International Journal of scientific research and management (IJSRM)

||Volume||1||Issue||4 ||Pages|| 268-280||2013||

ISSN (e): 2321-3418

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 274

An Integral Analysis of Supplier Selection and Supplier

Relationship of Tobacco and Sugar Industry in Bangladesh- A

Case Study

M. S. Parvez1, M. S. Rahman

2, P.K.Halder

1, N. Paul

3, S.K.Dey

1 and A. S. M Hoque

1

1Department of Industrial and Production Engineering,

Jessore Science and Technology University, Jessore-7408, Bangladesh

2Department of Industrial Engineering and Management,

Khulna University of Engineering and Technology, Khulna-9203, Bangladesh

3Institute of Appropriate Technology

Bangladesh University of Engineering & Technology, Dhaka-1000, Bangladesh

ABSTRACT

Supplier relationship management is an imperative contributor to a company’s efficiency and is being viewed as strategic,

process-oriented, cross-functional, and value-creating for buyer and seller. Supplier selection, one of the most important issues

of a company, need to be systematically considered from the decision makers’ perspectives and a multi criteria decision

problem and a model has been proposed by using Analytical Hierarchy Process. The evaluation criteria has been developed

and used successfully in the proposed model. The design of supplier relationship management to facilitate supplier selection

using an integrative case based on supplier selection to select the most appropriate suppliers together with their past

performance records to identify preferred suppliers. This paper shows the benefits of good supplier relationship rather than a

traditional one. It also focuses on the specifying sources, selecting suppliers, negotiating with supplier, buying raw materials

and designing and supplying collaboration.

Keywords- SRM, AHP, Supplier Evaluation, Supplier selection,

BATB.

1. INTRODUCTION

In recent days, companies are not considered as isolated

entities that simply purchase goods and services from

individuals who are able to supply them at that particular time.

Typically the companies need to make larger purchases. For

this all successful companies build strong relationships with

their suppliers. In reality, successful companies have to build

bridges between their organization and the vendors so that

they work with by establishing strong buyer/seller relationship

[1].

Supplier relationships vary from simple purchasing

transactions in several ways. Firstly, there can be a sense of

commitment to the supplier. Advanced planning is another

element of supplier relationships where buyers don't just

communicate with suppliers when a procurement need arises

but they also contact them in order to discuss their future

needs and to find out the best way to satisfy those needs by

working together [1]. However, primary adopters of SRM are

comprises of recognizing savings in current relationships,

remediating relationships that are not working, working with

suppliers to build joint capabilities and improve joint

processes, effectively managing supplier risk, and decreasing

internal costs of supplier management [2]. Supplier

Relationship Management is considered as the active

management of a continuing business relationship to secure a

competitive advantage for your own organization [3]. The

focus is on overall relationships between the supplier and the

buying organization rather than a focus on a specific contract.

Its purpose is to encourage purchasing and business

management to develop a structured understanding of the

nature of current relationships that exist within and between

your organization and the suppliers [4].

Finally, Supplier Relationship Management is an all-inclusive

approach to managing the affairs and interactions with the

organizations that supply your company with goods and

services [5]. Communications, business practices, negotiations,

methodologies and software are considered as the major

variables used to establish and maintain a relationship with a

supplier. Benefits include lower costs, higher quality, better

forecasting and less tension between the two entities that result

in a win-win relationship [6].

2. LITERATURE REVIEW

A research recommended that two broadly differing supplier

management models have developed from both practice as

well as academic research on the issue of managing suppliers

optimally [7]. The research also distinguishes between two

basic purchasing strategies: competitive and collaborative [7].

On the contrary, a hybrid of the competitive model and a

partnership model is considered as another supplier

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 275

relationship strategy [8]. Some other researches mention that

working together with buyers and suppliers is the best strategy

for winning and retaining business in this highly competitive

market [9, 10]. Another one recommends the partnership

method arguing that it looks at a supplier as an extension of

the purchaser’s research capabilities, storage, potentials,

financial backing and manufacturing and quality control needs

[11]. However, the practice comprises of choosing the best

suppliers and entering into long term relationships based on

mutual requirements and faith [12]. Other researcher observed

this trend and noticed a tendency among customers to move

from an arm’s length relationship towards closer collaborative

arrangements [13].

It has been commented that a survey of purchasing managers

found general agreement in the fact that supplier partnering

reduced the number of suppliers which is important to support

of long term relationships [14]. Besides, the research also

added that the following reasons were required for this

reduction: supplier development is expensive; close working

relationships requires restricting the number of suppliers [14].

