BUYER-SUPPLIER RELATIONSHIP IN THE FOOD INDUSTRY
1AMY H. I. LEE, 2HE-YAU KANG
1Department of Technology Management, Chung Hua University, Taiwan 2Department of Industrial Engineering and Management, National Chin-Yi University of Technology, Taiwan E-mail: [email protected], [email protected]
Abstract— Taiwan was renowned as a paradise for food lovers; however, in the past couple years, a series of food scandals, such as gutter oil, adulterated olive oil and tainted starch, has tarnished this reputation. Although the government has claimed that it would amend food safety standards and impose harsher penalties for food safety violations, the outcome is still rather unsatisfactory. Many firms, from small bakeries and restaurants to large-scale prestigious food chains and manufacturers, had acquired and used the tainted materials in manufacturing their products, and recalls of these final products had resulted in tremendous amounts of financial and reputation losses, not to say the potential health risks to consumers. To confront food safety crises, firms in the food industry need to reconsider their outsourcing strategies, for example, whether they should produce their materials in house or maintain some kind of cooperation with suppliers. Since a reliable buyer-supplier relationship can ensure the success of products in different aspects such as product quality, delivery, and cost, the selection of the most appropriate buyer-supplier relationship for certain materials is essential. A model, by applying fuzzy analytic network process (FANP), interpretive structural modeling (ISM), and the benefits, opportunities, costs and risks (BOCR) concept,is constructed to determine the interrelationship among the evaluation criteria and to evaluate the effectiveness of different forms of buyer-seller relationships. A performance ranking of the buyer-supplier types can then be obtained.
Keywords— Food Industry, Food Safety; Buyer-Supplier Relationship; Fuzzy Analytic Network Process (FANP), Interpretive Structural Modeling (ISM).
I. INTRODUCTION ties with a myriad of collaborative strategies. Many firms in more advanced industries are shrinking and Taiwan had been proud to provide a wide range of consolidating their supplier base and developing gourmet and food products, which had been one of longer-term, closer inter-firm relationships, such as the reasons for foreigners to visit the country and strategic alliances and joint ventures, with some of which had been exported to different countries. the remaining key suppliers to achieve strategic goals However, in recent years, a series of food safety that range from cost and risk reduction to new skills scandals has tainted the country’s reputation of or knowledge acquisition. To confront the food “gourmet kingdom” and “food paradise.” People in safety crises, firms in the food industry need to think Taiwan have also lost their trust to the food providers about which kind of buyer-supplier relationship may and always wonder whether unsafe materials are be more suitable in order to provide safe food being added to the food products. In addition, people products and to survive in the long run. keep complaining that the government does not In this paper, the food industry is studied in Section 2. devise stringent regulations and procedures to The methodologies, interpretive structural modeling overlook the food providers. On the other hand, (ISM) and fuzzy analytic network process (FANP), while some food material suppliers did provide are studied in Section 3. A buyer-supplier tainted materials unethically, most downstream food relationship evaluation model is then constructed to firms were not aware that they had been using the assess the types of buyer-supplier relationships poisonous materials. Many of them felt that they between a food manufacturer and its upstream were being deceived themselves since the suppliers suppliers in Section 4. Some conclusion remarks are often had acquired government-approved certificates, made in the last section. such as “Good Manufacturing Practice” (GMP) and “Chinese Agricultural Standards” (CAS), etc. II. FOOD INDUSTRY Nevertheless, these firms that wrongly used the contaminated materials faced huge financial and 2.1. Food Supply Chain reputation losses. Since a food firm usually provides Food supply chain is the entire supply process from a variety of products, it is simply impossible for the agricultural production, harvest/slaughter, through firm to acquire all materials from the original sources primary production and/or manufacturing, storage or to process all products from raw materials. Some and distribution to retail sale or use in catering and materials and semi-processed materials need to be consumer practice[[1]]. In today’s environment, outsourced. there are a wide range of process and production The nature of buyer-supplier relationships has been systems, and some of which are highly complex and undergoing dramatic changes. Instead of the required considerable technical input. In addition, the traditional arm’s length transaction, firms today have food industry has been internationalized. Today’s the opportunities to build closer buyer and supplier consumers in industrialized countries demand broad
