Executive Summary
Supplier evaluation is an important process in business management because it helps organisations to identify suppliers that will address their unique needs and share similar values with the organisation. Stemming from this goal, the importance of supplier evaluation to business process management is premised on the desire for organisations to create a good working relationship with other businesses. However, this process cannot happen without an effective supplier evaluation process.
The business-to-business link that Branco and IPC share is dependent on the need to undertake such evaluations because both parties share an interdependent relationship based on the latter’s value to IPC’s operations. However, this union has been undermined by Branco’s poor performance, which is traceable to its non-conformance issues.
This report shows that Branco and IPC have an opportunity to mend this relationship by adopting their key supply chain functions to the enterprise resource planning (ERP) model. The system can be used to store, manage and integrate data relating to the supply chain management functions of Branco and IPC, thereby providing their managers with a broader understanding of how to improve functionalities across different supply chain areas.
The justification for proposing the use of this e-procurement model by Branco and IP stems from the nature of IPC’s weighted-scoring criteria, which links procurement functions with business objectives. The ERP model provides a platform for strengthening this linkage because it integrates different business functions to create a broader understanding of how IPC and Branco’s procurement functions affect their overall business goals.
Introduction
Supplier evaluation refers to the process of assessing a list of vendors based on their merits to create a portfolio of top-notch suppliers to fulfil procurement goals. Using various quantitative and qualitative techniques, companies adopt vendor evaluations by measuring and monitoring their performance (Zeng, Tse and Tang, 2018). This process is akin to mitigating supplier risk, as most companies undertake supplier evaluations to minimise their exposure to this type of risk (Koster, Vos and Schroeder, 2017). This statement underscores the justification for analysing supplier relationships and it describes the nature of the connection between Industrial Products Corporation (IPC) and Branco.
Reporting annual sales of about £100 million, for a long time, IPC has executed its business strategy with the assumption that Branco will continue to supply high-quality inputs. With more than 1,100 employees, its business processes have extensively relied on a strong distribution strategy that is predicated on the existence of a strong relationship with Branco because it is the main supplier of product packages. By capitalising on the strategic role played by Branco to IPC’s operations, the company has successfully sold its products to industrial consumers without much complaint. However, recent supplier evaluation reports have shown that Branco’s performance has been below par.
This problem has been exacerbated by the continued emergence of noncompliance cases across multiple phases of evaluation. This background necessitates the development of this report, which provides an in-depth examination of the problem to recommend a set of actions that both IPC and Branco can take to improve their performance. This report is categorised into three sections. The first one provides a theoretical background of the problem through an examination of the role and application of supplier evaluation in businesses performance. The second part delves deeper into Branco’s performance and its business risk to IPC’s operations. Lastly, this report explores how both parties should address the issue going forward.
The Role and Application of Supplier Evaluation
Supplier evaluation is an important process in business management because it helps organisations to identify vendors that can address their unique needs. Relative to this assertion, supplier evaluation forms a critical part of business management because it allows organisations to measure important areas of performance (Hernández and Pedersen, 2017). Typically, these evaluations should present a comprehensive analysis of all types of facts because mechanical formulas alone cannot provide a holistic picture of an effective review process (Hernández and Pedersen, 2017). Therefore, managers often combine quantitative and value judgements to come up with the most effective supplier evaluation criteria.
IPC also uses a collection of qualitative and quantitative criteria to analyse Branco’s performance. The role and application of supplier evaluation to its operations are centred on the minimisation of supplier costs and the reduced possibility of production disruptions occasioned by third-party operations. This process is primarily linked with the development of strategic relationships among business partners, a reduction of business risk through the recruitment of new suppliers and the minimisation of ownership or acquisition costs (Zeng, Tse and Tang, 2018).
Additional evidence suggests that supplier evaluations are also important in monitoring trends in the business environment, promoting sustainable development, enhancing business improvements through valuable feedback given to sellers, creating leverage in the marketplace and making sure that supplier activities conform to the overall objective of a business (Koster, Vos and Schroeder, 2017).