A multiple criteria decision making method has been

developed using Analytic Hierarchy Process (AHP) by Saaty

(1980) [15].

3. METHODOLOGY

Methodology of supplier selection process with Analytical

Hierarchy Process is given below.

Step 1: Structuring the decision problem in a hierarchy.

Step 2: Comparison of the alternatives based on the criteria as

shown in Table 1.

Table 1

Comparison of the alternatives

Step 3: Pairwise comparisons are

then composed in a so called evaluation matrix P which has

the structure as depicted in Fig. 1.

Fig. 1 Evaluation matrix

Step 4: Determination of the overall weight, each entry is

divided by the sum of the column it appears in. And then each

entry is expressed as a percentage of this sum.

Step 4: Determination of the overall weight, each entry is

divided by the sum of the column it appears in as shown in

Table 2. And then each entry is expressed as a percentage of

this sum.

Step 5: Aggregation of average to get supplier scores.

Step 6: Calculation of supplier scores according to-

Step 7: Scores for other suppliers are evaluated in similar

fashion and the Supplier with highest score is chosen.

3.1 Cost and Benefit of Supplier

3.2 Cost and Benefit of Industry

4 FINDINGS OF THE STUDY

This study focuses on two industries, tobacco industry (BATB)

and sugar industry, Carew & Co. (BD). It has been practically

found that, BATB maintains Supplier Relationship

Management but sugar industry does not maintain. It has been

practically found that, BATB maintains Supplier Relationship

Management comprises of providing land for cultivation,

superior seeds, card which is helped to get various facilities,

training, ensuring continuous communication with suppliers

and providing various facilities for suppliers such as, loan,

compensation etc.

On the other hand, in sugar industry supplier relation

management is not maintained. In sugar industry, sugar-cane

is purchased from various suppliers randomly as demand

arises. So, cost-benefit estimation of suppliers for sugar

industry could not be possible, since suppliers are not

specified. Here conventional supplier selection process is used

for supplier selection.

4.1 Conventional Supplier Selection Process

Fig. 2 shows the conventional supplier selection process [16].

Intensity of importance Definition

1 Equal Importance

3 Moderate Importance

5 Strong Importance

7 Very Strong Importance

9 Extreme Importance

2,4,6,8 For compromises between the

above

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 276

Fig. 2 Steps of Conventional supplier selection process

4.2 Cost and Benefit of Supplier and producer

The mutual relationship between suppliers and industry is

shown in Fig. 3.

Fig. 3Relation between suppliers and producer

Supplier cost is to produce raw materials. Supplier benefits

come from supplying raw materials. Similarly, producer cost

is to produce products or services. Producer benefit comes

from supplying his products or services. Data from several

farmers are collected and averages of them are calculated

which is shown Table 3.

Table 3

Data from several suppliers of BATB

Farmer name

& address

Net area

cultivated

(acre)

Total

cost

(Tk.)

Total leaf

produced

(Kg)

Total

sale

(Tk)

Kalam (kushtia) 1 12,500 40 14,000

Rahim (kushtia) 1 13,000 42 14,700

Azad (kushtia) 1 12,000 40 14,000

Rana (kushtia) 1 13,000 41 14,350

Badol (kushtia) 1 14,000 45 15,750

Abul (kushtia) 1 12,000 39 13,650

Khalil (kushtia) 1 12,500 41 14,350

Karim (kushtia) 1 11,000 38 13,300

Amit (kushtia) 1 15,000 48 16,800

Dip (kushtia) 1 12,000 40 14,000

Average 12,700 41.4 14,490

4.3 Operating Cost, Total Sale and Net Profit of

BATB

In 2011, net profit of BATB was TK. 2,878,589,000 where the

operating cost and total sale was TK. 167,615,643,000 and TK.

167,615,643,000 respectively. Percentage of profit comparison

of recent three years with respect to the year 2008 of BATB is

shown in Fig.4.

Evaluation matrix Normalized matrix

…. …. …. …. Average

….. …. …. ….

….. …. …. ….

…. ….. …. ….. …. ….. …. …. …. …. …. ….

….. ….. …. ….. …. ….. …. …. …. …. …. ….

.... …. …. ….

…. ….

Step 1: Calling for public tender

Step 2: Initial screening, survey on factory and monitor actual

status

Step 3: Interview of executives of Supplier Company and

negotiation with some basic elements; such as cost, quality, and

service level.

Step 4: Rate the top most supplier without any proper

selection method and visit them again.

Step 5: Finally select the supplier.

