Improving the supplier selection criteria of Global Home company in Vietnam

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TRNG I HC M TP. HCM UNIVERSITÉ LIBRE DE BRUXELLES
HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL
MBAVB4

TON NU DIEU TRAM

IMPROVING THE SUPPLIER SELECTION CRITERIA OF
GLOBAL HOME COMPANY IN VIETNAM

MASTER PROJECT
MASTER IN BUSINESS ADMINISTRATION
(PART-TIME)

Tutor’s Name: Dr. TRINH THUY ANH

Ho Chi Minh City
(2011)

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COMMITMENT

I hereby committed that the thesis content was prepared and written by myself with information
obtained from reliable sources for the partial fulfillment of the requirement for the degree of
Master in Business Administration program.


Ho Chi Minh City, February, 2012

Ton Nu Dieu Tram
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ACKNOWLEDGEMENT
First of all, I would like to express my deepest gratitude to Dr. TRNH THÙY ANH who gave
me a lot of valuable comments and guidance during this thesis.
Secondly, I would like to express my sincere acknowledgement to Belgian professors from
Solvay Brussels School of Economics and Management who taught me not only valuable
knowledge and experiences on business administration but also analytical, creative thinking and
professional working methods.
I appreciate all Vietnamese professors from Ho Chi Minh City Open University who transfer me
knowledge, experiences and spirit which guided me during this program. I also would like to
thank Mr. Serge Bywalski, Ms. Hien and Ms. Ha – program coordinators for their supports.
My deepest appreciation to my colleague in helping me collecting information.
And my heartiest gratitude to my parents in supporting me.
I also thanks to the company suppliers who have given me their advices and dedication
for the thesis research.
I thank to my MBAVB4 classmates for the great exchange both knowledge and
experience during the course.
Your contributions are great encouragement for me to write the thesis.

Thank you very much.
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ABSTRACT
Vietnam has been developing rapidly. With an existing global demand for lower cost
furniture and other wood products, an abundant and inexpensive, skilful labor supply,
industrial wage structures, infrastructure in place and easy access to global shipping and
sourcing of materials and supplies, the prospects of the Vietnamese furniture industry
look promising. Global Home is one of the hundreds foreign company realized the

strength for the wood processing industry in Vietnam, come to Ho Chi Minh in 2007,
ordering from manufactures and has shipped more than 40foot Containers per month.
Global Home has worked with more than 20 suppliers but at the end of 2011 Global
Home has just more than ten suppliers . The company continuously replaced their
suppliers because those factories were late in delivery with a lot of defective goods. At
this moment company is facing a lot of issue such as lack of capacity and substandard
quality control due to the suppliers are not goods as requested. Global Home are now
aware that supplier selection is one of the most crucial activities performed by the
organizations because of its strategic importance. And vendor selection decisions are
complicated by the fact that various criteria must be considered in the decision making
process. For the stable growth, Global Home must improve its criteria in selection
suppliers as soon as possible.
This study is about analyzing all the problems with company’s suppliers and discussing
about the origin of them . With the literature review and the advices from the experts, the
study recommended that supplier selection criteria must considers multi factors such as
Prices,Quality,Delivery, Warranties and claim policies, Reliability of Vendor, Experience
of the Vendor, Assets/ Facilities, Operation Control. Global Home also should create the
manufacturing and supply agreement to legally control its suppliers with penalty clause.
In addition the study suggested that Global Home should give the marks for its suppliers
every 6 months and have solutions for the worst suppliers soonest.
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TABLEOFCONTENTS


COMMITMENT ii
ACKNOWLEDGEMENT iii
TUTOR’S COMMENT Error! Bookmark not defined.
ABSTRACT iv

