- Email: [email protected]
Lean Supplier Management for Better Cost Structures
Available online at www.sciencedirect.com
ScienceDirect Materials Today: Proceedings 5 (2018) 18941–18945
www.materialstoday.com/proceedings
ICMPC_2018
Lean Supplier Management for Better Cost Structures C V Sunil Kumara*, Srikanta Routroyb, R K Mishrac b
a Assistant Professor, Institute of Public Enterprise, Shamirpet Campus, Secunderabad, Telangana, INDIA Associate Professor, Mechanical Engineering Department, Birla Institute of Technology & Science Pilani, Pilani Campus (Rajasthan)-333 031, INDIA Professor & Director, Institute of Public Enterprise, Shamirpet Campus, Secunderabad, Telangana, INDIA
Abstract Now-a-days the supplier management has got very important role to play in making the products and services being offered to be more competitive. This is evident as the most of the manufacturers are increasingly depending upon the suppliers to focus on the core competencies as well as to derive the sustainable competitive advantages. However, while the manufacturers are becoming increasingly less vertically integrated, the control over the total cost of ownership appears to be lost. In one sense, it may be true where the supply chains are run merely transactional based without becoming the relationship centric. Along the lines of relationship centric supply chains, the concept of Preferred Supplier Status (PSS) can support the manufacturers to have great control over the cost structures quoted by their suppliers over a period of time. It was observed that because of PSS, the suppliers can have better learning curves to offer the product and services at competitive costs. © 2018 Elsevier Ltd. All rights reserved. Selection and/or Peer-review under responsibility of Materials Processing and characterization. Keywords: Lean supplier management, preferred supplier status, learning curve, total cost ownership, supply chain, product design
1.
Introduction
Globalization has raised the level of competition from among the companies to the supply chains. However, it has been a great challenge for the focal firms to match the dynamic demand requirements with the right supply capabilities. In this regard the supply chains are striving for having the best suppliers to take part in the value addition processes [1]. Also manufacturers have to rely on the few selected suppliers for various reasons to make their operations lean. The manufacturers choose to depend on the suppliers as they may not have the enough economies of scale to produce the products and provide the services [2]. Thus it may be expensive for the manufacturers to produce in house as there is no enough bargaining power to purchase the required
*
Corresponding author.. E-mail address: [email protected]
2214-7853 © 2018 Elsevier Ltd. All rights reserved. Selection and/or Peer-review under responsibility of Materials Processing and characterization.
18942
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
input materials, engage resources, and to use product and process technology efficiently. It may also happen that the manufacturers may not have the essential expertise to make the products in house and provide the services [2]. The product and service design may not have the competitive advantages which the best suppliers are capable of offering. Manufacturers may not have the essential flexibility to build in the product and service design as per the changing customers’ preferences [3], [4]. Since the customers now-a-days are very well informed and have multiple alternatives to choose from the other manufacturers, the products being manufactured may have to be constantly monitored through their product life cycles and may have to timely upgrade. So manufacturers may have to depend on the right suppliers who can get the right innovation along the processes and products are flowing as per the changing customers’ preferences. Also as customers are increasingly inclined to have better quality products and services, manufacturers may not have the process capabilities to produce the products and deliver the services complying with higher quality standards. Another important aspect to consider is that in some cases by having materials or subcomponents procured from the well-known or branded suppliers would increase the credibility of the end products from the customers’ point of view. Thus owing to the above reasons discussed certainly manufacturers are inclined to depend on the suppliers. Most of the manufacturers though have rationalized their supply bases in order to have better supplier reliability and avoid monopoly of a single supplier choose to have few multiple suppliers to work. But often manufacturers to have business continuity with all the suppliers leverage their orders without considering PSS. This way of business practice has been fruitful for neither suppliers nor the manufacturers. Thus the aspect of PSS in the order management for the suppliers is explored in the current study. 2.
