VENDOR QUALITY MANAGEMENT IN AUTOMOBILE INDUSTRY: A DESCRIPTIVE STUDY DISSERTATION

SUBMITTED IN THE PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF

Master of Business Administration

Under the Supervision of

Prof. M Israrul Haque

Submitted By: AHMAD IMROZ KHAN (10 MBAIB 15) DEPARTMENT OF BUSINESS ADMINISTRATION FACULTY OF MANAGEMENT STUDIES & RESEARCH ALIGARH MUSLIM UNIVERSITY, ALIGARH 2012

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Department of Business Administration

Prof. M. Israrul Haque

Aligarh Muslim University, Aligarh

May 3, 2012

CERTIFICATE
This is to certify that Mr. Ahmad Imroz Khan, Roll No. 10MBAIB-15 a student of Master of Business Administration (International Business) has completed his dissertation entitled Vendor Quality Management in Automobile Industry: A Descriptive Study, under my supervision. To the best of my knowledge and belief the research work carried out by him is based on the investigations made, data collection and analyzed by him and it has not been submitted in any other University or Institution for the award of any degree or diploma.

Prof. M. Israrul Haque Supervisor

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ACKNOWLEDGEMENT
I bow in reverence which is my duty to the Almighty Allah whose benign benediction gave me the needful strength for the completion of this work. I deem it my beholden duty to express a deep sense of gratitude to my esteemed supervisor Prof. M.Israrul Haque, Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh for his scholarly guidance; inspiring attitude and stimulating encouragement which made this work a rewarding experience. He has been a source of strength and inspiration to me. I would like to express my sincere gratitude and veneration to the zeal and continuous struggle of my parents and my better half, Maryam Khan for assuring me the opportunity to make this academic pursuit. The sacrifices they have made in bringing me to this stage of my career is immeasurable and their countless blessings are the source of my strength and divine guidance in every walk of my life. I would like to acknowledge my utmost regards to my teacher Mr. Asif Akhter, for his enlightened thoughts and rational wisdom which helped me a lot in making this academic endeavour successful. I wish to convey my special thanks from the kernel of my heart to my group Ali Anwar, Khawer, Fatehuddin, Hammad and Hassan for their love, affection and often constructive criticism and sarcastic remarks with the object of ratifying my fallacies and thereby making my deliberations sound and prefect. They have been with me in full strength and support in every phase of my life and without thanking them I believe my acknowledgment would be incomplete. Perfection is a divine virtue and shortcomings are characteristic feature of human labor. I am taking responsibility of all the shortcomings in this dissertation work and rendering my unconditional apology for the same.

(AHMAD IMROZ KHAN)

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TABLE OF ABBREVIATIONS
Sr. no. 1 Description Matrice dImpacts croises-multipication applique an classment Interpretive Structural Modeling Structural Self-Interaction matrix Initial Reachability Matrix Final Reachability Matrix Quality Management Abbreviations MICMAC

2 3 4 5 6

ISM SSIM IRM FRM QM

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EXECUTIVE SUMMARY
In todays competitive marketplace, many companies have moved from a single vendor to a multi-vendor platform. Managing the numerous individuals and companies you do business with is crucial for developing valuable relationships. Ensuring that correct vendor information is entered, and updating relevant contracts with new information in a timely manner are two major pain points of vendor management. To improve the vendor management process, it is important to track and evaluate vendors on a regular basis. Not only will regular monitoring of vendors ensure they are meeting your expectations, it will also allow you to proactively take measures to seize opportunities or mitigate risks. One major aspect of the purchasing function is vendor selection, the acquisition of required material, services and equipment for all types of business enterprises. By its very nature the purchasing function is a basic part of business management. In today's competitive operating environment it is impossible to successfully-produce low cost, high quality products without satisfactory vendors. Thus one of the most important purchasing decisions is the selection and maintenance of a competent group of suppliers. The selection of competent suppliers has long been regarded as one of the most important functions to be performed by a purchasing department. Demographically and economically, Indias automotive industry is wellpositioned for growth, servicing both domestic demand and, increasingly, export opportunities. A predicted increase in Indias working-age population is likely to help stimulate the burgeoning market for private vehicles. Rising prosperity, easier access to finance and increasing affordability is expected to see four-wheelers gaining volumes, although two wheelers will remain the primary choice for the majority of purchasers, buoyed by greater appetite from rural areas, the youth market and women.

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With the increasing demand in Indian market and global player entering it is very important of the Indian automobile industry to be at par as per the quality standards and flexible as per the customer requirements. Automobile industry requires collaborative approach with vendors for sustainable growth so, it is very important that vendor selection process should be such that vendors selected are able to grow the way automobile industry is growing. Growth in terms of capability, flexibility and R& D. In this study we have tried to figure out the most important factors that should be responsible for vendor selection. This study also focuses on the inter connectivity of these factors and their hierarchy of importance.

