BROKERING THE CUSTOMER-SUPPLIER PARTNERSHIP IN PRODUCT DESIGN AND REALIZATION OVER THE WORLD WIDE WEB

GQ Huang, and KL Mak Department of Industrial and Manufacturing Systems Engineering, University of Hong Kong, Pokfulam Road, Hong Kong.

ABSTRACT
This research is concerned with the application of the World Wide Web (WWW or web) technology to facilitate the early supplier involvement (ESI) in new product development (NPD). The paper focuses on two parts of the resulting web-based system. The first part is the Bid Explorer underpinned by a bid model which is based on design specification. The bid model consists of inquiries which in turn have values of different types. Inquiries are represented in a hierarchical tree. The bid model is collaboratively established by, and thereafter commonly shared between, the customer and all the interested suppliers. From the point of view of the customer, the inquiries are their requirements. In contrast, from the suppliers viewpoint the inquiries are their capabilities. The second part of the system is the Partnership Explorer which is underpinned by a partnership model. This partnership model uses four types of numeric partnership indices, namely satisfaction index (SI), flexibility index (FI), risk index (RI), and confidence index (CI). Satisfaction index is based on the overlap between the customer requirements and supplier capabilities. Flexibility index is based on the surplus of the supplier capabilities in relation to the customer requirements. Risk index is evaluated through the shortage of the supplier capabilities with reference to the customer requirements. Confidence index is based on the performance records of a supplier in the past. Keywords: Supply Chain, Early Supplier Involvement, New Product Development, World Wide Web. 1. 1. INTRODUCTION

A supply chain (SC) may be defined as an integrated process wherein a number of various business entities (i.e. suppliers, manufacturers, distributors, retailers, and customers) work together in an effort to: (1) acquire raw materials, (2) convert these raw materials into specified final products, and (3) deliver these final products to relevant parties (Beamon, 1998). Once a supplier becomes part of well-managed and established supply chain, it will have a lasting effect on the competitiveness of the entire supply chain.

Supply chain management (SCM) has recently attracted significant interests from both researchers and practitioners in several directions. At the strategic levels, larger companies are increasingly concentrating on core activities and contracting out or outsourcing other functions to the network of suppliers (Roy, 1996). They have reduced their supply bases, and increased the reliance on the remaining suppliers and tried to develop closer and long-term relationships in the search for competitive advantage (Lamming, 1996). Furthermore, in order to capture the full complexity of the process of supply in a more holistic and strategic view, Lamming (1999) presents the use of the term 'supply network' to define the process of supply which involves complex non-linear links among inter-connected supply entities. Given above complexity of supply network, early involvement of suppliers in New Product Development (NPD) is not only imperative but also a big challenge (Dowlatshahi, 1997; Twigg, 1998). We were compelled to introspect one of the most fundamental responsibilities of supplier management - supplier selection. The importance of supplier selection comes from the fact that it commits resources while simultaneously impacting not only such activities as inventory management, production planning and control, cash flow requirements, and product quality, but also product design and development (Helper, 1995). The literature in vendor or supplier selection continues to grow rapidly in areas such as vendor or supplier attributes and performance metrics (Verma, 1998; Choi, 1996), and decision models (Holt, 1998; Ghodsypour, 1998; Vokurka, 1996). Traditional supplier selection methodologies suffer from a number of limitations. A set of candidate suppliers is assumed to have already been short-listed and they are then subjected to detailed evaluation using their attributes, chosen performance metrics, and given decision models. From the literature, supplier attributes do not seem to include their technical capabilities that should be used in initial selection, especially if the selection takes place early in product development process. To enable early involvement of suppliers in product development, technological requirements/capabilities must be measured and compared in detail prior to or within supplier selection. Supply development is normally based on competitive tender/bidding despite the fact that partnership development is advocated to increase purchasing efficiency. Competitive tender/bidding is considered adversarial, undermining collaborative partnerships or relationships. The focus is usually on price as the key element. Yet the tendering process is expensive in time and money for the vendor. In industrial sectors such as electronics tendering is usually performed for a given set of criteria in a relatively short space of time. Much of the previous research in the area of supplier selection and supplier evaluation emphasizes conceptual and empirical decision support models, mainly for purchasing managers. They may suffer from one or more shortcomings such as mathematically too complex, too subjective, requiring too many supporting data, etc (Holt, 1998). What practitioners need is a methodology simple to use and understand, and yet produce reasonably accurate results. With promises and potentials, Information Technology (IT) and Information Systems (IS) are increasingly used in supply chain management. Early applications have been focused on implementing sophisticated mathematical decision models for supplier selection. OSPAM (Optimal Selection of Partners in Agile Manufacturing) was probably one of the first attempts to apply extensively IT/IS in general and the Internet in

