Strategic Supplier Selection: The Trend of E-Manufacturing

TAMPERE UNIVERSITY OF TECHNOLOGY
Tampere School of Business and Technology

STRATEGIC SUPPLIER SELECTION: The Trend of E-Manufacturing

Seminar Report

Onur Tamur
Aznar Eduardo Moncayo Pinzon
Georgios Karakonstantis

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ABSTRACT

During the past few decades, globalization did not only affect the lifestyle of
human beings, but also the work processes in the business world. The markets grew
dramatically and new business opportunities appeared, raising the need of different
approaches in the procurement processes. The buyer-supplier relations have always
been a critical task for the success of a business. Now, more than ever before, this
task becomes very complicated in some cases. Multi-criteria approaches are needed
in order to have rational and profitable results.

This paper gives an insight of different theories that can be applied in order to
achieve a rational supplier evaluation and selection. Such theories, in combination
with an extensive analysis of the possible alternatives that a company may have,
can lead to high revenues and significant advantage over competitors. In this case,
the reader can acquire a basic understanding of the different criteria, methods and
models, which are used by the businesses during the supplier evaluation and
selection process.

Moreover, the paper identifies critical changes in the sector of e-manufacturing,
regarding the decision-making of the top management while selecting the
appropriate supplier. Emphasis is given to the technological changes that create
new opportunities and consequently new criteria for the vendors‟ evaluation by
comparing the existing criteria that have been used in traditional manufacturing and
the affect of the e-manufacturing trend on the existing criteria.

Tamur, O. Moncayo, A. Karakonstantis, G.

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PREFACE

Global business operations have become a very important part of the business
environment nowadays. One of the most interesting aspects of the global business
operations is the supplier evaluation and selection. As all the members of our group
are pursuing an International Master‟s program in TUT, related to sourcing, we felt
motivated to study, identify and analyze the field of supplier selection, emphasizing
on e-manufacturing that lately evolves very fast. More specifically, in this paper we
illustrate and analyze the buyer-supplier relations, the supplier evaluation and
selection criteria, processes, methods and models, and finally we attempt to apply
the acquired knowledge to the sector of e-manufacturing. It has not been an easy
task to conduct this report, and thus we would like to thank the assistant of the
course LIKU-8306 Logistics strategies and outsourcing, Ms. Erika Kallionpää for
her help and guidance during this process.

The group,
Aznar Moncayo
Georgios Karakonstantis
Onur Tamur

Tampere, April 2011


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TABLE OF CONTENTS

ABSTRACT ______________________________________________________ ii
PREFACE _______________________________________________________ iii

1 INTRODUCTION ____________________________________________ 1
1.1 Background __________________________________________________ 1
1.2 Objective of the Paper __________________________________________ 1

2 MANUFACTURER – SUPPLIER RELATIONS IN B2B ____________ 3
2.1 The Challenges of B2B Markets __________________________________ 3
2.2 The Dynamics of Buyer – Supplier Relations _______________________ 4
2.3 Long Term Relations in B2B Environment _________________________ 4

3 STRATEGIC SUPPLIER SELECTION __________________________ 7
3.1 Supplier Evaluation and Selection Criteria _________________________ 7
3.2 The Process ___________________________________________________ 9
3.3 Supplier Evaluation and Selection Methods _______________________ 10

4 SUPPLIER SELECTION IN E-MANUFACTURING ______________ 13
4.1 What Is E-Manufacturing? _____________________________________ 13
4.2 Why E-Manufacturing? _______________________________________ 15
4.3 Evolution of Supplier Selection in E-Manufacturing ________________ 16

5 CONCLUSION ______________________________________________ 19

REFERENCES __________________________________________________ 20


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1 INTRODUCTION

1.1 BACKGROUND

According to Lee and Carter (2005), globalization is an inevitable and irreversible
process fundamental to the future of world economic development. The growing
integration of national economies around the world will lead to rapid economic
growth and poverty reduction in developed and developing countries. However
there are also some arguments supporting that globalization exacerbates poverty
and inequality between rich and poor, cultural convergence and spread of deadly
diseases (Lee and Carter 2005).