TABLE OF CONTENTS v
ABBREVIATION viii
LIST OF FIGURES ix
LIST OF TABLES x
1 CHAPTER I – PROJECT OVERVIEW 1
1.1 Introduction 1
1.2 The research objective 1
1.3 Scope of the study 2
1.4 Methodology 2
1.5 Structure of the project: 3
2 CHAPTER II - INTRODUCTION ABOUT GLOBAL HOME 4
2.1 Organization: 4
2.2 Products 5
2.3 Markets and customers: 6
2.4 Targeting for the year 2012 6
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2.5
Global Home’s suppliers - the year 2011 6
2.6 Current criteria in selection a suppliers 8
2.7 The procedure to select a vendor 9
2.8 Advantage and Disadvantage for the current criteria in selection vendor 10
2.8.1 Advantage: 10
2.8.2 Disadvantage: 11
2.9 SWOT of the current criteria in selection suppliers of Global Home : 11
3 CHAPTER III – LITERATURE REVIEW 13
3.1 Outsourcing 13
3.2 Supply chain 14
3.3 Vendor selection criteria 15
3.3.1 Dickson’s Supplier Evaluation Criteria 15

3.3.2 Weber’s supplier evaluation criteria: 18
3.3.3 Vendor Selection Using Analytical Hierarchy Process 21
3.3.4 Strategic element of outsourcing 24
4 CHAPTER IV- RESEARCH METHODOLOGY 27
4.1 Research Methodology: 27
4.2 Type of Research 27
4.3 Data collection 28
4.4 The Criteria are suitable to be applied for Global Home company 28
5 CHAPTER V: ANALYZING THE REAL SITUATION OF GLOBAL HOME
CRITERIA IN SELECTION ITS SUPPLIERS 32
5.1 Problematic factories 2011 32
5.2 Problems facing: 34
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5.2.1
Late in delivery: 34
5.2.2 Bad Quality control: 36
5.2.3 Lost in Turnover: 39
5.2.4 The factories stop working with us after the first orders 41
5.3 Global Home and Its suppliers: 42
5.3.1 Global Home suppliers – Type of Business 42
5.3.2 Global Home suppliers- Capacity and realistic capacity: 43
5.3.3 Cubic Metter Prices: 45
5.3.4 Global Home’s suppliers 47
5.4 Ranking Global Home’s Suppliers 48
6 CHAPTER VI- CONCLUSION AND RECOMMENDATION 52
6.1 Conclusion 52
6.2 Recommendation 53
6.2.1 Criteria: 53
6.2.2 Prices & Prices for Cubic Meter woods 53

6.2.3 Manufacturing & Supply Agreement: 54
6.2.4 Ranking Global Home suppliers every 6 months 56
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ABBREVIATION
FOB: Free On Board
BOM: Bill of Materials
CBM : Cubic Metter
UK: United Kingdom
MCDM: Multiple Criteria Decision Making
CSCMP : Council of Supply Chain Management Professionals
AHP: Analytical Hierarchy Process
QC: Quality Control
GH : Global Home Company
KV : Khai Vy factory
MT: Minh Tien Factory
SDC: Sai Gon Development Corporation
VM: Viet My Factory
VP : Viet Phat Facatory

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LIST OF FIGURES
Figure 2.1.1: Global Home Organization 4
Figure 2.3.1 Global Home target market 2011-2012 6
Figure 2.5.1 Global Home’s Suppliers in Oct, 2011 6
Figure 3.3.3.1 The various criterial that are important for vendor selection 21
Figure 5.3.1.1 Suppliers - Type of Business and location 43
Figure 5.3.2.1 The percentage of the capacity factories could not make 44
Figure 5.3.3.1 Factories’ ideas - Global Home BOM & CBM 46

Figure 5.3.4.1 The reasons factories want to be Global Home’s suppliers. 47
Figure 5.4.2 Factory spread sheet – 2012 48