particular in supplier selection (Minis, 1995). Vanwelkenhuysen (1998) has described a Tender Support Expert System for industrial centrifugal pumps. The system assists sales engineers to quickly generate and explore technically valid pump configurations as a response to customer requirements. Kroemker et al (1997) presented a concept of simultaneous bid preparation and implemented a prototype infrastructure to support interdisciplinary co-operative bid preparation over a distributed heterogeneous system environment. These early attempts are inadequate to address the subject matter ESI in NPD set out for the research reported in this paper. Supply chain analysis and modelling have focused on the entire chain (Beamon, 1998) or individual member companies along different levels of the chain (Choi et al, 1996). Little work has been done in analysing and modelling the interfaces between the customers and suppliers. Supplier selection has been extensively studied in the literature. However, most work failed to model the interfaces between the customers and suppliers. It is usually assumed that the customer has a fairly clear description of its requirements and that there are several suppliers who are willing and able to provide the services, with their capabilities clearly described. Despite all of the recent developments, only 36% of the organisations had formal procedures in place for the management of supplier information, according to a recent UK survey (Boston et al, 1998). Over 60% of those companies that maintained supplier literature within a global library, only classified their supplier literature according to its format (catalogues, handbooks, data sheets) or the supplier names. Therefore, this requires an engineering team to have knowledge of what the supplier produces in order for the classification system to be of value. Having recognised some of the limitations in SCM research and practice, the research reported in this paper is aimed at proposing a methodology, named WeBid for the convenience of reference, in order to overcome these limitations. The work has extended to a proof-of-the-concept implementation of the methodology on the World Wide Web (WWW or web). The focus is not on modelling the entire supply chain, nor on a particular company in the chain, but on the interface between the suppliers and the customers. WeBid advocates a collaborative approach in negotiating a contract and establishing longer term relationships. A common model is shared by both customers and suppliers to present technical details of their requirements and/or supplier capabilities. In addition, typical performance measures are incorporated for supplier/customer selection. WeBid encourages early contacts between customers and suppliers through informal inquiries. WeBid provides opportunities to develop long-term partnerships based on the trusts developed through competitive bidding. Finally, WeBid is based on an intuitive but rigorous decision support model for evaluating the potentials for collaboration between the customer and the supplier. Supplier involvement may take several forms, for example by sharing tasks and information during the product development and realization process. Before the question how the supplier is involved in NPD can be examined, it is first of all necessary to focus on determining which supplier should be involved. The WeBid research project addresses two research questions: which supplier should be involved and how the chosen supplier should be involved. This paper focuses on the first question while the second question will be addressed separately in future work. Section 2 presents an overview of the WeBid

methodology and system. Sections 3 and 4 present the bid model (Bid Explorer) and the partnership model (Partnership Explorer) respectively. 2. 2. THE WeBid FRAMEWORK

The working scenario identified for this research is described as follows. A company initiates a new product development project. At certain stages of the development process, the company will have to consult its potential suppliers of raw materials, parts/components, tooling, equipment/machinery, and other types of consumables. Such consultation may take place as early as the design specification stage or as late as actual purchasing is due. Advance consultation with and participation of suppliers are termed as early supplier involvement. It has been found from the contemporary research in the fields of concurrent engineering and supply chain management that significant benefits can be achieved if suppliers are involved in new product development process as early as possible. However, recent investigation in manufacturing industries has also revealed that this approach is not widely practised in industries and its implementation has been a great challenge to researchers and practitioners. 1. 2.1. WeBid Overview

