Master of Business Administration [BM 771]

Universiti Teknologi MARA, Bandaraya Melaka

PROPOSAL FOR ABR

SUPPLIER SELECTION: Maxell Tohshin (Malaysia) Sdn. Bhd.

PREPARED BY:

Name : Siti Suryati Bt Bahari

Name : Noorhafizah Bt Badalehshah

Table of content Pages

Abstract 4

CHAPTER ONE- INTRODUCTION

1.1 Background of the industry 5

1.2 Statement of the problem 6

1.3 Objective of the research 8

1.4 Scope of study 9

1.5 Significant of the study 9

1.6 Limitation of the study 9

CHAPTER TWO – LITERATURE RIVIEW

2.1 Background of the research areas 10

2.2 Concept and definition of key components of the research area 10

2.3 Theoretical framework 11

2.4 Summarize to conclude 13

CHAPTER THREE- RESEARCH DESIGN AND METHODOLOGY

3.1 The research design 14

3.2 The population sample 14

3.3 Sampling technique 15

3.4 The fieldwork and data collection method 16

3.5 The data analysis 16

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CHAPTER FOUR- OVERVIEW OF FUTURE APPLICATION 17

REFERENCES 18

3

Abstract

Supply chain management and supplier selection have become the fastest growing

areas of management especially in the last few years. Although study in the area started in

1960s, it is in the 90s that scholars gained much interest in the area of supplier selection.

The reason is that with heightened global competition that has reduced the profit margins of

most companies, hence cost cutting has become the option and is being focused in logistics

which has become the single largest and most important activity of most firms, both in the for

profit and not-for-profit sectors. As such, quite a significant portion of organizations’ budgets

is spent in these activities. Supplier selection in particular is crucial in management of a

supply chain. The decision is one of the most fundamental and important decisions made by

buyers and organizations. This is because supplier selection and management can be

applied to a variety of suppliers throughout a products’ life cycle from initial raw materials

acquisition to end-of-life service providers (Bai and Sarkis, 2009).

Supplier selection is the process by which firms identify, evaluate and contract with

suppliers. The supplier selection process deploys a tremendous amount of a firm’s financial

resources. In return, firms expect significant benefits from contracting with suppliers offering

high value. This research is to identify selection process: Identifying suppliers, soliciting

information from suppliers, setting contract terms, negotiating with suppliers and evaluating

suppliers. The researchers want to highlights why each step is important, how the steps are

interrelated and how the resulting complexity provides fertile ground for research.

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CHAPTER ONE- INTRODUCTION

1.1 Background of the industry

Maxell Tohshin (Malaysia) Sdn. Bhd. or “MTM” in short was formed with effective as at 1

January 2006 (an integrated of company between Maxell Electronics (M) Sdn. Bhd. &

Tohshin (M) Sdn). Subsidiary Hitachi Maxell Ltd., Japan a member of the Hitachi Group of

Companies. MTM started with the Plastic Injection Molding of components for camera parts,

Manufactures Optical Lenses, Processing Lens Coating and Assemblies of Micro-Camera

Lens Unit, Manufacturers the 3.5 inch Floppy Diskettes, Assembling and certifying DVD-

RAMs under the renowned name of Maxell and in addition to this. MTM also punches Disk

Sheets (cookies) for the 3.5 inch Floppy Diskettes. Registered office at Lot 1, Batu

Berendam free Trade Zone Phase III, Batu Berendam 75350 Melaka, Malaysia.

1.1.1 The concept of supplier selection and procurement

Supplier selection and evaluation have become one of the major topics in production and

operations management literature (Motwani et al., 1999).It is the process by which firms

identify, evaluate and contract with suppliers. The supplier selection is one part of the value

chain that is now considered to deploy tremendous amount of an organization’s resources

and for this reason, much is expected in terms of high value from suppliers (Beil,

2009).These are part of what is today called supply management in the supply chain

management function in an organization. Supply management refers to “the process of

identification, acquisition, access, positioning, and management of resources an

organization needs or potentially needs in the attainment of its strategic objectives” (Institute

of Supply Management). Weber et al. (1991) define supplier selection as the search for

potential providers where the providers are sorted (evaluated) into potential ad non potential

providers. Typical criteria for supplier selection could be price structure, delivery which

entails timeliness and cost, product and services quality. It is the ongoing process of

searching and evaluating process to find a supplier of essential goods and services required

in an organization for normal operations.

