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Journal of the Chinese Institute of Industrial Engineers

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MODELS FOR SUPPLY CHAIN VENDOR SELECTION IN EMARKETS

Sanchoy K. Das & Hossam Shahin
a a a

Dept. of Industrial & Manufacturing Engineering , New Jersey Institute of Technology , Newark, NJ, 07102 Published online: 15 Feb 2010.

To cite this article: Sanchoy K. Das & Hossam Shahin (2003) MODELS FOR SUPPLY CHAIN VENDOR SELECTION IN EMARKETS, Journal of the Chinese Institute of Industrial Engineers, 20:3, 231-239, DOI: 10.1080/10170660309509231 To link to this article: http://dx.doi.org/10.1080/10170660309509231

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Journal of the Chinese Institute of Industrial Engineers, Vol. 20, No. 3 pp. 231-239 (2003)

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MODELS FOR SUPPLY CHAIN VENDOR SELECTION IN E-MARKETS

Sanchoy K. Das* and Hossam Shahin Dept. of Industrial & Manufacturing Engineering New Jersey Institute of Technology, Newark, NJ 07102

ABSTRACT
One of the projected applications of internet technology, in the product manufacturing industry, is the procurement of parts from suppliers through E-Markets. In an E-Market the manufacturer or buyer and the supplier will be linked up through a web based electronic exchange, which acts as a cyber intermediary. The primary motivation for the evolution of this form of parts procurement is that the resulting disintermediation and global networking will significantly reduce procurement costs. More importantly, it is expected that less resourceful manufacturers will be able to establish effective supply chains in less time and less cost as compared to large global reach manufacturers. A key question in this proposition is how does the manufacturer identify candidate suppliers and then select the best set of suppliers from the proposals presented to it by the E-Market. In this paper we present first a schema for constructing an E-Market and second a model to support the supplier selection decision. The E-Market schema includes a description of the Vendor Performance History database, which is used to derive two key measures that can be used by the manufacturer to get an evaluation of the suppliers performance and thus build enough confidence to issue a supply order. An Intelligent Vendor Selection model that evaluates the submitted E-Market proposals and prescribes a supply strategy is also presented. This model is formulated as a mixed integer program which is solved with thin the E-Market negotiation template.

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Keywords: electronic marketplaces, supplier reliability, supplier selection

1. INTRODUCTION
One of the projected applications of internet technology, in the product manufacturing industry, is the procurement of parts from suppliers with whom the buyer or manufacturer has had only a virtual relationship. A virtual relationship implies that the buyer or his agent has not visited the suppliers facility, and conversely the supplier or his agent has not visited the buyers facilities. In these virtual relationships, the buyer and supplier are linked through a web based electronic marketplace (EMarket) or trading exchange. The E-Market acts as a cyber intermediary through which all negotiations and transactions between the buyer and supplier are conducted. The primary motivation for the evolution of this form of parts procurement is that the resulting disintermediation and global networking will significantly reduce procurement costs and eliminate distributor related mark-ups. More importantly, it is expected that less resourceful manufacturers will be able to establish effective supply chains in less time and less cost as compared to large global reach manufacturers. A key question

in this proposition is how does the manufacturer identify candidate suppliers and then select the best set of suppliers from the proposals presented to it by the E-Market. In this paper we present first, a schema for constructing an E-Market and second, a model to support the supplier selection decision. Modern day supply chains are a consequence of advances in information technology coupled with more efficient transportation networks. This enables the establishment of better communication between buyers and suppliers and the more cost effective movement of smaller loads in shorter times. This said, the operating environment of a production network has to a large extent remained unchanged and retains all of its associated risks and uncertainties. Decision makers must therefore cautiously evaluate potential suppliers and make intelligent choices. Managers must still plan to accommodate the uncertainties and variations that characterize the product demand process. In Figure 1 we introduce the typical flow process in the supply chain From Figure 1, we see that in addition to the physical flow of part components, the supplier and manufacturer are related by (i) A Supply Contract, and (ii) An Information Link. The supply contract is the key

