Master Thesis
1
June 29, 2006
Computer Science Department
Mälardalen University
Västerås, Sweden
MIMA–International Project Management
Master Thesis-10P
Best Supplier Selection
A case study of getting optimum benefits by selecting
best supplier
Supervisor:
Bengt-Inge Andersson
Authors:
Muddsar Amin
Wasim Abbas
Examiner:
Asa Lundkavist
2
Abstract
Supply chain management includes purchase selection as well as optimizes profits for
selection criteria; here different aspects are considered which includes specification of
superior and suitable supplier. It is necessary in favor of the product development.
Quality improvement, time reduction and good price of precise goods make
purchasing optimum and productive. In this report old supply change management,
new supply change management and purchasing market research has been done to
make the summit for SIX SIGMA. Six Sigma is more customers oriented, beneficiary
and it leads to good relationship. The strategy defined as Six Sigma proved
competitive with the old and new supplier selection techniques. This technique has
proven record of success in the market.
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Acknowledgement
We are extremely grateful to our supervisor Bengt-Inge Andersson for providing us
an opportunity to get in-depth knowledge regarding how to get optimum benefits by
choosing best Supplier. We also acknowledge to Åsa Lundkvist for her support,
encouragement and consent to work on this project.
We are thankful to our friends Mr. Amjad Munawar, Mr.Vijai Karpe and Mr. Syed
Abbas Ali for all the interesting discussion and their interest in this topic. We are
much obliged to Mr. Zeeshan Alam Ansari from Systems Ltd. (Pakistan) for his
intuitive ideas.
We also appreciate the companies whose case study has been used for this project.
Last but not the least we owe this achievement to our family for their encouragement
though being thousands miles away.
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Dedication
I would like to dedicate this to Asma my hidden love, as she is not beside me other
than I will miss her everlastingly.
Wasim Abbas
I would be much obliged to dedicate this to my Uncle and Ant for their love and
support after the death of my parents.
Muddsar Amin
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Executive Summary
Best supplier is an invaluable resource to the organization requiring its product and
services. Selection and management of the right supplier is the key to obtain the
desire level of quality, time and right price. Now a day’s invention has taken more
attention due to new products special services new techniques and methods. The
information is used to identify and define opportunities and problems and to generate,
refine, and evaluate marketing actions. Moreover purchasing market research has
been increased due to increase of new technologies, and world wide sourcing and
these companies are looking for the best suppliers for their material or product and
services in order to be the world class. Supplier performance measurement is essential
for selecting best supplier furthermore Supplier performance can be measured by
reliability, cost, delivery time, quality, order accuracy and business relation. Key
value of customer satisfaction includes Quality, Price and Delivery. Tool to measure
the supplier performance is SUPPLIER AUDIT. Purchasing development strategies
need the commitment of superior staff promise for efficient procurement. While
talking about optimum benefits, it can get by developing purchasing strategies and
problems can be resolved within the supply chain. These strategies might be helpful
for best supplier selection. Another strategy to evaluate supplier performance and to
select best supplier is supplier quality process. This strategy is being used by Eastman
Kodak Company and it includes the standards of Lean and Six Sigma. SIX SIGMA is
the strategy which has been billed a critical business tool for 21st century. Likewise it
is used to gain improvement in business processes and product quality. It eliminates
unnecessary inventories through disciplined efforts to understand and reduce
variation, while increasing speed and flow in the supply chain. It uses the DMAIC
(Define, Measure, Analyze, Improve, and Control) methodology for the
implementation of projects. To be successful it is required ongoing support at all
levels of the organizations from senior management to six sigma team members.
Additionally Microsoft office system is a tool to use six sigma and to handle its
critical situations. By using MS office system more benefits can obtain. Finally this
analysis incorporates the strategic consideration of supplier selection rather than the
more traditional selection criteria.
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Table of contents
Introduction .................................................................................................................. 10
1.1 Problem Statement ............................................................................................. 10
1.2 Goal .................................................................................................................... 10
1.3 Procedure ........................................................................................................... 10
1.4 Disposition ......................................................................................................... 11
1.5 Delimitation ....................................................................................................... 11
Background .................................................................................................................. 12
2.1 Supply chain management ................................................................................. 12
2.2 Goals and Objectives of Supply Chain Management ........................................ 13
2.2.1 Importance and Objectives ......................................................................... 13
2.2.2 Goals backdrop ........................................................................................... 14
2.3 The Old Supply Chain ....................................................................................... 15
2.4 Traditional and New Approaches ...................................................................... 16
2.5 New Supply Chain Management Systems ......................................................... 17
Market Research .......................................................................................................... 19
3.1 Role and importance of market research ........................................................... 19
3.2 How to conduct/organize market research ......................................................... 21
3.3 Major areas of market research .......................................................................... 24
3.4 Important characteristics of purchasing market research ................................... 25
Supplier Performance................................................................................................... 29
4.1 Factors that influence supplier performance ...................................................... 30
4.2 Customer Satisfaction ........................................................................................ 32
4.3 Supplier Performance Measurement .................................................................. 33
4.3.1 Tool to measure Supplier performance ....................................................... 33
Strategies to get Optimum Benefits ............................................................................. 35
5.1 Purchasing Development Strategies .................................................................. 35
5.2 The Supplier Quality Process............................................................................. 37
Six Sigma ..................................................................................................................... 40
6.1 Six Themes of Six Sigma ................................................................................... 40
6.2 Six-Sigma Supply Chain .................................................................................... 42
6.3 Opportunities...................................................................................................... 43
6.4 Contributions...................................................................................................... 43
6.5 Six Sigma and the Supply Chain ....................................................................... 44
6.6 Logistics & Managing Inventory ....................................................................... 46
6.7 How customer get benefits from six sigma approach ........................................ 51
Six Sigma Management ............................................................................................... 53
7.1 The Microsoft Office System............................................................................. 53
7.1.1 Situations and Challenges ........................................................................... 53
7.1.2 Six Sigma Solution by using the Microsoft Office System ........................ 54
7.1.3 Selection of the Microsoft Office System ................................................... 54
7.2 Benefits of Six Sigma by Using MS Office System .......................................... 55
Conclusion and Recommendations .............................................................................. 58
8.1 Conclusion ......................................................................................................... 58
8.2 Recommendations .............................................................................................. 59
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References and Appendix ............................................................................................ 61
9.1 References .......................................................................................................... 61
9.2 Appendix ............................................................................................................ 63
9.2.1 Interview ..................................................................................................... 63
9.2.2 Customer Reference .................................................................................... 64
9.2.3 Purchaser Opinion ....................................................................................... 64
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List of Figures
Figure 1: Overview of expenses within a company ..................................................... 13
Figure 2: Old supply chain management outlook ........................................................ 15
Figure 3: Major needs to identify................................................................................. 19
Figure 4: Framework of market research ..................................................................... 23
Figure 5: Summary of purchasing market research ..................................................... 27
Figure 6: Framework of corporate procurement planning ........................................... 28
Figure 7: Supplier performance measurement ............................................................. 31
Figure 8: Major elements of customer satisfaction ...................................................... 32
Figure 9: Key values of customer satisfaction ............................................................. 33
Figure 10: Six sigma process map ............................................................................... 44
Figure 11: Six sigma accurate balance........................................................................ 44
Figure 12: Business system with six sigma ................................................................. 49
Figure 13: Six sigma methodology .............................................................................. 50
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Introduction
Project management is an intensive profession; it combines sales, purchase,
installation and commissioning as well as project management to fulfill the
requirements of a project. One of the most important departments for any corporation
is purchasing. More than 50 percent of budgets spend on purchasing products and/or
services in huge companies/projects. It is significant to know consequences of
purchasing functions and how all the functions are performing their jobs. The most
important function for any purchasing department is to select best supplier. The right
supplier provides right quality and services on time and at right price. Best supplier
also essential to decrease cost and to increase profit. Therefore it is necessary to select
the best supplier in order to get optimum benefits.
1.1 Problem Statement
To discuss and identify factors which influence on supplier selection. In other words
how customer can get optimum benefits from supplier.
1.2 Goal

To maximize customer benefits by selecting best supplier

To reduce risks involve in purchasing

To get the best quality with finest price and time saving
1.3 Procedure

Check on supplier performance for best quality

Six sigma strategy including DMAIC used for implementation of projects and
six themes to eliminate errors

