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A model for evaluation andselection of suppliers in global
textile and apparel supply chainsS. Gary Teng
Engineering Management Program & Center for Lean Logistics & EngineeredSystems, The University of North Carolina at Charlotte, Charlotte,
North Carolina, USA, and
Hector JaramilloSupplier Development Team, Jacobsen A Textron Company, Charlotte,
North Carolina, USA
Abstract
Purpose – The issue affecting US textile/apparel companies in global business competition is to findsuitable suppliers for their operations. The selection and evaluation of their global suppliers to meetthe goal of having effective and efficient supply chain operations and strengthening their position inthe market become critical for US textile/apparel manufacturers to maintain their competitiveness intoday’s market. Aims to develop an evaluation model.
Design/methodology/approach – The development of a simple, flexible, and easy to useevaluation model that includes the consideration of five main clusters to reflect the performance of aglobal supplier in a textile/apparel supply chain.
Findings – A case presented in this paper shows that the model provides textile/apparel companieswith an easy way to evaluate their suppliers and make their selection of suppliers more efficient andeffective. Most textile/apparel companies using this model can help them establish strategic alliancewith global suppliers to reduce costs and increase competitiveness in the market.
Practical implications – Textile/apparel companies can use this model to find capable suppliers astheir partners in the supply chain. With minor modifications, this model also can help companies inmost industries for enhancing their supply chain operations with capable suppliers.
Originality/value – Provides a simple model that can help companies in many industries enhancetheir supply chain operations.
Keywords Supply chain management, Function evaluation, Textile industry, United States of America
Paper type Research paper
IntroductionWith the current competitive textile/apparel market, the US textile/apparel companiesare adjusting their business strategy by expanding their global outsourcing activitiesto cut down their manufacturing costs. In the last two decades, some manufacturers inthe USA have shifted their operations to foreign countries with more attractive taxpolicies and labor costs. The trend began with the boom of the so-called Maquiladorasin Mexico and Central America. After NAFTA was created, the popularity of theMaquiladoras reached unprecedented levels. Textile/apparel, semiconductor, andautomotive industries are just some of the industries that enjoyed the benefits ofcheaper costs in Mexico and Central America. Meanwhile, Asian countries are taking
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International Journal of PhysicalDistribution & Logistics Management
Vol. 35 No. 7, 2005pp. 503-523
q Emerald Group Publishing Limited0960-0035
DOI 10.1108/09600030510615824
huge steps to improve their production and manufacturing processes to offer low costproducts.
Since year 2000, the Mexican peso has experienced a revaluation that has hurt thecompetitiveness of Mexican products in the US market. Mexican plants have been shutdown due to cheaper products available in other countries. In contrast, Asian countrieshave adopted an aggressive devaluation policy for their currency, thus boosting thedemand of products from these countries. In recent rounds of negotiations, the UnitedStates agreed to eliminate the quota system that has protected the textile/apparelindustry for decades. In addition, China’s access to the World Trade Organization(WTO) brings a new set of perspectives to the textile/apparel industry, which isexperiencing significant changes, fierce competition, and cost reduction to maintain orgain participation in specific markets.
As the US textile/apparel industry is moving toward outsourcing operations,effective supply chain management (SCM) becomes more critical. Presently, UScompanies must decide when, where, and what to outsource, as an important issue intheir strategic planning process. Therefore, the implementation of internationalsourcing strategy is playing a critical role in the changes of textile/apparel supplychain operations fundamentally. Humphreys et al. (1998) stated that manufacturers areinfluenced to implement international sourcing operations mainly due to their desire toestablish a presence in a foreign market, their needs to satisfy offset requirements andto increase the number of available sources, and their reactions to local and foreigncompetitions. Strategic sourcing aims to reduce the risk of disrupting the supply chainflows and the total cost of the products. Big textile/apparel companies usually use amultiple sourcing strategy to reduce risk and to lower down cost, while at the sametime, to establish close relationships between personnel on both the buyer and suppliersides.
Researchers have raised different issues in improving the operations oftextile/apparel supply chains. Bimbaum (2002) stated that large companies capableof integrating and controlling different plants in the world will dominate the industry.Teng and Jaramillo (2003a, b) have discussed the strategies for textile/apparelcompanies to remain competitive in the global market and to enhance qualitymanagement in textile/apparel supply chains. One important issue being raised in theoperations of textile/apparel supply chain is the selection of suppliers and theevaluation of these suppliers. Companies needs to continuously improve their supplychain operations, and meanwhile, add new suppliers to the existing supply chain aspart of improvement activities if necessary. Even with very competitive product prices,Wal-Mart is still relentlessly searching for the suppliers that can provide products withcheaper prices and better services (Cleeland et al., 2003). How to select new partnersand evaluate current partners becomes critical in the management and implementationof supply chain operations.
In this research, logistics issues involving supplier selection and evaluation are thecenter of the study given that the US textile/apparel industry is currently facing theneed to establish effective relationships with global suppliers. With the elevation of thecurrent global sourcing trend, it is more difficult for textile/apparel companies toconduct frequent on-site supplier evaluations. So these companies need to develop aneffective process for the selection and evaluation of suppliers as a part of their SCMprocesses. This research intends to provide a supplier selection and evaluation model
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to help textile/apparel companies in managing their supplier related supply chainactivities.
Research objectivesThis research intends to deal with one of the major strategic issues – the sourcingissue. How to select and evaluate suppliers in the sourcing process is the major interestin this research.
The first objective of this study is to investigate current available supplier selectionand evaluation models and determine their potentials in textile/apparel supply chainapplications. The second objective is to determine the required variables in evaluatingsupplier performance for textile/apparel supply chain operations and to develop asupplier selection and evaluation model based on these selected variables.
The overall objective is to provide a easy to use evaluation matrix that can helptextile/apparel companies in selecting the right supply partners to improve the wholesupply chain’s performance.
Commonly-used supplier evaluation modelsGaining necessary knowledge for a systematic evaluation of all potential suppliers andselecting the most suitable suppliers is critical for companies in a textile/apparelsupply chain to be competitive in the global market. Previous research findingsindicated that nearly 50 percent of the companies in different industries have a formalsupplier evaluation process (Simpson et al., 2002). The factors mostly used in currentsupplier evaluation methods include quality, supplier certification, facilities,continuous improvement, physical distribution, and channel relationship (Weberet al., 1991). Most evaluation methods rely on industry certifications or heuristicsindicators for supplier performance evaluation, which on occasion may omit thebusiness synergy.