Corresponding author: Das@admin.njit.edu

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INFORMATION LINK Production Orders Inventory Levels DISTRIBUTION CHAIN COMPONENT SUPPLIER PRODUCT MANUFACTURER Warehouses SUPPLY CONTRACT Order Quantity Unit Price Delivery Lead-time Quality Levels Technology Transfer Retail Points CUSTOMERS UNCERTAINITY & CHANGE Demand Quantity Demand Mix Retail Price

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Figure 1. The Supply Chain Flow Process

document, which defines the parameters within which the two parties are working with each other. Typically, this is a legally binding document, which is setup to protect the parties. The supply contract should be negotiated at the start of the relationship and should be drafted within the domain of the EMarket.The information link on the other hand, is the real time link between the supplier and the manufacturer. Using this link production orders, delivery dates, quality reports, inventory levels, and accounting data are transmitted between the parties. The reliability and utility of this information link is the key enabling technology, which has resulted in a significant increase in the number of supply chain relationships being established worldwide. The majority of supply chain management solutions are software solutions (e.g. SAP, i2), and thus assume a certain level of information technology infrastructure exists in all suppliers. The reality though is that there is a wide spectrum of capability levels in the supplier community. While all suppliers will have email and file transfer capability, the penetration of enterprise level computing solutions is not that widespread. In selecting suppliers therefore we need to project the impact of a specific suppliers information technology capability on the transaction costs.One of the prime utilities of a supply chain relationship is that a manufacturer is able to reduce pipeline inventory costs. Inventory on the other hand is a hedge against uncertainty. This in effect increases the production risks of the manufacturer. This requires that the manufacturer must have a certain level of confidence in the supplier, which arguably, can only be established through traditional means. On the other hand it is expected that

manufacturers will increasingly utilize E-Markets for outsourcing their part and assembly manufacturing needs. While traditionally supply chains have represented a long term established relationship between the OEM and all the upstream players, these E-market supply chains tend to be more short-term and with a limited relationship history between the players. In an E-Market the OEM specifies its requirements in the marketplace system. Typically, this would identify a series of macro manufacturing stages, such as, fabrication, assembly, etc. and a detailed list of specifications. Based on these requirements several suppliers will submit bids or proposals, on the basis of which the manufacturer makes a supplier selection decision. In this paper we first present a schema for constructing a valid E-Market. One of the key issues in E-Markets is providing some validity of the supplier track record. Our schema identifies and defines two key performance history measures to support the selection decision process. Next we present the Intelligent Vendor Selection (IVS) model as a decision support component of the E-Market schema. This is a mixed integer program which utilizes the two identified performance history measures and the supplier proposal data, to prescribe a supplier selection decision. An illustrative example is included. To provide some background research we begin the next section by providing a brief literature review of on supply chain management. In section 3 the E-Market schema is introduced, while in section 4 the IVS procedure is formulated.

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2.REVIEW OF SUPPLY CHAIN MANAGEMENT