Literature review
The Preferred Supplier Status (PSS) is nothing but a favourable position offered by the manufacturer to few selected suppliers in order to meet its long term requirements [3]. The suppliers also on the other hand also compete to obtain this PSS from the manufacturers [4]. The concept of PSS is not a new concept rather most of the companies inherently are following it with their suppliers. However since most of the transactions along the supply chains are becoming digital in nature, it is essential that there has to be appropriate data base available for the stakeholders to make evidence base decision making. In the current study, the supplier order management on the basis of measured PSS is considered. Many a time most of manufacturers would like to deal with the multiple suppliers just to avoid monopoly of a supplier as well as to increase the supply base reliability [5], [6]. By having multiple suppliers, a manufacturer can induce healthy supplier competition among the suppliers to quote reasonable prices [7]. Multiple suppliers would enable a manufacturer to be effectively and efficiently deal with the demand uncertainties as manufacturer can have increased capacity [8]. The poor financial strength of the suppliers may sometimes put the suppliers out of business however having multiple suppliers would favour the manufacturers from supply disruption [9]. Other supply disruptions like machine breakdown at supplier end, interruption in the logistics services, employee walkout, natural disasters, unforeseen accidents, political instability and so forth can be tackled by sourcing from multiple suppliers [4], [5]. Many researchers have advocated about single sourcing versus multiple sourcing and optimal order management with multiple suppliers. But the supplier order management with emphasis on PSS is rarely explored. Thus in the current study a methodology for supplier order management with emphasis on PSS and its associated relationship in bringing down the cost structures at the suppliers end is focused and tested in a case company. 3.
Methodology
It is proposed in the current study that the PSS has to be ascribed to the suppliers and accordingly the orders must be given to the suppliers. The following steps can be followed to ensure that the preferred suppliers are given the utmost importance and the cost structures are reduced. Step 1: The multiple suppliers who contend to receive orders from the manufacturer are to be considered. Step 2: The PSS of the selected suppliers has to be measured. Step 3: The percentage of orders placed to the suppliers can be leveraged as shown below = Where,
Pi: PSI: i: m: N:
∑
×( )
Percentage number of orders Preferred Supplier Index index to refer supplier Total number of suppliers considered Total ordered quantity distributed among the suppliers
Step 4: Consider the process of manufacturing to be followed by the suppliers to make the outsourced component as per the manufacturer’s requirements.
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
18943
Step 5: Determine the process parameters such as capacity of the process, throughput and cycle time at the preferred supplier. Step 6: Compare the benefits of supplier order management on the basis of PSS with focus on the learning can happen at the suppliers end and as a result the cost reduction that which can happen otherwise. 4.
Case situation
The current study was conducted on the basis of a case situation at an electronic device manufacturing company located in the southern part of India. The case company from here on in the discussion will be referred as company ‘Z’ in order to comply with company’s privacy policy. The company has been manufacturing high end technology products for various industries such as aerospace, railway and automobile. The company came in to the manufacturing business with a humble start and has been in the business for more than fifteen years serving some well-known companies in India and abroad. It is a medium scale company with a turnover more than 3 billion dollars. It is also a tier 1 supplier company for many well-known focal firms from various industries with consistent growth in the market share. The company is having mostly two to three tiers of noteworthy suppliers working along its upstream for most of it customers. It was in this company the proposed study of analysing the supplier order management on the basis of PSS was conducted. In the case company it was a regular practice that they deal with limited number of multiple suppliers for serving various customers. However, to maintain business continuity with all the suppliers orders are placed to all the suppliers ensuring every supplier is given reasonable number of orders and quantity of orders. The procurement team was explained about the concept of preferred supplier status ascribed to few selected suppliers and its advantages. Then the procurement personnel at the company expressed that they do consider some of their suppliers as preferred suppliers based on their experience. Nonetheless they do not have a process to objectively determine the PSS of each supplier individually and take decisions accordingly. The method for determining the PSS was as proposed by [5] was shared with company to have PSS of the key suppliers to be determined. Then the proposed method for supplier order management on the basis of PSS was explained to the procurement team. In order to test the validity of the proposed method a few key suppliers (five in numbers referred as S1, S2, S3, S4 and S5) of the case company were considered. The percentage of ordered quantities to be placed for the suppliers were divided on the basis of PSS determined for each supplier. The obtained results and the associated advantages accrued from this ordering policy were analysed along the process parameters and are discussed in the next section.
