system plays a
significant role in the collaboration inside and outside of the company. Inside
collaboration includes cooperation between production, purchasing, and marketing. To
accomplish this, it is pivotal to share information.
Recently, supply chain optimization has been a key issue among manufacturing
companies because such companies are affected by importing and exporting of the
material and the product, as well as inventory. Owing to small quantities and a
reduction in the product’s lifecycle, companies are forced to store a considerable
amount of materials in a restricted warehouse space. Hence, for this small supply,
shortening the supply cycle time, rapidly generating a new supply, and providing
superior quality are essential. To achieve this, sharing information between inner
departments as well as sharing real time information with suppliers is needed. Figure 5
shows the proposed system architecture. Sharing information within a company is
Advanced planning
Enterprise and scheduling
resource planning Purchase order, Production plan,
goods receipt production schedule
Supplier portal
Improvement
Relationship
C Collaboration
505
attractiveness
Supplier
development
Suppier evalution T Maintenance
Relationship
Bad Good Excellent
Capability
S: strategic relationship
Performance C: collaborative relationship
T: transactional relationship
Figure 6.
The framework for
supplier assessment and
Collaboration Supplier selection development
Profit impact
2 4
Non-critical Bottleneck 4 C C S S
items: items:
506
1 3 C C C C
Low
Low Supply risk High T T C C
Strategic importance
1 T T T T
(from Peter Kraljic, 1983)
1 4
High
Supplier's Mutual
Relative supplier
attractiveness attractiveness
attractiveness
3 4 S: Strategic relationship
C: Collaborative relationship
Lack of Buyer's
attractiveness attractiveness T: Transactional relationship
1 2
Low
Figure 7. Low Strength of High
The framework of relationship
a strategic material
evaluation Relationship attractiveness
(from Olsen, Ellram, 1997)
of the supplier relationship assessment matrix (Figure 6). The important criteria of each
evaluation process are as follows:
.
Capabilities, including quality systems, technological capability, financial
capability, reputation, geographic location, organization, production capacity,
and open communication.
.
Performance, including quality, cost, and delivery.
.
The collaborative relationship, including mutuality, cooperation, commitment,
trust, conflict, conflict resolution, and compliance.
4. Case study
In the case study, we applied the purchasing shaping strategies, supplier selection,
supplier relationship assessment, and supplier development processes to company “K,”
which is a Korean semiconductor manufacturing company (the name K is used for
confidentiality purposes). This case study analyzes five quartz suppliers of company
K. The quartz product is a quartz-processed good that is used as tubes or containers
that prevent contamination during the semiconductor manufacturing process.
Shaping Supplier
Supplier Collaboration
the purchasing assessment and
selection (supplier involvement)
strategies development
Continuous
improvement SRM SRM system
(re)planning operating
Operating
System SRM system
members Figure 8.
improvement assessment
assessment The framework for CI
IMDS order to classify the profit impact. The demarcation line between “high” and “low” is
110,4 based on an 80-20 rule or business strategy. Next, the number of suppliers and
substitution possibilities are used to determine the supply risk. The demarcation line
between “large” and “small” is drawn by assessing the dependence on the supplier at
hand. The quartz product is classified as the strategic item. The case in which the
supply risk is high results in a cooperative strategy that is both relationship-centered
508 and SRM-oriented.
Supplier evaluation
Figure 9.
Structure of the AHP
model employed for
supplier evaluation Company A Company B Company C Company D Company E
(2) Calculation of the weights of the criteria. To calculate the weights of the criteria, An integrative
a survey was carried out by three managers, including a production manager, a framework
purchasing manager, and a quality manager. The judgments were determined
by applying pairwise comparisons among the criteria by quantifying Saaty’s for SRM
1-9 scales (Table IV). We tested the judgment consistency using the consistency
ratio (CR). The averaged judgment matrix was then determined by the
geometric mean of each row in the pairwise comparison matrices, and the 509
weights were calculated (Table V).
