Strategic Supplier Selection: The Trend of E-Manufacturing

TAMPERE UNIVERSITY OF TECHNOLOGY

Tampere School of Business and Technology

STRATEGIC SUPPLIER SELECTION: The Trend of E-Manufacturing

Seminar Report

Onur Tamur

Aznar Eduardo Moncayo Pinzon

Georgios Karakonstantis

Tamur, O. Moncayo, A. Karakonstantis, G.

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ABSTRACT

During the past few decades, globalization did not only affect the lifestyle of

human beings, but also the work processes in the business world. The markets grew

dramatically and new business opportunities appeared, raising the need of different

approaches in the procurement processes. The buyer-supplier relations have always

been a critical task for the success of a business. Now, more than ever before, this

task becomes very complicated in some cases. Multi-criteria approaches are needed

in order to have rational and profitable results.

This paper gives an insight of different theories that can be applied in order to

achieve a rational supplier evaluation and selection. Such theories, in combination

with an extensive analysis of the possible alternatives that a company may have,

can lead to high revenues and significant advantage over competitors. In this case,

the reader can acquire a basic understanding of the different criteria, methods and

models, which are used by the businesses during the supplier evaluation and

selection process.

Moreover, the paper identifies critical changes in the sector of e-manufacturing,

regarding the decision-making of the top management while selecting the

appropriate supplier. Emphasis is given to the technological changes that create

new opportunities and consequently new criteria for the vendors‟ evaluation by

comparing the existing criteria that have been used in traditional manufacturing and

the affect of the e-manufacturing trend on the existing criteria.


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PREFACE

Global business operations have become a very important part of the business

environment nowadays. One of the most interesting aspects of the global business

operations is the supplier evaluation and selection. As all the members of our group

are pursuing an International Master‟s program in TUT, related to sourcing, we felt

motivated to study, identify and analyze the field of supplier selection, emphasizing

on e-manufacturing that lately evolves very fast. More specifically, in this paper we

illustrate and analyze the buyer-supplier relations, the supplier evaluation and

selection criteria, processes, methods and models, and finally we attempt to apply

the acquired knowledge to the sector of e-manufacturing. It has not been an easy

task to conduct this report, and thus we would like to thank the assistant of the

course LIKU-8306 Logistics strategies and outsourcing, Ms. Erika Kallionpää for

her help and guidance during this process.

The group,

Aznar Moncayo

Georgios Karakonstantis

Onur Tamur

Tampere, April 2011


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TABLE OF CONTENTS

ABSTRACT ______________________________________________________ ii

PREFACE _______________________________________________________ iii

1 INTRODUCTION ____________________________________________ 1

1.1 Background __________________________________________________ 1

1.2 Objective of the Paper __________________________________________ 1

2 MANUFACTURER – SUPPLIER RELATIONS IN B2B ____________ 3

2.1 The Challenges of B2B Markets __________________________________ 3

2.2 The Dynamics of Buyer – Supplier Relations _______________________ 4

2.3 Long Term Relations in B2B Environment _________________________ 4

3 STRATEGIC SUPPLIER SELECTION __________________________ 7

3.1 Supplier Evaluation and Selection Criteria _________________________ 7

3.2 The Process ___________________________________________________ 9

3.3 Supplier Evaluation and Selection Methods _______________________ 10

4 SUPPLIER SELECTION IN E-MANUFACTURING ______________ 13

4.1 What Is E-Manufacturing? _____________________________________ 13

4.2 Why E-Manufacturing? _______________________________________ 15

4.3 Evolution of Supplier Selection in E-Manufacturing ________________ 16

5 CONCLUSION ______________________________________________ 19

REFERENCES __________________________________________________ 20


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1 INTRODUCTION

1.1 BACKGROUND

According to Lee and Carter (2005), globalization is an inevitable and irreversible

process fundamental to the future of world economic development. The growing

integration of national economies around the world will lead to rapid economic

growth and poverty reduction in developed and developing countries. However

there are also some arguments supporting that globalization exacerbates poverty

and inequality between rich and poor, cultural convergence and spread of deadly

diseases (Lee and Carter 2005).