Table 2

Evaluation and Normalized matrix

Suppliers Raw Materials Industry

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 277

Fig. 4 % of profit comparison of BATB

4.4 Operating Cost, Total Sale and Net Profit of

Sugar Industry In 2011, net profit of BATB was TK. 1,678,520where the

operating cost and total sale was TK. 141,013,5530and TK.

141,181,4050respectively. Percentage of profit comparison of

recent three years with respect to the year 2008 of BATB is

shown in Fig.5.

Fig. 5 % of profit comparison of sugar industry

5 RESULT AND DISCUSSION

A net profit comparison between BATB and sugar industry is

drawn in Fig. 6.

Fig. 6 Net profit comparison between BATB and Sugar

industry

Though both tobacco and sugar industry’s benefit cost ratio

are greater than 1 and hence both are economically justified

but there are some substantial differences between them which

have been shown in above figure.

Fig. 6 shows that net profit comparison between BATB and

Sugar industry shows that the net profit curve of BATB is

increasing relative to previous year’s profit that has a positive

gradient. On the other hand, the net profit curve of sugar

industry is decreasing or not so much increasing relative to

previous year’s profit. So, it is clear from above comparison

that the gradient of BATB is higher than that of sugar industry.

It is core advantage of good supplier relationship management

that is maintained in BATB strongly.

A percentage of net profit comparison with respect to the year

2008 is drawn in Fig. 7.

Fig. 7 % of net profit Comparison between BATB and

Sugar industry

Similarly, Fig. 7 shows that percentage of net profit

comparison is increasing for BATB much than sugar industry

with respect to the year 2008.

The research findings indicates that long term relationships

with few suppliers came up to be the best way of managing

supplier relationships for both long term and short term

contracts. The responses cited that relationships with suppliers

must continue even after the completion of a transaction an

indication of the movement way from adversarial relationships.

They cited that after sales services and support in terms of

technical products was needed even after the completion of

transaction. Most responses saw relationships as vehicles for

cost reduction such as reduction of time spent and costs of

searching for new suppliers. They also highlighted that quality

could be achieved as a result of increased supplier

involvement and joint problem solving. The respondents also

cited that limited number of suppliers improves

decentralization of purchasing activities to other departments

as they will be obliged to deal with already evaluated and

selected few suppliers. However few responses contradicted

citing that costs of safeguarding the relationships are also sky

rocket. They highlighted that knowledge transfer is a function

of whether the supplier is interested or not, some suppliers

may lack the motive to do so and may resist use of their

resources for the benefit of the buying organization.

Here a supplier selection model with AHP that will select a

best supplier from multiple suppliers with multiple criteria is

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 278

recommended. Also, how a good supplier relationship

management contributes on company’s net profit significantly

and how it brings a better result than before. It has also been

seen that, a good supplier relationship is not only beneficial for

the existing company but also for corresponding supplier(s).

6 CONCLUSION

Suppliers are one of the most important chains of the supply-

chain. The quality of products, total costs and customer

satisfaction under these circumstances are directly affected by

the supplier performance. Hence, supplier evaluation has a

strategic importance for the corporations. The results reached

by using the right performance criteria and evaluation method

would produce robust solutions towards improving the

performance of suppliers.

Although we do not yet have hard quantitative results for SRM

performance, a survey of sourcing managers indicated that the

system is useful in evaluating and segmenting suppliers.

Engaging into long term relationships with few suppliers is the

best strategy of managing supply side rather than playing off

many suppliers against each other as there are more benefits to

be gained when in a long term relationships with few suppliers

than being on the contrary. Procurement officials should come

up with an approved supplier list of best suppliers who the

institutions can do business with unlike doing business with

the whole world. The purchasing officers can concentrate on

other crucial procurement activities such as supplier

development and continuous supplier monitoring. The

approved supplier list will also reduce corruption as in coming

up with the list of preferred suppliers a number of stakeholders

and cross functional teams will be involved.

Evaluation and selection of the right business partner/supplier

is very important for companies to create and increase

competitive advantages. This article demonstrates the

structured approach of AHP which can be used as a tool in

supplier evaluation to identify best-in-class suppliers and build

a ranking out of the defined criterion’s weight and the degree

of performance. AHP in supplier evaluation assures objective

results in team decisions which lead at the end to the selection

of the right business partner and minimizes in this way the

distress of pitfalls in a success-critical decision process such as

supplier evaluation. Therefore AHP represents a compatible

process in supplier evaluation to assure a clear, objective and

comprehensible evaluation. Meanwhile, proposed method has

some drawbacks as well. When a new potential supplier is

included in the system, the evaluation has to be restarted.

