List of Tables
List of Figures
Section – I Introduction
1.2 Relevance of the book
1.3 Objectives of the book
1.4 What is inside the book
1.5 Expected contributions from the study
Section – II Research So Far
2.2 Studies Abroad (Section A)
2.3 Studies in India (Section A)
2.4 Summary of Findings (Section A)
2.5 Studies Abroad (Section B)
2.6 Studies in India (Section B)
2.7 Summary of Findings (Section B)
2.8 Gap in the Literature
Section – III Supplier Development Barriers from Discrete manufacturing perspective
3.2 Discrete manufacturing industry in brief
3.3 Process of discrete manufacturing industry
3.4 Position of Supplier development in SCM
3.5 Background of supplier development
3.6 Definition of supplier development
3.7 Categories of Supplier development
3.8 Benefits, Risks & Barriers
3.9 Supplier development processes
3.10 Proposed Supplier Development Model
3.11 Supplier development barrier pyramid
Section – IV Overview of Indian Small Scale Manufacturing Industries and Insights to its Development Barriers
4.2 Overview of small scale sector
4.3 Classification of SSI
4.4 Role of Government in developing SSI
4.5 Relevance of SSI
4.6 Major benefits of SSI
4.7 Challenges of SSI units
4.8 Linkage between barriers
Section – V Case Study “Determinants of Small Scale Development Barriers”
5.2 Test of data reliability
5.3 Test of sample adequacy
5.4 Test of data normalcy
5.5 Test of hypotheses
5.6 Factors determining development barriers of small scale industries
5.7 Ranking of supplier development barriers of SSI through RIDIT
Section – VI Summary of Major Findings and Suggestions
6.2 Major findings
6.2.1 Findings in general
6.2.2 Findings with respect to Objectives
6.2.3 Findings with respect to Hypotheses
6.3 Managerial implications and Suggestions
About the Authors
Dr. Manoj Kumar Mohanty : 24 years of industry experience in the field of Production, Supply chain, Operations and Projects management in Larsen & Toubro Limited, One of the most reputed Indian multinational company. Presently he is working as Sr. manager in the Supply Chain Management. He is having bachelor’s degree in Industrial Engineering from Indian Institution of Industrial Engineering, MBA in Operations Management from IGNOU, MSc in Engineering Business Management from Warwick University, UK, Ph.D. & D.Litt. in management from Sambalpur university. More than 25 publications, 2 books and award of Ph.D. to 2 scholars are credited to him.
Prof. (Dr.) Padmabati Gahan : 35 years of post-graduate teaching experience in Utkal University and Sambalpur university of India and carries a very bright academic carrier. Currently she has retired as professor of Business Administration Department from Sambalpur University. Her expertise areas are international finance, portfolio management, financial derivatives and valuation and volatility estimation. She has guided more than 15 students for Ph.D. & D.Litt. degree. She has held the position of dean academics, comptroller of finance, and editor in chief for Journal of Management for the universities she has served.
Most difficult part of the book to acknowledge… whom to include and whom to exclude. In many forms people support from intellectual, physical and in wishes…a cup of tea in right time by the tea vendor also has impact on this book.
This book is also the result of a continuous support and encouragements of our friends, parents and in-laws who were keen and watchful about our endeavor. They deserve special thanks, and Dr. Sasmita Choudhury who acted as a constructive critic and spent enormous time in discussing and suggesting the right course. The sacrifice of 8 years old girl Prisha for the cause of this book deserves special mention (She allowed us to work in spite of her mood to play around us).
We are very thankful to the owners of the small-scale manufacturing units of India for their support and co-operation without which the work could not have been completed.
We are also thankful to all the respondents for their honest opinion and help for completing this research work. We are indebted to all our friends and well-wishers for providing us the much-needed help and moral support.
Last and by no means the least, we thank the almighty for giving us the wisdom, guidance and the power to sail through.
Dr. Manoj Kumar Mohanty Prof. (Dr.) Padmabati Gahan
Abbildung in dieser Leseprobe nicht enthalten
List of Tables
List of Tables
Tab 2.1 Summary of supplier development barriers & critical attributes based on review of studies abroad
Tab 2.2 Summary of supplier development critical attributes based on review of studies in India
Tab 2.3 Summary of small scale industries challenges based on review of studies abroad
Tab 2.4 Summary of small scale industries challenges based on review of studies in India
Tab 4.1 Definition of Micro, Small and Medium Industry
Tab 4. 2 Status of Small Scale Industries as on 2014-
Tab 4. 3 Contribution of manufacturing output of MSME in GDP
Tab 4.4 Directly linked SSI development barrier attributes
Tab 4.5 Indirectly linked SSI development barrier attributes
Tab 4.6 SSI development barrier attributes not linked to SD barriers
Tab 5.1 Test of data reliability
Tab 5.2 Test of Sample adequacy
Tab 5.3 Descriptive Statistics
Tab 5.4 Descriptive statistics for hypothesis H 0 1
Tab 5.5 Descriptive statistics for hypothesis H 0 2
Tab 5.6 Descriptive statistics for hypothesis H 0 3
Tab 5.7 Descriptive statistics for hypothesis H 0 4
Tab 5.8 Descriptive statistics for hypothesis H 0 5
Tab 5.9 Descriptive statistics for hypothesis H 0 6
Tab 5.10 Descriptive statistics for hypothesis H 0 7
Tab 5.11 Summary of Hypotheses
Tab 5.12 Total variance explained by the factors extracted
Tab 5.13 Rotated Component Matrix
Tab 5.14 Principal factors along with the sub factors
Tab 5.15 Reference data set of development barrier attributes of SSI units
Tab 5.16 RIDIT for comparison data set of development barrier attributes of SSI units
Tab 5.17 Rank of attributes based on RIDIT value for development barriers of SSI Units
Tab 6.1 Principal factors and the sub factors that influence adversely the development of small scale industries most
Tab 6.2 Objective wise findings
Tab 6.3 Hypothesis wise finding
List of Figures
List of figures
Fig 3.1 Process flow diagram of discrete manufacturing industry
Fig 3.2 Components of Supply Chain Management
Fig 3.3 Supplier Relationship Management
Fig 3.4 Supplier development process (Hartley & Jones, 1997)
Fig 3.5 Supplier Development Process (Krause, Handfield & Scannell, 1998)
Fig. 3.6 Kraljic model to identify critical commodities
Fig 3.7 SD Process of Handfield et al., (2006)
Fig 3. 8 BCG process of supplier development
Fig 3.9 Proposed supplier development model
Fig 3. 10 Supplier development barrier pyramid
Fig 4. 1 Classification of SSI
Fig.5.1 Mean of supplier development barrier variables
Fig.5.2 Standard deviation of supplier development barrier variables
Fig 6.1 Contributors of SSI manufacturing sector development
Indian economy is one of the fundamentally strongest economies in the world and has a promising growth track record. It is the third largest economy from the purchasing power parity (PPP) and the tenth on the basis of gross domestic product (GDP). This growth story largely depends upon cultivation, service and manufacturing sector. Indian manufacturing sector contributes about 15% of India’s gross domestic product (GDP), 50% to the country’s exports and employed about 12% of the total workforce (Annual MSME report, 2015-2016). Government of India expects 25% contribution to GDP by manufacturing industries by 2022 (Machine Mag, 2013). This calls for a special focus on manufacturing sector and so as on manufacturing outsourcing value chain. The role of micro small and medium enterprises (MSME) suppliers is substantial in providing the competitive edge to the manufacturing organizations. So it is advisable to keep the MSME suppliers’ growth, development and satisfaction high in order to meet the desired operational flexibility, competitive advantage, time to market, increased market share and improved profit by the large scale organizations.