Microsoft office system to handle challenges and complex situations of six
sigma projects
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1.4 Disposition
Second chapter explains background of this report. It gives an overview of supply
chain management and detail information regarding goals and objectives of supply
chain management and link with purchasing. Furthermore old and new supply chain
approaches are discussed. Additionally a quick overview concerning requirements of
new supply chain management system is described. Third chapter is about purchasing
market research. It tells imperative characteristics of purchasing market. In forth
chapter supplier performance attributes, supplier performance measurement is
discussed for customer satisfaction. Chapter five has two parts, first part defined as
strategies to develop purchasing department and second is supplier quality process to
deal with supplier. Both parts are to get more benefits by selecting best supplier. Sixth
chapter is about six sigma and its six methods to eliminate errors, time saving, fast
procedures and getting more benefits from supplier. Chapter seven is expressed for
six sigma management to handle six sigma projects by using Microsoft office system.
Eighth chapter is sets out for general conclusion of this report and after writing down
all the findings and discussions some recommendations are made for purchaser to get
maximum benefits from supplier. Finally, ninth chapter provides all the references of
literatures used in this report and customer references. An interview was conducted on
purchasing department; the conclusion of this interview is also included.
1.5 Delimitation
In this analysis, we focus on buyer/purchaser/customer not on project management in
order to get clear picture of approaches to get maximum benefits from supplier. We
also narrowed to the focal relationship of buyer and supplier and did not study of
network of companies or supply chain. This is because there was not so much time to
do such an extensive study for the academic purpose.
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Background
2.1 Supply chain management:
In many business strategies selection of right supplier to obtain maximum profit plays
a key role for any organization because it is understood that profit is the key for
success for any company. It is tempting to take the literature on buyer behavior as a
frame of reference in organizations and buying process involves

Determining the specification of the goods and services that need to be
bought.

Selecting the most suitable supplier.

Preparing and conducting negotiations with suppliers in order to establish an
agreement.

Placing the order with the selected supplier.

Monitoring and control of order.

Follow up and evaluation.
Above mentioned points are too much important for a supply chain to get maximum
profit. In general scope of buyer/purchasing function is far wider than the activities of
the purchasing department.
In other words best supplier is an invaluable resource to the organization requiring its
product or services. Such suppliers make a direct contribution to a firm’s success.
They can assist their customer with product development, value analysis, and timely
delivery of the desired level of delivery.
Good buyer-seller relations facilitate the buyer’s efforts to get superior performance,
extra services, cooperation on cost reduction programs, and a willingness to share in
new processes and procedures.
Selection and management of the right supplier is the key to obtain the desired level
of quality on time and the right price, the necessary level of technical support, and the
desired level of service.
Buyers must care about above mentioned six important supplier oriented actions to
satisfy his responsibility.
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2.2 Goals and Objectives of Supply Chain Management
2.2.1 Importance and Objectives
This part describes the importance of supply chain management, in supply chain
management one of the most crucial part is the selection of right supplier. The right
supplier provides right quality and services on time, and at right price. Basically a
buyer’s motive varies from quality to cost. Now a day’s most of the firms give
importance to purchasing functions and how all the functions are performing their
responsibilities. Supply chain management is responsible for purchasing materials and
services and it is also responsible for more than the half money which company
receives as income from sales. More money is spent for purchasing of materials and
services than for all other expenses like wages, taxes, dividends and depreciation.
Figure 1: Overview of expenses within a company
Best supplier selection also plays a vital role in decreasing cost and increasing profit.
For example if an ordinary firm has a sale of $1 million and its cost of goods
purchased is 50% of sales and other costs of manufacturing and overhead cost is 40%.
It means that company has a profit of 10%. It can increase its profit by decreasing cost
of products and services purchased. This analysis can be preferable only to work out
on suppliers and selecting the right one. Therefore now day’s companies pay more
attention to assess suppliers and select the best.
Describing the importance of supply chain management, a right supplier selection and
procurement, it is easy to understand the objective of supply chain management which
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is to select the best supplier for purchasing material or products and a range of
services. There are optimum solutions to improve performance of company’s supply
chain management.

Reduce supply cost

Improve product margins

Increase manufacturing output

Increase customer satisfaction

Better return of income
Here, added some features of good supplier that can be desirable to achieve objective
of supply chain management.

Delivery time

Consistent quality

Good price

Stable background

A range of good services
2.2.2 Goals backdrop
One of the most important aspects to achieve success is defining goal. Goal defining
is the foundation of success. Goals can be set as long-term, intermediate or short-term.
Goals are the shape of planning production and purpose of an organization and who
have to meet all activities. Goals also have a tendency to perform the objectives of
supply chain management. In each area, identifying short-term or long-term goals are
the most important part at work place because carefully developed goals can provide
the better control of the job. Goals are defined in different categories: work related
goals, problem solving goals and improvement goals. Major part of goals is concern
with production, marketing, research and development of departments.
Following are the goals to reach optimal benefits for a company:

Efficient working environment

Production quality improvement

Expanding production

Modernization

Expand current target market
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
New target market
Now a day’s innovation has taken more attention due to new products, special
services, new techniques and new methods. Now it needs more to use innovative
approaches to make the company better in this fast changing market. Furthermore it is
not possible to operate more efficient, improve quality, and expand network of
company without innovative approach. By using above mentioned qualities it is need
to expand current target market and target new market segments.
2.3 The Old Supply Chain
The supply chain saw main advancements and exponential jumps in competence after
World War Two up to the end of the 20th Century. At the start, supply chains were
paper chains, linearly connecting like as follows.
Figure 2: Old supply chain management outlook [1]
The chain ranged from one to many of tiers and logistics were terrible. People and
paper actually connected all of the tiers of the chain together. In addition, the linear
nature of the chain completed the communication between the both ends (front-end
and back-end) of the chain disordered and time consuming. An imaginary company
by using an old three-tier, linear supply chain function was as follow:
Firstly, buyer placed order to the reseller, and reseller fond that stock is not enough in
its store to load the customers order, then reseller placed order to his wholesaler and
wholesaler might have limited stock and had not in position to fulfill the conditions,
then it placed order to the distributor.
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By the time the complete products took from the distributor to wholesaler’s
warehouse then to retailer’s warehouse and finally to the customer. In this entire
procedure customer lose his time and money.
This imaginary supply chain would have existed until a pre-Internet solution, that
time cross docking became common. Through cross docking, goods were delivered
from multiple plants to the multiple distribution centers. In other words, from multiple
distribution centers to multiple retail stores that re-sorted it and transported to the
destinations without staying at warehouse. That was the system of supply chain before
coming internet. [2]
2.4 Traditional and New Approaches
Basically, Supply Chain management is a consistent chain of developing management
of logistics. If we look at past, SCM systems were not focusing on innovative
approaches, these supply chains started on manufacturing and finished with the sale to
customer. Now, experts are paying more attention on all the operations related to
product manufacturing like supplier selection, production development, inventory
managing, scheduling demand, transportation and other activities. They are producing
more comprehensive solutions for supply chain management systems to provide
maximum benefits for the company.
To get maximum benefits, it is need to understand project, calculate and deal with
demand of customer effectively, improve customer services, and increase market
shares. In addition, these models need to support. For example, advanced planning,
scheduling for manufacturing, setting up demands for customers, and transportation
arrangement for distribution.
Traditional approach of a product delivering was manufacturing the products at once
according to demand then finishing goods and fill up warehouses. Later in 1960s,
both transportation and warehousing functions used to reduce inventory and to get
more benefits with the help of faster and reliable transportation. After that next
development stage was to improve logistics that included manufacturing,
procurement, and order management functions. It seems to be process-oriented,
integrated approach to procuring, producing, delivering products and services to
customers. It covers the management of materials, information, and funds flows.
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2.5 New Supply Chain Management Systems
The new of SCM is needed to deal with the supply chain's rising complexity and the
following set of characteristics is required: [1]
Integration:
Integration is very important for new supply chain management because it makes the
difference between old supply chain just to fill warehouses with goods and new
approaches to reshaping raw material into finished goods, procurement, and
delivering products at right time and at right place.
Online services:
Online service is another important factor for new SCM systems. It is due to
increasing competition in the market. Now days, it is required to provide online
facilities for more efficient ordering, scheduling and status processes to gain more
advantages. Many companies visualize this ability as part of the future SCM strategy.
It is easy to analyze and gathering data to understand customers need. Moreover it
helps in Identifying partners and suppliers to perform their duties as needed in
demand chain.
Data Protection:
Besides providing online facilities, it is very important to ensure that data and all
other information is securely protected because different companies work together
within the same supply chain and some of these companies may be competitors.
Synchronization:
Supply chain synchronization is very important to control supplier planning,
production, logistics, and customer demand. It will provide a comprehensive view of
all supply chain activities and enable management to make more valuable decisions.
Supply chain synchronization is a way of civilizing customer service instead of
increasing inventory investment.
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Flexibility:
The flexibility to modifying services to meet the needs of different customer sections
also can create advantages for SCM systems. The flexibility to meet diverse customer
needs in a cost-effective way can make out a company and allow it to serve a larger
customer group.
Technologies:
Today, new technologies such as Web services are required for different projects to
reduce costs through more effective supply management, as well as to respond
quickly to customer demands and maximize returns as opportunities.
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Market Research
Marketing research is the function which links consumers and other publics to the
marketer through information. The information is used to identify and define
opportunities and problems and to generate, refine, and evaluate marketing actions.
Another definition of market research is the procedure of gathering, arranging,
sustaining, and evaluating data and sources for the purpose of reaching optimum
benefits and opportunities in the market and to meet an organization's needs for
products or services.
Through market research, the product qualities, supplier production and distribution
capabilities available in the marketplace can be identify to meet the customer
demands, as well as requirements analysis to set up the main characteristics to identify
market research in specific areas. [1]
Figure 3: Major needs to identify [1]
3.1 Role and importance of market research
A major objective of market research is to ascertain sound decisions. Market research
for purchasing is very important for identifying and analysis of risks and then making
decisions for purchasing. However it will not reduce the risks but it can make risks
more visible and understandable. Over the past years, internet has become a
professional tool for buyers to search and compare the suppliers. Here they can find a
verity of suppliers related to their business. Now it is making more reliable and
improving search facilities. These facilities are making market faster.
By using
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internet, buyers and other professionals are using the tools of tendering, ordering,
payments, and purchasing and making their quality of purchasing decision making
better.
Purchasing market research has been increased in some years. It is due to increase of
new technologies, world wide sourcing, companies are growing rapidly and they are
increasing their network globally and these companies are looking for the best
suppliers for their material or products and services to be the world class. The
following are some factors which make greater need for supply market research. [1]