Although supplier evaluation has its benefits, there are several drawbacks associated with the process. For example, the subjectivity of qualitative measures in assessment makes it difficult to standardise performance or compare supplier evaluation processes across different business processes (Hernández and Pedersen, 2017). It is also difficult to find consensus when developing evaluation measures, thereby increasing the possibility that one party may to unilaterally impose their standards on all others. Additionally, the information collected from supplier evaluations are only useful if they are effectively actionable (Zeng, Tse and Tang, 2018). Therefore, it is not enough to simply evaluate without a clear plan of how its findings will be used to improve performance.
Based on the importance of supplier evaluations to business performance, there are inherent costs associated with maintaining a robust review system. In this regard, supplier evaluations may increase a business’s resource requirements (Koster, Vos and Schroeder, 2017). The failure of some organisations to undertake supplier evaluation processes continuously makes it seem like a ritualistic exercise whenever they are to be done.
This perception challenge undermines the credibility of supplier evaluation outcomes. It further draws attention to the ethical implications of undertaking supplier evaluations because several judgements have to be made in an evaluation exercise that involves one party dictating how another should conduct their business. Lastly, supplier evaluations have no meaning if there is no context involved. This is why IPC uses the weighted score criteria to undertake its evaluations because the model best aligns with its goals. In other words, it gives the company a framework for evaluating supplier actions vis-à-vis its organisational goals. Its recent application has shown worrisome trends in Branco’s performance.
Branco’s Performance and Business Risk to IPC
The skills and criteria used to undertake supplier evaluations are dependent on an organisation’s culture and business environment. However, for most organisations, supplier evaluation processes are continuous and may be procedurally done throughout the lifecycle of a business (Katiyar, Barua and Meena, 2018). The aim of this process is usually to get the right group of suppliers to work with by helping a business to accomplish its objectives. This goal is consistent with the views of Koul, Sinha and Mishra (2016), which presuppose that companies have to pay attention to effective supplier evaluation processes before they enter into long-term contractual agreements, as doing so would minimise their exposure to supplier risk. Therefore, effective vendor evaluation is a critical part of business risk management.
Businesses often adopt three main types of evaluation criteria: categorical planning (simple qualitative planning), cost-ration planning (attributed cost of poor performance) and a weighted points planning system. Collectively, these three vendor evaluation systems pose different benefits and drawbacks to organisations, including tracking their performance to create corrective actions, improving supplier and buying performance, comparing suppliers in different areas of business performance, promoting professional purchasing behaviours, improving supplier relationships, chasing the lowest cost of acquisition, and providing evidence-based decision-making.
Although the discretion involved in selecting these three bases of review as foundations of supplier evaluations are left to managers and their respective boards, there is a consensus that measurement requirements need to be focused, accurate, comparative, objective, inclusive and accessible.
IPC uses a weighted points plan to undertake supplier evaluation processes because its supply chain functions are closely intertwined with its objectives. Within this weighted points plan, IPC uses a robust scoring criterion for managing Branco’s performance by using three scoring criteria for analysis: quality, delivery and continuous improvement. While all these tenets of performance are essential in performing supplier evaluation processes, “quality” has the greatest weighting score of 50%. Subject to the importance of this vendor evaluation criterion, IPC has been assessing Branco’s performance in the last four quarters and its performance has been below par.
The company has an overall score of 2.83/4, which is short of the minimum acceptable standards of 3.2/4 (see a comprehensive report of Branco’s scoring performance in the appendix section). To explain this performance, figure 1 below tracks Branco’s performance in the last five quarters and shows that its supplier performance rating had fallen below the minimum acceptable standard.
This low score has made it necessary to identify possible ways to improve Branco’s performance, relative to its strategic positioning in IPC’s overall business strategy. However, to do so, there is a need to understand the potential extent that this risk would have on IPC’s business.