To compete and survive, firms must seek, build up and maintain relationships with capable suppliers and extract the maximum value through such relationships (Carr and Pearson, 1999). As firms concentrate on their core competencies, they become more dependent on suppliers who possess technological competencies and manufacturing capacities that the firms themselves do not have (Wagner, 2006). Manufacturing industries witnessing more focus on core competencies by increased outsourcing of non-core products and services.
This statement implies a greater dependency and network construction on the supply base. The very reason of having the dependable supply base or supplier base is to get innovative product, increased quality, early to market and with a reduced product cost. To draw such benefits the buying organization has to invest capital, time, technology and interpersonal resource on small scale suppliers. These investments and supplier development activities must be in the strategic roadmap of the buying organization. Many companies plan supplier development programs and they fail at very high rates. Not all supplier development initiatives are successful. In fact 50% are not successful due to poor implementation and follow-up. (Handfield, 2002). Lack proper initiations of the development program and acceptance level are also having impact on this. So commitment and trust from both buyer and supplier required for a successful supplier development program. Supplier development is defined as any activity that a buyer undertakes to improve a supplier’s performance and /or capabilities to meet the buyer’s short-term or long-term supply needs (Handfield, Krause, Scannell & Monczka, 2000). As per United Nations Industrial Development Organization (2003) Supplier development is a broad concept aimed at strengthening the performance of subcontracting firms not only by enabling them to acquire the skills and capacities required of them by the main contracting (or client) enterprise but also by raising their awareness and assisting them in reducing their costs. Buyers must ensure that their supplier capabilities match their expectations in order to compete in the competitive market (Krause & Ellram, 1997). Supplier improvement should be done through assessing the supplier’s capability, provide inputs for improvement like training, finance, technology and to monitor the performance till an acceptable limit reached by the supplier.
Lot of research activities carried out in reference to the supplier development (SD) from buying firm’s perspective. Supplier development models, theoretical frameworks, barriers of SD explored only from the buying organizations view point. Very little research carried out on SD from selling organization point of view and that too in discrete manufacturing sector it is not witnessed even one. This research is trying to explore the attributes which are affecting directly or indirectly the development of small scale manufacturing sectors.
1.2 Relevance of the Book
The strength of the supply chain largely depends upon the strength of the associated suppliers to the organization. So, SD is ultimately the development of the original equipment manufacturers or buying organizations’ development. Supplier development is associated with many desirable outcomes like cost reduction, time to market, reduced cycle time, improved quality of the product, manufacturing flexibility and knowledge sharing between business partners.
Further it is also associated with lower investment, globalization of business, skill enhancement, and effective utilization of manpower, technology transfer, enhancing product range and reaching to larger customer base. From the country’s economic perspective the development of small scale supplier of manufacturing sector is very essential, as Indian manufacturing sector contributes 15% to the country’s GDP and Indian government expecting 25% contribution to GDP by manufacturing sector by 2022. A larger base of the supplier organization belongs to small scale sector and Indian government is very keen to develop this sector by implementing various policies, schemes and controlling the movement very closely. Unfortunately there are many barriers attached to this sector such as labor problem, financial issues, lack of latest technology and material availability. Apart from these issues unstructured development programs initiated by large scale organizations also contributes to the pitfall of supplier development. This study is making an attempt to understand the problems and issues of small scale discrete manufacturing suppliers, which prevents their development.
1.3 Objectives of the book
The specific objectives are:
- To explore the barriers and the critical success factors of supplier development from the perspective of manufacturing sector.
- To find out the barriers of development of small scale manufacturing industries of India.
- Overview of small scale manufacturing sector and their challenges.
- To trace out the linkage between overall supplier development barriers and small scale development barriers.
- To find out the principal factors that are affecting the development of small scale manufacturing industries through case study.
- To rank the development barriers of small scale manufacturing industries of India through case study.
1.4 What is inside the book
The book has been divided into six sections as outlined below:
- Section-I is the introductory chapter itself wherein a brief outline of the book, current economic scenarios, government targets for small scale sector, what is inside the book and objectives are mentioned.
- Section-II deals with literature review of supplier development barriers, critical success factors of supplier development and development barriers of small scale manufacturing industries.
- Section-III consists of explanation to discrete manufacturing, theoretical framework of supplier development, position of supplier development in supply chain management, supplier development processes, proposed model for supplier development and exploration to SD barriers.
- Section IV deals with characteristics of small scale sector, contribution to Indian economy, its advantages, challenges faced by this sector and linkage of SSI development barriers with overall supplier development barrier.
- Section-V- Case study from Indian manufacturing sector - deals with the factors determining development barriers of small scale industries taking evidences from the discrete manufacturing organizations of India. It reports the principal attributes of development barriers that have been derived through factor analysis. The results of testing of hypothesis and the ranking of the development barrier attributes also been reported here.
- Section-VI contains summary of the major findings, suggestions and direction for future research.