Proceedings of Academics World 35th International Conference, Saint Petersburg, Russia, 11th July 2016, ISBN: 978-93-86083-54-8 1 Buyer-Supplier Relationship in the Food Industry ranges of food products from different countries, and 2. From the factors identified in step 1, establish on top of competitive prices, they are increasingly relation matrix which shows the contextual concerned about the quality and safety of foods [[2]]. relationship among the factors. Let xi be the Retailers and food industries need to obtain their ith factor, xj be the jth factor, and πij be the product/ingredients from all over the world to relation between ith and jth factors. If xi make/sell their food products. Globalization of food influences xj, then πij=1; otherwise, πij=0. If production and procurement makes the food supply xjinfluences xi, then πji=1; otherwise, πji=0. chain much longer and more complex, and the The relation matrix D is presented as follows: distribution of high quality perishable foods x1 x 2 xn throughout the chain is a challenging task in today’s x1 0 12 1n (1) D x, i 1,2, , n ; j 1,2, , n food industry[[3]][[4]]. Therefore, the food industry 2 210 2n is transforming into an interconnected system with a 0 large variety of complex relationships, and working xn n1 n 2 0 in partnerships in an integrated food supply chain is 3. Develop reachability matrix and check for necessary to obtain the maximum benefits for the transitivity. The initial reachability matrixM firms in the food supply chain [[1]][[4]]. is calculated by adding D from step 2 with the unit matrix I: 2.2. Food Safety M= D + I (2) Food safety is a growing public health concern because foodborne diseases and food safety threats The transitivity of the contextual relation may cause substantial costs to individuals, the food means that if a factor xi is related to xj and xj is industry and the economy[[5]]. Food poisoning may related to xp, then xi is necessarily related to xp. lead to many acute and life-long diseases, ranging The reachability matrix M* is under the from diarrhea to various kinds of cancer [[3]]. In operators of the Boolean multiplication and fact, foodborne and waterborne diarrheal diseases addition (i.e., 1×0=0×1=0, 1+0=0+1=1,), and a were estimated to kill about 2.2 million people convergence can be met: b b+1 annually, among them about 1.9 million are children M* = M = M , b> 1 (3) [[6]]. Foodborne diseases and illnesses also cause considerable economic costs such as medical 4. Determine the levels and relationships treatment expenses, absence from work, insurance between the factors[[12]]. The reachability payments and legal compensation[[7]]. Thus, set and the priority set are calculated next by the following equations: cautious and strategic handling procedures are * R(ti) = { xi│m ji = 1} (4) required in the production, storage, and distribution * for food products because of their deterioration and S(ti) = { xi │m ij = 1} (5) where m is the value of the ith row and the jth short life span[[ ]. Various food scandals and ij 8] column. incidents in different countries have made The levels and relationships between the governments, companies and consumers aware of the factors can be determined using the following importance of food safety. Different regulations, equation, and the structure of the relationships standards and management systems have been can be expressed using a graph. established to control the quality of food products for R(ti) S(ti) = R(ti) (6) the parties in the supply chain[[8]]. 3.2. Fuzzy Analytic Network Process (FANP) III. METHODOLOGIES Analytic network process (ANP) is a generalization of the AHP. Both methodologies were introduced by 3.1. Interpretive Structural Modeling (ISM) Saaty[[15]][[16]] and have been very popular Interpretive structural modeling (ISM), proposed by MCDM tools. While the AHP decomposes a Warfield [[9]][[10]][[11]], is often used to provide problem into a unidirectional hierarchy, the ANP fundamental understanding of complex situations and replaces the hierarchy with a network which allows to put together a course of action for solving a for complex interrelationships among decision levels problem.ISM is a process that enables individuals or and attributes. Fuzzy set theory is also often groups to develop a map of the complex relationships incorporated with AHP, and it is called FANP. A among elements in a complex situation and to FANP model that adopts the supermatrix approach calculate binary matrix, called relation matrix, to can have the following steps [[17]]: present the relations of the elements[[12]].The 1. Define the unstructured problem. procedures are as follows 2. Decompose the problem into a network. [[9]][[10]][[12]][[13]][[14]]: 3. Employ questionnaire and pairwise 1. List factors considered for the problem, and comparisons. This is similar to the step in define each factor as xi, i=1,2,3….,n. fuzzy analytic hierarchy process (FAHP),