Production Lead Time
120 100 80
E D
60
C
40
B
20
A
0 1
2
3 4 5 Number of Orders
6
7
Fig. 1. Processing times along various stages at S5 5.
Results and discussions
The manufacturers often deal with multiple suppliers for procuring multiple common items in order to have competitive prices quoted. In the case company the practice was mostly emphasized on to have some continuous business with all the suppliers. Due to this many at times delivery in full and on time for many items was greatly compromised and often the procurement personnel had to waste much of their productive time for following up and waiting. Though the practice of frequent follow up of pending orders, pressurized expeditions, and tight schedules to meet the delivery dates were not pleasant experiences for manufacturer and suppliers there has not much improvement seen in the operations. Thus, the change in the ordering policy with an emphasis on PSS was tried in the case company to see through possible process improvement. As discussed in the previous section, the
18944
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
supplier order management on the basis of PSS with five key suppliers at the case company was considered. The process of manufacturing before and after the change in the ordering policy with the suppliers was studied. The technical details of process (where the major value added activities are named as A, B, C, D and E) are not explained in the current discussion as they may not be matter of interest for the readers. The process considered along the suppliers by enlarge had five major stages to complete. The production lead time was on an average (along multiple types of sub systems procured in groups) for about 100 days assuming there are much delay with regards to order lead time and delivery lead time. The preferred supplier scores obtained after applying the proposed method by [5] were 3.8681, 4.4634, 5.0661, 7.1586, and 7.5679 for S1, S2, S3, S4 and S5 respectively. From the preferred supplier scored it is evident that the suppliers S4 and S5 have to be treated as preferred suppliers. On the basis of preferred supplier scores, the manufacturer could place the percentage of orders as 13%, 16%, 18%, 26%, and 27% for S1, S2, S3, S4 and S5 respectively. Since the preferred suppliers had enough quantities of orders placed (around 53% of the ordered quantities) compared to the other suppliers, manufacturer could realize greater improvements along the various stages of the process. Because manufacturer was dealing with preferred suppliers and there was certain scale of ordered quantities being procured frequently, the rate of learning in executing the various stages of the process was seen great improvement compared to others. The learning curve analysis shown that on average, there is at least 10% reduction in the processing times along various stages of the process. This has greatly compressed the production lead time at the preferred suppliers by almost half the time within around eight subsequent orders. Also the work in process inventory requirements along the various stages got reduced tremendously. The reduction in the processing times and overall production lead time at the supplier S5 is shown in the Fig. 1 mentioned below. Thus overall two preferred suppliers S4 and S5 are now willing to reduce cost structures and offer competitive prices for the manufacturers. Typically the purchase orders released will have around four months given to the suppliers to fulfil the demand. However for many reasons the delivery dates often get extended as suppliers fail to deliver in full and on time. Before applying PSS ordering policy, suppliers were not in a position to deliver in full not less than a year. But after practicing the PSS concept in supplier order management preferred suppliers were able to deliver twenty subsystems in full on time within four months. The improvement achieved in the production capacity at supplier S5 along the subsequent orders placed on the basis of PSS is shown in the Fig. 2. There was certainly reduction in the work in process inventory however it was not quantified exactly to report in the current study.
Producion Capacity
25
Production capacity
20 15 10 5 0 1
2
3 4 5 Number of orders placed
6
7
Fig. 2. Increase in the production capacity at S5 6.
