L7,8 Quality & Supplier Segmentation. PDF

L7 - Quality Defini0on Quality, in the simplest sense, refers to the ability of the supplier to provide goods and services in conformance with specifica;ons Dimensions Performance à The primary func;on of the product or service. Features à The bells and whistles Reliabil...

L7 - Quality Defini0on Quality, in the simplest sense, refers to the ability of the supplier to provide goods and services in conformance with specifica;ons Dimensions Performance à The primary func;on of the product or service. Features à The bells and whistles Reliability à The probability of failure within a specified ;me period Durability à The life expectancy Conformance à The mee;ng of specifica;ons Serviceability à The maintainability and ease of fixing. Aesthe;cs à The look, smell, feel, and sound Perceived quality à The image in the eyes of the customer Quality Cost Preven;on Costs à all ac;vi;es that eliminate the occurrence of future defects Appraisal Costs à costs of inspec;on, tes;ng, measuring, and other ac;vi;es designed to ensure conformance of the product or service( using the supplier’s quality control (QC) reports) Internal Failure Costs à costs incurred within the opera;ng system as a result of poor quality. External Failure Costs à incurred when poor-quality goods or services are passed on to the customer and include costs of returns, warranty costs, and management ;me handling customer complaints. Morale Costs Total Quality Management (TQM) Deming’s 14 points, Adopted by Japan in 1950 1. Create constancy of purpose for improving products and services. 2. Adopt the new philosophy. 3. Cease dependence on inspec;on to achieve quality. 4. End the prac;ce of awarding business on price alone; instead, minimize total cost by working with a single supplier. 5. Improve constantly and forever every process for planning, produc;on, and service. 6. Ins;tute training on the job. 7. Adopt and ins;tute leadership. 8. Drive out fear. 9. Break down barriers between staff areas. 10. Eliminate slogans, exhorta;ons, and targets for the workforce. 1 11. Eliminate numerical quotas for the workforce and numerical goals for management. 12. Remove barriers that rob people of pride of workmanship and eliminate the annual ra;ng or merit system. 13. Ins;tute a vigorous program of educa;on and self-improvement for everyone. 14. Put everybody in the company to work accomplishing the transforma;on TQM in Supply Management Con;nuous Improvement Plan: Collect data and set performance target. Do: Implement countermeasures. Check: Measure and evaluate the results of countermeasures. Act: Standardize and apply improvement to other parts of the organiza;on Quality Func;on Deployment (QFD) QFD is a structured approach to product development that translates customer needs into specific engineering and manufacturing requirements. Seeks both spoken and unspoken customer needs. Iden;fies posi;ve quality and business opportuni;es. Translates these into ac;ons and designs by using transparent analy;c and priori;za;on methods. Empowers organiza;ons to exceed normal expecta;ons. Provides a level of unan;cipated excitement that generates value Stages: 1. Product planning à to determine design requirements. 2. Parts deployment à to determine parts characteris3cs. 3. Process planning à to determine manufacturing requirements. 4. Produc;on planning à to determine produc3on requirements Buyer and supplier integra1on: QFD promotes collabora;on between buyers and suppliers to enhance product quality and efficiency. Key benefits include: Reducing or elimina;ng engineering changes during product development. Reducing product development cycle ;me. Reducing start-up cycle ;me. Minimizing product failures and repair costs over the product life. Crea;ng product uniformity and reliability during produc;on Process Capability A process is capable when there are no special or assignable causes of varia3on, only common or chance causes Upper specifica;on limit (USL): The USL is the maximum acceptable level of output Lower specifica;on limit (LSL): The LSL is the minimum acceptable level of output 2 Process Capability Index (Cp) (Six-Sigma, 99.7% confidence level) $%& − &%& !" = () Sampling, Inspec0on and Tes0ng Data collec;on methods that feed into capability studies: 1. Sampling: A sample is a small number of items selected from a larger group or popula3on of items. The goal is to secure a sample that is representa3ve of the total popula3on being tested a. Random Sampling b. Sequen;al Sampling c. 100 Percent Inspec;on or Screening 2. Tes;ng: Tes3ng products may be necessary before a commitment is made to purchase a. Use and Laboratory Tests. b. Commercial Tes;ng Labs and Services 3. Inspec;on upon Receipt: The ideal situa3on is one in which no receiving inspec3on is necessary because the joint buyer–supplier quality assurance effort has resulted in outstanding quality performance with reliable supplier-generated records. 