Whether it is good or not, it is a fact that globalization led to structural changes of
business operations. Successful business operations provide significant profits and
benefits to companies. Though, the modern business environment demands
complex operations that sometimes are difficult to manage. Daskalakis (2010)
argues that one of the most important operations for modern businesses is the
procurement, and consequently the supplier evaluation and selection process. The
decision-making related to the supplier selection results directly to the total
operation costs, final costs and quality of the goods, and finally to the
competitiveness of the company. Thus, managers have to take into account many
factors in order to proceed to a reliable decision. Qualitative and quantitative
criteria contribute to the final decision and since the 60‟s many studies have been
conducted in order to create methods that can help managers to select the best
alternative.

As every aspect is very dynamic in business, supplier selection methods are also
affected by the changes in environment. After e-manufacturing concept started to
gain popularity and be used by many large organizations, companies tried to find
alternative ways to optimize their supplier selection criteria to be able to get better
results in long-term. E-Manufacturing is still an evolving process and changing
rapidly with the technological improvements in IT sector. Thus, it is hard to deduce
what is right or wrong in the supplier selection process and how it matches with the
current situation but it is possible to analyze the trends and optimize the selections
in the same way.

1.2 OBJECTIVE OF THE PAPER

After the rise of e-manufacturing, the supplier selection criteria started to evolve
accordingly. Companies started to search for alternative ways to evaluate their


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suppliers according to their manufacturing structure that they follow in their
business. The objective of the paper is to...

...highlight the importance of selecting a good supplier for business
continuity and how e-manufacturing trend affected the supplier selection in
current business environment.

The paper consists of five chapters. First, the background information about
globalization and supplier selection with a short explanation about the e-
manufacturing trend and its impact on supplier selection will be defined. Second,
the challenges of B2B markets, the importance of buyer-supplier relations and how
the relations affect the business and the long term relations between peers and its
impact on negotiations will be examined. Then, supplier selection criteria and
methods will be introduced and compared. Next, e-manufacturing trend and the
evolution of supplier selection related to the e-manufacturing trend will be
highlighted. Finally, key results and the conclusion will be stated.


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2 MANUFACTURER – SUPPLIER RELATIONS IN B2B

2.1 THE CHALLENGES OF B2B MARKETS

The intention to make profit is the most important characteristic when buying
products in B2B markets (Lyly-Yrjänäinen et al. 2010). Thus, purchasing process is
much formal and takes longer time because of long price negotiations. Many
companies tend to build long-term relationship to be able to derive their demand
when needed. This long term relationship results in close personal relationships
which are difficult for competitors to break (Lyly-Yrjänäinen et al. 2010).

According to Calhoun et al. (2007), segmentation is far more challenging in B2B
than in consumer markets. Sales cycles are long, and offerings are complex.
Moreover, many customers care less about initial product costs and more about the
total costs of ownership, including service, maintenance, upgrades, and other
factors. Competitors‟ offerings and strategies shift so quickly that managers cannot
reliably compare the impact of changes in a given marketing lever over more than
one quarter of business. In addition, customer relationship management systems
cannot easily capture the decisions and actions that led to success or failure with
any particular account, because such information is largely anecdotal, not
quantitative (Calhoun et al. 2007).

Matthyssens et al. (2008) has examined the challenges in B2B marketing in terms
of globalization. First challenge is delocalization of the customers. As
multinational companies are moving their production and assembly units to low-
labour cost countries, industrial suppliers and subcontractors see their home market
shrinking. Secondly, purchasing function is globalizing as the purchasers from
multinational companies seek global purchasing synergies (Quintens et al. 2006).
Next, the importance of global networks is increasing. Lastly, the fourth challenge
faced by B2B companies is the transition to electronic forms of exchange. E-
internationalization is still challenging for companies because they may lose their
intellectual property on the web and B2B relationships are more difficult to manage
in the electronic highway (Samiee 2008).