Whether it is good or not, it is a fact that globalization led to structural changes of

business operations. Successful business operations provide significant profits and

benefits to companies. Though, the modern business environment demands

complex operations that sometimes are difficult to manage. Daskalakis (2010)

argues that one of the most important operations for modern businesses is the

procurement, and consequently the supplier evaluation and selection process. The

decision-making related to the supplier selection results directly to the total

operation costs, final costs and quality of the goods, and finally to the

competitiveness of the company. Thus, managers have to take into account many

factors in order to proceed to a reliable decision. Qualitative and quantitative

criteria contribute to the final decision and since the 60‟s many studies have been

conducted in order to create methods that can help managers to select the best

alternative.

As every aspect is very dynamic in business, supplier selection methods are also

affected by the changes in environment. After e-manufacturing concept started to

gain popularity and be used by many large organizations, companies tried to find

alternative ways to optimize their supplier selection criteria to be able to get better

results in long-term. E-Manufacturing is still an evolving process and changing

rapidly with the technological improvements in IT sector. Thus, it is hard to deduce

what is right or wrong in the supplier selection process and how it matches with the

current situation but it is possible to analyze the trends and optimize the selections

in the same way.

1.2 OBJECTIVE OF THE PAPER

After the rise of e-manufacturing, the supplier selection criteria started to evolve

accordingly. Companies started to search for alternative ways to evaluate their


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suppliers according to their manufacturing structure that they follow in their

business. The objective of the paper is to...

...highlight the importance of selecting a good supplier for business

continuity and how e-manufacturing trend affected the supplier selection in

current business environment.

The paper consists of five chapters. First, the background information about

globalization and supplier selection with a short explanation about the e-

manufacturing trend and its impact on supplier selection will be defined. Second,

the challenges of B2B markets, the importance of buyer-supplier relations and how

the relations affect the business and the long term relations between peers and its

impact on negotiations will be examined. Then, supplier selection criteria and

methods will be introduced and compared. Next, e-manufacturing trend and the

evolution of supplier selection related to the e-manufacturing trend will be

highlighted. Finally, key results and the conclusion will be stated.


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2 MANUFACTURER – SUPPLIER RELATIONS IN B2B

2.1 THE CHALLENGES OF B2B MARKETS

The intention to make profit is the most important characteristic when buying

products in B2B markets (Lyly-Yrjänäinen et al. 2010). Thus, purchasing process is

much formal and takes longer time because of long price negotiations. Many

companies tend to build long-term relationship to be able to derive their demand

when needed. This long term relationship results in close personal relationships

which are difficult for competitors to break (Lyly-Yrjänäinen et al. 2010).

According to Calhoun et al. (2007), segmentation is far more challenging in B2B

than in consumer markets. Sales cycles are long, and offerings are complex.

Moreover, many customers care less about initial product costs and more about the

total costs of ownership, including service, maintenance, upgrades, and other

factors. Competitors‟ offerings and strategies shift so quickly that managers cannot

reliably compare the impact of changes in a given marketing lever over more than

one quarter of business. In addition, customer relationship management systems

cannot easily capture the decisions and actions that led to success or failure with

any particular account, because such information is largely anecdotal, not

quantitative (Calhoun et al. 2007).

Matthyssens et al. (2008) has examined the challenges in B2B marketing in terms

of globalization. First challenge is delocalization of the customers. As

multinational companies are moving their production and assembly units to low-

labour cost countries, industrial suppliers and subcontractors see their home market

shrinking. Secondly, purchasing function is globalizing as the purchasers from

multinational companies seek global purchasing synergies (Quintens et al. 2006).

Next, the importance of global networks is increasing. Lastly, the fourth challenge

faced by B2B companies is the transition to electronic forms of exchange. E-

internationalization is still challenging for companies because they may lose their

intellectual property on the web and B2B relationships are more difficult to manage

in the electronic highway (Samiee 2008).