4. Adjustments and Returns: The supply department, aided by the using, inspec3on, or legal department, is responsible for prompt ac3on on adjustments and returns. a. The costs incurred when materials are rejected may be divided into three major classes: (1) transporta;on costs, (2) tes;ng cost (3) con;ngent expense Assuring the Quality of Purchased Services Quality Standards & Awards Informal Evalua;on ISO 9000 Quality Standards Formal Evalua;on ISO 14000 Environmental Standards8 Value of the Service The Malcolm Baldrige Na;onal (U.S.) Degree of Repe;;veness Quality Award Degree of Tangibility Direc;on of the Service Produc;on of the Service Supplier Cer0fica0on Defini&on: a process of evalua&ng and recognizing the quality performance of an organiza&on’s suppliers a quality capability or quality assurance survey on the supplier’s premises normally conducted by relevant departments such as: engineering, manufacturing, supply, and quality control personnel for goods or user group, purchasing, and quality control for services 3 L8 - Supplier Segmenta0on Supplier/Product PorKolio Analysis Strategic approach used in supply chain management to evaluate and categorize suppliers or products based on their importance, risk, and value to the business. Classifica;on Criteria 1. Volume purchased & percentage of total purchase cost High-volume, high-cost items (e.g., raw materials) require close management. Low-volume, low-cost items may be handled with standard procurement processes. 2. Impact on product quality or business growth Strategic suppliers (those affec;ng product perf/innova;on) need strong partnerships. Commodity suppliers (standardized items) can be managed with price-focused nego;a;ons. 3. Supply risk Availability, Number of suppliers, Compe;;ve demand, Make-or-Buy opportuni;es 4. Storage risks & subsAtuAon possibiliAes Perishable/hazardous materials à may require special handling. Alterna;ve suppliers or materials à can reduce dependency risks. Cri;cal Commodity (high value, high risk) Cri;cal to profitability and opera;ons Few qualified sources of supply Large expenditures Design and quality cri;cal Complex and/or rigid specifica;ons Strategy Form partnership with suppliers Tac;cs Increase role of selected supplier Ac;ons Heavy nego;a;on Supplier process management Prepare con;ngency plans Analyze market and compe;;on Use func;onal specifica;ons 4 Rou;ne Commodity MRO (low value, low risk) Many alterna;ve products and services Many sources of supply Low value, small individual transac;ons Everyday use, unspecified items Anyone could buy it Strategy Simplify acquisi;on process Tac;cs Increase role of systems Reduce buying effort Ac;ons Ra;onalize supply base Automate requisi;oning, e.g., EDI, p-cards Stockless procurement Minimize administra;ve costs Liile nego;a;ng Leverage Commodity (High Value, Low Risk) High expenditures, commodity items Large marketplace capacity with ample inventories Many alternate products and services Many qualified sources of supply Market /price sensi;ve Strategy Maximize commercial advantage Tac;cs Concentrate business Maintain compe;;on Ac;ons Promote compe;;ve bidding Exploit market cycles/trends Procurement coordina;on Use industry standards Ac;ve sourcing Boileneck Commodity (low value, high risk) Complex specifica;ons requiring complex manufacturing or service process Few alternate produc;ons/sources of supply Big impact on opera;ons/maintenance New technology or untested processes Strategy Ensure supply con;nuity 5  Tac;cs Decrease uniqueness of suppliers Manage supply Ac;ons Widen specifica;ons Increase compe;;on Develop new suppliers Medium-term contracts Aiempt compe;;ve bidding Purchase Item Classifica9on A Transforma0on in Rela0onships Over 9me, the way businesses interact with suppliers has undergone a major transforma9on—shiDing from a transac9onal, adversarial approach to a collabora9ve, strategic partnership. à This shiD in Supply Chain Management parallels a similar transforma9on in rela9onships between buyers and suppliers Prior to the 1980s most purchasing rela9onships were reac9ve à Purchasing only happened when needed (e.g., inventory ran out) Win-Lose Mindset à Interac9on between vendor and purchasing resulted in outcomes where one’s gain would be the other’s loss 6 Types of Buyer-Supplier Rela0onships Transac9onal Rela9onships One of a series of independent deals Costs, data and forecasts are not shared Price is the focus of the rela;onship A minimum of purchasing ;me and energy is required to establish prices Transac;onal purchases lend themselves to e-procurement Advantages: Rela;vely less purchasing ;me and effort are required to establish price Lower skill levels of procurement personnel are required Disadvantages: Poten;al for communica;on difficul;es Expedi;ng and monitoring of incoming quality Inflexible when flexibility may be required More delivery problems Quality will be only as good as required Suppliers provide the minimum service required 7  Less effec;ve performance by suppliers Customers are subject to more supply disrup;ons Supplier is not mo;vated to invest ;me and energy development of buyer’s products Objec;ves of transac;onal rela;onships: 1. Maximum efficiency and handling transac;ons 2. Good rela;ons, both par;es feel they are treated fairly. ATTENTION: Generally transitory à managers should invest liile ;me, money, or resources in developing them. The focus with these suppliers is to reduce cost. HOW? By using reverse auc;ons and global sourcing; However à All supply chain members (even transac;onal rela;onships) should be treated in a fair and honest manner. Outcomes sought: Lower administra;ve costs Lower product and/or service costs Beier quality, innova;on, and responsiveness Enhanced technical support Delivery of special services Opportunity to collect compe;;ve intelligence Fewer complaints and beier industry reputa;on More