Despite the above-mentioned challenges, more and more B2B companies expand
their operations internationally since international activities are fundamental to
their performance (Katsiekas 2006).


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2.2 THE DYNAMICS OF BUYER – SUPPLIER RELATIONS

It is important to understand the buyer-supplier relations in B2B environment to be
able to understand about B2B pricing where the prices are highly interrelated with
the costs of the supplied materials. According to Johnson and Tellis (2008),
manufacturer price reduction pressure on suppliers is an important contributor to
helping a manufacturer maintain a strong competitive position by keeping costs
low. However, manufacturer price reduction pressure and trusting working
relations with the pressured suppliers, are not mutually exclusive, they can co-exist
(Johnson and Tellis 2008).

According to Das and Teng (1998), there are three critical elements that comprise a
successful co-operative relationship between manufacturers and suppliers:
 Trust
 Communication and information sharing
 Commitment

First, trust is an essential component of most business-to-business relationship
models. Thus, the greater the manufacturer price reduction pressure on suppliers, the
lower will be the pressured suppliers‟ trust of the manufacturer (Johnson and Tellis
2008). Second, communication and information sharing is an important concept
where each party can set the priorities and co-ordinate the activities necessary to
achieve each other‟s objectives (Mohr et al. 1996). Thus, The greater the
manufacturer price reduction pressure on suppliers, the less likely will the
pressured suppliers perceive their manufacturer customers are communicating
timely and adequate information to them in an open and honest manner (Johnson
and Tellis 2008). Third, commitment to the relationship by each partner is
necessary if the relationship is to work and each party is to realize positive
outcomes (Anderson and Narus 1990). Thus, the greater the manufacturer price
reduction pressure on suppliers, the less likely will the pressured suppliers perceive
the manufacturer is acting in a manner that reinforces their commitment to their
suppliers (Johnson and Tellis 2008).

2.3 LONG TERM RELATIONS IN B2B ENVIRONMENT

The customer-supplier relationship has different levels of closeness according to
the number of transactions and longevity of the relationship. Figure 1 shows
different kinds of partnerships in the B2B context, separated by their duration. The
range of marketing relationships has been adapted from Webster, 1992.


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Figure 1. Customer relationships in B2B markets

Additionally, Goffin et al. categorize long term relationships into three different
types: short term partnerships, long term partnerships and long term relationships
with no end. The definition of each marketing relationship mentioned is presented
in Table 1.

Table 1. Customer Relationships
Marketing Relationship Definition
Considered an arm‟s length relationship. The
required information is available in the price and the
Transactions
only thing necessary for the company is to find
buyers.
Still an arm‟s length relationship. In industrial
Repeated Transactions markets it is important to develop trust and credibility
as part of the marketing strategy.
Long term relationships begin by short term
partnerships and can develop up to long term
relationships with no end. Usually vendors and
Long term relationships
buyers are no longer in an arm‟s length relationship,
but it takes some time for them to adjust to the new
relationship.
These partnerships are based on the concept of
reciprocity. There is a total interdependence between
Buyer-seller partnerships buyer and seller, which are committed to their long-
term relationship. Usually provides an outcome of
stability.
Strategic alliances and joint ventures are categorized
in the same manner since they serve a similar
purpose. In strategic alliances, both partners
Strategic alliances (Joint ventures) collaborate and give capital and resources to enhance
their competitive place in the market. On the other
hand, joint ventures are started by the partners with
the objective of having one entity.
The network develops and manages alliances,
relationships with customers, core competence and
Network organizations
strategy and coordinates the financial resources.
Composed of multiple strategic alliances.
Vertical integration Either supplier or customer owns the other part.


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Among the previously mentioned customer relationships it is possible to find the
long term relationships. When shifting from single transactions to long term
relationships, the highest level that can be achieved is a partnership-like
relationship, which brings advantages like better quality, lower costs and accurate
delivery but at the same time demands resources and commitment from both parts.
Trust is also a necessary condition for the development of any long term oriented
business relationships (Ryu et al., 2007).

