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Lahore School of Economics

Supply Chain Management

Submitted By:

Anam Sohail
Hammad Zahid
Muhammad Ali Tahir
Muhammad Sahal
Taimoor Hussain
Umair Qayyum

Submitted to:
Ms. Shamila Khan

Introduction
Supply Chain Management, at its very core, is about relationship building among the various
parties involved. One of these relationships is the one between buyers and suppliers. We
analyzed several case studies and research articles to understand the dynamics of the relationship
between the two and different contexts in which they can change by looking at various
industries. In this research we will be focusing on the Buyer Supplier management practices and
their impact on the companys performance. The purpose of the study is to understand the
relationship between buyers and suppliers relations on companys performance. Supply chain is a
very important component for any business and for its success. In past few years in this
area, buyer suppliers have started receiving spotlight in many studies. Both of them are to be
integrated with the environmental thinking into supply chain management, including:
manufacturing processes, delivery of the final product to the customers and end of life
management of the product after its useful life. Buyers and suppliers in SCM attempts to meet
not only stakeholders expectations but also developing a new source of competitive advantage
from management perspective. SCM practices cover wide areas from green purchasing and
integrating flow from suppliers, to manufacturers, to customers and to the reverse supply chain.
Literature Review:

1) Ravindran, A. Ravi,Ufuk Bilsel, R.,Wadhwa, Vijay , Yang, Tao

The objective of this paper is to develop multi criteria supplier selection models incorporating
supplier risk and apply them to a real company. Most manufacturers are continuously seeking
their supplier base around the world and look for an opportunity to significantly reduce supply
chain costs. Singular emphasis on supply chain cost, however, can make the supply chain brittle
and more susceptible to the risk of disruptions. . We develop two different types of risk models,
value-at-risk (VaR) and miss-the-target (MtT). We model the risk-adjusted supplier selection
problem as a multi criteria optimization problem and solve it in two phases. Phase 1 is the pre-
qualification step, where a large set of initial suppliers is reduced to a smaller set of manageable
suppliers using various multi-objective ranking methods. In Phase 2, order quantities are
allocated among the short listed suppliers using a multi-objective optimization model. In the
multi-objective formulation, price, lead-time, VaR type risk of disruption due to natural event
and MtT type risk of quality are explicitly considered as four conflicting objectives that have to
be minimized simultaneously. We solve the multi-objective optimization problem using four
different variants of goal programming. The models are illustrated with an actual application to a
global IT company

2) Lee, Amy H. I.

This article evaluates the model for buyer-supplier relationships with the consideration of
benefits, opportunities, costs and risks. With increasingly fierce global competition, firms
in various industries need to build a cooperative buyer-supplier relationship to survive and to
acquire reasonable profit. Even though the literature on various types of collaboration between
firms is abundant and the works on supplier selection models are numerous, the research that
provides a mathematical model for the selection of the most appropriate form of buyer-supplier
relationship is very limited. Existing buyer-supplier evaluation models usually only consider the
benefits from the relationship, but not the opportunities, costs and risks that may need to be
confronted. The main objective of this study is to propose an analytical approach to evaluate the
forms of buyer-supplier relationship between a manufacturer and its supplier. A fuzzy analytic
hierarchy process (AHP) model, which applies fuzzy set theory and the benefits, opportunities,
costs and risks (BOCR) concept, is constructed to deal with uncertainty and to consider various
aspects of alternatives. Multiple factors that affect the success of the relationship are analyzed by
incorporating experts' opinions on their priority of importance, and a performance ranking of the
buyer-supplier forms is obtained. A case study of selecting the most appropriate buyer-supplier
form between a TFT-LCD manufacturer and its color filter supplier is presented, and the
proposed model is applied to facilitate the decision process. The proposed model is a general
form that can be tailored and applied by firms that are making decisions on buyer-supplier
relationship.

3) Karim, M. A., Samaranayake, P., Smith, A. J. R. , Halgamuge, S. K.