1.5 Expected Contributions from the Book
The following contributions can be expected from this book:
1. The problems and issues attached to supplier development can be surfaced out from the perspective of small scale manufacturing suppliers.
2. Large scale organizations / original equipment manufacturers (OEM) can know the ground reality of SD.
3. Strategic purchasing Policy or SD development initiatives can be formulate based on the outcomes of this study.
4. Government policy or direction to be OEMs can be fine-tuned, so that small scale suppliers can be benefited.
5. Supply chain of the manufacturing sector can be strengthened.
6. Relationship between buying organization and selling organization can be improved
7. Long term relationship and sustainable development also can be expected from this study.
Small scale manufacturing sector is playing a vital role in the overall economic development, employment, productivity and keeping or socio economic state balanced. In the country like India the contribution from this sector is substantial. The socio-economic transformation of India is only possible by developing small-scale manufacturing industries. However due to some of its inherent problems this sector is suffering and indirectly it is affecting the growth of the nation. Government has a lot of expectations from this sector and a plan of getting 25% contribution to GDP by 2022. The globalization, rapid change in technology and intensified competition are forcing small scale manufacturing sectors to be more agile, productivity and moving with time. This calls for understanding the problems associated with this sector and eradicate the same with the help of government, large scale industries and by the sector itself. Quick identification of grey areas and adoption of remedial measures to remove bottlenecks is the call of the hour.
Keeping this in view, the present study attempts to empirically investigate the barriers of small scale discrete manufacturing suppliers followed by ranking the same, so that the concerned person, organization or government can take appropriate actions to ensure the reduction of the barriers. Any deletion of their barriers not only will affect that sector, but also will help the Indian economy, society, employment and all the related stakeholders associated with it.
- Carr, A. and Pearson, J. (1999), "Strategically managed buyer-supplier relationships and performance outcomes", Journal of Operations Management, Vol. 17 No. 3, pp. 497-519.
- Carr, A.S. and Pearson, J.N. (2002), "The impact of purchasing and supplier involvement on strategic purchasing and its impact on firm's performance", International Journal of Operations and Production Management, Vol. 22 No. 9, pp. 1032-53.
- Handfield, R. B., Krause, D. R., Scannel, T. V., & Monczka, R. M. (2000). Avoid the pitfalls in supplier development. Sloan Management Review, 41(2), 1-37.
- Krause, D.R. (1997). Supplier development: current practices and outcomes. International Journal of Purchaing and Materials Management, 23(2), 12-19.
- Wagner, S. M. (2006). “A firm's responses to deficient suppliers and competitive advantage”, Journal of Business Research, Vol.-59, No.-6, pp. 686-695.
Section - II Research so far …
Research so far…
Supply chains compete with each other, not the organizations. Experts of this field believes that supply chain can make or break an organization. To stay competitive in the market organizations must have chain of competent suppliers. The basic function of supplier development is to create and maintain such competent suppliers who can add value to the organization and the complete system. Global competition, downsizing, reducing supply base, constant demand for price reduction, shorter delivery period and improved product quality are some of the attributes which can be derived from supplier development initiatives. These requirements calls for investigating the attributes or critical factors which are having impact on supplier development. Original equipment manufacturers are primarily responsible for supplier development. OEM develops mostly the micro, small and medium enterprises (MSME) to get the trade benefit. More than 90 percent of the manufacturing organizations belongs to MSME sector and 50 to 70 percent of the material procured from this sector by the OEMs. MSME sector is considered as the backbone of economic growth in all countries because they account for 80 percent of global economic growth (Jutla et al., 2002). This sector also contribute a substantial share of the manufactured exports of East Asia (56 percent in Taiwan, over 40 percent in China and the Republic of Korea). In India, the figure is 31 percent (Singh et al., 2009). MSME usually employ large percent of workforce and also responsible for poverty alleviation. Especially MSME across the globe are the source of part component, semi assembly products and complete assembly components to large scale industries with competitive price. This calls for investigation in to this sector and understand the attributes which are affecting their development.
The objective of this section is to explore supplier development (SD) barriers and critical attributes which affects the SD in manufacturing industries. Considering the demand of the study literature review (LR) is divided in two parts i.e. section “A” and section “B”. In the first part, critical attributes and barriers of SD are explored from the studies carried out in India and abroad. In the second part of the LR the challenges of small scale suppliers, which are becoming their developmental barriers are traced from both India and abroad. However more stress has given to Indian industries keeping the objective of the research in mind in the second part. To explore the literature gap for the barriers of development of Indian small scale industries, through expert opinion is also one of the prime objective of this chapter. Literature review are prepared from published research works, conceptual papers, case studies and relevant materials available in the web. The study period considered for first phase (section A) of literature review is from 1990 to 2016 and from 1981 to 2016 for the second phase (section B). However last 15 years of research works has given preference.
SECTION - A
2.2 Studies Abroad
Lascelles and Dale (1990) explored the barriers of supplier development in UK manufacturing firms. Authors argued that parent companies purchase around 50 to 70% of the material from their suppliers. This calls for supplier development and keeping an eye on the quality and productivity of the suppliers. They have also stressed on long term business partnership for business sustainability and getting value from supplier development. This study taken three automotive organizations consists of 300 suppliers. Data collected through questionnaire method by conducting postal survey and interviews. The barriers observed by this study are Poor communication and feedback among buyer and supplier, supplier complacency, Misguided Supplier Improvement Objectives, Lack of customer / buying organization credibility and misconceptions regarding purchasing Power. Authors have suggested that before starting formal supplier development program, the buying organization must review critically evaluate its own operations, that are purchase specifications, communications, training, and organizational roles which affect supplier performance.
Hahn et al. (1990) designed one conceptual model which describes the decision process for supplier development by exploring the USA industries. This model is basically one guideline for linking purchase strategy with corporate competitive strategy. This study suggests that supplier evaluation, improving supplier’s capability through technical up gradation and thinking long term association are critical components of supplier development. Authors also suggests that supplier development is a must activity for the buyers to stay competitive in the market.