There are four common supplier evaluation models being used for supplierselection. They include the categorical model, the weighted-point model, the cost ratiomodel, and the dimensional analysis model. The categorical model divides thesuppliers’ performance into different categories. When buyers use this model, they areable to monitor the performance of suppliers in different product categories. It is verysimple and can be implemented with inexpensive technology. However, it requires veryexperienced buyers with good memory and personal judgment (Humphreys et al.,1998).
The weighted-point model is the most basic of all supplier analysis methods. Buyersnormally introduce small variations while using this model. It is popular due to itssimplicity, flexibility and effectiveness in decision-making processes. The key forsuccessful application of this model includes adequate estimation of weights inperformance variables and a good understanding of common performance levels in theindustry. While using this method, the input for estimating the weights should comefrom the members of cross functional teams, not just from the buyers or the purchasingdepartment.
The cost ratio model is complex and less used by buyers. It stresses issues with highinfluence on a buyer’s operation costs (Kemp, 2002). Two cost components, thesupplier’s selling price and the buyer’s internal operating cost (including quality,
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delivery and other service elements), are the basis for making decisions. To determinethe total cost of a purchase, a buyer must know the company’s own internal operatingcost and obtain accurate information about suppliers’ prices first, and then convert theinternal cost into a cost ratio with respect to the total value of the purchase. The buyerselects the supplier with the lowest adjusted cost after adjusting the selling price withthe internal cost ratio or picks the supplier who meets the established cost standard(Humphreys et al., 1998).
Dimensional analysis model developed by Willis et al. (1993) is a response to thedisadvantages presented in the previously described models. This method combinesmultiple criteria into a single unified entity for each supplier. Each supplier isevaluated according to the vendor performance index, which is calculated according tothe supplier performance against the standard performance for a set of criteria and therelative importance of the criteria. The key to the successful use of this method is theallocation of weights to each evaluation criterion. A buyer must have the ability toestablish the relative importance of each criterion considered. Criteria may havepositive or negative weights. Quality could be an example of a positive weight criterionwhile price represents a negative weight criterion. Another important consideration isthe relative importance of each criterion. If a criterion has an importance rated at 4,then it is twice as important as a criterion rated at 2.
The methods discussed above may not effectively address some of the importantissues currently driving the textile/apparel industry. The discussion and developmentof a selection and evaluation model in the following sections aims to wrap up all thecritical factors that need to be considered by decision makers in textile/apparel supplychain activities.
Supplier selection model for textile-apparel supply chainsThe implementation of SCM practices aims to establish a close buyer-supplierrelationships as a true partnership among companies in a supply chain, beyond just forprice negotiations (Sarkis and Srinivas, 2002). Since outsourcing is an unavoidabletrend in cost cutting, textile/apparel companies have been seeking global suppliers totake over some of their current manufacturing operations. It is important fortextile/apparel companies to find reliable and trustworthy suppliers, either domestic orinternational suppliers.
With the increase in outsourcing activities, purchasing becomes a much morecritical part of business process for textile/apparel companies. It is especially true whenpurchasing activities involve multiple international suppliers located overseas. Eventhough uncertainties associated with international outsourcing activities add risk andcomplexity to the supply chain operations, US textile/apparel companies still pursueglobal suppliers to replace some of their manufacturing activities due to lower pricesand product availability.
There are two main supplier selection methods discussed in the existing literatures,the analytical hierarchy process (AHP) (Saaty, 1980; Hill and Nydick, 1992;Barbarosoglu and Yazgac, 1997) and analytical network process (ANP) (Saaty, 1996).
AHP is a robust and simple method that contemplates hierarchical relationshipsamong factors considered by decision makers such as quality, flexibility and cost, butit is weak in determining interrelationships among factors (Sarkis and Srinivas, 2002).So Saaty developed the ANP model to overcome certain difficulties embedded in the
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AHP model by including the information of correlations between factors in thedecision-making process. ANP model provides a more robust solution but thedetermination of the correlation factors makes it a more complex and time-consumingprocess. Min (1994) proposed a multiple attribute utility theory approach forinternational supplier selection. In his research, Min considered financial stability,quality assurance, perceived risks, service performance, buyer-supplier partnerships,trade restrictions, and cultural and communication barriers as the critical factors in thesupplier selection process. The adequacy of these models lies in the possibility ofperforming sensitivity analyses for “what-if” scenarios.
The model developed in this study is the adoption of AHP and multiple attributeutility theory approach and with the possibility of being altered for “what-if” scenariosand sensitivity analysis. It reflects the textile/apparel supply chain conditions andoffers the companies an easy and effective tool for evaluation of current and potentialsuppliers. The variables used in the model represent the most critical issues inevaluating and selecting textile/apparel suppliers.
The development of the supplier evaluation modelThe model is designed according to a hierarchical structure with several layers ofdecision-making activities. The first level of the hierarchy is for the most critical areasin global sourcing for textile/apparel supply chains. This level consists of five areasthat include delivery, flexibility, cost, quality and reliability. Following therecommendations of Saaty (1996), these areas are called “clusters”, which signifygrouping factors (Sarkis and Srinivas, 2002). Each cluster has a weight, which isassigned by buyers according to their needs. A second level of the hierarchy consists offactors that have significant effect on each cluster.
Again, buyers must assign appropriate weights to each factor according to specificsituations or needs. Additionally, a desired value must be determined for each factor toprovide a framework or benchmark.
Following the practices in the textile/apparel industry, we have decided to keep twomain characteristics for this model. This first characteristic is to obtain adimensionless index as the result of running the model. The grade that eachsupplier receives on each factor will be divided by the desired value to obtain adimensionless index that will then be multiplied by its corresponding factor and clusterweight. It integrates both qualitative and quantitative factors in the evaluation process.For this reason the model could also be classified as a multi-attribute approach. Thesecond characteristic, not considering correlations between factors in the model, is forthe sake of simplicity in the use of the model. Since the buyers and the cross functionalteams in the downstream companies often use some subjective rating scheme to ratefactors, putting efforts in determining the correlations between factors is often notvaluable in practice.