Fast Supply Market

Financial Developments

Technological developments

Western society
Fast Supply Market:
Final purpose of supply chain is to deliver goods and services to their customers. It
sound easy but only a single operation can seriously harm a company. After making a
place in the market, an organization needs to develop its base line effectively and it
needs a competent and effectual supply chain to fulfill the demands of their
customers. It is most important factor for those companies where success depends on
the speed and quick response to changes in demand such as Nokia and Sony-Ericsson.
Therefore organizations are looking to get faster time to market, cost reduction and
improving production in order to fulfill demands.
Financial Developments:
Another factor which has lead to a greater need to active purchasing market research
is financial developments. It is major problem for those who operate internationally
due to increasing instability of some major currencies. These organizations have to
take instant actions due to inflation, large governmental budget arrears, and fast
changing currency rates for reallocating their suppliers to get required materials and
services
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Technological Developments:
Due to competition every organization has to pay attention on development of new
technologies and they have to invest on innovations. Every company can not create
everything by themselves, therefore they have to buy some technologies from other
companies, and then there is a question from where the technology should buy? To
answer this question they have to research market to choose best supplier. This is
another factor which influence on purchasing market research.
Western society:
Another factor is western society; it is because of a high level of wages in Western
Europe. Therefore companies are changing their suppliers market and they are
shifting their supply base to Far East or the developing countries due to lower wages.
Now many companies are shifting their set up in these countries. For a lot of
production, cost reduction and selection of right suppliers need market research.
3.2 How to conduct/organize market research
There are some things to consider as important when going to organize or conduct the
research of the market, the most important points are as follow: [1]
Decide objective:
First of all we have to think about the objective/aim, so under this heading these
points are important to highlight.

What is the actual difficulty/problem to be solved?

Which kinds of information’s are required?

How accurate does the information have to be?
These points are not a big deal if these are carried out by the buyer personally but
without getting conclusion for these points buyer didn’t feel comfortable because he is
not aware about the supplier’s policy. So, for buyer above mention points are too
much important.
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Feasibility learning:
This is also important during the market research because under this we have to know
about that which kind of information are available in the company
and which
he(Buyer) needs to make a feasibility.
Cost analysis:
Buyer must think about the points which are as follows:



How many hours are required for research?
Research cost?
Is obtained information’s increasing the expense.
Design of research plan:
For this plan two things are important what and where!
Suppose, we are going to audit our supplier

What
Desk research

Where
Field research
Desk research: It is the gathering, analysis and explanation of data that serves the
research task but which have already been gathered by others.
Field research: It is different from Desk research. It is the gathering; analysis and
explanation of information that can not be obtained by means of desk research, in this
new information’s are used.
Execution of research activities:
For this step it is very important to follow” Design of research plan”.
Some times it helps us in decision making.
Evaluation and preparation of research report:
When research is completed then a report is prepared in which all results are shown
which we get from market research. For this report some points are very important to
mention.

Buyer get answers to his questions or not

Is the report drawn up in a comprehensive manners or not
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
Assumptions got results or not

Results are satisfactory or not
In case of not research is considered to be failed
If we make a structure of all above that will be look like this. [1]
This is the framework of above mentioned activities
Figure 4: Framework of market research [1]
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3.3 Major areas of market research
Market research itself is a big field, most of the companies higher some specialists of
market research to handle company’s purchasing area, mostly that kind of case is
applied by a large company or in other words multinational companies higher that
kind of staff. It may be of one person or a number of persons, it depends on the nature
of project.
For example: - If we need some information’s about some commodities and services
then we don’t have need to higher staff for that particular work, that kind of
information’s are available on internet but in case if we are working in other country
and we want to buy material or stuff like that and we are not aware of the market, in
that particular case may be we feel uncomfortable and mostly for that cases
companies higher some persons locally that are fully aware from local market.
So, now I will explain some areas and the benefits that are necessary for any buyer to
keep in mind before purchasing the products.
Area regarding Material, Goods and Services: [1]
This area is most beneficial for buyer because in this area market research helps in
savings. It can also reduce the risks incurred by the firm with regard to supply. This
area also helps like in case of transportation, warranty, service contract etc.
How this area is profitable for buyer?
There are different kinds of suppliers that are available in the market. Some provides
facility of transportation as a free and have a warranty period more then others and
also have a better service contract as compare to other suppliers, definitely in that case
buyer feels comfortable because he don’t have any risk regarding this, his product
reach safely on the site before time. This thing gives more profit or saving and
comfort to a buyer. This is only possible in case of market research. If buyer haven’t
knowledge about that kind of supplier then how he is able to get saving, profit and
comfort.
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Area regarding suppliers:
This research area is concerned with the supplier so, if the current supplier is not
completely satisfying then buyer search for one or more new supplier for his
satisfaction. In this area buyer think about the
“Long term relationships with supplier”
How this area is profitable for buyer?
If supplier is reliable and flexible in terms of quality, on time delivery, quantity and
warranty etc these things shows profit not in short term but in long term. Long term
relationships will help the buyers in terms of late payment (Sometimes), claims
(defected material, less material, out of order material etc) and delivery before time
etc. This is only possible in case of market research and mutual understanding
between the buyer and the supplier. So, in the long run this thing is profitable for
buyer.
3.4 Important characteristics of purchasing market research
To make out the purchasing market research we need to identify its most important
characteristics. For example, procurement profile to identify which material, goods or
services are purchased and how much is spent on them in past, systems and
information related to supply market and procedures of purchasing and suppliers
market. This is the information which needs to be gathered. [1]
Material, goods and services:
This kind of research needs to identify savings or cost reductions related to
purchasing of material, goods and services. For this, it requires the comparison of past
year’s expenditures on each purchased item and current purchased goods or services
and expenditures related these items to get better results for future. This research also
plans the search for alternative supply source and reduces risks in purchasing and
identify how critical are the goods and services which we are purchasing?
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System and Procedures:
A good purchasing information system is very essential for buyer. Information and
communication increases the chances to get better purchasing. Better information also
has a good impact on relationship of buyer and supplier. It shows the buyer’s value in
the market as a customer.
Suppliers:
Searching of suppliers and play the key role for supply chain management. It also
concerned with the long term relationship with supplier. It requires identifying
supplier’s ability to perform its functions for present and future. It needs to gather
information that how many suppliers and their shares are in the market and what is
availability for alternative for different products.
It also needs to evaluate the
financial position of supplier to identify its strengths and weaknesses, supplier cost
analysis and quality assurance.
Following is the summary of information that requires to be gathered for purchasing
market research;
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Summary of information that needs to be gathered
purchasing
Risk Analysis
Information
Suppliers
Information
Buyer’s Impact
What material,
How much risk is
How many
What is the value of
goods and services
for the company to
suppliers are there
department/buyer in
are purchased and
buy goods and
and what are their
the market as a
how much is spent
services?
market shares?
customer
Compare the past
What is the risk of
What is the
How are suppliers
years expenditures
purchased goods
availability of
likely to view the
on each item.
and services
alternative in the
buyer’s value?
based on:
market for suitable
on them?
products?
Quality of goods
-Product related risk
Nature and quality
and services
-Department/Buyer
of the supply chain
related risk
Who are the goods
-Supplier related
What is the type of
and services
risk
competition
purchased from?
-Market related risk
between suppliers?
What is the
What
Location of
environmental
suppliers?
factors affect the
supply market?
Figure 5: Summary of purchasing market research [3]
By using above mentioned characteristics and information related to different
procedures and procurement functions, a structure of corporate procurement planning
is developed. That framework shows the suggested process for departments or buyers
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to prepare procurement plan. There are five procedures in corporate procurement
planning framework which are connected with each other.
Corporate Procurement Planning Framework
Figure 6: Framework of corporate procurement planning [3]
28
Supplier Performance
Supplier performance check is the major concern for the companies, without having
this check companies OR buyers didn’t feel relaxed. Here one question arises, how to
check, measure and evaluate supplier’s performance and this question can not be
easily answered but following are the important points that are concerned with this
evaluation. [15]
Why should supplier’s performance be evaluated?

