School of Engineering and Design
Science in [your course title goes here]
This study investigates the circumstances in which buying materials and components from foreign suppliers can offer benefits to a manufacturer and those in which buying locally offers more advantages, taking into consideration factors such as the nature of the item to be purchased, the level of production technology, the item costs, the volatility of demand, rate of change of specification, among other variables. Firms must make important changes if they wish to reap the potentially huge scale economies of international procurement. For example, procurement decisions for low-volume, low-cost commodities (especially those with high transportation costs) can be left to regional headquarters or even to individual affiliates. Within the firm, procurement decisions need to be based on close and continuous interaction among purchasing, engineering, finance, and quality assurance. Improved inter-firm networking and administration are thus increasingly crucial to the effective implementation of inter-firm networks.
CHAPTER ONE: INTRODUCTION
INTRODUCTION
International procurement is used to describe the process between firms around the world to offer contracts for goods and services. The globalization of large corporations has allowed them to gain the benefits of lower labor and materials costs while still selling the same quality and quantity of products. Buying internationally is much more complex than buying domestically. There are differences in cultures, laws, communications, currencies, and more and these issues have to be understood to support international procurement. International procurement can provide lower costs and increased consumer base. The lower costs that can be achieved through purchasing services or goods from other counties are derived from currency valuation and the effects of product specialization.
Product specialization is the basic concept that some items have a lower cost of production, based on the natural or human resources available in different locations. Specializing in this area allows a particular national economy to offer that product or service at a lower cost that other economies, resulting in increased customers and more economic opportunities. In order to build a global economy, each nation must have some contribution or basket of goods that they can offer to potential customers. If a country is limited to just the goods that it can produce internally, then it needs to invest significant government spending to meet every need or leave those needs unfilled. Global market attracts customers to the lower prices and higher quality of the products provided by the different nations. As more goods and services are purchased from other countries, the wealth of those economies increases. This creates the capacity for increased spending, allowing customers and businesses to purchase goods and services. Effectively increasing the customer base then encourages more spending and growth, fueling the economic cycle.
In this dissertation, automotive industry with both local and international supplier choices will be particularly observed and compared within international procurement term. Automotive industry mainly depends on international procurement and same difficulties can probably occur in this mutual relationship. As it is known, many car manufacturing companies move their factories out of their origin country and also they buy different spare parts of cars from other countries around world. This study is a step ahead and aimed to critically explore the different circumstances where sourcing material from the international vendors can prove to be advantageous or less beneficial as compared to domestic suppliers.
AIM
The overarching aim of this study was to investigate the benefits of buying material from foreign suppliers instead of local vendors. The study also presents the positive points of buying material locally. Additionally, the factors taken into consideration will include nature of the item to be purchased, the level of production technology, the item costs, the volatility of demand, rate of change of specification etc.
OBJECTIVES
The main objective of the dissertation study was to compare the benefits of buying material from foreign vendors over the local suppliers. However, the research is also associated with a set of sub-research questions which are stated below:
1. Can usage of best and latest technology for production eliminate the drawbacks of buying material for low quality vendor?
2. To what extent can cost of procurement be controlled by buying material from a local supplier as compared to international supplier?
3. Does buying material from a famous international vendor help add a brand name to the production process?
RATIONALE in SUPPORT of the STUDY
Doing business across borders has become both easier to undertake, and at the same time, necessary to maintain a competitive position (Smith 2007, p. 117). In an increasingly globalized and competitive marketplace, companies of all sizes and types have been confronted with a wide array of opportunities and challenges as they seek to optimize their operations and achieve a competitive advantage and a growing number of firms are using their procurement function for this purpose as illustrated in Figure 1 below.
Figure 1. Strategic development of purchasing
Source: Smith 2007, p. 118
As can be seen from Figure 1 above, the strategic development of purchasing to achieve a competitive advantage has assumed new importance and relevance as the processes that are fuelling growth in the internationalization of businesses intensifies. In this regard, Smith emphasizes that, “The increasing economic competitiveness which companies experience demands that they find new ways of creating commercial strengths and advantage and, as a result, purchasing is being perceived as a strategic function of business. Some studies go even further and indicate that procurement and the elective management of the supply chain are in fact the key activities to achieve world class performance. A part of this process of redefining procurement as a significant strategic function is the globalisation of purchasing, so as to make elective use of the opportunities created by the very internationalisation of business which initiated the process (Smith 1999, p. 117).
Therefore, firms must make important changes if they wish to reap the potentially huge scale economies of international procurement. For example, procurement decisions for low-volume, low-cost commodities (especially those with high transportation costs) can be left to regional headquarters or even to individual affiliates. Within the firm, procurement decisions need to be based on close and continuous interaction among purchasing, engineering, finance, and quality assurance. Improved inter-firm networking and administration are thus increasingly crucial to the effective implementation of inter-firm networks (Borrus, Ernst & Haggard 2001).
.In addition, auto parts suppliers are playing an increasingly important role in the automotive industry. Their current share of up to two-thirds of the value added of a car is expected to reach 75 per cent among some manufacturers. The worldwide employment breakdown between assemblers and suppliers, which is currently estimated to average 54:46 is likely to move towards a ratio of 33:66. Although developing countries accounted for only 12 per cent of world components exports in 1999, the increasing importance of suppliers will benefit emerging markets, particularly central and Eastern Europe, China and India, allowing them to increase their share of global components production (Automotive Industry Trends Affecting Component Suppliers 2005, p. 131).
Viewed from the perspective of the importance of the automotive industry for a country’s merchandise exports, the report also finds that automotive products accounted for over 20 per cent of exports in Canada, Cyprus, Japan, Mexico and the Slovak Republic, over 10 per cent in countries such as Belarus, the Czech Republic, Hungary, the Republic of Korea, Lithuania, Poland, Slovenia and the 15 countries of the pre-enlargement European Union, and almost 10 per cent in South Africa, Turkey and the United States. The potential for companies in advanced countries to lower labour costs by outsourcing, coupled with the continuous pressure to reduce costs, diversify and deliver to just-in-time schedules, will impact on suppliers’ working conditions and require even greater flexibility on the part of the workforce (Automotive Industry Trends Affecting Component Suppliers 2005, p. 131). According to one industry analyst, “Turkey is a big market in itself, but it also serves as an export platform to Europe. There is a misperception that it exports small, cheap products. But it is increasingly exporting items like auto parts and cars to Europe” (Green 2006, p. 28).
CHAPTER TWO:
LITERATURE REVIEW
Introduction
All firms will rely on their supply chain to ensure they have sufficient inputs in order to continue with production; this is true regardless of the size of the firm and the industry in which it operates. A key element of the supply chain is the way in which suppliers are chosen. When determining the supplier the aim of the firm will be to ensure they have the right product, of the right quality, delivered to the right place, at the right time, in the right quantities and at the right price (Quayle, 2006, p52). Different suppliers, wherever they are located, may have varying abilities to meet these requirements. The choice of supplier will depend on the way the buyer assesses the ability of the potential supplier to satisfy these various requirements.
In some cases there may be the decision to make use of international suppliers, buying goods from foreign markets in order to benefit from comparative advantages. The last century has seen an increase in the level of international purchases which has been supported by the developments in transportation and technology. Goods can move faster than before with developments in logistics. The negotiation and forming contracts for purchase with companies and communicate with potential suppliers in distant countries is also easier than in the past with the internet and tools such as video conferencing and emails. This facilitates the use of international suppliers. However, other firms may choose local suppliers believing strategy will best suit their needs. Local suppliers may be able to provide where there is an increase in the transparency of the supply chain, less exposure to risks such as interruption and exchange rate risks and proximity may allow closer collaborative relationships to develop. Both procurement strategies are viable, to assess the advantages associated with each approach the procurement from international and local suppliers can be examined.
Advantages and Disadvantages in International and Domestic Procurement Alternatives
There are a number of advantages and disadvantages associated with international vs. domestic procurement. Some of the advantages of procuring items internationally include the following:
1. Availability of specific items,
2. Higher levels of product quality,
3. Use of advanced product and process technology,
4. Item price (Smith 2007, p. 118).
In addition, international procurement can provide a number of additional benefits including:
1. A wider range of potential items and vendors,
2. Further price improvement,
3. Direct access to new technologies,
4. Influence over quality,
5. Improved delivery service,
6. Meeting terms of off-set agreements,
7. Introducing greater competitiveness to domestic markets,
8. Gaining a knowledge of foreign markets, and
9. Exploiting tax and currency opportunities (Smith 2007, p. 188).
Global procurement can hence secure advantages in terms of availability, quality, delivery, technology and price for certain items. There can nevertheless be the problems dealing with remote suppliers. Communications with foreign vendors can be impaired by language, cultural differences, time zone differences and the use of different systems of measurement, leading to delays and misunderstandings. Buying from abroad may also involve increased freight costs, import duty and possibly customs delays. The need to pay in foreign currencies introduces both the uncertainty of not knowing what a future cost may be and also the risk of fluctuating costs; steps can be taken to mitigate against these after using stable currencies and by hedging and risk sharing, but such actions themselves can incur additional costs (Smith 2007, p. 118).
Beyond the foregoing, one of the main advantages associated with the purchase of materials or components from foreign markets is the potential to gain economically from comparative advantages; buying at a lower cost per unit compared to nearby suppliers (Lee and Wilhelm, 2010, p225). In developing and low cost countries such as China and India, there are lower wages and lower overheads which have the potential to reduce the overall cost of production. This may be passed on in lower prices. However, the decision will rest not only the price per unit but on the total cost associated with the foreign procurement, noting there are both benefits and risks to the practice (Kamann and van Nieulande, 2010, p. 65).
There are a number of different elements which will impact on total cost, which will differ depending not only on the good being produced, but on the country of origin which may supply that good (Kamann and van Nieulande, 2010, p. 65). These will include the type of good being sources, the complexity of its production, the amount of labor input in the production process and the length of the products lifecycle (Kamann and van Nieulande, 2010, p. 65).