Main objectives of the study were: To understand the basic practices involved in Vendor Management. To identify the key factors for selecting vendor in automotive industry. To find out key factors responsible for vendor selection. Development of Model through ISM (Interpretive Structural Modeling). MICMAC Analysis

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TABLE OF CONTENTS
CERTIFICATE ......................................................................................................................... 1 ACKNOWLEDGEMENT ........................................................................................................ 2 TABLE OF ABBREVIATIONS .............................................................................................. 3 EXECUTIVE SUMMARY ....................................................................................................... 4 1. VENDOR QUALITY MANAGEMENT .......................................................................... 7 1.1 1.2 1.3 2. Overview .................................................................................................................. 7 Quality management constructs ........................................................................... 8 Vendor selection criteria and methods ................................................................ 8

AUTOMOTIVE INDUSTRY IN INDIA ........................................................................ 10 2.1 Indian Auto Sector Medium term .................................................................... 12

2.1.1 Growth .................................................................................................................. 12 2.2 3. Indian Auto Sector Long term .......................................................................... 18

RESEARCH METHODOLOGY .................................................................................. 21 3.1 Objectives of the Study: ............................................................................................ 21 3.2 Research Methodology ............................................................................................. 21 3.2.1 Research Design ................................................................................................ 21 3.2.2 Interpretive Structural Modeling Methodology ................................................ 21 3.2.3 The important characteristics of ISM .................................................................... 22 3.2.4 Steps involved in Development of ISM Model ..................................................... 23 3.2.5 MICMAC Analysis ............................................................................................... 26

4.

MODEL DEVELOPMENT............................................................................................ 27 4.1 Structural Self-Interaction Matrix ............................................................................. 27

5.

CONCLUSION & RECOMMENDATION ................................................................... 39 5.1 Conclusion................................................................................................................... 39 5.2 Recommendation ....................................................................................................... 40

6. REFERENCES ................................................................................................................. 41

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1.

VENDOR QUALITY MANAGEMENT

1.1 Overview In todays competitive marketplace, many companies have moved from a single vendor to a multi-vendor platform. Managing the numerous individuals and companies you do business with is crucial for developing valuable relationships. Ensuring that correct vendor information is entered, and updating relevant contracts with new information in a timely manner are two major pain points of vendor management. To improve the vendor management process, it is important to track and evaluate vendors on a regular basis. Not only will regular monitoring of vendors ensure they are meeting your expectations, it will also allow you to proactively take measures to seize opportunities or mitigate risks. In a competitive market, the demand for quality is emerging as the single most critical factor for companies to survive in the ever-expanding global market place. Quality is vital in determining the economic success of manufacturing companies (Garvin, 1988, Curkovic et al., 2000). World-class manufacturing companies gain competitive edge and greater market share through extraordinary levels of performance by providing a quality product with a competitive price as required by demanding customers. The concept of Quality Management (QM) has been developed as the result of intense global competition. Companies with international trade and global competition have paid considerable attention to QM philosophies, procedures, tools and techniques. A growing number of companies use QM practices as strategic foundation for generating a competitive advantage (Reed et al., 2000) and improving organizational performance (Samson and Terziovski, 1999). However, the implementation of QM has not occurred at the same pace in different regions of the world especially in automotive industries.

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1.2 Quality management constructs Quality management constructs have been investigated extensively (Saraph et al, 1989). To generate distinct generic construct, first defined a list of others constructs proposed in a large set of articles. Then, each construct was analyzed whether it was different or similar to the constructs previously analyzed. This process resulted with the eight following constructs: quality leadership, customer focus and satisfaction, quality information and analysis, human resource development, strategic planning management, quality results, and quality assurance. Time has continuously redefined success for business. In the 1980s it was companies that had effective internal product development. In the 1990s it was companies who could mix internal development with the ability to effectively acquire and integrate. In the new millennium, it will be those companies that can do the above and effectively partner. John Chambers, President and CEO, Cisco Systems

1.3 Vendor selection criteria and methods Strategic management decisions impact all areas of a firm. Once such decisions have been made, the criteria for making subsequent operational decisions must be re-examined. New strategic directions may require new criteria and/or a re-emphasis of existing criteria used in making the operational decisions necessary to implement them. One major aspect of the purchasing function is vendor selection, the acquisition of required material, services and equipment for all types of business enterprises. By its very nature the purchasing function is a basic part of business management. In today's competitive operating environment it is impossible to successfully-produce low cost, high quality products without satisfactory vendors. Thus one of the most important purchasing decisions is the selection and maintenance of a competent group of suppliers. The selection of competent suppliers has long been regarded as one of the most important functions to be performed by a purchasing department. For example, Howard Lewis in one of the early purchasing texts (1943), stated: "It

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is probable that of all the responsibilities which may be said to belong to the purchasing officers, there is none more important than the selection of a proper source. Indeed, it is in some respects the most important single factor in purchasing" (Lewis, p. 249). For many firms, purchases from outside vendors account for a large percentage of their total operating costs. The raw material purchased for most U.S. firms constitutes 40-60% of the unit cost of a product. For large automotive manufacturers, the cost of components and parts purchased from outside vendors may total more than 50% of sales. Purchased material and services represent up to 80% of total product costs for high technology firms (Burton, 1988). Coal purchases for large electric utilities, such as TVA, approach $1 billion annually (Bender et al., 1985).

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2.