This evaluation guide to better decision making in future.

This evaluation makes things clear/visible to a buyer to authenticate his
expectations/requirements from supplier.

This evaluation guide to better communication among further departments
or other departments of the company.

This evaluation contributes to better motivation means product is properly
designed according to the need of buyer.
The most important benefits those are required from this evaluation

On Time Delivery

Quality control
What problems are concerned in assessing supplier’s performance?

Lack of definition will be the one problem during the evaluation of the
product.

Not well definition of standards and objectives.

Accuracy of the product.
What Questions should be evaluated?

Material cost

Quality of the product

Logistics dimensions
29
4.1 Factors that influence supplier performance [23]
Following are the most important factors that help the buyers or companies during
the assessment of the supplier.
Reliability:
How much consistently do you assume this supplier/company follows through on its
commitments?
In the future does this supplier fulfill your demands or requirements or not?
Does the supplier provide service support or not?
Cost:
How closely did your final total costs match to your hope at the beginning of the
transaction?
How much competitive is the supplier’s price?
Order Accuracy:
How much accurate do you feel the goods/products/services delivered matched your
order specifications and quantity?
Delivery/Timeliness:
How much better do you realize about the time line of the goods/products delivery?
Does the supplier is reliable with respect of on time delivery?
What is actual lead time of the supplier?
Quality:
How satisfied do you feel about the quality of the product/service provided by this
company?
What is the level of supplier, Is supplier 9000 certified or not?
Business Relations:
How easy do you feel that this supplier is to do business with customers?
30
Personnel:
How much satisfied did you realize concerning to the attitude and professionalism of
the staff of company?
Customer Support:
How much satisfaction do you think about the customer support you expected from
this supplier?
Awareness and Responsiveness:
How much aware and responsive do you feel this supplier was to information
requests, issues, or problems that arises during the business? [4]
Above mentioned are the major factors that must be focused during the supplier’s
evaluation, if we want to see all these factors of supplier’s performance after
evaluation that will be look like that:
Figure 7: Supplier performance measurement [4]
31
4.2 Customer Satisfaction
Customer satisfaction is the level of an individual or organization’s feeling from
comparing the received performance in relations to the expectations. [6]
In addition to over all performance, customer satisfaction is key role for estimation of
supplier performance; if customer satisfaction is high then it means supplier
performance is according to requirements. Furthermore there are some points related
to customer satisfaction. Customer satisfaction consists of two major items.
Figure 8: Major elements of customer satisfaction [6]
Product Value:

Requirements of the customers regarding product(s)

Factors which may cause of increase or decrease customer’s demands.

Saving customers money.

Develop better competency for the customer.
Personal Value:
In personal value supplier must have to show following thing for customer’s
satisfaction:

Attitude

Beliefs

Actions

Honesty

Responsibility and loyalty
32
Key values of customer satisfaction
Figure 9: Key values of customer satisfaction [6]
4.3 Supplier Performance Measurement
Supplier performance measurement (SPM) is the process of measuring, analyzing,
and managing supplier performance to improve quality, reduce costs, alleviate supply
risk, and make continuous improvement in supply value. This is understood that every
kind of organization needs supplier performance measurement for their objectives and
collections of results. [5]
4.3.1 Tool to measure Supplier performance
Supplier Audit:
Supplier audit is the best tool to assess the supplier performance. Through supplier
audit supply chain management can estimate that which goals and objectives are
balanced according to their requirement and what is the percentage of performance by
supplier. [1]
Supplier audit is important to manage and monitor high relative expenditures or
difficult to secure supply of purchasing goods and services.
Supplier audit offers the following opportunities.
33

Support organization to reduce internal operation costs related to purchasing.

Contribute to valuable risk management.

Develop the relationship with suppliers.

Develop the supplier capabilities.

Improves supplier and purchasing performance.

Develop supply chain management strategies.
Audit of supplier performance should be conducted on the basis of risk management
and cost benefit assessments. The main focus of supplier audit should be during the
implementation phase of the contract to identify that when the goods and services
purchased are delivered to company. Thus effective performance depends on
integrating performance monitoring and audit reports throughout the procurement.
Audit should emphasize on standard checks, and evaluate weather all the
implementations are according to expectations or not.
Normally, supplier audit
monitors business environment, business system including research and development,
technology, operations, sales and marketing, elements of supply chain such as;
purchasing functions, material planning, production and physical distribution.
For purchasing it is important suppliers need to be made aware from that their
performance will be assessed and recorded. Keep supplier informed also about
performance criteria and measurement tool and criteria. For a contract with supplier, it
is important for a company to:

Proper analyze its needs, including standards and performance.

Notify the supplier about desired outcomes of purchases

Establish Key Performance Indicators

Provide supplier for in-contract evaluations, monitoring procedures and
measurement performance against appropriate key performance Indicators
before signing a contract.
The following key points are important at close-out of contract or project.

Evaluate supplier performance.

Provide performance feedback to supplier.

Finally maintain records of supplier performance for better results in future.
34
Strategies to get Optimum Benefits
5.1 Purchasing Development Strategies
Optimum benefits can get by developing purchasing strategies and problems can be
resolved within the supply chain management. In this way best suitable supplier can
selected. Following is including purchasing development strategies to get successful
supply chain.
Superior staff promise to efficient procurement
It is necessary that the Executive and senior managers of the company are committed
to the delivery of a Purchasing Strategy within the company if the full benefits of
successful purchasing are to be achieved. It is also important that senior management
should support and enhance the purchasing power, during nationwide and local
agreements for different perspectives of money.
Procurement in the higher sector is under close analysis from external bodies and it
necessary that the company can reveal a strategy for regulating all non-pay
expenditure.
Training and Skills Development
Staff involved in procurement within the Purchasing Office and in local procurement
in services should be fully trained in the procurement function and should work
towards clear procedures and guidelines. A training strategy must be developed to
achieve company’s objectives and goals. It should include:

A survey of training within the Purchasing Office to identify skills gaps

To continue with the domestic purchasing awareness program for all
purchasers and senior officers
35
Identify and broadcast Best Practice
It is necessary that all purchasers are aware of and able to access exact information to
support the procurement development. To ensure that this information is constantly
available the Purchasing department should develop a Purchasing Website.
The Purchasing Website is a user-friendly program, formed as a “toolkit” guide.
Following are to include:

Purchasing segments of the Financial system

Approved Contract Agreements of Company

Standard Terms and Conditions of Contract for both goods and services

Include Purchasing entries

A glossary of purchasing terms, forms and policy’s

Guides to specific processes, tendering, contract management etc

Contact points (local, regional, national)

Best practice guides
Value for Money Strategy
The Purchasing Office should frequently communicate a value for money strategy.
The plan should be to make sure that company obtain goods and services of the right
quality and quantity delivered at the right place, at the right time and at the right price.
The strategy should be to make sure that the required information is available to
secure value for money. This will include guidance on competitive tendering and
promotion of best practice guides.
Development of Purchasing Consortia
Companies should control purchasing power, and reduce administration costs, by
exploring the possibility of greater co-operation between purchasing consortia. The
Purchasing department should hold this approach and should actively support and
develop contract programs regionally and nationally where value can be added.
36
Measure Supplier Performance
Companies spent most of the budget on goods and services as it is described above in
importance and objectives of supply chain management. This expenditure is
distributed across thousands of suppliers. It is important to analyze this expenditure
and to inquire about assurance that it is controlled, particularly with major suppliers to
the company. In order to provide this assurance the Purchasing department should:

Review expenditure by supplier and goods/services and look for total demand
as needed to increase value for money

Conduct an annual review of top suppliers to decide the level of influence on
this expenditure by the Purchasing Office or the proportion of expenditure
devolved through national, regional and local agreements

Check and guide the purchasing department in Supplier Selection Criteria
requirements.

