Improving the supplier selection criteria of Global Home company in Vietnam

TR NG IH CM i UNIVERSITÉ LIBRE DE BRUXELLES TP HCM HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB4 TON NU DIEU TRAM IMPROVING THE SUPPLIER SELECTION CRITERIA OF GLOBAL HOME COMPANY IN VIETNAM MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART-TIME) Tutor’s Name: Dr TRINH THUY ANH Ho Chi Minh City (2011) ii COMMITMENT I hereby committed that the thesis content was prepared and written by myself with information obtained from reliable sources for the partial fulfillment of the requirement for the degree of Master in Business Administration program Ho Chi Minh City, February, 2012 Ton Nu Dieu Tram iii ACKNOWLEDGEMENT First of all, I would like to express my deepest gratitude to Dr TR NH THÙY ANH who gave me a lot of valuable comments and guidance during this thesis Secondly, I would like to express my sincere acknowledgement to Belgian professors from Solvay Brussels School of Economics and Management who taught me not only valuable knowledge and experiences on business administration but also analytical, creative thinking and professional working methods I appreciate all Vietnamese professors from Ho Chi Minh City Open University who transfer me knowledge, experiences and spirit which guided me during this program I also would like to thank Mr Serge Bywalski, Ms Hien and Ms Ha – program coordinators for their supports My deepest appreciation to my colleague in helping me collecting information And my heartiest gratitude to my parents in supporting me I also thanks to the company suppliers who have given me their advices and dedication for the thesis research I thank to my MBAVB4 classmates for the great exchange both knowledge and experience during the course Your contributions are great encouragement for me to write the thesis Thank you very much iv ABSTRACT Vietnam has been developing rapidly With an existing global demand for lower cost furniture and other wood products, an abundant and inexpensive, skilful labor supply, industrial wage structures, infrastructure in place and easy access to global shipping and sourcing of materials and supplies, the prospects of the Vietnamese furniture industry look promising Global Home is one of the hundreds foreign company realized the strength for the wood processing industry in Vietnam, come to Ho Chi Minh in 2007, ordering from manufactures and has shipped more than 40foot Containers per month Global Home has worked with more than 20 suppliers but at the end of 2011 Global Home has just more than ten suppliers The company continuously replaced their suppliers because those factories were late in delivery with a lot of defective goods At this moment company is facing a lot of issue such as lack of capacity and substandard quality control due to the suppliers are not goods as requested Global Home are now aware that supplier selection is one of the most crucial activities performed by the organizations because of its strategic importance And vendor selection decisions are complicated by the fact that various criteria must be considered in the decision making process For the stable growth, Global Home must improve its criteria in selection suppliers as soon as possible This study is about analyzing all the problems with company’s suppliers and discussing about the origin of them With the literature review and the advices from the experts, the study recommended that supplier selection criteria must considers multi factors such as Prices,Quality,Delivery, Warranties and claim policies, Reliability of Vendor, Experience of the Vendor, Assets/ Facilities, Operation Control Global Home also should create the manufacturing and supply agreement to legally control its suppliers with penalty clause In addition the study suggested that Global Home should give the marks for its suppliers every months and have solutions for the worst suppliers soonest v TABLE OF CONTENTS COMMITMENT ii ACKNOWLEDGEMENT iii TUTOR’S COMMENT .Error! Bookmark not defined ABSTRACT iv TABLE OF CONTENTS v ABBREVIATION viii LIST OF FIGURES ix LIST OF TABLES .x CHAPTER I – PROJECT OVERVIEW 