Study of supplier performance scorecard systems of car manufacturing companies in India: a literature review

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In this paper, study is made for exploring supplier evaluation based on: (1) Evaluation parameters identified by 161 researchers from 1966 to 2012 (2) Scorecards used by Indian car manufacturing companies for evaluation of their suppliers and (3) International standard ISO/TS16949.

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Nội dung Text: Study of supplier performance scorecard systems of car manufacturing companies in India: a literature review

International Journal of Management (IJM) Volume 7, Issue 7, November–December 2016, pp.191–203, Article ID: IJM_07_07_020 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=7&IType=7 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication STUDY OF SUPPLIER PERFORMANCE SCORECARD SYSTEMS OF CAR MANUFACTURING COMPANIES IN INDIA: A LITERATURE REVIEW Anand Patil PhD Research Scholar, Organizational Management, Vishwakarma Institute of Management & Research, Pune University, Pune, India Dr. Jyoti Gogte PhD Research Guide, Vishwakarma Institute of Management & Research, Pune University, Pune, India ABSTRACT “The constant pressures of Globalization and Competitive advantage have influenced organization to attain goal of low cost, high quality, flexibility and more customer satisfaction.” (Patil A.N., 2014). Good supplier base has become important part of strategies in gaining competitive advantage. For this effective supplier evaluation in terms of measurement and monitoring plays a vital role. “Choosing the right supplier plays an important role in making organizations profitable and keeping them focused on their potential strengths. Therefore, evaluating the quality of suppliers carefully is vital for any company”. (Thesis A. 2012). Measuring performance of supplier is complex task due to numerous factors including regional organizational culture, Industry trends and issues. In this paper, study is made for exploring supplier evaluation based on: (1) Evaluation parameters identified by 161 researchers from 1966 to 2012 (2) Scorecards used by Indian car manufacturing companies for evaluation of their suppliers and (3) International standard ISO/TS16949. Based on the result of the study of literature, we conclude that supplier evaluation parameters are no longer fixed and will continue to change, based on industry dynamics. Supplier evaluation parameters include both, traditional parameters (like cost, quality, delivery) and nontraditional parameters (technical capability, reputation and position in industry etc). Experience and studies have shown that there is no best way for evaluating suppliers; it varies from country to country, also from one company to other. “Increased competition and globalization of markets facilitated by Internet-based technologies have combined to dramatically change the ranking of factors while introducing new criteria to the supplier evaluation process.” (S. Hossein Cheragh, Mohammad Dadashzadeh, Muthu Subramanian, 2004) JEL Classification: L2, L20, L21, L25, L6, L60, L62, L25, M10, M11, M19 Key words: Supplier evaluation, Supplier performance, Scorecards, Performance measurement, Supplier evaluation parameters, Car Manufacturing Companies in India http://www.iaeme.com/IJM/index.asp 191 editor@iaeme.com
Anand Patil and Dr. Jyoti Gogte Cite this Article: Anand Patil and Dr. Jyoti Gogte. Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review. International Journal of Management, 7(7), 2016, pp. 191–203. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=7&IType=7 1. INTRODUCTION 1.1. Rising Indigenization Industry The Indian automobile market is at 5th position in the world with highest growth rate of 7.64% in year 2015. India is expected to become the fourth largest automobiles producer globally by 2020 after China, US and Japan. (IBEF, SIAM 2016) Table 1 Source:http://www.livemint.com/Industry/bulpIdEod7tk9HTftdo9bL/At-764-growth-India-fastest-growing- passenger-car-market.html (Siam / OICA) Indian Car Industry will continue to excel through - Robust demand, Export opportunities and competitive cost advantages - relative to operations in Europe and Latin America. Added advantage for India is presence of a large pool of skilled and semi-skilled workforce amidst a strong educational system and India is third largest steel producer globally hence a cost advantage. (IBEF 2016) In current competitive atmosphere Industry has challenges to meet cost and quality objectives. On one side cost to be kept lower while Quality has to be match international levels. Additionally there is huge competition among developing countries like China, India, Brazil and South Africa etc. Although Indian automotive industry has gone through several reforms to improve their performance, Industry has to put efforts in improving organizational culture, systems, and infrastructure etc. This is not only required for OEM’s but more efforts are required at Tier 1 and Tier 2 suppliers to bring them up to meet these standards. In fact biggest challenge is on supplier side. With companies outsourcing their manufacturing to suppliers, the supply chains are becoming longer. On the other side, many of these manufacturers have streamlined their supply chain and implemented lean inventory techniques. As a result, any issue in supplier quality can quickly results in stock out. Hence managing own suppliers is very high on the agenda of these companies. Supplier Performance Scorecard http://www.iaeme.com/IJM/index.asp 192 editor@iaeme.com
Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review System plays very vital role in this process. This not only helps in evaluating & improving supplier performance but also guides in selecting / delisting the suppliers. Therefore on this background, present study about Supplier Performance Scorecard System in Indian car manufacturing industry is taken as research topic. This will be helpful for stake holders of car manufacturing industry in India to: Understand perceptions in industry Identify the key supplier performance parameters Improve supplier evaluation methods Improve supplier performance Build competitive advantage on supplier base 2. LITERATURE REVIEW Literature review on supplier evaluation parameters is done from following three sources - 1. Based on Research papers, Journals – to understand base concept at origin and evaluation over period of time 2. Scorecards from Indian Car Manufacturing Organizations – to understand the current evaluation parameters used by these companies. 3. International standard ISO/TS16949 – to understand the requirement of this international standard. 2.1. Literature Review Based on Research papers, Journals The analysis criterion for supplier selection and measurement of supplier performance was in focus of many scientists and purchasing professionals since 1960s. Researchers were working on developing performance criteria based on which supplier can be evaluated. (Macedonia, E. V. N., Skopje, A. D. 2013). “Dickson (1966) firstly performed an extensive study to determine, identify and analyze what criteria were used in the selection of a firm as a supplier. Dickson's (1966) study was based on a questionnaire sent to 273 purchasing agents and managers selected from the membership list of the National Association of Purchasing Managers. The list included purchasing agents and managers from the United States and Canada, which was a total of 170 (62.3 of Dickson's study) regarding the importance of 23 criteria for supplier (vendor) selection as shown in Table 3. Dickson asked the respondents to assess the importance of each criterion on a five point scale of: extreme, considerable, average, slight and of no importance. Based on respondents' reply quality is the most important criterion followed by delivery and performance history”. (Tahriri, F., Osman, M. R., Ali, A., Yusuff, R. M., & Esfandiary, A. 2013; Mohit Maheshwarkar, N. Sohani 2012; S Yahya & B Kingsman 1999). “Dickson reconfirmed his earlier observation that price was not a consistently important factor in the vendor selection process. Similarly, technical capability, production capacity, and warranties while considered by the respondents to be very important for some of the purchases were also deemed unworthy of much consideration inother instances. He finally concluded that three factors were crucial in the choice of vendors: the ability to meet quality standards, the ability to deliver the product on time, and performance history” (S. Hossein Cheragh, Mohammad Dadashzadeh, Muthu Subramanian, 2004) http://www.iaeme.com/IJM/index.asp 193 editor@iaeme.com
Anand Patil and Dr. Jyoti Gogte Table 3 This is the first study that concentrated to identify the main criteria that affect vendors’ selection process and Dickson’s 23 criteria for supplier (vendor) selection is used as basis for most of the future studies. But yet, it must be clear that since that period of time new strategies are formulated and new studies have been published regarding this topic since the contemporary conditions have improved and better approaches are available. (Macedonia, E. V. N., Skopje, A. D. 2013). Figure 2 below shows that how supplier evaluation parameters are increasing over period of time. From 2001 onwards it is showing more number of additions of new parameters resulting in proportionate increase the total number of active parameters from 23 in year 1966 to 39 in year 2011-2012 http://www.iaeme.com/IJM/index.asp 194 editor@iaeme.com
Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review Figure 2 Table 4 below shows the comparison between 23 supplier evaluation criteria ranks obtained by Dickson in 1966 vs. ranks obtained based on performance criteria identified by 161 research papers from 1966 to 2012. (Patil, A. N. 2014; Supervisor, G., & Lundquist, J. 2011; Thesis. A. 2012). Table indicates that ranks are not the same as identified by Dickson and has changed over years. Parameters like Desire for business, Operation control, Packing ability, Amount of pass business, Training aids which were identified by Dickson in first 23 criteria rank were not identified in first 23 ranks by most of the researchers. New Parameters like Relationship closeness / Effort for cooperation, Response to customer request, Production facility and capacity, Flexibility, Technical support found place in first 23 ranks. Additional 38 New parameters identified which was not the part of 23 parameters identified by Dickson. Table 4 also shows that although there are changes in supplier evaluation parameters over period of time, 18 criteria’s from Dickson’s 23 parameters continue to be part of supplier evaluation criteria in first 23 parameters till 2012. New rank is based on reference of evaluation parameter in number of papers. http://www.iaeme.com/IJM/index.asp 195 editor@iaeme.com
Anand Patil and Dr. Jyoti Gogte Table 4 Comparison: Dickson’s Rank vs. Ranks (1966-2012) http://www.iaeme.com/IJM/index.asp 196 editor@iaeme.com
Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review Figure 3 Considering Dickson’s 23 parameters as base, if we compare how these parameters evolved over period of time as shown in Figure 3 we get following inference: http://www.iaeme.com/IJM/index.asp 197 editor@iaeme.com