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LIST OF TABLES
Table 3.3.1.1 Dickson’s Supplier Evaluation Criteria 16
Table 3.3.2.1 Weber’s Supplier Evaluation Criteria 20
Table 3.3.3.2 The Average Matrix for the Criteria of Vendor Selection 22
Table 3.3.3.3 The Priority Matrix for the Criteria of Vendor Selection 23
Table 3.3.5.1 Criteria that are suitable for Global Home and Their Weights 30
Table 5.2.1.1 Sai Gon Development Corporation ( SDC) late in delivery 34
Table 5.2.1.2 Minh Tien factory (MT) late in delivery 34
Table 5.2.1.3 Khai Vy factory (KV) late in delivery: 34
Table 5.2.2.1 Defective items ratio from July to Dec 2011 36
Table 5.2.2.2 Last inspection for Montreal range 16 November 2011 37
Table 5.2.2.3 Fault per factory From July 2011 to Dec 2011 37
Table 5.2.2.4 Average ratio of defective products from July 2011 to Dec 2011 39
Table 5.2.3.1 Global Home Lost in Turnover in 2011 39
Table 5.3.2.1 Capacity and realistic capacity: 43
Table 5.4.1 Criteria that are suitable for Global Home and Their Weights 48
Table 5.4.2 Global Home suppliers 2012 , ranking 51
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1 CHAPTERI–PROJECTOVERVIEW

1.1 Introduction
Global Home was established in 2006 as one of the most innovative and ambitious
furniture suppliers in the UK market place.

Global Home is a trading company, out sourcing indoor furniture by ordering about
eighty containers per months from twelve factories in Ho Chi Minh City.
Global Home is developing strongly, and it will grow double for next year due to smart
designs and excellent target market as well as very simple and most efficient
organization. However the grower market is, the vender control is more difficult.
Currently, The company is time and again receives claims from its customers because of
late delivery and substandard products , obviously it lost much of its profit .
Furthermore, due to economic inflation and shortage of workforce and also the bad
management system, the manufacturers have asking the price increase is very often and
they cannot give any prices guarantee.
Company needs eliminating the un sufficient venders and urgently looking for more good
factories. It is a Must that company has to improve the vendor selection criteria to survive
and to expand the business as the speed.
1.2 Theresearchobjective

To review the problems that Global Home is dealing with factories and how much they
are affected its profits
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To analysis the existing suppliers selection criteria of Global Home and the consequences
To set up the criteria for Global Home in suppliers selection that enhance the efficiency
of factories selection

1.3 Scopeofthestudy
The project focuses on existing criteria for five suppliers selected in Ho Chi Minh city
which Global Home is facing enormous problems leaded to the damage on its business to
find out the solution to improve the limitation on supplier selection criteria . The
proposal will be presented for the period from 2012 to 2015
1.4 Methodology

The study methodology has been based on the other studies were published about vendor
selection combined with real then situation and experts interview to conclude the factors
that affect the decision in supplier selection for the company.
Data: Interviewing, group discussing and surveying will develop primary data during
research. Primary data is needed and gathered for the first time for the study if the
secondary data cannot answer questions being asked.
Conclusions
Hypothesis
Case studies
Analysis
Primary Data
Secondary Data
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Secondary data will be extracted from the internal Global Home information with its
service , products, the contract value for each factory, its business results , the number of
the customers and their purchase orders and their claims value ; from external
information such as magazines, books and other publishing.
There are two types of research, quantitative and qualitative. This project will be applied
both types with survey, secondary data, information from site visit for auditing.
1.5 Structureoftheproject:
Chapter 1 : Project Introduction
Chapter 2: Introduction about Global Home
Chapter 3 : Literature review

Chapter 4 : Research methodology
Chapter 5: Analysis and Discussion the real situation of Global Home criteria in selecting
it suppliers
Chapter 6 : Conclusion and Recommendation.
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2 CHAPTER IIINTRODUCTION ABOUT GLOBAL
HOME
Global Home was established in 17/09/2006, the head office located in Czech Republic.
It is a trading company. Designing and ordering furniture from manufactures in South
and Middle of Vietnam.
2.1 Organization:
Figure 2.1.1: Global Home Organization







