effects of management of suppliers on oganizational efficiency-2

EFFECTS OF MANAGEMENT OF SUPPLIERS ON ORGANIZATIONAL EFFICIENCY:

A CASE STUDY OF NAIVAS SUPERMARKET, ELDORET

BY

BEATRICE CHEPKOK

ELD/DPSM/02404

A Research Project Submitted to Kenya Institute of Management in

Partial Fulfillment of the Requirement for the Award of Diploma

in Purchasing and Supplies

January, 2013

DECLARATION

Student’s Declaration

I, declare that this project is genuine and has not been

introduced to any other institution or done by another person for

academic credit.

SIGNATURE: ……………………………… DATE: ………………………………………

BEATRICE CHEPKOK

ELD/DPSM/02404

Supervisor’s Declaration

This project has been submitted for examination with my approval

as the institution supervisor.

SIGNATURE: ……………………………… DATE: ………………………………………

DENIS KIPTANUI AGUI

ii

For and on behalf of the Kenya Institute of Management

SIGNATURE: ……………………………… DATE: ………………………………………

ANN NAIRO

BRANCH MANAGER

ELDORET

DEDICATION

I dedicate this project to my brother Daniel, my sister Flomena

and the rest of the family for their moral and financial support

in carrying out this research project.

iii

ACKNOWLEDGEMENT

This project has been accomplished with the support,

encouragement and inspiration of a number of people to whom I am

deeply indebted. First of all, I wish to thank my supervisor Mr.

Denis Agui for the professional guidance on research writing. My

gratitude also goes to the Kenya Institute of Management for

giving me an opportunity to further my studies in the

institution, and to my friends and relatives for their moral and

financial support.

iv

ABSTRACT

The efficiency of an organization is heavily influenced by theoperations of the procurement department since it is the key insourcing for products and services that are used for generatingof revenue. This study sought to investigate how management ofthe supplier relations affects organizational efficiency. Thisstudy was limited to the Naivas supermarket located near MoiReferral hospital. The research was guided by the followingobjectives; to assess how supplier selection affectsorganizational efficiency at Naivas Supermarket, to establish howsupplies optimization affects organizational efficiency at NaivasSupermarket, to investigate how supplies automation affectsorganizational efficiency at Naivas Supermarket and to evaluateconstraints affecting supplies management on organizationalefficiency at Naivas Supermarket. The study used a case studydesign. Case studies not only explore and describe phenomena butcan also be used to explain causal relationships and to developtheory. This study interacted with the 71 employees in thesupermarket who comprised of 1 manager, 5 heads of department,and 65 employees. Stratified sampling and purposive samplingtechniques was used to select 38 respondents. Primary data wasobtained through self-administered questionnaires. Whilecollecting the data, researcher ensured on its confidentialityand secrecy. The data collected was analyzed through descriptivestatistic, where tables, frequencies was used in interpreting therespondent’s perception on issues raised in the questionnaires soas to answer the research questions. Following the findings ofthis study, the management of the Naivas supermarket was able tounderstand the importance on supplier management which improvedthe efficiency of this organization through supplier selection,supplies optimization and supplies automation. The studyconcluded that the effects of supplier selection onorganizational efficiency was that it helps in mitigation against

v

poor supplier performance or performance failures, effects ofsupplier optimization on organizational efficiency and itimproves supplier pricing, quality and timeliness, effects ofsupplier automation on organizational efficiency, majority of therespondents agreed that efficiencies gained from automation lead tocost reductions and the constraints affecting supplier managementare that a company must also compare and negotiate with suppliers onthe terms of price, consistency, and quality which can be timeconsuming. The study recommends that management of suppliers is veryimportant in every organization and in light of this the studyrecommends that Naivas supermarket should be able to implementeffective supplier management as a way of securing competitiveadvantage and improving organizational performance sincecompetition is no longer between organizations, but among supplychains.

TABLE OF CONTENTS

DECLARATION...................................................ii

DEDICATION...................................................iii

ACKNOWLEDGEMENT...............................................iv

ABSTRACT.......................................................v

TABLE OF CONTENTS.............................................vi

LIST OF TABLES.................................................x

vi

LIST OF FIGURE................................................xi

ABBREVIATIONS................................................xii

DEFINITION OF TERMS.........................................xiii

CHAPTER ONE....................................................1

INTRODUCTION TO THE STUDY......................................1

1.1 Introduction...............................................1

1.2 Background of the study....................................1

1.3 Statement of the problem...................................3

1.4 Objectives of the Study....................................3

1.5 Research Questions.........................................4

1.6 Significance of the Study..................................4

1.7 Scope of the Study.........................................4

1.8 Limitations of the Study...................................5

CHAPTER TWO....................................................6

LITERATURE REVIEW..............................................6

2.1 Introduction...............................................6

2.2 Review of Past Studies.....................................6

2.2.1 Effects of Supplier Selection on Organizational Efficiency

...............................................................6

2.2.2 Effects of Supplier Optimization on Organizational

Efficiency.....................................................8

vii

2.2.3 Effects of Supplier Automation on Organizational Efficiency

..............................................................11

2.2.4 Constraints Affecting Supplier Management...............14

2.2.5 Supplier Relationship Management........................15

2.2.5.1 Components of Supplier Relationship Management........15

2.2.5.1.1 Organizational Structure............................16

2.2.5.1.2 Governance..........................................16

2.2.5.1.3 Supplier Engagement Model...........................17

2.2.5.1.4 Executive-to-executive Meetings.....................17

2.2.5.1.5 Value Measurement...................................17

2.2.5.1.6 Systematic Collaboration............................18

2.2.5.1.7 Technology & Systems................................18

2.2.5.2 Importance of Supplier Relationship Management........19

2.2.6 Supplier Performance Management.........................21

2.3 Critical Review...........................................27

2.4 Summary...................................................28

2.5 Conceptual Framework......................................29

CHAPTER THREE.................................................30

RESEARCH DESIGN AND METHODOLOGY...............................30

3.0 Introduction..............................................30

3.1 Research Design...........................................30

3.2 Study Area................................................30

viii

3.3 Target Population.........................................31

3.3.1 Sample Size Determination...............................31

3.4 Description of the Sample and Sampling Procedures.........32

3.5 Data Collection Instruments...............................32

3.5.1 Primary Data............................................32

3.6 Data Collection Procedure.................................33

3.7 Reliability and Validity of Research Instruments..........33

3.7.1 Reliability.............................................33

3.7.2 Validity................................................33

3.8 Description of Data Analysis Procedures...................34

CHAPTER FOUR..................................................35

4.0 DATA ANALYSIS, PRESENTATION AND INTERPRETATION............35

4.1 Introduction..............................................35

4.2 Personal information......................................35

4.2.1 Gender of the Respondents...............................35

4.2.2 Age of the Respondents..................................36

4.2.3 Educational Level of the Respondents....................36

4.2.4 Working Experience of the Respondents...................37

4.2.5 Marital Status of the Respondents.......................38

4.3 Specific Objectives.......................................39

4.3.1 Those Responsible for the Supplier Selection............39

ix


..............................................................39

4.3.3 Respondents views if the Supermarket has increased its

effectiveness due to supplier optimization....................41


Efficiency....................................................42

4.3.5 Respondents Views if all the processes automated in the

supermarket...................................................43


..............................................................43


CHAPTER FIVE..................................................47

5.0 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS......47

5.1 Introduction..............................................47

5.2 Summary of Findings.......................................47


..............................................................48


Efficiency....................................................48

5.2.3 Effects of supplier automation on organizational efficiency

..............................................................48


5.3 Conclusions...............................................49

x

5.4 Recommendations...........................................50

5.5 Suggestions for Further Studies...........................51

REFERENCES....................................................52

APPENDICES....................................................54

APPENDIX I: QUESTIONNAIRE.....................................54

xi

LIST OF TABLES

Table 3.1 Target Population ................................... 51

Table 3.2 Sample Size Determination ........................... 52

Table 4.1 Gender of Respondents ............................... 57

Table 4.2: Age of Respondents ................................. 59

Table 4.3 Education Level of the Respondents .................. 61

Table 4.4 Working Experience of the Respondents ............... 63

Table 4.5 Marital Status of the Respondents ................... 63

Table 4.6 Those Responsible for the Supplier Selection ........ 64

Table 4.7 Effects of Supplier Selection on Organizational

Efficiency .................................................... 66

Table 4.8 Respondents views if the Supermarket has increased its

effectiveness due to supplier optimization .................... 68

Table 4.9 Effects of Supplier Optimization on Organizational

Efficiency .................................................... 69

Table 4.10 Respondents Views if all the processes automated in

the supermarket ............................................... 71

Table 4.11 Effects of supplier automation on organizational

efficiency .................................................... 72

Table 4.12 Constraints Affecting Supplier Management .......... 74

xii

LIST OF FIGURE

Figure 2.1: Conceptual framework .............................. 49

xiii

ABBREVIATIONS

SMEs- Small and Medium-Sized Enterprises

BOM- Bill of Materials

ERP- Enterprise Resource Planning

IT- Information Technology

SCM- Supply Chain Management

SWOT- Strengths, Weaknesses, Opportunities, and Threats

xiv

DEFINITION OF TERMS

Constraints: It is the element factor or a subsystem that works

as a bottleneck. It restricts an entity, project, or system (such

as a manufacturing or decision making process) from achieving its

potential (or higher level of output) with reference to its goal.

Management of Suppliers- The discipline of strategically planning

for, and managing, all interactions with third party

organizations that supply goods and/or services to an

organization in order to maximize the value of those interactions

Organizational efficiency- Refers to the capacity of an

organization, institution, or business to produce desired results

with a minimum expenditure of energy, time, money, personnel,

materiel, etc.

Supplier selection- Process by which firms identify, evaluate,

and contract with suppliers. The supplier selection process

deploys a tremendous amount of a firm’s financial resources

Supplies optimization- This is the application of processes and

tools that ensure optimal operation of manufacturing and

distribution in a firm. This includes the optimal placement of

inventory within the supply chain, minimizing operating costs

(including manufacturing costs, transportation costs, and

distribution costs)

Supplies automation- Is an all-inclusive approach to managing the

affairs and interactions with the organizations that supply your

xv

company with goods and services. This includes communications,

business practices, negotiations, methodologies and software that

is used to establish and maintain a relationship with a supplier.

xvi

CHAPTER ONE

INTRODUCTION TO THE STUDY

1.1 Introduction

This chapter discusses the background of the study, statement of

the problem, significance of the study limitations of the study,

objectives of the study, the research questions, the scope of the

study, in relation to the effects of management of suppliers on

organizational efficiency.

1.2 Background of the Study

The organization efficiency service offering helps firms respond

to competitive pressures by restructuring their organizations to

achieve greater cost efficiency in their business. This approach

is grounded in the realization that firms must cut costs to grow

stronger. It helps the firms recognize which capabilities enable

their marketplace differentiation and warrant “growing stronger”

and which should be more efficiency focused. It helps firms

establish functional capabilities that outperform the competition

by adopting a lean headquarters model, setting up and optimizing

shared services, leveraging the benefits of outsourcing and off

shoring models and redesigning end to end business processes. It

does help the firms’ benchmark efficiency and effectiveness of

their support functions, redefine their corporate operating

models, set up and optimize global shared services, design

sustainable outsourcing and off shoring models and streamlined

business processes (Leenders, 2009).