The index used in this model to determine a supplier’s performance is the totalsupplier score. This score consists of five cluster scores, the scores for delivery,flexibility, quality, reliability, and cost. It is important to note that high cost score has anegative impact on the total supplier score. Given that cost effectiveness is animportant motivation for global sourcing, the cost score will have an important
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influence over the total supplier score. The following equation shows the supplierevaluation model:
Total supplier score ¼ delivery score þ flexibility score þ quality score
þ reliability score 2 cost score ð1Þ
The five scores that determine the total supplier score are from the five key supplierperformance clusters. To determine these cluster scores, we need to determine thecluster weights (C), the factor weights (K) that influence the cluster, the desired value(DV ), and a V value that is computed by dividing a buyer provided score by thefactor’s DV value.
The clusters for determining supplier performanceAs shown in equation (1), there are five clusters under the supplier performance level.Three to fives factors are under these five clusters. Figure 1 shows the structure of thedecision-making matrix in the proposed approach for evaluating supplier performanceand selecting textile/apparel suppliers. The factors affecting the five main clusters’performance are selected based on the most common and significant issues intextile/apparel supply chains.
The use of the structure in Figure 1 re-emphasizes one important aspect, supplier’sselling price should not be the sole factor used in selecting suppliers. Even in the costcluster, the cost effect is according to internal cost and the cost associated withordering and invoicing process in addition to the selling price obtained. Textile/apparelcompanies have to evaluate all cost items encountered in each purchasing processalong with the product cost and the consideration of all the other clusters beforeextending orders to the suppliers. Low product price is critical to the selection ofsuppliers. But all the other incurred costs in the purchasing process and supply chainoperations are equally important. The proposed matrix provides a realistic and easy touse structure for textile/apparel companies to evaluate their suppliers.
The first cluster: deliveryThe delivery cluster consists of four factors that include geographic location, freightterms, trade restrictions, and total order cycle time. Geographic location (Kgl)represents the vicinity to customer and is determinant to supplier selection from thelogistics point of view. A good example of preferable supplier locations for the UStextile/apparel supply chain include locations in Mexico, Central America, and otherCaribbean countries, which enjoyed a boom in the 1980s and 1990s due to their closeproximity to US companies. In contrast, suppliers located in the Far East may scorepoorly on this category.
There are four scores assigned to the geographic location factor that include veryclose proximity with suppliers located in Mexico, Central America, and Caribbeancountries ðscore ¼ 4Þ; close proximity with suppliers located in Andean countries andBrazil ðscore ¼ 3Þ; Far with suppliers located in Europe, Africa, Middle East, and someother South American countries ðscore ¼ 2Þ; and Very Far with suppliers located in theFar East and the Pacific Rim ðscore ¼ 1Þ:
The next factor under the delivery cluster is the factor of freight terms (Kft). Thisfactor refers to the favorability of shipping conditions from the supplier chain’s point of
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view. This favorability is associated with the supplier’s level of responsibility over theshipping process. Scores on this factor are according to the following four scales:Excellent ðscore ¼ 4Þ; Good ðscore ¼ 3Þ; Fair ðscore ¼ 2Þ; and Poor ðscore ¼ 1Þ:
The third factor of the delivery cluster is the trade restrictions (Ktr) factor. It takesinto account government regulations for a certain type of products in both sides of thesupply chain. Tariffs and custom duties are the parameters usually considered in this
Figure 1.Supplier performance
evaluation matrixstructure
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category (Min, 1994). It is important to note that a high score on this factor will have anegative influence on the delivery index. Scores on this category are according to thelevel of trade restrictions that include high trade restrictions ðscore ¼ 4Þ; moderatetrade restrictions ðscore ¼ 3Þ; low trade restrictions ðscore ¼ 2Þ; and free-tradeagreements between countries ðscore ¼ 1Þ:
The last factor influencing delivery performance is the total order lead time (Klt).The total order lead time is the lead time from the moment a buyer placed an order tothe time the customer’s designated site received the ordered products. Inefficiencies inproduction, transportation and flow of information between involved supply chainparties may have negative effect on this factor. Since it is very difficult to establishspecific targets for this factor, a buyer may determine the ranges for performanceevaluation. For example, a buyer may rank the supplier Excellent with a total orderlead time from 15 to 20 days ðscore ¼ 4Þ; Good with a period from 21 to 25 daysðscore ¼ 3Þ; Fair with a period from 26 to 30 days ðscore ¼ 2Þ; and Poor with a timebeyond 30 days ðscore ¼ 1Þ: The adoption of just-in-time practices are forcingsuppliers to narrow down these ranges.
The delivery score calculated in equation (2) is according to all factors in thedelivery cluster:
Delivery score ¼ CD½ðKgl*VglÞ þ ðKft*VftÞ2 ðKtr*VtrÞ þ ðKlt*VltÞ� ð2Þ
In the equation, CD is the weight of the delivery cluster and Vgl, Vft, Vtr, and Vlt
represent the values obtained for each factor after dividing the factor’s score by itsdesired value (DV ).
The second cluster: flexibilityThe flexibility cluster is evaluated in terms of a supplier’s capacity to respond tounexpected customer demands. Supply chain flexibility relates to activities within anorganization’s departments as well as among external partners including suppliers,carriers, third-party companies and information system providers (Duclos et al., 2001).Previous researches have identified six components of flexibility that includeproduction flexibility, market flexibility, logistics flexibility, supply flexibility,organizational flexibility, and information systems flexibility (Vokurka et al., 2002;Teng and Jaramillo, 2003b).
Our approach in evaluating supplier’s flexibility is according to five factorsincluding capacity, inventory availability, information sharing, negotiability, andproduct customization. The first factor, capacity (Kc), is determined by the buyer’sknowledge or information obtained from the source itself. This score must display thelevels of economic order quantities that a supplier can deal with. Scores on this factorare according to the following four scales, Very High ðscore ¼ 4Þ; High ðscore ¼ 3Þ;Acceptable ðscore ¼ 2Þ; and Low ðscore ¼ 1Þ:
The second factor is the inventory availability (Kiv) factor. Normally buyers preferto get suppliers to keep certain levels of safety stocks. This factor may be measured interms of weeks of safety stocks or available to promise quantities. Small and mediumsize companies with make-to-order production systems are likely to score poorly onthis category. Scales on this category are the same as the scales for the previous factor.