AUTOMOTIVE INDUSTRY IN INDIA

Demographically and economically, Indias automotive industry is wellpositioned for growth, servicing both domestic demand and, increasingly, export opportunities. A predicted increase in Indias working-age population is likely to help stimulate the burgeoning market for private vehicles. Rising prosperity, easier access to finance and increasing affordability is expected to see four-wheelers gaining volumes, although two wheelers will remain the primary choice for the majority of purchasers, buoyed by greater appetite from rural areas, the youth market and women. Domestically, some consolidation or alliances might be expected, driven by the need for access to better technology, manufacturing facilities, service and distribution networks. The components sector is in a strong position to cash-in on Indias costeffectiveness, profitability and globally-recognized engineering capabilities. As the benefits of collaborations become more apparent, super-specialists may emerge in which the automobile is treated as a system, with each specialist focusing on a sub-system, akin to the IT industry. Though this approach is radical, it could prove an important step in reducing complexity and investment requirements, while promoting standardization and meeting customer demands. Manufacturers are already planning for the future: early advocates of technological and distribution alliances have yielded generally positive results, enabling domestic OEMs to access global technology and experience, and permitting them to grow their ranges with fewer financial risks. This exciting outlook for the industry is set against a backdrop of two potentially game-changing transportation trends the gradual legislative move towards greener, gas-based public transport vehicles, and a greater requirement for urban mass mobility schemes to service rapidly-expanding cities.

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Figure 2. 1

Figure 2. 2

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Figure 2. 3

2.1 Indian Auto Sector Medium term The Indian automobile industry has seeninteresting dynamics in recent times with the effect of the global downturn, followed by recovery in domestic demand. The future of the industry in the medium term based on current trends, is analyzed here along two broad themes in the global automobile industry: Growth Consolidation As discussed below, the nature of demand in the Indian automotive industry and theassociated drivers are likely to take it along a path, which is different from the evolving global automotive landscape. 2.1.1 Growth Indias automobile market has grown steadily over the last seven to eight years, with the exception of the previous two years where the effects of the global downturn were felt, primarily in sales of commercial vehicles. However, even during the downturn, the two-wheeler and three wheeler segments, which were until then experiencing low growth or losing volumes, bucked the

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trend. As Figure shows Indias vehicle demand is quite different from other top automobile markets with the exception of China in that two-wheelers constitute a significant portion of vehicle demand (more than 3/4th of the Indian market is in two-wheelers). In the context of the unique characteristics of the Indian automobile market, growth is expected to be driven by the following: Figure 2. 4

Affordability While quite a few new vehicles launched in the Indian market have been developed locally, vehicle affordability remains a significant concern as seen in Figure. Although the price of an average motorcycle in India (about USD 900) is comparable to the average per capita income, the prices of passenger cars have a long way to go. Although the entry level car (Nano) is priced at around USD 2,500, the passenger car market could grow multi-fold if there is a break-through of another price level in the years to come. John Flintham, global CEO of Amtek Auto, believes four-wheelers are particularly wellplaced to take advantage of these changing trends. If you look at the Tata Nano, people buying two-wheeler bikes who have a bit more disposable income and can now afford to buy a car instead. I think youre

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going to see a doubling of sales over the next three to four years and I think thats going to be driven by both domestic demand and by India becoming a small car export hub. Ford India Managing Director, Michael Boneham, believes changing demographics in India will see auto sales scale new heights. He argues that the increasing number of educated people entering the working age bracket will provide a fertile environment for a buoyant economy and healthy demand for private light transport. The Indian auto industry should have double digit growth levels for the next five years and beyond, depending on taxation, legislation, infrastructure and global conditions, he says. Fuel Economy The volume leaders across two-wheelers and four-wheelers in India are companies which have been able to offer products with the globally acknowledged best-in-class fuel economy rates, as well as affordable total cost of ownership. For example, while the US is setting norms for cars to achieve 35 mpg1 on petrol2 , a majority of Indian cars already offer that much, while the leading class bikes offer up to 200 mpg3 and more in some cases. This performance expectation will only increase in the future. Fuel economy will also be an important factor in the truck sector, with Marc Llistosella, CEO and Managing Director of Daimler India Commercial Vehicles, noting that a vehicles mpg rating will become an increasingly important purchasing factor. Some 65 percent of the total cost of ownership of a truck is fuel consumption. This goes directly to the profit and loss of the customer Alternative Fuels Vehicles based on alternative fuels remain another area of interest for both consumers and companies. Reva, a pioneer in electric cars, remains an exception in the area of electric vehicles in India, although in twowheelers there are multiple offerings, none of which have as yet taken off in terms of volume. Although both commercial vehicles and passenger vehicles running on CNG are gaining popularity among transport service providers and

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consumers due to their lower cost of operation, much more needs to be done to improve the fuelling infrastructure before CNG vehicles become more main stream. Figure 2. 5

Niche Products While India remains predominantly a cost conscious market, profitable niches are available for the products which address specific needs. One example is the growth in the sales of gearless scooters. Of these, most of the scooters are in the 75-125cc sub-segment5, often targeted at young people and women in particular. The growing population, a significant proportion of which will be of working age over the next decade, is another source of demand to most automobile companies. The luxury car segment6 has taken off substantially in the last three years and current data suggests that the demand will be sustained in the medium term.While the luxury car volumes are only about one percent of the total passenger vehicle sales in 2009-10,

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the cumulative annual growth rate (in volume) of nearly 40 percent over the last two years suggests that this share is bound to grow. Rural Market The automobile industry has yet to fully tap into demand from rural areas. Previously, consumers from these areas would need to go to automobile dealerships in towns and cities for their vehicle purchases. However, in recent years, market players have made overtures to rural consumers, with encouraging sales. Gradual but steady growth in demand for passenger vehicles from rural areas, accompanying the growth of the overall segment. While the Indian automobile industry seeks to double total sales on the back of steady growth over the next decade, these relatively under tapped demand segments (rural markets, youth, women and luxury cars) are expected to play a significant role. As India seeks to become one of the worlds largest automobile markets, it is interesting to look at its evolution over the years. Indias attraction as a destination for automobile manufacturers has been underscored by the number of new manufacturers entering the country over the last two decades. Unlike in several markets, the number of manufacturers has continued to grow in India over the years across vehicle segments. Global consolidation is a natural process of business alignments based on technologies and market opportunities, says Daimlers Marc Llistosella. The Indian market is evolving as the next big opportunity and players from across the world see it as a natural extension of their business domain. And Indian players in the automotive component sector are now viewing the entire global market as an opportunity. With high skill levels and a competitive environment, they are no longer restricted to viewing India alone.