The aim of the research reported here is to develop an overall methodology for enabling better supplier involvement in new product development process and to demonstrate the framework through a prototype web-based platform on the Internet/intranets using the web technology. Four focus areas have been identified. They are (1) To develop a product-oriented supply chain model that is consistent with the new product development process; (2) To develop a mechanism for the customer to invite and potential suppliers to submit bids for manufacturing specific product components; (3) To develop a rigorous but pragmatic supplier selection methodology; and (4) To develop a mechanism for facilitating information sharing between the customer and suppliers.

Figure 1 WeBid as an interface between the customer and supplier. An initial round of investigation has been completed. A prototype system called WeBid has been developed. Figure 1 shows an overview of the WeBid system. The lefthand side of the figure shows main stages of the customers new product development process. The right-hand side presents main activities of the suppliers bid preparation process. As can be seen from the diagram, WeBid is primarily an interface between these two processes. 2. 2.2. WeBid Components

The middle of Figure 1 shows the four main modules of WeBid. These four modules also correspond to the four main activities of the general procedure of ESI proposed by Fine and Whitney (1996). They are summarised briefly as follows: The Supply Explorer. The Supply Explorer is the main and start-up component of WeBid. Other facilities are accessed through this module. The methodology underlying this Supply Explorer is a product-oriented supply chain model. More detailed discussion is given elsewhere (Huang and Mak, 2000). The Bid Explorer. The Bid Explorer enables the customer to define their requirements and potential suppliers to specify their supply capabilities. The methodology underlying this Bid Explorer is a hierarchical bid model shared by

both the customer and suppliers. More detailed discussion is given in a later section. The Partnership Explorer. The Partnership Explorer enables the customer to evaluate and select potential suppliers based on their supply capabilities against the customer requirements, that is the question which supplier should not involved in NPD. It uses a sophisticated, yet pragmatic and intuitive, quantitative partnership model. This novel model consists of four different types of numerical indices, namely, satisfaction index, flexibility index, risk index, and confidence index. More detailed discussion is given in a later section. The Share Explorer. The Share Explorer extends the scope of the system for the customer and suppliers to share not only design information but also design tasks after they reach an agreement on a project, that is the question how should the chosen supplier be involved in NPD. This is an area deserving substantial amount of investigation in the near future. Because of the limitation of the space here, the design and development this Share Explorer will not be discussed here.

In addition to the above main modules, WeBid provides a set of general utility facilities, for example for registering to WeBid, searching and querying partners, browsing the "bidding" results, defining inquiry template, etc. Administrative facilities must be provided for the WeBid service provider to maintain the proper services such as managing the databases and web sites. Registration facilities are provided for the users to enter their details such as company name, address, telephone, username, password, etc. Login facilities are provided for the user to obtain certain authorisation and select a product development project from a list. 3. 2.3. Brokering Customer-Supplier Partnership

WeBid is a partnership broker for two types of user, namely, the customer user and supplier users. As a customer, the user is authorised to view, but not to manipulate, the information of all the suppliers. The customer user can define a project for a new product. The customer user can select one of his projects/products to create or modify the product hierarchy in terms of a tree structure in each stage of product development from conceptual design to production design. For each item of the product tree, the Bid Explorer can be invoked to prepare design specifications. The customer may invite bids from relevant suppliers. After the deadline for submitting bids, the customer can calculate and evaluate partnership indices for each submitted supplier by calling the Partnership Explorer, and then select the most promising supplier or suppliers with the most promising Partnership Indices to award the contract for making the item. As a supplier, the user is limited to view, but not manipulate the customer information. The user can only manipulate its own information but not other suppliers information. The user can see where he or she has been invited to, or plans to participate in the Supply Explorer. Once a decision is made, the user may launch the Bid Explorer to discuss the component design specifications with the customer and enter its companys manufacturing capabilities in order to submit a bid for the project. 3. 3. INVITING AND SUBMITTING BIDS