profitable rela;onships Opportunity to build closer, more collaboraAve relaAonships in the future Collabora9ve Rela9onships Typically used for the procurement of non-commodity items and services. It frequently is an appropriate first step on the road to a strategic alliance. Fosters: Longer term contracts Reduc;on of risk for suppliers Reducing total costs Improvement of processes Improvement of products Increased investment in R & D Increased investment in training Increased investment in equipment Beier focus on customer needs Collabora3ve and alliance rela3onships tend to result in lower total costs and improve performance of the supply chain 8 Alliance Rela9onships Strategic alliances are formed to coordinate complementary core competencies in an on-going basis. Most highly evolved types of B2B r.ships à thus closely scru;nized and carefully managed. Effec;ve opera;on à requires intensive and open communica;on supported by linked informa;on systems Cross-organsa;onal teams drive coopera;ve planning. Core Aiributes: Con;nuous improvement Interdependence and commitment. Atmosphere of coopera;on Informal interpersonal connec;ons Internal infrastructures to enhance learning Openness in all areas of the rela;onship A living system A shared vision of the future Ethics take precedence over expediency Adaptable in the face of change Design of experiments and supplier cer;fica;on Win-Win nego;a;ons Execu;ve level commitment Avoid terms that could prove destruc;ve Benefits: Buyers in the alliance can generally expect o lower costs, improved product quality, o enhanced responsiveness, o decreased order fulfillment ;mes, o Improved technology flow from suppliers o Improved con;nuity Suppliers generally receive o Long-term, large volume contracts à provide stability and lower costs. o Long-term contracts with stable demand § allow investment in new technologies § allow access to buyer’s exper;se § allow access to buyer financing for materials or equipment When to use Alliance: High Financial Impact Rela;onship represents a significant financial volume, in either sales or purchases. Dominant Market Share SC member represents a large share of the co’s business, either sales or purchases. Unique Exper;se or Technology Poten;al partner possess skills/ technology/another unique aspect that can’t be replaced Strategic component/service The product/service is vital to your opera;ons or customer value. Scarcity or Limited Supply The resource is hard to get, and compe;;on is fierce. Intensive collabora;on = Compe;;ve Advantage Beier quality, lower costs, shorter cycles, or unique service. 9 When not to use alliance: Stability Price Vola;lity, demand Vola;lity High Switching Likelihood with High Switching Costs Capability No Partnership/Alliance-Capable Supplier for the Item, or Supplier in the Geographic Area No Partnership/Alliance-Capable Rapid Technological Change Mismatch of Clock Speed Compe;;on Non-Compe;;ve Market Supplier Dependency Crea;on Neglected Areas Suppliers Seeking to Reduce Compe;;on Benefits No leverage from Partnership No Hard Savings from Partnership Internal Buy-In No Internal Customer Buy-In To ensure success of Supply Alliance: Establish an inter-firm cross-func;onal team Train Team members Develop an inter-firm communica;on system Develop plans to increase and measure trust Arrange for co-loca;on of key personnel and for periodic visits to each other’s facili;es Train more on cri;cal issues Establish measurable quan;fiable objec;ves Monitor and report improvements Priori;ze Ethics over expediency Inter-firm team members need to embrace the philosophy of collabora;on Inter-firm team members should become champions who ensure that their organiza;ons understand and support the alliance’s goals The Supplier's Perspec0ve Supplier’s want good customers. Several issues affect their assessment, among them are: Cash Flow Openness and Approachability Availability Professionalism The PorKolio Approach Successful supply chain management requires the effec;ve and efficient management of a porpolio of rela;onships. Three environmental factors to consider: the product exchanged and its technology, the compe;;ve condi;ons in the upstream market, and the capabili;es of the suppliers available 10 The Cox Model Reduc9on Logic Many companies have reduced their supply base in recent years. The logic behing this decision: 1. “Target number” approach a. Sourcing strategy specifies target number of suppliers for each commodity 2. “Minimum performance” approach a. Suppliers must meet minimum standards to remain in supply base E-Commerce and the “Right” Type of Rela0onship B2B eCommerce (online procurement plaForms, digital supplier networks, etc.) has revolu3onized how companies buy and sell. But it doesn’t change a fundamental truth: The "right" supplier rela1onship depends on your business needs—not just technology. Just because eCommerce makes transac;ons faster doesn’t mean every supplier should be treated the same. Remember: 3. Selec;on must be a func;on of the requirement, not of the Internet! 4. B2B eCommerce is an enabler NOT a solu;on Traps to Avoid Trap #1: Guilding the pig o Taking a broken, inefficient procurement process and just puung it online. Trap #2: The Magic pill o Assuming one eCommerce tool (e.g., a marketplace, ERP module) can solve every procurement need. Trap #3: Supplier equality o Trea;ng all suppliers the same because "the system forces us to." 11