Saaty (1990) used the principal eigenvector of the comparison matrix to find
the comparative weights among the criteria of hierarchy systems. For each
n £ n pairwise comparison matrix A, by using the eigenvector theory,
i.e. (A 2 lmaxI)w ¼ 0, to calculate the eigenvalue lmax and the eigenvector w
(w1, w2, . . . , wn), the weights of the criteria can be estimated. To test the
consistency of the intuitive judgment, Saaty suggested using the consistency
index CI ¼ (lmax 2 n)/(n 2 1) to measure the degree of consistency. When the
consistency has been calculated, the result is compared with those of the same
index of a randomly generated reciprocal matrix from a scale of 1-9, with forced
reciprocals. This index is called the random index (RI). The test of CR employed
the comparison value of CI and RI (CR ¼ CI/RI). A CR of 0.10 or less is positive
evidence for informed judgment.
(3) Evaluating the suppliers. An evaluation of each supplier was performed by the
supplier managers using structured evaluation sheets and criteria weights. To
this end, we applied the following equation.
In particular, we graded the maximum value as full marks, which are assigned to
suppliers for each criterion in order to reduce any distortion caused by human
appraisal:
Quality 1 1/5 2 2 3 1
Cost 5 1 4 3 4 2
Delivery 1/2 1/4 1 1 1 1/2
Technology 1/2 1/3 1 1 1 1/2 Table IV.
Management 1/3 1/4 1 1 1 1/2 The pairwise
Collaboration 1 1/2 2 2 2 1 comparison judgment
matrix for the supplier
Notes: We show the results of Survey 1; the others are omitted; CR, 0.049737 selection problem
110,4 Ei ¼ ðAij * wj Þ; i ¼ 1; 2; . . . ; 5
j¼1
where:
Ei : Total score of supplier i.
510 Aij : Score of supplier i on criterion j: (by survey among managers).
wj : Weight of criterion j.
i : Supplier index.
j : Criterion index.
The results of the total supplier evaluation, as shown in Table VI, are as follows:
Company A, 96.7; Company B, 89.5; Company C, 91.1; Company D, 91.3; and Company
E, 76.5.
4.3.3 Supplier relationship assessment. According to the plots of the strategic
material evaluation and supplier evaluation (Figure 10), the results obtained for the
supplier relationship assessment are as follows: Company A is in the prime group;
Companies B-D are in the collaboration group; and Company E is in the improvement
group.
5. Conclusions
By applying the proposed SRM system, companies can achieve a low cost of
purchasing, develop products on time, and maintain high quality and timely provision
of products. In this study, we suggested an integrative SRM framework composed of
five steps:
(1) establishment of purchasing strategies;
(2) selection of a supplier;
(3) collaboration;
(4) supplier assessment and development; and
(5) provision of CI.
We also considered the important processes comprising each step.
Furthermore, to implement the suggested framework, we suggest using an IS
architecture and we also provide an illustrative example. The IS architecture includes
Quality Cost Delivery Technology Management Collaboration
21.3 30.3 12.6 15.3 9.2 11.3 Total
wj (%) Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Ei
Company A 100.0 21.3 100.0 30.3 100.0 12.6 94.8 14.5 97.6 9.0 80.0 9.0 96.7
Company B 100.0 21.3 73.9 22.4 89.1 11.3 100.0 15.3 98.8 9.1 90.0 10.2 89.5
Company C 100.0 21.3 91.3 27.7 87.0 11.0 88.8 13.6 89.4 8.3 82.5 9.3 91.1
Company D 94.4 20.1 100.0 30.3 73.9 9.3 84.5 12.9 80.0 7.4 100.0 11.3 91.3
Company E 77.8 16.5 56.5 17.1 89.1 11.3 83.6 12.8 100.0 9.2 85.0 9.6 76.5
Table VI.
512
110,4
IMDS
Figure 10.
of quartz suppliers
relationship assessment
The results of a supplier
Supplier relationship assessment
Strategic S
Strategic material
evaluation results
Bottleneck C S Prime
Item Quartz
Leverage
Company A T
Company B C Improvement Collaboration
Suppliers Company C Non-critical
Company D
Company E LA BA SA MA
T Maintenance
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Corresponding author
Tai-Woo Chang can be contacted at: keenbee@kgu.ac.kr