The initial focus of many firms may well be on negotiating the

right price and other elements of the purchase agreement. But in

the longer term, strong relationships and a collaborative

approach can have more impact on the overall success of the

firm’s supplier management. As a prime source of competitive

advantage suppliers should be selected on sound commercial

principles that recognizes amongst other factors, the quality of

the goods, materials and services offered, relevant experience

and reputation, financial stability and the ability to deliver on

time. Supplier management is best described as an ongoing

process that minimizes the risks associated with purchasing

goods, materials and services. It ensures that products and

services are more likely to meet agreed requirements from the

point of first delivery and will continue to do so during their

operational life. In the unlikely event that the product or

service does not perform to its agreed requirements then

corrective action can be implemented promptly (Chopra, 2007).

Supply managers have always helped their organizations cut costs

by negotiating favorable rates for procuring goods and services.

But to survive and thrive in the coming decade, cutting costs

alone will not be enough in most companies. Supply managers also

will be expected to contribute to revenue generation, innovation,

collaboration, technology application and strategic management.

2

They should also become deft at packing up their households,

because taking positions in far-flung locations around the world

will likely also become part of their job description. Foremost

among the challenges is dealing with the external forces that are

impacting businesses and supply management. Not surprisingly,

globalization -- and more specifically, the impact of China,

India and other developing economies on the competitive landscape

-- plays a major role. Global companies have been manufacturing

goods and procuring services in low-labor-cost countries for some

time now, but the pace of outsourcing is accelerating

dramatically, and it will continue to increase during the next 10

years (Juttener, 2000).

A few years ago the Jacobs, Chase and Aquilano (2009) argued that

the organizations lie at the core of the stagnation and decline

in growth in Africa. It has also taken on too much, in providing

essential services with too few resources and little capability,

and it has failed as a result. The state’s capability—its ability

to promote and undertake collective action efficiently—is

overextended. Consequently, governments should concentrate their

efforts less on direct intervention and more on enabling other

organizations to be productive. Furthermore, increased

competition in service provision, both with the private sector

and in the public sector itself, is required in order to raise

efficiency. That means not just “less government” but “better

government”. Lately, the World Bank has taken a more balanced

position on the role of the state in development. It now argues

3

that “without an effective state, sustainable development, both

economic and social, is impossible”. It proposes improving state

capability and efficiency is required for macro-economic

stabilization and a refocusing of the role of the state on “the

fundamentals”. The role of the public sector should be reduced

and refocused so as to increase efficiency. Major competition has

moved from the market to the production floor. All organizations

have been forced to look onto the cost of production so that they

can complete through cost reduction.

Backed with advanced technology, organizations are closely

monitoring their cost and embarking on efficient and effective

supplier management. For example, firms are moving from

traditional methods of evaluating and selecting suppliers yearly

to supplier management. Kenyan Organizations are faced with a

lot competition in the current markets. This has led to the need

for coming up with better method of managing and measuring how

resources are utilized by various jobs or products, and therefore

be able to eliminate any wastage in the value chain. The new cost

management methods require having the right persons doing the

right job. In this case, the major concern is how supplies

functions are organized and actually who is responsible over

these functions in the Kenyan manufacturing firms (Jessop, 2004).

1.3 Statement of the problem

The efficiency of an organization is heavily influenced by the

operations of the procurement department since it is the key in

4

sourcing for products and services that are used for generating

of revenue. It is therefore imperative that organizations lay

down procedures to take care of their suppliers. Naivas

supermarket however has been reported by a recent economic survey

by Sheraton (2011) on SMEs to have the highest complaints

resulting from delayed products, lack of vast majority of

commodities in the shelves and lack of variety of products. All

these have been attributed to by the problem in the purchasing

department and this study therefore sought to investigate how

management of the supplier relations affects organizational

efficiency.

1.4 Objectives of the Study

The research was guided by the following objectives

i. To assess how supplier selection affects organizational

efficiency at Naivas Supermarket.

ii. To establish how supplies optimization affects

organizational efficiency at Naivas Supermarket.

iii. To investigate how supplies automation affects


iv. To evaluate constraints affecting supplies management on


1.5 Research Questions

This research was guided by the following questions 5

i. How does supplier selection affect organizational efficiency

at Naivas Supermarket?

ii. How does supplies optimization affect organizational

efficiency at Naivas Supermarket?

iii. How does supplies automation affect organizational

efficiency at Naivas Supermarket?

iv. Which are the constraints affecting supplies management on

organizational efficiency at Naivas Supermarket?

1.6 Significance of the Study

Following the findings of this study, the management of the

Naivas supermarket was able to understand the importance on

supplier management which improved the efficiency of this

organization through supplier selection, supplies optimization

and supplies automation. The management realized that the

advantages are more than the demerits, hence give room for the

embracement of the importance of supplier management in improving

organizational efficiency.

This study benefited other supermarket managers. They were able

to embrace the importance of supplier management which in return

boosted the efficiency of their organizations. This led to

economic growth in this sector and the whole country and region

as a whole.

This study also benefited the scholars and learners. They were

able to get information about the subject being discussed in this

6

study. They were also able to do more researches that are related

to this subject hence closing the knowledge gap in this field.

1.7 Scope of the Study

This study was limited to the Naivas supermarket located near Moi

Referral hospital. The branch serves the people of Eldoret and

its environs. This study was meant to investigate the effects of

management of supplier on organizational efficiency in the

supermarket. This study interacted with the 280 employees in the

supermarket who produced a sample size of 84 respondents. Data

was collected through the use of questionnaires and presented in

frequencies, tables, graphs and pie charts. Afterwards a

conclusion was drawn and recommendations made from the findings

of the study on the mentioned subject matter.

1.8 Limitations of the Study

The study took place in a single supermarket which is one of many

Naivas supermarkets in Kenya, thus error occurred when

generalization of the findings of this research when they are

done. However the findings were only used on the organizations

with the same features as the one mentioned in this proposal.

It might be difficult to get some information from the

respondents such as sensitive information about the supermarket

where the respondents might classify it as confidential, hence

hindering the researcher in gathering adequate information for

the study. The researcher had to talk to the respondents and

7

assure them that the study being carried out was for academic

purposes only and the information they gave was treated as

confidential and was only used for the purpose of the analysis of

this study.

8

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter reviews literature sources relating to how supplier

selection affects organizational efficiency, how supplies

optimization affects organizational efficiency, how supplies

automation affects organizational efficiency and the constraints

affecting supplies management. Literature was collected from

journals, books, articles, theses and newspapers.

2.2 Review of Past Studies


Supplier selection is a process of selecting key suppliers based

on a pre established set criteria; it is a useful and an

objective way of deciding the right members to deal with in the

supply chains. An organization may use Standardized selection

criteria or any criteria arising from the organization’s core

processes requirements. Standard selection criteria generally

intend to cover issues such as quality, capacity in terms of

finance, services, and equipments, quantity, responsiveness, and

others. There has been an increasing concern for sustainable

economic development all over the world. Governments are trying

to adjust legislations and social pressure through individual

activists, nongovernmental organizations, and international

institutions is also growing to express public mandate against

9

the negative impacts of business activities on environment.

Internally, the need to improve organizational efficiency, reduce

waste, overcome supply chain risk, and achieve competitive

position has made companies to start considering environmental

issues from a competitive view point (Simpson, 2008).

Companies with reactive responses tend to use end of supplies

intending to comply with regulations and avoid penalties by the

government because of public and customers’ pressure while those

with proactive responses believe that supplier management is a

part of the company’s quality and sustainability management. The

reactive organizations focus mostly on their internal functions

and their responses vary from resistant adaptation (to avoid

penalties and public pressure), through receptive adjustment of

the current processes, to constructive responses which are more

efficiency based but with secondary advantages. Purchasing

function in relation with other functions has a greater role to

play in supplier management performance of an organization

(Humphreys, 2003). Geng (2001), argues that purchasers are key

personnel for ensuring supplier preferable decisions in supplier

selection and that they are best placed and best qualified to

adopt a more friendly purchasing practice. In his study of large

and medium sized state-owned enterprises in China, he also

acknowledge that a centralized purchasing establishes a

foundation for overcoming the failure of senior management to

integrate understanding of green purchasing into supply chains in

most such organizations. Purchasing can impact many areas

10

including materials used in product design, product design

processes, supplier processes, supplier evaluation and selection,

materials delivery. Having seen the significance of collaborative

supply chain and centralized purchasing in management performance

it is now obvious that deciding which suppliers to collaborate

with and how to select suppliers is a very crucial decision for

the organization efficiency (Walton, 2008).

Evaluating and selecting supplies are critical activities in the

process of purchasing and supplying materials. Many manufacturing

and service organizations operate in a constantly changing

business environment and occasionally have to reconsider their

steps in terms of supplier selection. Manufacturing and service

organizations contract with external suppliers for the products

or services which they market. These may be raw material,

finished products or service suppliers. Selecting the right

supplier is a complex decision made by companies and

organizations, with potentially significant impact on the

organization's ongoing performance. Many studies have indicated

that finding the right suppliers is essential for business

organizations and crucial to their success (Simpson, 2008).

It affects critical areas along the organization's supply chain,

such as production, transportation, inventory, and quality. By

selecting the right suppliers, the organization can gain in

efficiency and enhance supply chain cost-effectiveness. On the

other hand, failing to select the right suppliers could

11

compromise the organization in economic/financial terms or in

terms of service quality and reputation. Companies in order to

attain the goals of low cost, consistent high quality,

flexibility and quick response have increasingly considered

better supplier selection approaches. These approaches require

cooperation in sharing costs, benefits, expertise and in

attempting to understand one another's strengths and weaknesses,

which in turn leads to single sourcing and long-term

partnerships. A key tool in supplier selection is supplier

ranking, which is a central aspect of the quality management

field, and is attracting growing attention nowadays. One of the

key characteristics of the business environment in which most

organizations currently operate is its dynamics (Humphreys,

2003). These dynamics are a significant and decisive aspect of

business environmental uncertainty. Environmental dynamics are

governed by several factors, including consumer behavior, and

predictable or unpredictable events in the local or global

business environment. Today's customers are typically more

sensitive to quality, more exposed to competition and hence more

demanding in terms of requiring higher quality standards and

better value for money. The intense competition enables them to

demand quicker and more customized response, which directly

impacts the dynamics of the business environment. Another

important factor is the rapid advances in information technology

which allow for cost reduction, shorter supply times,

informational reliability and accelerated manufacturing and

12

procurement processes, along with more streamlined integration of

operational processes with marketing and customer service

approaches (Geng, 2001).

Purchase decision process of organizational buyers has become

increasingly a complex, multidimensional and multifunctional

activity as the traditional role of the purchasing has

significantly changed over the past few years as organizations

increasingly globalize their sourcing activities. Financial

parameters also affect the dynamics of the business environments.

For example, in a dynamic business environment manufacturing or

service organizations contract with suppliers from many different

countries, contracts affected by exchange rate fluctuations.

Another important financial factor is changes in interest rates,

which may affect inventory maintenance costs. These changes often

affect supplier selection considerations, since the cost of

products or services provided by the supplier is related to the

interest rate (Walton, 2008).


Efficiency

Supply chain optimization is now one of the top priorities for a

lot of companies as they look for a way to develop increased

effectiveness in the growing recession. During the next six

years, supply chain performance experts plan to witness an

increased level of attention on supply chain upgrades, and asset

maximization. Companies hope for a healthy growth in global

13

supply chain performance applications. Large adjustments in the

business are having an uncontrollable impact on an organizations

supply network. Increasing efficiencies in the distribution

department, has been raised the priority list for many businesses

around the globe. Escalating the distribution of assets has

become an issue of importance due to the fact that it has a

direct partnership toward optimizing capital and raising the

bottom line in the industry (Ericson, 2004). The chain

optimization is designed to prepare inventory policy across many

dependent levels of a supply network, in multiple periods.