In this research, a common bid model is shared between the customer and suppliers. The customer invites the bid by publishing its requirements, and a supplier submits a bid by publishing its capabilities. The process of inviting and submitting bids involves two main stages. One is to build up the bid model. The other is to use the bid model for bid submission and invitation. These two main stages are discussed in this section. 1. 3.1. The Bid Model

Preparation and clarification of design specifications is an early activity in the new product development/design process. This is also an initial entry point for supplier involvement. With a set of design specifications prepared, the customer may start inviting bids from potential suppliers who are also able to prepare and submit a bid to the customer. For this straightforward reason, the research advocates the use of a model of design specifications as the common basis of the customer-supplier interface. That is, the model of design specifications will be adopted as the bid model shared by both the customer and suppliers. Design specifications are formal definition of customer requirements. Therefore, the model of customer requirements, that has been proposed in our previous work (Lee, Huang and Mak, 1999), can be extended and modified here to form the model for representing design specifications. Before further detailed discussions, it is necessary now to clarify a few terms used in this research. As implied previously, the terms of contract model, bid model and design specification model are different terms of the same concept when used in different contexts. When discussing product development and design, the term design specification model is preferred. When discussing bid submission and invitation, then the term bid model is used. When discussing the customer-supplier contract, then the term contract model is used. However, they are used interchangeably in this research from time to time. The items included in the bid / contract model are also called inquiry items or inquiries. Because the bid model has been implemented in a prototype system, it is easier to use the sample screen printouts from the computer system to explain this model. Figure 3 shows the sample screen of the Bid Explorer whose user interface also reflects the logic of the bid model. The main facility of this model is a hierarchical tree structure that is used for organising the specification items (also known as inquiries), as shown in the left-hand side of Figure 2. Various facilities are provided for users to build and elaborate design specifications. Users can list, add, edit, and delete, copy and move inquiries.

(a) Defining the bid inquiries Figure 2 User interface of the Bid Explorer.

(b) Defining the values of t

Inquiries may take different types of values. The type of an inquiry must be defined when it is added to the bid model. In Figure 2 (a), option buttons are provided for this purpose in addition to the general description and explanation of the inquiry. The four option buttons correspond to the following four types of inquiry values: Some inquiries are of the type with continuous values. For example, when a customer requires that the tolerance of a dimension should be within Specification +0.09 tolerance interval (+0.09 ~ -0.07) from 20 0.07 , these kinds of inquiries can be satisfied if the supplier's process capability can has a natural tolerance interval +0.03 (+0.03 ~ -0.02) from 20 0.02 . Some inquiries are of the Boolean type, i.e. Yes or No. An example of such inquiries is The company is ISO 9001 certified and the answer to this inquiry would be either yes or no. Some inquiries are of the optional type with discrete values. For example, the customer requires several colours, red, yellow and blue, and the supplier is capable of providing green, red, yellow, blue and white. Some inquiries are qualitative and one of quantifying methods is to use subjective ratings to give a score. An example of such inquiries is "After sales customer service" and the answer to this inquiry would be certain percent from zero to one

hundred percent. It should be declared that the score type could be converted to the range type when performing partnership evaluation. The process of preparing the bid model is the process of making inquiries between the customer and suppliers. This is also the process by which they negotiate their terms of collaboration. That is, once the bid model is prepared and constructed, it provides a basis for formulating the contract between the customer and supplier. Therefore, the bid model can also be loosely considered as a contract model, and the Bid Explorer as a Contract Explorer. One of the most important aspects of the above bid model preparation process is that it is done by the customer in collaboration with interested suppliers. The supplier participation in bid preparation can thus be regarded as their contributions to formulating design specifications. In this sense, suppliers are involved early in new product development process. 2. 3.2. Bid Invitation and Submission