Proceedings of Academics World 35th International Conference, Saint Petersburg, Russia, 11th July 2016, ISBN: 978-93-86083-54-8 2 Buyer-Supplier Relationship in the Food Industry except that the interrelationships among generate the ranking of the buyer-seller relationship factors are pairwise compared too. alternatives. The procedure is as follows: 4. Aggregate experts’ opinions and build 1. Review current buyer-supplier relationship aggregated pairwise comparison matrices. forms and existing works on the evaluation 5. Calculate the priority vector for each and selection of the relationship. aggregated pairwise comparison matrix. 2. Study methodologies that have been applied or 6. Check the consistency property of each could be applied in the buyer-supplier aggregated pairwise comparison matrix. relationship evaluation problem. 7. Construct an unweighted supermatrix. By 3. Interview with managers in the food industry entering the calculated priority vectors into the to learn the current buyer-supplier relationship appropriate columns in a matrix, an problem in real practice. unweighted supermatrix is formed as follows: 4. Form a committee of decision-makers in a Goal Criteria Sub-criteria Alternatives food manufacturer to define the buyer-supplier Goal I relationship problem. (7) S Criteria w21 W22 5. Collect factors for evaluating the buyer- Sub-criteria WW 32 33 supplier relationships, and select the most Alternatives W43 I important ones.
where w21 is a vector representing the 6. Decompose the problem into a hierarchy/network. An example of the impact of the goal on the criteria, W is a 32 network is as shown in Fig.1. matrix representing the impact of criteria on 7. If the problem is represented by a network, sub-criteria, indicates the inter- W22 apply ISM, DEMATEL or other methodology dependency of the criteria, is a matrix W43 to analyze the interrelationship among criteria representing the impact of criteria on each and among sub-criteria. The network in Fig.1 of the alternatives, W indicates the is revised to consider these interrelationships. 33 8. Prepare a questionnaire based on the proposed interdependency of the sub-criteria, and is I hierarchy/network structure from Step 6 or 7 the identity matrix[[16]]. to pairwise compare the elements in each level 8. Transform the unweighted supermatrix into a with respect to the element in the higher level. weighted supermatrix. 9. Calculate the priorities of the buyer-seller 9. Obtain the limit supermatrix. By raising the relationship alternatives. weighted supermatrix to a power of 2k+1, a 10. Select the most appropriate buyer-seller convergence is achieved, and the result is the relationship type. limit supermatrix. 10. Rank the alternatives. The priority weights of CONCLUSIONS alternatives can be found in the limit supermatrix. In this paper, a buyer-supplier relationship evaluation model, by applying ISM and FANP,is proposed to IV. BUYER-SUPPLIER RELATIONSHIP assess the types of buyer-supplier relationships MODEL between a food manufacturer and its upstream suppliers. By incorporating experts’ opinions, the A buyer-supplier relationship model is proposed to importance of multiple factors that may affect the determine the interrelationship among the evaluation success of the relationship, including the food safety criteria and to evaluate the effectiveness of different issues, can be analyzed, and a performance ranking of typesof buyer-seller relationships. A network for the buyer-supplier relationships can be generated. evaluating different formsof buyer-seller relationships The results shall provide guidance to select the most for a food manufacturer can be constructed first based appropriate form of relationship between a food on the BOCR concept, and ISM can be applied next manufacturer and its upstream suppliers. The model to understand the interrelationship among the can be tailored by other food firms for making evaluation criteria. The FANP can then be applied to relevant decisions.
Fig.1. The network for selecting buyer-supplier relationship
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