The third factor, information sharing (Kis), refers to the level of information sharedbetween parties. For example, buyers may want to receive constant updates of
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inventory levels, production plans, and status of orders. On the other hand, suppliersmay want to have access to the buyer’s forecasting data in order to prepare forpotential purchasing orders. Under the current circumstances, real time informationavailability as well as compatibility of information systems between parties depict thedifference between high and low levels of information sharing. Still, most buyersevaluate suppliers’ information sharing performance based on their best knowledge ofthese suppliers’ systems. The scales used to evaluate information sharing betweenparties include Very High with real time updates and compatible electronic datainterchange (EDI) technologies ðscore ¼ 4Þ; High with weekly (or less) updates andcompatible EDI technologies ðscore ¼ 3Þ; Acceptable with updates obtained betweenone to two weeks and with low compatibility in EDI technologies ðscore ¼ 2Þ; and Lowwith updates obtained on a monthly basis and with no compatibility or inexistent EDIability ðscore ¼ 1Þ:
Negotiability (Kn) is the fourth flexibility factor. Even though many companiesprefer to manage contracts with suppliers through brokers, the conditions of suchcontracts constitutes an important issue for the supplier evaluation process.Negotiability is associated with the mutual trust existed between supply chainpartners and is higher in long-term relationships (Min, 1994). This category isevaluated according to the scales of Very High ðscore ¼ 4Þ; High ðscore ¼ 3Þ;Acceptable ðscore ¼ 2Þ; and Low ðscore ¼ 1Þ:
The last factor for the flexibility cluster is the customization (Kcu) factor. This factorintends to evaluate the supplier’s ability to take orders with special characteristics.Since unusual requests may require special machine setups, this category favors smalland medium size organizations with less complex production processes. Furthermore,suppliers with a make-to-order production system will be more likely to obtain a goodevaluation on this category. Scales on this category are the same as those of theprevious factor. The flexibility score is computed in equation (3) with CF as the weightof the flexibility cluster:
Flexibility score ¼ CF½ðKc*VcÞ þ ðKiv*VivÞ þ ðKis*VisÞ þ ðKn*VnÞ
þ ðKcu*VcuÞ� ð3Þ
The third cluster: costCost cluster often represents the main reason why the US textile/apparelmanufacturers have been hurt by foreign competition. The global suppliers’ verycompetitive low product prices and their increasing levels of quality have ledtextile/apparel companies to think that it is significantly cost-effective to partially ortotally manufacture textile/apparel goods overseas. Without any doubt, this cluster hasgreat influence on the supplier selection process. The three factors considered in theevaluation of this cluster are the supplier’s selling price (Ksp), internal cost (Kic), and thecost for ordering and invoicing (Koi).
Buyers are constantly searching for less costly products. They have to take intoaccount the cost of procuring from certain sources; whether they require air, ground ormaritime shipments, which ultimately affect the final price of the product. Supplier’sselling price is evaluated according to the following four scales: High Prices ðscore ¼4Þ; Acceptable Prices ðscore ¼ 3Þ; Low Prices ðscore ¼ 2Þ; and Very Low Prices
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ðscore ¼ 1Þ: The internal cost factor evaluates the total cost of each purchase and isadopted from the cost ratio method. In addition to the product price that a company hasto pay for, other costs related with transportation and quality must also be considered(rectification, waste, defects and plant visits). The minimization of internal costs isreflected in today’s preference for suppliers that are capable to assume the entiremanufacturing processes (the whole package). This category is evaluated according tothe following scales: High Internal Costs ðscore ¼ 4Þ; Acceptable Internal Costsðscore ¼ 3Þ; Low Internal Costs ðscore ¼ 2Þ; and Very Low Internal Costs ðscore ¼ 1Þ:
The third cost factor, the ordering and invoicing factor, relates to the ease of orderplacing. The implementation of EDI technologies has contributed to the advancementsin this area. Big companies are demanding their suppliers to implement online systemsin which orders may be placed with less human interactions, thus dropping certainbarriers such as different languages and time zones in the supply chain. In the sameway, invoicing is a concern when the supplier and the buyer are located in differentcountries. Even though advances in technology have overcome many obstacles ininternational business activities, organizations still need to work on implementingcustomer-driven invoicing system in terms of simplicity and time period to pay. Thisfactor has four ratings: Excellent ðscore ¼ 4Þ; Good ðscore ¼ 3Þ; Fair ðscore ¼ 2Þ; andPoor ðscore ¼ 1Þ: The cost score is calculated in equation (4) with CC being the weightof the cost cluster:
Cost score ¼ CC½ðKsp*VspÞ þ ðKip*VipÞ2 ðKoi*VoiÞ� ð4Þ
The fourth cluster: qualityThe quality cluster includes four factors that consist of continuous improvement (Kip),certifications (Kct), customer service (Kcs), and percentage of on-time deliveries (Kot).Continuous improvement could be defined as the incessant enhancement in lead times,conformities and reliability of deliveries. Supply chain members must continuouslyimprove its logistical planning and scheduling. According to Humphreys et al. (1998),these activities consist of selection of carriers and consolidation strategies forshipments. Continuous improvement in production planning and scheduling refers tothe reduction of changes in production schedules or impact minimization when thesechanges are necessary.