Once the customer and supplier have agreed upon the general items (inquiries) in the bid model, they may start defining their requirements and capabilities quantitatively, respectively. The process of quantifying inquiries by the customer is called inviting bids and the quantified inquiries are called customer requirements. Similarly, the process of quantifying inquiries by the supplier is called submitting bids and the quantified inquiries are called supplier capabilities. Both processes can be called bidding. The procedures of both inviting and submitting bids are the same. For each inquiry in the bid model, the value or value range is specified using the facilities provided in the Bid Explorer shown in Figure 2 (b). The process repeats until all the inquiries are considered. For the Boolean type, it is straightforward to define, simply yes or no. For the optional type, a list of items must be specified. For the score type, a score from 0 to 100 can be specified. For the continuous type, it is necessary to specify a range by giving a lower value and an upper value respectively. The range value is somewhat complex to define. There are two kinds of trend for a customer to compare the range of its requirements with the range of its supplier's capabilities. One tendency is that the larger the supplier's value range, the better; however, the other tendency is that the smaller the supplier's value range, the better. 4. 4. EVALUATING PARTNERSHIP INDICES

This research has proposed a novel model for modelling customer-supplier partnership especially suitable for supporting early supplier involvement (ESI) in new product development (NPD). This partnership model is used to implement the Partnership Explorer. 1. 4.1. The Partnership Model

The partnership model proposed here includes the following four types of distinctive index:

Satisfaction Index (SI) is the measure of the extent to which a customer requirement is satisfied by a supplier capability. The larger the value of SI, the greater the potential that this pair of the customer and supplier become partners. Satisfaction index is based on the overlap between the customer requirements and supplier capabilities. Flexibility Index (FI) is the measure of the extent to which a supplier capability exceeds a customer requirement. The larger the value of FI is, the more flexible the supplier to satisfy the changing customer requirement. Flexibility index is based on the surplus of the supplier capabilities. Risk Index (RI) is the measure of the extent to which a supplier capability fails to meet a customer requirement. The larger the value of RI is, the more risky the partnership between them. Risk index is evaluated through the shortage of the supplier capabilities. Confidence Index (CI) is the measure of trustworthiness of the supplier meeting the customer requirements over a period of specified time. The higher the value of CI for a longer time, the more reliable the supplier is. Longer-term partnership may be considered, instead of using short-term competitive tendering. CI is evaluated through historical records of supplier performance as measured in selected indicators or inquiries.

These indices measure the extent to which both the customer requirements and the supplier capabilities match or mismatch and therefore reflect the potential or risk of signing a project contract. The bidding party or parties with the most promising indices are considered further for awarding the contract. 2. 4.2. Individual Partnership Indices

Partnership indices are evaluated on the basis of customer requirements and supplier capabilities. Customer requirements and supplier capabilities may overlap. A supplier may have surplus or shortage of capability of meeting the customer requirement. These three concepts of overlapping, surplus and shortage are used to evaluate partnership indices. In our methodology and system, these concepts are first of all intuitively defined and visually illustrated before mathematical calculation is carried out. Figure 3 shows a sample screen of the systems Partnership Explorer.

Legends: Boolean (Yes/No) type Option type The larger the better type The smaller the better type Customer requirement Supplier capability Intersection between customer requirement and supplier capability

Figure 3 The Partnership Explorer. Table 1 Formulas to Calculate Partnership Indices Value Type Rs , the larger, the better Range Rs , the smaller, the better Option SI FI RI

R s Rc Rc R s Rc Rs R s Rc Rc

R s R s Rc Rs Rc Rs Rc Rc R s R s Rc Rs

Rc Rs Rc Rc R s R s Rc Rs Rc Rs Rc Rc

Boolean Overall Notes on set operators:

1 if R s = Rc 0

1 if R s Rc 0
N i =1 i

OSI =

SI
i =1

OFI =

FI
N

ORI =

RI
i =1

A B = Intersection of sets A and B. A-B = Difference between set A and set B.