Approve and process requests for the creation of new supplier into the
database of Purchasing System

Negotiate with supplier unwilling to accept standard company’s terms and
conditions
5.2 The Supplier Quality Process [7]
Another strategy to select best supplier is by using the supplier quality process. Major
elements of SQP are following:
Supplier Quality Assessment (SQA)
The Purpose of the SQA is to assess the effectiveness of the supplier’s quality
management system, continuous improvement processes, and the supplier’s capability
to assemble ever-increasing demands. Assessments take place where the
manufactured goods or service is “shaped”.
Measuring Supplier Performance
To keep suppliers performing at required level, a number of criteria should measure
including, minimum performance for a quality management system, product or
37
service quality performance measures such as delivery performance, lead time, and
output performance. The data that makes up these performance measures should
manage in systems such as the supplier quality performance measurement system.
Supplier Process and Performance Improvement
Buyer expects the processes and the performance of their supply base to incessantly
improve from year to year. This is important for both the supplier and for buyer to
stay competitive in the production and to go above standards in quality, delivery, cost
and reliability.
Supplier Certification
Supplier Certification Program recognizes suppliers, who rally or exceed on
established requirements and are producing excellent levels of cost, quality and
delivery performance. To be considered for this recognition, suppliers must show
proof of a sound and effective quality management system, provide buyer with
guarantee and flexibility with delivery, lead time, and reveal world-class
product/service quality levels.
Cost of Quality (COQ)
The COQ model is used to calculate quality performance of suppliers by looking at
delivery, lead times, administrative costs of corrective actions and possible line down
situations. The model may also be used in standardizing suppliers in e-auctions and on
sourcing activities.
Effective quality improvement is hardly easy, but if SQP has been deployed well, the
following results can occur for both buyer and suppliers:

Defect trends will decrease and overall performance will improve

Number of supplier “corrective action” requests will decrease

Production/Cost of Quality will save.

Number of certified suppliers will increase
38
“Based on that finding from Eastman Kodak Company, this section is sets out as a
strategy to check supplier quality by using Supplier Quality Process. According to
literature SQP is an arrangement of different strategies including Lean, Six
Sigma.”
39
Six Sigma
The strategy which has been billed as a critical business tool for 21st century is Six
Sigma. In this fast changing world companies are using Six Sigma to gain
improvement in business processes and product quality. It has taken from the
approach of statistical roots. It’s reliable and easy to understand. It can be defined
simply as;
“A statistical measurement of the performance for a process or a product” or “A goal
that reaches near perfection for performance improvement is named as six sigma.
Basically, Six Sigma is an excellent technique to run a business or a department. It
gives preference to the customer foremost and then for better solutions uses details,
facts and data. It is fully customers based and always focus target areas. In addition, if
a product or service process is experienced from Six Sigma then its defected level is
only 3.4 defects per million.
Three Major Target Areas:

Try to improve “customer satisfaction”.

Reducing cycle time.

Reducing defects
Improvements in above mention areas represent impressive cost reduction (saving) to
company business, also opportunities to hold customers or hold new markets, and
build market reputation.
6.1 Six Themes of Six Sigma
Six themes are basically shown a bird eye view on Six Sigma, how these will be look
like in the organizations. [8]

Center of attention on the customers
-
Understanding about the customer.
-
Customer satisfaction.
40

Data and detail Driven Management
-
Problem definition.
-
Analysis.
-
Resolution.
It helps to answer two critical questions to hold data-driven decisions and solutions.
1. What data is needed? OR Which information is required?
2. How do we utilize that data? OR Which information provides more benefit?

Processes and actions
It covers the following things which are required.

-
Designing products and services.
-
Measuring performance of the product or services.
-
Improving efficiency.
-
Customer satisfaction.
Proactive management
It means defining determined goals and reviewing them fast, locates
understandable priorities, focusing on complexity or problem prevention
rather than firefighting, and questioning why we do things instead of blindly
defending them. Six Sigma plays a role like responsive and proactive style of
management.

Collaboration without boundaries
The opportunities available through enhanced collaboration inside companies
and with customers are too much. Billions of dollars are vanished every day
due to disconnect between no of groups those are working for a common
cause that is “Give importance to customers”.