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Figure 2. 6

Figure 2. 7

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2.2 Indian Auto Sector Long term The nature of the long term state of the Indian automobile industry appears fluid, given that globally evolving phenomena such as the rise of greener, hybrid vehicles are yet to take off in India. However, the Indian automotive industry has scripted a different story in the development of greener vehicles with the rise of CNG as a popular option among consumers. In this context, we discuss the following trends Green revolution Mobility revolution. Green Revolution: In a price-conscious economy such as Indias, the shift towards green vehicles will be slow unless spurred by government mandates. Although the major players are already equipped with the necessary capabilities to develop cleaner vehicles, they do not see much merit in commercializing these technologies until the green revolution gains momentum most likely through changes in political legislation and it achieves the market scale required for commercial viability. Manufacturers are placing greater faith in dual-fuel technologies than in battery-powered alternatives because the necessary support infrastructure, such as recharge stations, is not yet in place for the widespread adoption of the latter. The launch of electric motorcycles could have a significant impact on the market, given that motorcycles account for the majority of two-wheeler sales in India. Manufacturers of four-wheelers and commercial vehicles in particular stress the importance of optimizing conventional combustion engines before experimenting too radically with costly new technologies.

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Figure 2. 8

Mobility Revolution: Use of public transport in India has waned as private vehicle ownership has boomed, but increasing strain on the road infrastructure in major cities means public investment is likely in Urban Mass Mobility Schemes such as metro systems andbuses. The automotive industry is unlikely to lose much of its customer base in the near-term, even as these schemes become more prevalent, because the socio-economic statement of car ownership will continue to make private vehicles desirable. At present there is a lack of clarity in the automotive industry over the role it will play in any mobility revolution. Although some industry experts believe the impact of the mobility revolution will be minimal in the short-term, there may be opportunities for manufacturers to become involved with the public sector in areas such as improving links between different modes of transport. Current low car penetration, rising prosperity and the increasing affordability of private vehicles offer a healthy prognosis for the Indian automotive industry. The companies benefiting most from this evolving landscape will be those who forge judicious alliances and resource-sharing agreements, who prepare for the growing importance of green technologies, and who remain flexible enough to respond to the twin needs of private light transport and mass transport schemes.

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India is home to a vibrant automobile of more than 40 million vehicles. It has been one of the few worldwide which saw growing passenger car sales during the recession of the past two years. In fact, in 2009-10 it has recorded its highest volumes ever. It is believed this upward trend will be sustained in the foreseeable future due to a strong domestic market and increased thrust on exports. The Indian economy has grown at an average rate of around 9 percent over the past five years and is expected to continue this growth in the medium term. This is predicted to drive an increase in the percentage of the Indian population able to afford vehicles. Indias car per capita ratio (expressed in cars per 1,000 population) is currently among the lowest in the worlds top 10 auto markets. The twin phenomena of low car penetration and rising incomes, when combined with increasing affordability of cars, are expected to contribute to an increase in Indias automobile demand. Figure 2. 9

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3.

RESEARCH METHODOLOGY

Research focuses emerging trends in Indian Automotive Industry and supplier selection problem. 3.1 Objectives of the Study: To understand the basic practices involved in Vendor Management. To identify the key factors for selecting vendor in automotive industry. Development of ISM Model through ISM. MICMAC Analysis

3.2 Research Methodology A personal interview based survey and ISM approach has been used to achieve the objectives of this research work. These methodologies and their results are discussed in the following sections. 3.2.1 Research Design Primary Data was collected by personal interview using check list. The main objective of interview based survey was to facilitated researcher to have a detailed understanding of the process and developing a relationship matrix as a first step towards developing an ISM-based model. Research Instrument: Check list. Sample Size: 10 (Ten) Data Collection Technique: Personal Interview. 3.2.2 Interpretive Structural Modeling Methodology In todays dynamic business world, individuals or groups are required to deal with various complex issues or systems. The intricacy of the issues or systems is due to the presence of a large number of mutually interacting variables. The presence of directly or indirectly related variables complicates the structure of the system. It becomes difficult to deal with such a system in which structure is not clearly defined. Hence, it calls for a methodology, which aids in identifying a structure within a system. Interpretive structural modeling