Furthermore development and evaluation of pair-wise

comparisons and illustration of the results are very time

consuming if no AHP software is used.

7 RECOMMENDATION

For building a better supplier relationship a good supplier

should select along which a company will go far. So, it is said

that, supplier selection is the first phase to build a better

supplier relationship.

In sugar industry, since, it does not select its supplier in a

proper way and hence experiences some difficulties and loss,

so a recommendation for supplier selection process for sugar

industry is proposed below.

7.1 Recommendation for Supplier Selection for

Sugar Industry

Since due to conventional supplier selection process sugar

industry is experienced some difficulties and loss so we

recommend a supplier selection model with AHP that will

select a best supplier from multiple suppliers with multiple

criteria and bring a better result than before. For selecting a

good supplier some proposed steps are shown in Fig. 8.

Fig. 8 Steps of proposed supplier selection model

For supplier selection a proposed structure of AHP is shown in

Fig. 9 to choose the best supplier from the available choices.

Fig. 9 Structure of AHP for supplier selection

Step 1: Calling for public tender

Step 2: Determination of key supplier selecting

and evaluation indicators.

Step 3: By using AHP method compute

weighted value of each suppliers.

Step 4: validation of result and finally select the

best supplier.

Choose the best supplier for

the company

Cost Quality Service Reliability Capacity

Goal Criterion

5

Suppliers

5

Suppliers

5

Suppliers

5

Suppliers

5

Suppliers

Alternatives

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 279

The estimated score of each supplier using AHP is shown in

Table 4 where the matrixes had consistency.

Table 4

Suppliers score

7.2 Integrating Supplier Selection and Supplier

Relationship

For obtaining a better performance an industry should build a

good relation with their supplier. Sugar industry does not

maintain a good relation with their supplier and hence face

some difficulties. So, sugar industry should build a good

relation with supplier by performing followings-

a. Should keep continuous communication with

supplier.

b. Should provide proper training about cultivation

process.

c. Should provide incentives for motivation.

d. May provide land for cultivation.

e. May provide superior seeds.

f. May provide one type of card which is helped to

get various facilities, for suppliers such as, loan,

compensation etc.

g. Should share information about upcoming

demand and relative price.

For better performance, an industry should be integrated

supplier selection with good supplier relationship management

as shown in Fig. 10.

Benefit comes from SRM guidelines and supplier selection for

both supplier and industry as shown is Table 5.

Fig. 10 Integration between supplier selection and supplier

relationship

Supplier scores

Supplier 1 0.059055

Supplier 2 0.169456

Supplier 3 0.159521

Supplier 4 0.254543

Supplier 5 0.429566

9. Providing laboratory facility to

suppliers.

Supplier selection

SRM

1. Informing about product or service,

ensure that what type of raw

materials are needed.

2. Informing about product demand so

that suppliers supply raw materials at

right time when they are need.

.

3. Informing about product quality so

that suppliers can supply raw

materials with best quality.

4. Having flexibility within suppliers so

that industry can adopt agile

manufacturing or adjust demand with

supply.

5. Grading supplier based on their

performance to get best quality raw

materials.

6. Providing training for cultivating raw

material and training allowance for

trainee, if possible.

7. Giving loan, seeds, disinfectants and

other necessary for cultivation.

8. Auditing supplier cultivation (if

problems are arising, those must be

solved).

10. Motivating supplier for continuous

improvement (award, prize,

remuneration, compensation etc.).

11. Providing proper payment to

suppliers.

Supplier Industry

M. S. Parvez IJSRM volume 1 issue 4 July 2013 [www.ijsrm.in] Page 280

Table 5

Benefits of supplier and industry

Guideline

no.

Supplier’s benefit Industry’s benefit

1 What types of raw

materials are needed

for industry is known.

Advertisement about

their products.

2 When raw materials

are needed is known.

Forecasting, scheduling,

ERP etc.

3 Raw materials quality

is known.

Ensure quality.

4 Increased supplier

competence.

Agile manufacturing,

adjust demand with

supply.

5 Supplier is concerned

about performance.

Increased product

quality,

competitiveness.

6-9 Getting training,

various benefits etc.

Increased fame,

advertisement,

communication with

suppliers.

10 Getting motivation. Increased fame,

advertisement,

communication with

suppliers.

11 Getting proper

payment.

Transparency about

Industry.

Supplier

selection

Known about raw

materials, quality,

order quantity, cost,

service etc.

Selecting best supplier.

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