The purpose of this research was to develop an on-time delivery (OTD) improvement model for
make-to-order (MTO) manufacturing organizations, based on: (i) a business
process model combining product development and customer order management processes; and
(ii) an integrated database with basic data, transaction data and functional applications, for
broader planning within manufacturing organizations. The business process model, as part of the
overall model, was designed using event-driven process chain (EPC) methodology and
incorporated both capacity and material requirements planning functionalities for estimating on-
time delivery dates and times. The database associated with the model defines all the data
including both basic and transaction data; and links with required functions from sales to service
and field return. These functions integrate through the database, using basic data and
generate various transaction data including sales orders with an accurate promised date, based
not only on the available stock but also on procurement and distribution times of any raw
materials from external sources. The proposed model was then implemented in a
selected manufacturing organization. A systematic investigation was carried out to find the major
causes of OTD problems of that manufacturer, with a view to implementing and validating the
proposed model. After implementing the model average OTD was increased from 10% to 65% in
about 12 months of operation

4) Huang, H. -Y. Chou, Y. -C. Chang, S

Risk management is a major concern in supply chains that have high levels of uncertainty in
product demand, manufacturing process or part supply. The uncertainties frequently manifest as
dynamic events that pose a threat to interrupting supply chain operation. Depending on the
nature and severity of uncertainty, the impact of dynamic events can be distinguished into three
categories: deviation, disruption, and disaster. Many studies in literature addressed modelling of
deviation events. In this paper, a dynamic system model of supply chains is described which can
be applied to managing disruptive events in full-load states of manufacturing chains. An example
of disruptive events is given which arises from demand shocks in distribution channel. The
procedure to construct full-load production functions of complex manufacturing nodes with
internal queuing delay is described. Analytic optimal solution is derived for the dynamic
model. Given an unordinary event of demand shock, this model can be used to determine if
demand shock can be absorbed by a manufacturing chain and the level of contingent resources
that must be synchronously activated in multiple nodes of the chain. This model can be used to
reduce what could have been a disruptive event into a deviation event, thus
enhancing risk management.

5) GAO Reports, 4/22/2010

The article discusses the review of the U.S. Government Accountability Office (GAO) on the
policy programs and proposals of the Department of Defense (DOD). GAO assesses
how manufacturing readiness levels (MRLs) could solve manufacturing problems and the
challenges and barriers in the implementation of MRLs in the DOD. GAO recommends the
Secretary of Defense to use MRL across the programs of the DOD and strengthen the criteria of
MRLs.

6) P. Karuppuswamy, G. Sundararaj, S.R. Devadasan, D. Elangovan, L. Savadamuthu


Maintenance and failure costs of production machines increase the overall operating cost of a
manufacturing organization and will reduce the profit margin. Hence, management is interested
in minimizing the resources allotted to these non-productive activities. This work includes a case
study, wherein the failures of a plastic injection molding machine are examined. The reactive
maintenance model (RMM) is developed in which risk management technique (RMT) is used to
analyses the causes of the failures. Corrective measures are taken to avoid failures and a suitable
preventive maintenance (PM) program is followed to keep the machines in working condition.
The loss before and after implementing the RMM is compared using Taguchi's loss function. In
this paper, the analysis, development of maintenance model, implementation and results of
implementation of the model are presented

7) Adi Saptari ,Mohd Rizal Salleh

This study is about the implementation of risk management at aerospace manufacturing


company. It mostly refers on how to implement risk management process and where to
implement it. Risk management has been practiced widely in banking and financial area; this
study will discuss managing the risks in aerospace company. ABC Company has decided to
implement risk management process to manage its operational risks. The purpose is to ensure
that all the risks (process, system, people, external events, and financial risk) are managed
effectively so that the company mission and vision are not affected and all company Key
Performance Indicators (KPIs) (Quality, Cost, Delivery, Accountability, and Continuous
Improvement) are achieved. Methods of training, brainstorming, checklist, survey and
questionnaires, and risk score matrix are used to determine the results. These methods are
initially obtained from literature review that has been conducted in the early stage in the study.
Lastly, this study also measures the effectiveness of the implementation of risk management at
ABC Company.

8) Kenneth A. Froot

The goal in this article is to present a framework to guide top-level managers in developing a
coherent risk-management strategyin particular, to make sensible use of the risk-management
fire-power available to them through financial derivatives. Contrary to what senior managers
may assume, a companys risk-management strategy cannot be delegated to the corporate
treasurerlet alone to a hotshot financial engineer. Ultimately, a companys risk-management
strategy needs to be integrated with its overall corporate strategy. Our risk-management
paradigm rests on three basic premises: The key to creating corporate value is making good
investments. The key to making good investments is generating enough cash internally to fund
those investments; when companies dont generate enough cash, they tend to cut investment
more drastically than their competitors do. Cash flowso crucial to the investment processcan
often be disrupted by movements in external factors such as exchange rates, commodity prices,
and interest rates, potentially compromising a companys ability to invest. A risk-management
program, therefore, should have a single overarching goal: to ensure that a company has the cash
available to make value enhancing investments.