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The term procurement is used in the place of purchasing however, and encompasses

activities of specifications and development, expediting, supplier quality control and some

logistic activities (Wisner,Tan,and Leong,2008).Some scholars have postulated that supply

management is today a mainstream value adding process that is viewed as most

strategic(Cousins,2005). The main objective of supplier selection process is to reduce

purchase risk, maximize overall value to the purchaser, and develop closeness and long-

term relationships between buyers and suppliers (Li et al., 1997 as cited in Tahriri, Osman,

Ali and Yusuff, 2008). According to Benyoucef et al (2003), supplier selection process is

continuous in order to upgrade the existing variety and typology of their product range. It is

necessitated by the fact that most products generally have short lifecycle of 3 to 4 years.

1.2 Statement of the problem

Two different aspects characterize the supplier selection problem:

The first aspect is the determination of the number of the suppliers and the mode of relations

with them. Considering the characteristics of the company, product and market, its strategic

plan can encourage a large number of suppliers or not. Today, we are involved in a “co-

operative logistic” environment. The company seeks a strong co-operation with its principal

suppliers. Indeed, a strong co-operation with high number of suppliers is very difficult to

manage. An area of current research focuses on the classification of components or parts or

process to externalise in order to establish a suitable relation with the suppliers of each

category. For example, the company can consider a relation of partnership or even a

strategic alliance with a supplier who provides a part or a component and with which it

wishes to have a durable co-operation. On the other hand, this company can have a

hierarchical relation and a significant number of suppliers for the standard parts in order to

establish a competition between them and thus to reduce the cost of purchasing. Second

aspect is the selection of the best suppliers among the existing alternatives. In this work, we

consider this aspect of the problem and thus we assume that the number of the suppliers to

be selected is already given.

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Issue in MTM under Procurement Department with the vender that influence the team

to search and find the alternative supplier and involve with the supplier selection.

1) Lead time-

Some of the supplier required the lead time more than 3 month. This is because their

material incoming from the overseas take about 1-2 month and the production lead

time takes about 1 month (depends to the production plan from their side.

2) Price-

Prices based on the material itself and also the terms. Some of the prices based on

the exwork , DDU, FOB, CIF and others. Certain country the prices based on the

currency and exchange rate. Sometimes, MTM facing the un-flexible prices,

especially the commodity item.(wire, plastic, spare part and etc.)

3) Quality

The quality must be meet the MTM requirement. If there is any quality issue, MTM

will request the supplier to send the replacement, or send the man power to do

sorting at MTM. However, the supplier also request to return the lot, but due the MTM

located at the FTZ area, any incoming or outgoing must be apply the custom

exemption. Normally to get the approval, it will take about 2-3 days. If there is no

customs officer at the office, the application will drack until a week. The issue will be

happen when the supplier do not have stock to send out the replacement and

required the MTM to return ASAP, but due the requirement for the rules and

regulation, MTM alternative plan to proceed the line sorting.

4) Delivery/mode of transport

The delivery can divided with 3 normal types; by sea, air, courier, or land transport. If

by sea, each country does have their lead time.

5) Payment terms

Whether the 60 days or 30 days. Or even advance payment

6) Rules and regulation

Customs exemption, documentation requirement (K1, K2,K8 etc.)

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7) Documentation

Invoices and delivery order. According to the standard info

8) Services and pic involvement

The service provided and the response of any comment or issue from the ‘window’.

1.3 Objective of the research

The first stream dominates the purchasing literature and identifies appropriate criteria and

methods supporting supplier evaluation. The primary goals are to help the buyer decide what

its objectives are, what dimensions to evaluate suppliers over, and how to evaluate suppliers

using these dimensions. The second stream assumes that the buyer knows what it wants

and has an existing methodology for evaluating suppliers. It focuses on decisions such as

what types of negotiation formats or contracts to employ, and how to elicit information that

suppliers may be reluctant to reveal.

1.3.1 Research questions

The research questions for the study shall be:

What are some of the factors that determine supplier selection in the procurement process in

Maxell Tohshin? Is the supplier size a criterion for selection as a supplier in the procurement

process by Maxell Tohshin? To what extent does quality of supplies determine the supplier

selection in the procurement process in the Maxell Tohshin? Is cost a factor in the selection

of suppliers by the Maxell Tohshin? What is the overall effect of bribery and connections in

the supplier selection decision Maxell Tohshin?

