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An integrative framework for supplier


relationship management

Article in Industrial Management & Data Systems · April 2010


DOI: 10.1108/02635571011038990 · Source: DBLP

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An integrative
An integrative framework framework
for supplier relationship for SRM
management
495
Jongkyung Park
Department of Industrial Engineering, Seoul National University, Received 6 August 2009
Seoul, South Korea Revised 5 October 2009
Accepted 3 December 2009
Kitae Shin
Department of Industrial and Management Engineering,
Daejin University, Pocheon City, South Korea
Tai-Woo Chang
Department of Industrial and Management Engineering,
Kyonggi University, Suwon, South Korea, and
Jinwoo Park
Department of Industrial Engineering, Seoul National University,
Seoul, South Korea

Abstract
Purpose – There have been many studies on topics related to supplier relationship management
(SRM), namely purchasing strategy, supplier selection and development, and collaboration with
suppliers. However, these studies have not suggested a solution based on an integrative concept, as
they focus only on domain-specific problems. To overcome this limitation, the purpose of this present
paper is to suggest a framework for an integrative SRM system by analyzing comprehensive
approaches to overall SRM functions.
Design/methodology/approach – The paper reviewed and analyzed studies related to SRM from
an integrative viewpoint, proposed a framework for an integrative SRM system, and performed a case
study based on the analytical hierarchy process with a field survey.
Findings – The paper expects that the proposed framework can play a major role in enhancing the
efficiency and effectiveness of SRM by adopting an integrative concept because the functions of
SRM are highly interrelated. Furthermore, it verifies the applicability of the framework via a case
study.
Research limitations/implications – Not many approaches are available for organizing
evaluators or evaluation sheets, which are used for selecting criteria, providing weight, and
evaluating supplier performance, that can secure objectivity of the evaluation; thus, when applying
this framework to the industry, special consideration is needed.
Practical implications – The proposed framework allows the purchasing members to scrutinize
key features of SRM before and during the SRM system operation.
Originality/value – The paper provides useful knowledge about the role of SRM systems by Industrial Management & Data
holistically approaching SRM-related processes while suggesting criteria and recommendations to a Systems
purchasing manager. Vol. 110 No. 4, 2010
pp. 495-515
Keywords Supplier relations, Purchasing, Buyer-seller relationships q Emerald Group Publishing Limited
0263-5577
Paper type Research paper DOI 10.1108/02635571011038990
IMDS 1. Introduction
110,4 Owing to the globalization of markets, the diversification of customer needs, and the
complexity of product components, the efficiency of supply chain management has
become an important factor in an enterprise’s competitiveness. It is recognized
that properly managing the supply chain cannot only diminish risks and uncertainty,
but can also optimize the inventory level and process cycle time, so that enterprises are
496 able to satisfy customers and make a good profit (Simchi-Levi et al., 2003). In order for
supply chain management to perform successfully, the purchasing function must be
properly considered, where the significance of the purchasing function increases as
the purchasing and outsourcing costs assume a greater portion of the total costs of the
manufacturing process. In response to this effect, companies have focused more
interest on the supplier relationship management (SRM) system. However, until
recently, researchers in this area have dealt with the SRM system by focusing solely on
specific subjects, such as purchasing strategy, supplier selection, collaboration, and
supplier development. Interestingly, these subjects are rarely dealt with from a holistic
perspective. In regard to purchasing and related activities, it is critical that the relevant
departments cooperate, and thus it is also very important to build an information
system (IS). To build an integrative system, managers should be equipped with a
comprehensive knowledge of each team’s work, how the related works influence each
other, and what is important in each department to provide a good overall result.
We suggest a framework for an integrative SRM system that consists of purchasing
strategies, considerations for suppliers, collaboration in product development and
production activities, and supplier assessments. In addition, this system should
support collaboration tasks by seamlessly connecting with an advanced planning and
scheduling (APS) system, an enterprise resource planning (ERP) system, a
manufacturing execution system (MES), a warehouse management system (WMS),
a product lifecycle management system, and a legacy system. To this end, we have
developed an SRM system architecture that effectively achieves collaboration.
In addition, like almost every IS, the SRM system must continuously develop through a
feedback process, and therefore this study suggests a framework for continuous
improvement (CI).
This paper is structured as follows. Section 2 provides a review of the literature.
In Section 3, we elaborate on the processes of the framework for the integrative
SRM system. In Section 4, we conduct a case study. Finally, we conclude our study in
Section 5.

2. Literature review
An SRM system strategically aims for collaboration with suppliers, so that a company
can develop a new product competitively and produce goods efficiently. Accordingly,
topics such as shaping the purchasing strategy, supplier selection, collaboration, and
supplier management have been widely studied. This section examines how these
issues have been presented in the literature.