Despite the above-mentioned challenges, more and more B2B companies expand

their operations internationally since international activities are fundamental to

their performance (Katsiekas 2006).


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2.2 THE DYNAMICS OF BUYER – SUPPLIER RELATIONS

It is important to understand the buyer-supplier relations in B2B environment to be

able to understand about B2B pricing where the prices are highly interrelated with

the costs of the supplied materials. According to Johnson and Tellis (2008),

manufacturer price reduction pressure on suppliers is an important contributor to

helping a manufacturer maintain a strong competitive position by keeping costs

low. However, manufacturer price reduction pressure and trusting working

relations with the pressured suppliers, are not mutually exclusive, they can co-exist

(Johnson and Tellis 2008).

According to Das and Teng (1998), there are three critical elements that comprise a

successful co-operative relationship between manufacturers and suppliers:

Trust

Communication and information sharing

Commitment

First, trust is an essential component of most business-to-business relationship

models. Thus, the greater the manufacturer price reduction pressure on suppliers, the

lower will be the pressured suppliers‟ trust of the manufacturer (Johnson and Tellis

2008). Second, communication and information sharing is an important concept

where each party can set the priorities and co-ordinate the activities necessary to

achieve each other‟s objectives (Mohr et al. 1996). Thus, The greater the

manufacturer price reduction pressure on suppliers, the less likely will the

pressured suppliers perceive their manufacturer customers are communicating

timely and adequate information to them in an open and honest manner (Johnson

and Tellis 2008). Third, commitment to the relationship by each partner is

necessary if the relationship is to work and each party is to realize positive

outcomes (Anderson and Narus 1990). Thus, the greater the manufacturer price

reduction pressure on suppliers, the less likely will the pressured suppliers perceive

the manufacturer is acting in a manner that reinforces their commitment to their

suppliers (Johnson and Tellis 2008).

2.3 LONG TERM RELATIONS IN B2B ENVIRONMENT

The customer-supplier relationship has different levels of closeness according to

the number of transactions and longevity of the relationship. Figure 1 shows

different kinds of partnerships in the B2B context, separated by their duration. The

range of marketing relationships has been adapted from Webster, 1992.


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Figure 1. Customer relationships in B2B markets

Additionally, Goffin et al. categorize long term relationships into three different

types: short term partnerships, long term partnerships and long term relationships

with no end. The definition of each marketing relationship mentioned is presented

in Table 1.

Table 1. Customer Relationships

Marketing Relationship Definition

Transactions

Considered an arm‟s length relationship. The

required information is available in the price and the

only thing necessary for the company is to find

buyers.

Repeated Transactions

Still an arm‟s length relationship. In industrial

markets it is important to develop trust and credibility

as part of the marketing strategy.

Long term relationships

Long term relationships begin by short term

partnerships and can develop up to long term

relationships with no end. Usually vendors and

buyers are no longer in an arm‟s length relationship,

but it takes some time for them to adjust to the new

relationship.

Buyer-seller partnerships

These partnerships are based on the concept of

reciprocity. There is a total interdependence between

buyer and seller, which are committed to their long-

term relationship. Usually provides an outcome of

stability.

Strategic alliances (Joint ventures)

Strategic alliances and joint ventures are categorized

in the same manner since they serve a similar

purpose. In strategic alliances, both partners

collaborate and give capital and resources to enhance

their competitive place in the market. On the other

hand, joint ventures are started by the partners with

the objective of having one entity.

Network organizations

The network develops and manages alliances,

relationships with customers, core competence and

strategy and coordinates the financial resources.

Composed of multiple strategic alliances.

Vertical integration Either supplier or customer owns the other part.


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Among the previously mentioned customer relationships it is possible to find the

long term relationships. When shifting from single transactions to long term

relationships, the highest level that can be achieved is a partnership-like

relationship, which brings advantages like better quality, lower costs and accurate

delivery but at the same time demands resources and commitment from both parts.