Watts and Hahn (1993) carried out survey to explore the supplier development programs conducted by large scale manufacturing organizations and its success rates. They have argued that to be competitive organizations have to design, implement and maintain supplier development programs. Data collected through survey questionnaires for this study. 500 survey questions are used from US organizations. The questionnaire is divided in to five segments i.e. company demographics, supplier development characteristics, supplier development program objectives, importance of supplier capabilities and supplier development program effectiveness. The critical attributes of SD found by this study are suppliers must be evaluated on a regular basis, organizations must consider supplier development as long term strategy, quality improvement at supplier’s end must be one of the core focus, supplier development programs should be aimed towards increase of technical capabilities of supplier, involvement of cross functional team members and recognition of supplier development program.
Krause (1995) surveyed to explore the influencing attributes of inter organizational cooperation for supplier development. This study is a doctoral dissertation carried out at Arizona State University, USA. This research carried out with an objective of understanding of the importance of, and interrelationships among, factors influencing supplier development. Data were collected from senior members of the National Association of Purchasing Management. Sample size taken as 527 with response rate of 35.04 percent and survey conducted through a self-administration. The critical factors of supplier development identified by this research are support of top management of buying organization, supplier's top management support, effective communication between buyer and supplier, supplier commitment and buying firm’s proactive initiatives for supply base performance The results of this research indicate that buying firms participating in supplier development perceive some level of commitment on the supplier's part, before spending time and resources to participate in supplier development activities. The data also suggest that the buying firm may be able to influence the level of supplier commitment through its communication effort with the supplier.
Krause and Ellram (1997) conducted research on critical factors of supplier development on US buying firms. The objective of the study was to explore the importance of SD and to identify the potential critical factors of supplier development. Data collected from 200 questions, taking sample as 350 Fortune 500 buying firms in a variety of manufacturing and service industries. The critical factors of SD explored by this study are two-way multi-functional communication, top management involvement, cross-functional teams, emphasis on factors other than price, long-term perspective, large volume, Supplier evaluation and supplier recognition.
Ragatz (1997) explored the success factors of new product development through supplier integration. This study consists of 60 member companies from the Michigan State University Global Procurement and Supply Chain Electronic Benchmarking Network. This study found that lack of shared education and training, formalized risk/reward sharing agreements, formal trust development processes, joint agreement on performance measurements, confidence in the supplier's capabilities and top management commitment from both companies are the barriers of supplier development and integration.
Krause and Ellram (1997) conducted study to identify factors contributing to supplier development success in USA. Researchers explored the perceptions of a large group of purchasing executives on the nature, extent and outcomes of their organization’s supplier development experiences with their suppliers. Data collected through mail survey. The key findings from this are direct involvement of the buying firm and effective communication with the suppliers can lead to effective supplier development.
Krause et al. (1998) argued that suppliers’ performance must be managed and developed to meet the needs of the buying firm. As supply chain management is considered as one of the most source of competitiveness organizations are focusing on core activities and outsourcing all non-core activities. This calls for substantial effort to develop suppliers. He has conducted exploratory study based on data collected from 84 companies and developed a process model for supplier development. Authors explored that buying firms use two approaches for supplier development i.e. reactive efforts to increase the performance of laggard suppliers, and strategic efforts to increase the capabilities of the supply base to enhance the buying firm’s long-term competitive advantage. Out of the two approaches strategic approach is highly effective and increasingly adopted by large scale industries. The critical factors witnessed by this study for supplier development are involvement in suppliers’ processes, employment of dedicated resources, personnel and communication. The authors also suggested that the critical areas needs further research, which are critical to supplier development are involvement of cross-functional team, top management’s role in supplier development, reward and recognition and identify of correct suppliers for development.
Krause et al. (1999) conducted research on effectiveness of minority supplier development program, its potential barriers and success factors in USA. Data collected through questionnaire method from the minority suppliers of USA. This study reveals that lack of proper communication, capital issue at supplier’s end, product advertisement, racial biasness and length of relationship are the attributes affects supplier development.
Krause (1999) conducted survey to identify important factors that influence a firm’s involvement in supplier development activities. Cross-industry sample of high-level U.S. purchasing executives were considered as samples for this study. Supplier commitment, expectation of relationship continuity and effective buyer supplier communication are the attributes identified as critical elements for supplier development.
Handfield et al. (2000) explored the pitfalls of supplier development from the different organizations across globe. Survey and examples are taken from 84 companies situated in United States, the United Kingdom, Japan, and South Korea The funding for this study is jointly done by Global Procurement and Supply Chain Benchmarking Initiative (GEBN) at Michigan State University and Center for Advanced Purchasing Studies (CAPS) in Tempe, Arizona, and the Center for International Business Education and Research (CIBER) at Michigan State University. The study is divided the pitfalls into three categories i.e. supplier-specific pitfalls, buyer-specific pitfalls, and buyer-supplier interface pitfalls. Supplier specific pitfalls are found to be Lack of Supplier Commitment and Insufficient Supplier Resources. Buyer specific pitfalls are not able to access the potential benefit, Lack of immediate monetary benefits & lack of support from top management. Buyer supplier interface pitfalls are inter organizational trust, alignment of organizational cultures, and ineffective communication of potential benefits.
Evans and Jukes (2000) carried out research on alignment of development processes for both buying and selling organization. Authors argued that by process alignment, both product development and closer relationship is possible within the supply chain. Authors have also stressed that without supplier development it is difficult to sustain in automobile sector. This study is carried out in automobile firms of UK. This study suggests by process standardization, knowledge sharing, alignment of existing practices, and continuous elimination of waste within the joint development cycles can bring development for both organizations.
Rickert et al. (2000) explores the supplier management strategy, issues related to supplier training, productivity and barriers for development. This study carried out in six Wisconsin original equipment manufacturers (OEMs) i.e. John Deere, Trane Corporation, Harley Davidson, Case Corporation, Mercury Marine, and Ariens Corporation of USA. The supplier development barriers identified by this study are high cost reduction pressure on suppliers, inability of suppliers to achieve improvements independently, lack of support for workforce development, shifting costs to the suppliers; abusing trust, and organizational inconsistencies (high staff turnover, communication barriers and absence of strategic fit between corporate and plant-level supply chain policies).
Easton (2000) studied the antecedent condition to successful supplier development in USA. The basic objective of this research is to understand and identify the significant elements that contribute to a successful supplier development. All suppliers of a large scale manufacturing firm selected for the data collection and it is done through self-administered questionnaire. The key elements identified by this study for successful supplier development are extensive follow-up visits to the supplier for ensuring the implementation of programs and at what level supplier perceived the customer as being helpful in correcting its product or process problems, the more committed the supplier became to the relationship.