The Sourcing manger is playing an important role and he works independently and give
the reports to the owner. He is the one to make the decision that which factory should be
reported to the owner and others are not. It makes the factory selection is very simple and
fast however it is also has a lot of issue to be discussed in chapter 5.
Owner
(Managing Director- CEO)
Financial Director Design Director
Designer &
Technician

team
Sourcing cum Quality control manager
Warehouse +
logistics team
Quality
Control team
Human
resource &
Admin staffs
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2.2 Products
Global Home is one hundred present indoor industry which the products made by Oak at
70%, Acacia 25% and Pine 15%.
The Oak range includes the ranges such as York and Salisbury (40 containers per
month )the best selling ranges produced by Thanh Thanh factory, and Hoa Phat factory .
Imperial range ( 4 contains/ month) was produced as Minh Tien Factory. Montreal and
Quebec range ( 20 containers / month) was produced at KHai Vy factory and Viet My.
Trinity ranges (10 containers) is produced at Tien Dat factory, and some ranges for some
small clients
The Acacia ranges such as Darlinghust range and Tamwoth range (15 container per
month) is produced at Tien Dat factory which is located in Quy Nhon, Seville range( 7
container ) is made at Khiet Nguyen
The Pine ranges such as Christchurch range ( 5 containers) at Viet Phat factory. Dorset
range (5container )at Sai Gon Development Corporation factory, Tuscan range (5
container ) at the Country factory.
For the most convenience in product distribution for mix container program the company
has a warehouse 10.000 m2 and a showroom 1.000 m2
Once the vendors deliver products to bonded warehouse, our customer could choose
which items for 20’’ / 40’’ container, the minimum quantity for each item is ONE.

Satisfying customers with the best products and services, all products are guaranteed in
12 months from the day of delivery.
Product positioning: Global Home provides Products with the smartest designs saving
material in very economical way although still keeps high standard quantity and dynamic
products for the low and middle class user.
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2.3 Marketsandcustomers:
Global Home supplies middle class end users around United Kingdom, Ireland, Australia
and New Zealand via whole sales and sales agents
Figure 2.3.1 Global Home target market 2011-2012

2.4 Targetingfortheyear2012
Quality:Quality has also improved dramatically and Global Home can safely say that they
have now reached an acceptable level. Acceptable is good, but not good enough. Quality
Control aim over the next 6 months to further improve the level, until Global will be
considered VERY GOOD by its clients.
Capacity:Production capacity has increased and Global Home must handle a 50%
increase in sales compared to 2011.
2.5 GlobalHome’ssupplierstheyear2011
Figure 2.5.1 Global Home’s Suppliers in Oct, 2011

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2.6 Currentcriteriainselectionasuppliers

There are 5 criteria Global Home use to select its suppliers.
The first is the capacity that the supplier could agree to offer Global Home. However it is
just depend on the information the factory informed Global Home.
Then most import criterion is that the factory has to agree to work on the Cubic Metter
Prices principle, that means Global Home and factory just discussed one time about how
many USD for one Cubic meter (CBM) for each kind of wood that are going to make the
products. After that Global Home will send their design and board of material
calculated how much material we need to use to make an items.
Third is the CBM Prices have meet with the target prices. the CBM price is highly likely
the same for all factories Global Home orders as it is not depended on which designs are
but just basing on which material used only.
Next is the fixed deposit that means Global Home will send 10.000usd or 20.000usd for
all rolling orders. Global Home never sends deposit for individual order. That fixed
deposit will stay with the factory until Global Home stopped order from the supplier and
the amount will be deducted in the last payment.
The company also has the some other criteria such as : factory management and delivery
however these criteria could not just before working with them


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2.7 Theproceduretoselectavendor
Global Home is five year old trading company and it has been developing dramatically
from 2010- 2011. The criteria to choose vendors are still very simple, and decisions
normally are made basing on the personal feeling.
Following is the steps to decide to work with factory or not.
Global Home has one guy who is handling the duty that is the sourcing new factories.
That guy is also a Quality control manager. He will come to a factory which he thinks it
would be potential vendor for a range. The first step he will discuss with the owner the
principle agreement to be Global home supplier. The Agreement was written by company