Trust is also a necessary condition for the development of any long term oriented

business relationships (Ryu et al., 2007).

Long term customer relationships tend to provide more value to the company, since

they can focus on those customers that will provide more profit and opportunities,

and at the same time, to the customer, since the company will be taking care of

providing services and support in order to guarantee the customer‟s satisfaction.

The closeness in long term customer relationships is related to geographical,

technological, cultural and social factors, as well as the current length of the

relationship. (Goffin et al., 2006) Furthermore, in some technological markets, the

customer is required to adjust to the provider‟s technological platform therefore

creates a high level of commitment between the customer and the provider. Since

these contracts are usually very expensive, this creates a long-term relationship by

default.

Long term customer relationships are relevant for suppliers in two main cases:

when buyers have other product alternatives (highly competitive ambiance) and

when buyers constantly or periodically require a service or product. Under the

same conditions, buyers obtain benefits such as better prices than the other

alternatives in the market and priority sourcing in cases where there is a low

availability of a good or service. (Berry 1983) The development of long term

customer relationships is good when it is mutually beneficial, therefore, both

supplier and buyer must benefit from the development of the relationship.


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3 STRATEGIC SUPPLIER SELECTION

3.1 SUPPLIER EVALUATION AND SELECTION CRITERIA

Suppliers are a very important part of businesses nowadays. Their importance lies

on the fact that the right evaluation and selection of a supplier can generate

significant profits and ensure the efficiency of business processes. Some suppliers

are able to approach their potential customers, but most of the times the companies

have to search, find, evaluate and select their suppliers. This process usually

follows the paths of professional fairs, B2B magazines and other companies.

The process of evaluation and selection of suppliers is very complex. Thus, many

studies have been conducted since the 60‟s in order to identify a pattern that can

propose the best possible solution. As a result, nowadays businesses use different

methods that are based on some specific criteria. Though, according to

Papagiannakis (2009) the number of those criteria makes the evaluation and

selection system unwieldy regarding its content and time consuming regarding its

management.

Thus, more recent studies addressed their focus on minimizing and mixing those

criteria, without affecting the quality of the evaluation process. Dickson (1966)

argues that there are 23 criteria that businesses should take into account when

selecting a vendor. Table 2 shows the findings of Dickson‟s study, including the

importance and main rating for each of them.

Table 2. Supplier Partnership Selection Criteria (Ellram 1990)

Rank Criteria Main Rating Evaluation

1 Quality 3,508

Extreme Importance 2 Delivery 3,417

3 Performance History 2,998

4 Warranties & Claims Policies 2,849

5 Production Facilities & Capacity 2,775

Considerable

Importance

6 Price 2,758

7 Technical Capability 2,545

8 Financial Position 2,514

9 Procedural Compliance 2,488

10 Communication System 2,426

11 Reputation & Position 2,412


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12 Desire for Business 2,256

13 Management & Organization 2,216

14 Operating controls 2,211

15 Repair Service 2,187

Average Importance

16 Attitude 2,120

17 Impression 2,054

18 Packaging Capability 2,009

19 Labor Relations Record 2,003

20 Geographical Location 1,872

21 Amount of Past Business 1,597

22 Training Aids 1,537

23 Reciprocal Arrangements 0,610 Slight Importance

Although Dickson‟s study was very useful for few decades, the industries emerged

and created a need for different approach. Some criteria became more important

than they were before. Ellram (1990) presented her own framework, in which she

included 12 criteria. Table 3 shows Ellram‟s findings.

Table 3. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).

Rank Supplier Partnership Selection Criteria

1 Economic Performance

2 Financial Stability

3 Trust

4 Management Attitude

5 Strategic Fit

6 Top Management

7 Compatibility

8 Organizational Structure

9 Manufacturing Current and Future

Capabilities

10 Design Capabilities

11 Development Speed

12 Safety Record

Ellram did not ignore the importance of Dickson‟s quality criteria, but she focused

on finding complementary criteria that would support the supplier-buyer long-term

relationships.