2.1 Shaping purchasing strategies


Purchasing strategies can be classified into two types. One is the competitive approach,
which assumes that based on competition between suppliers; buyers can obtain goods
for the minimum price. The other is the cooperative approach, where the supplier and
buyer form a strategic relationship and cooperate with one another to achieve a An integrative
long-term goal (Chandra and Kumar, 2000). In general, the former is also called a framework
traditional purchasing approach, and the latter is called a modern purchasing
approach. However, since the latter may result in a sunk cost that stems from supplier for SRM
evaluation, authorization, and training programs, it does not necessarily guarantee a
benefit (Forker and Stannack, 2000). Therefore, purchasing managers are encouraged
to adopt a “fit-for-purpose” approach. 497
Meanwhile, a purchasing portfolio model is most widely used, especially for
categorizing products to adopt a distinctive approach that accounts for the strategic
implications of each category (Olsen and Ellram, 1997). Many researchers have
modified and extended this model, but Kraljic’s model has served as the basis for these
models (Gelderman and van Weele, 2002). Other interesting studies have focused on a
strategic movement, which shows that by varying the items purchased and the
purchasing types, the items can be purchased in a better condition.
These purchasing strategies focus mainly on cost reduction. Considering that the
purchasing process is a preparatory step for facilitating product development or
production, a new purchasing approach that can optimize the supply chain is needed.

2.2 Supplier selection


A good supplier selection process is very important for efficient purchasing and
manufacturing. The decision-making process of evaluating and selecting a supplier is
complicated for two reasons. First, suppliers can be evaluated by more than one criterion.
Second, each supplier has a different specialty and thus a different criterion.
Additionally, there are two problems encountered in supplier selection (Ustun and
Demirtas, 2008). One is a single sourcing problem: the goal is to satisfy the buyer’s needs
with one supplier. In this case, the manager must decide which supplier is the best. The
other problem is a multiple sourcing problem in which it is not possible to satisfy
the buyer’s needs with one supplier. In this case, the manager has to choose multiple
suppliers and, in turn, allocate supplies to them (Ghodsypour and O’Brien, 1998). With
this in mind, the following two issues of the supplier selection approach are paramount:
(1) The identification of which criteria should be considered in the assessment of
suppliers (Dickson, 1966; Weber et al., 1991).
(2) The application of techniques for the evaluation of suppliers in the
decision-making process so that they can be properly selected (Schniederjans
and Garvin, 1997).

In a study on the development of purchasing criteria, Dickson (1966) described


23 meaningful evaluation factors. After Dickson’s study, a crucial change in
purchasing occurred that dealt with the just-in-time ( JIT) manufacturing strategy
(Weber et al., 1991). Ghodsypour and O’Brien (1998) suggested supplier selection
criteria according to the level of integration between the supplier and the buyer.
Recently, as supply chain perspectives are becoming more important, supply chain
strategies have been determined by product characteristics, and the performance
metrics of the supply chain operations reference model as criteria have been adopted.
In this regard, Wang et al. (2004) proposed that low cost and high quality should be
considered for a lean supply chain and that speed, flexibility, and quality should be
considered for an agile supply chain.
IMDS Next, we consider the supplier selection problem. The supplier selection problem is
110,4 a multiple-criteria decision-making problem that is affected by various trade-off factors
(Amid et al., 2009). Many studies have suggested that it is possible to deal with a single
sourcing problem by utilizing the analytical hierarchy process (AHP) (Barbarosoglu
and Yazgac, 1997; Lee et al., 2001) and the analytic network process (ANP) (Sarkis and
Talluri, 2002). In order to solve the multiple sourcing problem, researchers have
498 proposed linear weighting methods (De Boer et al., 1998), mathematical programming
(MP) techniques (Benton, 1991), and the combination of ANP and MP techniques
(Demirtas and Ustun, 2008). Lately, researchers have adopted fuzzy systems theory,
which complements the shortcomings of qualitative criteria (Chan and Kumar, 2007),
and hybrid methods, which adopt both AHP and pre-emptive goal programming
(Wang et al., 2005). By reviewing 78 supplier evaluation and selection problem studies
from 2000 to 2008, Ho et al. (2009) found that the most popular integrated approach is
AHP-GP, and that the most popular criteria are quality, delivery, and price or cost, in
that order.

2.3 Collaboration
Studies on the collaboration between the supplier and the buyer can be reviewed in two
ways: by focusing on the collaboration strategy or by using an SRM system to carry
out the collaboration strategy. The collaboration strategy can be explored according to
the participation phase of new product development and production.
In many industries, companies encourage suppliers to be involved in seeking ways
to shorten the development time, improve quality, reduce cost, and release new
products smoothly. Previous studies have examined the participation time (Handfield
et al., 1999), the responsibility level in cooperative development (Petersen et al., 2005),
and the type and strength of a contractual relationship (Fliess and Becker, 2006).
The most well known collaboration techniques are JIT purchasing ( JITP), which
makes the customer’s JIT operation possible (Gunasekaran, 1999; Kaynak and Hartley,
2006); vendor managed inventory (VMI), where suppliers take responsibility for a
range of contracts and manage the buyer’s inventory (Simchi-Levi et al., 2003); and
collaborative planning, forecasting, and replenishment (CPFR), which involves
integrating the supply chain.
Finally, studies that have investigated SRM systems for collaboration include
system-oriented concepts, such as using an integrative case-based supplier selection
method (Choy et al., 2004), a web-based enterprise collaboration platform (Lee et al.,
2003), and a collaboration framework from the viewpoint of business strategy (Cox
et al., 2003; Moeller et al., 2006, Day et al., 2008).