Naturally, it will set up inventory goals up and down the

distribution chain on a concurring basis. These supplies are able

to give businesses the chance to generate possible calculations

of the impact on certain company decisions on overall inventory

organization. Recent distribution procedures have increasingly

been adopted and put to use by many industry leading

organizations. Processes like a company’s sales, inventory, and

operations preparations, and modern product innovation would be

improved by this optimizing chain procedures. It's a known fact

in the industries that distribution optimization is not a

priority project; your business could be on the path of losing

important supply chain benefits. While results may differ from

business to business, given the current economic state, the

possible benefits of taking on new distribution tactics are

persuasive (Hertz, 2001).

14

The market has been summed up by the smaller suppliers that offer

a large range of methods which have their distinct benefits. Some

of the tactics, the industry are implementing in order to

optimize distribution are the use of logistic modeling software

as a planning tool, where to find facilities and warehouses,

inventory placement, mode selection, freight incorporation,

distribution scenario settings, gathered distribution and a

thorough understanding of the possible what if scenarios. As the

market is seen to play major roles in the future, these types of

innovations will only help to increase the revenue for companies

utilizing these supply chain maximizing tactics to better the

industry and others (Hoek, 2008).

Supply chain departments typically control the flow of

goods/materials from suppliers to customers. An organizations

supply chain function can consume a significant portion of

business costs, through their control of a large percentage of

the cost of sale. Inefficient supply chains can be characterized

by bureaucracy and 'hidden costs' or waste such as overstocking

inventory, paper led processes and poor controls and policies.

Pioneered by the automotive industry it is now common for supply

chain organizations to undergo optimization initiatives or

"leaning" to improve efficiency and reduce costs. Aiming to

improve symptoms such as lengthy and complex business processes

which include a variety of non essential non value tasks, too

many staff, large numbers of suppliers and finally (and most

importantly) increased costs (Hakansson, 2002). Commonly supply

15

chain optimization is wrapped up within business improvement

initiatives - these may utilize a kaizan approach or other such

improvement model and are usually led and managed by a team

within the business. It is increasingly common to find external

consultancies that specialize in Supply Chain optimization and

introducing best practice. Optimization can occur at any stage in

the process (from customer requirement through to sales and

distribution) and typically they center on aligning the companies

procurement, manufacturing and warehouse processes against

required output. According to Ericson (2004), common areas that

are reviewed during optimization can include:

Improved Forecasting and Planning

Ensuring that the organization has the correct inventory levels

against consumption is one of the fundamentals of an optimized

supply chain - inefficiency can be seen in both over and under

stocking or in some cases having no items at all to satisfy need.

Improved forecasting and planning - closer attention to bill of

materials (BOM) and analysis of 'moving' inventory can help.

Often this can be supported via an information system or ERP

module.

Inventory Rationalization

Ensuring that you have the correct stock at the right level at

the right place and time is paramount to a successful and

efficient supply chain. A common optimization task is analyzing

inventory which is often categorized into runners’ repeaters and16

strangers - in order to rationalize and organize stock against

actual need. An inefficient supply chain often has incorrect

inventory (both in type and quantity). Overstocking can result in

increased purchasing and storage costs whilst under stocking can

result in production stoppages or unhappy customers, both of

which affecting the bottom line.

IT Systems

Optimization often includes a review of the IT system - efficient

supply chains require not only superb transaction management but

also forecasting and planning tools, inventory controls and a

management information system to help businesses keep track.

Recently integration between systems and organizations has become

important to optimized supply chains - linking suppliers and

customers in an end to end process using a single information

flow can greatly reduce waste within a process and produce

greater agility for all parties. IT systems are often re-

configured or replaced as part of Supply Chain optimization

project.

Outsourcing

When reviewing supply chains organizations often consider

outsourcing some or all activity to 3rd party companies (often

referred to as 3rd Party Logistics Organizations). Outsourcing

non-value add activities or core business activities allows the

organization to focus on adding value to its key processes -

17

whilst often reducing costs. One common area that is often

outsourced is warehouse or inventory management activities.


Task automation allows your organization to operation higher

levels of efficiency. Boost visibility, and profitability, across

your supply chain with automated solutions. Much is expected of

today’s purchasing professionals — and not just in terms of sheer

workload, but in the expectation that they will play a strategic

role in the organization. With these web-based applications, your

internal customers can create their requisitions online, and you

can automate the requisition approval process. Automation saves

your purchasing staff even more time by allowing end users to

shop directly at vendor-maintained websites, reducing the demands

of maintaining an internal item master. Distributors need tools

that give a consistent view of all inventories and efficiently

support all of the activities associated with storing and moving

goods (Ash, 2006).

Automation provides a scalable solution that is able to handle a

variety of inventory types: from basic to shelf-life or

serialized items. It helps efficiently manage routine processes

and volumes from inbound receipt, to location replenishment, to

outbound dispatch. It is time for companies to start investing in

supply chain management to improve enterprise wide operational

performance management; this will lead to improved

competitiveness and create lasting value. Unlike the past years

18

and the tail end of the dot-com boom, the focus on supply chain

management (SCM) shouldn't be all about automation. Companies

should focus on getting information out of their supply chain

that will help them improve performance. While the near collapse

of some SCM vendors and the assignment of SCM products by the

larger enterprise resource planning vendors to the back burner

reflect the lack of investment in recent years, companies should

once again consider investing in their supply chain. They should

not focus solely on automation (Barbieri and Zanoni, 2005).

While efficiencies gained from automation lead to cost

reductions, to achieve lasting value companies must improve their

effectiveness. By getting more actionable information from the

supply chain, companies can better set priorities and make more

profitable actions. As with every other facet of the company, a

balance between the efficiency and the effectiveness of people

and processes must be attained if the company wants to be

successful in this decade. To reach this balance it is essential

that the supply chain be visible so the current state of

manufacturing and inventory can be assessed on a daily basis.

With this insight, the marketing and sales organizations increase

their agility to respond to customers without having systems

analysts collect and aggregate data. Visibility into the supply

chain is also important for organizations performing forward-

looking business planning so they can dynamically assess the

future manufacturing opportunities (Barclay, Higgins and

Thompson, 2005).

19

With this insight, the demand chain can be more flexible to help

the company maximize return on costs. It is increasingly clear

that product and service organizations lack the fundamentals for

improving performance. Leveraging information from across the

supply and demand chain provides the visibility to improve

operational performance. The key fundamental, the lifeline of

business, is information that drives effective decisions and

actions. We've all experienced not being able to find the status

of an order for a product or service. Companies must examine how

well their customer-facing organizations can access information

from the supply chain. It is amazing that after decades of

information technology improvements most organizations still

cannot quickly ascertain the performance in a supply chain and

easily provide marketing, sales, and service organizations the

information they need (Chaffey, 2004).

In today’s complex and volatile business environment, ensuring

that authorized purchasers order the correct products from the

right suppliers on the best terms is a must. It can be extremely

difficult to achieve optimum control and efficiency in a value

network that spans over numerous e-commerce partners that

participate in an end-to-end collaboration. While purchasing

costs can often be as high as 50 percent of a company’s total

costs, the related administrative costs of purchasing are

sometimes greater than the cost of the items being purchased. As

more and more companies essentially require supplies to be

provided in a timely manner, e-procurement is just the right

20

solution. With an automated e-procurement process the procurement

and purchasing process is integrated with a company’s buyers and

suppliers together with the relevant IT systems on both sides

(Chin and Gopal, 2005).

Electronic procurement holds out such a promise and is all the

more alluring for businesses to move their purchasing online.

Today’s competitive markets make it necessary for authorized

purchasers to order the correct products from the right suppliers

on the best possible terms. An e-procurement system is

effectively a seamless, business to business system that will

ensure that the whole process is automated, taking the process of

procurement up to a high level and creating a process for supply

chain management that is efficient and robust. The advantages of

e-procurement are becoming more evident its uses have become

apparent. It provides visibility into day-to-day transactions and

makes it easier for users to get the supplies that they need.

With e-procurement there is no out of control expenditures. It

not only streamlines purchases, but also helps businesses save

time which can be used on being more productive, creative and

giving their customers the best service (Chopra and Meindl,

2001).

The e-procurement system that you choose must be able to automate

the procurement workflow end-to-end, from the order to the

delivery and invoicing. Such a system can greatly improve your

organizational efficiency and reduce the administrative costs of

21

all steps in the procurement process. Traditional delivery

methods (postage, overnight services, and manual fax) had risks

which were noncompliance to a host of regulatory guidelines. They

also jeopardize information confidentiality, since information

must be printed and can be lost, misrouted, or viewed by an

unintended recipient. For companies that take advantage of

automation, confidential documents are sent in real-time directly

from the application to the intended recipient in whatever format

the recipient requests. This eliminates many security concerns

associated with error-prone manual processes and supports

regulatory compliance. Automation also provides options that make

it possible for users to transmit confidential documents to

customers and partners as certified email or as secure encrypted

files. Documents digitally encrypted require passwords to access

them, so they cannot be read if intercepted on the network. In

addition, a certified delivery feature is available that allows

users to verify the receipt of a sent document and the time it

was accessed by the recipient (Croom, 2005).

2.2.4 Constraints Affecting Supplier Management

Supply management is a popular and effective tool used to improve

the business process of a company; it starts with the supply of

resources and ends with the sale or consumption of the good.

Although many advantages accompany this managerial technique,

mainly lowering costs and increasing quality, there are some

22

disadvantages if the supply isn’t properly implemented and

managed by the company. Tim, Chandra, and John (2008) argue that

despite the advantages associated with the supply management

there exist disadvantages which are associated with it as

compared to the traditional management. One of this disadvantage

include the issue of employment, the traditional supply

management involved salesmen and other managers who were to

ensure that the transaction is completed as required, today after

the introduction of this new supply management there has been

increased unemployment which has resulted to high unemployment

levels in the economies, despite the new management system

providing a faster and convenient way to improve both the firms

objectives and the customer, (Ash, 2006).

The biggest disadvantage of supply chain management is the heavy

investment of time, money, and resources needed to implement and

overlook the supply chain. The decision to outsource a production

facility or call center lowers the cost of doing business for a

company using supply chain management, but the decision to

outsource or not can lead to consumer backlash. The investment of

time and money starts with the formation of the supply chain; the

company must understand the marketplace and business environment

including customer needs and demands, supplier options, and

competition. This requires research such as performing a SWOT

analysis which indicates a company's internal strengths and

weaknesses, and the external opportunities and threats in the

marketplace. A company must also compare and negotiate with

23

suppliers on the terms of price, consistency, and quality. Once

the key players of the supply chain are chosen, a process map of

the entire supply chain must be constructed, (Chopra, 2001).

Outsourcing to foreign countries to save money can cause backlash

from the media, current customers, as well as possible future

customers. Most of the value in outsourcing is due to the cheaper

labor in foreign countries; many companies are looked at

negatively when Americans believe that the company is abusing the

human capital of another country by either offering unfair wages

or providing unsafe work conditions. For example, Nike ended up

on the cover of the New York Times for its use of child labor and

unsafe work conditions in a shoe plant in Vietnam. Furthermore,

companies in a supply chain are not only responsible for their

ethics, but also for the ethics and social responsibilities of

all companies involved in the supply chain, (Geng, 2001).

Integrating the supply chain and choosing the correct suppliers

is much more difficult than one can imagine. Not only do

companies have to strongly consider price and quality, but they

also have to make sure that all the organizations are willing to

cooperate to benefit the group. Managerial styles, objectives,

and goals must have a strategic fit between all companies

involved and power must be evenly distributed throughout the

supply chain or the businesses will not benefit from the

advantages of supply chain management, (Hertz, 2001).