Sellberg and Broman (2000) conducted research in the field of supplier performance in Lear Corporation, UK. The basic objective of the research is to trace the developmental barriers which ultimately lowering the supplier performance. The attributes traced by this study which are the barriers of supplier development are selection of supplier, different objectives by buyer and supplier, lack of awareness by the supplier and lack of continuous review of the implemented SD programs.
George & Ellram (2001) carried out research on the field of supplier alliance and development. The survey conducted on 261 respondents in USA with likert type questionnaire. They have argued that both alliance and development do not happen in isolation. The critical support factors for supplier alliances and development are strategic purchasing, accountability of organizational actions and the use of information technology.
Wen-li et al. (2003) examines the supplier development and its related attributes with respect to purchasing performance from a buying firm’s perspective. Survey conducted taking the electronics industries of Hong Kong, China as research area. This study found seven principal factors which are the critical elements of supplier development. The identified elements are long-term strategic goals, effective communications, partnership strategy, top management support, supplier evaluation, direct supplier development and perception of supplier’s strategic objective. Further data analysis carried out with the help of spearman correlation and regression analysis to understand the SD relationship with purchasing performance. The data analysis proves that there is significant and positive relation exists between SD and purchasing performance. Similarly direct supplier development and supplier’s strategic objectives found to be significant predictors of purchasing performance.
Abdullah & Maharjan (2003) conducted research on Malaysian automobile industries to explore the critical factors of supplier development. This study carried out at PROTON, the first national carmaker in the Malaysian automotive industry. The objective of the paper to explore the importance and critical factors of supplier development. Data collected through questionnaire and interview method from 74 small and medium suppliers related to Proton. Executive directors, directors, deputy general managers, general managers, sales managers, R&D managers and production managers are selected as samples. The critical factors which are affecting supplier development noted by this study are principally (1) Lack of design capability, and (2) Un-competitive costs. The reasons for first principal attribute are lacks of design engineering capability, application method for process and production technology, planning and management, particularly in production and process-management and experience. The second principal attribute is a resultant of high royalty payments for technical assistance, insufficient machinery and tools and dependency on services provided outside company, resulting high overhead costs and subsequently uncompetitive cost.
Dunn and Young (2004) developed a conceptual model which captures the key elements which affects supplier development from both buying and selling organization perspective. This model also helps in understanding each other’s stand point and helps in improving the supplier development initiatives. This study is based on five case studies from different sector firms. As per the outcome of this study skill level of the buyer, long term strategic planning and supplier evaluation are the key attributes of supplier development.
Bradley Erasmus (2006) conducted research in South Africa on the assessment of supplier development programs in Volkswagen. The objective of the research was to define the necessary assistance to be provided to subcontracting firms in regard to cost control, pricing policy, technological improvements, quality management, certification, internal enterprise organization, logistics and the environment. The research suggests that supplier incentives and supplier assessment are the two vital points for supplier improvement. Incentives motivates the suppliers to improve and the buying organization gets a preferred buyer status. Supplier assessment helps buying firms to evaluate a supplier’s performance and subsequent comparison with other suppliers. This input helps in improving the supplier and gives a direction for product or process improvement initiatives.
Wagner (2006) conducted exploratory empirical study to explore the supplier development dimensions. Through survey feedbacks on supplier development were taken from 173 firms. Data were collected through a mail survey which was administered to large industrial firms in Germany, Switzerland and Austria. Data analyzed to explore various dimensions of supplier development and their interrelationships. This study found that providing human, capital support to suppliers, formal supplier evaluation, structures and processes for evaluating suppliers and communication are the most influencing factors of supplier development.
Clarke (2007) in his dissertation thesis surveyed the best practices of supplier development and development barriers in both retail and manufacturing sector in UK. Author argued that the failure to supplier development is mostly due to lack of strategic objectives and collaborative approach. Data collected through questionnaire, open ended questions and interview method for this study. Lack of a coordinated strategic direction and process is identified as the supplier development barrier in the manufacturing sector.
Krause et al. (2007) investigates the relationships between purchasing firms supplier development efforts, commitment, social capital accumulation with key suppliers, and organizational performance in USA. Study was carried out in automotive and electronics industries in USA. The identified key attributes which impact firm performance through supplier development are long-term relationship, goals and values, information sharing, supplier evaluation, length of relationship, buyer dependency and supplier dependency.
Modi and Mabert (2007) surveyed on US manufacturing firms to understand the impact of knowledge transfer on supplier development and organizational performance. Researchers used one conceptual model and collected data from 251 manufacturing firms of US. This study suggests evaluation and certification of the suppliers before taking supplier development initiatives is one of the pre task. Operational knowledge transfer, communication and supplier’s site visit are the critical elements of successful supplier development identified by this study.
Wagner & Krause (2009) carried out research on supplier development goals and their relationship with supplier development activities in UK. For this study they have selected 251 manufacturing and service firms and got response from 26 firms. The executive employees are selected for the data collection with the help of questionnaire method. The critical factors which affects the supplier development found by this study are (a) proper information about the supplier, (b) supplier performance evaluation, (c) technical knowhow, (d) in-depth knowledge of processes, (e) knowledge sharing, (f) exchange of human resources, for knowledge transfer.
Kureshi et al. (2009) conducted survey on supplier development activities undertaken by manufacturing firms in Pakistan. SCM managers of small and medium scale industries are selected as sample for this study. Data collected through questionnaire and interview method. This study found s that supplier development in formal form has not been adopted by most of the large scale Pakistani businesses. The barriers of supplier development emerged through data analysis are lack of effective communication channels, non- committing behavior by large buyers, inconsistent and episodic performance by small suppliers, rewarding and recognizing suppliers and lack of investing in training.
Cristobal (2009) carried out research on impact of strategic purchasing on supplier development. This research is carried out at Spain taking 306 manufacturing companies as sample. Data analysis carried out through structural equation modelling and hypotheses formulation. This study found there is direct impact of strategic purchasing on supplier development and subsequent increase in purchasing performance. Further authors argued that strategic purchasing, supplier development and purchasing performance are interlinked to each other. This study also identified that the implementation of strategically-oriented supplier development activities allows buyer and supplier to synergistically combine, exchange, or invest in idiosyncratic assets, knowledge, and resources/capabilities that permit the realization of rents increasing performance.