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1.4 Scope of Study

The focused on effectiveness and efficiency of selecting supplier selection method

determination of quality performance supplier selection criteria and the between supplier

selection techniques and quality performance of organization.

1.4.1 Geographical Scope

The study was conducted in Maxell Tohshin industries located on plot industries area Batu

Berendam, Melaka.

1.5 Significance of the Study

1. To contribute to the field of knowledge about supplier selection and quality

performance.

2. The research will benefit organization recognize the importance of supplier selection

in enhancing quality performance.

3. The study will provide organization with the various tools of supplier selection that

can enhance quality performance.

1.6 Limitations of the study

The researcher envisages a number of limitations such as the inability of the respondents to

adequately fill the questionnaires as required, the inadequacy of the research instrument to

capture all the required information, and failure of some respondents to fill the questionnaire,

and the inherent weakness in the research design.Also,the  study is limited in that it only

focuses on Maxell Tohshin supplier selection determinants, yet there are many other

company that also rely on local suppliers. The findings in this study might not be adequate

representation of the supplier selection determinants in the Maxell Tohshin; hence the

results cannot be generalized to all.

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CHAPTER TWO – LITERATURE RIVIEW

2.1 Background of the research areas

This chapter the principles and concepts that has been explore and brought out by various

authors in an existing literature on suppler selection and quality performance of organization

in Maxell Tohshin industries.The literature is reviewed under the following sub headings. The

supplier selection process, determinants of quality performance of organization, and the

relationship between suppliers selection technique and quality performance in Maxell

Tohshin industries.

2.2 Concept and definition of key components of the research area

Supplier selection criteria for a particular product or service category should be

defined by a “cross-functional” team of representatives from different sectors of your

organization. In a manufacturing company, for example, members of the team typically

would include representatives from purchasing, quality, engineering and production. Team

members should include personnel with technical/applications knowledge of the product or

service to be purchased, as well as members of the department that uses the purchased

item. With increasing significance of the purchasing function, purchasing decisions become

more important. As organisations become more dependent on suppliers the direct and

indirect consequences of poor decision-making become more severe. For example, in

industrial companies, purchasing’s share in the total turnover typically ranges between 50-

90% (Telgen, 1994), making decisions about purchasing strategies and operations primary

determinants of probability. In addition, several developments further complicate purchasing

decision-making. Globalisation of trade and the Internet enlarge a purchaser’s choice set.

Changing customer preferences require a broader and faster supplier selection. Public

procurement Public Procurement regulations demand more transparency in decision-

making. New organisational forms lead to the involvement of more decision-makers.

.

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2.3 Theoretical framework

Consumers buy products based on a combination of cost, quality, availability, maintainability,

and reputation factors. The companies along with their supply chains, which can provide

these desired things, will ultimately be successful (Wisner, J.et al, 2008).But when

confronted with risky purchase decisions, most firms consider first and foremost, sellers or

suppliers with proven track record with the firm are favoured as familiar suppliers help

reduce perceived risks (Hutt and Speh, 2009).

Quantitative approaches used in supplier selection range from simple linear weighting

models to complex mathematical programming models. Linear weighting models are

essentially scoring models which place a weight on subjectively a determined criterion and

provide a total score for each supplier. Mathematical programming models use linear

programming, mixed-integer programming and goal programming to determine supplier

selection (Chaundry et al. as cited in Wissenschaftsverlag, 2007).

According to Beil (2009) supplier selection assists organizations in identifying, evaluating

and contract with suppliers for strategic partnership. Organizations will only achieve their

sourcing objectives once they get the right suppliers who will deliver goods and services on

time. Weber et al (1993) considered supplier selection to be long term process and suggests

that suppliers should be evaluated based on core competences and strategic needs.