2.2.5 Supplier Relationship Management

24

Supplier relationship management (SRM) is the discipline of

strategically planning for, and managing, all interactions with

third party organizations that supply goods and/or services to an

organization in order to maximize the value of those

interactions. In practice, SRM entails creating closer, more

collaborative relationships with key suppliers in order to

uncover and realize new value, and reduce risk. In many

fundamental ways, SRM is analogous to CRM. Just as companies have

multiple interactions over time with their customers, so too do

they interact with suppliers – negotiating contracts, purchasing,

managing logistics and delivery, collaborating on product design,

etc. The starting point for defining SRM is a recognition that

these various interactions with suppliers are not discrete and

independent – instead they are accurately and usefully thought of

as comprising a relationship, one which can and should be managed

in a coordinated fashion across functional and business unit

touch-points, and throughout the relationship lifecycle,

(Simpson, 2008).

2.2.5.1 Components of Supplier Relationship Management

SRM necessitates a consistency of approach and a defined set of

behaviours that foster trust over time. Effective SRM requires

not only institutionalizing new ways of collaborating with key

suppliers, but also actively dismantling existing policies and

practices that can impede collaboration and limit the potential

value that can be derived from key supplier relationships. At the

25

same time, SRM should entail reciprocal changes in processes and

policies at suppliers, (Walton, 2008).

2.2.5.1.1 Organizational Structure

While there is no one correct model for deploying SRM at an

organizational level, there are a set of structural elements that

are relevant in most contexts: A formal SRM team or office at the

corporate level. The purpose of such a group is to facilitate and

coordinate SRM activities across functions and business units.

SRM is inherently cross-functional, and requires a good

combination of commercial, technical and interpersonal skills.

These “softer” skills around communication, listening,

influencing and managing change are critical to developing strong

and trusting working relations. A formal Relationship Manager or

Supplier Account Manager role. Such individuals often sit within

the business unit that interacts most frequently with that

supplier, or may be filled by a category manager in the

procurement function. This role can be a full time, dedicated

positions, although relationship management responsibilities may

be part of broader roles depending on the complexity and

importance of the supplier relationship (see Supplier

Segmentation). SRM managers understand their suppliers’ business

and strategic goals, and are able to see issues from the

supplier’s point of view while balancing their own organization’s

requirements and priorities, (Chopra, 2001). An executive sponsor

26

and, for complex, strategic supplier relationships, a cross-

functional steering committee. These individuals form a clear

link between SRM strategies and overall business strategies,

serve to determine the relative prioritization among a company’s

varying goals as they impact suppliers, and act as a dispute

resolution body, (Juuttener, 2000).

2.2.5.1.2 Governance

The SRM office and supply chain function are typically

responsible for defining the SRM governance model, which includes

a clear and jointly agreed governance framework in place for some

top-tier strategic suppliers. Effective governance should

comprise not only designation of senior executive sponsors at

both customer and supplier and dedicated relationship managers,

but also a face-off model connecting personnel in engineering,

procurement, operations, quality and logistics with their

supplier counterparts; a regular cadence of operational and

strategic planning and review meetings; and well-defined

escalation procedures to ensure speedy resolution of problems or

conflicts at the appropriate organizational level, (Ericson,

2004).

2.2.5.1.3 Supplier Engagement Model

Effective supplier relationship management requires an

enterprise-wide analysis of what activities to engage in with

27

each supplier. The common practice of implementing a “one size

fits all” approach to managing suppliers can stretch resources

and limit the potential value that can be derived from strategic

supplier relationships. Supplier segmentation, in contrast, is

about determining what kind of interactions to have with various

suppliers, and how best to manage those interactions, not merely

as a disconnected set of siloized transactions, but in a

coordinated manner across the enterprise. Suppliers can be

segmented, not just by spend, but by the total potential value

(measured across multiple dimensions) that can be realized

through interactions with them. Further, suppliers can be

segmented by the degree of risk to which the realization of that

value is subject. Supplier summits, which bring together all

strategic suppliers together to share the company’s strategy,

provide feedback on its strategic supplier relationship

management program, and solicit feedback and suggestions from key

suppliers, (Jacob, 2009).

2.2.5.1.4 Executive-to-executive Meetings

Strategic business planning meetings, where relationship leaders

and technical experts meet to discuss joint opportunities,

potential roadblocks to collaboration, activities and resources

required, and share strategies and relevant market trends. Joint

business planning meetings are often accompanied by a clear

process to capture supplier ideas and innovations, direct them to

relevant stakeholders, and ensure that they are evaluated for

28

commercial suitability, and developed and implemented if they are

deemed commercially viable. Operational business reviews, where

individuals responsible for day-to-day management of the

relationship review progress on joint initiatives, operational

performance, and risks, (Ash, 2006).

2.2.5.1.5 Value Measurement

SRM delivers a competitive advantage by harnessing talent and

ideas from key supply partners and translates this into product

and service offerings for end customers. One tool for monitoring

performance and identifying areas for improvement is the joint,

two-way performance scorecard. A balanced scorecard includes a

mixture of quantitative and qualitative measures, including how

key participants perceive the quality of the relationship. These

KPIs are shared between customer and supplier and reviewed

jointly, reflecting the fact that the relationship is two-way and

collaborative, and that strong performance on both sides is

required for it to be successful. Advanced organizations conduct

360 degree scorecards, where strategic suppliers are also

surveyed for feedback on their performance, the results of which

are built into the scorecard.

A practice of leading organizations is to track specific SRM

savings generated at an individual supplier level, and also at an

aggregated SRM program level, through existing procurement

benefit measurement systems . Part of the challenge in measuring

the financial impact of SRM is that there are many ways SRM can

29

contribute to financial performance. These include cost savings

(e.g., most favoured customer pricing, joint efforts to improve

design, manufacturing, and service delivery for greater

efficiency); incremental revenue opportunities (e.g., gaining

early or exclusive access to innovative supplier technology;

joint efforts to develop innovative products, features,

packaging, etc. avoiding stock-outs through joint demand

forecasting); and improved management of risk. In a 2004 Vantage

Partners study, respondents reported that on average, they could

save just over $43 million to their bottom line by implementing

supplier relationship management best practices, (Jacobs, 2009).

2.2.5.1.6 Systematic Collaboration

In practice, SRM expands the scope of interaction with key

suppliers beyond traditional buy-sell transactions to encompass

other joint activities which are predicated on a shift in

perspective and a change in how relationships are managed, which

may or may not entail significant investment. Such activities

include: joint research and development, more disciplined and

systematic, and often expanded, information sharing and joint

demand forecasting and process re-engineering (has unlocked

savings of 10-30 percent for leading organizations), (Geng,

2001).

2.2.5.1.7 Technology & Systems

There are a myriad of technology solutions which are purported to

enable SRM. These systems can be used to gather and track30

supplier performance data across sites, business units, and/or

regions. The benefit is a more comprehensive and objective

picture of supplier performance, which can be used to make better

sourcing decisions, as well as identify and address systemic

supplier performance problems. It is important to note that SRM

software, while valuable, cannot be implemented in the absence of

the other business structure and process changes that are

recommended as part of implementing SRM as a strategy, (Ash,

2006).

2.2.5.2 Importance of Supplier Relationship Management

Marketing and sales executives long ago recognized the importance

of developing and maintaining strong relationships with their

clients. After all, people buy product, not companies. A sound

relationship fosters trust and builds customer loyalty. Hence,

the emphasis on Customer Relationship Management (CRM) programs.

Many traditional supply chain managers view relationship building

as the sales person’s responsibility. (We are the customer!).

However, the dynamics of the business environment have changed

dramatically, and the customer is no longer always right.

Contemporary supply chain managers are now faced with constrained

markets and intense competition to secure capacity. As technology

advances and products become more complex, supply chain managers

are increasingly relying on their suppliers to assist in new

product introduction and development, (Chopra, 2001).

31

Business leaders are realizing that competitive advantage must be

gained by constructing supply networks that deliver value to the

end users of their products. The only way to secure these

networks is to engage key suppliers in much the same way as

marketing and sales professionals engage their key customers.

This means focusing on the development of the relationship by

implementing Supplier Relationship Management (SRM) programs,

(Simpson, 2008).

By building sound relationships with suppliers, supply chain

management professionals foster loyalty and secure valuable

support that goes beyond the terms & conditions of an order, or

the contents of a contract. These efforts can be literal life

savers in some cases. Take for example a business that runs into

cash flow concerns, and turns to its supplier-partners for short

term extension of payment terms. If the supply chain manager has

fostered a healthy relationship focused on cooperation and

partnering with his or her suppliers he should be able to reach a

deal that satisfies both company’s needs. By engaging suppliers

in an SRM program that seeks to develop the relationship beyond

the purely transactional, companies may realize true competitive

advantage in their supply chains, (Walton, 2008). In order for an

enterprise to prosper, among other things, it needs to focus on

supplier relationships. These relationships are no less than

crucial—maintaining excellent relationships with an enterprise's

suppliers can, for instance, lower product development costs and

shorten manufacturing schedules, and by doing so, can manifestly

32

increase said enterprise's profitability. In short, through

enabling proper management of an enterprise's relationships with

its suppliers and reducing the total cost of ownership (TCO) for

goods, Supplier Relationship Management creates a competitive

advantage for that enterprise, (Jacobs, 2009).

The specific goals an enterprise may have for its SRM efforts may

differ between companies and/or industries, but they are most

likely to include a reduction in terms of the costs an enterprise

incurs, both supplier-specific costs and overall expenditures;

flexibility in terms of the relationship between the enterprise

and its suppliers; a more rapid product cycle; an improvement in

the service offered by suppliers; and increased efficiency

stemming from more tightly integrated operations of both

enterprises and suppliers, (Hertz, 2001). Using software

solutions that focus on automating various processes and

simplifying a firm's relationship with its suppliers can go a

long way towards improving Supplier Relationship Management. Such

solutions are available from vendors such as SAP, Manugistics,

Infor, 12 Technologies, and PeopleSoft. Many of these solutions

work to provide an environment where suppliers and enterprise can

collaborate and which can help manage differences between them

that can act as stumbling blocks to better collaboration,

(Chopra, 2001).

In order for an SRM solution implementation to be successful,

four steps need to have been taken before said solution's

33

implementation. First, enterprises must have already automated

and integrated their own internal processes. Second, the

enterprise and suppliers need to be directly connected to allow

suppliers to interface with the system. Third, analytical tools

must be in place to monitor performance and efficiency. Lastly, a

"culture of collaboration" must also be put in place such that

interactions with suppliers is not simply viewed as relationships

that result in certain costs, but are seen as part of the system

themselves, (Jacobs, 2009). It has been said that the greatest

advantages of adopting and implementing a Supplier Relationship

Management system are the convenience and cost-effectiveness it

affords both the enterprise and its suppliers. Since a well-

managed SRM system would result in the two becoming very closely

tied, the speed at which both can coordinate would increase

dramatically; communication barriers would be diminished if not

eliminated altogether; and costs would be significantly reduced

as well. In addition, less staff would be needed to manage the

relationship thanks to the automation afforded by the software,

(Chin, 2005). A company's relationships with its suppliers has

become increasingly important in the total context of the

organization in the early 21st century. Companies have generally

reduced the number of suppliers they buy from in order to develop

long-term, mutually beneficial strategic partnerships with key

suppliers. A supplier relationship is one in which a reseller

buys from a supplier for the purpose of reselling and making a

profit. Distributors typically buy from manufacturers, which

34

represent their suppliers. Retailers may buy from manufacturers

but traditionally buy from distributors or vendors. Suppliers may

ship products to distribution centers maintained by the buyer, or

they may ship product directly to retail stores for immediate

resale.