2.4 Supplier management


A supplier evaluation involves rating a supplier’s value by measuring the selected
supplier’s capability and performance. The result of the evaluation is used to select
a supplier (Roodhooft and Konings, 1996) and to segment a supplier for differentiated
supplier development.
Noting that a main goal of supplier development is to increase the supplier’s
capability to fulfill supply needs over short- or long-term time periods, Wagner and
Krause (2009) conducted a study of supplier development activities, composed of a
supplier evaluation and feedback and knowledge transfer. The goal of this study was
to develop a method to satisfy the supplier development goals and to improve the An integrative
quality and production time of the product.
framework
2.5 Integrated approaches for SRM
Several conceptual frameworks have discussed the issue of purchasing integration in
the context of manufacturing and corporate strategy. However, in view of the execution
of purchasing, two categories of integrated approaches exist. 499
The first category is a process integration, which consists of a set of approaches
utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores. Ting
and Cho (2008) attempted to provide academic researchers and practitioners with a
better understanding of purchasing strategies through an integrated approach to
supplier selection and purchasing decisions. Erol and Ferrell (2009) adopted the
integrated approach to design purchasing processes by using the concept of total
quality management and JIT.
The second category is solving method integration. There are many studies related
to the integrated decision-making method for solving the supplier selection problem in
SCM, such as integrating AHP and data envelopment analysis (Liu and Wu, 2005),
ANP and multi-objective mixed integer linear programming (Ustun and Demirtas,
2008), and a numerical example (Lin et al., 2009).
According to our survey, current studies on SRM are mostly related to purchasing
and supplier selection viewpoints. The dimensions of the supplier relationship should
be extended to long-term relationships with mutual growth. To achieve this, a more
integrated approach among many departments, including purchasing, production, and
quality control, to name a few, is needed. Section 3 is concerned with the development
of a new framework for such an integrated SRM.

3. Proposed integrative framework


In this section, we suggest a framework for integrating each function. When the
functions are integrated, we should select suppliers who are suitable for the company’s
purchasing strategy. The selected suppliers’ contribution to the company’s
performance will be evaluated through the collaboration, and, as a result of the
evaluation, the supply quantity will be adjusted and the support and development for
the suppliers can be changed.
For an efficient SRM, a comprehensive understanding of all of the work related to
SRM is necessary. To achieve this goal, we suggest an integrative SRM framework
that considers important strategies of each module of the SRM system and connects
these modules. Figure 1 shows the structure of the proposed SRM system, indicating
purchasing strategies, supplier selection, collaboration with suppliers, and supplier
assessment and development. In addition, this proposed system includes CI, which
develops the SRM system through continuous assessment and enhancement.

Shaping Collaboration Supplier


Supplier
the purchasing (supplier assessment and
selection
strategies involvement) development
Figure 1.
The proposed integrative
Continuous improvement SRM framework
IMDS 3.1 Shaping the purchasing strategies
110,4 We shaped the purchasing strategies by employing the three-step method shown in
Figure 2. Step 1 is the classification of the purchasing material by supply risk. Step 2 is
the analysis of the supplier relationship, and Step 3 involves the establishment of an
action plan.
Step 1. Classification of items based on the portfolio model. Figure 3 shows the
500 portfolio matrix that is used to form two product groups: high-supply risk and low-supply
risk. Factors influencing the profit impact of the purchase are as follows (Kraljic, 1983): the
volume purchased, the percentage of total purchase cost, and the impact on product
quality or on business growth. Factors influencing the supply risk are as follows (Kraljic,
1983): availability, number of suppliers, competitive demand, make-or-buy opportunities,
storage risks, and substitution possibilities. When the supply risk is high, a cooperative
strategy is used since this strategy is a relationship-oriented policy in which SRM plays an
important role. When the supply risk is low, a competitive approach is selected in which
purchases are made based on reducing the cost by using the current buying power. In this
case, Step 2 is omitted. Table I presents the characteristics of these strategies.
Step 2. Analysis of the supplier relationship. In this step, the high-risk items from
Step 1 are re-categorized via a supplier relationship chart (Olsen and Ellram, 1997)
determined by the relative attractiveness of a supplier and the strength of the
relationship. Factors influencing the relative supplier attractiveness are as follows:
financial and economic status, performance, and technological, organizational, cultural,

Step 1 Step 2 Step 3

Adopt competitive
strategy
(Supply-risk is
low)
Classify Develop action
Figure 2.
items plans
An activity diagram of the
steps used for shaping the (Supply-risk is
purchasing strategies high) Adopt cooperative Analyze supplier
strategy relationships

High Leverage items: Strategic items:


- Standard, substitutable - Strategically important
- Alternative suppliers - Substitution difficult
Profit impact

- High volume or cost - No alternative suppliers

Non-critical items: Bottleneck items:


- Standard, substitutable - Substitution difficult
- Alternative suppliers - Monopolistic market
- Low volume or cost - Critical items
Low
Figure 3. Low High
The purchasing portfolio
Supply risk
matrix
Source: Kraljic (1983)
and strategic factors. The factors describing the strength of the relationship are as An integrative
follows: economic factors, the character of the exchange relationship, cooperation framework
between the buyer and the supplier, and distance between the buyer and the supplier.
The portfolio matrix and the strength of the supplier relationship determined in Steps 1 for SRM
and 2, respectively, are used to establish a new action plan in Step 3.
Step 3. Development of action plans. For low-risk materials, action plans are
established according to the portfolio strategy. Strategies for non-critical items include 501
efficient processing, systems contracting, standardization, and consolidation, while the
management of leverage items requires strategies like the exploitation of power,
driving profit, and leveraging volume.
With high-risk materials, the following action plans can be used. For instance, when
the relative supplier’s attractiveness is high and the intensity of the relationship is
strong, actions that strengthen the relationships are executed regardless of the results
of Step 1. As the examples above have demonstrated, the action plan is formed
according to the relationship analysis and the characteristics of the items.

3.2 Supplier selection


In the present study, we also perform supplier selection comprised of two phases
(Figure 4). In Phase 1, a supplier pool is created. In this phase, we register the suppliers
by evaluating them according to criteria such as financial status and technological
capability. Phase 2 involves assigning suppliers who supply materials directly, and
this step relies on criteria such as cost, delivery, and quality.
3.2.1 Supplier pre-selection for supplier pool construction. There are two purposes
inherent to the construction of a supplier pool: supplier management, such as supplier
development, and rapid supply from competent suppliers, particularly when the supply
is required immediately. Moreover, it is important to constantly search for new
suppliers and add them to the pool; meanwhile, it is useful to evaluate existing suppliers
and provide incentives and penalties according to the results of the assessment.
The method of pre-selecting suppliers can be described as follows. First, select
adequate criteria from the criteria pool. Next, determine the ranking and rating of the
criteria using AHP. Finally, select the supplier by evaluating the rate of the criteria
multiplied by the evaluation sheet value of each supplier for each criterion.
3.2.2 Partner selection for collaboration. The second phase of selecting a supplier is
to choose partners who supply materials. There are two ways to select the partners.
One way is to select the supplier through the supplier pool, and the other is to work

Competitive strategy Cooperative strategy

Focus Efficient processing, competitive Collaboration, supplier development/


bidding, system contracting partnership
Purchasing Competitive bidding, short-term Form partnership, long-term contracts
methods contracts
Relationship Buyer dominance Supplier dominance or strategic partner
Key performance Cost/price, materials flow management, Long-term availability, cost Table I.
criteria functional efficiency management, reliable short-term The characteristics of
sourcing competitive and
Characteristics Many suppliers are available Few suppliers are available cooperative strategies
IMDS Purchasing strategies
110,4
Supplier selection Criteria
pool
Defining supplier selection criteria
for supplier pool construction Phase 1
502
Supplier pre-selection
for supplier pool construction

Supplier
Defining supplier selection criteria pool
Phase 2
for partner selection

Partner selection for collaboration

Figure 4. Collaboration
The framework for
supplier selection
Supplier assessment and development

with existing partners. The evaluation methods include an incentive-based contract


that motivates good performance.
In this phase, two steps are performed: partner selection and allocation of the supply
to the selected partners. By using a survey targeting the partner selection committee,
which consists of purchasing managers and production managers, and the AHP
method used to determine the rankings and ratings of the criteria, the suppliers are
selected. The allocation of the materials from these selected suppliers is then
determined with a linear programming method.

3.3 Collaboration
Collaboration (supplier involvement) is achieved via a collaboration strategy and ISs
that allow purchasing managers to collaborate with other department members and
suppliers. In addition, the collaboration strategy can be divided into two stages:
(1) the product development stage; and
(2) the production stage.