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(ISM) is one such a methodology. ISM methodology helps to bring order and direction on the complex relationships among variables of a system (Warfield, 1974; Sage, 1977). In this methodology, the value added is structural and information added (by the process) is zero (Farris and Sage 1975; Raj et al., 2007). Its most vital function is organizational. The ISM process transforms unclear, poorly articulated mental models of systems into visible and well defined models. ISM is an interactive learning process whereby a set of different, directly and indirectly related variables are structured into a comprehensive systemic model. The model so formed portrays the structure of a complex issue or problem in a carefully designed pattern implying graphics as well as words (Singh et al., 2003, Ravi and Shankar 2005). 3.2.3 The important characteristics of ISM a) interpretive b) structural c) modeling technique d) imposing order and direction and e) a group learning process. These characteristics are explained as follows: (a) Interpretive: The methodology is interpretive, because of the fact, that the group of experts decides whether and how the variables are related to each other. (b) Structural: It is structural too, as on the basis of relationship; an overall structure is extracted from the complex set of variables. (c) Modeling technique: The methodology is a modeling technique in which the specific relationships of the variables and the overall structure of the system under consideration are portrayed using digraph and words. (d) Order and direction: It helps to impose order and direction on the complexity of relationships among various elements of a system (Sage, 1977). (e) Group learning process: ISM is primarily intended as a group learning process, but it can also be used by individuals. In addition to the above characteristics, the ISM approach has two basic concepts, the concept of transitivity and reachability, which are essential to

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understand the ISM methodology (Raj et al., 2007). The concept of transitivity can be explained with the following example. If a variable p is related to q and q is related to r, then transitivity implies that variable p is necessarily related to r. The same is shown in Figure 3.1. Transitivity is the basic assumption in ISM and is always used in this modeling approach (Farris and Sage 1975, Sharma et al. 1995).

Figure 3. 1: Concept of Transitivity

p q

The reachability concept is the building block of ISM methodology. The identified variables are compared for their interrelation on a paired basis. This information is represented in the form of binary matrix. If a variable p influences another variable q, then entry in the cell (p, q) of the reachability matrix is 1 and if variable p does not influence q, then entry in the cell (p, q) of the reachability matrix is 0. ISM methodology, mainly involves following two tasks: Development of ISM model MICMAC analysis

3.2.4 Steps involved in Development of ISM Model Various steps involved in the ISM methodology for development of model for different variables are as follows: Step 1: Variables affecting the system under consideration are identified and

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listed, which can be objectives, actions, and individuals, etc. A survey or group problem solving technique can be used for identification of the variables related to the defined problem. Step 2: From the variables identified in first step, a contextual relationship is established among variables with respect to which pairs of variables would be examined. Step 3: A structural self-interaction matrix (SSIM) is developed for variables, which indicates pair-wise relationships among variables of the system under consideration. Step 4: Initial reachability matrix is developed from the SSIM and the matrix is checked for transitivity to arrive at final reachability matrix. Step 5: The final reachability matrix obtained in step four is partitioned into different levels. Step 6: Subsequently, the final reachability matrix is converted into its conical form, i.e. with most zero (0) variables in the upper diagonal half of the matrix and most unitary (1) variables in the lower half. Step 7: Based on the relationships given above in the final reachability matrix, a directed graph (digraph) is generated by considering a set of points or elements and their interconnection according to a contextual relation. Step 8: After obtaining the digraph structural model corresponding to a given set of elements and a contextual relation, each point is replaced by a description of the point for the interpretive purposes and the result is denoted an Interpretive Structural Model ( Sage and Smith, 1977). Step 9: Finally, the ISM model developed in the eighth step is reviewed to check for conceptual inconsistency and necessary modifications are made.

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The flow diagram for construction of an ISM-based model is given as Figure 3.2 Figure 3. 2: Flow Diagram for ISM-based Model

Listing of variables

Literature review Expert opinion Developing reachability matrix Developing the reachability in its conical form Developing digraph Necessary Modifications

Establishing contextual relationships among variables Developing Structural Self-Interaction Matrix

Removing transitivity from the digraph

Ascertaining Replacing variable nodes with relationship statements Conceptual Inconsistency NO

Yes

Represent relationship statement into model

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3.2.5 MICMAC Analysis Matrice dImpacts croises-multipication applique an classment (cross-impact matrix multiplication applied to classification) is abbreviated as MICMAC. The MICMAC principle is based on multiplication properties of matrices (Sharma et al. 1995; Raj et al., 2007).The objective of the MICMAC analysis is to analyze the driving power and the dependence of the variables (Mandal and Deshmukh, 1994; Faisal et al., 2006). This is done to identify the key variables that drive the system in various categories. Based on their driving power and dependence power, the variables in the present case, are classified into four categories as follows: 1. Autonomous variables: These are the variables having weak driving power as well as weak dependence. These variables are relatively disconnected from the system, with which they have only few links, which may not be strong. 2. Dependent variables: This category includes those variables which have strong dependence but weak driving power. 3. Linkage variables: Variables which have strong dependence as well as strong driving power are known as linkage variables. These variables are unstable also. Any action on these variables will have an effect on others and also a feedback effect on themselves.
4. Independent variables: They have strong driving power but weak

dependence power. It is generally observed that a variable with a very strong driving power called the key variable falls into the category of independent or linkage variables.

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4.

MODEL DEVELOPMENT

4.1 Structural Self-Interaction Matrix ISM methodology suggests the use of the expert opinions based on various management techniques such as brain storming, nominal technique, etc., in developing the contextual relationship among the variables. Supplier or vendor selection decisions are complicated by the fact that various criteria must be considered in decision making process. The analysis of criteria for selection and measuring performance of supplier has been focus of many scientist and purchasing practitioners since 1960s. An Interesting work which is the reference for majority of papers dealing with supplier or vendor selection problem was presented by Dickson (Dickson, 1966). Dicksons study was based on questioners sent to 273 purchasing agent selected from the membership list of National Association of Purchasing Managers. The list included purchasing agents and managers from United States and Canada. Dickson stated 23 criteria and ranked them with respect to their importance observed in the beginning of sixties. At that time (1966) the most significant criteria were the quality of product, the on time delivery, the performance history of supplier and the warranty policy used by the supplier. Criteria used in Dickson study 1) The net price (including the discount and freight charges) offered by supplier 2) The ability of each supplier to meet quality specifications consistently. 3) The repair service likely to be given by each supplier. 4) The ability of each supplier to meet specified delivery schedule. 5) The geographical location. 6) The financial position and credit rating of each supplier. 7) The production facilities and capacity of each supplier. 8) The amount of past business that has been done with each supplier.