Long term customer relationships tend to provide more value to the company, since
they can focus on those customers that will provide more profit and opportunities,
and at the same time, to the customer, since the company will be taking care of
providing services and support in order to guarantee the customer‟s satisfaction.
The closeness in long term customer relationships is related to geographical,
technological, cultural and social factors, as well as the current length of the
relationship. (Goffin et al., 2006) Furthermore, in some technological markets, the
customer is required to adjust to the provider‟s technological platform therefore
creates a high level of commitment between the customer and the provider. Since
these contracts are usually very expensive, this creates a long-term relationship by
default.

Long term customer relationships are relevant for suppliers in two main cases:
when buyers have other product alternatives (highly competitive ambiance) and
when buyers constantly or periodically require a service or product. Under the
same conditions, buyers obtain benefits such as better prices than the other
alternatives in the market and priority sourcing in cases where there is a low
availability of a good or service. (Berry 1983) The development of long term
customer relationships is good when it is mutually beneficial, therefore, both
supplier and buyer must benefit from the development of the relationship.


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3 STRATEGIC SUPPLIER SELECTION

3.1 SUPPLIER EVALUATION AND SELECTION CRITERIA

Suppliers are a very important part of businesses nowadays. Their importance lies
on the fact that the right evaluation and selection of a supplier can generate
significant profits and ensure the efficiency of business processes. Some suppliers
are able to approach their potential customers, but most of the times the companies
have to search, find, evaluate and select their suppliers. This process usually
follows the paths of professional fairs, B2B magazines and other companies.

The process of evaluation and selection of suppliers is very complex. Thus, many
studies have been conducted since the 60‟s in order to identify a pattern that can
propose the best possible solution. As a result, nowadays businesses use different
methods that are based on some specific criteria. Though, according to
Papagiannakis (2009) the number of those criteria makes the evaluation and
selection system unwieldy regarding its content and time consuming regarding its
management.

Thus, more recent studies addressed their focus on minimizing and mixing those
criteria, without affecting the quality of the evaluation process. Dickson (1966)
argues that there are 23 criteria that businesses should take into account when
selecting a vendor. Table 2 shows the findings of Dickson‟s study, including the
importance and main rating for each of them.

Table 2. Supplier Partnership Selection Criteria (Ellram 1990)
Rank Criteria Main Rating Evaluation
1 Quality 3,508
2 Delivery 3,417
Extreme Importance
3 Performance History 2,998
4 Warranties & Claims Policies 2,849
5 Production Facilities & Capacity 2,775
6 Price 2,758
7 Technical Capability 2,545
Considerable
8 Financial Position 2,514
Importance
9 Procedural Compliance 2,488
10 Communication System 2,426
11 Reputation & Position 2,412


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12 Desire for Business 2,256
13 Management & Organization 2,216
14 Operating controls 2,211
15 Repair Service 2,187
16 Attitude 2,120
17 Impression 2,054
18 Packaging Capability 2,009
Average Importance
19 Labor Relations Record 2,003
20 Geographical Location 1,872
21 Amount of Past Business 1,597
22 Training Aids 1,537
23 Reciprocal Arrangements 0,610 Slight Importance

Although Dickson‟s study was very useful for few decades, the industries emerged
and created a need for different approach. Some criteria became more important
than they were before. Ellram (1990) presented her own framework, in which she
included 12 criteria. Table 3 shows Ellram‟s findings.

Table 3. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).
Rank Supplier Partnership Selection Criteria
1 Economic Performance
2 Financial Stability
3 Trust
4 Management Attitude
5 Strategic Fit
6 Top Management
7 Compatibility
8 Organizational Structure
Manufacturing Current and Future
9
Capabilities
10 Design Capabilities
11 Development Speed
12 Safety Record

Ellram did not ignore the importance of Dickson‟s quality criteria, but she focused
on finding complementary criteria that would support the supplier-buyer long-term
relationships.