Conclusions
The suppliers are playing important role in the value addition process and so many manufacturers have become considerate in practicing the right supply strategies. In this regard often manufacturers tend to have equivalent orders placed with the suppliers to ensure business continuity. However in the current study, the supplier order management on the basis of PSS is proposed and tested in the context of a case company. It was observed when the preferred suppliers placed with larger percentage of orders the manufacturers could see substantial reduction in the processing times and overall production lead time. Also there was great improvement in production capacity with which the manufacturer could get the orders fulfilled in full within the delivery dates. Because of the substantial savings accrued, the preferred suppliers were also convinced to reduce the cost structures quoted for
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
18945
the manufacturer. Hence it can be concluded that if supplier order management can be made on the basis of PSS, a manufacturer can have more benefits derived. Although the current study has shown favourable results it cannot be generalized for all manufacturing environments. However a careful consideration of specific characteristics of other environments would definitely assist the manufacturers to reap better cost structures from the suppliers. References [1] [2] [3] [4] [5] [6] [7] [8] [9]
S. Routroy, S.K. Pradhan, C.V. Sunil Kumar, Evaluating the implementation performance of a supplier development program, Asia Pacific J. Mark. Logist. 28 (2016). doi:10.1108/APJML-08-2015-0128. J. Hallikas, I. Karvonen, U. Pulkkinen, V.-M. Virolainen, M. Tuominen, Risk management processes in supplier networks, Int. J. Prod. Econ. 90 (2004) 47–58. C.V.S. Kumar, S. Routroy, Demystifying manufacturer satisfaction through Kano model, Mater. Today Proc. 2 (2015) 1585–1594. S. Minner, Multiple-supplier inventory models in supply chain management: A review, Int. J. Prod. Econ. 81 (2003) 265–279. S.K. C.V., S. Routroy, An approach for measuring a manufacturer’s preferred supplier status, Asia Pacific J. Mark. Logist. 28 (2016) 939–963. doi:10.1108/APJML-12-2015-0194. T. Schoenherr, S.B. Modi, W.C. Benton, C.R. Carter, T.Y. Choi, P.D. Larson, M.R. Leenders, V.A. Mabert, R. Narasimhan, S.M. Wagner, Research opportunities in purchasing and supply management, Int. J. Prod. Res. 50 (2012) 4556–4579. M. Swink, G. Zsidisin, On the benefits and risks of focused commitment to suppliers, Int. J. Prod. Res. 44 (2006) 4223– 4240. Y.-S. Huang, J.-S. Hung, J.-W. Ho, A study on information sharing for supply chains with multiple suppliers, Comput. Ind. Eng. 104 (2017) 114–123. P.D. Berger, A. Gerstenfeld, A.Z. Zeng, How many suppliers are best? A decision-analysis approach, Omega. 32 (2004) 9–15.
ScienceDirect Materials Today: Proceedings 5 (2018) 18941–18945
www.materialstoday.com/proceedings
ICMPC_2018
Lean Supplier Management for Better Cost Structures C V Sunil Kumara*, Srikanta Routroyb, R K Mishrac b
a Assistant Professor, Institute of Public Enterprise, Shamirpet Campus, Secunderabad, Telangana, INDIA Associate Professor, Mechanical Engineering Department, Birla Institute of Technology & Science Pilani, Pilani Campus (Rajasthan)-333 031, INDIA Professor & Director, Institute of Public Enterprise, Shamirpet Campus, Secunderabad, Telangana, INDIA
Abstract Now-a-days the supplier management has got very important role to play in making the products and services being offered to be more competitive. This is evident as the most of the manufacturers are increasingly depending upon the suppliers to focus on the core competencies as well as to derive the sustainable competitive advantages. However, while the manufacturers are becoming increasingly less vertically integrated, the control over the total cost of ownership appears to be lost. In one sense, it may be true where the supply chains are run merely transactional based without becoming the relationship centric. Along the lines of relationship centric supply chains, the concept of Preferred Supplier Status (PSS) can support the manufacturers to have great control over the cost structures quoted by their suppliers over a period of time. It was observed that because of PSS, the suppliers can have better learning curves to offer the product and services at competitive costs. © 2018 Elsevier Ltd. All rights reserved. Selection and/or Peer-review under responsibility of Materials Processing and characterization. Keywords: Lean supplier management, preferred supplier status, learning curve, total cost ownership, supply chain, product design
1.
Introduction
Globalization has raised the level of competition from among the companies to the supply chains. However, it has been a great challenge for the focal firms to match the dynamic demand requirements with the right supply capabilities. In this regard the supply chains are striving for having the best suppliers to take part in the value addition processes [1]. Also manufacturers have to rely on the few selected suppliers for various reasons to make their operations lean. The manufacturers choose to depend on the suppliers as they may not have the enough economies of scale to produce the products and provide the services [2]. Thus it may be expensive for the manufacturers to produce in house as there is no enough bargaining power to purchase the required
*
Corresponding author.. E-mail address: [email protected]
2214-7853 © 2018 Elsevier Ltd. All rights reserved. Selection and/or Peer-review under responsibility of Materials Processing and characterization.