Wagner and Krause (2009) explored the association between supplier development goals and their relationship with supplier development activities. The primary objective of this study is to investigate the importance of various supplier development activities, methods of communication and human interaction used by buying firms. Secondly this research aims at identifying parsimonious structures of supplier development activities and goals. Data were collected through questionnaire method (mailed survey) from leading European supply chain management research institution. The survey was administered to 251 firms with an effective response of 25.9 percent. The data analysis of this study indicates that knowledge transfer and involvement of human resources are two key elements of supplier development.
Shrimali (2010) conducted research to identify the critical attributes of supplier development on US firms. He has selected experience buyers, having minimum three years of experience and supply chain experts as sample and the sample size is 305. Data collected through questionnaire (5 point Likert scale) and interview method. This study found that enhanced communication and supplier commitment are the key factors which can contribute substantially in supplier development.
Wagner (2010) explored the relationship between supplier development effectiveness with buyer supplier relationship cycle. Data were collected through a survey method, which was administered to 251 firms in Germany, Switzerland, and Austria. From these 251 targeted firms this survey got 23.9 percent effective response. Mostly data were collected through purchasing executives. The study reveals that there is a direct and positive impact of length of buyer supplier relationship on supplier development. This study also found that supplier development is more effective in mature as opposed to initial and declining buyer supplier life-cycles phase.
Bayne (2010) conducted research on supplier development practices in the South African Motor Industry. Multiple data sources and methods were used to gain a balanced, holistic perspective of supplier development in the industry by this study. Data collected from both the Original Equipment Manufacturers (OEMs) and key first-tier suppliers through questionnaire and interview method. The critical factors of supplier development identified by this study are training for suppliers, top management support and supplier development policy of the government and OEM.
Shrimali (2010) carried out research to analyze the success factors of supplier development. Data collected through questionnaire and interview method. 305 working professionals with minimum three rears of experiences were selected as samples. Study conducted in the manufacturing firms of US. The success factors for supplier development identified by this study are strategic process, commitment of supplier, effective communication and supplier recognition.
Arumugam et al. (2011) explored the supplier development programs implemented in manufacturing industries and its impact on product quality in Malaysia. Conceptual model and hypotheses are formed by this study to know the impact of supplier development on product quality. The study found that effective supplier development factors are having positively influence on product quality of buying firms. The critical attributes traced by this study for supplier development are information sharing, communication methods, trust between trading partners, top management support and supplier development supports from all levels.
Arroyo et al. (2012) conducted survey to evaluate the impact of supplier development programs on short term and long term basis on the capabilities enhancement of suppliers. Data were collected from original equipment manufacturers of the automotive industry located in Mexico. Authors suggested that buying firms need to consider high involvement and investment on supplier development activities when their goal is to improve the supplier base. Governments organizing supplier development programs should consider the importance of promoting knowledge transfer activities above evaluation and feedback to assure the success of their efforts to develop the national supply industry. This study concludes that transfer of operational knowledge from buyer to supplier, sufficient degree of absorptive capacity of the supplier, trust, commitment, collaborative communication and/or joint decision making are the most critical factors for supplier development.
Mortensen and Arlbjørn (2012) carried out research to understand the concept of inter- organizational supplier development programs and suppliers’ interest and motivation on implementing supplier development programs. This study is based on a case study in Denmark. The outcome of this research is, there is a lack of inter organizational supports for supplier development and previous literature reviews are in support of this statement. This study also found that supplier’s motivation and interest depends on the customer attractiveness. This aspect plays a major role in implementing supplier development programs.
Marksberry (2012) conducted research with a purpose to investigate the in-house capabilities that are transferred from Toyota to suppliers as a part of supplier development program often called as Toyota production system (TPS). This is considered as one of the most benchmarked business improvement strategies in modern industry on account of supplier development. This work explored Toyota’s supplier development practices by evaluating organizational documents using latent semantic analysis (LSA). LSA is a theory and method for extracting and representing the contextual-usage and meaning of words and phrases by statistical computation applied to text. This study shows that Toyota targets processes, rather than whole systems, in assisting suppliers and teaches them how to handle abnormality management effectively. Findings also show that Toyota’s approval process encourage small kaizens in day to day activities. Toyota Way for suppliers encourages cultural adoption with higher productivity simultaneously.
Ahmed and Hendry (2012) explored previous research works on supplier development to find the key focus areas of supplier development. This research selected 62 papers on SD and found that SD practices are more prominent in small and medium enterprises (SME) segment. It is evident from this study that sharing knowledge, shop floor improvement initiatives, process improvements, lean and six sigma techniques, proactive initiatives from buyer and commitment to long term relationships are the key elements for supplier development.
Mwambo (2013) conducted research on practices, success factors and barriers of supplier development in Sweden. This study is based on multiple-case study design on a buying firm and its three main suppliers in the food industry in Sweden. The data is collected through semi-structured interviews and analyzed by using within case, cross case and pattern matching methods. Supplier development barriers explored by this study are No enquiries of buyer’s satisfaction by supplier, Insufficient mutual site visits, tied down capital on behalf of buying organization, new competitor with high quality and lower price, Supplier’s complacency and Insufficient inducements to supplier.
Soleymani (2013) carried out research in the field of supplier development practices and critical factors. The objective of the study is to find the key success and barriers of supplier development in Iran. This study is carried out at three plastic manufacturing companies with semi structured interview approach for data collection. Critical success factor identified by this study are supplier’s top management support and previous supplier development experiences by both buying and selling organization. Lack of supplier’s top management support and supplier’s indolence are identified as supplier development barriers by this study.
Ahmed et al. (2014) conducted survey to explore the supplier development elements and supplier performance evaluation criteria from the perspective of small scale manufacturing companies in Sweden. Authors argued that supplier development provides appropriate framework for improving the performance of suppliers as well as evaluating their performance. This study is a multiple case study and was conducted with a deductive approach. The findings were gathered through qualitative interviews with semi-structured interview guide. The critical attributes of supplier development identified by this study are communication, collaboration and trust, top management involvement and long term commitment.