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There is not a general rule to evaluate an approach as right or wrong. Thus, some of

the criteria might be applicable in a specific case and some not. The importance of

the studies lies on the fact that those criteria help and support the supplier

evaluation process, which is analyzed next.

3.2 THE PROCESS

According to Papagiannakis (2009), there is not an absolute best way to evaluate

and select suppliers. Every case is different and most of the times it is required a

combination of different approaches to achieve the best solution. The objective of

this process is to minimize risks and maximize the perceived value for the buyer.

Long-term relationships usually help businesses to achieve this objective.

Supplier evaluation methods usually follow a strict, structured approach through

the use of research methods. A supplier selection research, in order to be

successful, has to be complete, objective, reliable, flexible and finally

mathematically simple. Hence, businesses have to follow specific steps to ensure

that their supplier selection research will be successful.

According to Monczka et al. (2002), a supplier evaluation and selection process

should include seven steps, as the following figure illustrates:

Figure 2. Supplier Evaluation and Selection Process (Monczka et al. 2002)


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The framework of Monczka et al. includes more parameters in every of the seven

steps. Though, this paper will avoid to explore deeper the framework, so that it can

introduce some interesting supplier selection methods in the subchapter 3.3.

3.3 SUPPLIER EVALUATION AND SELECTION METHODS

According to Daskalakis (2010), each method covers some aspects of the suppliers‟

characteristics that are under investigation. Consequently there is no method that

can replace some other. Of course in some cases a method can include

characteristics of many other methods, but it is not possible to cover all the

characteristics of a candidate supplier.

Talluri and Narasimhan (2002) identified three basic methodologies to approach

the problem of supplier evaluation and selection. First, the conceptual approaches

that emphasize the strategic importance and influence of the supplier selection to

the buying process. Price, quality and delivery regulations are very important parts

of the conceptual approaches. Second, the empirical approaches, such as the one of

Chao and Hartley (1996) for the automotive industry, which proposed that there are

only slight differences regarding the importance of the selection criteria, between

the different levels of the buyer‟s supply chain. Finally, the most widespread

approach lies on the use of models to solve the supplier evaluation and selection

problem. These methodologies are greatly used nowadays, and hence some of them

are presented in Table 4.

Table 4. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).

Models Researchers

Linear Weighting Models Timmerman (1986), Monczka & Trecha (1988)

Statistical Model (Principal

Components Analysis) Petroni & Braglia (2000)

Analytic Hierarchic Processes Barbarosoglu & Yazgac (1997), Bhutta & Huq

(2002), Narasimhan (1983), Nydick & Hill (1992)

Total Cost Models Ellram (1993), Degraeve et al. (2000), Bhutta &

Huq (2002),

Economic Model Tagaras & Lee (1996)

Data Envelopment Analysis Weber et al. (1998), Narasimhan et al. (2001),

Talluri (2003)

Multi-objective Programming Dahel (2003), Karpak et al. (1999), Weber &

Ellram (1993)

Game Model Zhu (2004), Talluri (2002)

Fuzzy Theory Kwong (2002), Kuma et al. (2004), Lau et al.

(2002)

Dimensional Analysis Li et al. (1997), Willis (1993)


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MACBETH Models Bana e Costa & Vansnick (2008)

Some of the methodologies are able to improve significantly the decision-making,

and thus it is important to mention the models that are greatly in use. As

Papagiannakis (2009) identifies, the most important are:

Linear Weighting Models:

o Categorical Method (Timmerman, 1986)

o Weighted Method (Timmerman, 1986)

Total Cost Models:

o Total Cost of Ownership (Ellram, 2005)

o Cost Ratio (Timmerman, 1986)

Principal Components Analysis (Petroni & Braglia, 2000)

Analytic Hierarchic Processes (Nydick & Hill, 1992)

MACBETH Models (Bana e Costa & Vansnick, 2008)

In the Linear Weighting Models the evaluation is based on a pointing system

according to various criteria. The final points indicate the most suitable supplier.