1.1 1.2 The research objective 1.3 Scope of the study 1.4 Methodology 1.5 Introduction Structure of the project: CHAPTER II - INTRODUCTION ABOUT GLOBAL HOME 2.1 Organization: 2.2 Products 2.3 Markets and customers: 2.4 Targeting for the year 2012 vi 2.5 Global Home’s suppliers - the year 2011 2.6 Current criteria in selection a suppliers 2.7 The procedure to select a vendor 2.8 Advantage and Disadvantage for the current criteria in selection vendor 10 2.8.1 Advantage: 10 2.8.2 Disadvantage: 11 2.9 SWOT of the current criteria in selection suppliers of Global Home : 11 CHAPTER III – LITERATURE REVIEW .13 3.1 Outsourcing 13 3.2 Supply chain 14 3.3 Vendor selection criteria 15 3.3.1 3.3.2 Weber’s supplier evaluation criteria: 18 3.3.3 Vendor Selection Using Analytical Hierarchy Process 21 3.3.4 Dickson’s Supplier Evaluation Criteria .15 Strategic element of outsourcing 24 CHAPTER IV- RESEARCH METHODOLOGY 27 4.1 Research Methodology: 27 4.2 Type of Research 27 4.3 Data collection 28 4.4 The Criteria are suitable to be applied for Global Home company .28 CHAPTER V: ANALYZING THE REAL SITUATION OF GLOBAL HOME CRITERIA IN SELECTION ITS SUPPLIERS 32 5.1 Problematic factories 2011 32 5.2 Problems facing: 34 vii 5.2.1 Late in delivery: 34 5.2.2 Bad Quality control: 36 5.2.3 Lost in Turnover: 39 5.2.4 The factories stop working with us after the first orders .41 5.3 Global Home and Its suppliers: 42 5.3.1 Global Home suppliers – Type of Business 42 5.3.2 Global Home suppliers- Capacity and realistic capacity: .43 5.3.3 Cubic Metter Prices: 45 5.3.4 Global Home’s suppliers .47 5.4 Ranking Global Home’s Suppliers .48 CHAPTER VI- CONCLUSION AND RECOMMENDATION .52 6.1 Conclusion 52 6.2 Recommendation 53 6.2.1 Criteria: 53 6.2.2 Prices & Prices for Cubic Meter woods 53 6.2.3 Manufacturing & Supply Agreement: 54 6.2.4 Ranking Global Home suppliers every months 56 viii ABBREVIATION FOB: Free On Board BOM: Bill of Materials CBM : Cubic Metter UK: United Kingdom MCDM: Multiple Criteria Decision Making CSCMP : Council of Supply Chain Management Professionals AHP: Analytical Hierarchy Process QC: Quality Control GH : Global Home Company KV : Khai Vy factory MT: Minh Tien Factory SDC: Sai Gon Development Corporation VM: Viet My Factory VP : Viet Phat Facatory ix LIST OF FIGURES Figure 2.1.1: Global Home Organization Figure 2.3.1 Global Home target market 2011-2012 Figure 2.5.1 Global Home’s Suppliers in Oct, 2011 Figure 3.3.3.1 The various criterial that are important for vendor selection .21 Figure 5.3.1.1 Suppliers - Type of Business and location 43 Figure 5.3.2.1 The percentage of the capacity factories could not make 44 Figure 5.3.3.1 Factories’ ideas - Global Home BOM & CBM 46 Figure 5.3.4.1 The reasons factories want to be Global Home’s suppliers 47 Figure 5.4.2 Factory spread sheet – 2012 48 x LIST OF TABLES Table 3.3.1.1 Dickson’s Supplier Evaluation Criteria .16 Table 3.3.2.1 Weber’s Supplier Evaluation Criteria 20 Table 3.3.3.2 The Average Matrix for the Criteria of Vendor Selection 22 Table 3.3.3.3 The Priority Matrix for the Criteria of Vendor Selection 23 Table 3.3.5.1 Criteria that are suitable for Global Home and Their Weights 30 Table 5.2.1.1 Sai Gon Development Corporation ( SDC) late in delivery 34 Table 5.2.1.2 Minh Tien factory (MT) late in delivery .34 Table 5.2.1.3 Khai Vy factory (KV) late in delivery: 34 Table 5.2.2.1 Defective items ratio from July to Dec 2011 36 Table 5.2.2.2 Last inspection for Montreal range 16 November 2011 37 Table 5.2.2.3 Fault per factory From July 2011 to Dec 2011 37 Table 5.2.2.4 Average ratio of defective products from July 2011 to Dec 2011 39 Table 5.2.3.1 Global Home Lost in Turnover in 2011 .39 Table 5.3.2.1 Capacity and realistic capacity: 43 Table 5.4.1 Criteria that are suitable for Global Home and Their Weights 48 Table 5.4.2 Global Home suppliers 2012 , ranking 51 55 delivery, but it is should not be too much that factory is not dare to work for global Home The Penalty term should be If Supplier delays the delivery of the Product under an Order and relevant provisions hereof, for each late Order, Supplier shall be imposed a fine at the following