18942
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
input materials, engage resources, and to use product and process technology efficiently. It may also happen that the manufacturers may not have the essential expertise to make the products in house and provide the services [2]. The product and service design may not have the competitive advantages which the best suppliers are capable of offering. Manufacturers may not have the essential flexibility to build in the product and service design as per the changing customers’ preferences [3], [4]. Since the customers now-a-days are very well informed and have multiple alternatives to choose from the other manufacturers, the products being manufactured may have to be constantly monitored through their product life cycles and may have to timely upgrade. So manufacturers may have to depend on the right suppliers who can get the right innovation along the processes and products are flowing as per the changing customers’ preferences. Also as customers are increasingly inclined to have better quality products and services, manufacturers may not have the process capabilities to produce the products and deliver the services complying with higher quality standards. Another important aspect to consider is that in some cases by having materials or subcomponents procured from the well-known or branded suppliers would increase the credibility of the end products from the customers’ point of view. Thus owing to the above reasons discussed certainly manufacturers are inclined to depend on the suppliers. Most of the manufacturers though have rationalized their supply bases in order to have better supplier reliability and avoid monopoly of a single supplier choose to have few multiple suppliers to work. But often manufacturers to have business continuity with all the suppliers leverage their orders without considering PSS. This way of business practice has been fruitful for neither suppliers nor the manufacturers. Thus the aspect of PSS in the order management for the suppliers is explored in the current study. 2.
Literature review
The Preferred Supplier Status (PSS) is nothing but a favourable position offered by the manufacturer to few selected suppliers in order to meet its long term requirements [3]. The suppliers also on the other hand also compete to obtain this PSS from the manufacturers [4]. The concept of PSS is not a new concept rather most of the companies inherently are following it with their suppliers. However since most of the transactions along the supply chains are becoming digital in nature, it is essential that there has to be appropriate data base available for the stakeholders to make evidence base decision making. In the current study, the supplier order management on the basis of measured PSS is considered. Many a time most of manufacturers would like to deal with the multiple suppliers just to avoid monopoly of a supplier as well as to increase the supply base reliability [5], [6]. By having multiple suppliers, a manufacturer can induce healthy supplier competition among the suppliers to quote reasonable prices [7]. Multiple suppliers would enable a manufacturer to be effectively and efficiently deal with the demand uncertainties as manufacturer can have increased capacity [8]. The poor financial strength of the suppliers may sometimes put the suppliers out of business however having multiple suppliers would favour the manufacturers from supply disruption [9]. Other supply disruptions like machine breakdown at supplier end, interruption in the logistics services, employee walkout, natural disasters, unforeseen accidents, political instability and so forth can be tackled by sourcing from multiple suppliers [4], [5]. Many researchers have advocated about single sourcing versus multiple sourcing and optimal order management with multiple suppliers. But the supplier order management with emphasis on PSS is rarely explored. Thus in the current study a methodology for supplier order management with emphasis on PSS and its associated relationship in bringing down the cost structures at the suppliers end is focused and tested in a case company. 3.
Methodology
It is proposed in the current study that the PSS has to be ascribed to the suppliers and accordingly the orders must be given to the suppliers. The following steps can be followed to ensure that the preferred suppliers are given the utmost importance and the cost structures are reduced. Step 1: The multiple suppliers who contend to receive orders from the manufacturer are to be considered. Step 2: The PSS of the selected suppliers has to be measured. Step 3: The percentage of orders placed to the suppliers can be leveraged as shown below = Where,
Pi: PSI: i: m: N:
∑
×( )
Percentage number of orders Preferred Supplier Index index to refer supplier Total number of suppliers considered Total ordered quantity distributed among the suppliers
Step 4: Consider the process of manufacturing to be followed by the suppliers to make the outsourced component as per the manufacturer’s requirements.