The Total Cost Models are cost oriented and focus on financial aspects. On the

other hand, the AHP Models are based on a framework that prioritizes the

alternative choices and includes intuitive, logical, qualitative and quantitative

factors. Finally, the MACBETH Models attempt to improve the method of the AHP

models. The comparison of the models is shown in Table 5.

Table 5. Advantages and disadvantages of supplier selection methods (Papagiannakis 2009)

Methods Advantages Disadvantages

Categorical

Clear and systematic

evaluation

Cheap implementation

The same weight for all

the criteria

Subjective pointing

system

Not very reliable

Weighted Point Different weight for

criteria respectively to

their importance

Subjective pointing

system

Difficult to take into

account qualitative

criteria

Cost Ratio

Flexibility

Decreases the

subjectivity

Complexity

Total Cost of Ownership Cost reduction Complexity

Principal Component

Analysis

Reliable

Manages the

characteristics without

weights

Knowledge of advanced

statistical methods is

required


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Analytic Hierarchical

Process (AHP)

Simple

Quantitative as well as

qualitative criteria

Unstable

MACBETH Improvement of AHP Use of software is

required

As seen in the table above, the linear weighting models are easy to implement and

simple to use. They are not very expensive but they are not very reliable as well.

On the contrary, the total cost models are flexible and very objective, but very

complex and difficult to implement. The principal components analysis is able to

manage multiple conflicting criteria. The AHP are simple to use and take into

account quantitative as well as qualitative criteria. Finally, the MACBETH is a new

method that improves the AHP.


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4 SUPPLIER SELECTION IN E-MANUFACTURING

4.1 WHAT IS E-MANUFACTURING?

E-Manufacturing term first introduced to business by a firm in semiconductor

industry to enable large production quantities in different locations in the world

(Sridhar CNV et al. 2010). With emerging applications of Internet and tether-free

communication technologies, companies are forced to change their traditional factory

integration philosophy to an e-factory philosophy where every step is controlled and

optimized by using an e-Manufacturing system (Koc et al. 2005). The main reasons

behind this shift are:

the threat posed by competitors

controlling costs

finding new opportunities

improving responsiveness

better customer focus and service

After the acceptance period in business, e-manufacturing started to get more

popular in the market. Many companies realized it is importance and the benefits it

provides in a short period of time. By using e-manufacturing systems, companies

started to fill the gaps existing in their traditional manufacturing systems. E-

Manufacturing enabled real time information sharing between the peers about

capabilities, costs and resources, synchronization with suppliers and vendors and

linkage with ERP systems in every step of the production. Moreover, it assured

reliability and maintainability and maximized the availability. As a result,

companies managed the increase their performance and decrease their costs at the

same time by benefiting from the power of e-manufacturing systems. The concept

of e-manufacturing is illustrated in figure 3.


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Figure 3. E-Manufacturing

According to Sridhar CNV et al. (2010), the benefits provided by a well

implemented e-manufacturing system are:

E-Manufacturing is to achieve predictive near-zero downtime performance

through the use of web-enabled technologies.

The real-time production information should be made available to the entire

organization.

E-Manufacturing gives agility to react quickly to the changes in market,

technology, and clients.

Total asset management that aims in improving the utilization of plant floor

assets using a holistic approach.

Sensitive communication between the clients and the server

Transparent, seamless, information exchange process between clients and

manufacturing firm.

It enables to meet the increasing demands through tightly coupled supply

chains.

Status of equipments, orders, products, changes in the processes across the

enterprise can be monitored.

There should not be any block holes in the real time flow of information,

including outsourcing suppliers, customers

The entire system is flexible enough to change with the varying market

demand conditions in a short lead-time.

The ability to quickly and accurately communicate technical information

throughout suppliers and manufacturers leads to pooling the best ideas and

faster decision-making.


