**Abstract**

In automobile industry, to operate effectively the supply chain management, the purchasing function is very important to perform effectively. It is the responsibility of purchasing department to choose the correct suppliers to purchase the required products for their company. Thus, supplier evaluation technique is essential for purchase manager's point of view to choose the best supplier among available suppliers. The literature addresses quality, delivery, technology, value and service as the five most common criteria used for supplier quality evaluation. In this chapter, approach of evaluation and selection of supplier has been presented as per the ISO 9000/TS16949 standards. Considering the most important criteria for evaluating the quality of suppliers based on a review of the literature and observation in practice. Finally, these organizations continuously review and implement effective quality systems following the rigorous ISO 9000/TS16949 series of standards and most automobile companies have developed in-house procedures and software for the supplier selection process.

**Keywords:** supplier assessment, supplier selection and performance evaluation, supplier quality cost, supplier rating, part per million equivalents

### **1. Introduction**

Conventionally firms have been divided in operational functions and each department take care of their own responsibility and manufacturing functions from procurement of raw material to dispatch of final products to the customer. Due to this reason, most of the organization purchasing commands a significant role, since purchased parts and components represent 40–60% of the sales [1] of its end products. This means with small cost saving in the acquisition of materials can have a greater impact on profits of the organization.

There has been an evolution in the role and structure of the purchasing function that gained great importance in the supply chain management due to the globalization and accelerated technological amend. It involves buying the raw materials and components for the organization to meet current need. The actions connected with it include selecting and qualifying suppliers, rating supplier performance, negotiating contracts, comparing price, quality and service, sourcing goods and service, timing purchases, selling terms of sale, evaluating the value received, predicting price, service, etc. Main responsibility of the purchasing department is the selection and evaluation of capable suppliers which brings

financial benefits for the organization. The main objective of the supplier selection process is to reduce peril and maximize the total worth for the buyer organization considering strategic variables such as the choice between domestic and international suppliers, and the number of suppliers.

#### **1.1 Literature reviews**

Experts agree that no best way exists to evaluate and select suppliers, and thus organizations use a variety of approaches. The overall objective of the supplier evaluation process is to reduce risk and maximize overall value to the buyer. **Figure 1** presents the steps to follow when developing such a system [2].

#### **Step 1: Identify key supplier evaluation categories**

The first step in this process is identifying supplier evaluation criteria such as cost, quality, and on time delivery which are the important primary critical criteria that affect on the buyer. However, for critical items the supplier's in depth analysis related to their process capability or machine capability and ability to do a business is essential. For these reasons more supplier evaluation study is required. These criteria are typically the following:

#### *A. Supplier managing capability*

This is an essential way to assess, since management runs the business and makes the decisions that influence the future competitiveness of the vendor.

#### 1.Overall workforce capabilities

This measurement requires an evaluation of third party personnel outside the organization. The reason is that well-known, self-motivated, stable employees should not be underestimated.

#### 2.Cost composition

Accepting a supplier's total cost configuration helps a purchaser to determine how competently a supplier can produce things. A cost breakdown helps to identify probable areas of cost improvement.

#### 3.Total quality management system

In supplier evaluation process, quality management systems at supplier end, their systems as well strategies must be address.

4.Technology and process capability, together with the supplier's design capability This step helps to understand the technology, resource skill and capital requirement of the supplier during selection process.

5.Ecological regulation conformity

This is important given that purchasers do not want to be connected with be known ecological polluters from a public relations stand point.

#### 6.Economic capability and steadiness

To check the economical capability of the supplier is essential for preliminary condition that the supplier must pass before a detailed evaluation can begin.

7.Production planning and control systems, including supplier on time delivery performance

**5**

*Supplier Evaluation and Selection in Automobile Industry*

Evidence that the supplier must use latest technology in their plant so that they

These criteria are together one way to expand greater imminent and accepting of

Supplier should be selected on the base of long term relationship, i.e., collabora-

The performance categories having weight reflect the relative importance of that category. The total of each weight must equal 1.0. That helps the management

In this, first identify performance subcategories within broader category in which the total sum of the subcategory weight must be equal to the total weight of

Scoring system takes criteria that may be highly skewed and develops a quantitative scale for measurement. Scoring system is effective if different individuals infer and score the same performance categories under assessment. For illustrative purposes, an example is a 5-point scale where 1 = poor, 2 = weak, 3 = marginal,

A buyer can compare the scores of different suppliers for the same order and select one based on the evaluation score. It may be possible that supplier does not qualify at this time for further purchase consideration. Purchaser should have minimum acceptable performance necessities that suppliers must assure before they

The major output from this step is a proposal about whether to accept a supplier for a business. A buyer may evaluate several suppliers who might be competing for a purchaser contract. The intention of the evaluation is to qualify potential suppliers

After selecting a supplier, the supplier must perform as per buyer requirements to fulfill their needs. The prominence shifts from the initial evaluation and selection of suppliers to continuous improvement by suppliers into their process and product

Few authors have acknowledged criteria for supplier selection, such as the price, quality, and delivery, past supplier performance, capacity, information systems, service, and geographic location, among others [4–6]. These criteria are a key issue in the supplier measurement process since it dealings the performance of the suppliers.

