Development and Application of Total Supplier Value Management Model for Manufacturing Companies


Student thesis: Doctoral Thesis

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Awarding Institution
Award date25 Jul 2018


Business in general entails the exchange of value between buyers and sellers. The concept of value is such an essential component in business because it enables companies to attain a sustainable competitive advantage in their respective industry. General literature and prior studies are also heavily emphasizing that creating customer value is the fundamental purpose of any company. But none of the earlier studies and researches have forgotten to mention that value has never been a definitive concept because it is such a complicated idea to interpolate collectively. And some of the literature insisted that the subject of value is contextual, perspective, situational and relativistic. Despite ambiguities in value concepts, companies are continuously using different ways to communicate the value embedded in their business conducts. Trying to understand their customer’s desired value, evaluating their perceived value and using them to create and deliver the right product or service are some activities they do to establish value perceptions in their business conducts. This is because there is an increased pursuit of value in modern business practices and the deliberate articulations about value in business is an obligation in global commerce.

To clearly articulate the value involved in a business, companies and the associated industrial practitioners must have a good deal of understandings in the concepts of value. There should be a universal way to quantify or express the value so that one who delivers and one who perceive them have the same understanding. Given the complexity associated with concepts, this thesis beings by questioning if the contemporary business practices can measure and quantify the value they create and deliver? Observations and insights from the literature suggest that use of value concepts is still vague and there is no metrics to quantify them. Theories on value chain analysis, supply chain management, and marketing studies have touched upon activities and methodologies to create and deliver products with correct value. It is noteworthy to mention that several references have discussed various approaches to evaluate value but there is no unit of measure defined yet. There is no comprehensive model or tool to manage the process of value creations in contemporary business environment and to communicate the same among business associated and to make full sense out of it.

Commerce in general will be highly efficient and effective if the value created and delivered between a buyer and seller is articulated clearly and precisely. Therefore, this thesis aims to develop a comprehensive model to manage the value transaction between a company and its supplier and calls it as a Total Supplier Value Management (TSVM) model. Conceding to the general observations of literature, (i.e., value is contextual, situational, personal and relativistic) this thesis develops this TSVM model with clear contextual, situational, perceptional and relativistic references. The term ‘value’ is explained in the context of business, the behavioral aspects of value are analyzed to establish a clear perception of value for manufacturing companies in B2B environment and finally the relativistic perceptions on value between the and the customer is leveraged to develop and apply the model. The objective of the model is enable a company as a customer to manage the value derived from their supplier. This is because most of the literature observes that customers are the custodians of their perceived value and hence they lead the pursuit for value in general commerce. This TSVM model will enable a company firstly to quantitatively propose its desired value to the supplier, secondly to quantitatively ensure an optimum, appropriate and agreed amount of value is been created by the supplier and finally to validate that value delivered is correct and at desired amount. And, this model is specifically developed for companies in manufacturing industries operating in B2B environment.

This innovative model is developed after systematically analyzing the dynamics of B2B environment and the industrial value chain of manufacturing companies. These analyses resulted in two frameworks that provides valuable insights to the industrial practitioners while using the model in real time application. One of the resultant framework called Industrial Value Chain (IVC) framework was instrumental for identifying some important determinants used in the development and application of TSVM model. Those determinants are called functional values. Using the IVC framework, key functional values that are articulated more often in the business transaction between customers and supplier in B2B environment are identified. Five functional values namely, technological value, manufacturing value, quality value, responsiveness value and delivery value are identified to be the fundamental qualifiers for this model to operate in the B2B environment. Following that a value assessment tool is modelled to quantify all these five functional values individually. As a result, value index is developed to numerically quantify and articulate the idea of value. An integrated methodology of Benefit-sacrifice approach, means-end theory approach and experimental theory approaches are used to develop the tool to express these functional values in numerical index format. Finally, individualized measure of all these five functional values are used to determine the total value involved in the business transaction. This final numerical expressed in terms of index is called total value index and the tool used to determine this value index is called total value assessment tool.

Another resultant framework called B2B dynamics framework is developed as a supporting model for the total value management activities that enables the industrial practitioners to understand the industries behavior in relation to their own specific objectives and to the supplier’s attitudes. This static model creates a foundational mind set for the industrial practitioners to engage in systematic value management process together with their suppliers in their industry. When the total value assessment tool is applied in conjunction to the B2B dynamic frame work, the industrial business practitioners could manage the value creation and delivery process efficiently and able to articulate them effectively among the business associates. And hence, the model is called Total Supplier Value Management (TSVM) Model.

The model is applied in real time project and verified for its effectiveness in real time business transaction. A case company was chosen for implementation and this model was used in conjunction with the company’s original product life cycle management system. The total value index was calculated by the case company for its different stages of product life cycle by engaging its supplier appropriately. The calculated value index was very well understood and articulated by both parties. As a result, the case company could propose a desired value at each stage and could ensure that the desired value is created and delivered by its supplier company successfully. For the case company, it was evident that their suppliers deployed a well-determined effort to deliver their desirable amount of value and the service level of the supplier was also satisfactory.