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The benefits mentioned in the bullet list above provide endless opportunities to

companies against their competitors. The companies can optimize their inventories

and production capabilities by using just-in-time manufacturing and on-time

shipment so that they can control their costs and create a wider profit opportunity

for their organization. Now, e-manufacturing is seen as a core competency in which

companies can integrate all elements of their business in one solid framework.

4.2 WHY E-MANUFACTURING?

The main focus of a company for introducing an e-manufacturing strategy relies on

the competitive advantage it can gain. Specifically, manufacturers aim to improve

their efficiency in quality control, operations management and of resources, supply

chain management and visibility. By improving these aspects, companies will be

able to tailor their offerings of services and products to the requirements of the

customer, and will excel in performance. The following table shows the ongoing

problems in today‟s companies using the best manufacturing practices, and it also

shows the improvements with e-manufacturing.

Table 6. Comparison of traditional manufacturing and e-manufacturing.

Traditional Manufacturing E-Manufacturing

Parts with defects Less parts with defects

High downtime Low downtime

High energy use and cost Controlled energy use, reduced cost

Long changeover and ramp up time Shorter changeover and ramp up time

Long lead time for new product

realization

Short lead time for new product

realization

Slow decision making Fast decision making

Supply chain visibility Increased supply chain visibility

Among the important aspects of implementing e-manufacturing there are several

issues that are very important for a successful strategy. For example, having e-

manufacturing as part of the company‟s processes form an instant increase in the

exchange of all sort of information between the company and suppliers or

customers, specifically in the speed of the communication. This allows avoiding

problems at any kind of level with the customer, supplier, or anywhere along the

supply chain. Additionally, it is also important for companies that have outsourced

large parts of their operations, since it can communicate vital information in just

instants, therefore enhancing the decision making process. On a similar level, the

lead times for new product realization should be reduced to a minimum in order to

have the capability to react to the changing demand of different customers and

regions.


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There are seven main benefits achieved by implementing the e-manufacturing

strategy to a company or enterprise. (Shivanand et al. 2008) These are:

Synchronization of the production processes with the business processes

Improving and consolidating the upstream information, material and work

flow

Automation of business processes inside the company

Increasing manager control providing more plant information and new

analysis tools

Integration of the design process among different units or companies

collaborating

Leveraging the bi-directional downstream information

Enhancing and enabling the collaborative maintenance and support for

manufacturing

4.3 EVOLUTION OF SUPPLIER SELECTION IN E-MANUFACTURING

Many authors have identified several criteria for supplier selection as these criteria

are vital in supplier evaluation and selection process since it helps to measure the

performance of supplier. However, the researched criteria mainly focus on tradition

manufacturing concept and e-manufacturing trend was not taken into consideration

during these researches. Nowadays, it is believed that e-manufacturing

distinguishes itself from traditional manufacturing by its characteristics and

capabilities. Thus, selection criteria must vary (Sridhar CNV et al. 2010).

The idea behind traditional manufacturing is to have a high level throughput

produced with a minimum amount of inventory. Usually, the fact of having a low

amount of inventory brings savings in warehousing costs. In order to guarantee a

successful strategy, several criteria should be satisfied. Quality is one of the most

important criteria of traditional management. Traditional manufacturing aims to

provide a high quality product by inspecting each part after it has been

manufactured. In case there is a defect, the production line is stopped to detect the

problem before it becomes bigger. The quality of the raw materials is also

thoroughly inspected in order to achieve a better product. Delivery times in

manufacturing depend from the just in time concept applied to purchasing,

manufacturing and distribution. In each of these stages, the raw materials, products,

and output are expected at a certain moment in order to avoid storage costs within

the company. As a result of saving on warehousing costs, the company will then

focus on the price of the product and try to eliminate any unnecessary costs to

reduce the production costs, and be able to reduce the customer price; for a better

competition in the market. The reputation and position of the company are an

important part of manufacturing since they help create a brand name and establish a


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domain over the market. It is always important to maintain a manufacturing

position since it can provide benefits when competing for the market. Additionally,

before globalization and the increase in global communication means, geographic

location was important for manufacturing since communicating and sharing

information with a supplier or customer was easier if they were physically close.