Goods that are used in mass production, which are easy to produce and/or are high in terms of their associated of labor costs may be best acquired for suppliers in countries where there are low labor costs (Kamann and van Nieulande, 2010, p. 65). Where there are issues of time sensitivity the low labor costs may need to be combined with consideration of the relative proximity of the supplier. For example, a U.S. firm may choose to purchase from Mexico due to its closer geographic proximity rather than a more distant supplier in India. The issues of quality may also impact on the choice of country that may supply to a greater extent than the decision to buy locally or from a foreign country. Although there are some standardized purchasing practices available for some specific equipment, there are less formalized processes available for other commodities and services (Schulte & Jackson, 2007, p. 55). According to Schulte and Jackson, for example, “Although it is not standardized, technology exists and can be ‘procured’ worldwide” [but] there is simultaneously a high level of customer service required in all markets, and a great deal of government intervention” (2007, p. 55).
Government intervention in international procurement practices is certainly not new, but it has become especially salient in recent years as more and more companies internationalize their operations. For instance, Warrilow (1999, p. 25) reports that, “Some governments use public procurement to foster specific social objectives such as developing small regional-based industry or providing support to enterprises employing disabled persons.” Public procurement goals typically include the following considerations set forth in Table __ below.
Table
Typical public procurement goals
Goal
Description
Efficiency and nondiscrimination:
The aim of reaching an objective and transparent decision in the award of a contract is paramount. The possibilities of negotiating conditions with bidders are therefore restricted except in specific cases usually covered in the bid guidelines. Although it may be necessary to restrict negotiations with bidders, such a measure does not always serve the interests of economy and efficiency. Many professional procurement staff claim that it limits their professional powers of discretion and prolongs the contract award process. Furthermore it often prevents resourceful procurement staff from negotiating more advantageous conditions for their organizations. International agreements on public procurement increasingly provide for grievance procedures that permit dissatisfied bidders to object to contract award decisions and even claim damages.
Economy and narrow cost factors:
Because of the concern to achieve optimum objectivity and transparency, buyers sometimes neglect to incorporate those elements concerned with resource management in the tender document. For instance bid documents for capital equipment sometimes include no provision for spare parts, maintenance or option clauses to cover possible future orders for identical equipment. A consequence of this restriction is that price information for capital equipment, requested in tender forms, tends to be over simplified. There is no reason that tender forms should not request bidders to give a full and detailed price breakdown. Such information enables buyers to discover any price anomalies and provides them with a basis for negotiating conditions for subsequent orders, where open or selective tendering may no longer apply.
Domestic preference and other factors:
Excessive preferences for domestic industry over a long period could be detrimental to the principles of economy and nondiscrimination.
Competition and long-term relationships:
The principle of open competition without due regard to the notion of resource management can, in some instances, lead to diseconomies. This is particularly true in the case of state-owned enterprises engaged in manufacturing.
Efficiency in decentralization and integrity of process:
Experts have long debated the conflicting advantages and disadvantages of centralized and decentralized procurement systems. The desired efficiency gained by quick and effective decisions at a decentralized level may clash with the notion of accountability or transparency and the advantages of economies of scale. Protagonists of decentralization state that purchases required at a local level are much better handled by buyers employed in the same working environment as the technical users of those requirements. Others argue conversely that certain goods – especially those supplied from foreign sources – are more economically purchased by a centralized body. Governments should bear in mind a number of factors, such as:
* the degree to which the national public administration, served by a procurement service, is decentralized.
* the existence of a public procurement “culture” (i.e. knowledge and experience) at the central and local levels, backed by trained personnel.
* the existence of financial ceiling limits for local procurement entities.
* the types of products and services that can be purchased efficiently at the local level – at the right quality, at the right time and the right price – so that local procurement will be in harmony with the purchasing operations of the centralized procurement entities.
Source: Adapted from Warrilow, 1999, p. 25
The costs that are associated with transportation are also noted important; where goods are costly to transport this may reduce the overall level of comparative advantage and buying from a long distance supplier may become prohibitive. Goods which are suitable to be transported by sea, containing shipping options can provide some cost effective solution, with this method of transportation having one of the lowest costs when calculated by weight and distance. However, this is only suitable for goods that have a relativity long lifecycle and are not needed immediately (Kamann and van Nieulande, 2010, p. 65). The ordering process, lead and production time of the buyer and the inventory levels of the individual firms may also impact on this process. For example, a firm such as Toyota which uses a Just in Time (JIT) inventory management, making small orders frequently and requiring delivery just in time for production, will not have a system that would manage long scale delivery schedules. Other firms which hold a higher level of inventory relative to their production levels will have a greater flexibility. One example may be Morgan Cars in the UK, where the firm may purchase up to six or twelve months supply in a single order to gain the economies of scale as a part of their procurement strategy (the Manufacturer, 2009).
The issue of cost rather than unit price looks at issues such as quality and the danger of interruptions to the supply chain. The technology and facilities of a supplier will impact on the quality of the goods sold. For more complex goods or where there is a requirement for variance the skills of the supplier will be important in the decision. Christopher (et al., 2004, p367) states that in environments where quality, agility and complexity are important the country itself needs to be considered in terms of the ability to supply the required quality. For many firms failures in quality will not only have a direct impact on the firms costs in dealing with warranty claims, it may also have a long-term impact on the reputation of the organization (Christopher et al., 2004, p. 367). This can reduce the overall sales made and can have a long-term impact. In some cases where specialist components are needed the specialization of a foreign firm may be the advantage, which may include the accumulation of a high level of professional knowledge and expertise, such as high tech or precision engineered items. In these cases the higher price of the units for the foreign company may result in a lower overall cost as a result if increased reliably and quality.
Therefore, it is possible to see how there can be cost benefits when buying from foreign suppliers, but this is not always the best solution. Kamann and van Nieulande, (2010, p. 66) note there may be options to purchase from local agents or importers, this may increase costs, but may also pass on some of the risk and time associated with intentional supply chains. However, the cost is likely to increase paying the revenue of the middle man.
The benefits of local sourcing have received less attention in academic literature but it is worthy of consideration, especially when practiced by a number of successful firms such as Tata Motors in India. One of the major advantages of local procurement is the lower potential for interruption to the supply chain, as well as increased transparency and potential for increased flexibility and collaboration with suppliers (Sheffi, 2002, p. 5).
The aspect of interruption of international supply chains can potentially having a negative impact on supply chains was seen in 2001 following the 9/11 terrorist attacks (Sheffi, 2002, p. 3). The production of several car manufacturers was interrupted due to the government reactions to the attacks, with the shutting of boarders along with increased security measures. The Toyota SUV manufacturing facility in Sequoia Indiana came within hours of shutting down waiting for the delivery of steering sensors to be delivered by air from Germany (Sheffi, 2002, p. 3). Toyota, which uses a JIT production method can be seen as particularly vulnerable, but they were not the only automotive firm impacted; Ford had to reduce production due to deliveries held up at the U.S. border with Mexico and Canada (Sheffi, 2002, p. 3).
While terrorist attacks may be seen as unusual, this indicates the increased vulnerabilities of international transportation to face interruptions. Local suppliers may also be able to deliver the same day, and a closer relationship may lead to increased trust and lower contract monitoring costs. There may also be more examples of these difficulties but disarrangements do not mean an exact decision for firms.
Yet another firm that has followed a local supplier strategy is Tata Motors in India. This firm has a policy of dealing with local suppliers. In many cases major suppliers will invest in order to set up operations near the company (Overdorf, 2008, p. 2). The firm creates long-term relationships, but also deals with several suppliers for many components so they still benefit from competitive forces. By dealing with local, known, suppliers the firm has also been able to leverage the internal knowledge of those suppliers in the way new cars have been designed. A good example was the Tata Nano, the world’s cheapest car which retailed at 100,000 rupees (Overdorf, 2008, p. 2). To design the car Tata brought together many of the companies that would be supplying the parts. This approach allowed for innovations, creating a cheap to manufacture modular design where the costs of the supply chain were minimal and different suppliers were able to give input in how to reduce costs or increase efficiency of production (Overdorf, 2008, p. 2). There are other potential benefits of a local supplier; lack of exposure to currency exchange rates, reduced political risk and increased of transparency of goods in transit may also be cited.
The decision on whether to buy locally or from a foreign country will have many influences, the way these are assessed may depend on the firm, their own priorities and strategies, the industry and the type of goods being purchased will all have an impact. Firms will need to assess the different influences to determine which is best for them.
These decisions were faced by Matsushita’s TV plant in Malaysia which added a procurement office in 1990 that sources components from 120 companies in Malaysia and Singapore and provides them to twenty-one of the group’s affiliates all over the world. Furthermore, good relations with the government helped Matsushita avoid taxes on this parts-trading business. In October 1996, Malaysia introduced a formal program to promote the creation of “international procurement centers” (IPCs). Incentives included special allowances for expatriate employees, foreign currency accounts, and local equity partnering requirements. Within two years, sixteen IPCs, of which fourteen were Japanese, had been created (Borrus et al. 2001, p. 214). Likewise, Chen (1999) reports that a large number of Japanese companies have decided to set up international procurement offices in the region as well. The preferred target has been Singapore because of its strong telecommunications, transportation and transshipment infrastructure. Using advanced information technology systems to track parts and components as well as to receive and transmit data about availability, delivery and so forth, many Japanese companies have been able to build their regional networks into a global supply chain (Chen 1999). Indeed, Kroll (2007) reports that current trends indicate that a growing number of companies will together their domestic and international procurement functions since it makes good business sense: “Because open account transactions are similar to domestic transactions, keeping the two areas separate makes less and less sense. Rather than maintaining a letter of credit team and a payment team, companies can consolidate staff and potentially save by centrally procuring goods” (p. 18).
International Procurement Issues in the Auto Parts Industry
The profound changes in the rules and patterns of competition in the automobile industry during the 1980s meant, among other things, that a company’s profitability and survival depended on its ability to increase revenues not only by expanding sales, as in the past, but also by reducing production costs and improving efficiency and quality. Therefore, companies needed to assure access to growing and/or potentially large markets that could also guarantee low production costs. Only a limited number of less-developed countries met this requirement (Studer-Noguez 2002, p. 128).