Subject to the need to understand the implications of supplier risk on business performance, managing vendor risk is one of the most difficult tasks for many organisations because they do not have direct control over another company’s actions. However, their performance is dependent on that of another party. IPC and Branco share this type of relationship because IPC’s marketing strategy is dependent on the success of its packaging strategy and Branco plays a key role in supporting this function.
The increased business exposure posed by its poor performance in the last three-quarters of evaluation heightens the possibility of supplier disruption (Hernández and Pedersen, 2017). Already, evidence of this type of effect has been reported at IPC because equipment stalls were traced to Branco’s non-conformance problems. Furthermore, some of Branco’s orders included defective carton flaps and edges, which affected the stability of some of the delivery packages and, by extension, the safety of the products they were supposed to protect. Some of these problems were detected later in the manufacturing process when production had already started.
Branco’s poor performance may have far-reaching implications on non-supply chain parts of IPC’s business. Stemming from this realisation, even the most sophisticated companies have to be reminded about the various types of risk that could affect their operations and possible ways of mitigating them (Koster, Vos and Schroeder, 2017). The reputation of businesses that extensively rely on supplier performance is the most vulnerable. The sophistication of supply chain functions in today’s globalised world has further increased exposure to supplier risk (Reinecke et al., 2018; Buhmann, Taylor and Giuliani, 2019) and IPC is equally exposed.
Branco’s performance portends widespread implications on its business processes because its packaging strategy is a key part of IPC’s marketing operations. More importantly, the packaging plan is a critical part of IPC’s distribution strategy because it protects goods from damage. Indeed, any products that will be damaged during the transportation process because of defective packaging may have far-reaching implications on the company’s market reputation because some of the customers may not get their products on time or delivered at all. By failing to receive quality packages from Branco, it would be difficult for IPC to guarantee the quality of its products. This business risk may affect the IPC brand because it would cause customer dissatisfaction. By extension, the company’s competitiveness would be undermined as some of the disgruntled customers may choose to buy substitute products from the competition.
How Both Sides should Manage the Issues Moving Forward
Branco and IPC should consider using e-procurement software to manage their relationship moving forward. E-procurement functions involve the use of electronic means to manage supply chain activities (Zhong et al., 2019). Common concepts associated with this management paradigm include e-tendering, e-ordering, e-auction, e-catalogue, e-information, and e-commerce (just to mention a few) (Schoenherr, 2018).
Adopting e-procurement functions may contribute to the improved efficiency of Branco and IPC’s relationship, including their overall performance. For example, e-procurement has been linked to the minimisation of excessive documentation processes associated with traditional supply chain activities, a reduction in order processing times, lower costs of clerical work and diminished possibilities of making errors or mistakes (Kumar, 2019).
The existence of the above-mentioned benefits means that, upon implementation, e-procurement will provide cost and efficiency advantages to IPC and Branco. The cost-benefit advantages may be observed using lower transaction costs, a reduction in the number of suppliers, access to wider supply markets, shorter requisition-to-order times, fewer employees needed and a low market price. Some efficiency advantages may include better coordination with suppliers, improved processes via data consistencies, better integration of procurement-to-pay (P2P) cycle with suppliers, reduced incidents of maverick buying, inventory reduction and the improved tracking of orders.
These efficiency and cost gains could directly solve some of Branco’s operational management issues that have caused its low performance at IPC. For example, its defective packaging materials could be addressed by adjusting its supply chain functions through e-procurement functions that would improve the efficiency of its production processes.
Adopting e-procurement will also improve the level of coordination between IPC and Branco, thereby minimising the possibility of receiving defective packaging products. Indeed, both parties will coordinate their activities at the production phase so that there are no inconsistencies during delivery. This statement emanates from multiple incidents where Branco has delivered defective packages after IPC commenced production.
This problem caused up to a 30% slowdown in the company’s production efficiency. However, by using e-procurement functions, there will be minimal instances of non-conformance because of better synchrony of functions between IPC and Branco (Treumer and Comba, 2018). This framework will allow IPC to contribute to Branco’s activities by making sure its production systems conform to the company’s standards.