Svenson & Gustafssson (2014) carried out survey with an aim to identify critical factors of supplier development from the supplier perspective. This study is carried out taking three suppliers attached to Swedish heavy vehicle industry. Data collected through in- depth interview method and followed a qualitative approach by implementing Critical Incident Technique (CIT). Critical attributes of SD from the supplier perspective identified by this study are availability of information, formal structure of communication, geographical proximity, competence level of the buyer’s employees (level of buyer support), supplier proactivity, buyer attractiveness (including respect and responsibility) and buyer’s volume dependency.
Sithole (2014) conducted survey to explore the reasons of supplier development failures for SMEs in South African railway industry. The objective of this research was to identify barriers faced by SMEs, to establish the challenges that lead to failure in the supplier development process and to describe the activities done by SMEs to position themselves in becoming preferred supplier development candidates for OEMs in the South African railway industry. Nine companies were selected as samples, those who are closing associated with South African railway industry. Data was collected through a face to face interview guided by semi-structured questionnaire. In each company, interviews were conducted with an individual who at least an executive. The key barriers noticed by this study are lack of human capital, industry regulation, capabilities, ineffective government intervention and lack of resources. The main challenges identified during the supplier development process are the long bureaucratic process related to supplier development on- boarding, miscommunication and lack of transparency.
Shandukablackumbrellas.org (2015) explored the critical attributes of supplier development in Africa. This organization is one of the consulting firms in Africa region and works for development of SME. The attributes identified by this organization are identifying the appropriate supplier for development, establishing clear goal and expected outcomes, communication structure, support of top management and involvement of cross functional team.
Busse et al. (2016) conducted research to explore the contextual barriers to supplier development for sustainability (SDS) in global supply chains and managerial remedies to mitigate such barriers. Case study design was adopted with a Western European buyer and six of its Chinese suppliers. The database consists of 41 interviews and 81 documents. This study found socio-economic differences, spatial and linguistic distance, cultural differences between buyers and suppliers, effective joint communications, organizational culture, and the fostering of cross-contextual understanding are the barriers of supplier development.
2.3 Studies in India
Chakraborty and Philip (1996) conducted research on vendor development strategy and organizational overall competitive strategy. The paper is based on one conceptual frame work which is based on vendor structures that consists of three primary dimensions: vendor structure scope, vendor structure relationship and vendor structure focus. The concepts presented in this research provide a theoretical base to consider the interrelationships between the various critical elements in vendor development. The critical elements of supplier development found by this study are vendor structure, strategy, technology, relationships and tasks.
Vishwanathan (2005) noted the supplier development barriers in India in the faculty column of Indian MBA site. The major attributes expressed here are Poor communication and feedback, Lack of clarity and commitment, Resource limitations, Lack of trust, Lack of a unified approach, Credibility of customers and Misconception regarding purchasing power.
Chidambaranathan et al. (2009) explored the critical factors of supplier development and its internal linkages with respect to Indian manufacturing industries. Data collected through close-ended questionnaire and from 200 respondents. Interpretive Structural Modeling (ISM) approach has employed to develop the structural relationship among supplier development factors and to define the levels of different factors. The critical attributes identified by this study are direct involvement of buyers, training to suppliers, supplier certification and incentives. Further authors argued that these factors definitely improves the productivity of suppliers and keeps the principal company competitive in the market.
Kanan et al. (2010) explored and ranked the supplier development criteria in India. This study carried out to understand the supplier development criteria and the relationships among the criteria. This study carried out in southern part of India which works in a built- to-order supply chain environment. The respondents for the survey are selected randomly from different functional areas of the original equipment manufacturers (OEM) company who are directly involved with the materials supplied by the supplier. The study found that incentive is a very significant factor for the supplier development and tops the ranking hierarchy followed by evaluation and certification system, long-term strategic goals, purchasing performance and supplier strategic objective.
Routroy and Pradhan (2013) conducted survey in India to identify and evaluate the critical success factors responsible for supplier development in a manufacturing organizations. The critical success factors (CSF) derived in this study are from various literature reviews and field study by the authors. Subject experts, engineers and managers of manufacturing firms are selected as samples. The 13 identified CSF by this study are long term strategic goal, top management commitment, incentives, supplier’s supplier condition, proximity to manufacturing base, supplier certification, innovation capability, information sharing, environmental readiness, external environment, project completion experience, supplier status and direct involvement. Apart from literature review the attributes identified by this study through survey and expert opinion are supplier’s supplier condition, proximity to manufacturing base, project completion experience and supplier status. From data analysis the long term strategic goal is found to be the most significant CSF for successful SD implementation.
Jarosławski and Saberwal (2013) conducted survey in India to explore the supplier development barriers in medical device manufacturing firms. Data collected through semi structured questionnaire and forty numbers of sample selected from six manufactured firms. Lack of guidance, lack of transparency and short of education on the relevant subject are found to be the bottlenecks of supplier development.
2.4 Summary of Findings
It is observed from the review of various research studies that supplier development is the key to stay competitive by the OEMs in the industry. The effectiveness of supply chain is largely depends on developing suppliers and to maintain the flow. However there is many barriers and critical factors which effects the supplier development, which needs to be addressed jointly by the large scale industries / buying organizations as well as supplying organizations.
A quick look of the supplier development barriers and critical attributes that the review of literature reveals has been given in Table 2.1 and Table 2.2 based on studies abroad and studies in India.
Tab 2.1: Summary of supplier development barriers & critical attributes based on review of studies abroad
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Tab 2.2: Summary of supplier development critical attributes based on review of studies in India
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SECTION - B
2.5 Studies Abroad
Goldmark and Rosengard (1981) observed seven attributes which are influencing negatively on small scale industry businesses. The attributes mentioned by this study are Financial assistance, Training, Technology, Marketing, General research services, Institutional brokering, Raw material and other inputs/services supply. Further authors have given details to the seven attributes. Financial assistance attribute has sub-factors such as grant and credit programs design, direct investment by any outside agency, foreign agencies sources, fixed and/or working capital and venture equity. The attribute Training has many sub-factors such as managerial, entrepreneurial, financial, designing appropriate accounting systems, vocational and technical training, production manual preparation, inventory and human resource planning, production efficiency training and quality control etc. Technology attribute requires identifying appropriate technology to be adopted, identifying proper equipment for installation and maintenance training etc. Improving promotion, distribution of SSE products, market penetration, service for input suppliers and enterprises are some of the factors under Marketing. Attribute such as General research services includes economic research, marketing research, surveys, industry feasibility studies, technology research, production process improvement research and policy formulation information. Another attribute Institutional brokering has factors such as collaboration between private sector and public sector institutions and SSE sector. The last attribute Raw material and other inputs/services supply has factors such as locating sources, organizing purchasing co-operatives, input quality standardization, and input availability stabilization.