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There is not a general rule to evaluate an approach as right or wrong. Thus, some of
the criteria might be applicable in a specific case and some not. The importance of
the studies lies on the fact that those criteria help and support the supplier
evaluation process, which is analyzed next.

3.2 THE PROCESS

According to Papagiannakis (2009), there is not an absolute best way to evaluate
and select suppliers. Every case is different and most of the times it is required a
combination of different approaches to achieve the best solution. The objective of
this process is to minimize risks and maximize the perceived value for the buyer.
Long-term relationships usually help businesses to achieve this objective.

Supplier evaluation methods usually follow a strict, structured approach through
the use of research methods. A supplier selection research, in order to be
successful, has to be complete, objective, reliable, flexible and finally
mathematically simple. Hence, businesses have to follow specific steps to ensure
that their supplier selection research will be successful.

According to Monczka et al. (2002), a supplier evaluation and selection process
should include seven steps, as the following figure illustrates:

Figure 2. Supplier Evaluation and Selection Process (Monczka et al. 2002)


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The framework of Monczka et al. includes more parameters in every of the seven
steps. Though, this paper will avoid to explore deeper the framework, so that it can
introduce some interesting supplier selection methods in the subchapter 3.3.

3.3 SUPPLIER EVALUATION AND SELECTION METHODS

According to Daskalakis (2010), each method covers some aspects of the suppliers‟
characteristics that are under investigation. Consequently there is no method that
can replace some other. Of course in some cases a method can include
characteristics of many other methods, but it is not possible to cover all the
characteristics of a candidate supplier.

Talluri and Narasimhan (2002) identified three basic methodologies to approach
the problem of supplier evaluation and selection. First, the conceptual approaches
that emphasize the strategic importance and influence of the supplier selection to
the buying process. Price, quality and delivery regulations are very important parts
of the conceptual approaches. Second, the empirical approaches, such as the one of
Chao and Hartley (1996) for the automotive industry, which proposed that there are
only slight differences regarding the importance of the selection criteria, between
the different levels of the buyer‟s supply chain. Finally, the most widespread
approach lies on the use of models to solve the supplier evaluation and selection
problem. These methodologies are greatly used nowadays, and hence some of them
are presented in Table 4.

Table 4. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).
Models Researchers
Linear Weighting Models Timmerman (1986), Monczka & Trecha (1988)
Statistical Model (Principal
Petroni & Braglia (2000)
Components Analysis)
Barbarosoglu & Yazgac (1997), Bhutta & Huq
Analytic Hierarchic Processes
(2002), Narasimhan (1983), Nydick & Hill (1992)
Ellram (1993), Degraeve et al. (2000), Bhutta &
Total Cost Models
Huq (2002),
Economic Model Tagaras & Lee (1996)
Weber et al. (1998), Narasimhan et al. (2001),
Data Envelopment Analysis
Talluri (2003)
Dahel (2003), Karpak et al. (1999), Weber &
Multi-objective Programming
Ellram (1993)
Game Model Zhu (2004), Talluri (2002)
Kwong (2002), Kuma et al. (2004), Lau et al.
Fuzzy Theory
(2002)
Dimensional Analysis Li et al. (1997), Willis (1993)


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MACBETH Models Bana e Costa & Vansnick (2008)

Some of the methodologies are able to improve significantly the decision-making,
and thus it is important to mention the models that are greatly in use. As
Papagiannakis (2009) identifies, the most important are:

 Linear Weighting Models:
o Categorical Method (Timmerman, 1986)
o Weighted Method (Timmerman, 1986)
 Total Cost Models:
o Total Cost of Ownership (Ellram, 2005)
o Cost Ratio (Timmerman, 1986)
 Principal Components Analysis (Petroni & Braglia, 2000)
 Analytic Hierarchic Processes (Nydick & Hill, 1992)
 MACBETH Models (Bana e Costa & Vansnick, 2008)

In the Linear Weighting Models the evaluation is based on a pointing system
according to various criteria. The final points indicate the most suitable supplier.
The Total Cost Models are cost oriented and focus on financial aspects. On the
other hand, the AHP Models are based on a framework that prioritizes the
alternative choices and includes intuitive, logical, qualitative and quantitative
factors. Finally, the MACBETH Models attempt to improve the method of the AHP
models. The comparison of the models is shown in Table 5.