Enterprise Resource Planning (ERP) could be used to implement the e-procurement function identified above because of its wide business scope and real-time functionality. Elbardan and Kholeif (2017) clarify that an ERP system is not only relevant to procurement because it efficiently integrates different business functions. In this regard, it can be used to store, manage and integrate data relating to different organisational processes and provide managers with a broader understanding of how to improve functionalities across different supply chain areas. The justification for the use of this e-procurement model is hinged on the weighted-scoring criteria adopted by IPC to evaluate its suppliers.
The ERP model provides a platform for IPC to strengthen this function because it integrates different supply chain activities to create a broader understanding of how IPC’s procurement functions affect its business goals and the role played by Branco in helping it to achieve its corporate objectives. Stated differently, the ERP system would allow IPC to develop a supply chain system that appeals to its organisational requirements and needs.
The relevance of ERP systems to IPC’s processes should be understood within a wider framework of existing models that are available to serve individual business needs. To this end, several ERP frameworks are available in the market and on the web. Subject to their availability, Chuck Law (2019) advises companies to select the best ERP system, which does not erode their functionality. Therefore, there is a need to select the right vendors, services and products using proven criteria of evaluation. Bradford (2015) and Samara (2015) say that most companies that adopt the ERP model develop their selection criteria that are predicated on an effective understanding of different vendor-related factors. The ERP framework is useful in complementing some of these processes because it is product-based and not function-based.
If well implemented, the ERP system will allow for the automation of Branco’s supply chain functions, thereby minimising the room for errors and mistakes that have been associated with its products. Consequently, it would be difficult for Branco to deliver defective packages that are odd-shaped. Moreover, the use of the ERP model would enable Branco to expand its products across IPC’s value systems by simply recalibrating associated metrics in its production processes and allowing automated systems to aid in the production and delivery of the customised products.
This strategy is contrary to the manual system of trying to tweak production systems to meet the customised standards. It marked the genesis of the delivery of products with defective flaps and edges in the first place. Overall, ERP would eliminate most of the non-conformance problems attributed to Branco’s processes.
Summary
From the onset of this report, the relationship between IPC and Branco has been presented as an interdependent one because the latter offers a key service to IPC. However, this relationship has been affected by Branco’s poor performance, which has been traced to non-conformance issues. This report shows that both companies have an opportunity to mend their relationship by transitioning their key supply chain functions to the ERP system. It can be used to store, manage and integrate data relating to their varied supply chain management functions and provide their managers with a broader understanding of how to improve functionalities across different supply chain areas.
If well implemented, the ERP model will allow for the automation of Branco’s supply chain functions and minimise the room for errors and mistakes that have been associated with its deliveries. Consequently, it would be difficult for Branco to produce defective packages or odd-shaped cartons. Moreover, the use of the ERP model would enable Branco to expand its products across IPC’s value systems by simply recalibrating associated metrics in its production processes and allowing automated systems to aid in the production and delivery of the customised products.
The justification for the use of this e-procurement model is hinged on the weighted-scoring criteria adopted by IPC, which links procurement functions with business objectives. The ERP model provides a platform for strengthening this linkage because it integrates different business functions to create a broader understanding of how IPC’s procurement functions affect its overall business goals as well as the role played by Branco in helping it to achieve its corporate objectives.
Reference List
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Chuck Law, C. (2019) Managing enterprise resource planning adoption and business processes: a holistic approach. Cambridge, MA: Cambridge Scholars Publishing.
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Schoenherr, T. (2018) The evolution of electronic procurement: transforming business as usual. New York, NY: Springer.
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Zeng, W., Tse, M. Y. and Tang, M. (2018) ‘Supply chain quality management: an investigation in the Chinese construction industry’, International Journal of Engineering Business Management, 4(1), pp. 1-10.
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Appendix
Branco’s Weighted Score.
(Source: Course Materials).