Multiple inquiries are involved in the bid model. Therefore, the three types of partnership indices must be evaluated for all the inquiries one by one. Table 1 shows the formulas for calculating these three indices with respect to different kinds of value types and value tendency of range values. In Table 1, R s stands for the set of supplier capability for a certain inquiry. Rc stands for the set of customer requirement for a certain inquiry. OSI stands for the Overall Satisfaction Index. OFI stands for the Overall Flexibility Index. ORI stands for the Overall Risk Index. N stands for the total number of inquiries evaluated. SI i is the SI for i th inquiry item, FI i is the FI for i th inquiry item, and RI i is the RI for i th inquiry item. Because of the three types of customer requirements (or supplier capabilities), R s and Rc can be defined as two sets with either continuous value or discrete value. An illustrative example of using these equations is given in Figure 3. Different types of customer requirements (or supplier capabilities), indices must be evaluated differently. As far as the optional value is concerned, assume that the customer requires several colours, e.g. red, yellow and blue. The supplier is capable of providing green, red, yellow, blue and white. Thus, the supplier can satisfy the customer's requirement and provide two extra options: green and white. Therefore, this supplier's SI 2 = 0.4 equals to "1" and FI equals to " 5 " and RI equals to "0". As for the Boolean type, let us consider the example inquiry "Is the supplier ISO9000 certified?" The Yes answer to this question indicates that this supplier meets this customer requirement. In this case, the supplier will have a SI of 1, FI of 0, and RI of 0, respectively. Otherwise, the supplier is incapable of meeting this customer requirement. Therefore, this supplier's SI equals to "0" and FI also equals to "0" and RI equals to "1". It must be pointed out that for the Boolean type, no flexibility exists, viz. FI always equals to "0". As mentioned before, there are two different tendencies of the range value. Therefore, the SI calculation can be further divided into two situations. Firstly, consider an example of the larger the better inquiry. When a customer requires that the range of a machining dimension should be within 20~40mm, the supplier has a machine tool that is capable of machining dimensions between 1090 mm. At the same time, the supplier does have the flexibility to cope with the requirement change of the customer because the upper

dimension specification of the customer can vary from 40mm to 90mm and the lower dimension specification can vary from 10mm to 20mm. In this example, no risk exists for this inquiry item. Therefore, for this inquiry, the supplier's SI equals to "1" and FI equals to "0.75" and RI equals to "0". Secondly, let us consider the smaller the better inquiry. Assume a customer requires that the tolerance of a dimension should be within the tolerance interval (+0.09 ~ -0.07), +0.09 say 20 0.07 . The supplier is capable if the supplier's process capability can has a natural
+0.03 tolerance interval (+0.03 ~ -0.02) from 20 0.02 . The supplier also has the flexibility as the upper tolerance specification of the customer can vary from +0.09 to +0.03 and the lower tolerance specification can vary from -0.07 to -0.02. In this example, no risk exists for this inquiry item. Therefore, the supplier's SI equals to "1" and FI equals to "0.75" and RI equals to "0".

3.

4.3.

Overall Partnership Indices

For each bid inquiry, partnership indices are individually evaluated. When all the inquiries are considered, overall indices must be evaluated. Table 1 presents a simple method of calculating the Overall Satisfaction Index ( OSI ), Overall Flexibility Index ( OFI ), and Overall Risk Index ( ORI ) from individual SI ' s , FI ' s , and RI ' s , respectively. The method simply calculates the arithmetic averages of individual indices for all the bid inquiries. At present, no weighting factors are introduced to rate the individual importance of different bid inquiries. There is no difficulty at all to introduce this in the methodology and system. The authors are working on more sophisticated alternative algorithms for evaluating the overall indices based on individual indices. Overall indices are calculated for all the potential suppliers one by one. These suppliers can be rank-ordered according to the three types of overall indices. Ideally, a supplier with the highest SI, highest FI, and lowest RI is the best candidate. However, it may be difficult for one supplier to outperform other suppliers in all these three indices. Therefore, trade-offs are necessary. The analyst must consider other factors in order to reach an optimal selection. 4. 4.4. Uses of Confidence Indices

The concept of confidence index is introduced for two purposes. The confidence index can be simply used as weighting factors to calculate the overall values of the other three types of indices such as satisfaction, flexibility, and/or risk indices. Alternatively, the overall confidence index of a supplier provides an indication whether or not it is mature to consider a long-term partnership. Confidence indices (CIs) are derived from the past records of performance measurements of a supplier (or a customer). The entire inquiry model can be used to calculate CI' s . However, the customer may not record the supply performance using all the indicators. This is because excessive bookkeeping may be involved. Instead, only a few key indicators, such as lead times, product costs, defect rates, etc., may be chosen by the customer to measure and record the supply performance. In this case, CI ' s are derived from this subset of the entire bid model.