Mead & Liedholm (1998) observed labor force characteristics of MSMEs in developing countries particularly in Africa and Caribbean, the majority of which operate in rural areas. With most MSMEs operating as 1-person undertakings, these are the largest employment category with 46% in Dominican Republic, 30% in Zimbabwe and 25% or less in rest countries. Higher economic efficiency observed for higher sized groups. Working capital is often required for these types of groups to sustain the enterprise and enable their improvement and performance. A number of institutions came forward to provide credit, training & technical advice to all those small enterprises. Still the cost effectiveness remained a greater challenge in those countries.
Shiffer and Weder (2001) in their book clearly showed that there are numerous size-based policy biases not in favour of MSMEs, and more so in opposition to smaller firms in microeconomic environment. These so called biases cover almost all areas: from legal and regulatory frameworks to governance issues to finance access and property rights to bureaucracy and corruption. The attributes of significance are Financing, Inflation, Taxes and regulation, Policy instability, Street crime, Corruption, Exchange rate, Organized crime, Anti-competitive practices, Infrastructure and Judiciary. Interventions are required on all fronts. The reality of such biases indicates to either government failure or market failure and is closely associated to the capacity of the stakeholders involved.
Bartlett & Bukvic (2001) identified critical barriers to SME growth in Slovenia. The paper finds attributes linked to external financial constraints inclusive of high cost of capital and institutional environment including bureaucracy. The research was based on econometric analysis with a sample survey of SMEs in Slovenia. Firm’s size was found to be negatively linked with firm’s growth. Again growth was found to be affected by institutional and financial barriers. Moreover, severance of pay found to be positively linked with SME growth. The unexpected finding is a surprise result of this paper.
Sleuwaegen and Goedhuysa (2002) presented a catalogue of 17-factors and investigated these obstacles to the growth SMEs in Cote d'Ivoire. The responses were subjective and personal and reflected growth constraints experienced there. Tax regulatory barriers, corruption practices, market constraints arising since insufficient demand/ competition of imports, lack of business support services in infrastructure, deficient provision & pricing of public utilities, financial constraints such as availability of credit, labor regulations, problems obtaining licenses, price controls and regulation on location were major obstacles. The catalogue of growth barriers of Ivorian firms illustrate the distort role of government interference and the strong competition for want of resources in developing countries. Transaction and information costs are high and markets are poorly developed with small transparency in regards to firms’ activities and performance.
Pissarides et al (2003) studied with help of stratified random sampling from 216 Russian and 221 Bulgarian SMEs. The obstacles to output growth for establishing and operating SMEs are such as suppliers not ready to deliver, firms facing financial problems, high interest rates, land issues, office space and buildings etc.
Jason et al. (2004) explored the barriers of supply chain integration in small business operating systems. This study was carried out at semiconductor manufacturing industries of USA. 110 small scale units are selected as sample. The objective of the paper is also to know the quality movement in small manufacturing sector, its supporting attributes and its barriers. The barriers observed by the authors are lack of proven implementation process, lack of support from senior management, lack of understanding of the system, lack of employed capital, lack of organizational commitment and lack of desired manpower.
Huw and Lewis (2005) conducted research to find out the barriers faced by small scale industries during the new product development. This study carried out in UK and employed a longitudinal case study methodology. Data collected from three manufacturing firms that have accepted new product development activities in-house. The detailed data taken from project documentations and interviews with employees at various technical and managerial levels. Three major pointed indicated by this research, which directly influence the development of small scale manufacturing firms are dominant of owner/manager, focus on time and cost ahead of other key factors and failure to understand the importance of product design. Researchers further clarifies the reason for this key attributes. The owners or managers do not have familiarity or training, relevant to design and development activities. Many times owners of small scale business behave in authoritative, and in some cases dictatorial manner to run the business, which is not suitable for new product development. In most cases they are lack of knowledge for product development and scare of delegating responsibility. Due to very restricted financial and operational capabilities the managers focus on cost and time rather than thinking future. Compromised quality, unrealistic expectations, lack of market research, skill level and lack of evaluation of alternatives creates substantial barriers for development.
Hermelo & Vassolo (2007) studied upon small and medium-sized firms of north-western region Tucumán of Argentina. The team observed size of the firm is a determining factor for the growth of a firm. Financial resources constraint will squeeze the growth of SMEs, technological capabilities, diversified products, and diversified geographical markets will enhance the growth of firms.
Sharon Williams (2007) conducted survey in UK to understand the impact of leaning & knowledge transfer on supplier and business development from small scale industries perspective. Data collection carried out from secondary data source, interviews and direct observation from the buying and their small scale suppliers. Office furniture manufacturers and their suppliers are selected for this study. Researcher suggests that the learning is one of the most key factor for supplier development and the procedure must be through close interactions by manufacturer and supplier. Monitoring the progress of learning and its constant feedback is a key to success of supplier development initiatives. This study also suggests that due to knowledge transfer and leaning organizations can built trust, openness and flexibility among stake holders and can influence long term relationship.
Nguyen et al (2009) worked on small scale suppliers in Vietnam to find out the attributes influencing the business operation process. The paper concludes government policies were not encouraging for investment, SMEs were engaging themselves in one economic sector, focus of govt. for quantity rather than quality SMEs, influence of bureaucracy and red tape, imperfect market regulation, lack of infrastructure and resources, failure to attract qualified labor and absence of resource support.
Bilek (2010) explored through his research in UK that the quality of information shared is critical in “build-to-order” supply chains because flexibility, production and scheduling, and the supply chain members’ ability to respond to order uncertainty can be improved with appropriate and quality of information.
- Quote paper
- Dr. Manoj Kumar Mohanty (Author)Prof. Dr. Padmabati Gahan (Author), 2019, Barriers of Supplier Development. Listening to the Voices of Small Scale Manufacturing Suppliers, Munich, GRIN Verlag, https://www.grin.com/document/490216