rate subject to Global Home’s discretion, as follows: i) 5% of the total value of the rest undelivered goods, for late more 14 days but not exceeding 20 days; and ii) additionally 2% of the total value of the rest undelivered goods, for late more 20 days but not exceeding 30 days; and iii) additionally 3% of the total value of the rest undelivered goods, for late 30 days but not exceeding 45 days, and iv) Additionally 5% of the total value of the rest undelivered goods, for late more than 45 days v) The maximum total penalty therefore is 15% of the order value Nevertheless the said fine, Global Home has the right to cancel the delayed Order if such delivery of the Product is delayed more than 30 days; and Global Home also have the right, by its discretion, to terminate the Agreement subject to Supplier’s breaching level 6.2.3.2 Manufacturing & Supply Agreement: In Ho Chi Minh , there is not much profession manufacture company that Global Home could work with because Global home is has their own working way which is effectively for its orientation With price focus, Global Home normally approach small or medium private company However to control its suppliers Global Home must have goods 56 agreement and its suppliers must follows otherwise if they break the agreement they have to face the consequences With such thinking, Global Home should hide a very good lawyer company to make an official manufacturing and supply agreement The agreement should have the term of deposit, term of delivery, Payment, quality control, factory obligation, and penalty for late deliver and infringement of Intellectual Property Rights,…The agreement should be an legal documents however it should be very simple , enough but maximum pages and must be very easy to understand 6.2.4 Ranking Global Home suppliers every months For 2012 sourcing, Global Home must consider the eight criteria above and after six months, Global Home should check again the current suppliers, give marks to the supplier basing on each criterion weight and re-rank the suppliers The worst supplier in each period be replaced otherwise Global Home should take an proper action to improve the supplier as soon as possible 57 REFERENCES Weber, C A., Current, J R., & Benton, W C (1991), “Vendor selection criteria and Methods”, European Journal of Operational Research Steve Simonson, Partner (2005), “Uncover the hidden benefits of Outshourcing”, Tompkins Associates Hine (2004), “Supply chain stratergies: Customer driven and customer focused.”, Oxford Elsevier S Kumar, N Parashar, A Haleem (2009), “Analytical Hierarchy Process Applied to Vendor Selection Problem”, Business Intelligence Journal Kemal Guven Gulen (2007), “Supplier selection and outsourcing strategies in supply chain management”, Journal of Aeronautics and Space Technologies June 2007 Volume Number 2(1-6) 58 APPENDICES Appendix 1: BOM BILL OF MATERIALS - B NG NGUYÊN V T Li U RANGE WINCHESTER ITEM BLANKET BOX ITEM CODE Product Size - Kich Th c S n Ph m Wood - G Packing/ óng Gói : : ACACIA WOOD/MDFV ACACIA Packing Size - Kích Th 900W x 450D x 450H WxDxH TT CHI TI T KÍCH TH C Dimension (mm) M ng S l No Descriptions Dày R ng Dài Thick Width Length Tenon Quantity A B 10 11 C 12 13 14 15 16 D 17 18 19 20 E 21 22 23 C M NĨC - TOP BOARD Khung - Top frame 940 TH TÍCH Volume (m3) ng Acacia outside 35 35 25 25 50 50 25 30 410 900 450 800 375 820 1 20 20 ngang hông - Side moulding 20 Ván hông - Side panel Mi ng ghép chân - False 30 30 M T TR C - FRONT COMPONENT Chân - leg 20 ngang m t ti n - Front hor rail 20 20 ng - Vertical Bar 20 Ván m t tr c- Panel 12 C M SAU - BACK ngang - Hor rail 20 20 ng - Ver rail 20 Ván h u - Back panel ÁY - BOTTOM Ván áy - bottom panel áy - bottom support 20 20 C ng - TOTAL 50 37 50 345 30 50 415 415 325 280 55 55 2 2 415 750 750 265 285 1 810 810 280 360 379 20 20 810 810 339 Summarize Acacia outside Acacia internal MDF veneer acacia 9mm MDF veneer acacia 6mm Plywood T.3mm TOTAL Ngày - Date : 09/01/2012 L p bi u - Prepared ng Ng c Ng Unit Price 1450 1000 1424 1685 800 40 40 40 30 30 30 30 Plywood T.3mm 0.000500 0.000281 0.003026 0.001159 0.02176 Cost 16.2560 3.6301 