owner cum managing director in Dec 2010)
PRICES: These are all based on to be agreed cubic meter prices for completely finished,
packaged and delivered goods, and strictly based on the agreed board of material and the
agreed quality. All furniture to be delivered to the Global Home bonded warehouse in
Vietnam, The factory in case of delivery to the warehouse pays for local charges
(** Appendix 01- BOM for reference )
DEPOSIT. Global Home will pay a (amount to be agreed, however never exceeding $
20.000) deposit. This deposit will remain with the factory for the duration of the
relationship. Global Home will pay for all deliveries in full. The deposit will be deducted
from the final order.
PAYMENT. Global Home pays via bank transfer every Monday for all goods delivered
and completed until Thursday 10 days prior. Deliveries that arrive later than Thursday
will be paid the next Monday. We will only process completed deliveries and all
paperwork must contain the required details.
QUALITY CONTROL. To be carried out by the Global Home QC team. We will check
in 3 stages of production: parts/assembly, finishing, hardware/packaging. The factory will
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cooperate fully with the QC team, granting them access to all parts of the production.
Without QC approval NOTHING can leave the factory. QC manuals specifying the
required quality will be agreed between Global Home and the factory and will determine
the required standard
** Appendix 02 - Agreement For Cooperation With Global Home - 2011
If the factory agrees with the terms, the second step is that the sourcing manager will
discussed the factory the prices and the capacity which been requested by the factory
owner.
After everything confirmed, the sourcing manager will send the reports with some picture
to company owner and he will make the final decision whether it is workable.
** Appendix 03 : factory profile 2011.
2.8 Advantage and Disadvantage for the current criteria in selection

vendor
2.8.1 Advantage:
This is a simple way to select a factory saving a lot of cost and afford as this is just” YES
and NO answer” for the factory.
Factory accepts the Cubic Metter prices principle .Global Home are asking for the cubic
metter prices and the company itself makes the Board of Material ( BOM) and drawing
this principle helps global home to understand the price for each products and global
home initiative in saving cost for products
Factory accepts the small fixed deposit for all order. Global home is not to waste a lot
unproductive capital.
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The time to make decision is quick. This can help Global Home not to miss any goods
factory.
Saving a lot of time in developing a range in the factory because as soon as the agreement
is settled up, global home will transfer deposit immediately.
It is very much fast to have to cost prices if Global Home has the CBM prices from its
supplier, it help Global Home to create the prices for their customers quickly
2.8.2 Disadvantage:
Global Home could easily make wrong decision as basically basing on the information
factory give to company
Global Home is asking for the cubic meter prices and the company itself makes the Board
of Material (BOM) and drawing. Factory cannot make much profit basing on that then it
is difficult to find the factory likes this principle
Global Home doesn’t have the evaluated information and factory didn’t give the accurate
so it could happen that factory just need Global home order in very short time
2.9 SWOTofthecurrentcriteriainselectionsuppliersofGlobalHome:
(Strengths, weaknesses, Opportunities, Threats)
Table 2.9.1 SWOT of Global Home criteria
Strength

The criteria is simple and clear to
understand, no confusion
It is save time for factory to make decision
It is help Global Home to save a lot of time
Weakness
There is Not official binding agreement.
No term to force factory to keep the price
valid for a request period
There are the term capacity and working
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to select a factory way that could not examine at the beginig
No comparison, no mathematics survey
between factories to determine the best
Opportunities
Clear term to work with Global Home for
a factory to approach and accept the
orders.
Global Home and Factory could gain the
great benefit because it is simple and fair
principle
The criteria are simple and flexible to have
enough supplier when the Global Home
sales go up and up.