Drive for perfection
The methods for improving performance include a considerable amount of risk
management so the failures are limited. Six Sigma and its goals push towards
more perfection while being ready to accept and manage occasional setbacks.
41
6.2 Six-Sigma Supply Chain
The Six-Sigma Supply Chain employs superior arithmetic or statistical tools and
procedures to make out performance gaps, particular areas of improvement and
permanent solutions. It just measures the relevant performance in opposition to past
history, the trends of industries, and spirited forces to decrease danger (risk) and make
sure supply objectives as well as goals are planned well and well defined. The More
important thing, it provides end results throughout better customer service and check,
organizational efficiency and best marketplace impacts.
Furthermore to growing cost reductions and check results, the Six Sigma supply chain
concentrates on a culture of sustainability and nonstop improvement. Supply chain
solution organizations are penetrating to attain viable success during up and down
markets. And in these days the economic surroundings, achievement and success is
the one and only option.
The most significant job a corporation can do in these days is to completely realize
and move forward its supply chain involvement. Strategic and planned sourcing and
logistics are essential enablers to obtaining buck (lower) total cost manufacturer
position. Start with defining a buyer’s requirements and wishes or needs, and
culminating with satisfying them, supply chain of your organization shows a complex
and difficult collection of business processes, decisions, and commitments regarding
resources, matchless by other aspect of the organization.
Well reputed companies that generally attain double figure cost/price lessening are
characterized by forceful focus, perfect definition, reasonable implementation in
realizing the whole assistance offered in strategic sourcing and logistics. Squander
and costs are showing out. Significant supply chain qualifications are included with
core business competencies to generate customer importance and encourage profit.
Cross functional panels or teams empowered to set up lowest (buck) total cost
sourcing and logistics strategies, and decision making are the trait of supply chain
success. [19]
42
6.3 Opportunities
The supply chain makes up the only one biggest cost factor of a corporation’s
revenues typically 55-85% of the sales dollars. It is consists of two vital elements:
1). Strategic sourcing
2). Strategic logistics.
These two elements contains the course of knowledge, business processes, and
decisions which are specifying, design or drawing, plan, procure, transportation,
storehouse, account, and deliver supplies and services to inner and outer customers.
The most important thing, the supply chain assimilates all decisions, processes, and
actions on a lowest total cost life cycle source from raw materials to consumer or end
user.
The effectiveness and value of these processes are rapidly flattering the industries
spirited differentiators. Supply chain assimilates or integrates center business and
customer requirements with the best supply potentials. It assists to companies
regularly attain double figure cost/ price lessening and oblige profitability aloft.
Actuality, profits climb when supply chain costs are decreased by double figures. [17]
6.4 Contributions
An excellent supply chain needs a defined job and idea, a physically powerful
organization, and artistic, inventive strategies. Ambitions, expectations or hopes, and
performance gauge must be recognized.
Strategic sourcing and logistics are always concentrating and focusing on customer.
Spirited, coordinated ideas and enablers build unique aptitudes that opponents and
competitors can not simply coy/duplicate.
Best way of supply chain management adds user anticipations and expectations,
commercial obligations and requirements, and the pour of purchased materials and
services. It creates a lowest total cost life cycle connection with the supply
foundation. It tries to win at the customer end item level. It succeeds customers by
providing better value. It rewards shareholders by enhancing profitability and
providing best solutions and returns. [17]
43
6.5 Six Sigma and the Supply Chain
In organizing and improving the processes, one of the before time actions will be to
build up a superior or high level process chart on the lines as shown in Figure.
SIPOC or COPIS Process Map
Figure 10: Six sigma process map [18]
As part of this, it will be determining the customer’s requirements and developing the
output measures that help to understand how well meeting with customer. After that
next step is to decide which aspects manipulate the results?
Above all is about reason and cause and understanding how action upstream in the
process will change and affect the productions/outputs downstream. To be aware of
this correctly, it is require calculating some of the key input and in-process variables
as shown in Figure. [18]
To Get Accurate Balance
Figure 11: Six sigma accurate balance [18]
44
Approximately some of the inputs from suppliers will be indicating difference and
this difference will work its way through which, performance which is offered or
provided to customers. It is important, therefore that the suppliers recognize
customer’s requirements in precisely and try to understand the customers.
Preferably, it should be working with the suppliers so that both, customer and supplier
understand the bigger picture process. By using this way, they will identify where
outputs will be suitable in the process.
One way to precisely understand the process is Process Stapling. It is very simple:
For example, getting customer order and exactly under your own steam is throughout
the whole process. Doesn’t matter where it goes, and how it works, it will begin to see
what truly occurs. Who does what, why, how, where and when they do it.
What we are actually starting to perform is to assist our suppliers to boost their
customer focus. It is a win-win situation and they can launch the same looms and
approaches with their suppliers. In that case, organizations like General Electric
provide/grant their suppliers and best customers with six sigma training and work
with the organization to develop suitable scorecards to evaluate performance. This
technique has provided too many advantages that help to develop the familiar or
common language of six sigma and facilitating more efficient combined
improvements in projects. [18]
Retailers, wholesalers, manufacturers, distributors, suppliers and all parties involved
in the supply chain consider the pressure to decrease and stability/balance cost, time
and inventory to be lean. This is right with domestic supply chains also right with
global supply chains.
The prospect of the business/industry may not belong to some one size company,
marketing channel. It will be related to those producers who and retailers that have
hold Global Lean Logistics.
Lean Logistics has a lot of challenges. Global Lean Logistics mainly has the challenge
of the extra time needed for shipments to go door to door over the lengthy distance.
Furthermore, there are a lot of parties concerned with each shipment. Some
information’s say that mote than seventeen parties are involved in one shipment like:
suppliers, truckers, freight forwarders, terminals, customs brokers, railroads, ocean/air
carriers and many more others. Some of the parties are working jointly and at odds
through every purchase order or shipping transaction.
45
In the ready for action environment changes the way companies perform business,
corporations are taking up lean and six sigma initiatives to maintain the reductions in
costs and improvement in quality. Even lean and six sigma courses were firstly
separate initiatives in the majority organizations, in these days organizations observe
that lean and six sigma do not compete, but rather the two complement each other and
provide for uniting of continuous improvement activities. [12]
6.6 Logistics & Managing Inventory
Lean is concerning speed, flow and the removal and elimination of waste, six sigma is
concerning understanding and reduction in the variation. Therefore, Lean Six Sigma
Logistics could be defined as:
“The removal and elimination of needless inventories/transactions with disciplined
efforts to recognize and reduce variation, while growing speed and pour/flow in the
supply chain” [20]. Place this into the global supply chain, and the effect on furniture
retailers, wholesalers, distributors, manufacturers and suppliers can be considerable.
Logistics service suppliers require knowing this as well because of its impact on
reducing waste and controlling variance.
There are a lot of ideas concerning how to treat with the supply chain management,
indisposed integration, develop a lot of suppliers as possible to create the supply item
a product or a commodity, reasonable bidding, only source, supplier joint venture to
name a few. In common a good or service by definition is a commodity item, more
competent suppliers are available. This thing makes the SCM too much difficult and
complex. Keeping traceability become more taxing. For example in the United States
purchasing of wheat is usually considered a commodity and there is thousands of
wheat cultivators want to fulfill the need and On the other side if we see Kashmir
wool is not relatively as readily available in the United States and there are less
providers of Kashmir wool. (Maybe in India and Pakistan it would be a commodity
item). Tracing a specific freight and load of wheat to a particular field or farmers can
be something like not possible task. [20]
Get a comparatively recent field that has speedily grown to be a commodity service
development. A lot of people doing that kind of work have grown really very fast.
Commodity suppliers are at all times at the bottom of the economic foodstuff chain.
46
The cost they obtain for their products or services is usually out of control and they
are strained to get what a justly price elastic economy propose. This hasn’t mean that
there are no commodity suppliers who have very successful and gainful business.
They are always trying to be a lowest cost manufacturer and have small if any cost
influence. They have to be really very cost sensitive to all of the factors those are
involved in the system. Generally you will locate the successful commodity suppliers
in search of to distinguish themselves from everybody. Quicker and faster delivery,
friendly people, too easy payment terms or credit terms, improved services, reliability
of product, place or location, brand commitment, modifying, a variety of packaging,
etc. are all traditions that commodity products and services try to find to move away
from that actual and pure commodity image to a extra expert and top price but
improved value goods or product or service.
Suppliers have a physically powerful and significant impact on products, services,
work processes and distribution. It looks like obvious that the excellence and quality
of the raw material have an impact on the quality and excellence of the finish product.
There are a lot of suppliers who effort to reduce their cost formation during the
contract with the supplier and give some attention to the internal processes and
internal systems that utilize that raw material. By Six Sigma as well as the goal is to
meet the customer expectations and hopes better than any one else and at a least is
capable to deliver at a defect rate of less than 3.4 ppm.
There are two basic
approaches like: The first one is process centred that is feasible at the target value.
This is on target component and classic six sigma permits for a 1.5 deviation shift to
compensate or to pay for the damages for the reality that a small number of if any
processes remain secure centred precisely on the target value.
The second approach is that six sigma is to reduce the variation in the process to the
level that even with a 1.5 deviation shift the chances of the defect are less than 3.44
ppm. The main objective is really to get "On target and also with minimum variation”
[20].
Suppliers try to achieve both objectives as an opportunity. They feel as they are at the
starting of the chain of process. Suppose that there are five process steps in your
company or organization and all five are performing well as compare to six sigma,
let’s suppose 3ppm defect level and this is 0.999997 fair on each process stage from
five. For argument purpose there is no inspection, checking and sorting of the good
47
from the bad, you are just using which products the supplier furnishes and shipping or
forwarding to your client/customer. Suppose if your supplier is at the [0.999997]
identical performance level the defect rate for these six steps (5 from your side + one
extra from the supplier side) is: 0.999997 * 0.999997 * 0.999997 * 0.999997 *
0.999997 * 0.999997 = 0.999982, Or 18 ppm defect rate. This has failed to meet your
objective to get defect rate less than 3.4ppm, so all persons in the company put in a lot
of effort and hard work and the reduce defect rate 1ppm each of the process steps.
Your supplier is satisfied and impressed with 3ppm defect rate neglected handling the
process and the defect rate arises to 13ppm from the supplier side. So, the overall
performance of the work and attempt is: 0.999982 * 0.999999 * 0.999999 * 0.999999
* 0.999999 * 0.999987 = 0.999982 exactly the same position from you started with
the defect rate 18ppm.
This above calculations proves an important concept; one is that suppliers have a
marvellous impact on products and services and another is that it doesn’t matter
where the defect rate is high in the sequence, it show impact on the overall
performance. Each and every step is a supplier for the coming next process step.
Suppliers don’t have to be outer to your company. Think about of all processes as a
combination of a number of simple three component process steps. To maintain
Performance level is hard for one supplier, while the number of suppliers are
increased the variation increases.
There are two basis of variation; one is within each supplier and the other variation in
between suppliers. Having effective SCM can be a main part of any six sigma defect
reduction attempt. A very easy strategy for getting better performance is to reduce
process (reduction in complexity) also prepared reduction in cycle time. Going back
in the imaginative case, suppose if we only have four steps plus the supplier all
performing at [0.999997] and the ending result is [0.999985] a 3ppm defect
improvement rate by removing one process step.
Several organizations that have started to reduce the suppliers in numbers to reduce a
few of the variations, suppose that these are not the number of companies and
organizations that they have as a suppliers that is important but rather then the
number of processes that provide the goods or services. These companies will become
certified a supplier on a process by process source and persist upon knowing if there
will be any change in the supply, this could be a change in technology, a processing
48
step, employees, storage circumstances……..etc. It is not fair to say that they would
like to run your business but may be understanding of just how short it takes early in a
process to have main impact in the conclusion or end. It is more or less like the
ripple/wave from a rock thrown in a pond, the diameter of the ripple/wave just going
bigger and bigger. This will oblige you to focus on your improvements and
developments together with as far up the SC as you can obtain. We assert the most
excellent approach is to document the variety of process steps concerned and attain
figures and data regarding the performance of each process step. It will become
obvious where the largest opportunities exist. If this is completed with cycle time
reduction and complexity reduction then may be the highest defect producing process
step can be totally removed or eliminated. [20, 09]
Figure 12: Business system with six sigma
The
objectives
of
the
majority
Six
Sigma
projects
are
precise
and
quantifiable/measurable, such as "improving the ideal and preferred customer order
cycle time to 99.99% on time performance level." Other objectives might be
expressed in MTBF (Mean-Time-Between-Failures).
DMAIC (Define-Measure-Analyze-Improve-Control) describes the key chapters of
the six sigma methodology. Each phase has defined tasks and objectives to be
completed as a foundation for other ones. [11]
49
D>> Define is the first and important in six sigma DMAIC. First of all define the
goals of the improvement program in which these things important to figure out like:
Scope, Expectations, Resources and Delivery (Timelines).
M>> Measure the existing system.
A>> Analyze the system to identify ways to eliminate performance gaps.
I>> Improve the system.
C>> Control the new system.
Defect: Anything that affects a customer to become unhappy or unsatisfied.
Customers might be inside or outside and sometimes defined as the next stakeholder
in the process.
DPMO: Defects per Million Opportunities, in Six Sigma that is a focus of reduction
efforts.
Six Sigma Performances: A very restricted level of performance that some
companies achieved and many companies never reach. It exactly represents exceeding
99.99% defect free performance for a certain business process. It is estimated that
many excellent and named companies run more in the 1 sigma range.
Process Capability: The measured ability of a process to operate within its
specification limits (between the upper and lower specifications).
Six Sigma DMAIC Methodology
Control
Define
Improve
Measure
Analyze
Figure 13: Six sigma methodology [9]
50
Inventory can represent as much as 50% of the assets of a business. This extremely
valuable investment is often subject to unrecognised and/or unmanaged variance.
Inevitably, uncontrolled variance leads to significant financial losses and increased
customer dissatisfaction. Variance can be found throughout an inventory management
system, Sources include [16]:

Demand variance

Process variance

Supply variance

Constraint variance

Lead time variance

Top down policies

Cost variance
6.7 How customer get benefits from six sigma approach
Focus on customer:
It always focuses on customer, and shows that “A customer has great importance in
any business”. Every business depends on customers if customer is satisfied from the
supplier then both ends getting profit in that case. The main thing is to achieve: [9]

Customer satisfaction

Customer loyalty

Customer retention

Customer relationship
If any supplier provides above mention things then this is the best case for customer
to increase his profit ratio.
Reduction in cycle time:
It is based on reduction in cycle time because many of the customers demanding fast
response to their needs and requirements. Customer always wants cycle time
reduction and in other words we can say that this is one of the customer criteria to
check or evaluate the supplier performance. So, if supplier provides flawless delivery
then off course customer gets profit in long run and short run.
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Reduction in defects
It provides Reduction in defects that are also suitable part for the customer. There are
very less chances of defect in case if occurs then the supplier is responsible for the
defects. So, customer will be satisfied in that case.
“This section is sets out for Six Sigma theme, supply chain, methodology, more
opportunities analysis to get more benefits and efficient supply chain based on
analysis from Pande, Peter’s What Is Six Sigma?, Cary Adams, Praveen Gupta and
Charles Wilson’s Six Sigma Deploymen, Y. Narahari, and N. Viswanadham, Design
of Six Sigma Supply Chains and George, Michael’s Six Sigma.”
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Six Sigma Management
It is a dominating incessant enhancement and quality management system that assists
organizations to understand important operational improvements and financial
benefits by reforming operations, improving quality, and reducing defects. To be
successful, a Six Sigma proposal requires on going support at all levels of the
organization, from senior management to Six Sigma project team members.
7.1 The Microsoft Office System [11]
Microsoft office system is a tool to use six sigma and to handle its critical situations.
MS Office system provides effective solutions and built six sigma projects. It sets up
an interface for financial results tracking, project handling, resource management,
improved teamwork and knowledge sharing facilities. It provides well-known
Microsoft technologies to develop organizations without interruptions at minimal
training and cost. It also facilitates organizations nonstop process improvement tactics
in reducing expenses, fixed costs, and increases profits in terms of restructuring
operations
7.1.1 Situations and Challenges
Organizations and companies generate major investments in preparation/training and
funds (resources) to implement or to execute the Six Sigma line of attack, even that
they are unhappy and resist managing lot of ongoing projects. No doubt six sigma is a
most feasible strategy nowadays but of course it presents instant challenges. These
challenges are following:

Determining how to evaluate the financial benefits or profit of Six Sigma
projects independently and collectively.

Better follow up of how many projects are in progress and how sound they are
performing.

Identifying the exact no. of people (workers on site), workers skills, and their
accessibility/availability, to efficiently assign resources to new projects.

Ensuring well-organized processes for reporting and sharing best practice
53

Senior managers are unable to easily evaluate overall project performance.

Lack of adequate information concerning skills and availability of Six Sigma
resources.

Executives and project managers are unable to assess key business
performance metrics to align project financial benefits.

Six Sigma teams pay more time manually to create project reports.
7.1.2 Six Sigma Solution by using the Microsoft Office System
Six Sigma solutions based on the Microsoft Office System help organizations ensure
the achievement of their Six Sigma projects by providing efficient tools to control the
key financial, resource, and information-sharing demands of a successful process
improvement program. With a Six Sigma solution built using the Microsoft Office
System.
Management can gain a inclusive view of all Six Sigma projects and can access
financial data, key performance indicators, real-time analysis, and automated reports.
Project managers can assign assets, resources, plan projects, allocate roles, and
achieve coming into project details and status.
Team members can access interactive, context-sensitive tools for creating and
managing project plans, and they can make plans visible to all stakeholders for
sharing, reporting, and analysis.
7.1.3 Selection of the Microsoft Office System
To tackle the Six Sigma challenges, the Microsoft Office System can be used as the
base for a Six Sigma management solution that carries the following benefits:

It provides Six Sigma solutions rapidly with less training by using well-known
Microsoft products.

It provides Automate custom reports by using document management and
process automation functionality in the Microsoft Office System.
54

It optimizes Six Sigma results with project handling and resource planning,
forecasting, and tracking.

It provides incessantly improvement in Six Sigma processes through taking
advantage of investments in accessible Microsoft products.