2.3.1 Empirical Review

Literature review shows that from empirical front, comprehensive efforts have been made to

develop decision methods and techniques for supplier selection. Weber et al(1991) reviewed

and classified 74 articles that appeared since 1966 with regard to particular criteria used in

supplier selection ( as cited in Mendoza, 2007).In these papers, what comes out as the

major supplier selection determinants include price, delivery, quality, and production capacity

and location. Holt presented a review of contractor evaluation and supplier section

methodologies such as multi-attribute analysis, multi-attribute utility theory, and cluster

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analysis where he discusses applications of each of these techniques. Degraeve et al uses

the Total Cost of Ownership (TCO) as the framework for comparing supplier selection

models. But it is De Boer et al study that is comprehensive enough as it looks at supplier

selection literature by even classifying the existing literature in a framework. The framework

enumerates steps preceding supplier selection decision. These steps are, problem definition,

formulation of selection criteria, pre-qualification, and final selection. The other unique thing

about their analysis is the classification of supplier selection literature according to different

purchasing situations namely first time buys, modified re-buys, and straight

rebuys(Mendoza,2007).Yet, this analysis though comprehensive leaves crucial gaps as it

does not clearly state the supplier selection determinants, but instead dwells on the selection

procedures.

Dickinson (1966) in his pioneering work on supplier selection identified and ranked 23

supplier selection criteria as collected from a questionnaire given to purchasing agents.

Quality, delivery, and performance history rank top with net price ranking a distant sixth. This

seems to concur with previous studies, but one notable discrepancy is that price curiously

ranks lower than quality. Again, net price is deceptive as other related costs such as

packaging and freight cost could raise the total cost. Total cost covers everything hence

should be the one listed and not net cost. Ellram (1990) proposed three criteria for supplier

selection. These are: the financial statement of the supplier, organizational culture and

strategy of supplier, and the technological state of supplier.

Omar & Sim (2010) in a study on supplier selection criteria conducted on Malaysian

Manufacturing firms found that cost followed by quality ranked higher than any other

determinants. Delivery ranks third based on their analysis.

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2.4 Summarize to conclude

One of the highly ranked supplier selection determinants from the available literature is the

quality of supplies. Pioneering works of Dickinson (1966) which surveyed 300 commercial

organizations ranked quality as the highest determinant for supplier selection. Quality refers

to conformance to requirements or fit to use. Conformance quality is also viewed as absence

of defects (APICs, 1999).Since the early studies of 60s on supplier selection all through to

90s, quality has consistently ranked top among the various supplier selection determinants.

Purchasers would like to buy only those goods and services that are of high quality. The

other critical factor for supplier selection beside quality is delivery. Meeting delivery

deadlines is critical so as to avoid operations disruptions for lack of supplies. hoi(19960 as

cited in Cheraghi et al. delivery together with quality constitute what might be considered the

threshold criteria for supplier selection.

Performance history of a supplier is also a critical determinant in supplier selection as

literature adduces. In particular, for those goods and services that are of great value or

involving huge cost outlay, then the purchaser tends to go for that supplier whom they are

sure about their past performance. This is basically to reduce risks associated with failure of

unknown suppliers to deliver goods or execute their part of contract.

According to Weber et al. (1991) cost is one of the key determinants for supplier selection.

Cost of supplies like delivery and quality constitutes the traditional determinants of supplier

selection, also known as order qualifiers. Most organizations both in business and Non-

governmental organization world consider the lowest cost offer since the purchaser aims to

minimize on cost of procurement while trying to maximize on the quality and quantity of

purchases. Service factors such as after sales service, repairs capacities, change and

supply of parts, easy assessable, customer service, technical capacity, and warranty of the

product (Omar & Sim, 2010).For this reason, most purchasers tend to consider these service

factors capacity in a potential supplier. Any supplier with the capacities to provide these

services ultimately gets selected as a supplier to most organizations.

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CHAPTER THREE- RESEARCH DESIGN AND METHODOLOGY

3.1 The research design

The sources used for study consisted of scientific refereed journals, textbooks and doctoral

dissertations. Publications in languages other than English and non-refereed professional

publications were not included. The search keys used were supplier selection, vendor

selection, purchasing decision-making.

Qualitative methods may include tools for visualising and analysing the decision-maker’s

perception of a problem situation and tools for brainstorming about possible (alternative)

solutions. The collection of quantitative methods comprises a wide variety of approaches.

Data mining techniques can be used to analyse similar decisions made in the past in order

to derive general patterns and decision rules that may subsequently be used to improve the

efficiency and effectiveness of future decisions.

Furthermore, we only included articles that report on a method or technique that specifically

aims at supporting a decision-maker in one or more of the four steps of the supplier selection

process. This implies that articles merely describing the supplier selection process o the

relevant criteria have not been included. Also, articles reporting on methods for monitoring

an existing supplier relationship were excluded.