The supplier relationship has become so integral in effective

business management that the business system supply chain

management has evolved in the early 21st century. This is a

formalized approach to supplier relationships in which resellers

share close ties and strategic information with top suppliers to

optimize mutual benefits of satisfying the needs of the end

customer. SCM stems from the reality that if the end customer is

not satisfied, nobody in the supply chain wins, (Chopra, 2007).

In the strongest of supplier relationships, resellers even share

confidential or closely guarded inventory systems and data with

suppliers. This takes place through a process known as electronic

data integration, or EDI. This means the reseller links its

computer systems to those of suppliers. This enables automatic

alerts to go to the supplier, indicating when the distribution

center or certain stores have reached critical levels on

inventory. This allows for optimized and efficient inventory

replenishment. Resellers often partner with suppliers in meeting

corporate social responsibility guidelines of the early 21st

century. This includes a mixture of social and environmental

responsibilities that CSR-compliant organizations must follow.

Among them are ethical and honest business practices and a focus

35

on environmental preservation, including efficient use of natural

resources. Resellers and their suppliers often collaborate on

efficient transportation and routing systems to reduce air

pollution and other side effects of frequent transport,

(Hakansson, 2002).

2.2.6 Supplier Performance Management

All organizations must quantify and manage their risks

effectively in order to be successful over time. When dealing

with suppliers, there are substantial risks and potential for

disaster in the form of bankruptcy, environmental problems,

delivery failure, lack of materials, poor performance, or product

defects. Most organizations recognize that these risks exist, but

do not take sufficient steps to manage them effectively. While it

is true that the level of risk can not be reduced to zero and all

disasters can not be prevented, there are still many steps an

organization can take to mitigate these supplier risks. One

important and cost effective step is to monitor and manage the

performance of suppliers periodically. This article will provide

an overview of ways that companies can reduce their risks and

leverage additional value by effectively managing the performance

of their supply base, (Chaffey, 2004).

By measuring and monitoring supplier performance on an ongoing

basis, companies can realize some significant benefits. First,

companies can avoid costly and potentially devastating supply

disruptions. Second, companies can reduce overall risk to other

36

adverse scenarios like defects, environmental problems, or safety

issues with a supplier's process, materials, or products. Third,

companies that implement successful supplier performance

management programs will be better able to spot problems early

and begin to implement corrective actions before the problem

becomes a big headache or hits the bottom line. These benefits

are easily quantifiable. If a company knows that there are

usually 100 supply disruptions during a year and each disruption

costs an average of $100,000 dollars, the monetary benefit of

preventing even some of these disruptions would be in the

millions each year, (Barbieri, 2005)

The benefits to a company with an effective supplier performance

management program do not only encompass risk mitigation or

prevention of problems. There are also positive benefits. One

benefit is improved collaboration between suppliers that can lead

to better coordination and enables the company and supplier to

better meet the company’s business objectives. Another benefit

that can arise is increased efficiency and productivity for the

organization as it interacts with its suppliers. In addition, a

good supplier performance management system can also let

suppliers take initiative to perform tasks like updating their

information to ensure that everything is current. It can also

improve invoice accuracy and reduce expenses. This prevents

errors and can make it easier for suppliers to do business with

the company, (Tim, 2008). It is very important that the supplier

performance management program has well defined objectives. These

37

objectives should be tied to the overall company strategy and the

goals for the organization. Without an alignment between a

supplier performance management program and the goals and

strategy of the company, the program will be at best ineffective

and may result in wasted resources. The goals of the program

should also be tied into the overall spending of the company and

should consequently reflect the company's spending and strategic

priorities. This means that areas of greater spend and/or greater

strategic focus for the company should receive more attention and

focus in the program, (Leenders, 2009). In addition to being

aligned with overall company strategy, the objectives for the

program should also not be vague or nebulous. They should be

clearly defined, specific, measurable, and should include a

timeline. They should also be written down and there should be no

doubt about what the objectives and the key measurements that

define success are within the organization. The program should

designate the key people that will be involved in the program and

should specify the resources required. These things will be

required to obtain buy in and support of senior management. It

may also make sense to try the program with a select group of

suppliers to gain experience, make adjustments, and quantify

results before rolling it out to other suppliers, (Humphreys,

2003).

The areas that company chooses to measure and manage and the

criteria used will be a direct result of the company's goals and

strategy and the objectives for the supplier performance

38

management program. There are a wide variety of areas of supplier

performance that may be measured. It is important to select the

ones that are most important for the organization. Common areas

that companies choose to measure include financial health (risk

of bankruptcy, liquidity, sales, etc), operational performance

(quality, lead times, customer services, etc), contract

compliance, business processes (defect prevention, inspections,

etc), and overall cost. There are other metrics that may be

important to a particular company. These metrics should be

defined as Key Performance Indicators (KPIs), (Hoek, 2008).

Another factor that should influence the choice of evaluation

methodology includes the type of suppliers that a company has. In

the supplier performance management program, it is important for

company personnel to focus on the higher value and more strategic

suppliers since these suppliers contribute the greatest amount of

risks. It often doesn't make economic sense to include low dollar

value, one time business, or non-strategic suppliers in this type

of program. By grouping these top suppliers together and

examining the company’s relationships with them, some common

attributes will become evident. These attributes of the

relationship can be used to develop the areas and metrics with

which to measure, (Jessop, 2004).

It is also important to work with the suppliers when developing

these metrics and areas of focus. Some of the companies that are

best at examining supplier performance continually interact with

39

their suppliers, communicate with them frequently, and use a

mutually agreed upon system of metrics. This is a more

collaborative approach with suppliers and ensures that supplier

know what is expected of them. They can also make business plans

and take steps to meet the goals and objective that were set for

them. The suppliers are also acutely aware of whether or not

they have performed well or have performed poorly, (Sheraton,

2011). Once a company has decided what it is going to evaluate,

the next step is to establish how it will evaluate the

performance of the supplier. There are many ways to do this and

some are more costly, time consuming, and resource intensive than

others. By quantifying the level of risk and the projected

benefit of a method of evaluation, company personnel can

determine the most appropriate method or combination of methods

that should be used. Some methods that companies commonly use to

evaluate and measure supplier performance include: site visits,

paper supplier questionnaires, web based supplier questionnaires,

organizing existing data, internal questionnaires, requiring

external certifications, developing own certifications, third

party reviews, phone call with a supplier, independent ratings

and contacts with other supplier customers, (Tim, 2008).

Companies must also decide how and when to use these methods. It

is important that some of the least costly methods are done

frequently in order to obtain updated risk assessments and

scorecards. If done correctly, this will also help the company

stay apprised of important developments before they become a

40

problem. Some of the more costly methods like site visits should

be done less frequently. However, for important, high-risk

suppliers, site visits are an important tool and makes it easier

to accurately assess the supplier's ability to perform. Other

reviews and certifications can provide a company with an

additional level of comfort with the suppliers business and

processes, (Mbendi, 2007). In order to be effective, the actual

supplier evaluation must be structured in such a way that it

produces information and data that can actually be used to make a

decision. If the information the company receives from the

completed supplier assessments is vague or ambiguous, then

management can not make any informed decisions based on this

information and the effort was effectively wasted. This means

that open ended questions or questions that are too long or wordy

are often not the best approach for these assessments. The

questions should be clear, concise, and designed to elicit

responses that can be compared and analyzed. The questions should

also be focused enough on the item that they are intended to

measure in order to provide accurate data, (Juttener, 2000).

Sometimes, supplier assessments are too narrow and are not sent

to all of the relevant internal or external people. When

conducting supplier assessments based on internal feedback, it is

important to include all people that had contact with a supplier

or supplier products. This should not be limited to people who

are likely to have incentives to give the supplier only a

favorable review. Most internal assessments include people in

41

engineering, receiving, purchasing, and other functions of the

company. The assessments may try too btain some different

information from these people, but overall, the structure and the

KPIs that form the basis of the assessment should remain

constant. This will make it easier to compare data over time and

across suppliers, (Jessop, 2004).

The supplier evaluation should also be easy to fill out. If

suppliers can not understand the questions or the

questionnaire/survey is long and difficult to fill out, they may

not be as likely to return the assessment. The questions should

not be hard for either the supplier or an internal person to

understand. They should not contain complex purchasing jargon or

excess verbiage. They should be clear and concise. The survey

should also contain instructions that explain how to fill out and

submit the assessment. It should also have a deadline for

completion. These parts of the process can be easier if

automation/software is used for this process, (Hoek, 2008). Once

there is a mechanism in place to periodically collect performance

data from suppliers, the next step is to review the performance

data. Ideally, the format that the data is in should lend itself

to comparison and analysis.

The data should also be in a format that can be quantified and

scored. Many companies use a supplier scorecard for this.

Moreover, data from different types of assessments like internal

surveys, external surveys, and site visits should be incorporated

42

into the analysis. Since most large organizations have many

strategic suppliers and lots of data, it is almost impossible to

obtain, organize and review data from assessments effectively on

a large scale without automation or software, (Tim, 2008). When

evaluating supplier performance data, the two things to look for

(besides the obvious) are large changes in the performance

metrics and overall trends. By identifying trends, a company can

make projections about where the performance data will be in the

future and can take action accordingly. Downward trends and

deterioration in performance can signal a problem. Moreover, an

abrupt change in performance metrics might signal an imminent

problem. However, there could be another explanation. In this

case it makes sense to obtain more data from the supplier and to

dig deeper to find the source of the problem. It may be a one-

time anomaly or it could be something more, (Hoek, 2008).

Monitoring supplier performance proactively can ensure that

exceptions to policies are tracked and personnel and resources

are assigned to address the problem quickly. Alerts and

notifications can provide up to the minute information to company

personnel letting them know of changes in supplier performance.

Having a system that can take the assessment/scorecard data and

can output it in a report or other format is helpful because

members of the team can all access and review the information

quickly and easily. Once there is sudden drop in supplier

performance or a downward trend, it is important to take action

quickly. Quick action can reduce the risk of disaster,

43

significant loss, and gives the company the ability to take steps

to prevent bad outcomes. Some actions that can be done include

communicating with the supplier, conducting further evaluations,

developing an improvement plan, or finding an alternative

supplier. The actions taken may depend on many factors. These

include the supplier's past performance, level of current

performance, strategic importance, possible damages, and overall

risk, (Mbendi, 2007).

One of the first things to do is to contact the supplier and find

out what went wrong and why. The results of the performance

assessment should be provided to the supplier and can create a

basis for discussions. The poor performance could have been the

result of something outside of the supplier's control. It could

have been a problem with process, personnel, a supplier, or

something else. By communicating with the supplier, personnel can

determine the cause of the problem and try to work with the

supplier to make changes to bring the supplier performance back

into compliance with the contract or with company policies. If

the vendor does not have a good explanation or understanding of

why the problem occurred, this may be a sign of trouble, (Jacobs,

2009). Once the causes of a problem or set of problems have been

identified, the next step is to devise a supplier improvement

plan. The plan should be specific to the problem, should involve

both company personnel and supplier personnel, and should involve

a timeline for addressing the problem or bringing the performance

into compliance. This process should also be a collaborative

44

process and should be aimed at improving the overall supply

chain. Even if a supplier's performance is acceptable, the

company may wish to invest time and resources in developing

suppliers and improving suppler performance. If the problem is

too severe, can not be fixed in a timely manner, or poses too

great of a risk, the company may wish to stop doing business

altogether with the supplier. This means that the company should

carefully find an alternative source of supply and, if possible,

reduce its reliance on the supplier in question, (Tim, 2008).