There has recently been considerable research in the supply chain area, and we provide here a brief review of the related literature. Higginson and Alam (1997) address the aim of supply chain management and issues related to it. Seven issues are identified: inventory levels, quality, information sharing, number of suppliers, cycle times, commitment, and relationship. Harland (1996) observes that the concept of supply chain management (SCM) was first reported in the early 1980s as companies began efforts to integrate the different business functions associated with product manufacturing. Hinkkanen et al (1997) define SCM as a holistic approach for organizations to plan, design, control and facilitate the execution of all activities between material procurement to product distribution, with an objective of customer satisfaction. While customer satisfaction can be interpreted in a variety of ways, our research indicates that its primary dimensions are product cost, product quality and product availability. Most often an SCM strategy will result in better inventory control and consequently better cost and availability. A key in SCM therefore is the selection of suppliers who help the manufacturer meet its operational and strategic goals. Braglia and Petroni (2000) observe that the increased concern for supplier selection is motivated by the fact that supplier selection may be the single most important decision in the component procurement process. Purchasing managers need to evaluate periodically supplier performance in order to retain those suppliers who meet their requirements in terms of several performance criteria. Six attributes frequently used as performance criteria are identified and used in a study by Mummalaneni et al. (1996). These attributes are: on-time delivery, quality, price/cost targets, professionalism, responsiveness to customer needs and long term relationships with the purchasing company. At least two of these are directly addressed in this paper. Deng and Wortzel (1995) carried out an empirical study of the supplier selection criteria used by US importers in three merchandise categories. In all three categories, the most important criteria were price and product quality, followed closely by on-time delivery. Neither the geographical location of the seller nor the sellers brand name proved to be of importance in the supplier selection decision. The perceived importance of component price is arguable. As an example, Wilson (1994) found that price tends to be less important in the current practices of supplier selection criteria. Quality and service considerations tend to dominate price and

delivery criteria. Verma and Pullman (1998), on the other hand, point out that although managers say that quality is the most important attribute for the supplier, their actual supplier choice is based largely on cost and delivery performance. Furthermore, the importance placed on the different attributes was found to vary largely in accordance with the differing cultural aspects of society. Braglia and Petroni (2000) provide an alternative methodology to aid purchasing managers in identifying and selecting suppliers. Their methodology attempts to address the need for flexible models that are highly customized to meet an individual firms particular needs. A variety of past research has confirmed that supplier selection is a multi-attribute decision problem. For instance Weber et al (1991) in their review and classification of articles related to the criteria and analytic methods used in the supplier selection process, found that suppliers production facilities and capacity, geographical location, technological capability, management and organization, financial position and performance history were discussed in 9 percent of the articles respectively. More recently a survey conducted by Choi and Hartley (1996) confirmed the importance of these factors and emphasized the growing importance of buyer-seller relationships. Few papers have been published about the design of the suppliers relationships regarding vendor selection and evaluation. Lambert, Stock and Ellram (1998) describe one method on how to evaluate and compare several suppliers. The first step is to identify all potential suppliers. Second, determine the factors of relevance for each item and each company. Product reliability, price and order convenience are factors mentioned in their study as well as lead-time, on-time delivery performance, ability to expedite, price competitiveness, and post purchase service. Every supplier and every factor will be assigned a rating, 1-5 were 5 is the highest. Each factor will also be assigned a weight to determine the relative importance of the factors, 0-1 where higher is better. To make a comparison feasible, a weighted composite measure is developed by multiplying the rating of the factor with the weight. However, how to make the rating and the weight are not described in the paper. Tang et al (2001) present a conceptual model for interactive buyer supplier relationships in electronic commerce. They found that the information intermediary or E-Market will be a critical component of electronic commerce and will determine how relationships evolve.

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3. E-MARKETS AND SUPPLY CHAINS

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MANUFACTUR ER RFP SPECIFICATION DOCUMENT Specs Specs Material Part Specs Delivery

E-MARKET ENGINE SUPPLIER CAPABILITY DATABASE

SUPPLIERS SET OF INVITED SUPPLIERS

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SUPPLIER PERFORMANCE HISTORY DATABASE