3.3.1 Collaboration strategies. For a win-win situation between the supplier and
manufacturer, they must share roles and profits through modularization and introduce
an advanced method that connects the supplier and manufacturer via shared
information. Furthermore, a company’s internal collaboration is vital.
When suppliers are in the product development stage, key considerations are optimum
supplier selection and effective collaboration system implementation. Effective
collaboration is achieved by involving the supplier early in the product development
stage and fostering effective interfacing with a concurrent engineering system. The
important supplier selection criteria are as follows: product, process, production, quality,
trust, design expertise, communication, and innovativeness. The considerations for
collaboration include choosing the extent of the supplier’s involvement in product
development, such as timing the supplier’s involvement, information exchange in design, An integrative
and making buyer-supplier relationship decisions regarding issues such as the supplier’s framework
contract length, contract management, and an information exchange strategy, for
example, the level of information exchange and the cost transparency. for SRM
The evaluation of both the supplier selection and the collaboration is important in
the production stage. Collaboration with the supplier in the production stage fosters
lean manufacturing by providing materials at the right time, in the right amount, and 503
of the correct quality. Because customers’ demands can be capricious, agile
manufacturing should be realized by providing flexibility and responsiveness. Some
well-known collaboration tools are JITP, VMI, and CPFR. To suit their own
collaboration strategies, companies can adopt the appropriate collaboration tool. The
important criteria at the collaboration level consist of relationship activities,
commitment, trust, reward/cost sharing, communication, and information sharing.
3.3.2 Architecture of the SRM system. An IS is needed to support the purchasing
managers and to foster collaboration with the suppliers. An SRM system plays a
significant role in the collaboration inside and outside of the company. Inside
collaboration includes cooperation between production, purchasing, and marketing. To
accomplish this, it is pivotal to share information.
Recently, supply chain optimization has been a key issue among manufacturing
companies because such companies are affected by importing and exporting of the
material and the product, as well as inventory. Owing to small quantities and a
reduction in the product’s lifecycle, companies are forced to store a considerable
amount of materials in a restricted warehouse space. Hence, for this small supply,
shortening the supply cycle time, rapidly generating a new supply, and providing
superior quality are essential. To achieve this, sharing information between inner
departments as well as sharing real time information with suppliers is needed. Figure 5
shows the proposed system architecture. Sharing information within a company is

Internal I/F External

Advanced planning
Enterprise and scheduling
resource planning Purchase order, Production plan,
goods receipt production schedule
Supplier portal

Material management Supplier 1


module Available to Supplier relationship management system
promising,
Production planning contract Execution Strategic relationship Supplier 2
module system
Supplier management
Hierarchical factor
Finance module Sourcing
Material management
.. Procurement Supplier 3
. Strategic material
evaluation
Bill of material
Collaboration
Legacy system Performance
Purchase order,
evaluation
Product lifecycle goods receipt,
quality
Interface

management system Continuous Supplier relationship MRO Co.


improvement assessment
Basis information
Quality Figure 5.
management system
Real time input material, Warehouse inventory, Architecture and
... local inventory material storage location Insurance Co. deployment of SRM
Manufacturing Warehouse Systems
execution system management system
IMDS accomplished by interfacing the SRM system with systems like ERP, APS, MESs, and
110,4 WMSs. For example, a purchasing employee creates an order according to the planning
information of the APS. Sharing information with the outside supplier is carried out by
the supplier portal. The supplier uses the supplier portal to check the buyer’s APS
planning information and WMS stock and location information to determine the
supply quantity and the point of time for delivery. Information sharing is decided by a
504 feature of each supplier, and the security of the information is important when using
the internet. Table II shows the function of each module of the SRM system. Other
important systems that interface with the SRM system to share important information
are shown in Table III.

3.4 Supplier assessment and development


A supplier assessment was performed, as shown in Figure 6. The purpose of a supplier
relationship assessment is to segment suppliers and to develop suppliers differentially.
The purposes for supplier segmentation are as follows: first, to determine the strategic

Module Function Important sharing information

Sourcing Supplier evaluation, supplier Production plan (monthly, weekly),


registration, supplier pool supplier evaluation data
management
Procurement Management of orders and delivered Production plan, production
goods by connecting ERP or legacy schedule, bill of materials
systems
Collaboration Information sharing that is needed to Production plan (weekly, daily base),
collaborate with suppliers by inventory (including supplier’s
connecting ERP or legacy systems inventory)
CI CI of SRM systems via the PDCA
cycle
Hierarchical factor Evaluation criteria management, Evaluation criteria, rank, and rating
management criteria rank and rating management, of each criterion and material
material management
Strategic material Material’s strategic position is Strategic importance of material,
evaluation determined relationship attractiveness
Performance Suppliers’ and firm’s performance Supplier evaluation data, supplier
Table II. evaluation evaluation performance data
The roles of the modules Supplier relationship Segmentation of the supplier, which Supplier segmentation data
in the SRM system assessment is used to manage the supplier

Interfacing system Shared information

APS Production plan, production schedule


ERP (including legacy systems) Purchase order, goods receipt, available to promise,
Table III. contracts, vendors, material, quality data, bill of
Sharing information with materials, material requirement planning results
suppliers via the SRM MES Real time input material, local inventory
system WMS Warehouse inventory, material storage location
Supplier assessment An integrative
Strategic material Supplier relationship assessment
framework
evalution for SRM
Strategic S Prime
importance

Improvement
Relationship
C Collaboration
505
attractiveness
Supplier
development
Suppier evalution T Maintenance

