Quality Dimensions and Costs

• Quality is the supplier's ability to provide goods and services meeting specific requirements

Dimensions of Quality

• Performance is the product or service's primary function
• Features are the bells and whistles of the product
• Reliability is the probability of a product's failure within a specified timeframe
• Durability is the product's life expectancy
• Conformance is meeting specifications
• Serviceability is the maintainability and ease of fixing
• Aesthetics encompasses the look, smell, feel, and sound
• Perceived quality is the image of the product in the customer's eyes

Quality Cost

• Prevention Costs include activities that eliminate future defects
• Appraisal Costs are incurred during inspection, testing, measuring, and other activities to ensure conformance, often using supplier quality control (QC) reports
• Internal Failure Costs arise within the operating system due to poor quality
• External Failure Costs occur when substandard goods/services reach the customer, including costs for returns, warranties, and complaint management
• Morale Costs are related to employee morale

Total Quality Management (TQM)

• Adopted by Japan in 1950, Deming’s 14 points are as follows:
• Strive to improve products/services constantly
• Adopt a new philosophy
• End dependence on inspection for quality
• Minimize total cost by working with a single supplier, not just focusing on price
• Improve planning, production, and service
• Institute on-the-job training
• Adopt and institute leadership
• Drive out fear
• Break down staff area barriers
• Eliminate slogans, exhortations, and targets for the workforce
• Eliminate numerical quotas/goals for the workforce/management
• Remove barriers robbing pride of workmanship and eliminate annual ratings/merit systems
• Institute vigorous education/self-improvement programs for everyone
• Engage everyone in the company's transformation

TQM in Supply Management

• Continuous Improvement involves:
• Planning involves collecting data and setting performance targets.
• Doing involves implementing countermeasures.
• Checking involves measuring and evaluating countermeasure results
• Acting involves standardizing and applying improvements across the organization

Quality Function Deployment (QFD)

• A structured approach translates customer needs into engineering/manufacturing requirements
• Identifying spoken and unspoken customer needs
• Identifying positive quality and business opportunities
• Translating these into actions/designs using transparent analysis and prioritization
• Allows organizations to exceed expectations
• Provides unanticipated excitement that generates value

Stages of QFD

• Product planning determines design requirements
• Parts deployment determines parts characteristics
• Process planning determines manufacturing requirements
• Production planning determines production requirements

Buyer and Supplier Integration

• Promotes collaboration to improve product quality/efficiency with key benefits:
• Reducing or eliminating engineering changes during development
• Reducing product development cycle time
• Reducing start-up cycle time
• Minimizing product failures and repair costs
• Creating product uniformity and reliability

Process Capability

• A capable process has only common/chance causes of variation, no special causes
• The Upper Specification Limit (USL) is the maximum acceptable output level
• The Lower Specification Limit (LSL) is the minimum acceptable output level
• Process Capability Index (Cp) for Six-Sigma (99.7% confidence): Cp = (USL – LSL) / 6σ

Sampling, Inspection, and Testing

• These involve data collection methods for capability studies:
• Sampling involves selecting a small representative group from a larger total
• Types of sampling include random, sequential, and 100% inspection/screening
• Testing products is required prior to purchase
• This involves use and laboratory tests and commercial testing labs/services
• Inspection upon Receipt is an ideal situation eliminating receiving inspection via joint buyer-supplier quality efforts
• Adjustments and Returns: Supply departments handle these with support from relevant departments
• Rejection costs include transportation, testing, and contingent expenses

Assuring Purchased Service Quality

• Informal and Formal Evaluation
• Assesses Service Value, Repetitiveness, and Tangibility
• Considers Direction and Production of Service

Quality Standards & Awards

• ISO 9000 and 14000 standards
• The Malcolm Baldrige National Quality Award (U.S.)

Supplier Certification

• This process evaluates/recognizes supplier quality performance via surveys and assessments on supplier premises
• These are conducted by engineering, manufacturing, supply, and quality control personnel
• This is for goods/services related to user groups, purchasing, and quality control

Supplier Segmentation

• This Strategic approach categorizes suppliers/products based on importance, risk, and value

Classification Criteria

• Volume Purchased & Percentage of Total Purchase Cost:
• High-volume, high-cost items require more management
• Low-volume, low-cost items can use standard processes
• Impact on Product Quality/Business Growth:
• Strategic suppliers require strong partnerships
• Commodity suppliers can be managed with price focus
• Supply Risk: Assesses availability, number of suppliers, demand, and make-or-buy options
• Storage Risks & Substitution Possibilities:
• Perishable/hazardous materials require special handling
• Alternative suppliers/materials reduce dependency risks