Improvement on communication also plays an important role in the evaluation ofthis category. Buyers must assess suppliers’ efforts to improve their EDI technologiesfor a better and quicker communication. Also, efforts to eliminate cultural andlanguage barriers are considered communication improvements. Finally, pricereductions and special offers are also a part of suppliers’ efforts to enhancecustomer satisfaction (Davis and Schul, 1993). Continuous improvement score isaccording to the following scale:
. High: the supplier constantly presents signs of improvements ðscore ¼ 4Þ;
. Moderate: the supplier occasionally presents signs of improvements ðscore ¼ 3Þ;
. Acceptable: the supplier rarely presents signs of improvements ðscore ¼ 2Þ; and
. Poor: the supplier never presents signs of improvements ðscore ¼ 1Þ:
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The certifications factor is for the recognition of the supplier’s quality level. ISO 9000certifications or other certifications from recognized organizations or customers havetheir significance in the evaluation process. Buyers may use supplier certifications asquality assurance instruments that will determine whether or not some suppliers arecapable to follow standards in the industry (Motwani et al., 1999). This category isevaluated as follows:
. Very high: the supplier has ISO 9000 certification and other supplier certificationsin the US ðscore ¼ 4Þ;
. High: the supplier has ISO 9000 certification but no supplier certifications in theUS ðscore ¼ 3Þ;
. Acceptable: the supplier has supplier certifications in the US ðscore ¼ 2Þ; and
. Poor: the supplier does not have any certification ðscore ¼ 1Þ:
The third factor is customer service. In the case of the US textile-apparel supply chain,in which large quantities of products are procured overseas, the interactions withsuppliers has an important role in the smooth flow of goods and information. From aSCM perspective, customer service shows a supplier’s effectiveness to respond tocustomer requests or complaints. Following this definition, this category may beevaluated as follows:
. Excellent: the supplier always attended complaints or requestspromptly ðscore ¼ 4Þ;
. Good: the supplier attended complaints or requests promptly most of thetimes ðscore ¼ 3Þ;
. Fair: the suppliers attended complaints or requests promptlyoccasionally ðscore ¼ 2Þ;
. Poor: the supplier never attended complaints or requests promptly ðscore ¼ 1Þ:
The last factor, percentage of on-time deliveries (Kot), is one of the key factors insupplier quality since some obstacles may affect on-time deliveries, such as in-transitdelays. Other difficulties in on-time deliveries may be customs inefficiencies, quotalimitations and inefficient paperwork processes (Motwani et al., 1999). This category isevaluated as follows:
. Very high: more than 95 percent of shipments are delivered ontime ðscore ¼ 4Þ;
. High: 90 to 95 percent of shipments are delivered on time ðscore ¼ 3Þ;
. Moderate: 85 to 90 percent of shipments are delivered on time ðscore ¼ 2Þ; and
. Low: less than 85 percent of shipments are delivered on time ðscore ¼ 1Þ:
With these four factors, the quality score is calculated in equation (5) and the coefficientCQ is the weight of the quality cluster:
Quality score ¼ CQ½ðCip*VipÞ þ ðCcs*VcsÞ þ ðCct*VctÞ þ ðCot*VotÞ� ð5Þ
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The fifth cluster: reliabilityThe last cluster for supplier performance evaluation is the reliability of a supplier’soperations to fulfill supply chain activities. Four factors, the feeling of trust (Kt), thecountry’s political situation (Kps), the currency exchange situation (Kce), and thewarranty (Kwp), influence the reliability of a supplier. The feeling of trust is evaluatedaccording to the buyer’s perception of a given supplier. Before approving a supplier’sstatus, a textile/apparel company often checks out the potential supplier’s abilitythrough procedures such as in-plant visits or sample testing to see if this supplier canfollow the company’s standards. Normally, buyers grant small orders to new suppliersas a “test” before placing larger quantity orders. The feeling of trust is determined byan on-going partnership between supply chain partners and performance evaluationsof a supplier over the years. A supplier’s reputation in the industry can influence theevaluation result in this category. The evaluation of this factor has the following foursimple levels: Very High ðscore ¼ 4Þ; High ðscore ¼ 3Þ; Moderate ðscore ¼ 2Þ; andLow ðscore ¼ 1Þ:
The importance of the second factor, country’s political situation, lies in the buyer’sconcerns about potential disruptions in the flow of goods that mostly caused byexternal situations beyond the supplier’s control. Suppliers from some South andCentral American countries, as well as from less developed countries in South Asia,may score poorly in this category. The proposed evaluation criteria for this factorinclude four ratings, Excellent ðscore ¼ 4Þ; Good ðscore ¼ 3Þ; Fair ðscore ¼ 2Þ; andPoor ðscore ¼ 1Þ: The Excellent rating shows that the supplier’s country of originexhibits good short and long-term stability and there are absolutely no concerns ofdistracting supply chain operations due to the country’s political situation. The Goodrating provides that the supplier’s country of origin exhibits good stability in the shortand long term. The Fair rating reveals that the supplier’s country of origin exhibitssome concerns regarding political stability. Some concerns about disruptive eventsmay exist in the supply chain operations. The Poor rating shows that the supplier’scountry of origin exhibits serious concerns regarding political stability and disruptiveevents in supply chain activities.
The third factor for the reliability cluster, the currency exchange situation, has hada big impact in the way the international textile/apparel supply chains have operatedin the last few years. Suppliers in the countries with aggressive devaluation policiesfind their products very competitive in international markets (ATMI, 2001). On theother hand, companies in the countries with revaluated currencies find their productsless competitive in international markets. For example, Mexican products have lostmarket share in the last few years due to currency revaluation. Buyers may havepreference for suppliers located in the countries where the currency exchange situationfavors their companies in different planning horizons. The evaluation of this categoryis from a US buyer’s perspective. The buyer determines the degree of favorabilityaccording to the following four scales: Very Favorable ðscore ¼ 4Þ; Favorable ðscore ¼3Þ; Neutral ðscore ¼ 2Þ; and Non Favorable ðscore ¼ 1Þ:
Quite often the customers request their suppliers to provide warranty, the last factorin the reliability cluster. From a logistics point of view, warranties are associated withon-time deliveries. Buyers may expect some rebates on late deliveries, or called theother way, penalties for late deliveries or charge-back. The evaluation of this categoryis similar to the previous factor. The Very Favorable rating means that the supplier
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takes full responsibility on non-conformities and offers rebates on late shipments. Thesupplier takes partial responsibility on non-conformities or offers rebates whendeliveries are not received on time if it has a Favorable rating. If the supplier only takespartial responsibility on non-conformities, it gets a Neutral rating. For the NonFavorable rating, the supplier does not take any responsibility on non-conformities orlate shipments.
Equation (6) shows the computation for the reliability score. In the equation, CR isthe weight of the reliability cluster:
Reliability score ¼ CR½ðKt*VtÞ þ ðKfe*VfeÞ þ ðKtr*VtrÞ þ ðKwp*VwpÞ� ð6Þ
The supplier performance evaluation matrixTable I shows the supplier performance evaluation matrix used in the evaluation andselection of suppliers based on the five clusters discussed above. This table is designedin the way that buyers can easily use this table to evaluate the suppliers whileconsidering the major factors involved in the supply chain operations and not just thesuppliers’ product prices.