Relationship
Bad Good Excellent
Capability
S: strategic relationship
Performance C: collaborative relationship
T: transactional relationship
Figure 6.
The framework for
supplier assessment and
Collaboration Supplier selection development

importance of materials; second, to establish the attractiveness of the relationship


between the supplier and the buyer; and third, to evaluate the supplier.
3.4.1 Strategic material evaluation. A strategic material evaluation is determined by
the strategic importance and by the attractiveness of the relationship (Figure 7).
Step 1. Evaluation of the strategic importance. We use a portfolio strategy to divide
categories into non-critical items, leverage items, bottleneck items, and strategic items,
and these items were used to form one axis. The leverage items come before the
bottleneck items because the management of supply risk is more difficult than the
management of the profit impact.
Step 2. Evaluation of the relationship attractiveness. The relationship attractiveness
is determined by the relative attractiveness of a supplier and the strength of the
relationship, divided into the lack of attractiveness, the buyer’s attractiveness, the
supplier’s attractiveness, and the mutual attractiveness. The relationship attractiveness
forms the other axis. The factors influencing the relative supplier attractiveness are
comprised of financial, performance, technological, organizational, and strategic factors.
Factors describing the strength of the relationship consist of economic factors,
characteristics of the exchange relationship, cooperation between the buyer and the
supplier, and distance between the buyer and the supplier.
Step 3. Establishment of the strategic material evaluation. The result of a strategic
material evaluation is divided into three groups of relationships: transactional,
collaborative, and strategic. Each of these three relationships is illustrated as an axis
( y-axis) in the supplier relationship assessment matrix (Figure 6).
3.4.2 Supplier evaluation. Supplier evaluation is conducted based on capability,
performance, and collaboration relationships. According to these evaluations, suppliers
are divided into bad, good, and excellent supplier groups. These groups form the x-axis
IMDS High
110,4 Leverage Strategic
items: items:

Profit impact
2 4

Non-critical Bottleneck 4 C C S S
items: items:
506
1 3 C C C C
Low
Low Supply risk High T T C C
Strategic importance
1 T T T T
(from Peter Kraljic, 1983)

1 4
High
Supplier's Mutual
Relative supplier

attractiveness attractiveness
attractiveness

3 4 S: Strategic relationship
C: Collaborative relationship
Lack of Buyer's
attractiveness attractiveness T: Transactional relationship
1 2
Low
Figure 7. Low Strength of High
The framework of relationship
a strategic material
evaluation Relationship attractiveness
(from Olsen, Ellram, 1997)

of the supplier relationship assessment matrix (Figure 6). The important criteria of each
evaluation process are as follows:
.
Capabilities, including quality systems, technological capability, financial
capability, reputation, geographic location, organization, production capacity,
and open communication.
.
Performance, including quality, cost, and delivery.
.
The collaborative relationship, including mutuality, cooperation, commitment,
trust, conflict, conflict resolution, and compliance.

3.4.3 Supplier relationship assessment. A supplier relationship assessment is


determined by two axes. One is the strategic material evaluation ( y-axis), and the
other is the supplier evaluation (x-axis) (Figure 6). Here, the suppliers are divided into
four groups: improvement, maintenance, collaboration, and prime groups.
3.4.4 Supplier development. Supplier development is a process that improves the
supplier’s performance. To this end, firms reduce the supplier base and improve
the remaining suppliers’ efficiencies. We define four groups of development programs:
(1) the prime group prefers providing strong incentives and constructing long-term
trust relationships;
(2) the collaboration group reinforces and improves cooperation to increase mutual
benefits;
(3) the maintenance group maintains the status quo and pursues a mutual benefit; An integrative
and framework
(4) the improvement group focuses on the supplier via inspections and improvement for SRM
activities.

3.5 Continuous improvement


A CI strategy involves the performance of plan-do-check-act (PDCA) cycles based on 507
data in order to continuously improve the system, process, and manpower. It is the
strategic activity that causes a company to mitigate pressure from fierce competition,
reduce cost and time, and improve productivity. Moreover, CI is used to pursue the
cultural changes for the company’s innovation and improvement because CI strongly
reflects the cultural side of a company.
In the present study, we suggest a framework to continuously improve the plan,
system, manpower, and process by performing five activities (Figure 8):
(1) SRM (re)planning (plan): making plans for SRM system improvement.
(2) SRM system operating (do): operating the system in accordance with the plan.
(3) SRM system assessment (check): evaluating the system.
(4) Operating member assessment (check): evaluating members who work in the
system.
(5) System improvement (act): implementing the plan.

4. Case study
In the case study, we applied the purchasing shaping strategies, supplier selection,
supplier relationship assessment, and supplier development processes to company “K,”
which is a Korean semiconductor manufacturing company (the name K is used for
confidentiality purposes). This case study analyzes five quartz suppliers of company
K. The quartz product is a quartz-processed good that is used as tubes or containers
that prevent contamination during the semiconductor manufacturing process.