Many analysts have argued that relocation of production outside of the United States has taken place in auto parts and components production, rather than in vehicle assembly. but, because of the complexity of the auto parts sector, assessing location changes for parts production to low-cost sites is more difficult than doing so with vehicle production. While some argued that, under the new rules of competition, developing countries would become major producers of automotive products, others contended that lean production has actually reduced the attractiveness of developing countries as sites for automotive production. Only a few countries would be attractive mainly for automotive products with low technological content (Studer-Noguez 2002, p. 129).
There are also different interpretations of how organizational changes in the automobile industry have affected location and sourcing patterns of parts suppliers. According to one view, shifts in parts production follow relocation of vehicle assembly, as a result of the new location dynamic introduced by the Japanese system of production which requires physical proximity between assemblers and suppliers. From this perspective, if relocation of vehicle assembly does not take place, there is no relocation of parts production; however, according to another view, without relocating their production operations, vehicle assemblers can still buy parts and components that are fabricated in foreign locations from second- and third-tier suppliers (Studer-Noguez 2002). Under the new system of automotive production, vehicle assemblers are turning a growing proportion of the production process to parts manufactures. Large and powerful parts suppliers are performing functions previously carried out by vehicle assemblers. First-tier suppliers have thus become world-class producers that manufacture bulky items, generally components or subassemblies that operate under the just-in-time system of production. While they serve their customers in different national or regional markets, there is evidence of a “de-clustering” trend.
Many second- and third-tier suppliers may not need to be physically close to vehicle assembly plants and may locate in low-wage areas, such as the southern region of the United States, Mexico, Thailand, or Eastern Europe. From this perspective, while still having formidable monopsony power, 6 vehicle assemblers have less control regarding the location of parts production than they had in the past, when levels of vertical integration were higher (Studer-Noguez 2002, p. 129).
The consistent increase in auto parts imports into the United States over two decades suggests that there has been some relocation of parts production. Between 1972 and 1989, the value of automotive parts imports rose from $2 billion to $32 billion, and then to $54.4 million in 1998. A very significant growth was registered in U.S. auto parts imports from Mexico, whose value was multiplied by more than six times in the 1985-98 period – from $2.3 billion to $14.5 billion. Between 1989 and 1998, Mexico’s share of U.S. total auto parts imports increased from 14% to 26%. In total, U.S. auto parts imports from Canada and Mexico combined increased their proportion of U.S. automotive parts imports from 43% to 53% between 1989 and 1998 (Studer-Noguez 2002, p. 129).
Unfortunately, there are no systematic and compatible data that are publicly available regarding Ford’s or other vehicle assemblers’ auto parts offshore production and outsourcing operations. Furthermore, as the automotive supply sector comprises thousands of firms of different size, it is almost impossible to account for their relocation patterns and sourcing operations. Anecdotal evidence suggests that, overall and until the mid-1980s, Ford’s strategy was to maintain offshore sourcing of parts as relatively limited, which represented a change from Ford’s traditional strategy of being more willing than GM to purchase parts produced by foreign suppliers. Nonetheless, Ford made some investments in parts production in countries where it had recently established assembly operations and had market potential, but they were devoted mainly to supply local or regional markets and generally preceded vehicle assembly projects in emerging markets. This was the case of four joint ventures in China that Ford established to produce auto interior trim, glass, electronic, and audio components (1994); two component joint ventures in Thailand for the production of electronic and plastic components, as well as climate-control products; and several component plants in Hungary and the Czech Republic (Studer-Noguez 2002, p. 129).
The local auto parts industry and local supporting industries in Turkey, as elsewhere, are forced to rely on the technology of auto assemblers and transnational (either global or regional) auto-part makers. To some extent, their success may indicate the achievement of technology transfers from automobile assemblers and transnational auto-part makers (Busser & Sadoi 2003, p. 44). The degree of domestic industrial linkage can indicate the capability of local supporting industry. It may also indicate the achievement of technology transfer from auto assemblers to the local auto parts industry and supporting industry in Turkey (Busser & Sadoi 2003, p. 45).
There are two main channels for technology transfer in the auto parts industry:
1. Through business ventures with foreign auto part suppliers; and,
2. Through technological assistance.
The business venture with foreign auto part suppliers has played an important role in technology transfer since the late 1970s. During that period, when the automotive industry was under a progressive scheme to promote local industry, it became necessary for foreign automobile manufacturers to invite their long-term partners who produced more sophisticated parts to invest in Turkey. At the same time, local suppliers were also in need of technology upgrades of their production processes. When these foreign partmakers formed business ventures with local companies, local suppliers adopted the original production techniques and technology, completing the first stage of technology transfer. In this respect a transfer of production engineering technology has been moderately successful, whereas in other areas, such as design technology, progress has been relatively limited (Busser & Sadoi 2003, p. 45). In addition to increased imports from historical players in the auto parts industry, such as Canada and Japan, other countries also expanded their market share or entered the auto parts market. The most notable case is China, which until recently, had only, a very small presence in auto parts manufacturing (Collins, McDonald & Mousa 2007).
The new style arrangement requires suppliers to specialize to meet the specific needs of the purchaser, and in some cases to supply the products exactly when needed, or just in time. This requires a long-term relationship between purchasers and suppliers, where industry information is shared, employees may be shared, and both parties to the arrangement become mutually dependent upon each other. Firms in a supply chain may even develop a common organizational culture in a relationship characterized by mutually assured dependence, a situation similar to the Cold War phenomenon of “mutually assured destruction.” The global supply chain characterized by a large hub production business linked to dedicated goods and service suppliers, distributors, and financiers is a type of business network, which is the signature institutional form of the current era (Besser & Miller 2010, p. 2).
There may be several rings of suppliers in any particular global supply chain. The hub purchaser contracts with a primary ring of suppliers who subcontract aspects of their assignment to other supplier businesses, which may involve up to 10 tiers of suppliers. To illustrate, Nissan and Toyota each have 10 subsidiaries, 220 primary subcontractors, 5,000 secondary subcontractors, and 30,000 tertiary subcontractors in their supply chains. About 90% of the secondary and tertiary subcontractors have fewer than 500 employees. The subcontracting agreements often mirror the terms of the hub — primary supplier agreement regarding specializing, information sharing, exclusivity, quality, and just in time delivery. Primary subcontractors play the critical role of system integrators in the U.S. automotive supply chain, implying that the success of the chain relies upon this key function. Given this multi-tiered network, the primary customer of any particular small supplier may be another small business or a medium sized business that is a primary, secondary, or other level subcontractor to the hub firm. Nevertheless, according to the proponents of the global supply chain concept, all suppliers in the chain are advantaged due to the arrangement (Besser & Miller 2010, p. 2).
Some analysts of the global supply chain tends to focus attention on the “dark side” of outsourcing, and maintain that the advantages of the outsourcing strategy accrue mainly to the hub business and lie primarily in the disparity of wage levels between the hub firm and the suppliers, and the externalization of risks from the hub firm to the suppliers. The purchaser can disclaim any responsibility for the work conditions or environmental standards of its suppliers allowing the purchasing business to externalize the risks of noncompliance or costs of compliance with some regulations. Furthermore, in this arrangement, the purchaser can better protect its core employees from the uncertainties of the market. During a downturn, it can initiate or bring back in house functions formerly provided by other businesses. The supplier is thus forced to lower its prices to the purchaser, lay off its own workers, and/or face bankruptcy. This whole package of advantages allows the purchaser greater flexibility and lowers its costs and uncertainty. The small subcontractors and those at the most distal tier in the chain are at the greatest disadvantage in the arrangement. They will be the first businesses to face cost restraints and loss of business when functions are resituated to primary suppliers and/or hub purchasers (Besser & Miller 2010, p. 2).
From the perspective of small business suppliers, the danger inherent in outsourcing is that as they specialize their operations to meet the requirements of the core business (investing in machinery and technology, training staff, or relocating to be close to the hub business), they become dependent upon the hub business. The relationship between dependence and power is well-known. In spite of this knowledge, small businesses often have no choice. Small contractors that have learned the lesson not to be too dependent on one or a few customers, now face a new era of supply chain management in which they are forced to entrust large proportions of their productive capacity to a few customers (Besser & Miller 2010, p. 2).
Small manufacturers in New York State provided their customers with specialized products under long-term agreements, whereas the large manufacturers who were their primary customers, had other suppliers of the same product. Since the large purchasers had alternative sources of the specialized product made by the small manufacturers, they were less dependent on the supplier than vice versa, and therefore possessed the more powerful position in the relationship (Besser & Miller 2010, p. 2).
A study conducted by Kroll (2007) identified several issues involved in international procurement financing that can adversely affect supply chain management activities but which afford a wide range of benefits if they are properly managed. According to Kroll (2007, p. 17), in mid-2006, a customer of Telamon discussed a dilemma it was experiencing. Telamon Corporation is a $300 million, Indianapolis-based service provider to the telecommunications and automotive industries. The customer was a large, North America-based supplier to the automotive industry that faced a challenge with a Brazilian vendor of engine blocks. The Brazilian company was having difficulty in financing its transactions with the auto supplier, as the goods often were in transit for at least 45 days, and its funds were tied up until the American company took possession. “The American company wanted to find a third party to help ease the burden on the Brazilian supplier,” says Stanley Chen, general manager with Telamon (Kroll 2007).
The automotive supplier wanted to continue working with the Brazilian manufacturer yet preferred not to take ownership of the goods earlier. At the same time, the Brazilian firm wanted to continue its relationship with the auto supplier yet free up its money more quickly. Telamon, which often purchases inventory on behalf of its clients, uses a line of credit from its bank, LaSalle, to buy the engine blocks once they leave the factory in Brazil. Once the goods reach the U.S., Telamon sells them to the auto supplier on behalf of the Brazilian supplier, while also selling the accounts receivable to ABN AMRO, LaSalle’s parent company. Telamon uses that money to pay off the credit line from LaSalle. Telamon’s only out-of-pocket outlay is for the interest charged on the line of credit from LaSalle, which the Brazilian supplier covers. This was key, as Telamon’s fiscally conservative management team didn’t want its balance sheet to suffer as a result of the arrangement (Kroll 2007, p. 18). The three-way partnership has helped both the auto supplier and the Brazilian supplier continue to work together. “We’re saving cash on both ends, while keeping the supply of parts in lockstep,” Chen says (quoted in Kroll 2007, p. 18).