Anand Patil and Dr. Jyoti Gogte Product Quality continues number 1 position with steep increase in priority since 1991 and preferred by more than 90% of research papers in recent years. Price (64%) and delivery (57%) continues its 2nd and 3rd position, loosing marginal importance in recent years compared to Quality. Technical capability (29%), Financial position (21%), still retaining important positions. After sales service (14%), Management and Organization (14%), Geographical location (14%), and Warranties/claims (14%) found similar importance in recent years, also showing lot of variations over years. Reputation and position in industry (7%), Communication system (7%) and Labour relations (7%) are also at similar position in recent years. Performance history, Production capability, Attitude, Impression and Reciprocal arrangement found place in table till 2010 and missing in 2011~2012 papers. Remaining six parameters do not find place in papers for more than 20 years. This gives clear view of dynamics in evaluation parameters over years. 2.2. Literature Review Based on Scorecards of Indian Car Manufacturing Companies Each of Indian car manufacturing company has its own method / system of evaluation of their supplier performance. Different car manufacturing organization have different format for scorecard. These scorecards are named by different organizations mentioned in Table 5 below: Table 5 Short # Name of Car Manufacturer form Name of periodic supplier evaluation report Global Purchasing & supply chain performance 1 General Motors India GM Metrics 2 Volks Wagen group India VW Supplier Cockpit 3 Mahindra & Mahindra M&M Key Business Performance Scorecard 4 Toyota Kirloskar Motors Ltd TKML Performance Report card 5 Ford India Ford Supplier Improvement Metrices 6 Tata Motora Limited TML Vendor Score Card Renault Nissan India Pvt. 7 Ltd RNIPL RNTBCI Regional Supplier Score Card 8 Maruti Suzuki India Ltd MSIL Vendor Rating / Vendor Quality Score card 9 Honda Cars India Ltd Honda Delivery and Quality Data 10 Hyundai Motors India Ltd Hyundai 5 Star Audit results 11 Fiat India Pvt. Ltd Fiat Performance Score card Mercedes-Benz India Pvt. 12 Ltd MBIPL External Balanced Score card Researcher has studied scorecards from above car manufacturing companies and supplier evaluation parameters are summarized in Table 6 below. These parameters are part of periodic evaluation of suppliers by these companies. Other parameters as mentioned in Table 4 are not included in these scorecards; as parameters like price, technical capability, financial position etc are not reviewed periodically. Such parameters are evaluated during selection / delisting of suppliers. http://www.iaeme.com/IJM/index.asp 198 editor@iaeme.com
Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review Table 6 Supplier evaluation parameters # Level 1 Level 2 Level 3 1 Quality Shipment Quality Rejections (PPM / Numbers / Cost) Incoming quality Production line Line stoppage / down time Between production and sales (zero km) Final customer (warranty) Based on severity / Recalls criticality Safety / Critical/ Functional / Regulatory complaints Controlled shipment level CSL1, CSL2… No defect tracking Parts without problem / Number of days without problem 2 Delivery Delivery Performance Delivery vs. scheduled quantity Delivery vs. scheduled timeline Default in supplies Premium freights (additional cost to expedite shipment) Returned shipping (wrong supplies, excess supply) 3 Response Response to customer Average response in resolution of complaint / Quality Issue New Product development time Manufacturing time 4 Audits Audit compliance Audit ratings (product, process and Demerit points system audits) Nonconformities observed (numbers) Action status on audit points 5 Certification By external agency / ISO/TS16949 (Quality System) customer ISO14001 (Environmental systems) OHSAS (Health & Safety) Customer Specific 6 Benchmarking With good suppliers Relative supplier ranking 7 Awards Customer awards Best Supplier Awards Quality Award Delivery awards Other awards (customer specific) 8 Others Other parameters Periodic reports 4M Change Management Program Management New business on hold Dispatch suspension Shipping location eligibility http://www.iaeme.com/IJM/index.asp 199 editor@iaeme.com
Anand Patil and Dr. Jyoti Gogte 2.3. Literature Review - ISO/TS 16949 Standard The International Organization for Standardization (ISO) is well known for developing standards. ISO/TS16949 and ISO 9001:2008 are the standards which are used by Automotive industries and their supplier’s respectively nationally and internationally. Same is being followed by Indian car manufacturing companies. ISO/TS16949 is prepared by International Automotive Task Force (IATF) with support from ISO/TC 176 and this is mainly applicable for Quality Management Systems – Particular requirements for the application of ISO 9001: 2008 for automotive production and relevant Service part organizations. This covers design and development, production and when relevant installation and service of automotive related products. During literature survey ISO/TS 16949:2009(E), Third edition dated 15.06.2009 is referred which is latest released version at the time of literature survey. As per this standard requirements for purchased product from vendor’s / suppliers are described in clause no 7.4- Purchasing from page 20 of this standard. This also states about evaluation criteria / parameters for suppliers, as below: 2.3.1. Purchasing process (Clause no 7.4.1) The organizations shall evaluate and select supplier’s based on their ability to supply products in accordance with the Organization’s requirements. Criteria for selection, evaluation and re-evaluation shall be established. Records of the results of evaluation and any necessary actions arising from the evaluation shall be maintained. 