PROPOSAL RESPONSE TO RFP Cost Details Quantity Constraints Inspection

SUPPLIER SELECTION DECISION

CONTRACT NEGOTIATION TEMPLATE

INTELLIGENT VENDOR SELECTION PROCEDURE

Figure 2. Scheme of Activities in a Typical E-Market An E-market may be defined as a highly efficient, collaborative hub that organizes complex business processes between multiple internal and external participants into a virtual commerce community (IBM-Ariba, 2000). A primary classification of E-Markets identifies horizontal and vertical markets. A horizontal E-market is organized is around a specific end-product manufacturer and typically is non-industry specific. A vertical E-market is organized around a commodity (e.g. semiconductors, plastics) or an industry (e.g., metal parts, hospitality). Our focus in this paper is primarily on horizontal E-markets. It is expected that these Emarkets will enable online sourcing, negotiations and other business transactions between manufacturers and suppliers. At the core of this online sourcing are auction based pricing models, which are expected to increase price competitiveness. Arguably, similar procurement strategies have been successfully deployed in the consumer products marketplace. As consequence several web services and software (e.g., Ariba, CommerceOne, FreeMarkets) are being established to facilitate internet based parts procurement, and experts project that 20% of all parts procurement will transition to this mode by 2005. Several schemas for building E-Markets have been proposed and implemented by software vendors. In our review we found the majority of these to be limited in their functional capability. Most have assumed that a conventional auction model can be directly applied to industrial vendor selection. As a consequence the majority of these models have either failed or had limited success. From a review of events that typically occur in the supplier search and selection process we have configured a schema for an E-Market. Figure 2 illustrates the proposed scheme and identifies the components in this schema. Our schema is based on the assumption that there are three participants in the E-Market: the manufacturer or buyer who is looking to establish a supply relationship for a part; the E-Market engine which is a virtual broker that facilitates the building of the relationship; and the suppliers who are prospects for getting the contract. The starting point for the selection process in this schema is the initiation of a Request for Proposals (RFP) which identifies the parts to be

Sanchoy K. Das and Hossam Shahin : Models for Supply Chain Vendor Selection in E-Markets supplied, and the process ends with the selection of a one or more vendors. The underlying assumption of an E-Market is that this process can be completed with little to know direct communication between the manufacturer and prospective suppliers. This is in contrast to the traditional process in which there would be considerable communication between the parties and possibly several site visits. There are several data and knowledge based components in our E-Market schema, these are designed to facilitate the selection process. The sequential position of these components is shown in figure 2. Below we provide a brief description of each component. (i) RFP Specification Document: Describes in detail exactly what is to be supplied and when. The documents must have sufficient clarity so that the supplier is able to interpret with confidence the deliverables. Sub sections of this document include part specs, delivery specs, and material specs. (ii) Supplier Capability Database: Characterizes the processing capabilities of the E-Market supplier community. Specifically, will include the range of production processes a supplier can perform, the tolerance and precision capability, and the order and product size that can be handled by a suppliers. This database will be used to select a set of suppliers who will develop proposals in response to a specific RFP. (iii) Proposal Response to RFP: Describes what the supplier is willing to offer or agree to, in its proposal to become the selected supplier. Specifically, it would identify the price/unit at which it would supply, any quantity discounts or constraints that are involved, and finally what inspection procedures it would implement to ensure an acceptable level of quality. The proposal must be sufficiently detailed to enable the manufacturer to make a complete assessment of the supplier and their offer. (iv) Supplier Performance History Database: Represents one of the key knowledge repositories in an E-Market. Since the manufacturer has only limited communication or first-hand experience with the supplier, he is dependent on the recorded performance history of the supplier. E-Markets are based on the assumption that as supply contracts are awarded and executed, the manufacturer will record their experiences both qualitatively and quantitatively. These assessments will then be made available to other manufacturers who are evaluating the supplier for possible contracts. Our research indicates that two key components of this database are as follows: Supplier Reliability Rating (SRR) Indicates the proportion of past deliveries by the supplier that were acceptable. An acceptable delivery being defined as one where the parts arrived on time, met the RFP specifications, and passed incoming quality control. The SRR is described in the 0 to 1 range and is aggregated over all supply contracts awarded through