4.1 Shaping the purchasing strategies


The portfolio strategy evaluation method is used to shape the purchasing strategies.
The criteria consist of the volume purchased and the impact on business growth in

Shaping Supplier
Supplier Collaboration
the purchasing assessment and
selection (supplier involvement)
strategies development

Continuous
improvement SRM SRM system
(re)planning operating
Operating
System SRM system
members Figure 8.
improvement assessment
assessment The framework for CI
IMDS order to classify the profit impact. The demarcation line between “high” and “low” is
110,4 based on an 80-20 rule or business strategy. Next, the number of suppliers and
substitution possibilities are used to determine the supply risk. The demarcation line
between “large” and “small” is drawn by assessing the dependence on the supplier at
hand. The quartz product is classified as the strategic item. The case in which the
supply risk is high results in a cooperative strategy that is both relationship-centered
508 and SRM-oriented.

4.2 Supplier selection


Quality, cost, and technology are important criteria for constructing the supplier pool;
in particular, quality compatibility that is applicable for use in manufacturing is the
most important element. A quality compatibility evaluation is performed by a site
application test from the use department and is determined by the equipment
mounting status, production yields, appearance condition, and degree of wafer
contamination. The cost is measured by the cost estimation standard, which applies
status as well as the cost reduction target and management results. Technology is
measured by the supplier’s research and development in investment and organization
structure, design capability, and the related industrial job experience level.

4.3 Supplier relationship assessment


4.3.1 Strategic material evaluation. The strategic importance of the quartz product is
evaluatedbyaportfoliostrategy.Theattractivenessofsuppliersofquartzproductsisdetermined
using the relationship attractiveness evaluation method. According to the evaluation result, the
quartz product is classified as a strategic relationship material ( ).
4.3.2 Supplier evaluation. A supplier is evaluated in terms of its performance,
capability, and ability to collaborate. The evaluation process consists of three steps:
(1) Defining the criteria. Supplier evaluation criteria were determined based on the
company’s quartz product purchasing strategy. There are three evaluation
groups:
.
quality, cost, and delivery for a performance evaluation;
.
technology and management for a capability evaluation; and
.
collaboration to achieve a collaboration relationship evaluation (Figure 9).

Supplier evaluation

Performance Capability Relationship


evaluation factors evaluation factors evaluation factors

Quality Cost Delivery Technology Management Collaboration

Figure 9.
Structure of the AHP
model employed for
supplier evaluation Company A Company B Company C Company D Company E
(2) Calculation of the weights of the criteria. To calculate the weights of the criteria, An integrative
a survey was carried out by three managers, including a production manager, a framework
purchasing manager, and a quality manager. The judgments were determined
by applying pairwise comparisons among the criteria by quantifying Saaty’s for SRM
1-9 scales (Table IV). We tested the judgment consistency using the consistency
ratio (CR). The averaged judgment matrix was then determined by the
geometric mean of each row in the pairwise comparison matrices, and the 509
weights were calculated (Table V).
Saaty (1990) used the principal eigenvector of the comparison matrix to find
the comparative weights among the criteria of hierarchy systems. For each
n £ n pairwise comparison matrix A, by using the eigenvector theory,
i.e. (A 2 lmaxI)w ¼ 0, to calculate the eigenvalue lmax and the eigenvector w
(w1, w2, . . . , wn), the weights of the criteria can be estimated. To test the
consistency of the intuitive judgment, Saaty suggested using the consistency
index CI ¼ (lmax 2 n)/(n 2 1) to measure the degree of consistency. When the
consistency has been calculated, the result is compared with those of the same
index of a randomly generated reciprocal matrix from a scale of 1-9, with forced
reciprocals. This index is called the random index (RI). The test of CR employed
the comparison value of CI and RI (CR ¼ CI/RI). A CR of 0.10 or less is positive
evidence for informed judgment.
(3) Evaluating the suppliers. An evaluation of each supplier was performed by the
supplier managers using structured evaluation sheets and criteria weights. To
this end, we applied the following equation.

In particular, we graded the maximum value as full marks, which are assigned to
suppliers for each criterion in order to reduce any distortion caused by human
appraisal:

Quality Cost Delivery Technology Management Collaboration

Quality 1 1/5 2 2 3 1
Cost 5 1 4 3 4 2
Delivery 1/2 1/4 1 1 1 1/2
Technology 1/2 1/3 1 1 1 1/2 Table IV.
Management 1/3 1/4 1 1 1 1/2 The pairwise
Collaboration 1 1/2 2 2 2 1 comparison judgment
matrix for the supplier
Notes: We show the results of Survey 1; the others are omitted; CR, 0.049737 selection problem

Quality Cost Delivery Technology Management Collaboration Weight (%)

Quality 1.00 0.41 1.59 1.59 3.30 2.00 21.3


Cost 2.47 1.00 2.29 1.82 3.17 1.82 30.3
Delivery 0.63 0.44 1.00 1.00 1.26 1.00 12.6 Table V.
Technology 0.63 0.55 1.00 1.00 1.59 1.82 15.3 The averaged
Management 0.30 0.31 0.79 0.63 1.00 1.00 9.2 judgment matrix and
Collaboration 0.50 0.55 1.00 0.55 1.00 1.00 11.3 the weights of the criteria
IMDS X
6

110,4 Ei ¼ ðAij * wj Þ; i ¼ 1; 2; . . . ; 5
j¼1
where:
Ei : Total score of supplier i.
510 Aij : Score of supplier i on criterion j: (by survey among managers).
wj : Weight of criterion j.
i : Supplier index.
j : Criterion index.
The results of the total supplier evaluation, as shown in Table VI, are as follows:
Company A, 96.7; Company B, 89.5; Company C, 91.1; Company D, 91.3; and Company
E, 76.5.
4.3.3 Supplier relationship assessment. According to the plots of the strategic
material evaluation and supplier evaluation (Figure 10), the results obtained for the
supplier relationship assessment are as follows: Company A is in the prime group;
Companies B-D are in the collaboration group; and Company E is in the improvement
group.