4.3087 5.0569 0.7171 29.97 Area (m2) Note A/B 0.000896 0.119600 0.085200 0.032200 0.604740 0.00090 0.628248 0.131200 0.083760 4.52581 0.001842 Note 0.000648 0.000407 0.00363 0.00303 0.23 Ghi 0.120200 0.080200 0.136900 0.043300 0.453240 0.000840 0.000504 0.000186 0.01121 Quantity m3 0.01121 0.00363 0.00303 0.00300 0.00090 CBM (M3) 490 0.120200 0.097580 0.212400 0.401400 0.016800 0.023600 0.000099 0.000165 1 1 490 0.156500 0.160000 0.081250 0.042750 0.694540 MDFV Acacia 0.000830 0.000474 0.001027 0.000295 0.002531 50 30 30 830 MDFV Acacia 0.000830 0.000614 0.001460 50 30 65 50 370 Acacia internal c óng Gói Di n tích 0.001575 0.001575 - Top support Ván - Top panel C M HƠNG - SIDE BOARD Chân - leg SET UP (SU) / RÁP CH T 803 0.00300 A/B 59 Appendix : AGREEMENT FOR COOPERATION WITH GLOBAL HOME 2011 AGREEMENT FOR COOPERATION WITH GLOBAL HOME This agreement specifies the way Global Home operates in Vietnam All factories who produce for Global Home agree to adhere to the principles set out in this agreement 1) INTELLECTUAL PROPERTY RIGHTS All furniture is designed by and specified by the Global Home Design Team and Technical Staff All intellectual property right belong to Global Home Under no circumstances will the factory produce any design made for Global Home for any third party, both during the working relationship with Global Home or any time after the termination of this relationship 2) DRAWINGS AND BILLS OF MATERIALS These are provided by Global Home and form the basis of all production and pricing agreements Any change of these will need the written agreement of Global Home, PRIOR to the change being implied 3) DELIVERIES All furniture to be delivered to the Global Home Central warehouse in Vietnam, unless otherwise requested by Global Home Exceptionally we might request FOB The factory in case of delivery to the warehouse pays for export clearance and fumigation Details from the forwarders 4) PACKAGING According to the Global Home specifications, see attachment 5) QUALITY CONTROL To be carried out by the Global Home QC team We will check in stages of production: parts/assembly, finishing, hardware/packaging The factory will cooperate fully with the QC team, granting them access to all parts of the production Without QC approval NOTHING can leave the factory QC manuals specifying the required quality will be agreed between Global Home and the factory and will determine the required standard 6) PRICES These are all based on to be agreed M3 or M2 prices for COMPLETELY FINISHED, PACKAGED AND DELIVERED GOODS, and strictly based on the agreed BOM and the agreed quality 7) DEPOSIT Global Home will pay a (amount to be agreed, however never exceeding $ 20.000) deposit This deposit will remain with the factory for the duration of the relationship Global Home will pay for all deliveries in full The deposit will be deducted from the final order 60 8) PAPERWORK All deliveries must be booked in with our warehouse and can take place after approval All deliveries must have complete paperwork for export purposes as specified by Vietnamese law The invoice must be I the name of Global Home, must be in English, must contain a date, a sequential identification number, the range code, the item number, the order number, the agreed price 9) PAYMENT Global Home pays via bank transfer every Monday for all goods delivered and completed until Thursday 10 days prior Deliveries that arrive later than Thursday will be paid the next Monday We will only process completed deliveries and all paperwork must contain the required details 10) ORDERS Will be placed via e mail We expect your confirmation within working days 11) DELIVERY TIME As agreed between the factory and Global Home Once agreed the factory should adhere strictly to the agreed term In case of delays of 30 days or more Global Home preserves the right to cancel orders Global Home can in that case claim damages from the factory of 30% of the order value 12) CONFIDENTIALITY All information related to this agreement, our orders and prices, designs, boms and working method are strictly confidential between the factory and Global home 13) JUNIOR WORKER: Global