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the E-Market from any manufacturer to a supplier. As an example, a SRR=0.87 would indicate that 87% of deliveries made by the supplier were acceptable. Information Connectivity Rating (ICR) Indicates to what extent the supplier has an existing infrastructure for establishing a communication link with the manufacturer. This infrastructure includes not only hardware considerations but also software compatibility for supply chain transactions, procedures for receipt and execution of supply orders, and platforms for supply chain discussions. The described in the 0 to 1 range, with an ICR=1.0 indicating that the supplier is fully ready and will require no additional information connectivity related investments. The ICR is derived from multiple attributes and aggregated over all supply contracts awarded through the E-Market from any manufacturer to a supplier. (v) Contract Negotiation Template: This is the workspace in which the manufacturer is able to perform an analytical comparison of the different supply proposals. This template should enable the manufacturer to do an analytical comparison of the different proposals. It must therefore include an Intelligent Vendor Selection (IVS) procedure which uses all the available data to devise a supply strategy. In section 4 we present a mixed integer programming based IVS procedure that attempts to optimize the net supply cost.

3.1. Determining SRR and ICR

On of the key conclusions of SCM research has been that the relationship quality between buyers and suppliers is a key determinant of success. Papers describing different relationship structures such as vertical integration, relational exchanges, and contractual include those by Dwyer et al (1987), Ellram (1991), and Harland (1996). SCM model builders are often interested in how to increase the information flow and goal commonality in these relationships. Gules and Burgess (1996) observe that even in established supply chains these relationships can be classified into two types: adversarial or collaborative. Using E-Markets to build supply chains therefore raises the interesting question of how such relationships can be established. Proponents of E-Markets will argue the needed information should collected and made available be the market. While we do not presume that all supply relationships can be established using E-Markets, we find that accurate SRR and ICR values can be used to build successful relationships. An accurate SRR and ICR are dependent though on manufacturers making the effort to record their experiences in the database. The two parameters are in a sense a reference for the suppliers. The availability of these two performance measures is

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Journal of the Chinese Institute of Industrial Engineers, Vol. 20, No. 3 (2003) successfully transmitted and incorporated in the suppliers information system in a timely manner. (iii) Email Response Rating (ERR) the fraction of email that were acknowledged and acted upon. We found that email is a primary mode of communication in supply chains, and lack of action was a common grievance among manufacturers. In the E-Market each manufacturer will record the above ratings for each supply contract they award. Tables 1 and 2 illustrate the format in which the collected data will be presented in the E-Market. For each supplier submitting a proposal the manufacturers can retrieve these records from the Supplier Performance History database. Since orders vary in size, the order significance is derived as the ratio between the dollar volume of the order and the total E-Market sales volume for the supplier. Let k=1,,P be the orders a supplier has processed through the E-Market and k the order significance. Then we can derive the performance measures for the supplier as follows: SRR = k { k ( 0.4DRk + 0.4QRk + 0.4MRk ) } ICR = k { k ( 0.3SURk + 0.4DTRk + 0.3ERRk ) } Note that the weight for each component is shown in Tables 1 and 2. Both measures are defined in the 0 to 1 scale, with a value equal to 1 indicating the best performing supplier.

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critical to the successful utilization of E-Markets, clearly in the absence of these a manufacturer is dependent only on price in making a supplier selection decision. For the proposed E-Market schema we expect to derive these values from the historical data collected. We surveyed several individuals involved in the supplier selection process at large and medium sized companies. In addition we had the opportunity to review vendor evaluation documents at some of the companies. Based on this information we devised a measurement process for SRR and ICR. From polling potential E-Market users we concluded that users will be reluctant to record data if it requires considerable effort. We thus limit each measure to three components. SRR is derived as a function of three components. (i) Delivery Rating (DR) which is the fraction of delivered units which were on time. A score of 0.98 indicates that 2% of the total order arrived after the requested delivery date. (ii) Quality Rating (QR) which is the fraction of units which did not pass incoming or in-process quality control. (iii) Material Rating (MR) which is the fraction of units that did not material specifications. These would be specifications that are not typically part of the quality control process. ICR is also derived as a function of three components. (i) Status Update Rating (SUR) the extent to which the supplier provides electronic updates and reports on the progress of pending orders. A score of 1.0 would indicate a fully satisfied condition. (ii) Data Transfer Rating (DTR) the fraction of orders and other transaction data that were