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9) The technical capability (including research and development facilities) of each supplier. 10) The management and organization of each supplier. 11) The future purchases each supplier will make from your company. 12) The communication system (with information of progress data of orders) of each supplier. 13) The operational control (including reporting quality control and inventory control) of each supplier. 14) The position in the industry (including production leadership and reputation) of each supplier. 15) The labour relation record of each supplier. 16) The attitude of each suppler towards your organization. 17) The desire for your business shown by each supplier. 18) The warranties and claim policies of each supplier. 19) The ability of each supplier to meet your packaging requirement for his product. 20) The impression made by each supplier in personal contact with you. 21) The availability of training aids and educational courses in the use of the product of each supplier. 22) Compliance or likelihood of compliance with your procedures (both bidding and operating) by each supplier. 23) The performance history of each suppler.

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Table 4.1: Dickson's supplier or vendor selection criteria Rank Criteria Main Rating 3.508 3.147 2.998 2.849 2.775 2.758 2.545 2.514 2.488 2.426 2.412 2.256 2.216 2.211 2.187 2.120 2.054 2.009 2.003 1.872 1.597 1.537 0.610 Evaluation

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Quality Delivery Performance History Warranties and Claim Policies Production facilities and Capacity Price Technical Capability Financial Position Procedural Compliance Communication System Reputation and Position in industry Desire of Business Management and Organization Operation Control Repair Service Attitude Impression Packaging Ability Labor relation records Geographical location Amount of past business Training Aids Reciprocal Arrangements

Extreme Importance

Considerable Importance

Average Importance

Slight Importance

Overall the 23 criteria presented by Dickson still cover the majority of the criteria presented in the literature until today. In our study we have chosen the top seventeen ranked criteria for ISM.

Step 1: Establishing the contextual relationship between enablers After identifying and enlisting the 17 enablers through literature review and expert opinion, the next step is to analyze these enablers. For this purpose, a contextual relationship of reaches to type is chosen. This means that one

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enabler reaches to another chosen enabler. Based on this principle, a contextual relationship is developed. Some experts, both from industry and academia, have been consulted in developing the contextual relationship among the enablers. Keeping in mind the contextual relationship for each enabler, the existence of a relation between any two enablers (i and j) and the associated direction of this relation has been decided. The following four symbols have been used to denote the direction of the relationship between two enablers (i and j). V is used for the relation from enabler i to enabler j (i.e. if enabler i influences or reaches to enabler j). A is used for the relation from enabler j to enabler i (i.e. if enabler j reaches to enabler i). X is used for both direction relations (i.e. if enablers i and j reach to each other). O is used for no relation between two enablers (i.e. if enablers i and j are unrelated). Step 2: Development of structural self-interaction matrix (SSIM) Based on the contextual relationship between enablers, the SSIM has been developed. To obtain consensus, the SSIM was discussed in a group of experts. Table 4.2: Structural self-interactive matrix (SSIM). Enablers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 A O A A O O O A A O A A O O A O 16 O O A A O O O O A O A O O O O 15 O O O X O O A O A A O A A A 14 V V O O X V X O X A O O X 13 V V V V X O V V V V V V 12 O O X O A V V A O O O 11 A O A O O O A A A O 10 O V O V O O O O A 9 V V X V O O O O 8 O O V O X O V 7 V O V O V V 6 A O O A A 5 V V V O 4 3 2 O O O O O V

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Based on their responses, SSIM has been finalized and it is presented in table 4.2. The following statements explain the use of symbols in SSIM: Symbol V is assigned to cell (14, 2) because enabler 14 influences or reaches to enabler 2. Symbol A is assigned to cell (12, 5) because enabler 12 influences the enabler 5. Symbol X is assigned to cell (14, 7) because enablers 14 and 7 influence each other. Symbol O is assigned to cell (13, 6) because enablers 13 and 6 are unrelated. Step 3: Development of the reachability matrix The next step is to develop the reachability matrix from SSIM. This is obtained in two sub-steps. In the first sub-step, the SSIM format is converted into the initial reachability matrix format by transforming the information of each cell of SSIM into binary digits (i.e. ones or zeros) in the initial reachability matrix. This transformation has been done with the following rules: 1. If the cell (i, j) is assigned with symbol V in the SSIM, then, this cell (i, j) entry becomes 1 and the cell ( j, i) entry becomes 0 in the initial reachability matrix. 2. If the cell (i, j) is assigned with symbol A in the SSIM, then, this cell (i, j) entry becomes 0 and the cell ( j, i) entry becomes 1 in the initial reachability matrix. 3. If the cell (i, j) is assigned with symbol X in the SSIM, then, this cell (i, j) entry becomes 1 and the cell ( j, i) entry also becomes 1 in the initial reachability matrix.

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4. If the cell (i, j) is assigned with symbol O in the SSIM, then, this cell (i, j) entry becomes 0 and the cell ( j, i) entry also becomes 0 in the initial reachability matrix.