9) C.S Tang

This article provides insight on various quantitative methods of mitigating risk in the supply
chain .To gain cost advantage and market share, many firms implemented various initiatives such
as outsourced manufacturing and product variety. These initiatives are effective in a stable
environment, but they could make a supply chain more vulnerable to various types of disruptions
caused by uncertain economic cycles, consumer demands, and natural and man-made disasters.
In this paper, we review various quantitative models for managing supply chain risks. We also
relate various supply chain risk management (SCRM) strategies examined in the research
literature with actual practices. The intent of this paper is three-fold. First, we develop a unified
framework for classifying SCRM articles. Second, we hope this review can serve as a practical
guide for some researchers to navigate through the sea of research articles in this important area.
Third, by highlighting the gap between theory and practice, we hope to motivate researchers to
develop new models for mitigating supply chain disruptions

Additional Articles:
A Case Study of Kenya Tea Development Agency by Peter Mwangi Waithaka & Dr. Esther
Waiganjo

The case study titled Role of Buyer Supplier Relationship on Supply Chain Performance in
Kenyas State Corporations: is written on supply chain performance in Kenya incorporating all
the aspects of a typical supply chain in Kenyan Tea industry. The content of this key study is
valuable for our research on the grounds that it both substantiates and gives us new insights of
different dimensions of supplier buyer relationship. The case study presents logical arguments on
how to remain competitive in the industry saturated with competitors. The success of a supply
chain in such an industry primarily hinges on shorter lead times, the quality of products provided
and the morale of employees associated with the manufacturer. The case study argues that in
order to minimize product costs makes effective supply chain management vital. The
organization should have good relation with the supplier to enhance efficiency. An organization
that employs effective supply chain officers is able to achieve efficiency of its operations since
only those values adding activities (VAA) are counted. This ensures that the organizations
processes flow seamlessly and output remains coupled with the organization's needs. The
employees who are highly motivated work towards achieving the goals of the organization. The
organization should ensure that they have competent supply chain staffs who focus on ensuring
buyer supplier relationships are met. These insights presented in the case make this case study an
ideal selection for the task at hand.

The article Managing Supplier-Buyer Relationships in a Supplier Network A Buyer


Perspective written by sa Hagberg-Andersson

Explores and takes into account the buyer perspective in a supply chain network which is
important for the successful execution of supply chain. The relationship between buyer and
supplier depends greatly on this therefore this article is an important edition in our research as
the subject of supply chain management is continuously going through the process of evolution.
In this regard it can be seen that in todays supply chain network great emphasis is laid on how a
buyer efficiently manages its multiple suppliers which is critical and failure of which can lead to
supply chain breakdowns.
It has been observed that today the trend to reduce the number of suppliers has become
prevalent. In an era of increasing global competition there is a growing interest in managing
long-term buyer-supplier relationships as the management of these relationships has benefits for
both parties. The buyer can strengthen his international competitiveness and secure the access to
external resources that the company needs. The supplier can reach higher profits by maintaining
long-term relationships. One of the buyers main strategic goals is to try to reduce the number of
supplier that the buyer is dealing directly with. This can be achieved by forming systems of
suppliers, with suppliers in different tiers. Another strategic goal is to reduce the costs for
purchasing which accounts for a large amount of a companys total costs. It is also of great
interest to analyze the local and national suppliers role in this supply network. To become a
supplier on first tier the company has to be large enough, and also be able to provide some added
value to the buyer. Todays buyer works on having local suppliers for those products where it is
possible. The benefits are closeness, geographically as well as culturally, but there are also
benefits for the local society. The holistic view of buyer-supplier relationship from the buyers
side presented in this paper forms the basis of our research and thus it justifies its inclusion in the
research.

An Illustrative Example of Relational and Transactional Drivers of Competitiveness by


Mateve and Breni Maja

The paper Buyer-Supplier Relationships and The Resource-Advantage Perspective: illustrates


the significance of buyer and supplier relationships uncovering the fact that smooth buyer-
supplier relations can ultimately lead to success of companies which operate on a global scale.
The paper is of great importance as it identifies the determinants affecting the supply chain
performance and competition. The research analyses how relational dimensions of buyer-supplier
relationships affect buyer-supplier relationship competiveness. The research methodology is
based on a sample of 130 transactional companies which operate on a world wide scale. This has
been done by using a structural equation model in the paper. The results of the model show
buyer-supplier relationship competitiveness is mostly driven by interpersonal trust and joint
problem solving (both relational determinants), as well as by two kinds of transaction-specific
investments (TSIs), namely investments into people and physical assets.