The arrangement between Telamon and its customer illustrates the changes occurring in trade finance. As more companies operate internationally, they are looking for inventive trade finance solutions that help them cost effectively transact business. There is an increasing level of global trade, even among smaller companies. While cross-border trade offers companies the opportunity to work with suppliers and enter new markets around the globe, it also presents several challenges. For starters, the period of time between purchase order and payment generally increases, notes David Conroy, managing director of global trade sales and supply chain services with Citigroup, New York. This increases the risk to buyers and sellers, and – as was the case with the Brazilian vendor now working with Telamon – ties up companies’ cash for longer periods. “Major buyers are unwilling to use their own credit and capital to finance their supply chains,” Conroy says. At the same time, companies operating in several countries must manage within a more complex regulatory environment, notes Michael Spiegel, senior manager with Deutsche Bank’s global transaction banking group. These forces are prompting some changes in the way that companies handle trade finance. Trade finance refers to the management of money, banking, credit, investment, and assets in completing international trade transactions. For starters, while many companies and financial institutions used to view transactions as occurring in either the developed or the emerging markets, they increasingly consider the two markets as one. This is because many of the emerging markets are maturing and gaining wealth and sophistication, says Stephen Atallah, also a senior manager with Deutsche Bank. As they do, companies operating there find it easier to apply the tools and processes used in the developed markets. Down the road, many companies likely will bring together their domestic and international procurement functions. Because open account transactions are similar to domestic transactions, keeping the two areas separate makes less and less sense. Rather than maintaining a letter of credit team and a payment team, companies can consolidate staff and potentially save by centrally procuring goods (Kroll 2007).
CHAPTER THREE: METHODOLOGY
There are a number of social research methods available to the qualitative researcher, including historical methodology, ethnography, phenomenology, hermeneutics, case study, grounded theory and action research (Burton & Steane 2004). An understanding of complex competitive issues such as those of interest here can best be gained by gathering data from actual organizational settings (Stanley, Fawcett & Smith 2002). Therefore, to achieve the study’s aim and objectives set forth in Chapter One above, this study used a case study methodology based on several factors. One of the main strengths of the case study approach is that a given topic can be investigated in depth and with greater attention to details that might be of interest to the researcher (Leedy, 1997). Case study research can take place over the course of a few weeks, months, years or even decades (Neuman, 2003). In this regard, Feagin, Orum and Sjoberg (1991) note that, “The study of the single case or an array of several cases remains indispensable to the progress of the social sciences” (p. 1). Likewise, Neuman emphasizes that, “Case study research raises questions about the boundaries and defining characteristics of a case. Such questions help in the generation of new thinking and theory” (p. 33).
One of the main weaknesses of the case study methodology is its inherent reliance on the subjective interpretation of the study findings by the researcher with the potential for researcher bias to adversely affect this interpretation (Neuman, 2003). This weakness can be overcome to some extent by incorporating quantitative methodologies in the research design. In this regard, Neuman (2003) points out that, “Both qualitative and quantitative research use several specific research techniques (e.g., survey, interview, and historical analysis), yet there is much overlap between the type of data and the style of research. Most qualitative-style researchers examine qualitative data and vice versa” (p. 16).
According to Thomas (2004), case studies are generally used for three primary purposes:
1. Where little or nothing is known about the phenomenon of interest, an intensive study of one or a small number of instances of it can be undertaken in order to produce detailed descriptions of typical cases;
2. More usually, especially in research degree studies, case studies are used for explanatory purposes; and,
3. Case studies can be particularly useful for producing theory (pp. 128-129).
Some other common applications for the case study methodology include micro-level analyses of individuals and macro-level analyses of larger-scale social structures and processes (Neuman, 2003).
The case study consisted of both primary and secondary data. The secondary data were collected from sources such as past studies, historical archives, text books, government reports, online articles, academic journals, library, internet, newspaper, magazines etc. On the other hand, primary data can be gathered by interviews, surveys and questionnaires. Secondary data are information that has been collected earlier for a different purpose, but which may still be useful to the research project under consideration (Dennis & Harris 2002). Census data are a good example of secondary data, and of course the Internet can be searched by key words entered in search engines to obtain secondary data on a huge range of subjects. Locating the precise information that is required in order to formulate answers to specific research questions based on secondary data avoids the need to spend time and money on primary research; however, even in the Age of Information, it is unlikely that researchers will find everything they need (Dennis & Harris 2002, p. 39).
Primary data are information that is being collected for the first time in order to address a specific research problem. This means that it is likely to be directly relevant to the research, unlike secondary data, which may be out of date or collected for a totally different purpose. Ideally, an effective research project should incorporate both primary and secondary data (Dennis & Harris 2002, p. 39).
With respect to the primary data, a statistical analysis of 27 completed supplier risk analysis surveys for vendors and suppliers used by or considered for purchases in the past. The study was carried over a period of ten months and the results are described in the case study and surveys are provided in Chapter Four below and are summarized in Chapter Five which concludes the study.
Limitations
This study focused on a single international production location. Therefore, generalizability might be limited; however, the research also extended to companies operating production facilities in several locations around the world. Most of the companies attempt to achieve a high degree of coordination among the operations in their international facility network and procurement function. In order to achieve this coordination, some degree of consistency in operating procedures and policies is sought after. This consistency suggests that the conclusions of the study are at least somewhat generalizable across geographic regions.
CHAPTER FOUR: DATA ANALYSIS
Section One: Operational Environment
Economic Environment
Turkey’s largely free-market economy is increasingly driven by its industry and service sectors, although its traditional agriculture sector still accounts for about 25% of employment. An aggressive privatization program has reduced state involvement in basic industry, banking, transport, and communication, and an emerging cadre of middle-class entrepreneurs is adding dynamism to the economy and expanding production beyond the traditional textiles and clothing sectors. The automotive, construction, and electronics industries, are rising in importance and have surpassed textiles within Turkey’s export mix. Oil began to flow through the Baku-Tbilisi-Ceyhan pipeline in May 2006, marking a major milestone that will bring up to 1 million barrels per day from the Caspian to market (Turkish economy 2012).
Several gas pipelines projects also are moving forward to help transport Central Asian gas to Europe through Turkey, which over the long-term will help address Turkey’s dependence on imported oil and gas to meet 97% of its energy needs. After Turkey experienced a severe financial crisis in 2001, Ankara adopted financial and fiscal reforms as part of an IMF program. The reforms strengthened the country’s economic fundamentals and ushered in an era of strong growth – averaging more than 6% annually until 2008. Global economic conditions and tighter fiscal policy caused GDP to contract in 2009, but Turkey’s well-regulated financial markets and banking system helped the country weather the global financial crisis and GDP rebounded strongly to 8.2% in 2010, as exports returned to normal levels following the recession. Turkey’s public sector debt to GDP ratio has fallen to roughly 40%. Continued strong growth has pushed inflation to the 8% level, however, and worsened an already high current account deficit. Turkey remains dependent on often volatile, short-term investment to finance its large trade deficit. The stock value of FDI stood at $99 billion at year-end 2011. Inflows have slowed considerably in light of continuing economic turmoil in Europe, the source of much of Turkey’s FDI. Further economic and judicial reforms and prospective EU membership are expected to boost Turkey’s attractiveness to foreign investors. However, Turkey’s relatively high current account deficit, uncertainty related to monetary policy-making, and political turmoil within Turkey’s neighborhood leave the economy vulnerable to destabilizing shifts in investor confidence (Turkish economy 2012).
Turkey’s Domestic Transportation Infrastructure
Railways:
total: 8,699 km country comparison to the world: 23
standard gauge: 8,699 km 1.435-m gauge (1,928 km electrified) (2008)
Roadways:
total: 352,046 km country comparison to the world: 19
paved: 313,151 km (includes 2,010 km of expressways)
unpaved: 38,895 km (2008)
Waterways:
1,200 km (2008)
country comparison to the world: 60
Source: https://www.cia.gov/library/publications/the-world-factbook/geos/tu.html
Cultural Dimensions of Turkey
Although every organization is unique, there are some important cultural dimensions to doing business in Turkey in general that can provide some valuable insights into local procurement practices as described in Table __ below.
Table
Hofstede’s Cultural Dimensions Applied to Turkey
Cultural Dimension
Description
Application to Turkey
Power distance
This dimension deals with the fact that all individuals in societies are not equal — it expresses the attitude of the culture towards these inequalities amongst us.
Power distance is defined as the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally.
Turkey scores high on this dimension (score of 66) which means that the following characterizes the Turkish style: Dependent, hierarchical, superiors often inaccessible and the ideal boss is a father figure. Power is centralized and managers rely on their bosses and on rules. Employees expect to be told what to do. Control is expected and attitude towards managers is formal. Communication is indirect and the information flow is selective. The same structure can be observed in the family unit, where the father is a kind of patriarch to whom others submit.
Individualism
The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether people’s self-image is defined in terms of “I” or “We.” In Individualist societies people are supposed to look after themselves and their direct family only. In Collectivist societies people belong to ‘in groups’ that take care of them in exchange for loyalty.
Turkey, with a score of 37 is a collectivistic society. This means that the “We” is important, people belong to in-groups (families, clans or organisations) who look after each other in exchange for loyalty. Communication is indirect and the harmony of the group has to be maintained, open conflicts are avoided. The relationship has a moral base and this always has priority over task fulfillment. Time must be invested initially to establish a relationship of trust. Nepotism may be found more often. Feedback is always indirect, also in the business environment.
Masculinity / Femininity
A high score (masculine) on this dimension indicates that the society will be driven by competition, achievement and success, with success being defined by the winner / best in field — a value system that starts in school and continues throughout organisational behaviour. A low score (feminine) on the dimension means that the dominant values in society are caring for others and quality of life. A feminine society is one where quality of life is the sign of success and standing out from the crowd is not admirable. The fundamental issue here is what motivates people, wanting to be the best (masculine) or liking what you do (feminine).