A case study for supplier evaluationThe following example displays the evaluation and selection process using theproposed model. All the factor scores are according to common scenario in the currenttextile/apparel supply chains. Three suppliers located in different geographical regions
Cluster Weight Factors Weight DVSupplier
ASupplier
BSupplier
C
Delivery CD Geographic location Kgl
Freight terms Kft
Trade restrictions Ktr
Total order lead time Klt
Flexibility CF Capacity Kc
Inventory availability Kiv
Information sharing Kis
Negotiability Kn
Customization Kcu
Cost CC Supplier’s selling price Ksp
Internal cost Kic
Ordering and invoicing Koi
Quality CQ Continuous improv. programs Kip
Customer service Kcs
Certifications Kct
Percent of on-time shipments Kot
Reliability CR Feeling of trust Kt
Country’s political situation Kps
Currency exchange situation Kce
Warranty policies Kwp
SCORE
Notes: DV ¼ desired value
Table I.Proposed decision matrix
for supplier selection
Evaluation andselection of
suppliers
515
are considered in this case. These suppliers include supplier A (located in Mexico),supplier B (located in South America), and supplier C (located in China). The followingdescriptions display the general characteristics of each supplier.
Supplier ASupplier A is located in Mexico. Its close proximity to the USA makes it possible tohave frequent shipments of small quantities ðscore ¼ 4Þ in which exceeds the buyer’sexpectations regarding possible freight terms ðscore ¼ 4Þ: Since both the supplier andbuying company belong to NAFTA countries, there are no trade restrictions ðscore ¼1Þ: Supplier A has established a good relationship with the buyer in the last decade andtheir communication channels are very good ðscore ¼ 3Þ: The company is ISO 9000certified. The quality of its products fulfills the buyer’s expectations and shipmentsgenerally arrive on time ðscore ¼ 4Þ: Its total order lead time is shorter than itscompetitors ðscore ¼ 4Þ:
In terms of flexibility, supplier A exhibits an acceptable capacity. But apparently, ithas reached its production limits ðscore ¼ 3Þ and needs to upgrade its technology totake its capacity to the next level. Inventory levels have been decreasing during the lastfew years as supplier A put a lot of efforts on the implementation of a just-in-timesystem ðscore ¼ 2Þ: Even though there is a long existing relationship between bothparties, problems with Mexican currency revaluation has made the negotiations of newcontracts difficult. The buyer’s perception of this supplier’s negotiability has changedfrom Very High to Acceptable in the last three years ðscore ¼ 2Þ: Supplier A offers ahigh level of information sharing and its improvement in technology satisfies buyer’sexpectations ðscore ¼ 3Þ: However, there is a high level of specialization in all ofsupplier A’s production processes in which affects its flexibility to make changes inproduct characteristics ðscore ¼ 1Þ:
Another negative side for supplier A, the increasing labor cost and a revaluation ofthe Mexican currency in recent years have decreased the competitiveness of thissupplier in terms of selling prices and internal costs ðscore ¼ 2Þ: In the same way, theMexican currency exchange situation is not favorable to the US buyers ðscore ¼ 2Þ:But its ordering and invoicing processes are within the customer’s expectationsðscore ¼ 4Þ:
Supplier BSupplier B, a South American company, is located relatively close to the USA ðscore ¼3Þ: The shipping time has been decreasing in recent years due to improvement of thedistribution and warehousing infrastructure in the company. The total lead time hasbeen reduced to levels just slightly above the Mexican supplier ðscore ¼ 3Þ: Supplier Bis located in the Andean region, which is beneficiated by the Andean Trade PreferenceAct (ATPA, 1991, 1999). Under this trade agreement, supplier B can ship textile andapparel products into the USA duty-free ðscore ¼ 1Þ:
Supplier B has determined to increase its participation in the US supply chain. Eventhough its capacity can only be classified as Acceptable, there are expansion projectsfor the near future ðscore ¼ 2Þ: This supplier is willing to maintain high inventorylevels for the next three years in order to ensure the product’s availability ðscore ¼ 4Þto its customers. In this way, the supplier’s negotiability can be classified as Very Highðscore ¼ 4Þ: In terms of product characteristics, its quality meets the buyer’s
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expectations. The buyer knows that supplier B has a continuous improvementprogram to be implemented in the next three years, but this supplier only hasoccasional continuous improvement activities right now ðscore ¼ 2Þ: The percentageof on-time deliveries for this supplier is in the 90 percent range at this time ðscore ¼ 3Þ:The buyer considers this supplier’s customer service Good, although the company justuse this supplier recently, which makes it difficult to determine the supplier’s realperformance in the long run ðscore ¼ 3Þ:
Prices offered by this supplier are lower than those offered by the Mexican supplier,but are still higher than the prices offered by the Chinese supplier ðscore ¼ 2Þ: Also,supplier B is capable of assuming the entire manufacturing processes, thus reducingthe supplier’s internal cost to low levels ðscore ¼ 2Þ: In contrast, its performance onordering and invoicing processes is below the buyer’s expectation ðscore ¼ 2Þ: Thesupplier offers to take full responsibility for non-conformities at this time ðscore ¼ 4Þ:The currency exchange rate is considered to be favorable to the buyer, but not quite asfavorable as the Chinese supplier’s condition ðscore ¼ 3Þ:
One negative aspect for supplier B is the concern about political stability of thecountry ðscore ¼ 1Þ: This supplier has little experience in dealing with US-basedcompanies. Another weak point is its limited capacity to produce large quantities ofproducts ðscore ¼ 2Þ: Communication channels are currently being established and bigefforts have been made to improve supplier’s obsolete information systems ðscore ¼1Þ: Supplier B does not have an ISO 9000 certification or other certifications that maydetermine its reliability ðscore ¼ 2Þ:
Supplier CSupplier C is located in China. Its strength is based on its cheap product prices, whichcurrently exceeds the buyer’s expectation ðscore ¼ 1Þ: This supplier is capable oftaking over the whole manufacturing processes. The buyer’s internal cost wouldbecome very low if this supplier is selected ðscore ¼ 1Þ: Supplier C’s ordering andinvoicing process is currently rated as Fair, but is expected to improve after China’saccess to the WTO ðscore ¼ 3Þ: The quality of products meets the buyer’s expectationsfairly, but its percentage of on-time deliveries is below expectations ðscore ¼ 2Þ:Additionally, this supplier exhibits insufficient control of its shipping process ðscore ¼1Þ: Its continuous improvement process has been enhanced by the large investments inmachinery and information systems and can be classified as High ðscore ¼ 4Þ:
Since China’s textile industry is backed by a well established government, there areno concerns about potential disruptions in the supply chain activities caused byexternal factors ðscore ¼ 4Þ: The country’s foreign exchange policy is very favorable tothe buyer ðscore ¼ 4Þ: The supplier’s capacity is above the buyer’s expectations and itsflexibility to manufacture products with special characteristics is Good ðscore ¼ 4Þ:Supplier C is also willing to maintain buyer desired inventory levels to satisfy therequirements, a reason to gain a high negotiability rating from the buyer’s point ofview ðscore ¼ 4Þ: However, supplier C has expressed its interest in conducting agradual reduction in inventory levels in the next three years.