Table 1. Supplier Reliability Rating Summary Table

Supplier: Vidalia Molders Manufacturer 1. Smith & Hawken Industries 2. Zebra Technologies 3. QualMed Devices Order Date 8/15/200 2/12/2000 3/10/2001 Order Size ($M) 1.25 0.75 0.60 Order Significance 0.48 0.29 0.23 Total E-Market Sales Volume = $ 2.6 Million Delivery Rating (40%) 0.98 0.84 0.74 Quality Rating (40%) 0.92 0.97 0.96 Material Rating (20%) 1.0 0.96 1.0

Table 2. Information Connectivity Rating (ICR) Summary Table

Supplier: Vidalia Molders Order Size ($M) 1.25 0.75 0.60 Order Significance 0.48 0.29 0.23 Total E-Market Sales Volume = $ 2.6 Million Status Update Rating (30%) 0.43 0.20 0.35 Data Transfer Rating (40%) 0.86 0.97 0.95 Email Response Rating (30%) 1.0 0.65 0.85

Manufacturer

Order Date

1. Smith & Hawken Industries 2. Zebra Technologies 3. QualMed Devices

8/15/200 2/12/2000 3/10/2001

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4. THE INTELLIGENT VENDOR SELECTION MODEL

The IVS model evaluates the submitted proposals against the supplier performance history to prescribe the best supply allocation strategy. The model is formulated as a mixed integer program. We consider the case where the manufacturer is looking to establish a supply chain for a known part, to j=1,,M different facilities. For each facility the expected monthly demand is known, and we do not consider any uncertainties. The manufacturer also has an estimate of the time to make each unit; this is then used to estimate the production capacity of each competing supplier. The RFP is processed through the E-Market and proposals from i=1,N suppliers are received. We introduce the model elements next: Parameters
Dj Ri SRRi ICRi Costs Q Uij Monthly part demand at facility j Monthly part production capacity of supplier i Reliability rating of supplier i Information capability rating of supplier i

information capital costs are prorated for the fraction of the total order going to a supplier, since one can assume that for a supplier with a low allocated volume a proportionate capital will be expended. Ideally, though, when there is a dominant supplier with sufficient capacity then only a single supplier will be selected. The reliability rating is used to compute the expected number of units which have to be reprocessed and the associated cost. The IVS model constraints are as follows:

i Xij > Dj
(2)

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j Xij < ( i Ri)

(3)

{ + (1 ICR ) ( X
i i i j

ij

) ( D )} < Q
j j

(4) Constraint (2) ensures that the demand requirements are met while constraint (3) ensures the production capacity of a supplier is not exceeded. Constraint (4) ensures that the capital budget of the manufacturer is not exceeded. The above model is easily solved with a software solver.

Capital expenditure limits for establishing this supply chain Incremental capital cost for each supplier added to the chain Reprocessing and delay costs for a unit of unreliable supply Capital cost to compensate for the information capability of a supplier Proposed supply price from a supplier to each facility

5. AN ILLUSTRATIVE EXAMPLE
To illustrate the working of the IVS model we consider the case where a manufacturer submits a RFP for the supply of a part to 3 of its facilities. The manufacturers RFP demand data for the example is D1= 50, D2= 100, and D3= 134. The manufacturer estimates that for the planned supply chain, =$500, = $2 and = $1200. The capital budget limit for this supply contract is Q=$1500. The E-Market processes the RFP and invites three suppliers, and all three submit proposals in response. Tables 3 and 4 provide data about each supplier and the submitted proposals
Table 3. Supplier Data for the Example
Supplier # (i) 1 Production Capacity (Ri) 67 SRR ICR

ii

Decision Variables Supplier i is selected to join the supply chain (Binary 0-1) Xij Quantity shipped by supplier i to facility j