Turkey scores 45 and is in the “middle” of the scale but more on the feminine side. This means that the softer aspects of culture such as leveling with others, consensus, sympathy for the underdog are valued and encouraged. Conflicts are avoided in private and work life and consensus at the end is important. Leisure time is important for Turks, it is the time when the whole family, clan and friends come together to enjoy life. Status is shown, but this comes more out of the high PDI.
Uncertainty avoidance
The dimension Uncertainty Avoidance has to do with the way that a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? This ambiguity brings with it anxiety and different cultures have learnt to deal with this anxiety in different ways. The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these is reflected in the UAI score.
Turkey scores 85 on this dimension and thus there is a huge need for laws and rules. In order to minimize anxiety, people make use of a lot of rituals. For foreigners they might seem religious, with the many references to “Allah,” but often they are just traditional social patterns, used in specific situations to ease tension.
Source: Hofstede 2012 at http://geert-hofstede.com/turkey.html
Recent Trends
There have been some significant trends taking place in the Turkish automotive industry that have had profound implications for the future management requirements. For instance, according to Hoekman (2005, p. 275), “A natural implication of Turkey’s large domestic market is the presence of foreign direct investment directly largely toward the internal market. However, the automotive industry in Turkey is a good example of how an initially protected home market can be transformed into a competitive and increasingly export-oriented industry through foreign direct investment inflows.” Despite gloomy predictions that Turkey’s accession to the European Union would have dire consequences for the country’s automotive industry, the outcome has been far different and the Turkish automotive industry is currently the second largest export sector (Hoekman & Togan 2005), although U.S. government analysts more recently placed the industry at third largest (Turkish economy 2012).
Turkey’s economy has experienced a volatile period of growth and decline for much of the last twenty years. Like the economy, the Turkish automotive industry has gone through a series of ups and downs, particularly because the sector has remained domestically oriented.
Production and sales declined in the second half of 1998 as economic austerity measures began to take effect. The outlook was not improved by a devastating earthquake in August 1999, although it left the vehicle production infrastructure relatively undamaged. The economic turmoil in late 2000, which was perpetuated by a political row in February 2001, has also negatively affected both production and sales. Despite these problems, many automotive manufacturers have invested heavily in the sector during the 1990s.
Low labour costs and access to large domestic and international markets – including Eastern Europe, Central Asia and the Middle East, as well as the European Union (EU) – have made Turkey attractive to big car makers. Toyota, Mitsubishi and Hyundai have recently established plants in the country. Two manufacturers, Fiat and Renault, have located sole production of popular models in Turkey, demonstrating the increasing importance of the country as a regional manufacturer.
Today, the Turkish vehicle industry is one of the main driving forces in the Turkish manufacturing industry. Despite having been established only recently, the Turkish vehicle industry has achieved rapid development and become the third biggest sector after textiles and food industries, and accounts for approximately 10.5% of Turkish exports in 2001. The contribution of the automotive and auto parts sectors to the total manufacturing industry production was about 6.5% in 2000.
Vehicle industry production in Turkey dates back to the mid-1950s and the industry gained momentum in the early 1960s. After manufacturing some prototype vehicles during the 1950s, the first vehicle assembly company was established in 1954 (Turk Willys Overland Ltd.) for jeep manufacturing. By 1955 trucks, and by 1963 buses were being assembled in Turkey. Then passenger car assembly companies, namely TOFAS (FIAT), OYAK (RENAULT) and OTOSAN (FORD) started operations in the following three years. In 1966 the industry also began to assemble its own cars (OTOSAN). The Turkish-made passenger car of those times “ANADOL” is nostalgia now. The two major producers of cars, TOFAS and OYAK-RENAULT, under Italian and French licenses respectively, established their production lines in 1971. Recently Japanese and South Korean car manufacturers have established joint-ventures in Turkey. In 1999 a Turkish truck manufacturer began to export its own design trucks to England, Spain and Portugal.
As to passenger cars and small commercial vehicles, Turkish manufacturers are becoming world production centers of huge global producers, whom they have licence agreements with. Today 15 companies are manufacturing various types of vehicles such as passenger cars, buses, trucks, pickups, mini and midibuses and trailers. Six companies are producing passenger cars (FORD OTOSAN, RENAULT, TOFAS (FIAT), TOYOTA, HYUNDAI, HONDA). Nine companies are producing pick-ups and trucks (ANADOLU ISUZU, BMC, ASKAM, M.A.N., MERCEDES-BENZ, FORD OTOSAN, OTOYOL, TEMSA, TOFAS)
Ten companies are producing buses and mini buses (ISUZU, BMC, KARSAN, MERCEDES-BENZ, HYUNDAI, OTOKAR, FORD OTOSAN, OTOYOL, TEMSA, M.A.N.)
COMPANIES in AUTOMOTIVE INDUSTRY
HONDA GEBZE/KOCAELI Passenger cars
ANADOLU ISUZU O.S. ISTANBUL Trucks, pick-ups, midibuses
ASKAM GEBZE/KOCAELI R. tractors, trucks, pick-ups
B.M.C. IZMIR Trucks, pick-ups, buses, minibuses, midibuses
FORD OTOSAN ISTANBUL/ESKISEHIR Passenger cars, trucks, pick-ups, minibuses
/KOCAELI
HYUNDAI ASSAN KOCAELI Passenger cars, pick-ups, minibuses
KARSAN BURSA Pick-ups, minibuses, midibuses
M.A.N. ANKARA R. tractors, trucks, buses
M. BENZ ISTANBUL/AKSARAY R. tractors, trucks, buses, minibuses
OTOKAR SAKARYA Pick-ups, buses, minibuses, midibuses
OTOYOL SAKARYA R. trucks, trucks, pick-ups, midibuses
RENAULT BURSA Passenger cars
TEMSA ADANA Trucks, pick-ups, buses, midibuses
TOFAS BURSA Passenger cars, pick-ups
TOYOTA SAKARYA Passenger cars
The Turkish vehicle industry has a total capacity of 1,016,805 vehicles, of which 662,000 is for passenger cars. The total vehicle production in 2001 was 270,685 units. The economic crisis in 2001 caused passenger car production to fall by a dramatic 63%, although the market is expected to stage a recovery, in line with the Turkish economy, in 2002. There are 12 commercial vehicle manufacturers in Turkey, excluding six agricultural tractor producers. Six main large-scale companies are operational in the agricultural tractor sector. The two big private sector companies (UZEL and TURK TRAKTOR) are the leading producers and exporters in the agricultural tractor sector in Turkey.
ANADOLU HONDA, with its plant at Gebze near Istanbul manufacturing passenger cars, commenced operations in 1998. The company was formed as a 50:50 joint venture between Turkish Anadolu Group and Japanese carmaker Honda. In April 2002 the Anadolu Group sold its 47% stake in Anadolu Honda to Japanese carmaker Honda Motor. TOFAS, the joint venture between Fiat Auto and Koc Holding, remains traditionally Turkey’s largest vehicle producer. In October 2000, Tofas began production of the new Fiat model DOBLO, a light van/multi-purpose vehicle, which is aimed largely at the export market. The Doblo is exported mainly to European countries. The other major vehicle producers are FORD OTOSAN, a joint venture between Ford and Koc Holding which first began assembling Ford cars in 1984. Ford Otosan also opened a third factory in Kocaeli in April 2001 in order to extend its market share. The Ford Otosan Kocaeli factory, which has a 150-000 unit commercial vehicles capacity annually, will export 65% of its whole production.
HYUNDAI ASSAN also produces pickups and minibuses while Ford Otosan manufactures medium trucks, pickups and minibuses. The company is a joint venture between South Korea’s Hyundai Motor Company and the Turkish company Kibar Holding. The Izmit plant is Hyundai’s only passenger car plant in Europe. MAN based at Ankara, produces articulated tractor units, medium trucks and buses as part of a joint venture with German MAN. MAN is one of the smallest commercial vehicle manufacturers in Turkey.
OYAK RENAULT, the largest producer of passenger cars in Turkey, manufactured 96,860 units in 2001. Oyak Renault is a joint venture between the Turkish Oyak Group and the French carmaker Renault. TOYOTASA is a joint venture between the local Sabanci Group, Toyota and Mitsui and began producing passenger cars in 1994. Sabanci Holding sold its 25% stake to Toyota in October 2001. Toyota now has a 90% shareholding in Toyotasa. The name of company was changed from Toyotasa to Toyota Motor Manufacturing Turkey following the buy-out.
OPEL TURKIYE is a 100% subsidiary of General Motors (GM) and had been operating in Turkey since 1990 at a plant in Torbali, near Izmir. Opel Turkey stopped production at its Izmir-Torbali plant in July 2002. The plant was not sold after production stopped, and Opel plans to develop its commercial facilities there.
1. ANADOLU ISUZU is a joint venture between Turkey’s Anadolu Group, which has a 50% share, and Isuzu Motors and the Itochu Corporation (35%), the remaining 15% of the equity being traded on the Istanbul Stock Exchange. Its main area of operations is the production and marketing of commercial vehicles, including light trucks, pick-ups and buses.
2. CHRYSLER KAMYON produces commercial vehicles under licence from Chrysler. In January 2002, the company changed its name to ASKAM Kamyon.
3. BMC was incorporated with the Cukurova Group in 1989. In light commercial vehicle production, the company manufacturers Levend 3.0, Levend 80 TDI and 1.8 light trucks. It also produces two heavy commercial vehicles; BMC Professional and BMC Fatih.
4. KARSAN Otomotiv assembles commercial vehicles in Turkey under licence from PSA Peugeot-Citroen. In 2001, Karsan was the second-largest commercial vehicle producer in Turkey with 7,496 units, including mini-buses, midi-buses and light trucks/vans.
5. MERCEDES-BENZ TURK was founded in Istanbul in 1967 as a joint venture between Daimler-Benz a.G., Mengerler Ticaret and Has Otomotiv under the name of Otomarsan. Today, the partners of the company are Daimler-Chrysler. The name of the company was changed to Mercedes-Benz Turk in 1990. The company is the largest full-size bus producer in Turkey.