Table 1.3: Initial reach ability matrix Enablers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1 1 0 0 0 0 1 0 0 0 0 1 0 0 0 0 0 1 2 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 1 0 0 0 0 0 1 0 1 1 0 0 0 1 1 4 0 0 1 1 0 1 0 0 0 0 0 0 0 0 1 1 1 5 1 1 1 0 1 1 0 1 0 0 0 1 1 1 0 0 0 6 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 7 1 0 1 0 1 1 1 0 0 0 1 0 0 1 1 0 0 8 0 0 1 0 1 0 1 1 0 0 1 1 0 0 0 0 1 9 10 11 12 13 14 15 16 17 1 0 0 0 1 1 0 0 0 1 1 0 0 1 1 0 0 0 1 0 0 1 1 0 0 0 0 1 1 0 0 1 0 1 0 0 0 0 0 0 1 1 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 1 0 0 0 0 1 0 0 0 1 1 0 0 0 1 1 0 0 1 0 0 0 0 1 0 1 0 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 1 1 0 0 0 1 1 0 0 1 1 0 0 0 1 1 0 1 1 1 1 0 0 1 0 1 0 0 0 0 1 0 1 0 1 1 0 0 0 0 1

In the second sub-step, final reachability matrix is prepared. For this purpose, the concept of transitivity is introduced so that some of the cells of the initial reachability matrix are filled by inference. The final reachability matrix will then consist of some entries from the pair-wise comparisons and some inferred entries. The transitivity concept is used to fill the gap, if any, in the opinions collected during the development of SSIM. Following the above rules, the initial reachability matrix is prepared as shown in table 4.3. After incorporating the transitivity concept as described above, the final reachability matrix is obtained as shown in table 4.4.

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Table 4.4: Final reach ability matrix

Enablers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Dependence 1 1 0 0 0 0 1 0 0 0 0 1 0 0 0 0 0 1 4 2 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 3 1* 1* 1 1* 0 1* 1* 0 1 0 1 1 0 0 1* 1 1 12 4 0 0 1 1 0 1 0 0 1* 0 1* 1* 0 0 1 1 1 9 5 1 1 1 1* 1 1 1* 1 1* 1* 1* 1 1 1 1* 0 1* 16 6 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 7 1 1* 1 1* 1 1 1 1* 1* 0 1 1* 1* 1 1 1* 1* 16 8 1* 1* 1 0 1 1* 1 1 1* 0 1 1 1* 1* 1* 1* 1 15 9 1 1 1 1 1* 1* 1* 0 1 1 1 1* 1* 1 1 1 1 16 10 1* 1 1* 1 1* 1* 1* 0 1* 1 0 0 1* 1 1 1* 1* 14 11 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 1 1 3 12 1* 0 1 1* 1* 1 1 0 0 0 1* 1 0 0 1 1* 1 11 13 1 1 1 1 1 1* 1 1 1 1 1 1* 1 1 1 1* 1* 17 14 1 1 1* 1* 1 1 1 1* 1 1* 1* 0 1 1 1 1* 1* 16 15 0 0 0 1 0 1* 0 0 0 0 0 0 0 0 1 1* 1* 5 16 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 Driving Power 10 9 10 10 8 13 9 5 9 5 11 8 7 7 11 12 14 158

Step 4 : Level Partitions

The reachability and antecedent set for each enabler is found out from final reachability matrix. The reachability set for a particular variable consists of the variable itself and the other variables, which it may help achieve. The antecedent set consists of the variable itself and the other variables, which may help in achieving them. Subsequently, the intersection of these sets is derived for all variables. The variable for which the reachability and the intersection sets are the same is given the top-level variable in the ISM hierarchy, which would not help achieve any other variable above their own level. After the identification of the top-level element, it is discarded from the other remaining variables as shown in table 4.5 4.9.

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Table 4.5: Iteration 1

Enabler Reachabity 1 1,3,5,7,8,9,10,12,13,14 2 2,3,5,7,8,9,10,12,13 3 3,4,5,7,8,9,10,12,13,14 4 3,4,5,7,9,10,12,13,14,15 5 5,7,8,9,10,12,13,14 6 1,3,4,5,6,7,8,9,10,12,13,14,15 7 3,5,7,8,9,10,12,13,14 8 5,7,8,13,14 9 3,4,5,7,8,9,10,13,14 10 5,9,10,13,14 11 1,3,4,5,7,8,9,11,12,13,14 12 3,4,5,7,8,9,12,13 13 5,7,8,9,10,13,14 14 5,7,8,9,10,13,14 15 3,4,5,7,8,9,10,12,13,14,15 16 3,4,7,8,9,10,11,12,13,14,15,16 17 1,3,4,5,7,8,9,10,11,12,13,14,15,17 Antecedent 1,6,11,17 2 1,2,3,4,6,7,9,11,12,15,16,17 3,4,6,9,11,12,15,16,17 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,17 6 1,2,3,4,5,6,7,8,9,11,12,13,14,15,16,17 1,2,3,5,6,7,8,9,11,12,13,14,15,16,17 1,2,3,4,5,6,7,9,10,11,12,13,14,15,16,17 1,2,3,4,5,6,7,9,10,13,14,15,16,17 11,16,17 1,3,4,5,6,7,11,12,15,16,17 1,2,3,5,6,7,8,9,10,11,12,13,14,15,17 1,2,3,5,6,7,8,9,10,11,13,14,15,17 4,6,15,16,17 16 17 Interxection 1 2 3,4,7,9,11,12 3,4,9,12,15 5,7,8,9,10,12,13,14 6 3,5,7,8,9,12,13,14 5,7,8,13,14 3,4,5,7,9,10,13,14 5,9,10,13,14 11 3,4,5,7,12 5,7,8,9,10,13,14 5,7,8,9,10,13,14 4,15 16 17 Level