Clearly supplier performance management is more than simply

obtaining data on suppliers. It reflects the company’s strategy

and is a comprehensive approach to managing a company’s supply

base. It seeks to identify and mitigate risks in an attempt to

boost overall profitability. It often involves performance

assessments, supplier scorecards, periodic reviews of supplier

data, and supplier development. It is also includes an

orientation that is geared toward improving the performance of

the supply base and buying well. Supplier performance management

also involves software, systems, processes, and people.

Effective supplier performance management is not easy to achieve

and takes knowledge or an organization’s goals, business

processes, structure, and supply base. When it is done well, it

can bring significant monetary benefits to a company, (Sheraton,

2011).

2.3 Critical Review

45

While risk management has received significant boardroom

attention, in most organizations, supplier risk remains largely

unmanaged while reliance on suppliers and exposure to supplier

risk continues to increase dramatically. Increased focus on

strategic sourcing, outsourcing, and low-cost country sourcing

has transferred to suppliers many activities that were previously

performed in-house and has simultaneously driven consolidation in

the supply base. The result has been dramatically increased

reliance on key suppliers, often accompanied by development of

more complex supplier interactions with growing numbers of touch-

points and dependencies. While this rapid deployment of sourcing

has increased most organizations’ exposure to supply risks,

mechanisms to enable visibility and management of these risks

have not kept pace. Many companies do not have a comprehensive

view of the risks associated with their supply base, nor do they

have a well-thought-out, repeatable approach to managing these

risks. Furthermore, it is not clear who in the organization has

the responsibility to evaluate and manage supplier risks, what

risk conditions should trigger actions or, even what those

actions should be, (Leenders, 2009). Most organizations can not

precisely identify which suppliers are truly strategic or even

how such strategic supplier relationships should be managed,

leading to an inability to effectively focus resources or realize

strategic value from the supply base.

When managed effectively, strategic relationships can deliver

impressive returns and competitive advantage to both companies

46

and their suppliers. Through strategic relationships, companies

and their suppliers can drive lower total lifetime costs while

allowing suppliers to profit, can reduce risk for both parties,

can help create advanced joint capabilities not available to

other competitors, and can provide strategic options for

additional value for both parties. Sadly, the word “strategic” is

often over used when it comes to suppliers. While most

organizations are proud to declare that they view some suppliers

as strategic, few organizations can describe the implications of

making a supplier strategic. Many organizations have not formally

spelled out a set of expectations for what makes suppliers

strategic, how such suppliers will be managed differently, and

what suppliers must deliver in return to maintain their strategic

status. Furthermore, in many organizations, asking 10 individuals

to name the strategic suppliers will yield 10 different answers.

As a result, many organizations manage strategic and non-

strategic suppliers in an undifferentiated fashion, resulting in

too much time wasted on non-strategic suppliers while little

strategic value is derived from strategic relationships,

(Juttener, 2004).

2.4 Summary

Any time that a business is receiving raw materials or finished

goods from an outside source or foreign country, the need for a

supplier management program exists to make sure that these items

are being made to the proper specifications required by the

47

organization receiving them. Supplier management programs have a

number of advantages, mainly those that allow the company to

dictate and observe the proper processes and standards that they

want their finished product to have.

Being able to control the supply chain is important. By engaging

in supplier management, a business can make sure that it is aware

of what its competition is trying to do. Supplier management also

allows businesses to get the proper materials, both as finished

goods from their suppliers, as well as raw materials that go into

the production of these goods. Because managing the suppliers of

materials allows for standards and specification, as well as

inspection and testing of goods and materials produced, it will

inevitably result in a much better quality product or finished

good being delivered to the business and ultimately to the

consumer or end user.

Collaboration with the supplier of goods and raw materials can

also help to cut the costs of the finished goods. By working

together to improve the supply chain process, the business and

the supplier can identify weak areas or expensive processes that

are not producing results. By working with suppliers through

supplier management programs, the businesses doing the management

can also identify future sourcing and supply problems, as well as

alternate suppliers in case of a problem that would arise with

the primary suppliers. This allows for reduced down time in case

48

of a supply issue, as well as for negotiation with current

suppliers as to pricing and delivery options.

2.5 Conceptual Framework

This framework conceptualizes management of supplies as

independent variable while organizational efficiency as dependent

variable. Managing of suppliers in an organization is very

important since it enhances the suppliers to supply goods to its

customers at the right time and at the right place in order to

increase efficiency of the organization and also the management

makes sure the suppliers help them to know the preferences of its

customers in order to satisfy their needs. The procurement

management makes sure that there is good relation between suppler

customer relations in order to retain its customers.

Figure 2.1: Conceptual Framework

Independent Variable Dependent

Variable

Source: (Author, 2012)

49

Supplier selection

Supplies optimizationOrganizational

efficiency Supplies automation

Constraints affecting

supplies management

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.0 Introduction

This chapter describes the research design and methodology. The

chapter starts by describing the research design, the study

area, target population, sampling for the study and data

collection instruments and procedures, and finally describe the

data analysis methods that was adopted in an attempt to answer

research questions.

3.1 Research Design

Research design is considered as a "blueprint" for research,

dealing with at least four problems: which questions to study,

which data are relevant, what data to collect, and how to analyze

the results. The best design depends on the research question as

well as the orientation of the researcher (Mbendi & Foster,

2007). The study used a case study design. Case studies not only

explore and describe phenomena but can also be used to explain

causal relationships and to develop theory (Mbendi & Foster,

2007). The researcher visited only one organization that is,

Naivas supermarket to collect all the required information about

the effects of management of suppliers on organizational

efficiency. The basic idea behind research design was to measure

variables by asking the respondents questions and then to examine

relationships among the variables. The research design helped

50

attempt to capture attitude or patterns of the questions being

sought.

3.2 Study Area

Patton (2006) describes the study setting begins with the

physical environment and proving sufficient information that the

reader does not have to speculate at what is meant and where it

was obtained from. This study was limited to the Naivas

supermarket located near Moi Referral hospital. The branch serves

the people of Eldoret and its environs. This study was meant to

investigate the effects of management of supplier on

organizational efficiency in the supermarket.

3.3 Target Population

Target population is the people or subjects the study selects the

respondents from and it is vital in achieving the set objectives

(Mbendi, 2007). The target population included the manager, 5

head of department which include (finance, marketing, total

quality management, purchasing and supply, and human resource

management and 65 other staffs working in Naivas supermarket. The

target population was 71 respondents.

Table 3.1 Target Population

Respondents Target populationManager 1

51

Heads of department 5Other staffs 65Total 71Source: Naivas Supermarket (2012)

3.3.1 Sample Size Determination

Sampling is that part of statistical practice which is concerned

with the selection of individual observations intended to yield

some knowledge about a population of concern, especially for the

purpose of statistical inference. Sampling frame which has the

property that study can identify every single element and include

any in the sampling. The most straight forward type of frame is a

list of elements of the population (preferably the entire

population) with appropriate contact information. The sampling

frame must be representative of the population and this is a

question outside the scope of statistical theory demanding the

judgment of experts in the particular subject matter being

studied. The study used stratified and random sampling procedures

that was used to get the respondents. According to Oso and Onen

(2005) 50% of the accessible population is enough for a case

study.

Table 3.2 Sample Size Determination

52

Respondents Target

population

Procedure Sample sizeManager 1 1*1 1Heads of

department

5 1*1 5Other staffs 65 65*0.5 32Total 71 38Source: Author, (2012)

3.4 Description of the Sample and Sampling Procedures

The study employed stratified sampling technique and purposive

sampling technique in selecting the respondents. Cochran (1977)

stated that stratified sampling involves the division of a

population into smaller groups known as strata. In stratified

random sampling, the strata are formed based on members' shared

attributes or characteristics. A random sample from each stratum

is taken in a number proportional to the stratum's size when

compared to the population. These subsets of the strata are then

pooled to form a random sample. Stratified sampling technique was

used to select 32 employees from the departments of Naivas

Supermarket. In purposive sampling the researcher decides who to

include in the sample. The researcher purposely targeted a group

of people believed to be reliable for the study (Kombo and Tramp

2006). Purposive sampling technique was used to select the

manager and 5 head of departments.

3.5 Data Collection Instruments

3.5.1 Primary Data

53

Primary data was obtained through self-administered

questionnaires. The questionnaires had both open ended and closed

questions. This method ensured reliability and clarification to

be offered to those who encountered difficulties in filling the

questionnaires. Questionnaires formed the major source of primary

data used in the study. The data was collected from this source

was obtained through use of questionnaires constructed by the

researcher and approved by the supervisor. The data was collected

through this study shall be collected through actual visits to

area of study. The questionnaire was administered by the

researcher to the respondents. Questionnaires are easy to

administer, friendly to complete and fast to score and therefore

take relatively very little time of researchers and respondents

(Mbendi, 2007).

3.6 Data Collection Procedure

Before the actual data collection exercise takes place, the

researcher undertook preliminary survey within the selected study

areas and also made appointments with the identified persons.

During the appointment day, the researcher distributed the

questionnaires in the morning and collected them in the

afternoon. However, during that period the researcher was

available for any consultation or clarification.

3.7 Reliability and Validity of Research Instruments

3.7.1 Reliability

54

According to Neuman (2005), the reliability of an instrument is

the measure of the degree to which a research instrument yields

consistent results or data after repeated trials. In order to

test the reliability of the instrument to be used in the study,

the test- retest method was used. The questionnaires were

administered twice within an interval of two weeks. In the end of

this study, the research tool was found to be reliable because it

provided the researcher with consistent data at the end of data

collection.

3.7.2 Validity

According to Neuman (2005), validity is the quality attributed to

proposition or measures to the degree to which they conform to

established knowledge or truth. An attitude scale was considered

valid, for example, to the degree to which its results conform to

other measures of possession of the attitude. Validity therefore

refers to the extent to which an instrument can measure what it

ought to measure. It referred to the extent to which an

instrument asks the right questions in terms of accuracy. The

researcher discussed the items in the instrument with the

supervisors, lecturers from the department and colleagues. The

correspondents were expected to indicate by tick or cross for

every item in the questionnaire if it measure what it was

supposed to measure or not.

3.8 Description of Data Analysis Procedures55

While collecting the data, researcher ensured on its

confidentiality and secrecy. Researcher assured the respondents

that the information to be collected was used only for research

purposes. The study used one questionnaire that was used by the

respondents. They issued with the questionnaires and be given

time to fill the required information. The researcher issued out

the questionnaires in the mid- morning and collect them in the

evening.

The data collected was analyzed through descriptive statistic,

where tables, frequencies were used in interpreting the

respondent’s perception on issues raised in the questionnaires so

as to answer the research questions. After the data was

collected and analyzed, it was presented using frequency table’s

and percentages.

56

CHAPTER FOUR

4.0 DATA ANALYSIS, PRESENTATION AND INTERPRETATION

4.1 Introduction

The chapter presented the analysis of the data collected and also

presented the empirical results of the descriptive data survey of

the primary target population. The analysis is both quantitative

and qualitative and the results will be represented through

frequency tables and percentages.

4.2 Personal Information

There was the need for the researcher to know the personal

information of the respondent. This information included gender,

age, education level and working experience and marital status of

the respondents.

4.2.1 Gender of the Respondents

The researcher assessed to know the gender of the respondent,

this is because gender affects the way service delivery is

carried out, and also it has influence of different levels of

which development of an organization is expected. The findings

were presented in table 4.1

Table 4.1 Gender of Respondents

Gender Frequency Percentage Male 22 60Female 16 40

57

Totals 38 100

From the above table it was established that 22 (60%) of the

respondents were male and 16 (40%) were female hence showing

gender inequality and therefore the organization need to increase

the number of female counterparts for performance increment and

gender equality.