Transport costs were also cheaper, therefore, companies had the tendency to hire or

work with close suppliers and customers. Also, the manufacturing capabilities were

of great importance, since companies used to work with huge amounts of stocks

and products, thus making it very important to have the resources to manage these

stocks. Without these, the company loses productivity and competitive advantage

against rivals.

Figure 4. Evolution of supplier selection criteria in e-manufacturing environment.

E-Manufacturing is a business strategy for companies to be able to stay competitive

in current business environment. The main focus of e-manufacturing is to integrate

of all the elements of a business including suppliers, customer service network,

manufacturing enterprise, and plant floor assets with connectivity and intelligence

brought by the web-enabled and tether-free technologies which gained momentum

in the last decade.


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As seen in Figure 4, e-manufacturing forms a new perspective in supplier selection

criteria. The most important selection criteria in e-manufacturing are quality,

delivery time, price, reputation & position, lead time management and IT &

Communication systems. When compared to traditional manufacturing criteria, it is

seen that manufacturing capabilities and geographical location lost their importance

in the scale. The reason behind this argument is that e-manufacturing improved the

information sharing and internal communications of the organizations so that they

can work with less stock and be braver to pursue international opportunities by

relying on their business network. These trends increased the importance of lead

time management and IT & Communication systems. Lead time management

became more important in supplier selection because the business environment is

very dynamic and reacting to emerging trends is a key success factor nowadays. IT

& Communication systems also increased their popularity in supplier selection

since it is very critical in e-manufacturing concept to be able to share information

fast and efficiently. However quality, delivery time, price and reputation & position

are still keeping their position to be an important decisive factor in supplier

evolution because they have direct effect in cost and performance management of

an organization.

Currently many companies are basing their operations on traditional

manufacturing. However, when the company is very large enough and has the need

to increase supply chain visibility, as well as communication with suppliers and

customers, it fulfils the criteria to implement e-manufacturing. By implementing

this manufacturing, it can expect a drastic reduction of warehousing costs,

communication expenses, avoiding the excess of inventory and increasing the

production speed. All of these settings provide an increase in the productivity, a

decrease in the production cost and reduction of the sales cost for the customer.

Therefore, the company will offer a better product at a better price and this will be

reflected in the profitability of the company.


19

5 CONCLUSION

Globalization trend has enabled new business opportunities for all companies

around the world. Many companies started to make business with suppliers from

abroad so that they can lower their costs and increase product quality. However,

this situation formed some challenges to companies as well in evaluating the best

supplier so that they can improve their performance. The supplier evaluation and

selection has always been one of the most important problems that companies need

to solve. The multi-criteria analysis methods can adapt to the needs of each

company and offer a reliable solution for this problem. Hence, these methods are

able to contribute significantly and improve the profitability of the buyer, if they

are used properly.

The objective of this paper was to highlight how efficient supplier selection can

provide business success and how the e-manufacturing trend affects the supplier

selection in current business environment. E-Manufacturing trend has plenty of

unique characteristics compared to traditional manufacturing so these aspects

should be taken into consideration before selecting a supplier to be able to get the

best performance and results.

Based on this research, this paper examines the concept of buyer-supplier relations

and how these relations affect the company‟s operations. Furthermore, the

evaluation and selection process has also become a very complex task for managers

in the modern business environment. Thus, the paper analyzes different criteria,

methods and models which are used in order to decide the most suitable supplier

for the company‟s operations. Multi-criteria methods are very popular and usually

provide the best results. Hence, they are also introduced and discussed in order to

acquire the basic knowledge regarding the supplier selection, so that the research

can proceed and analyze the case of e-manufacturing.

Finally this paper supports that e-manufacturing is a great opportunity for

companies in business nowadays. With the development in information technology,

it will keep on increasing its power and start to dominant the manufacturing

practices that are currently in use. Thus, companies should adapt to this trend and

alter their supplier selection criteria accordingly.


20

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