6. OTOKAR manufacturers a range of commercial vehicles. It produces passenger vans, mini-bus, pick-up, police team vehicle and mobile patrol vehicle.
7. OTOYOL is owned by Turkish conglomerate the KOC Group and by IVECO-Fiat. It produced a total of 2,726 units in 2001, which included trucks, light trucks, midi-buses and mini-buses.
8. TEMSA Otomotiv is a manufacturer of Japan’s Mitsubishi trucks, small trucks, buses and midi-buses under licence from Mitsubishi. Temsa manufactured 597 units in 2001.
Most of the vehicle manufacturing companies are organised under the Automotive Manufacturers Association. (OSD, Otomotiv Sanayicileri Dernegi)
Turkey has had a strong component sector more than 30 years, and in recent years has developed a highly competitive components industry providing products compatible with brands such as GM, Mercedes, BMW, Opel, Toyota and Ford. The Turkish autoparts industry with its large capacity, wide variety of production and high standards, supports automotive industry production and the vehicles in Turkey (approximately 7.3 million vehicles) and also has ample potential for exports. The Turkish automotive and autoparts industry is concentrated in the Marmara Region, mainly in Bursa (Automotive and Auto Parts Industry in Turkey 2012).
A study by Senses (1999) found that, “As in other developing countries, very little is known about subcontracting in Turkey. The few available studies suggest that the extent of subcontracting relations between larger and smaller establishments is limited” (p. 141). In a study carried out by the State Planning Organization in 1970, it is reported that only a small percentage of small firms produced intermediary goods; it was 3, 8, 8, and 19% in Van, Konya, Gaziantep and Bursa, respectively. Even then, it is not clear if these percentages were output produced purely under a subcontract. A study on subcontracting in the automotive industry found that during the 1970-72 period there were approximately 350 firms that received subcontracts, with the estimated share of subcontracts accounting for less than 20% of the value of total output. In a study conducted in Bursa, where two car factories are located, the findings indicate that subcontracting practice is far less than would be expected both in scope and nature. This result is not surprising, since most of the subcontract receiving firms in the automotive industry are in Istanbul. On the other hand, there is evidence from Bursa that in some sectors subcontracting is practiced extensively among smaller firms and that commercial subcontracting is widespread (Senses 1999, p. 141).
As in many other countries, industrial activities in Turkey are relatively more concentrated in certain nodes of the developed regions. It is not surprising to observe that the regional distribution of industrial employment is parallel to the level of development by regions. Industrial activity is concentrated in four metropolitan regions, which are characterized by a metropolitan center and a number of provinces around these centers: the Istanbul metropolitan area and the Kocaeli, Sakarya, Tekirda? And Bursa provinces around Istanbul: the ?zmir metropolitan area and the Manisa, Aydin and Denizli provinces located around ?zmir: the Ankara metropolitan area with its extension as Kirikkale; and finally the Adana, ?cel and Hatay provinces, constituting the Adana (Cukurova) region (Senses 1999, p. 141).
In 1988, just over half (52.4%) of the industrial firms and about 45% of employment originated from the Istanbul region alone; in fact, the four above-identified regions identified collectively accounted for 70% of total industrial employment (Senses 1999, p. 158). In addition, there are a number of regional centers, including Eski-ehir, Gaziantep, Samsun, Konya and Kayseri, where industrial activity remains relatively important to the Turkish economy (Senses 1999, p. 158). The share of these regional centers is about 10% of employment and 7% of firms, and the group formed by the 50 remaining provinces have only a 20% share of industrial employment and even less (17.5%) in terms of industrial firms (Senses 1999, p. 158).
The growth and distribution of industry in the last two decades exhibit different tendencies. During the 1971-82 period, the general tendency in the growth of industry was toward concentration in the relatively more developed regions of the country. The rate of growth of manufacturing employment was below the Turkish average in the provinces of Eastern and Southeastern Anatolia, constituting the least developed regions. In the three provinces of the eastern part of the country, employment actually declined in absolute terms (Senses 1999, p. 159).
There are different tendencies during this period, though, as influenced by the magnitude and character of economic problems. During the 1971-74 period, when the average annual rate of growth of total manufacturing employment was 8.2%, Thrace and the Middle Anatolia regions became the main points of attraction. During the 1974-79 period, total employment declined by an annual rate of 3.7%, but, interestingly, growth was higher in the less developed provinces. During the 1980-82 period, when industrial employment increased at a low rate (1.9%), the important issue was the decline in industrial employment in many provinces (Senses 1999, p. 159).
Metropolitan decentralization was the dominant facet of change in the 1970s, as settlements around the major metropolitan centers became the new areas of attraction. We can identify three groups in this process, the first group was the peripheral ring of the Istanbul metropolitan region, namely Tekirda?, Sakarya and Bursa, with Bursa having its own basis of growth. The high rate of growth of industrial activity in this area can be attributed to the decentralization of manufacturing activity in the Istanbul metropolitan area. In this trend, in addition to newly founded large industrial estates, increasing local capital played an important role (Senses 1999, p. 159).
In the early 1970s, the provinces located at the eastern part of the Istanbul metropolitan area3 became attractive for the new, large-scale industrial firms, unable to find suitable locations in the Istanbul metropolitan area and adjacent areas in the Kocaeli province. This was followed by a further extension to the Thrace section, which attracted industrial activities trying to be close to the industrial core. Bursa, being a manufacturing center, became increasingly integrated with the Istanbul metropolitan area in functional terms, and registered a high rate of growth in industrial employment in this period (Senses 1999, p. 161).
Two major car factories and two “Organized Industrial Zones” are in Bursa. Other important cities are Istanbul, Izmir, Kocaeli, Ankara, Konya, Adana and Manisa. A new development in the Turkish Autoparts Industry is the establishment of TAYSAD Components Manufacturers Industrial Zone (TOSB). The “Association of Automotive Parts and Components Manufacturers (TAYSAD), started the TOSB project for its members in 1999. TOSB, covering a 2500 hectare area in Kocaeli is expected to provide to TAYSAD members larger production sites, modern environmental facilities, proximity to vehicle manufacturers, training and conference facilities, interfirm cooperation and a technology and innovation center (Automotive and Auto Parts Industry in Turkey 2012).
Due to the high export potential of the sector and the regional advantages of Turkey, the autoparts sector has been attracting foreign investors. At present the number of foreign investors in the autoparts sector is 138. Most of the world leaders in the sector have joint-ventures with Turkish companies (Automotive and Auto Parts Industry in Turkey 2012).
Autoparts industry manufacturers are exerting intense efforts for quality certificates. 115 members of TAYSAD have quality certificates such as ISO 9000 Series. In fact, Turkish autoparts manufacturers are the pioneers of Turkish companies for “The European Quality Award.” BRISA, a tyre producing company, was the first winner of “The European Quality Award” in 1996. Then, BEKSA won the “The European Quality Award” in the category of small and medium sized enterprises in 1997. BEKSA, which was established in 1987, produces steel cord and bead wire for tire reinforcement and hose wire for high pressure hoses. The production value of the autoparts industry was about 4.6 billion U.S. Dollars in 2000 (Automotive and Auto Parts Industry in Turkey 2012).
The Turkish auto parts industry produces almost all parts and components except spark plugs. At present, the local parts and components production consists of the following:
• Engine and engine parts
• Power train parts and components
• Brake and clutch parts and components
• Hydraulic and pneumatic systems
• Suspension systems
• Security systems
• Rubber and plastic parts
• Chassis frame and parts
• Castings and forgings
• Electrical equipment and parts, lighting systems
• Batteries
• Auto glass
• Seats
Turkish automotive manufacturers are in direct contact with 1120 local autoparts manufacturers for procurement and 70% of these companies are SME’s. It is known that the total number of autoparts manufacturers in Turkey far exceeds 1120 (Automotive and Auto Parts Industry in Turkey 2012).
The main export markets for the automotive industry are Germany, France, Italy, United Kingdom and Russian Federation. In 2001-63% of automotive industry exports in value were delivered to EU Countries. Exports of motorcycles-mopeds were U.S.$4.2 million (8,590 units), U.S.$5 million (11,902 units) and U.S.$9 million (12.746 units) in 1999, 2000 and 2001 respectively. Major export markets were Tunusia, Morocco, Egypt, and Burkina Faso in 2001. As to the exports of bicycles, export figures were U.S.$7 million (118,007 units), U.S.$7 million (129,558 units), 7.2 million (119.155 units) in 1999, 2000 and 2001 respectively. Major export markets were Finland, Germany, Macedonia and F.R. Of Yugoslavia in 2001.
Turkey’s auto parts industry exports are increasing rapidly year by year, with the focus on replacement components. In 2001 the value of auto parts industry exports was U.S.$1.4 billion. The main auto parts products exported are tyres and tubes, engine parts, accessories for bodies, road wheels and parts, brake and servo brakes, electrical ignitions, engine parts, batteries and parts. In fact, Turkey exports many cars, buses and trucks in parts. In terms of breakdown of auto parts exports by province, Bursa, Istanbul, Kocaeli and Izmir have the major share (Automotive and Auto Parts Industry in Turkey 2012).
Turkish auto parts products are destined for a wide range of countries in the world. The main export markets are Germany, Italy, France, the United Kingdom, Spain, Belgium-Luxembourg, the United States, Pakistan, Poland, India, Egypt, Austria and Greece. In 2001 about 60% of auto parts exports were directed to the EU Countries. Turkish auto parts exporters follow European and international standards and norms. Turkish companies are supplying major European producers such as OPEL, VW and Ford (Automotive and Auto Parts Industry in Turkey 2012).
Erkurt Holding Companies
Erkurt Holding companies (hereinafter alternatively “the company” or “Erkurt”) manufacture a range of sound and heat insulation materials as well as the interior-exterior trimming components for the automotive industry. The company provides a range of solutions for the automotive industry by working with each other with a complete integrated manufacturing system in terms of producing semi-finished / finished products, designing of the parts, and manufacturing of tools. The company’s innovative, contemporary subsidiaries are respectful to the human being and to the environment and have always provided the customer satisfaction at highest degree and continue to develop being the leaders in their fields.