58

4.2.2 Age of the Respondents

The researcher sought to establish the age distribution of

respondents. This is a demographic feature that affects behaviors

or different perception of respondents on effects of management

of suppliers on organizational efficiency. It was important to

assess the age of respondents as this would affect the way each

would behave in the organization. People at different ages think

differently and thus their perception differs. Data on age

distribution was represented in table 4.2 below.

Table 4.2: Age of Respondents

Age Frequency Percent

ageBelow 19 years 3 719-30 years 5 1431-40 years 20 52Over 40 years 10 27Totals 38 100

The findings above indicated that the age below 19 years was the

lowest and presented 3 (7%) of the population, 19-30 years

followed by 5 (14%). The results also showed that majority 20

(52%) were between 31-40 years and the remaining 10 (27%) of the

respondents were 40 years. It will be interesting to see how age

factor has affected the objectives of the research. Different age

groups think differently hence the query differs.

4.2.3 Educational Level of the Respondents 59

The level of education is a very important aspect efficiently and

effectively the organization is. The education will show if the

organization had the required knowledge to perform their tasks.

The level of education was conceptualized as O’-level, A’-level,

undergraduate and masters.

60

Table 4.3 Education Level of the Respondents

Level of Education Frequency Percentage

O-Level 5 13

A- Level 8 20

Undergraduate 15 40

Masters 10 27

Totals 38 100

From the sampled respondents the leading group is that of the

undergraduate level of education with 15 (40%), followed by

those respondents who had masters with 10 (27%), then those in

A-level with 8 (20%) and lastly those in O-level level with 5

(13%). The results indicated that a significant number of the

respondents were in college levels. This implies that most of

the employees do understand the kind of work is needed of them

in the organization.

4.2.4 Working Experience of the Respondents

The research sought to know the number of years the respondents

had been working in the organization. Since this will indicate

the exposure and experience that the staff had in the

organization and which may relate in the efficiency in employee

reward system. Working experience contributes to the respondent’s

competence on execution of organization in enhancement of their

61

performance and organizational efficiency. The findings of this

enquiry are presented in the table 4.4.

62

Table 4.4 Working Experience of the Respondents

Working Experience Frequency Percentage

Below 5 years 3 7

6 -10 years 20 53

10 years and above 15 40

Totals 38 100

The results from the sampled respondents indicated that 3 (7%)

worked for the organization for below 5 years while a majority 20

(53%) worked for 6-10 years. it was also clear that the remaining

40% worked for over 10 years. The highest numbers of respondents

have a good working experience in the organization as they have

stayed and worked for the organization for about five to ten

years which shows that they are well versed with the organization

requirements.

4.2.5 Marital Status of the Respondents

The researcher assessed to know the marital status of the

respondents. The results of the findings are presented below.

Table 4.5 Marital Status of the Respondents

Marital Status Frequency Percentage

Married 15 40

Single 13 33

63

Divorced 8 20

Widowed 2 7

Totals 38 100

Table 4.5 above shows that majority 15 (40%) of the respondents

are married while 13 (33%) of the respondents were single. It was

also clear that 8 (20%) of the respondents were divorced and the

remaining 2 (7%) were widowed.

4.3 Specific Objectives

4.3.1 Those Responsible for the Supplier Selection

The respondents were asked to indicate the people responsible for

supplier selection. The findings are as presented below.

Table 4.6 Those Responsible for the Supplier Selection

Marital Status Frequency Percentage

The management 18 48

The Procurement

department

20 52

Totals 38 100

According to the findings, 18 (48%) of the respondents confided

that the person responsible for supplier selection is the

management whereas the majority 20 (52%) said the procurement

department.


64

It was paramount for the study to determine the effects of

supplier selection on organizational efficiency. The results are

as presented on table 4.7 below.

65

Table 4.7 Effects of Supplier Selection on Organizational

Efficiency

Supplier Selection on

Organizational Efficiency

SA A U D SD

It helps in mitigation

against poor supplier

performance or performance

failures

7

(18%)

21

(59%)

5(12%) 5(12%) 0

(0%)

It helps in sourcing from

suppliers that provide high

standards of product and

service levels

5

(12%)

16

(41%)

11

(29%)

5(12%) 1

(6%)

It helps customers and

suppliers identify and

remove hidden cost drivers

in the supply chain

5(12%) 12

(35%)

7

(17%)

9

(24%)

5

(12%)

It can motivate suppliers

to improve their

performance

20

(53%)

9

(24%)

9

(24%)

0(0%) 0(0%)

It offers sufficient

capacity and business

stability

11

(29%)

18

(47%)

7

(18%)

1(6%) 1(6%)

From the findings five effects of supplier selection on

organizational efficiency were identified during the study. The

66

findings showed that 18% of the respondents strongly agreed that

it helps in mitigation against poor supplier performance or

performance failures whereas 59% agreed. The respondents who were

not certain accounted for 12% and the remaining 12% disagreed on

the opinion.

For the case of “it helps in sourcing from suppliers that provide

high standards of product and service levels” 12% of the respondents

strongly agreed whereas 41% agreed. The respondents who were not

certain accounted for 29% and the remaining 18% of the

respondents disagreed to the opinion.

For the case of “it helps customers and suppliers identify and remove

hidden cost drivers in the supply chain” 12% of the respondents

strongly agreed whereas majority (35%) of the respondents agreed.

The respondents who disagreed to the opinion accounted for 24%

and 12% strongly disagreed. The remaining 18% of the respondents

were not certain.

For the case of “it can motivate suppliers to improve their

performance” majority (53%) strongly agreed whereas 47% agreed.

The respondents who were not certain to the opinion accounted for

24%.

It was established that it offers sufficient capacity and business

stability where 29% of the respondents strongly agreed whereas

47% agreed. The findings also showed that 18% of the respondents

were not certain and 12% of the respondents disagreed to the

opinion.67

4.3.3 Respondents views if the Supermarket has increased its

effectiveness due to supplier optimization

Table 4.8 Respondents views if the Supermarket has increased its

effectiveness due to supplier optimization

Response Frequency Percentage

Yes 25 66

No 13 34

Totals 38 100

According to table 4.8 majority 25 (66%) of the respondents

agreed that supermarket has increased its effectiveness due to

supplier optimization while the remaining 13 (34%) of the

respondent disagreed that supermarket has increased its

effectiveness due to supplier optimization.

68


Efficiency

It was paramount for the study to determine the effects of

supplier optimization on organizational efficiency. The results

are as presented on table 4.9 below.

Table 4.9 Effects of Supplier Optimization on Organizational

Efficiency

Supplier Selection on

Organizational Efficiency

SA A U D SD

It improves supplier

pricing, quality and

timeliness

12

(31%)

16

(43%)

5

(13%)

5

(13%)

0

(0%)

It helps to shrink supplier

management costs3 (9%) 18

(47%)

8

(22%)

8

(22%)

0

(0%)

It ensures there is

outsourcing of core

business activities that

allows the organization to

focus on adding value to

its key processes

6

(16%)

19

(50%)

7

(19%)

3 (9%) 2

(6%)

Ensuring that you have the

correct stock at the right

level at the right place

and time

1 (3%) 19

(50%)

14

(38%)

2 (6%) 1

(3%)

69

Ensuring that the

organization has the

correct inventory levels

against consumption

16

(41%)

9

(25%)

5

(13%)

5

(13%)

2

(6%)

From the results, 74% of the respondents agreed that it improves

supplier pricing, quality and timeliness while 13% were not certain

if it improves supplier pricing, quality and timeliness. The

remaining 13% disagreed that it improves supplier pricing, qualityand timeliness.

It was also clear that majority (56%) of the respondents agreed

that it helps to shrink supplier management costs while 22% were not

sure. The remaining 22% disagreed that it helps to shrink supplier

management costs.

From the result, it was certain that it ensures there is

outsourcing of core business activities that allows the organization

to focus on adding value to its key processes 66% of the respondents

agreed that it ensures there is outsourcing of core business

activities that allows the organization to focus on adding value to

its key processes whereas 19% were not sure. It was also clear

that 9% disagreed and the remaining 6% strongly disagreed.

From the results, 53% agreed that Ensuring that you have the

correct stock at the right level at the right place and time, 38% were

not sure and the remaining and paltry (9%) disagreed.

70

It was also clear that 56% of the respondents agreed thatensuring that the organization has the correct inventory levels

against consumption whereas 13% were not sure. It was also clear

that 13% disagreed and the remaining 6% disagreed.

4.3.5 Respondents Views if all the processes automated in the

supermarket

The respondents were asked to indicate if all the process in

supermarkets are automated. The results of the findings are as

presented below.

Table 4.10 Respondents Views if all the processes automated in

the supermarket

Response Frequency Percentage

Yes 32 85

No 6 15

Total 38 100

According to Table 4.10 above majority (85%) of the respondents

agreed that all the process are automated in the supermarket

while the remaining 15% of the respondents disagreed to the

opinion.


It was important for the researcher to determine the effects of

supplier automation on organizational efficiency. The results of

the findings are as presented below.

71

Table 4.11 Effects of supplier automation on organizational

efficiency

Effects of supplier

automation on

organizational efficiency

SA A U D SD

Automation allows your

organization to operation

higher levels of efficiency

19(50%

)

7

(19%)

7

(19%)

2 (6%) 2

(6%)

With the web-based

applications, your internal

customers can create their

requisitions online

1 (3%) 9

(25%)

12

(31%)

7

(19%)

8

(22%)

Automation saves your

purchasing staff even more

time by allowing end users

to shop directly at vendor-

maintained websites

2 (6%) 13

(34%)

17

(44%)

3 (9%) 8

(22%)

Automation provides a

scalable solution that is

able to handle a variety of

inventory types

1 (3%) 6

(16%)

18(47%

)

6(16%) 7(19%

)

Efficiencies gained from

automation lead to cost

reductions

19(50%

)

8(22%) 5(12%) 1(3%) 1(3%)

72

From the results, 69% of the respondents agreed that automation

allows your organization to operation higher levels of efficiency,

while 19% were not sure whether automation allows your organization

to operation higher levels of efficiency. The remaining 12%

disagreed.

It was also clear that 28% of the respondents agreed that withthe web-based applications, your internal customers can create their

requisitions online whereas 31% were not sure. The respondents who

disagreed accounted for 19% and the remaining 22% strongly

disagreed.

From the results, 40% of the respondents confided that automationsaves your purchasing staff even more time by allowing end users to

shop directly at vendor-maintained websites whereas 44% were not

sure whether automation saves your purchasing staff even more time by

allowing end users to shop directly at vendor-maintained websites and

the remaining 31% disagreed to the opinion.

From the results 19% of the respondents accepted that it

automation provides a scalable solution that is able to handle a

variety of inventory types while 47% of the respondents were not

sure with the opinion. The remaining 35% of the respondents

disagreed that automation provides a scalable solution that is able

to handle a variety of inventory types.

According to the findings, 72% of the respondents agreed that

efficiencies gained from automation lead to cost reductions whereas

12% were nor certain to the opinion. The remaining 6% of the

73

respondents disagreed to the opinion that efficiencies gained from

automation lead to cost reductions.


It was paramount for the study to establish the constraints

affecting supplier management. The results of the findings are as

presented below.