In formulating the objective function we look at a 12 month horizon. The objective then is to minimize the sum of the capital costs, the unit price costs, and the costs to compensate for unreliability. It is therefore formulated as:

( X ) ( D )} +12 {U X } + { (1 SRR ) ( X )}
Minimize : i i + (1 ICRi )
i j ij ij i j ij j j i j ij

0.89

0.76

(1) The model assumes that more than one more supplier can be selected if economical. This enables the model to hedge a low reliability low cost supplier against a high reliability high cost supplier. The

317

0.98

0.96

380

0.92

0.81

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Table 4. Supplier Proposal Details

Supply Price/Unit to Each Facility (Uij)

Table 6. Selection Decisions as a Function of Capital Costs

Supplier Selected Expt Supply Cost $ 19094 $ 18932 $ 18774 $ 18774 i=1 NO NO YES YES i=2 YES NO NO NO i=3 NO YES YES NO

Supplier #

j=1

j=1

j=3 Q=600

1 2 3

$ 4.50 $ 5.25 $ 5.00

$ 4.25 $ 5.25 $ 5.15

$ 4.75 Q=1200 $ 5.60 Q=1500 $ 5.30 Q=1800

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From Table 3 we see that supplier-2 is the best in terms of its past performance and should be the choice if supply prices are the same. In Table 4 the prices differences within a supplier indicate the difference in shipping costs to the various facilities. From Table 4 we see though that supplier-2 has the highest unit price, while supplier-1 has prices that are 10-15% lower. The manufacturer can now use the IVS to derive a solution. The results are shown in Table 5. Two suppliers were selected and the net supply cost is $18774 including capital costs of $1243. The model did not select supplier-2 but rather recommended that the available capital be expended to account for the information technology capability of the other two vendors. Tables 4 and 5 can be used as basis for negotiating with supplier-2. Target unit prices can be derived from this data and forwarded to supplier-2. The manufacturer can argue that it is willing to pay a premium price to supplier-2 as long as it is offset by the capital savings. In Table 6 we examine the sensitivity of the IVS decisions to capital constraints. When Q=$600 then we see that supplier-2 is the choice since it requires little upfront capital and therefore less risk. Similarly in Table 7 we examine the decision sensitivity to increases in . If we assume that our original estimate needs to be modified. Clearly, as b increases the capital costs are going to increase making the more capable supplier the choice. Table 5. IVS Solution for the Base Example
Supply Quantity (Xij) Supplier # 1 2 3 j=1 0 0 50 j=1 67 0 33 j=3 0 0 133

Table 7.Selection Decisions as a Function of

Supplier Selected Expt =1200 =2000 =4000 =5000 Supply Cost $ 18932 $ 19064 $ 19206 $ 19246 i=1 NO YES NO NO i=2 NO YES YES YES i=3 YES NO NO NO

6. SUMMARY
E-Markets provide an attractive and economical medium for developing supply chain relationships. These E-Market relationships are virtual in nature, implying that the manufacturer has not visited the suppliers facility, and conversely the supplier or his agent has not visited the buyers facilities. Thus on a confidence level they are handicapped when compared to traditional modes of building supply relationships. While we do not foresee large multi-year multi-million dollar relationships being established through an E-Market, we foresee considerable potential where shorter duration and sub half million dollar supply contracts are needed. For E-Markets to be successful even in these categories, there is a need for methods which provide confidence and support to the buyer in making selection decisions. In this paper we presented first, a schema for constructing an E-Market and second, a model to support the supplier selection decision. The E-Market schema includes a description of the Vendor Performance History database. This database is used to derive two key measures that help the manufacturer to get an evaluation of the suppliers performance and thus build enough confidence to

Sanchoy K. Das and Hossam Shahin : Models for Supply Chain Vendor Selection in E-Markets issue a supply order. The proposed schema also includes an Intelligent Vendor Selection model that evaluates the submitted E-Market proposals and prescribes a supply strategy. This model is formulated as a mixed integer program which is solved within the E-Market negotiation template. The IVS model utilizes the performance history database to makes its decisions. Clearly, several other factors are involved in the supplier selection decision, and the proposed model is intended to support the comprehensive selection process.

