Supplier Performance Prediction for Future Collaboration: Based on Markov Chain Model

Supplier Performance Prediction for Future Collaboration: Based on Markov Chain Model

Mohammad Azadfallah (Saipayadak, Tehran, Iran)
Copyright: © 2017 |Pages: 12
DOI: 10.4018/IJBAN.2017100103
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Abstract

Today, long-term relationship plays a vital role in supplier selection for supply chain management. The main reason is that long-term relationships can act as a mechanism for shifting the chains strategic focus from price to value and priorities long-term benefit over short-term gains. Since, in this paper we tried to address a method for optimal long-term alternative prediction and selection, focusing on purchase volume factor. For this, Markov chain model had been used and the final result showed improved effectiveness.
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Introduction

Today's business environment is a turbulent, variable and uncertain environment. Wide range, numerous and basic changes in business setting has caused a change in strategic view and applied tools and methods, shortened product life cycle and a dramatic decline in worthiness of historical data in comparison to not many years ago. One of the major changes, which have befallen mostly in the 1990s, is the change in business unit from plant or firm to chain (Mohaghar, Kashef, & Khanmohammadi, 2014). Nowadays supply chain management is one of the most important affairs that applying its new approaches is essential among competitive industries and markets. For any company, the most significant decision is to purchase goods, materials and services from suppliers. Now the better suppliers perform the better company do. So, the role of suppliers is critical in the competitive markets. Supplier selection is the first step of the supply chain management. Supplier selection is a problem for any organization because of its role on reducing cost in the supply chain management (Tabar & Charkhgard, 2012). According to the viewpoint proposed by Mukhtar and Shaharoun (2002), a supply chain can be defined as a set of relationships among suppliers, manufacturers, distributors and retailers that facilitates the transformation of raw materials into final products. Since, the type of relationship that exists between and among these players holds the key to the success of the supply chain. In other words, supply chain management principles advocate close collaboration among all supply chain players. There are of course various variables that contribute or define the type of relationship between the players in the supply chain. These include formalization, intensity, frequency, standardization and reciprocity. A combination of these variables will give rise to various different buyer-supplier relationship structures be it collaborative or arm’s length type of relationships. At the same time, supply chain networks have expanded globally in today's business environment (Rienkhemaniyom & Ravindran, 2014). In other words, the key to competitive success in most industries has moved beyond the confines of any single organization. So, in today's business environment, competitiveness is heavily influenced by the ability of multiple organizations in a supply chain to synchronize and integrate their business activities (Jitpaiboon, Qiannong, & Patel, 2015) in one hand, and a key feature of supply chain management is an early decision to reduce the number of suppliers in the chain (the elimination of multiple sourcing) because maintaining close, intense relationships can be very expensive in management effort. The intention is to have no more 'partners' than necessary and to work more closely, effectively, and over the longer term, with those who have the most critical impact on the overall operation. For instance, Japanese lean automotive producers have typically 300 suppliers compared to 1000-2500 in the west and operate a determined policy of supplier base reduction-moving from away from multi-sourced, adversarial trading-towards closer relationships with fewer, key partners (Wilding & Humphries, 2006) on the other. Nevertheless, in order to adapt to an uncertain and fast-changing competitive environment, relationships between organizations become increasingly important (Wang, 2004).

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