Home shall only agree factory to use the employees over the age of sixteen years However the workers who work with dangerous machines must be over 18 years old All changes to these terms can only be agreed in writing From Global Homes side only Otto de Jager can agree changes We, (factory name, address) , have read and understood these terms and agree that we will strictly adhere to this agreement 61 Appendix : Factory profile FACTORY PROFILE Date of Input 26-Mar-11 Made by Thanh COMPANY GENERAL Name of Company MINH TIEN IMPORT EXPORT PRODUCTION Address Hamlet 3A, Khanh Binh, Tan Uyen, Binh Duong Tel: 0650 3775 045 Fax: 0650 3652 909 Home Page www.minhtien.com.vn Director Contact Person Mobile Phone Ms Van USD Capital Year of Established e-mail 0937 730 609 Mobile Phone longvan.mtc@minhtien.com.vn e-mail VND 2005 Business Status State-owned Business Type Manufacturer Private-owned Exporter Joint-stock VIETNAMESE Country of Origin Importer Number of Staff Number of Worker 400 BUSINESS USD Annual Sales Amount Selling Maket County VND % of its buisiness Major Customer Major Customer Major Material Major Material Oak Ash Other Customers Japan United States 40.0% Europe (UK) Europe Asia ; local 60.0% PRODUCTS Products Major Products % of its buisiness BED, DINING, Other Materials Rubber wood, Yellow Balau… CABINET Painting AC PU NC UV OIL Direct paint Special Techniques or Skills FACTORY Factory Location (Province) SQM (M2) Binh Duong 34,000 60 Lead Time (days) Minimum Order Quantity OTHERS Terms of Payment ISO, SA REMARKS (If you have any) L/C T/T Remittance Others 35 per 40FT Average shipment Prod Capacity (40FT) per month Special equipment, Machines Products As aboved mentioned UV painting line 20 40FT per month 62 Appendix 4: Questionnaire for Experts Dear Valued Partners, We are Global Home; we are implementing a program of researching and restructuring our supplier system and would appreciate your response on the attached questionnaire Please note that we take this survey only for the purpose of improving our supplying system All information we collected is confidential and will not be used or released for any other purpose You have only 15 marks to give for the below criteria Marks It is extremly important It is very important It is fairly important It s good to have but not important No need Please be so kind to give the marks for each criterion that you think it is suitable for Global Home to select its supplier, the total marks should not excess 15 Thanks so much for your kind supports CRITERIA Quality Delivery Performance History Warranties and claim policies Production facilities Net Price Technical capability Financial position Procedural compliance Communication system Mark 63 Reputation and position in the industry Desire to the business Management and organization Operating control Production facilities&cap Geographical location Technical capabilities Management & Organization Reputation & industry position Financial Position Performance History Reliability of the Vendor Quality of the Product V The Experience of the Vendor in the same field Thank you so much for your time 64 Appendix 5: Questionnaire for Global Home suppliers Questionnaire for Global Home’s supplier Dear our valued suppliers, We are implementing a program of researching and restructuring our supplier system and would appreciate your response on the attached questionnaire Please note that we take this survey only for the purpose of improving our supplying system All information we collected is confidential and will not be used or released for any other purpose What kind of your company a Vietnamese private company b 100% foreign invested c States owned company d Joint Venture company e Other Your company location: a Ho Chi Minh city b In the South but not HCMC c Middle of Vietnam d North of Vietnam e Other Your company’s capacity a 5- 10 containers per month b 10-20 containers per month c 20-30 containers per month d 30-40 containers e Other Your company total asset value a Under 100.000 USD b 100.000 USD – 200.000USD c More than 200.000 USD How you evaluate your company growth a Similar as previous years