Table 5. Advantages and disadvantages of supplier selection methods (Papagiannakis 2009)
Methods Advantages Disadvantages
 The same weight for all
 Clear and systematic the criteria
Categorical evaluation  Subjective pointing
 Cheap implementation system
 Not very reliable
 Subjective pointing
 Different weight for system
Weighted Point criteria respectively to  Difficult to take into
their importance account qualitative
criteria
 Flexibility
Cost Ratio  Decreases the  Complexity
subjectivity
Total Cost of Ownership  Cost reduction  Complexity
 Reliable
 Knowledge of advanced
Principal Component  Manages the
statistical methods is
Analysis characteristics without
required
weights


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 Simple
Analytic Hierarchical
 Quantitative as well as  Unstable
Process (AHP)
qualitative criteria
 Use of software is
MACBETH  Improvement of AHP
required

As seen in the table above, the linear weighting models are easy to implement and
simple to use. They are not very expensive but they are not very reliable as well.
On the contrary, the total cost models are flexible and very objective, but very
complex and difficult to implement. The principal components analysis is able to
manage multiple conflicting criteria. The AHP are simple to use and take into
account quantitative as well as qualitative criteria. Finally, the MACBETH is a new
method that improves the AHP.


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4 SUPPLIER SELECTION IN E-MANUFACTURING

4.1 WHAT IS E-MANUFACTURING?

E-Manufacturing term first introduced to business by a firm in semiconductor
industry to enable large production quantities in different locations in the world
(Sridhar CNV et al. 2010). With emerging applications of Internet and tether-free
communication technologies, companies are forced to change their traditional factory
integration philosophy to an e-factory philosophy where every step is controlled and
optimized by using an e-Manufacturing system (Koc et al. 2005). The main reasons
behind this shift are:
 the threat posed by competitors
 controlling costs
 finding new opportunities
 improving responsiveness
 better customer focus and service

After the acceptance period in business, e-manufacturing started to get more
popular in the market. Many companies realized it is importance and the benefits it
provides in a short period of time. By using e-manufacturing systems, companies
started to fill the gaps existing in their traditional manufacturing systems. E-
Manufacturing enabled real time information sharing between the peers about
capabilities, costs and resources, synchronization with suppliers and vendors and
linkage with ERP systems in every step of the production. Moreover, it assured
reliability and maintainability and maximized the availability. As a result,
companies managed the increase their performance and decrease their costs at the
same time by benefiting from the power of e-manufacturing systems. The concept
of e-manufacturing is illustrated in figure 3.


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Figure 3. E-Manufacturing

According to Sridhar CNV et al. (2010), the benefits provided by a well
implemented e-manufacturing system are:
 E-Manufacturing is to achieve predictive near-zero downtime performance
through the use of web-enabled technologies.
 The real-time production information should be made available to the entire
organization.
 E-Manufacturing gives agility to react quickly to the changes in market,
technology, and clients.
 Total asset management that aims in improving the utilization of plant floor
assets using a holistic approach.
 Sensitive communication between the clients and the server
 Transparent, seamless, information exchange process between clients and
manufacturing firm.
 It enables to meet the increasing demands through tightly coupled supply
chains.
 Status of equipments, orders, products, changes in the processes across the
enterprise can be monitored.
 There should not be any block holes in the real time flow of information,
including outsourcing suppliers, customers
 The entire system is flexible enough to change with the varying market
demand conditions in a short lead-time.
 The ability to quickly and accurately communicate technical information
throughout suppliers and manufacturers leads to pooling the best ideas and
faster decision-making.