Critical Commodity (High Value, High Risk)

• A commodity critical to profitability/operations
• Involves few qualified supply sources, large expenditures
• Is design/quality critical, with complex/rigid specifications
• Strategy: Partner with suppliers
• Tactics: Increase the role of the selected supplier
• Actions: Heavy negotiation, supplier process management, contingency plans, market analysis, and functional specifications
• Actions: Use functional specifications

Routine Commodity MRO (Low Value, Low Risk)

• Features many alternative products/services and sources of supply
• Involves low value/small transactions, everyday unspecified items
• Strategy: Simplify acquisition
• Tactics: Increase the role of systems and reduce buying effort
• Actions: Rationalize supply base, automate requisitioning (e.g., EDI, p-cards), use stockless procurement, and minimize administrative costs

Leverage Commodity (High Value, Low Risk)

• Features high expenditures, commodity items, large marketplace, and many qualified sources
• Is market/price sensitive
• Strategy: Maximize commercial advantage
• Tactics: Concentrate business and maintain competition
• Actions: Promote competitive bidding, exploit market trends, coordinate procurement, use industry standards, and source actively

Bottleneck Commodity (Low Value, High Risk)

• Requires complex manufacturing/service processes
• Has limited production/supply sources
• Exhibits a big impact on operations/maintenance
• Involves new/untested technology
• Strategy: Ensure supply continuity
• Tactics: Decrease supplier uniqueness and manage supply
• Actions: Widen specifications, increase competition, develop new suppliers, use medium-term contracts, and attempt competitive bidding

Purchase Item Classification

• Categories based on supply risk and value.

A Transformation in Relationships

• The way businesses interact with suppliers has shifted to collaborative, strategic partnerships
• This shift parallels changes in buyer-supplier relationships
• Prior to the 1980s, purchasing was reactive
• A Win-Lose Mindset existed

Types of Buyer-Supplier Relationships

• Ranges from transactional to collaborative and alliance-based

Transactional Relationships

• A series of independent deals
• Costs, data, and forecasts are not shared
• Focus placed on Price
• Requires minimal purchasing time/energy
• Well-suited for e-procurement
• Advantages: Less time/effort required and lower skill levels for personnel
• Disadvantages: Communication difficulties, expediting/monitoring of quality, inflexibility, delivery problems, and minimum service/quality
• Less effective supplier performance; customers are subject to disruptions; suppliers lack motivation to invest
• Objectives include efficiency and fair relations
• Requires little investment but fair treatment

Outcomes Sought

• Lower costs (administrative and product/service), better quality/innovation/responsiveness, enhanced technical support, opportunity to collect data, fewer complaints, and profitable relationships

Collaborative Relationships

• Used for non-commodity items/services and often precedes strategic alliances
• Fosters longer contracts, risk reduction, reduced costs, and improved processes/products
• Increases investments in R&D, training, equipment, and customer focus
• Lead to lower costs and improved supply chain performance

Alliance Relationships

• Formed to coordinate core competencies ongoing
• Closely managed and requiring intensive communication and cooperation via linked systems and cross-organizational teams
• Core attributes are continuous improvement, interdependence, cooperation, communication, learning, openness, shared vision, ethics, adaptability, experiments, certification, win-win, and executive commitment

Benefits

• Buyers expect lower costs, improved quality/responsiveness, faster order fulfillment, and technology flow
• Suppliers receive large, stable contracts enabling investment in new technologies and access to expertise/ financing
• Relational impact is significant

When to Use Alliances

• High financial impact, dominant market share, unique expertise/technology, strategic component/service, and is either scarce/limited
• Intensive collaboration enables competitive advantage

When Not to Use Alliances

• Instability, capability issues, lack of competition, and low benefits or internal buy-in
• Inability to leverage

To Ensure Success

• Establish cross-functional teams, train members, and develop communication/trust
• Also, arrange co-location, address critical issues, set objectives, monitor improvements, prioritize ethics, and promote collaboration

Supplier Perspective

• Suppliers want good customers and value cash flow, openness, approachability, availability, and professionalism

Portfolio Approach

• Requires effective management considering product technology, competitive conditions, and supplier capabilities

Reduction Logic

• Some companies have reduced their supply base using "target number" and "minimum performance" approaches, specifying supplier numbers or performance standards

E-Commerce & the "Right"Relationship

• B2B eCommerce has revolutionized buying/selling but shouldn't dictate relationship types
• Instead, select suppliers based on requirements, not just the internet

Traps to avoid

• Gulling the pig involves using broken processes online
• The "magic pill" involves assuming one tool can solve all problems
• Supplier equality involves treating everyone the same