b Higher than previous years c Lower than previous years 65 What is your main material a Pine b Oak c Acacia d Ash e Others What you think about Prices basing on Cubic Metter and Bill of Materials principle that Global Home using to set up the prices for factory a Fair b Not Fair c Good d Not agree Why :…………………………………………………………………………………………… ………………………… What you think about the FOB delivery at Bonded warehouse a It is less expensive than FOB b It is more expensive than FOB c It is more complicated than FOB d It is less complicated than FOB e It is more simple than FOB f It is less simple than FOB Others idea: ………………………………………………………………………………………… What you think about prices you sell for Global Home a Loss 66 b High margin c Low margin d Not have any margin 10 What think about Global Home payment term: e Fair f Not fair , but acceptable g Good h Not agree Why………………………………………………………………………………………… 11 What you think about Global Home Quality control staffs who stay at your factory and inspect 100% goods a It may delay in delivery b It help to speed up the delivery c It help factory to control the quality d it is not necessary 12 What is the main reason that you might late in delivery for Global Home a Not enough worker b Power cut c Material not arrive as planed d Global Home staffs are not support factory well e Never Late f Others :……………………………………………………………… 13 Why you want to be Global Home’s Supplier a Price is Good 67 b The payment is good c The origination is good d The deposit good e Stable order f Others: ……………………………………………………… 68 Appendix 6: Ranking Global Home’s Suppliers 2012 WeightTT Mark HP Mark GV Mark DL Mark KM Mark RB Mark VH Mark KN Mark PH Mark TD Mark Prices(foreachCubicMetterof 23% Wooden Material) 20% Quality 22% Delivery Warranties and claim policies 10% Reliability of the Vendor 9% Experience of the Vendor 6% 6% Assets/ Facilities 4% Operation control 0.701 0.935 0.935 0.935 0.234 1.168 0.701 1.168 1.168 0.701 0.589 0.981 0.589 0.393 0.393 0.981 0.981 0.785 0.589 0.785 0.659 1.098 0.439 0.439 0.439 1.098 1.098 0.22 0.659 0.439 0.308 0.514 0.411 0.411 0.206 0.514 0.514 0.103 0.206 0.308 0.374 0.467 0.28 0.187 0.187 0.467 0.374 0.093 0.093 0.28 0.224 0.168 0.168 0.224 0.28 0.28 0.168 0.056 0.056 0.28 0.112 0.224 0.112 0.056 0.28 0.28 0.168 0.056 0.28 0.28 0.126 0.168 0.084 0.042 0.21 0.21 0.168 0.042 0.084 0.084 TOTAL Factory RUBICO HOA PHAT VINH HOANG TIEN DAT PHUOCHUNG THANH THANH GO VIET DUCLAM KHIET NGUYEN KHANGMY 3.093 Grade Ranking best 4.55 best 4.173 3.159 3.136 3.093 3.05 2.687 BAD 2.523 BAD 2.229 worst 4.556 3.019 2.687 TT THANH THANH HP HOA PHAT GV GO VIET KM KHANGMY RUBICORUBICO VH VINH HOAN KN KHIETNGUYEN PH PHUOCHUNG TD TIEN DAT 2.229 4.173 2.523 3.136 3.159 69 i Steve Simonson, Partner (2005), “Uncover the hidden benefits of Outshourcing”, Tompkins Associates ii Hine (2004), “Supply chain stratergies: Customer driven and customer focused.”, Oxford Elsevier iii Weber, C A., Current, J R., & Benton, W C (1991): Vendor selection criteria and methods European Journal of Operational Research, 50, 2-18 iv Weber, C A., Current, J R., & Benton, W C (1991): Vendor selection criteria and methods European Journal of Operational Research, 50, 2-18 v Weber, C A., Current, J R., & Benton, W C (1991): Vendor selection criteria and methods European Journal of Operational Research, 50, 2-18 vii Kemal Guven Gulen (2007), “Supplier selection and outsourcing strategies in supply chain management”, Journal of Aeronautics and Space Technologies June 2007 Volume Number 2(1-6) ... suppliers selection criteria of Global Home and the consequences To set up the criteria for Global Home in suppliers selection that enhance the efficiency of factories selection 1.3 Scope of the study... worked for Global Home, the CEO of the company that Global Home supply products , the CEO of the company who is working in Vietnam furniture manufacture , the manufacture owner who is Global Home owner’s... 2.5 Global Home? ??s suppliers the year 2011 Figure 2.5.1 Global Home? ??s Suppliers in Oct, 2011 2.6 Current criteria in selection a suppliers There are criteria Global Home use to select its suppliers