Threats
All the factories could do the cheat to keep
the deposit and keep delay the delivery or
cancel without compensation.
It is easy that sourcing manager could give

the not correct information because he likes
or dislike the factory, or he could corporate
with the factory.
The factories could cancel the order after
received all drawing and board of material
and could supply the information to Global
Home’s competitors

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3 CHAPTERIII–LITERATUREREVIEW
3.1 Outsourcing
Outsourcing has become a recognized figure of industrial and commercial activities and
business around the world. It continues to grow in popularity and make its mark as a
prime mover in cutting costs and generating efficiency by buying in best practice and
economies of scale.
Outsourcing has become a main stream practice in global business operations ( Bailey,
Masson, & Raeside, 2002) . Traditionally, outsourcing is an abbreviation for outside
resourcing using” ( Arnold, 200; Buhner& Tuschuke, 1997, Quinn&Quinn& Hilmer,
1994). By this means, companies release non- core business or processes to outside
vendors, then the enterprise can focus on the most value-added and the most value- added
and professional activities in the whole value chain ( Lei&Hitt, 1995, Loh&
Venkatraman,1992; Quinn, 1999) .The outsourcing items covered a wide rage including
:R&D, design , manufacture, facility set up market marketing and atc, the major benefits
that enterprises outsource business to vendors are cost reduction, quality and service
performance improvement (Bailey at al., 2002, Barthelemy,2001; Sharpe, 1997).
In the out sourcing operation model, vendor selection is one the criteria factors affecting
the final success. Therefore, the vendor selection issues have been widely studies

determined as a multiple criteria decision making issue. (Steve Simonson, 2000)

Most businesses today are either outsourcing certain functions or considering it. But this
is a major decision, and the benefits can be difficult to define. The benefits discussion
typically centers on cutting costs. Outsourcing has been sold by the market or by clients
as a way to cut costs by reducing overhead and having a professional perform the
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operation. While this benefit is attainable, it is not the only advantage and should not be
the only reason a company decides to outsource.

The benefits of outsourcing can be divided into two types. First, there are the direct
benefits—those that have an immediate impact. Then, there are the indirect benefits—the
impact that outsourcing has on the processes that have remained in house.

The direct benefits of outsourcing are those related to reduced costs, decreased cycle
times, and improved customer perception and satisfaction. They include:

Focus on core competency
Reduction in the cost of manufacturing and logistics services
Reduction in head count of hourly workers and management
Improved accuracy
Flexibility and wider range of services
Access to global networks and superior technology
Improved service
Improved quality
Reduced capital investment and increased cash flow.
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Source: Uncover the Hidden Benefits of Outsourcing, By Steve Simonson, Partner,

Tompkins Associates
3.2 Supplychain
According to the Council of Supply Chain Management Professionals (CSCMP), supply
chain management encompasses the planning and management of all activities involved
in sourcing, procurement, conversion, and logistics management. It also includes the
crucial components of coordination and collaboration with channel partners, which can
be suppliers, intermediaries, third-party service providers, and customers. In essence,
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supply chain management integrates supply and demand management within and across
companies
A customer focused definition is given by Hines ,2004"Supply chain strategies require a
total systems view of the linkages in the chain that work together efficiently to create
customer satisfaction at the end point of delivery to the consumer. As a consequence
costs must be lowered throughout the chain by driving out unnecessary costs and
focusing attention on adding value. Throughout efficiency must be increased, bottlenecks
removed and performance measurement must focus on total systems efficiency and
equitable reward distribution to those in the supply chain adding value. The supply chain
system must be responsive to customer requirements."
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The specialization model creates manufacturing and distribution networks composed of
multiple, individual supply chains specific to products, suppliers, and customers, who
work together to design, manufacture, distribute, market, sell, and service a product. The
set of partners may change according to a given market, region, or channel, resulting in a
proliferation of trading partner environments, each with its own unique characteristics
and demands.
3.3 Vendorselectioncriteria
3.3.1 Dickson’sSupplierEvaluationCriteria
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
Dickson (1966) in order to provide a comprehensive view the criteria that academicians
and practitioners have found to be important in vendor selection. Vendor selection
decisions are complicated by the fact that various criteria must be considered in the
decision making process. The analysis of criteria for selection and measuring the
performance of vendors has been the focus of many academicians and purchasing
practitioners since 1960s. In his seminal work, Dickson 1966 suggests “from the
purchasing literature, it is fairly easily to abstract a list of at least 50 distinct factors