2.3.2. Statutory and Regulatory conformity (Clause no 7.4.1.1) All purchased products and materials used in products shall conform to applicable Statutory and Regulatory requirements. 2.3.3. Supplier Quality Management system development (Clause no 7.4.1.2) The organization shall perform supplier quality management system development with the goal of supplier conformity with this technical specification. Conformity with ISO9001:2008 is the first step in achieving this goal. Unless otherwise specified by the customer, suppliers to the organization shall be third party, registered to ISO9001:2008 by an accredited third party certification body 2.3.4. Verification of Purchased products (Clause no 7.4.3) The organization shall establish and implement the inspection and other activities necessary for ensuring that purchase product meets the specified purchased product requirements. Where the organization or its customer intends to perform verification at the supplier’s premises, the organization shall state the intended verification arrangements and method of product release in the purchasing information. 2.3.5. Incoming product conformity to requirement (Clause no 7.4.3.1) The organization shall have a process to assure the quality of purchased product utilizing one or more of the following methods: • Receipt of an evaluation of statistical data by the organization • Receiving inspection and/or testing, such sampling based on performance • Second or third party assessment or audits of supplier sites, when coupled with records of acceptable delivered product conformity to requirements • Part evaluation by designated laboratory • Another method agreed with the customer http://www.iaeme.com/IJM/index.asp 200 editor@iaeme.com
Study of Supplier Performance Scorecard Systems of Car Manufacturing companies in India: A Literature Review 2.3.6. Supplier monitoring (Clause no 7.4.3.2) Supplier performance shall be monitored through the following indicators: • Delivered product conformity to requirements • Customer disruptions, including field returns • Delivery schedule performance (including incidences of premium freights) • Special status customer notification related to quality and delivery issues The organization shall promote supplier monitoring of the performance of their manufacturing process. 3. CONCLUSION Literature survey based on research papers/journals, score cards of Indian car industry and International standard ISO/TS16949 - indicates that there are no fixed parameters for supplier evaluation. It keeps on changing over years. This also changes based on geographical location, company to company and market dynamics. There are some key evaluation parameters like Quality, Price/Cost and Delivery which continue to dominate with its significance, while other parameters changes over time. Some old parameters disappear while new parameter gets added. Apart from 23 generic (level 1) parameters, which were identified in initial studies by Dickson in 1966, there are also level 2 and level 3 parameters which are in actual practice by industries (ref Table 6). Supplier evaluation parameters are of both qualitative and quantitative type. “Researcher has also categorized these parameters in categories such as: Company performance metrics, Customer service metrics, Finance and Marketing metrics, Innovation and Learning metrics, Internal Business metrics, Supplier Performance metrics and Transport/Logistics metrics”. (Bigliardi B., Bottani E. 2014) All of these parameters do not form part of periodic supplier evaluation, some are evaluated only during supplier selection / de-selection process. Indian car manufacturing has its own supplier evaluation system. This varies from company to company. International standard ISO/TS16949 specifies the supplier evaluation parameters in more broader manner which is then further explored by car manufacturing industries to next levels. Each car manufacturing company sets its own parameters. Some of these parameters are common across all companies while other differs from company to company. In case of Joint Venture companies these are also derived from parent company. Future Scope: Researcher finds there is need to understand perceptions of each car manufacturing company in India and its suppliers, about Supplier evaluation parameters. Co-relate these perceptions with (1) actual practice followed by these companies, (2) previous research and (3) international standard ISO/TS16949. This will have more insights on existing methodology, uncover facts and have better understanding / clarity on these parameters. Therefore this topic is selected for further research. REFERENCE [1] Article, I. R., Felice, F. De, Deldoost, M. H., Faizollahi, M., & Petrillo, A. (2015). Performance Measurement Model for the Supplier Selection Based on AHP Invited Review Article. http://doi.org/10.5772/61702 [2] Chain, S. (2013). Supplier evaluation system for Ölgerðin, (414394). Master thesis in Logistics and Supply Chain Management, Aarhus School of Business and Social Science, Aarhus University June 2013 [3] S. Hossein Cheragh, Mohammad Dadashzadeh, Muthu Subramanian, (2004) Critical Success Factors For Supplier Selection: An Update, Journal of Applied Business Research Volume 20, Number 2, 2004 http://www.iaeme.com/IJM/index.asp 201 editor@iaeme.com
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