It increases contact to a network of reliable Microsoft partners to focus on the
business of procedure perfection and quality assurance.
7.2 Benefits of Six Sigma by Using MS Office System [11]
Organizations can get more benefits and perform according to their needs by using six
sigma. In addition to this, Microsoft Office System-based solutions are more costeffective because they can take advantages of existing Microsoft products, and can
reduce implementation costs. By using the Microsoft Office System to pact with Six
Sigma process improvement programs, companies and organizations can get benefits
as follows:
Evaluate Project Impact:
Easily evaluate the project impact with strong set of management and analysis tools to
know how project is going on and the performance.
The Financial Results:
It can easily view the project financial aspects and their alignment with key business
performance metrics such as inflow and outflow.
Optimize Resource Plan:
It provides optimization of resources based on experience, skills, accessibility and
availability. It also helps to deal with many projects in an organization.
Real-Time Status Reports:
It provides easy and special environment to monitor or making timelines, costs and
resource allocation. In other words it shows project status.
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Collective Projects View:
It provides view of projects collectively, if an organization is working on many
projects. Collectively view helps organizations in decision making with respect of
timelines, costs, resources and investment approvals.
Standardize and Rationalize Processes:
Through the DMAIC (define, measure, analyze, improve, control) phases defined in
Six Sigma standardize and update processes can be attained.
Teamwork and Process Reporting:
It provides teamwork and process reporting tools to view, enter, revise, and evaluate
project information, and to create Six Sigma reports faster.
Better Decision Making:
It generates environment to make better decisions using data from automatically
created reports and tracking tools.
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Cost savings:
Six Sigma projects can result in significant savings and improvement for the
organizations
Increase visibility:
Incorporated tracking of financials and schedule information provides executives to
make assessments of a project’s financial impact on the organization.
Greater consistency:
A view of the entire set of projects establishes check-on-progress and enables
management to assess instead of spending time on projects which are in progress.
57
Conclusion and Recommendations
8.1 Conclusion
The selection of suppliers to get optimum benefits is one of the most important
functions for an organization. Although many organizational purchases are viewed to
be simple and regular and require only the supervision of persist satisfaction with the
product’s attributes quality, delivery and price. This assessment is even more essential
now with different performed strategies for selection of supplier and getting more
benefits.
In this analysis of supply chain management, purchasing market and supplier
performance indicators are considered for the selection of best suppliers to get more
advantages and potential strategies are developed. This analysis demonstrates that Six
Sigma strategy can be successful in this decision process. Furthermore, this analysis
incorporates the strategic considerations of supplier selection rather than the more
traditional selection criteria. Moreover it is reliable for a variety of companies and
type of products. This report developed here provides a reliable assessment and
selection of potential suppliers and consent for the transferability among groups to
make progress as early validation results and customer reference shows promise of
proving for decision making process.
Due to involvement of various criteria it is complex progression to make any exact
decision. These criteria may depend on the type of product and the position of
organization. It also depends on whether it is a small or a big network of company.
Normally small companies pay less attention to supplier selection. Sometimes they
have good relations with supplier and they purchase goods/services only on the behalf
of their relations. It is a fast changing working environment and only a single
operation can seriously harm a company. We conduct an interview they were using
same strategy. Finally they realize that they should develop their purchasing
department with some strategic consideration in order to get best quality and to save
more money.
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8.2 Recommendations
We have described purchasing development strategies and supplier quality process in
chapter 4 and the subject of six sigma, its methodology and its six themes in chapter
5, additionally Microsoft office tool to handle six sigma projects in chapter 6. In order
to make purchasing department more efficient and to get more benefits, based on
strategies to get maximum benefits and drafted business system which is correct with
reference to customer point of view and gives better business results, we would make
following recommendations;
1. Executives and senior staff should fully commit with purchasing strategies in
order to get full benefits.
2. All the staff members involved in purchasing procedures should trained.
Moreover an internal survey strategy should adopt to identify skills and
communication gaps in order to improve skills and purchasing awareness.
3. Purchasing website should develop and constant information should available
regarding tenders and other purchasing aspects to make more efficient.
4. Purchasing office should frequently motivate and communicate with its staff
for the value of money including importance of quality, time and on time
delivery.
5. Purchasing office should ask supplier for customer references and certification
meant for recognition as a proof of a sound and effective quality management
system.
6. Purchasing office should include in the contract; guarantee flexibility with
delivery, lead time and world class product/service quality.
7. Purchasing office should audit the supplier to evaluate the supplier
performance, as well as supplier quality process to calculate quality
performance of supplier by looking at delivery, lead times, and possible line
down situations and on sourcing activities of suppliers.
59
8. Purchasing office should use DMAIC (design, measure, analyze, improve,
control) methodology of six sigma for implementation of projects and proper
control over the projects.
9. Microsoft office system should use as a tool to control different situations and
challenges of six sigma projects it is more easy to view at the same time
existing circumstances of many projects.
60
References and Appendix
9.1 References
[1] Arjan J. van Weele,”PURCHASING AND SUPPLY CHAIN MANAGEMENT”,
2002, Third Edition. 15 April 2006
[2] http://ximb.ac.in/~xops/index_files/SCM 15 April 2006
[3] Anderson, M.G and P.B. Katz (1998).Queens Land Purchasing “STRATEGIC
SOURCING”, International Journal of Logistics Management. Volume 9, Issue 1,
published February 2001, Porte Vendra Beach. 21 April 2006
[4] http://www.hmmh.com. 05 May 2006
[5] http://www.managing4results.org. 05 May 2006
[6]
Bengt-Inge
Andersson,
BIA
Consulting
AB,
“BIA
binder”,
www.biaconsulting.com. 10 May 2006
[7] Eastman Kodak Company, 2002, www.kodak.com. 17 May 2006
[8] Pande, Peter S, “What Is Six Sigma?” Black lick, USA: McGraw-Hill
Professional,
2001,
McGraw-Hill
Professional
http://site.ebrary.com/lib/malardalen/Doc?id=10014635&ppg=26. 20 May 2006
[9] Cary Adams, Praveen Gupta and Charles Wilson, “Six Sigma Deployment”, 2002,
www.adamssixsigma.com. 22 May 2006
[10] Y. Narahari, Senior Member, IEEE, and N. Viswanadham, “IEEE
TRANSACTIONS ON AUTOMATION SCIENCE AND ENGINEERING”, Design of
Six Sigma Supply Chains, 2004, VOL.1. 20 May 2006
[11] http://www.microsoft.com/office/showcase/sixsigma, 22 May 2006
[12] George, Michael L. Lean Six Sigma : Combining Six Sigma Quality with Lean
Production Speed. Blacklick, OH, 2002, USA: McGraw-Hill Companies,
23 May 2006
[13] Pande, Peter S. Six Sigma Way Team Fieldbook, 2001: “An Implementation
Guide for Project Improvement Teams”. 25 May 2006
61
[14] Tennant, Geoff. Design for Six Sigma : Launching New Products and Services
Without Failure. Abingdon, Oxon, , GBR: Gower Publishing Limited, 2002. p xv.
25 May 2006
[15] Arjan J. van Weele,”PURCHASING AND SUPPLY CHAIN MANAGEMENT”,
analysis, strategy, planning and practice, Fourth Edition. 25 April 2006
[16] Steve Banker and Sid Snitkin “A Foundation of Operational Excellence”
(March/April, 2003),
http://www.gra.net.au/pdf/GRA%20Six%20Sigma%20Supply%20Chain%20Service.
pdf, 01 June 2006
[17] http://www.all1source.com/supply_chain/services-supplychain.html, 05 jun 2006
[18] http://www.catalystconsulting.co.uk/article4.html, 05 June 2006
[19] http://www.sourcing.com/isi/SixSigma/SixSigma.htm, 05 June 2006
[20] http://www.adamssixsigma.com/Newsletters/supply_chain_management.htm,
10 June 2006
[21] http://members.microsoft.com/CustomerEvidence/Search/EvidenceDetails.aspx
EvidenceID=334, 25 May 2006
[22] Zeeshan Alam Insari, Purchasing Officer, “Systems LTD”
Zeeshan.ansari@systemsltd.com, 05 June 2006
[23] www.utxl.com/report.pdf
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9.2 Appendix
9.2.1 Interview
The purpose of this interview is to have information from the supply chain
management/purchaser about the connection with supplier. It is to be conducted on
the manager responsible for this job. This is the questionnaire which is to be answered
by all the participants for purchasing, responsible for day to day running of the
relationship.
1. What job your suppliers perform for you?
2. Which factors influence on demand for the product (client’s name/supplier)
provides you?
3. Is your demand for product is constant, increasing or decreasing?
4. How much you buy parts or products?
5. How regularly you need to buy?
6. How you make your decision of buying?
7. Which factors you must considered during buying process?
8. What are the most important factors in your buying decision?
9. Which risks you perceive in buying?
10. Which services you expect from supplier?
11. Which is most important challenge at this time for your company?
12. Suppose, if you are purchasing some products and your supplier is based on or
working according to Six Sigma then your demand will be constant, increasing or
decreasing?
13. Suppose, if you are purchasing some products and your supplier is based on or
working according to Six Sigma then your risks will be the same or different?
14. How you define that who is the best supplier?
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9.2.2 Customer Reference
“Black & Veatch, which has more than 90 engineering offices around the world,
specializes in energy, water, and information infrastructure design projects. A recent
adapter of the Six Sigma continuous improvement methodology, the company
experienced a sharp increase in the number of Six Sigma initiatives that it wanted to
tackle”.
“Black & Veatch Engineering and Construction Company saved $900,000 annually
after implementing a Six Sigma solution using the Microsoft Office System”.
They say, “We selected the Microsoft Office system to build a Six Sigma solution
because it met our list of business requirements, was inexpensive to implement, and
came from a familiar, reliable source.” [21]
9.2.3 Purchaser Opinion
Systems LTD. is a software development house located at Lahore, Pakistan. It has a
grip on software market; moreover it has a wide range of its network all over the
Pakistan. It handles a variety of software including development and services mostly
in Middle East. An interview was conducted electronically on its purchasing officer.
He says, “Our supplying products are consisting on computers, software, hardware,
cables, stationeries and furniture. Our demand from suppliers depends on the
circumstances but it never decreases. Our buying process consists on market
assessments and customer relations as well as best price. Major risks concerning
supplier are quality, delivery time and services. By the year 2006, our management is
working on development of purchasing department. I suppose your thesis may reflect
on our changing and other aspects.” [22]
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