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11. Lambert, D., Stock, J. and Ellram, L., Fundamentals of Logistics Management, Irwin/McGraw-Hill, New York(1998) 12. Mummalaneni, V., K.M. Dubas, and C. Chao, Chinese Purchasing Managers Preferences in Supplier Selection, Industrial Marketing Management,25(2), 115-124(1996) 13. Tang, J.E., D.Y. Shee and T. Tang, A Conceptual Model for Buyer-Supplier Relationship in Electronic Commerce, Intl. Journal of Information Mgmt.,21, 4968 (2001) 14. Verma, R. and M.E. Pullman, An Analysis of the Supplier Selection Process, Omega,26(6),739-750 (1998) 15. Weber, C.A., J.R. Currant, and W.C. Benton, Vendor Selection Criteria and Methods, European Journal of Operational Research,50, 2-18(1991) 16. Wilson, E.J., The Relative Importance of Supplier Selection Criteria: A Review and Update, International Journal of Purchasing & Materials Management,30(3), 35-41(1994)

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1. Braglia, M. and A. Petroni, A Quality-Assurance Oriented Methodology for Handling Trade-offs in Supplier Selection, International Journal of Physical Distribution & Logistics, 30(2), 96-111(2000) 2. Choi, T.Y. and J.L. Hartley, An Exploration of Supplier Selection Practices Across the Supply Chain, Journal of Operations Management,14,333-343 (1996) 3. Deng, S. and L.H. Wortzel, Importer Purchase Behavior Guideline for Asian Exporters, Journal of Business Research, 32(1), 41-47 (1995) 4. Dwyer, R.F., P.H. Schurr, and S. Oh, Developing Buyer-Seller Relationship, Journal of Marketing, 51(2), 11-27, (1987) 5. Ellram, L.M., Supply Chain Management: the industrial organization perspective, Intl. Journal of Physical Distribution & Logistics Mgmt., 21(1), 13-22 (1991) 6. Gules, H.K. and T.F. Burgess, Manufacturing Technology and the Supply Chain, European Journal of Purchasing & Supply Mgmt., 2(1), 31-38(1996) 7. Harland, C.M., Supply Chain Management: Relationships, Chains, Networks, British Journal of Management,7, 63-80(1996) 8. Hinkkanen, A. et al, Distributed Decision Support Systems for Real time Supply Chain Management, in Readings in Electronic Commerce, R. Kalkota and A.B. Whinston (editors), Addison-Wesley, 275-291(1997) 9. Higginson, J.K. and A. Alam, Supply Chain Management Techniques in Medium to Small Manufacturing Firms, International Journal of Logistics Management, 8(2),(1997) 10. IBM-Ariba, B2B E-Marketplaces: A CEOs Perspective, IBM-i2-Ariba White paper series, www.ibm-i2-ariba.com(2000)

ABOUT THE AUTHORS

Sanchoy K. Das is a Professor in the Department of Industrial & Manufacturing Engineering, at New Jersey Institute of Technology. He received his Ph.D. in Industrial Engineering and Operations Research from Virginia Tech. His research interests are in the areas of design for manufacturability, product demanufacturing, and supply chain modelling. His research has been funded by several companies and organization including the National Science Foundation and US Army. He is a recipient of the Outstanding Young Manufacturing Engineer award from the Society of Manufacturing Engineers, and the Outstanding Doctoral Dissertation Award from the Institute of Industrial Engineers. His research has been published in a variety of journals including the International Journal of Production Research, International Journal of Production Economics, and the Journal of Flexible Manufacturing Systems. Hossam Shahin is an industrial engineer with an expertise in manufacturing systems analysis and modeling. He received his MS in Industrial Engineering from the New Jersey Institute of Technology.