In most of the research which is based on supplier selection and evaluation, authors opined that the purchasing organizations use different approaches for evaluating and selecting supplier as per their requirements because of no best way is there.

**Step 4: Identify scoring system for categories and subcategories**

**Step 6: Make selection based on evaluation results review**

**Step 7: Review supplier performances constantly**

tion or partnership with the supplier. This will help both supplier and buyer to

*DOI: http://dx.doi.org/10.5772/intechopen.84383*

8.Information technology capability

can update their work environment.

9.Supplier purchasing strategies

10. Longer-term relationship probable

exchange ideas as well as technology with each other.

during the supplier selection and evaluation process. **Step 3: Identify and weight subcategories**

**Step 2: Evaluation category weightage**

the supply chain of the suppliers.

the performance category.

4 = qualified, and 5 = outstanding. **Step 5: Assess suppliers directly**

can become part of the supply base [3].

for current or future business requirements.

to fulfill buyer requirement.

**1.2 Methodology**

The purpose behind this step is to evaluate the supplier from planning, scheduling and on time delivery point of view.

#### 8.Information technology capability

*Industrial Engineering*

**1.1 Literature reviews**

criteria are typically the following:

*A. Supplier managing capability*

1.Overall workforce capabilities

probable areas of cost improvement.

3.Total quality management system

their systems as well strategies must be address.

ment of the supplier during selection process.

known ecological polluters from a public relations stand point.

5.Ecological regulation conformity

6.Economic capability and steadiness

ing and on time delivery point of view.

performance

should not be underestimated.

2.Cost composition

tional suppliers, and the number of suppliers.

presents the steps to follow when developing such a system [2]. **Step 1: Identify key supplier evaluation categories**

financial benefits for the organization. The main objective of the supplier selection process is to reduce peril and maximize the total worth for the buyer organization considering strategic variables such as the choice between domestic and interna-

Experts agree that no best way exists to evaluate and select suppliers, and thus organizations use a variety of approaches. The overall objective of the supplier evaluation process is to reduce risk and maximize overall value to the buyer. **Figure 1**

The first step in this process is identifying supplier evaluation criteria such as cost, quality, and on time delivery which are the important primary critical criteria that affect on the buyer. However, for critical items the supplier's in depth analysis related to their process capability or machine capability and ability to do a business is essential. For these reasons more supplier evaluation study is required. These

This is an essential way to assess, since management runs the business and makes the decisions that influence the future competitiveness of the vendor.

This measurement requires an evaluation of third party personnel outside the organization. The reason is that well-known, self-motivated, stable employees

Accepting a supplier's total cost configuration helps a purchaser to determine how competently a supplier can produce things. A cost breakdown helps to identify

In supplier evaluation process, quality management systems at supplier end,

This is important given that purchasers do not want to be connected with be

To check the economical capability of the supplier is essential for preliminary

7.Production planning and control systems, including supplier on time delivery

The purpose behind this step is to evaluate the supplier from planning, schedul-

condition that the supplier must pass before a detailed evaluation can begin.

4.Technology and process capability, together with the supplier's design capability This step helps to understand the technology, resource skill and capital require-

**4**

Evidence that the supplier must use latest technology in their plant so that they can update their work environment.

### 9.Supplier purchasing strategies

These criteria are together one way to expand greater imminent and accepting of the supply chain of the suppliers.

#### 10. Longer-term relationship probable

Supplier should be selected on the base of long term relationship, i.e., collaboration or partnership with the supplier. This will help both supplier and buyer to exchange ideas as well as technology with each other.

#### **Step 2: Evaluation category weightage**

The performance categories having weight reflect the relative importance of that category. The total of each weight must equal 1.0. That helps the management during the supplier selection and evaluation process.

#### **Step 3: Identify and weight subcategories**

In this, first identify performance subcategories within broader category in which the total sum of the subcategory weight must be equal to the total weight of the performance category.

#### **Step 4: Identify scoring system for categories and subcategories**

Scoring system takes criteria that may be highly skewed and develops a quantitative scale for measurement. Scoring system is effective if different individuals infer and score the same performance categories under assessment. For illustrative purposes, an example is a 5-point scale where 1 = poor, 2 = weak, 3 = marginal, 4 = qualified, and 5 = outstanding.