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The benefits mentioned in the bullet list above provide endless opportunities to
companies against their competitors. The companies can optimize their inventories
and production capabilities by using just-in-time manufacturing and on-time
shipment so that they can control their costs and create a wider profit opportunity
for their organization. Now, e-manufacturing is seen as a core competency in which
companies can integrate all elements of their business in one solid framework.

4.2 WHY E-MANUFACTURING?

The main focus of a company for introducing an e-manufacturing strategy relies on
the competitive advantage it can gain. Specifically, manufacturers aim to improve
their efficiency in quality control, operations management and of resources, supply
chain management and visibility. By improving these aspects, companies will be
able to tailor their offerings of services and products to the requirements of the
customer, and will excel in performance. The following table shows the ongoing
problems in today‟s companies using the best manufacturing practices, and it also
shows the improvements with e-manufacturing.

Table 6. Comparison of traditional manufacturing and e-manufacturing.
Traditional Manufacturing E-Manufacturing
Parts with defects Less parts with defects
High downtime Low downtime
High energy use and cost Controlled energy use, reduced cost
Long changeover and ramp up time Shorter changeover and ramp up time
Long lead time for new product Short lead time for new product
realization realization
Slow decision making Fast decision making
Supply chain visibility Increased supply chain visibility

Among the important aspects of implementing e-manufacturing there are several
issues that are very important for a successful strategy. For example, having e-
manufacturing as part of the company‟s processes form an instant increase in the
exchange of all sort of information between the company and suppliers or
customers, specifically in the speed of the communication. This allows avoiding
problems at any kind of level with the customer, supplier, or anywhere along the
supply chain. Additionally, it is also important for companies that have outsourced
large parts of their operations, since it can communicate vital information in just
instants, therefore enhancing the decision making process. On a similar level, the
lead times for new product realization should be reduced to a minimum in order to
have the capability to react to the changing demand of different customers and
regions.


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There are seven main benefits achieved by implementing the e-manufacturing
strategy to a company or enterprise. (Shivanand et al. 2008) These are:
 Synchronization of the production processes with the business processes
 Improving and consolidating the upstream information, material and work
flow
 Automation of business processes inside the company
 Increasing manager control providing more plant information and new
analysis tools
 Integration of the design process among different units or companies
collaborating
 Leveraging the bi-directional downstream information
 Enhancing and enabling the collaborative maintenance and support for
manufacturing

4.3 EVOLUTION OF SUPPLIER SELECTION IN E-MANUFACTURING

Many authors have identified several criteria for supplier selection as these criteria
are vital in supplier evaluation and selection process since it helps to measure the
performance of supplier. However, the researched criteria mainly focus on tradition
manufacturing concept and e-manufacturing trend was not taken into consideration
during these researches. Nowadays, it is believed that e-manufacturing
distinguishes itself from traditional manufacturing by its characteristics and
capabilities. Thus, selection criteria must vary (Sridhar CNV et al. 2010).

The idea behind traditional manufacturing is to have a high level throughput
produced with a minimum amount of inventory. Usually, the fact of having a low
amount of inventory brings savings in warehousing costs. In order to guarantee a
successful strategy, several criteria should be satisfied. Quality is one of the most
important criteria of traditional management. Traditional manufacturing aims to
provide a high quality product by inspecting each part after it has been
manufactured. In case there is a defect, the production line is stopped to detect the
problem before it becomes bigger. The quality of the raw materials is also
thoroughly inspected in order to achieve a better product. Delivery times in
manufacturing depend from the just in time concept applied to purchasing,
manufacturing and distribution. In each of these stages, the raw materials, products,
and output are expected at a certain moment in order to avoid storage costs within
the company. As a result of saving on warehousing costs, the company will then
focus on the price of the product and try to eliminate any unnecessary costs to
reduce the production costs, and be able to reduce the customer price; for a better
competition in the market. The reputation and position of the company are an
important part of manufacturing since they help create a brand name and establish a


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domain over the market. It is always important to maintain a manufacturing
position since it can provide benefits when competing for the market. Additionally,
before globalization and the increase in global communication means, geographic
location was important for manufacturing since communicating and sharing
information with a supplier or customer was easier if they were physically close.
Transport costs were also cheaper, therefore, companies had the tendency to hire or
work with close suppliers and customers. Also, the manufacturing capabilities were
of great importance, since companies used to work with huge amounts of stocks
and products, thus making it very important to have the resources to manage these
stocks. Without these, the company loses productivity and competitive advantage
against rivals.