Table 4.12 Constraints Affecting Supplier Management

Constraints AffectingSupplier Management

SA A U D SD

Heavy investment of time,money, and resources neededto implement and overlookthe supply chain

14

(37%) 7(19%) 10(26%)

4(11%

)

3(7%

)

Outsourcing to foreigncountries to save money cancause backlash from themedia, current customers,as well as possible futurecustomers

20(52%

)

14(37%

) 3(7%) 2(4%)

0(0%

)

Integrating the supplychain and choosing thecorrect suppliers isdifficult

14(37%

)

17(44%

) 4(11%) 3(7%)

0(0%

)

A company must also compareand negotiate withsuppliers on the terms ofprice, consistency, andquality which can be timeconsuming

16(41%

)

20(52%

) 3(7%) 0(0%)

0(0%

)

74

Today after theintroduction of this newsupply management there hasbeen increased unemploymentwhich has resulted to highunemployment levels in theeconomies

14(37%

)

18(48%

) 3(7%) 2(4%)

2(4%

)

According to table 4.12, 56% of the respondents agreed that there

is heavy investment of time, money, and resources needed to implement

and overlook the supply chain while 26% of the respondents were not

sure and the remaining 18% of the respondents disagreed.

According to the results, 89% of the respondents agreed thatoutsourcing to foreign countries to save money can cause backlash from

the media, current customers, as well as possible future customers

while 7% were not sure. The remaining 4% disagreed that it

attracts new customers and retains the old ones.

From the results 81% of the respondents confided that itintegrating the supply chain and choosing the correct suppliers is

difficult whereas 11% were not sure with the opinion. The

remaining 4% disagreed.

From the results, 92% of the respondents agreed that a companymust also compare and negotiate with suppliers on the terms of price,

consistency, and quality which can be time consuming while the

remaining 7% were not sure whether a company must also compare andnegotiate with suppliers on the terms of price, consistency, and

quality which can be time consuming.

75

From the results, 85% of the respondents agreed that today afterthe introduction of this new supply management there has been

increased unemployment which has resulted to high unemployment levels

in the economies while 7% were not sure. The remaining 8%

disagreed that it reduces operational costs.

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CHAPTER FIVE

5.0 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter presents the summary of findings, conclusions,

recommendations and proposal for further studies made. The

findings in this chapter are consistent with research objectives

and questions. This followed the conclusion made from the

discussion. Recommendations under study are then drawn and

finally suggestions for further research were made.

5.2 Summary of Findings

From the findings, it was established that majority (60%) of the

respondents were male and the remaining partly were female hence

showing gender inequality and therefore the organization need to

increase the number of female counterparts for performance

increment and gender equality. The findings above indicated that

the age below 19 years was the lowest and presented (7%) of the

population followed by the respondents who were in the age

bracket of 19-30 years. The results also showed that majority

(52%) were in the age bracket of 31-40 years followed by the

remaining of the respondents who were 40 years. It will be

interesting to see how age factor has affected the objectives of

the research. Different age groups think differently hence the

query differs. From the sampled respondents the leading group is

that of the undergraduate level of education with (40%),

77

followed by those respondents who had masters. Those in A-level

and O-level level were the least of the total population of the

respondents. The results indicated that a significant number of

the respondents were in college levels. This implies that most

of the employees do understand the kind of work is needed of

them in the organization.

The results from the sampled respondents indicated that the least

of the respondents worked for the organization for below 5 years

while a majority 20 (53%) worked for 6-10 years. It was also

clear that the a significant number of the respondents worked for

over 10 years. The highest numbers of respondents have a good

working experience in the organization as they have stayed and

worked for the organization for about five to ten years which

shows that they are well versed with the organization

requirements. From the findings, majority (40%) of the

respondents are married followed by the respondents who were

single. It was also clear that the least of the respondents were

divorced and widowed.


From the findings, five effects of supplier selection on

organizational efficiency were identified during the study. The

findings showed that majority (77%) of the respondents strongly

agreed that it helps in mitigation against poor supplier performance

or performance failures. It was also established that it helps insourcing from suppliers that provide high standards of product and

78

service levels and also it helps customers and suppliers identify and

remove hidden cost drivers in the supply chain”. The findings also

revealed that it can motivate suppliers to improve their performance

and it offers sufficient capacity and business stability.


Efficiency

From the results, majority (74%) of the respondents agreed that

it improves supplier pricing, quality and timeliness and it was also

clear that it helps to shrink supplier management costs. In

addition, the results of the findings revealed that it was

certain that it ensures there is outsourcing of core businessactivities that allows the organization to focus on adding value to

its key processes and that it helps in ensuring that you have the

correct stock at the right level at the right place and time. It was

also clear that it helps in ensuring that the organization has the

correct inventory levels against consumption.


According to the findings, majority (72%) of the respondents

agreed that efficiencies gained from automation lead to cost

reductions followed by the respondents who accepted that automationallows your organization to operation higher levels of efficiency ands

that with the web-based applications, your internal customers can

create their requisitions online. It was also established that

partly of the respondents confided that automation saves yourpurchasing staff even more time by allowing end users to shop directly

79

at vendor-maintained websites and that automation provides a scalable

solution that is able to handle a variety of inventory types.

80


From the results, majority (92%) of the respondents agreed that acompany must also compare and negotiate with suppliers on the terms of

price, consistency, and quality which can be time consuming followed

by the respondents who said that outsourcing to foreign countriesto save money can cause backlash from the media, current customers, as

well as possible future customers. It was also clear that there is

heavy investment of time, money, and resources needed to implement and

overlook the supply the respondents confided that it integrating the

supply chain and choosing the correct suppliers is difficult. From the

results, the respondents agreed that today after the introductionof this new supply management there has been increased unemployment

which has resulted to high unemployment levels in the economies.

5.3 Conclusions

In conclusions, the first objective was to assess the effects of

supplier selection on organizational efficiency and from the

findings, majority of the respondents strongly agreed that ithelps in mitigation against poor supplier performance or performance

failures. It was also established that it helps in sourcing fromsuppliers that provide high standards of product and service levels

and also it helps customers and suppliers identify and remove hidden

cost drivers in the supply chain. The findings also revealed that

it can motivate suppliers to improve their performance and it offers

sufficient capacity and business stability.

81

The second objectives was to determine the effects of supplier

optimization on organizational efficiency and from the results,

majority of the respondents agreed that it improves supplier

pricing, quality and timeliness and it was also clear that it helps

to shrink supplier management costs. In addition, the results of

the findings revealed that it was certain that it ensures there isoutsourcing of core business activities that allows the organization

to focus on adding value to its key processes and that it helps in

ensuring that you have the correct stock at the right level at the

right place and time. It was also clear that it helps in ensuringthat the organization has the correct inventory levels against

consumption.

The third objective was to establish the effects of supplier

automation on organizational efficiency and according to the

findings, majority of the respondents agreed that efficienciesgained from automation lead to cost reductions followed by the

respondents who accepted that automation allows your organization to

operation higher levels of efficiency ands that with the web-basedapplications, your internal customers can create their requisitions

online. It was also established that partly of the respondents

confided that automation saves your purchasing staff even more timeby allowing end users to shop directly at vendor-maintained websites

and that automation provides a scalable solution that is able to

handle a variety of inventory types.

The fourth objective was to assess the constraints affecting

supplier management and from the results, majority of the

82

respondents agreed that a company must also compare and negotiatewith suppliers on the terms of price, consistency, and quality which

can be time consuming followed by the respondents who said thatoutsourcing to foreign countries to save money can cause backlash from

the media, current customers, as well as possible future customers. It

was also clear that there is heavy investment of time, money, and

resources needed to implement and overlook the supply the respondents

confided that it integrating the supply chain and choosing the

correct suppliers is difficult. From the results, the respondents

agreed that today after the introduction of this new supply

management there has been increased unemployment which has resulted to

high unemployment levels in the economies.

5.4 Recommendations

i. Management of suppliers is very important in every

organization and in light of this the study recommends that

Naivas supermarket should be able to implement effective

supplier management as a way of securing competitive

advantage and improving organizational performance since

competition is no longer between organizations, but among

supply chains.

ii. The study also recommends that organizations should consider

supplier selection as one of their important aspects in

management of suppliers which will in turn help in mitigationagainst poor supplier performance or performance failures and in

sourcing from suppliers that provide high standards of product

and service levels.83

iii. It is also important for Naivas supermarket and others to ensure

that supplier optimization is effectively employed to

improve supplier pricing, quality and timeliness.

iv. The study also recommends that automation be introduced in

organizations because supplier automation allows your

organization to operation higher levels of efficiency and

efficiencies gained from automation lead to cost reductions.

v. Finally, the study recommends that Naivas supermarket should

identify the constraints affecting management of suppliers and

find suitable strategies and solutions to overcome the identified

strategies.

5.5 Suggestions for Further Studies

This study has investigated the effects of management of suppliers on

organizational efficiency within Naivas supermarket. It is recommended

that further studies should be conducted on the role of suppliers’

management on employee effectiveness. Moreover further studies should

be conducted on the role of management in enhancing organizational

efficiency.

84

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APPENDICES

APPENDIX I: QUESTIONNAIRE

Please answer the following questions to the best of your

knowledge, tick () where necessary and fill where applicable.

Section A: Background information

1. Age

a. Below 19 years [ ] b.19 –

30 Years [ ]

c. 31 – 40 Years [ ] d. Over

40 years [ ]

2. Marital status

a. Married [ ] b. Single [ ]

c. Divorced [ ] d. Widowed [ ]

3. Gender

88

a. Male [ ]

b. Female [

]

4. Education level

a. O’ level

[ ]

b. A’ level

[ ]

c. Undergraduate [ ]

d. Masters

[ ]

5. Working Experience

a. Below 5 years [ ]

b. 6-10 years [ ]

c. Above 10 years

[ ]

89

SECTION B

Specific information

KEY: SA-strongly agree A-agree UD-undecided D-

disagree SD-strongly disagree

Supplier Selection

6. Who is responsible for the supplier selection?

The management [ ] The procurement

department [ ]

7. To what extent do you agree with the following statements in

relation to the effects of supplier selection on organizational

efficiency?

Effects SA A UD D SD

It helps in mitigation against poor

supplier performance or performance

failuresIt helps in sourcing from suppliers

that provide high standards of

product and service levelsIt helps customers and suppliers

identify and remove hidden cost

drivers in the supply chainIt can motivate suppliers to improve

their performance

It offers sufficient capacity and

business stability

Supplier Optimization

8. Has the supermarket increased its effectiveness due to

supplier optimization?

Yes [ ] No [ ]


relation to the effects of supplier optimization on

organizational efficiency?


It improves supplier pricing, quality

and timelinessIt helps to shrink supplier

management costsIt ensures there is outsourcing of

core business activities that allows

the organization to focus on adding

value to its key processesEnsuring that you have the correct

stock at the right level at the right

place and timeEnsuring that the organization has

the correct inventory levels against

consumption

Supplier Automation

10. Are all the processes automated in the supermarket?

Yes [ ] No [ ]


relation to the effects of supplier automation on organizational

efficiency?


Automation allows your organization

to operation higher levels of

efficiencyWith the web-based applications, your

internal customers can create their

requisitions onlineAutomation saves your purchasing

staff even more time by allowing end

users to shop directly at vendor-

maintained websitesAutomation provides a scalable

solution that is able to handle a

variety of inventory typesEfficiencies gained from automation

lead to cost reductions

Constraints


relation to the constraints affecting supplier management?

Constraints SA A UD D SD

Heavy investment of time, money, and

resources needed to implement and

overlook the supply chainOutsourcing to foreign countries to

save money can cause backlash from

the media, current customers, as well

as possible future customers

Integrating the supply chain and

choosing the correct suppliers is

difficultA company must also compare and

negotiate with suppliers on the terms

of price, consistency, and quality

which can be time consumingToday after the introduction of this

new supply management there has been

increased unemployment which has

resulted to high unemployment levels

in the economies