Vendor rating strategies to mitigate the effects of cereal supply variations : A case study at a manufacturing company in the food industry

Abstract: Raw material of high quality and in sufficient quantities is of great importance to manufacturing companies. However, the availability of such raw material is often uncertain. One such important raw material is cereals because the consumption of food products containing cereals is very common. The company in this case study is a manufacturing company in the food industry that purchases cereals from external suppliers. The suppliers are required to deliver cereals that meet posed quality standards and also to deliver cereals in sufficient quantities at the right time in order not to affect the product quality during the manufacturing phase and in order not to cause unnecessary production delays. However, under the current purchasing strategy, the company encounters difficulties in meeting production demand due to shortages of the supplied cereals. Therefore, it is of interest to investigate and map the reasons for such shortcoming of the current purchasing strategy. Furthermore, since suppliers are essential for the success of an organisation, the need to develop and apply a serious vendor rating strategy, particularly with respect to the ability to deliver cereals of the right quality and quantity, has arisen. The objectives of the master thesis are to investigate why the cereal supplies do not meet the production demand under the current purchasing strategies and also to achieve mitigation of the effects that cereal supply variations have on the production process. Thus, to meet these objectives, the following two research questions are examined in this master thesis: “Why do not the cereal supplies meet production demand under the current purchasing strategies?” “Which vendor rating strategies can companies use to mitigate the effects of cereal supply variations?” The master thesis is delimited to the cereals buckwheat flour, corn flour, rice flour, sorghum flour and teff flour. Furthermore, the master thesis includes the stage vendor rating and follow up in the purchasing process of cereals. A literature review, an examination of historical data, interviews, and a focus group with employees included in the purchasing process of cereal are conducted. The purchasing process of cereals at the case study company includes the stages specification, supplier selection, contract agreement, ordering, delivery expediting, arrival control, monitoring of best before date, vendor rating, and follow up. The found reasons why the cereal supplies could not meet production demand under the current purchasing strategies are: Variations in supply and demand. The production demand fluctuates and can therefore be difficult to meet depending on the available cereal supplies.  The available choice of suppliers. The case study company face difficulties in finding suppliers that can meet the requirements.  Supplier problems. The supplier problems include late deliveries, and also that received orders do not meet the specification. The flow of information. The suppliers do not inform the company about problems with orders, making it more difficult for the company to prevent supply disruptions. The accuracy of the forecasts sent to the suppliers is low, making it difficult for the suppliers to prepare sufficient quantities of cereals.  Transportation issues. The transportation companies deliver orders too late, which cause production delays.  The vendor rating strategies that companies can use to mitigate the effects of cereal supply variations are based on a three-stage model for vendor rating, including the design, implementation and use of the vendor rating system. Companies need to adjust the vendor rating system to suit their specific business. The recommendations to the case study company consist of the additional activities that the case study company should conduct in order to follow the three-stage model for vendor rating.