Figure 4. Evolution of supplier selection criteria in e-manufacturing environment.

E-Manufacturing is a business strategy for companies to be able to stay competitive
in current business environment. The main focus of e-manufacturing is to integrate
of all the elements of a business including suppliers, customer service network,
manufacturing enterprise, and plant floor assets with connectivity and intelligence
brought by the web-enabled and tether-free technologies which gained momentum
in the last decade.


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As seen in Figure 4, e-manufacturing forms a new perspective in supplier selection
criteria. The most important selection criteria in e-manufacturing are quality,
delivery time, price, reputation & position, lead time management and IT &
Communication systems. When compared to traditional manufacturing criteria, it is
seen that manufacturing capabilities and geographical location lost their importance
in the scale. The reason behind this argument is that e-manufacturing improved the
information sharing and internal communications of the organizations so that they
can work with less stock and be braver to pursue international opportunities by
relying on their business network. These trends increased the importance of lead
time management and IT & Communication systems. Lead time management
became more important in supplier selection because the business environment is
very dynamic and reacting to emerging trends is a key success factor nowadays. IT
& Communication systems also increased their popularity in supplier selection
since it is very critical in e-manufacturing concept to be able to share information
fast and efficiently. However quality, delivery time, price and reputation & position
are still keeping their position to be an important decisive factor in supplier
evolution because they have direct effect in cost and performance management of
an organization.

Currently many companies are basing their operations on traditional
manufacturing. However, when the company is very large enough and has the need
to increase supply chain visibility, as well as communication with suppliers and
customers, it fulfils the criteria to implement e-manufacturing. By implementing
this manufacturing, it can expect a drastic reduction of warehousing costs,
communication expenses, avoiding the excess of inventory and increasing the
production speed. All of these settings provide an increase in the productivity, a
decrease in the production cost and reduction of the sales cost for the customer.
Therefore, the company will offer a better product at a better price and this will be
reflected in the profitability of the company.


19

5 CONCLUSION

Globalization trend has enabled new business opportunities for all companies
around the world. Many companies started to make business with suppliers from
abroad so that they can lower their costs and increase product quality. However,
this situation formed some challenges to companies as well in evaluating the best
supplier so that they can improve their performance. The supplier evaluation and
selection has always been one of the most important problems that companies need
to solve. The multi-criteria analysis methods can adapt to the needs of each
company and offer a reliable solution for this problem. Hence, these methods are
able to contribute significantly and improve the profitability of the buyer, if they
are used properly.

The objective of this paper was to highlight how efficient supplier selection can
provide business success and how the e-manufacturing trend affects the supplier
selection in current business environment. E-Manufacturing trend has plenty of
unique characteristics compared to traditional manufacturing so these aspects
should be taken into consideration before selecting a supplier to be able to get the
best performance and results.

Based on this research, this paper examines the concept of buyer-supplier relations
and how these relations affect the company‟s operations. Furthermore, the
evaluation and selection process has also become a very complex task for managers
in the modern business environment. Thus, the paper analyzes different criteria,
methods and models which are used in order to decide the most suitable supplier
for the company‟s operations. Multi-criteria methods are very popular and usually
provide the best results. Hence, they are also introduced and discussed in order to
acquire the basic knowledge regarding the supplier selection, so that the research
can proceed and analyze the case of e-manufacturing.

Finally this paper supports that e-manufacturing is a great opportunity for
companies in business nowadays. With the development in information technology,
it will keep on increasing its power and start to dominant the manufacturing
practices that are currently in use. Thus, companies should adapt to this trend and
alter their supplier selection criteria accordingly.


20

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