On the contrary to the previous advantages, supplier C presents a hugedisadvantage in freight terms, geographic location and total order lead time whencompared those to the other two suppliers ðscore ¼ 1Þ: Its lead times are significantlyless competitive than those presented by suppliers A and B ðscore ¼ 2Þ: Its use of EDI
Evaluation andselection of
suppliers
517
technologies is still deficient ðscore ¼ 2Þ: There are reliability concerns regarding itsshipping process which often had in-transit delays. For this reason, the feeling of trusthas been affected and is classified as Moderate ðscore ¼ 2Þ:
Supplier C is not ISO 9000 certified, but it possesses a supplier certification from aUS retail chain ðscore ¼ 2Þ: Its level of customer service is still low and, at this moment,is just at an acceptable level ðscore ¼ 2Þ: Lastly, quota restrictions for Chinesetextile/apparel products exporting to the US may eventually cause difficulties in theflow of goods when the order volumes significantly increase. At this moment, traderestrictions between China and the USA are considered Moderate ðscore ¼ 2Þ:
The buyer’s needsThe following descriptions depict the buyer’s situation and needs. The buyer in atextile/apparel company located in the USA is currently under market pressure toreduce costs and is looking for a supplier that can assume the entire manufacturingprocesses and provide competitive prices. The company’s other priority is to reduce itscurrent inventory level, a good reason to prefer suppliers that can provide frequentsmall quantity shipments or vendor managed inventory service. However, the buyerwants to make sure that the selected supplier has safety stocks at the levels that canguarantee products’ availability whenever the company needs them. For this reason,the buyer emphasizes the importance of fast and reliable deliveries that can serve itsjust-in-time system. The buyer is also looking for suppliers that can obtain a long-termand stable partnership with effective communication channels. So it is important thatthe suppliers have a good EDI system that can improve the normal flow of goods andthe decision-making process at different points in the supply chain.
The evaluation and analysis of resultsTable II presents the evaluation of suppliers A, B and C according to the buyer’srequirements. The evaluation result of this case, presented in Table II, shows thatsupplier C with a total supplier score of 0.448 should be selected over suppliers A (witha total supplier score of 0.347) and B (with a total supplier score of 0.436). However, thisresult displays a very small difference in the total supply scores between suppliers Band C. Supplier C has capitalized its advantage by offering the lowest product pricesand a good performance in continuous improvement. As mentioned before, thiscontinuous improvement is measured by the capital investments made by the supplierin recent years to improve both manufacturing and information technologies. In thelong run, it will result in more cost reductions, which ultimately is one of the buyer’smain goals.
Supplier B has increased its competitiveness through improvements in the logisticsinfrastructure and the quality of its products. It also offers better-cost options andbetter currency polices. In cases like this, in which two suppliers have nearly the sameperformance, the buyer must use his/her experience to make the right decision.Decision may be either choosing supplier C or adopting a shared production approachby using both suppliers B and C to reduce the impact of potential disruptions thatmight occur in the supply chain operations.
If the cost cluster is significantly critical than other clusters’ effects, the buyer maywant to dramatically increase the weight for the cost cluster. Assume that a companyneeds to cut its product prices drastically to compete with its competitors in the
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518
Clu
ster
Wei
gh
tF
acto
rsW
eig
ht
DV
Su
pp
lier
AS
core
Su
pp
lier
BS
core
Su
pp
lier
CS
core
Del
iver
y0.
22G
eog
rap
hic
loca
tion
0.3
34
1.33
33
1.00
01
0.33
3
Fre
igh
tte
rms
0.15
34
1.33
34
1.33
31
0.33
3T
rad
ere
stic
tion
s0.
22
10.
500
10.
500
21.
000
Tot
alor
der
lead
tim
e0.
354
30.
750
30.
750
20.
500
Del
iver
yin
dex
¼C
D½ðK
gl*V
glÞþ
ðKft
*VftÞ2
ðKtr
*VtrÞþ
ðKlt*V
lt�
0.16
80.
146
0.02
8F
lex
ibil
ity
0.17
Cap
acit
y0.
22
31.
500
21.
000
31.
500
Inv
ento
ryav
aila
ble
0.25
42
0.50
04
1.00
04
1.00
0In
form
atio
nsh
arin
g0.
253
31.
000
10.
333
20.
667
Neg
otia
bil
ity
0.18
31
0.33
34
1.33
34
1.33
3C
ust
omiz
atio
n0.
122
10.
500
42.
000
42.
000
Fle
xib
ilit
yin
dex
¼C
F½ðK
c*VCÞþ
ðKiv
*VivÞ2
ðKis
*VisÞþðK
lt*V
lt�
0.13
50.
172
0.20
3C
ost
0.25
Su
pp
lier
’sse
llin
gp
rice
0.4
24
2.00
02
1.00
01
0.50
0
Inte
rnal
cost
0.4
23
1.50
02
1.00
01
0.50
0O
rder
ing
and
inv
oice
0.2
44
1.00
02
0.50
03
0.75
0
(continued
)
Table II.Illustration of the
decision matrix for thecase study
Evaluation andselection of
suppliers
519
Clu
ster
Wei
gh
tF
acto
rsW
eig
ht
DV
Su
pp
lier
AS
core
Su
pp
lier
BS
core
Su
pp
lier
CS
core
Cos
tin
dex
¼C
C½ðK
sp*V
spÞþ
ðKip
*VipÞ2
ðKoi
*Voi�
(0.300)
(0.175)
(0.063)
Qu
alit
y0.