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
18943
Step 5: Determine the process parameters such as capacity of the process, throughput and cycle time at the preferred supplier. Step 6: Compare the benefits of supplier order management on the basis of PSS with focus on the learning can happen at the suppliers end and as a result the cost reduction that which can happen otherwise. 4.
Case situation
The current study was conducted on the basis of a case situation at an electronic device manufacturing company located in the southern part of India. The case company from here on in the discussion will be referred as company ‘Z’ in order to comply with company’s privacy policy. The company has been manufacturing high end technology products for various industries such as aerospace, railway and automobile. The company came in to the manufacturing business with a humble start and has been in the business for more than fifteen years serving some well-known companies in India and abroad. It is a medium scale company with a turnover more than 3 billion dollars. It is also a tier 1 supplier company for many well-known focal firms from various industries with consistent growth in the market share. The company is having mostly two to three tiers of noteworthy suppliers working along its upstream for most of it customers. It was in this company the proposed study of analysing the supplier order management on the basis of PSS was conducted. In the case company it was a regular practice that they deal with limited number of multiple suppliers for serving various customers. However, to maintain business continuity with all the suppliers orders are placed to all the suppliers ensuring every supplier is given reasonable number of orders and quantity of orders. The procurement team was explained about the concept of preferred supplier status ascribed to few selected suppliers and its advantages. Then the procurement personnel at the company expressed that they do consider some of their suppliers as preferred suppliers based on their experience. Nonetheless they do not have a process to objectively determine the PSS of each supplier individually and take decisions accordingly. The method for determining the PSS was as proposed by [5] was shared with company to have PSS of the key suppliers to be determined. Then the proposed method for supplier order management on the basis of PSS was explained to the procurement team. In order to test the validity of the proposed method a few key suppliers (five in numbers referred as S1, S2, S3, S4 and S5) of the case company were considered. The percentage of ordered quantities to be placed for the suppliers were divided on the basis of PSS determined for each supplier. The obtained results and the associated advantages accrued from this ordering policy were analysed along the process parameters and are discussed in the next section.
Production Lead Time
120 100 80
E D
60
C
40
B
20
A
0 1
2
3 4 5 Number of Orders
6
7
Fig. 1. Processing times along various stages at S5 5.
Results and discussions
The manufacturers often deal with multiple suppliers for procuring multiple common items in order to have competitive prices quoted. In the case company the practice was mostly emphasized on to have some continuous business with all the suppliers. Due to this many at times delivery in full and on time for many items was greatly compromised and often the procurement personnel had to waste much of their productive time for following up and waiting. Though the practice of frequent follow up of pending orders, pressurized expeditions, and tight schedules to meet the delivery dates were not pleasant experiences for manufacturer and suppliers there has not much improvement seen in the operations. Thus, the change in the ordering policy with an emphasis on PSS was tried in the case company to see through possible process improvement. As discussed in the previous section, the
18944
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
supplier order management on the basis of PSS with five key suppliers at the case company was considered. The process of manufacturing before and after the change in the ordering policy with the suppliers was studied. The technical details of process (where the major value added activities are named as A, B, C, D and E) are not explained in the current discussion as they may not be matter of interest for the readers. The process considered along the suppliers by enlarge had five major stages to complete. The production lead time was on an average (along multiple types of sub systems procured in groups) for about 100 days assuming there are much delay with regards to order lead time and delivery lead time. The preferred supplier scores obtained after applying the proposed method by [5] were 3.8681, 4.4634, 5.0661, 7.1586, and 7.5679 for S1, S2, S3, S4 and S5 respectively. From the preferred supplier scored it is evident that the suppliers S4 and S5 have to be treated as preferred suppliers. On the basis of preferred supplier scores, the manufacturer could place the percentage of orders as 13%, 16%, 18%, 26%, and 27% for S1, S2, S3, S4 and S5 respectively. Since the preferred suppliers had enough quantities of orders placed (around 53% of the ordered quantities) compared to the other suppliers, manufacturer could realize greater improvements along the various stages of the process. Because manufacturer was dealing with preferred suppliers and there was certain scale of ordered quantities being procured frequently, the rate of learning in executing the various stages of the process was seen great improvement compared to others. The learning curve analysis shown that on average, there is at least 10% reduction in the processing times along various stages of the process. This has greatly compressed the production lead time at the preferred suppliers by almost half the time within around eight subsequent orders. Also the work in process inventory requirements along the various stages got reduced tremendously. The reduction in the processing times and overall production lead time at the supplier S5 is shown in the Fig. 1 mentioned below. Thus overall two preferred suppliers S4 and S5 are now willing to reduce cost structures and offer competitive prices for the manufacturers. Typically the purchase orders released will have around four months given to the suppliers to fulfil the demand. However for many reasons the delivery dates often get extended as suppliers fail to deliver in full and on time. Before applying PSS ordering policy, suppliers were not in a position to deliver in full not less than a year. But after practicing the PSS concept in supplier order management preferred suppliers were able to deliver twenty subsystems in full on time within four months. The improvement achieved in the production capacity at supplier S5 along the subsequent orders placed on the basis of PSS is shown in the Fig. 2. There was certainly reduction in the work in process inventory however it was not quantified exactly to report in the current study.