I I

I I

Table 4.6: Iteration 2

Enabler Reachabity 1 1,3, 2 2,3 3 3,4, 4 3,4,15 6 1,3,4,6,15 11 1,3,4,11 15 3,4,15 16 3,4,11,15,16 17 1,3,4,11,15,17 Antecedent 1,6,11,17 2 1,2,3,4,6,11,15,16,17 3,4,6,11,15,16,17 6 11,16,17 4,6,15,16,17 16 17 Interxection 1 2 3,4,11 3,4,15 6 11 4,15 16 17 Level

II

Table 4.7: Iteration 3

Enabler Reachabity 1 1 2 2 6 1,6 11 1,11 16 11,16 17 1,11,17 Antecedent 1,6,11,17 2 6 11,16,17 16 17 Interxection 1 2 6 11 16 17 Level

III III

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Table 4.8: Iteration 4

Enabler Reachabity 6 6 11 11 16 11,16 17 11,17 Antecedent 6 11,16,17 16 17 Interxection 6 11 16 17 Level

IV IV

Table 4.9: Iteration 5

Enabler Reachabity 16 16 17 17 Antecedent 16 17 Interxection 16 17 Level

V V

Step 5. Formation of ISM-based model From the final reachability matrix, the structural model is generated. If the relationship exists between the Barriers j and i, an arrow pointing from i to j shows this. This resulting graph is called a digraph. Removing the transitivities as described in the ISM methodology, the digraph is finally converted into the ISM model as shown in Fig 4.1.

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9: Procedural Compliance
Figure 4.1: ISM Model

10: Communication System

12: Desire of Business

13: Management and Organization

14: Operation Control

5: Production facilities and Capacity

7: Technical Capability

8: Financial Position
Level I

3: Performance History

4: Warranties and Claim Policies

15: Repair Service

Level II

1: Quality

2: Delivery
Level III

6: Price

11: Reputation and Position in industry

Level IV

16: Attitude

17: Impression
Level V

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4.2 MICMAC Analysis The drive power and dependence power of enablers is shown in table 4.4. Thereafter, the drive power-dependence power diagram is drawn as shown in figure 4.2. This figure has been divided into four clusters. First cluster includes autonomous enablers, second cluster includes dependent enablers, third cluster includes linkage enablers and fourth cluster contains independent enablers. In the further illustration of this figure 4.2, it is observed from table 4.4 that enabler 12 has drive power of 8 and dependence power of 11; hence in figure 4.2, it is positioned at a place which corresponds to drive power of 8 and dependence of 11, i.e. in the second cluster. Now, its position in the second cluster shows that it is a Dependent variables. Similarly, all the enablers are positioned at places corresponding to their driving power and dependence.

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Figure 4.2 Micmac Analysis

17 16 15 14 17 13 6 12 16

IV

III

Driving Power

11 10 92 8 7 6 5 4 3 2 1 1 2

11 1

14 4 12 3

15 7,9 5 14 13

II

10 8

9 10 11 12 13 14 15 16 17

Dependence

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5.

CONCLUSION & RECOMMENDATION

5.1 Conclusion The result of this study can help in strategic and tactical decisions for a firm to manage vendor in a collaborative way which will result in long run growth of the firm with their vendors. This will help to identify the vendor selection factors in the rank of their importance. In addition factors can be classified on the level of their interrelation as bottom to top level factors. With a hierarchy of factors it will be easy to understand the interconnectivity of factors most responsible for vendor selction. MICMAC Analysis classifies activities that are most important and least important. It gives valuable insights about the relative importance and interdependence among the variables. Important Managerial implications from this studies ar as follows: Fig 4.2 shows no autonomous variables. Autonomous enablers are weak drivers and weak dependents and do not have much influence on the system. This shows that the factors undertaken in the study have impact on vendor selection as none of them falls in this category. Dependent enablers are weak drivers but strongly depend on one another. So, the managers should take special care to handle these variables. Cluster III are linkage variables or enablers. They have strong driving power as well as high dependencies. If they are given full importance at the time of vendor selection they can create positive environment for the successful collaborative growth in future. Cluster IV are independent enablers, i.e. they have strong driving power and weak dependency on other enablers. These factors should be taken for vendor performance evaluation.

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5.2 Recommendation

Vendor management can be a painless process by following a few simple guidelines: Vendor selection should be treated as a strategic process and the factors discussed in this study should be given proper weight age. Factors should be weight as per their appearance in the different levels appeared in the study. The eight factors that fall in the first level in ISM should be the basic criteria for adding a new vendor. Factors of cluster II should be treated as the most important factors hand holding. Share your top priorities with vendors to ensure they are aware of them. Obtain solutions with features that fit your organization now and allow room for growth in the future. During the evaluation process, narrow down the choices to your top two vendors. Engage in negotiations with the top two (rather than just one vendor) to encourage friendly competition. If you are looking to build long term relationships with your vendors, avoid overly aggressive maneuvers for short term gain.

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