The company maintains laboratory and production facilities in Bursa and Adapazar? As well as offices as shown in Figure __ below.
Figure __. Company Facilities in Turkey
Source: http://www.erkurt.com/eng/index.asp?ID=22
A breakdown of the company’s subsidiaries, the year they were established, and their respective production sites and fields of activity are set forth in Table __ below.
Table
Erkurt Subsidiary Background Information
Company
Year Est.
Production Site
Field of Activity
Quality Certifications
Arma
1985
Bursa, Istanbul
Products for the automotive spare part market, wall to wall carpets, sound and heat insulation systems to the construction sector.
Bekalp
2002
Bursa Organiza Sanayi Bolgesi
Development of projects, engineering design, production of molds, prototypes and control O’Toole fixtures.
Cemre
1987
Bursa Organize Sanayi Bolgesi, Adapazari
Polypropylene fibers, non-woven carpets, latex coated carpets with various weight and formulations, thermoform and thermoplastic felts.
ISO / TS 16949
Erkurt
1978
Bursa
Bituminous sound deadeners, flat or pre-formed sound deadeners. Flat or pre-formed sound insulation materials made of felt, interior trimming parts, heat shields.
ISO / TS 16949, Q1
Taysan
1992
Bursa Organize Sanayi Bolgesi
Carpet covering, elastomer-based heavy layers, exterior trimming parts like bumpers and spoilers made of R-M and RR-M for commercial vehicles.
ISO / TS 16949
Formfleks
1983
Bursa Organize Sanayi Bolgesi, Adapazari, Golcuk, Ford Otosan Supplier Park
Floor carpets, luggage compartment carpets and coverings, flat or pre-formed sound absorbers made of PVC, Busmat, elastomer-based heavy layers, interior trimming parts made of honeycomb and PVC, interior trimming parts made of felt, sound and heat insulation materials made of felt. Formfleks ranked 381 in Automobile Industry on the second biggest 500 manufacturers by Chamber of Commerce ?stanbul in 2010. In addition, Formfleks received one of the most important Quality Award of Renault by considering zero defects per thousand units in year 2010.
ISO / TS 16949, ISO 14000, Q1
Source: http://www.erkurt.com/eng/firms.asp?ID=23&FID=7
The company’s products and solutions include those set forth in Table __ below.
Table
Erkurt Products and Solutions
Sector/Industry
Description
Automotive Sector
1. Heat Insulation:
a. Heat shield is produced for heat insulation purposes. It protects the vehicle body and the neighbouring parts of the vehicles with catalytic converters from the exhaust gases at high temperatures.
b. The products manufactured for providing sound comfort in the cars are included in this category. Products manufactured for this purpose absorb the noise at its source and prevents it from spreading.
2. Sound Insulation: (1) Sound Deadeners & Barriers: Bituminous sound deadeners, which are the first step in sound insulation are directly applied on metal part of the body at every section of the vehicle. These parts are produced as normal, magnetic, and adhesive type with different formulations according to the requirements of customers.
BITUMINOUS-BASED SOUND DEADENERS
Heavy layers, which are another component of sound insulation and prevent the noise from spreading are being produced as bituminous, EVA, EPDM, PVC based. They are mainly used as front floor insulators.
EVA, EPDM & PVC BARRIERS
(2) Sound Absorbers: Sound is absorbed with the porous materials such as felt and polyurethane. They are being used at every section of the vehicles either as flat or pre-formed and covered either with textile or with aluminium. (engine compartment insulators, rear floor insulators, etc.)
(a) Felt (Flat)
(b) Felt (Moulded)
(c) Flexible PU
(3) Sound Insulators: These parts are being produced by combining the sound absorbers and heavy layers together. According to the requirements of the customers they can also be bonded to the floor carpet.
3. Production of Trimming Materials: The company provides different solutions according to the requirements of its customers with our wide product spectrum and high technology for all types of cars and industrial vehicles in trimming category. Satisfying the end user, functionality, play a major role in these solutions. This production group has two sub-groups;
1. Interior Trimming: Floor carpets, luggage compartment coverings are being developed and produced according to the requirements of the customers with different fiber, backing, covering compositions. Floor carpets integrated with sound insulators are among the other alternatives. Interior trimming parts of industrial vehicles such as roof, side and rear walls can be given as example for the interior trimming parts made of felt.
Some other interior trimming parts such as head rests, arm rests, engine tunnel, etc. are being produced with different polyurethane combinations.
(a) Moulded FELT
(b) Moulded carpets
(2) Exterior Trimming: Bumpers, spoilers, stairs for trucks made of RRIM polyurethane take place in this category.
4. Engineering and Design Applications:
a. Benchmarking — Style, Technic, Technology
b. Design Activities
c. Style Activities
d. Technical Concept
e. Technical Feasibility Studies
f. Test Previsions — Homologation and Standards
g. Ergonomic Studies
h. Master Mathematic Model
i. Engineering Activities
j. Digital Mock-up Assembly / Disassembly and Intersection
Analysis
k. Structural Analysis (FEM modelling, FEM analyses in static/dynamic/vibration modes)
l. Project Validation Analysis (installation, design F.M.E.A. And process F.M.E.A.)
m. Virtual Prototyping
n. Project Management
Construction Industry
1. Izoguard Sound Isolation: Izoguard offers real silence, acoustic comfort and heat isolation with its special sound isolation solutions for ceilings, walls and partition wall interval. The felt-based Izoguard sound isolation materials are manufactured according to the requirements of the customers as formed or flat by the addition of fire resistant resins. Izoguard with different sizes can easily be applied to the walls, floor and ceilings. In addition to the sound absorption and acoustic confort, Izoguard supplies also the heat insulation to the buildings. Izoside, Izodown and Izohigh are produced by Erkurt Holding.
2. CBS ?zoguard, Exterior Thermal Insulation Systems and Paints: CBS ?zoguard is known as a manufacturer with quality personnel and technology as well as a specialist in insulation systems and paint field. With its innovativeness and knowledge power, CBS Izoguard has become leader at the Turkish market in terms of insulation systems and paint. The sound basis of this success is formed by the “Powerful Investment” principal which is dedication of CBS Izoguard to keeping the value of both old and new structures as well as to designing the environments suitable for the ecological and human requirements. CBS Izoguard is a joint venture of CBS and Erkurt Holding.
White Goods Sector
The company’s bituminous-based sound deadeners and barriers are used in dish washing machines and felt-based materials are used as sound absorbers in laundry washing machines.
Sound insulation:
1. Sound absorber
2. Sound absorber (flat felt)
Source: Adapted from http://www.erkurt.com/eng/solutions.asp?ID=32
DIRECTIONS for ELECTION of PRODUCTION TOOLS MANUFACTURER
Conformity to specifications, Functionality Criteria
Delivery
Conformity to specifications
Functionality
Service Criteria
Product Life
Reliability of company
Renault Megane II
Floor carpet
Supply Chain Chart Sample
As it can be seen on above chart, Formfleks is main supplier for this part. Raw materials such as carpet blanks and heelpad are taken from other suppliers. First choice for carpet blank isTredin company. Alternative supplier is Assan Hanil. Heelpad comes Directly from Toiltech — France.
There may always be some problems regarding buying materials from foreign countries.
Raw material problems
Procurement problems
Weather conditions
Long lasting supply time
Shipping problems and ways (by sea, air railroad, trucks
Cost estimation problems
Crises and economical depression ( Strike in Italy directly affected production lines and raw material orders
Another sample can be given from Formfleks such this,
Formfleks produces a part for Toyota (baggage carpet),
Toyota gives number of orders for 1 month period but raw material order that is required for production of this part are taken for 3-month period. This difference between periods can sometimes causes excessive amount of raw material.
There is also another important factor related to this part: Formfleks have to buy raw materials from a firm that is chosen and approved by Toyota so there have no other choice for this example.
The purchasing process currently used at the company is illustrated in Figure __ below.
PURCHASING PROCESS
CHAPTER FOUR: DATA ANALYSIS
Analysis of Supplier Risk Assessment Survey
Supplier Risk Analysis Survey (n=27)
Key:
1
No Risk
2
Low Risk
3
Moderate Risk
4
High Risk
Table
Responses to the question, “Is this a new product for the supplier?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
9
33.3
33.3
33.3
2.00
7
25.9
25.9
59.3
3.00
1
3.7
3.7
63.0
4.00
10
37.0
37.0
Total
27
Figure __. Responses to the question, “Is this a new product for the supplier?”
Table
Responses to the question, “Is this a new material or technology?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
8
29.6
29.6
29.6
2.00
7
25.9
25.9
55.6
3.00
3
11.1
11.1
66.7
4.00
9
33.3
33.3
Total
27
Figure __. Responses to the question, “Is this a new material or technology?”
Table
Responses to the question, “Is this part of the company’s product safety program?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
7
25.9
25.9
25.9
2.00
4
14.8
14.8
40.7
3.00
3
11.1
11.1
51.9
4.00
13
48.1
48.1
Total
27
Figure __. Responses to the question, “Is this part of the company’s product safety program?”
Table
Responses to the question, “Will there be any common work between companies?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
8
29.6
29.6
29.6
2.00
6
22.2
22.2
51.9
3.00
6
22.2
22.2
74.1
4.00
7
25.9
25.9
Total
27
Figure __. Responses to the question, “Will there be any common work between companies?”