Supply Chain Alliances: Rhetoric and Reality by Fawcett, Mccarter and Magnan
As the objective is to study in depth buyer-supplier relationships, in this regard another paper
which explains buyer-supplier relationship with respect to supply chain alliance is. The paper
uncovers the reality that good buyer-supplier relations are important for effective supply chain
management and supports the fact that success depends on close buyer-supplier relationships as
well as alliance. However, the reality is that truly synergistic relationships between buyers and
suppliers are very rare. This study has been conducted by using a multimethod that is; survey
and interview approach to determine the nature of alliance management in modern supply chains.
The results showed that synergistic working relationships among buyers and suppliers are
actually low. Managers who were interviewed actually admitted that distance between preferred
supplier and synergistic alliance is quite enormous. We also looked at a doctoral thesis-
Management of Buyer-Supplier Relationships in the Supply Chain This had several case
studies of Automotive and Telecom Supply Chains. This consisted of two parts. The first part is
about Managing buyer supplier relationships in auto production chains a case study of Volvo
and its supplier relationship management. The second part is about Managing buyer supplier
relationships in telecom supply chains a case study of Ericsson and its supplier relationship
models in different business situation. Great changes have taken place in manufacturing during
the past two decades. These include an increasing interest in purchasing, specifically in the
development of supplier relationships, which have resulted in a multitude of new structures in
the organization of purchasing and supply chain management. The auto industry is normally
considered as a pilot industry for leading this great change. The question arises, Why are supply
chains needed? Japanese success in the auto industry has proved its motto: Manage the supply
chain for competitive advantage rather than to reduce costs. Namely, the supply chain can be an
important source of competitive advantage to any company willing and able to devote time and
effort to supplier cooperation and development. The success of supply processes is dependent on
how well a company manages its supply chain with horizontal or vertical integration to fulfill its
customers' demands.The studies aimed to answer the research problem by analyzing how a
company fulfills customer demand in the best way through different supplier relationships, and
how alternative relationship types are used in reality, and why.

The Role of Buyer-Supplier Relationship on Supply Chain Performance in the Energy


Sector in Kenya: A Survey of Kenya Power and Geothermal Development Companies.
The article discusses Effective buyer -supplier relationships are founded on three critical
elements, information sharing, trust and partnership initiatives. The study revealed the supplier
relations of Kenya Power and GDC in relation to the three elements and their effect on supply
chain performance. Descriptive research design was used which accurately described the
association between variables minimizing bias while maximizing the reliability of the data.
Using descriptive and inferential statistics the collected data was analyzed with the aid of
statistical package for social sciences. The past 20 years has seen a significant shift in supply
chain management, particularly with respect to the manner in which buying firms and suppliers
interrelate. Buyer Supplier Relationship (BSR) is a pre-determined one-to-one relationship
between a buyer and a supplier that is supported by electronic commerce technologies. It links
the partners in a supply chain as well as the interdependence between firms in the whole supply
chain process. At most times, business firms and organizations work together to ensure they get
competitive advantage. For these firms to run well together in the supply chain, there ought to be
clear flow of information between them. This article also provides key insights to study and
determine the effect of the supply chain management strategies (the buyer-supplier trust,
partnership initiatives, and information sharing) on the profitability of the companies. This will
show the extent to which the variables affect the entire organization.

The impact of buyer-supplier relationship and purchasing process on the supply chain
performance: a conceptual framework

Another article provides a framework to study the impact of buyer-supplier relationship and
purchasing process on the supply chain performance. Supply chain performance is a rapidly
developing area of research. Many companies are trying to find tools for enhancing performance
measures in response to turbulent business markets and for efficiently controlling their business
activities. Little empirical research has been conducted on the performance of retail supply chain
in Taiwan and other Asian countries. Two factors affecting current retail supply chains, buyer-
supplier relationships and purchasing processes, and their antecedents that are relevant to this
unique cultural environment will be investigated. Future the article discusses the
interrelationships among the factors influencing the supply chain performance in Taiwan. The
buyer-supplier relationships and purchasing process with international suppliers and local
suppliers will be compared based on various key performance measures. Finally, the article also
presents in this research a model that can be applied to footwear sector and fashion or apparel
business, and can be extended to the other Chinese-culture territories such as China, Hong Kong,
and Macao.

The purpose of looking at the above was to have variety when it came to supply chain
relationships in different countries, to know how the relationship dynamics change in different
industries and countries.