Producion Capacity
25
Production capacity
20 15 10 5 0 1
2
3 4 5 Number of orders placed
6
7
Fig. 2. Increase in the production capacity at S5 6.
Conclusions
The suppliers are playing important role in the value addition process and so many manufacturers have become considerate in practicing the right supply strategies. In this regard often manufacturers tend to have equivalent orders placed with the suppliers to ensure business continuity. However in the current study, the supplier order management on the basis of PSS is proposed and tested in the context of a case company. It was observed when the preferred suppliers placed with larger percentage of orders the manufacturers could see substantial reduction in the processing times and overall production lead time. Also there was great improvement in production capacity with which the manufacturer could get the orders fulfilled in full within the delivery dates. Because of the substantial savings accrued, the preferred suppliers were also convinced to reduce the cost structures quoted for
C V Sunil Kumar et al./ Materials Today: Proceedings 5 (2018) 18941–18945
18945
the manufacturer. Hence it can be concluded that if supplier order management can be made on the basis of PSS, a manufacturer can have more benefits derived. Although the current study has shown favourable results it cannot be generalized for all manufacturing environments. However a careful consideration of specific characteristics of other environments would definitely assist the manufacturers to reap better cost structures from the suppliers. References [1] [2] [3] [4] [5] [6] [7] [8] [9]
S. Routroy, S.K. Pradhan, C.V. Sunil Kumar, Evaluating the implementation performance of a supplier development program, Asia Pacific J. Mark. Logist. 28 (2016). doi:10.1108/APJML-08-2015-0128. J. Hallikas, I. Karvonen, U. Pulkkinen, V.-M. Virolainen, M. Tuominen, Risk management processes in supplier networks, Int. J. Prod. Econ. 90 (2004) 47–58. C.V.S. Kumar, S. Routroy, Demystifying manufacturer satisfaction through Kano model, Mater. Today Proc. 2 (2015) 1585–1594. S. Minner, Multiple-supplier inventory models in supply chain management: A review, Int. J. Prod. Econ. 81 (2003) 265–279. S.K. C.V., S. Routroy, An approach for measuring a manufacturer’s preferred supplier status, Asia Pacific J. Mark. Logist. 28 (2016) 939–963. doi:10.1108/APJML-12-2015-0194. T. Schoenherr, S.B. Modi, W.C. Benton, C.R. Carter, T.Y. Choi, P.D. Larson, M.R. Leenders, V.A. Mabert, R. Narasimhan, S.M. Wagner, Research opportunities in purchasing and supply management, Int. J. Prod. Res. 50 (2012) 4556–4579. M. Swink, G. Zsidisin, On the benefits and risks of focused commitment to suppliers, Int. J. Prod. Res. 44 (2006) 4223– 4240. Y.-S. Huang, J.-S. Hung, J.-W. Ho, A study on information sharing for supply chains with multiple suppliers, Comput. Ind. Eng. 104 (2017) 114–123. P.D. Berger, A. Gerstenfeld, A.Z. Zeng, How many suppliers are best? A decision-analysis approach, Omega. 32 (2004) 9–15.