3.2 The population sample

A population is the total collection of elements about which inferences are made and refers

to all possible cases which are of interest for a study (Sekaran, 2003).The target population

for the study is the 10 Maxell Tohshin department based in Batu Berendam, Melaka. The

study will target the chief procurement and logistics officers in these agencies as the unit of

analysis. These are selected because they are the ones tasked with the responsibility of

sourcing for suppliers of goods and services to their organizations.

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3.3 Sampling Technique

Sampling refers to the systematic selection of a limited number of elements out of a

theoretically specified population of elements. The rationale is to draw conclusions about the

entire population. According to Kothari (2004), the ultimate test of a sample design is how

well it represents the characteristics of the population it purports to. The reason for sampling

in this study is to lower cost, accessibility of study population and the greater speed of data

collection.

A sample size of 50% of the population will be taken to give a total sample of 9 Maxell

Tohshin department. This is informed by the principle that if the elements of a population are

quite similar, only a small sample is necessary to accurately portray the characteristics of

interest Stratified random sampling will be used where the sample size of 50% shall be taken

from each of the three categories (strata) of the population. Stratified random sampling will

be used because it ensures a greater statistical efficiency, and reduce sampling

error.Kothari(2003) supports random sampling as it satisfies the law of statistical regularity ‘if

a sample is chosen at random, on average it has the same characteristics and composition

as the population’.

Table 3.2: Sample Size

Target Population Sample Percentage Sample Units

Headquartered 2 50 1

Regional Offices 14 50 7

Others 2 50 1

Total 18 9

Source: Author (2012)

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3.4 The field of work and data collection method

The overall aim of the study is to establish the determinants of supplier selection among

international organizations, specifically the Maxell Tohshin in Batu Berendam Melaka. The

bulk of data collected will therefore be primary in nature. The questionnaire will be the main

instrument, alongside face to face interviews. The use of questionnaires for primary data

collection has been supported by many scholars among them; Mugenda (1999),and Peil

(1995).A questionnaire is easier to administer, less costly, and ensures greater depth of

response, according to Mugenda (1999).A questionnaire also helps capture factual

information effectively. For the purpose of this study, the questionnaire will be used for the

mainly economical, and appropriateness reasons. A pilot study shall be conducted using

questionnaires to be administered to respondents from four Maxell Tohshin departments.

Those questions that will not be clear or are ambiguous will be revised so as to collect the

desired information. A senior academic from the school of Business of University

Technology MARA will assess the validity and reliability of the instrument.

Research Procedure

The researcher will first obtain a letter of introduction from Universiti Teknologi Mara. The

letter will help in identification in the various Maxell Tohshin premises while approaching

respondents. The questionnaires shall be personally administered through drop and pick

method.

3.5 Data Analysis and Presentation

The statistical method used in this study is descriptive and inferential statistics. Data analysis

will be done using Statistical Package for Social Sciences computer software

(SPSS).Tables, pie charts and graphs will be used to present the results on various

variables in the study. Descriptive statistics such as mode, mean and median shall be used

to present the various characteristics for data sets after the descriptive analysis. For this kind

of study, descriptive analysis is the best and has been supported by such scholars as

Schindler (2001), and Crawford (1995).

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CHAPTER FOUR: OVERVIEW OF POSSIBLE FUTURE APPLICATION

The previous section has made clear that support in the phase of problem definition is an

underdeveloped area in supplier selection since we did not come across any model in the

purchasing literature that pays attention to this important phase. Some approaches in the

operations research literature deal explicitly with problem definition but have thus far not

been used in the purchasing literature. We also identified three additional methods that

seem particularly suitable for supplier qualification phase. These three models are elucidated

in Table 4.

Table 4

Methods for supporting pre-qualification of supplier

Method Typical feature

Conjunctive screening

(Hwang and Yoon, 1981)

A supplier is acceptable if the supplier equal

or exceeds a minimum score on each

criterion

Disjunctive screening

(Hwang and Yoon, 1981)

A supplier is acceptable if the supplier at

least equals or exceeds a minimum score on

one criterion.

Lexicographical screening

(Hwang and Yoon, 1981)

Criteria are ranked in order of importance.

Suppliers are first evaluated on the most

important criterion. Suppliers that pass this

criterion are then evaluated on the second

criterion and so on.

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Motwani, J. and Youssef, M. (1999). Supplier selection in developing countries: a   model

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