The individual confidence index for a bid inquiry that has a range of values can be defined as follows: A C CI = C A if the inquiry item is of the larger the better type if the inquiry item is of the smaller the better type

Where A is the actual value or a range of values of a bid inquiry as measured when the supplier delivers the goods. C is the value or a range of values of a bid inquiry that the supplier promises when a bid is submitted and subsequently awarded. Let us take the product lead-time as an example. The supplier promises a lead time of 10-14 days when it submitted the bid. The contract was awarded to this supplier based on this value. However, the supplier actually took 15 days to deliver the product under this contract. Therefore, the term of contract is breached as far as lead-time is concerned. Assume the customer is still prepared to accept the product this time. Obviously the customer is loosing its confidence in this supplier. This is reflected in the confidence index at least for lead-time, namely, 10/15 = 0.667 to the lower side and 14/15 = 0.933 to the higher side with an average of 0.8 that is smaller than one. However, suppose supplier delivered the product in 9 days to the customer in the above example. This would change the customer confidence completely. The confidence index is therefore 10/9 = 1.11 to the lower side and 14/9 = 1.556 to the higher side with an average of 1.33. If the supplier records are observed over a period of time, then an average may be taken to calculate the average confidence index for a bid inquiry. If more than one inquiry is used to evaluate confidence indices, then an average may be taken to calculate the overall confidence index ( OCI ) for the supplier. The overall confidence index ( OCI ) for a supplier is an indication whether or not a long-term partnership is worth considering. If OCI is maintained at a high level for a considerable period of time, then a positive action may be initiated to negotiate a longterm collaborative partnership. Otherwise, this supplier must compete against any other potential suppliers for the contract in the future. Table 2 An example of weighted partnership indices. Overall Satisfaction Index Confidence Index Weighted Overall Satisfaction Index Supplier 1 0.9865 0.988 0.9747 Supplier 2 0.9754 1.211 1.1812

Alternatively, overall confidence indices of bidding suppliers can be used as weighting factors in evaluating the other three types of partnership indices. An example is given in Table 2. Although the overall satisfaction index of Supplier 1 is higher than that of Supplier 2, the weighted OSI of Supplier 1 is lower than that of Supplier 2. This is

because the second supplier has a higher confidence index than the first supplier. Therefore, the contract should be awarded to the second supplier, rather the first supplier. 5. 5. CONCLUDING DISCUSSIONS

This paper has proposed a methodology and a proof-of-the-concept prototype web-based system for brokering and establishing partnerships between the customer and suppliers in new product development. The methodology builds on a bid model and a partnership model. The bid model is represented as a hierarchical tree whose leaves represent contract inquiries or design specifications and branches represent their categories. The bid model is associated with individual components in the Bill of Materials of the product. From the point of view of the customer, the contract inquiries are their requirements and from the suppliers viewpoint the inquiries are their capabilities. This bid model is shared by both the customers and the suppliers throughout the whole process in order to facilitate their collaboration. The partnership model uses the extent to which both the customer requirements and the supplier capabilities overlap or mismatch to assess the potential for their future collaboration. The customer can use the model to calculate three types of partnership or contract indices, i.e. satisfaction index, flexibility index and risk index, for all the bidding suppliers. The supplier(s) with the most promising partnership indices are considered further for awarding the contract. In addition, supplier performance can be recorded in the system database. The difference between the actual performance and contract terms can be converted into what is called confidence indices. Confidence indices can then be incorporated into the partnership indices as weighting factors. When the confidence index of a supplier is maintained at a high level for a sufficient period of time, a long-term partnership may be considered with this supplier. The proposed methodology is implemented and demonstrated in a prototype webbased computer system, named WeBid, on the Internet. WeBid is therefore a web site that provides facilities to encourage initial contacts, facilitate preliminary contract negotiations, and enable contract evaluation. The Bid Explorer provide facilities for the customer to prepare design specifications for a component and then proceed to inviting bids by publishing the specifications to potential suppliers. Suppliers can use the Bid Explorer to assist the customer in establishing the design specifications and then prepare and submit their supply capabilities as a bid. The Partnership Explorer assists the customer to evaluate all the bidding suppliers automatically and recommend the most promising candidates. Ideally, both the customer and interested suppliers will follow the same bid model to define their requirements and capabilities respectively. In practice, they tend to use slightly different subsets of inquiries identified in the bid model. This would complicate the algorithm used in the Partnership Explorer for evaluating the partnership indices. This aspect deserves further investigation. Another aspect worth attention is the aggregation from individual partnership indices to overall partnership indices. It may be more efficient and effective to replace the present simple arithmetic averaging algorithm by a more sophisticated mathematical technique without introducing excessive extra requirement for data collection and processing. However, a recent case study (Huang and Mak, 2002) has resulted in