22C
onti
nu
ous
imp
rov
emen
t0.
13
31.
000
20.
667
41.
3333
3
Cu
stom
erse
rvic
e0.
253
31.
000
31.
000
20.
6666
7
Cer
tifi
cati
ons
per
cen
tag
eof
on-t
ime
0.3
33
1.00
02
0.66
72
0.66
7
Sh
ipm
ents
0.35
44
1.00
03
0.75
02
0.50
0Q
ual
ity
Ind
ex¼
CQ½ð
Cip
*VipÞþ
ðCcs
*VcsÞþ
ðCct
*VctÞþðK
ot*V
ot�
0.22
00.
193
0.14
9
Rel
iab
ilit
y0.
14F
eeli
ng
oftr
ust
0.3
33
1.00
02
0.66
72
0.66
7C
oun
try
’sp
olit
ical
situ
atio
n0.
253
41.
333
10.
333
41.
333
Cu
rren
cyex
chan
ge
situ
atio
n0.
34
20.
500
30.
750
41.
000
War
ran
typ
olic
ies
0.15
32
0.66
74
1.33
32
0.66
7R
elia
bil
ity
Ind
ex¼
CR½ðK
t*V
tÞþ
ðKce
*VceÞþ
ðKtr
*VtrÞþðK
wp*V
wp�
0.12
40.
099
0.66
7T
otal
sup
pli
ersc
ore
0.34
70.
436
0.44
8
Notes:
DV¼
des
ired
val
ue
Table II.
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520
market. Buyers in the company have to reevaluate their suppliers with more emphasison the product cost and its associated costs. In this reevaluation process, they changedthe weight of cost cluster from 0.25 to 0.50. In the mean time, the weights for all theother clusters have been adjusted to the following values: CD ¼ 0:15; CF ¼ 0:10;CQ ¼ 0:15; and CR ¼ 0:10: The buyer can obtain the new total supplier scores byreplacing these cluster weights into Table II’s second column. With these changes, thebuyer has the new total supplier scores of 20.168, 0.053, and 0.208 for suppliers A, B,and C, respectively. In this case, supplier C is the sole preferred supplier that issignificantly better than suppliers A and B. This example shows the flexibility of thisevaluation model that can provides buyers an easy way to make adjustment accordingto the current market condition or company needs.
The advantages of the modelThis supplier evaluation method offers three major advantages over the other methodsbeing used currently in the supplier selection processes. Its first advantage is itshierarchical approach that covers the decision structure containing major issues indelivery, flexibility, cost, quality and reliability. The model’s structure is a top-downstructure and begins with a general scenario. The structure can be depictedsystematically according to the company needs until a certain level of depth is reached.
The second advantage is its flexibility in adopting changes in businesscircumstances. For example, for the products that have volatile demands, a buyercan allocate more weight to flexibility and delivery clusters. In the same way, a buyermay adjust the weights for downstream factors based on their importance to thecompany over the overall evaluation process. Also, this buyer can add or remove somefactors to get the evaluation deeper into suppliers’ operations or simple when thesuppliers have similar environment. The key is to use the decision maker’s knowledgeand experience on the potential suppliers and on the supply chain’s operations toadjust the level of evaluation to generate the most useful results.
The third advantage of this evaluation model is its simplicity with no complexequations in the model. This model aims to provide an easy to use supplier evaluationand selection procedure, at the same time, offer very useful results without excessivedata gathering or analysis. Buyers who use this model can combine their knowledge ofthe potential suppliers into some critical factors in evaluating these potential suppliers.The assessment of suppliers includes not only the selling prices of the products butalso all the supply chain related activities which reflect the real cost of the purchasedgoods.
ConclusionTextile/apparel companies are facing steep competition in the global market. Theyhave to make right decisions at different stages of supply chain operations andencounter issues at the strategic level, the tactical level and the operational level ofdecision-making processes. Supplier selection is no longer just the issue of obtaininglow product prices. It deals with the costs in all the related supply chain activities. Aneasy to use supplier evaluation model that covers SCM issues can offer buyers greatbenefits in searching for new suppliers and evaluating current available suppliers.This research provided a model that is comprehensive and flexible enough to resolveone of the major strategic decision issues, to have an effective sourcing operation.
Evaluation andselection of
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521
The case presented here addressed the most relevant issues in the textile/apparelindustry in searching for suppliers. The results obtained from the decision matrix tabledemonstrated why suppliers in Asian countries and suppliers in South America areincreasing their participation in the US supply chain. Indeed, more aggressivecompetition will come from global suppliers, especially from China, after year 2005when the quota system is terminated and sourcing activities will be a decisive factorfor maintaining or increasing market shares. Decision makers in the industry may findthat this model is suitable for not only the current circumstances, but future marketscenarios as well. All the factors and clusters considered in this model gather the mostimportant issues that must be addressed for effective sourcing and partnercollaboration in the supply chain for this industry. With the use of this model,sourcing and supplier evaluation and selection will be much easier and effective forbuyers in textile and apparel industry.
The issues raised in this research pointed out that pricing is not a sole factor insupplier selection and evaluation. The use of decision matrix should be a part ofsupplier selection process. Further research should point to the influence of globaltrade relationships among countries, how political influences affect supply chainoperations and supplier performance, and how suppliers reacting to port congestions tosatisfy customer delivery deadlines. Adding these issues to the weighting scheme inthe decision matrix will enhance the application of this supplier evaluation andselection model and improve SCM process.
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(S. Gary Teng is the Director of Engineering Management Program and Center for LeanLogistics and Engineered Systems at the University of North Carolina at Charlotte. He holds BE,MS, and PhD degrees in Industrial Engineering. Dr Teng holds a PE license in the State ofWisconsin and is an ASQ-certified Quality Engineer and Reliability Engineer. His researchinterests are in engineering system design, analysis and management, SCM, and quality andreliability engineering.
Hector Jaramillo completed his graduate study in the Engineering Management Program atthe University of North Carolina at Charlotte. His research focuses on SCM. He holds a BS degreein Mechanical Engineering from Universidad de los Andes, Colombia and an MS in EngineeringManagement from the University of North Carolina at Charlotte. Before beginning his graduatestudy, he worked as an operations engineer in logistics for two years. He is currently working atJacobsen in Charlotte as a Value Engineer in the Supplier Development Team.)
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