4.4 Supplier development


According to the results, Company A is an excellent supplier and is thus placed in the
prime group at this time; it has an incentive to augment reliability and continuously
improve its relationships. Companies B-D do not currently belong in the prime group,
but they possess the potential to become prime group members. To achieve prime
membership, they must establish a strategy to become better suppliers by
strengthening their collaborations. Finally, Company E scored the lowest in the
supplier assessment, but it belongs in the strategic relationship group. This company
needs various inspections and improved support. Thus, the proposed system provides
suggestions for each supplier so that they can improve their performance level.

5. Conclusions
By applying the proposed SRM system, companies can achieve a low cost of
purchasing, develop products on time, and maintain high quality and timely provision
of products. In this study, we suggested an integrative SRM framework composed of
five steps:
(1) establishment of purchasing strategies;
(2) selection of a supplier;
(3) collaboration;
(4) supplier assessment and development; and
(5) provision of CI.
We also considered the important processes comprising each step.
Furthermore, to implement the suggested framework, we suggest using an IS
architecture and we also provide an illustrative example. The IS architecture includes
Quality Cost Delivery Technology Management Collaboration
21.3 30.3 12.6 15.3 9.2 11.3 Total
wj (%) Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Aij Aij*wj Ei

Company A 100.0 21.3 100.0 30.3 100.0 12.6 94.8 14.5 97.6 9.0 80.0 9.0 96.7
Company B 100.0 21.3 73.9 22.4 89.1 11.3 100.0 15.3 98.8 9.1 90.0 10.2 89.5
Company C 100.0 21.3 91.3 27.7 87.0 11.0 88.8 13.6 89.4 8.3 82.5 9.3 91.1
Company D 94.4 20.1 100.0 30.3 73.9 9.3 84.5 12.9 80.0 7.4 100.0 11.3 91.3
Company E 77.8 16.5 56.5 17.1 89.1 11.3 83.6 12.8 100.0 9.2 85.0 9.6 76.5

Total evaluation results


An integrative
framework

for the suppliers


511
for SRM

Table VI.
512
110,4
IMDS

Figure 10.

of quartz suppliers
relationship assessment
The results of a supplier
Supplier relationship assessment
Strategic S
Strategic material
evaluation results
Bottleneck C S Prime
Item Quartz
Leverage
Company A T
Company B C Improvement Collaboration
Suppliers Company C Non-critical
Company D
Company E LA BA SA MA
T Maintenance

Quality Cost Deliv Tech Manag Collab


(21.3%) (30.3%) (12.6%) (15.3%) (9.2%) (11.3%) Total Bad Good Excellent
Company A 21.3 30.3 12.6 14.5 9.0 9.0 96.7
Supplier
Company B 21.3 22.4 11.3 15.3 9.1 10.2 89.5
evaluation results Company B
Company C 21.3 27.7 11.0 13.6 8.3 9.3 91.1
Company D 20.1 30.3 9.3 12.9 7.4 11.3 91.3 Company E Company C
Company E 16.5 17.1 11.3 12.8 9.2 9.6 76.5
Company D
LA: lack of attractiveness, BA: buyer's attractiveness S: Strategic relationship Company A
SA: supplier's attractiveness, MA: mutual attractiveness C: Collaborative relationship
T: Transactional relationship
the use of an IS model for collaboration and is a basis for constructing a good An integrative
relationship with suppliers by connecting the SRM system with existing systems, such framework
as ERP and other legacy systems. From a PDCA cycle point of view, CI processes aid
an SRM system by continuously evaluating and improving the plan, system, process, for SRM
and manpower of the SRM system.
A goodness of fit test of this framework for the supply chain’s environment is
demonstrated by the following. First, in qualitative aspects, we can obtain a benefit from 513
the connection of processes; second, we can determine the possibility of applying this
framework to real fields through an application case; and third, verification is possible
by suggesting system developing processes and performing CIs. From the viewpoint of
CI, we can evaluate and improve the system and the operator based on historical data.
Follow-up studies should include analyses of the relationships among the criteria
used to select and evaluate a supplier, the development of metrics that can evaluate a
collaboration method, the organization of evaluators and evaluation sheets, and the
development of a method that facilitates win-win contracts between the supplier and
the buyer.

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Corresponding author
Tai-Woo Chang can be contacted at: keenbee@kgu.ac.kr

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