satisfactory decisions compared with the actual decisions. Sophisticated aggregating algorithms are introduced only if there is clear evidence of advantages in so doing. More general issues, although beyond the scope of this research, need to be investigated before the WeBid method and system can be truly applied in industries. For example, the security issue is a significant barrier causing fear of introducing and using web-based decision supports systems on the Internet. The authentic issue, particularly relevant to this work, is whether or not the potential suppliers enter the authentic values of their capabilities into the WeBid system to participate in the bidding process. In addition, whether or not requirements can be clearly established in the early stages of product design and development is a technical issue. The product design literature has always emphasized the importance of establishing and clarifying the requirements as far as possible even at early stages (Pahl and Beitz, 1984). Finally, a recent case study positively demonstrates the potential of the proposed WeBid methodology and web-based implementation (Huang and Mak, 2002). It remains a great challenge to incorporate them into, and thus to improve, industrial practices in early supplier involvement in new product development. It is the authors hope that this paper stimulates further investigation and debates in this field.

ACKNOWLEDGEMENTS
The authors wish to thank Dr. Jin Huang and Dr. Bing Shen, our post-doctoral research associates, for their programming efforts of implementing the fat and thin client versions of the WeBid system on the Internet. Gratitude is also extended to the Hong Kong Research Grant Council and the Committee on Research and Conference Grants of the Hong Kong University for the financial supports. The critical but constructive comments made by the editor and his referees are highly appreciated.

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AUTHOR BIOGRAPHIES

Dr. George Huang is Associate Professor in the Department of Industrial and Manufacturing Systems Engineering, the University of Hong Kong. He obtained his B.Eng. degree in Mechanical Engineering from Southeast University (China), and Ph.D. degree in Mechanical Engineering from the University of Wales Cardiff (UK). His main research areas include Collaborative Product Commerce, Digital Manufacturing. He has published extensively in these topics, including two monographs entitled Cooperating Expert Systems in Mechanical Design and Internet Applications in Product Design and Manufacturing respectively, and an edited reference book entitled Design for X: Concurrent Engineering Imperatives. Dr. Huang is a Chartered Engineer, and a member of IEE, ASME, IIE, and HKIE.

Dr. K.L. Mak is Professor and Head of the Department of Industrial and Manufacturing Systems Engineering, the University of Hong Kong. He obtained both his MSc degree in Manufacturing Engineering and PhD degree in Systems Engineering at the University of Salford. He has accumulated substantial experience in industry by working in several UK engineering enterprises including the Pilkington Brothers Ltd., the T.S. Harrison and Sons Ltd., as well as in some enterprises in Hong Kong. Indeed, he has wide exposure to industry, and is well connected with enterprises in the local and overseas communities. His current research interest focuses mainly on Production and Operations Management, and Manufacturing Systems Design and Control, and has published extensively in these areas. He also serves on the editorial boards of a number of journals in engineering.