Table
Responses to the question, “Are there any quality problems from the past?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
6
22.2
22.2
22.2
2.00
4
14.8
14.8
37.0
3.00
3
11.1
11.1
48.1
4.00
14
51.9
51.9
Total
27
Table
Responses to the question, “Are there time constraints?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
4
14.8
14.8
14.8
2.00
5
18.5
18.5
33.3
3.00
6
22.2
22.2
55.6
4.00
12
44.4
44.4
Total
27
Table
Responses to the question, “Is it a new manufacturing plant?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
11
40.7
40.7
40.7
2.00
4
14.8
14.8
55.6
3.00
2
7.4
7.4
63.0
4.00
10
37.0
37.0
Total
27
Table
Responses to the question, “Is there a new manufacturing process?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
9
33.3
33.3
33.3
2.00
5
18.5
18.5
51.9
3.00
6
22.2
22.2
74.1
4.00
7
25.9
25.9
Total
27
Table
Responses to the question, “Outsourced manufacturing facility will be used?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
9
33.3
33.3
33.3
2.00
8
29.6
29.6
63.0
3.00
5
18.5
18.5
81.5
4.00
5
18.5
18.5
Total
27
Table
Responses to the question, “Is there a need for new manufacturing equipment?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
6
22.2
22.2
22.2
2.00
10
37.0
37.0
59.3
3.00
4
14.8
14.8
74.1
4.00
7
25.9
25.9
Total
27
Table
Responses to the question, “Is there a need for custom molding and fixture?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
11
40.7
40.7
40.7
2.00
10
37.0
37.0
77.8
3.00
1
3.7
3.7
81.5
4.00
5
18.5
18.5
Total
27
Table
Responses to the questions, “Any potential shipping / loading problem?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
7
25.9
25.9
25.9
2.00
10
37.0
37.0
63.0
3.00
5
18.5
18.5
81.5
4.00
5
18.5
18.5
Total
27
Table
Responses to the question, “Shipment of parts from anywhere else?”
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.00
8
29.6
29.6
29.6
2.00
10
37.0
37.0
66.7
3.00
4
14.8
14.8
81.5
4.00
5
18.5
18.5
Total
27
CHAPTER FIVE:
SUMMARY and CONCLUSIONS
Summary
The research was consistent in showing that automobile parts suppliers are providing an increasingly important service to the automotive industry. The research was also absolutely consistent in showing that international procurement strategies can provide a number of advantages for this sector in terms of availability, quality, delivery, technology and price for certain items. There can nevertheless be the problems dealing with remote suppliers. Communications with foreign vendors can be impaired by language, cultural differences, time zone differences and the use of different systems of measurement, leading to delays and misunderstandings. Buying from abroad may also involve increased freight costs, import duty and possibly customs delays. The need to pay in foreign currencies introduces both the uncertainty of not knowing what a future cost may be and also the risk of fluctuating costs; steps can be taken to mitigate against these after using stable currencies and by hedging and risk sharing, but such actions themselves can incur additional costs.
Beyond the foregoing, one of the main advantages associated with the purchase of materials or components from foreign markets is the potential to gain economically from comparative advantages; buying at a lower cost per unit compared to nearby suppliers. In emerging and low cost countries such as China and India, there are lower wages and lower overheads which have the potential to reduce the overall cost of production. This may be passed on in lower prices, but the decision will rest not only the price per unit but on the total cost associated with the foreign procurement, noting there are both benefits and risks to the practice.
The foregoing findings that emerged from the secondary resources were largely congruent with the primary data as well, although there were some company-specific issues involved. For instance, in response to the question, “Is this a new product for the supplier,” a majority of the respondents (16 or 59.3%) cited no risk (nine or 33.3%) or low risk (seven or 25.9%); one respondent (or 3.7%) categorized the vendor as moderate risk and 10 respondents (or 37.0%) assigned a high risk. In response to the question, “Is this a new material or technology?,” eight respondents (or 29.6%) cited no risk, seven respondents (or 25.9%) reported low risk, but three respondents (or 11.1%) indicated moderate risk and nine respondents (or 33.3%) indicated a high risk associated with this procurement activity. Just over a quarter of the respondents (7 or 25.9%) assigned a no risk category in response to the question, “Is this part of the company’s product safety program?” Four respondents (or 14.8%) assigned a low risk, and three respondents (or 11.1%) assigned a moderate risk; nearly half (13 or 48.1%) of the respondents, though, assigned a high risk to this issue. In response to the question, “Will there be any common work between companies?,” just over half of the respondents (14 or 51.9%) assigned a no risk (8 or 29.%) or low risk (six or 22.2%) rating, but seven respondents (or 25.9%) used the high risk category assignment for this issue.
Past performance from suppliers clearly played a role in shaping the responses to the question, “Are there any quality problems from the past?,” with six respondents (or 22.2%) indicating no risk, four respondents (or 14.8%) indicating low risk, but with three respondents (or 11.1%) assigning a moderate risk to this issue and more than half (14 or 51.9%) of the respondents assigning a high risk rating to this issue. In response to the question, “Are there time constraints,” one-third of the respondents (9 or 33.3%) assigned a no risk (4 or 14.8%) or a low risk (five or 18.5%) rating to this issue. Six respondents (or 22.2%), though, assigned a moderate risk and 12 respondents (or 44.4%) assigned a high risk to this issue. In response to the question, “Is it a new manufacturing plant?,” 11 respondents (or 40.7%) indicated no risk, four respondents (or 14.8%) assigned a low risk to this issue and two respondents (or 7.4) used the moderate risk assignment. Ten respondents (or 37.0%), though, assigned a high risk to this issue.
In response to the question, “Is there a new manufacturing process?,” nine respondents (or 33.3%) assigned a no risk rating and five respondents (or 18.5) assigned a low risk rating. Six respondents (or 22.0%) assigned a moderate risk rating to this issue and seven respondents (or 25.9%) indicated it was a high risk area. The responses to the two previous issues suggest that new processes are typically associated with higher levels of initial risk.
In response to the question, “Outsourced manufacturing facility will be used?” A third of the respondents (9 or 33.3%) assigned a no risk rating and eight (or 29.6%) assigned a low risk rating. Five each of the respondents (or 18.5% each) assigned a moderate or high risk rating to this issue. The responses to the question, “Is there a need for new manufacturing equipment?,” were more mixed, with six respondents (or 22.0%) assigning a no risk rating and 10 respondents (or 37.0%) assigning a low risk rating. Four respondents (or 14.8%) indicated the proposed work was a moderate risk and seven respondents (or 25.9%) assigning a high risk rating to this issue. In response to the question, “Is there a need for custom molding and fixture?,” more than three-quarters of the respondents (21 or 77.8%) assigned a no risk rating (11 or 40.7%) or a low risk rating (10 or 37.0%). Conversely, one respondent (or 3.7%) indicated this was a moderate risk area and five respondents (or 18.%) assigned a high risk rating to this issue. Nearly two-thirds of the respondents (17 or 63.0%) assigned a no risk rating (7 or 25.9%) or low risk rating (10 or 37.0%) to the question, “Any potential shipping / loading problem?” Five each of the respondents (or 18.5%) each, assigned a moderate risk or high risk to this area. In response to the question, “Shipment of parts from anywhere else?,” eight respondents (or 29.6%) assigned a no risk rating and 10 respondents (or 37.0%) assigned a low risk rating. Four respondents (or 14.8%) and five respondents (or 18.5%) assigned a moderate risk and high risk rating, respectively. These primary data indicate a general tendency to assign higher risk ratings to those areas where there are gray areas in which suppliers may encounter disruptions in their operations that could adversely affect the company.
Conclusions
In the future, it is reasonable to conclude that a growing number of companies will continue to consolidate their domestic and international procurement functions in an effort to introduce cost efficiencies and seamless supply chain operations. While the domestic procurement function is typically country-specific to the needs of the industry, the need to extend these practices to the international sphere has become especially pronounced as the forces of globalization continues to force manufacturers to identify the most cost-effective production methods possible.
In sum, then, there are a number of different elements which will impact on total cost, which will differ depending not only on the good being produced, but on the country of origin which may supply that good. These will include the type of good being sources, the complexity of its production, the amount of labor input in the production process and the length of the products lifecycle. Goods that are used in mass production, which are easy to produce and/or are high in terms of their associated of labor costs may be best acquired for suppliers in countries where there are low labor costs. Where there are issues of time sensitivity the low labor costs may need to be combined with consideration of the relative proximity of the supplier.
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Appendix a
Supplier Risk Analysis Survey
No.
Question
No Risk
Low Risk
Moderate Risk
High Risk
01
Is a new product for the supplier?
02
A new material or technology?
03
Is part of product safety?
04
Any required engineering service?
05
Will there be any common work between companies?
06
Are there any quality problems from the past?
07
Is there time constraints?
08
Will sample presentation be on time?
09
Is it a new manufacturing plant?
10
Is there a new manufacturing process?
11
Have you experienced problems related to the entry into effect before?
12
Outsourced manufacturing facility will be used?
13
Is there a need for new manufacturing equipment?
14
Is there a need for custom molding and fixture?
15
Any potential shipping / loading problem ?
16
Shipment of parts from anywhere else?
17
Need for recyclable packaging?
19
Is there a problem with parts assembled?
20
Required a special tool for assembly fixture?
21
Need to control emissions?
HOW MUCH (performance indicators, measurements, etc.)?* Manufacturer product quality performance,%?* Manufacturer delivery performance?* Manufacturer of quality system performance?* Manufacturer reliability performance?* Lack of raw materials down-time / Total time %?* Alternatively, the number of manufacturers
HOW (Instruction method of procedure)?* Supplier evaluation criteria?* Manufacturer of quality assurance handbook?* Production equipment manufacturer ‘instructions?* Instructions for the supplier industry assessment?* Internal audit procedure?* Service Instructions for the selection and evaluation of suppliers?* Side need the approval of the list of industries?* Raw materials usage restrictions and monitoring table?* Holding Acquisition Regulation Erkurt?* Holding subcontractors working specification Erkurt
OUTPUT?* Approved manufacturer?* Materials purchased?* Purchased inventory?* Customer owned your implements?* Sub-contractor agreement?* Purchased service?* Purchasing records
WITH WHAT (equipment, etc.)?* Customer approved list of suppliers?* Unity?* Intra-net?* Financing
WITH WHO (skill, knowledge, etc.)?* Supplier evaluation team: Access control, Logistics, Purchasing)?* Knowledge about materials to be purchased, which is the bargaining power, purchasing staff engineer
INPUT?* the need for new suppliers-Raw materials for new products, and who-needs change?- Improvement of suppliers not provided?* Demand for raw materials?* Order Sheet?* Investment demand form?* Customer-owned investment request form?* Asset request form?* Trouble shooting form?* External Training Request Form
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What discipline/subjects do you deal in?
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Reasons being:
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In the event that you don’t like your paper:
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You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
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The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
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