PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Supplier Quality
Management
Chapter 8

CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
 Chapter Overview

 Overview of supplier quality

management
 Factors affecting supply management’s
role in managing supplier quality
 Supply quality management using a
TQM perspective
 Pursuing Six Sigma supplier quality
 Using ISO and the MBNQA criteria
Purchasing & Supply Chain Management, 4e
2
 What Is Supplier Quality?

 The ability to meet or exceed current

and future customer expectations or
requirements within critical
performance areas on a consistent
basis
 Keys to supplier quality:
 Meet or exceed
 Current and future requirements
 On a consistent basis
Purchasing & Supply Chain Management, 4e
3
 Supplier Quality Concerns

 Supplier impact on quality

 Continuous improvement requirements
 Outsourcing of purchase requirements

Purchasing & Supply Chain Management, 4e

4
Factors: Supply Management’s Role

 The ability of a supplier to affect a

buyer’s total quality
 The resources available to support
supplier quality improvement
 Ability of a buying firm to practice
world-class quality

Purchasing & Supply Chain Management, 4e

5
Factors: Supply Management’s Role

 A supplier’s willingness to work jointly

with the buyer to improve quality
 A supplier’s current quality levels
 A buyer’s ability to collect and analyze
quality-related data

Purchasing & Supply Chain Management, 4e

6
 A TQM Perspective

 Defining quality in terms of customers

and their requirements
 Deming’s 14 Points
 Pursuing quality at the source
 Stressing objective measurement and
analysis
 Emphasizing prevention rather than
detection of defects
Purchasing & Supply Chain Management, 4e
7
 A TQM Perspective

 Focusing on process rather than output

 Basics of process capability
 Striving for zero defects
 Cost of quality
 Establishing continuous improvement
as a way of life
 Making quality everyone’s responsibility

Purchasing & Supply Chain Management, 4e

8
Quality: The Customer’s Perspective

 Nonconforming supplier quality is often

due to inconsistent communication and
resultant misunderstanding of
specifications, expectations, and
requirements within the supply chain
 Need for clear specifications and
performance requirements
 Sharing of final product requirements

Purchasing & Supply Chain Management, 4e

9
 Developing Clarity

 Ability of the buying company to

succinctly identify, clearly define,
quantify, or specify its technical and
sourcing requirements
 Buyer’s ability and initiative to
effectively communicate these
requirements to the supplier

Purchasing & Supply Chain Management, 4e

10
 Deming’s 14 Points

1. Create a vision and demonstrate

commitment
2. Learn the new philosophy
3. Understand inspection
4. Stop making decisions based purely
on the basis of cost
5. Improve constantly and forever

Purchasing & Supply Chain Management, 4e

11
 Deming’s 14 Points

6. Institute training
7. Institute leadership
8. Drive out fear
9. Optimize the efforts of teams
10. Eliminate exhortations

Purchasing & Supply Chain Management, 4e

12
 Deming’s 14 Points

11. Eliminate numerical quotas and

measurement by objective
12. Remover barriers to pride in
workmanship
13. Encourage education and self-
improvement
14. Take action

Purchasing & Supply Chain Management, 4e

13
Summary of Deming’s Philosophy

 Variation is the primary source of

quality nonconformance
 To reduce variation, the search for
improved quality is a never-ending
cycle of design, product, and delivery
followed by surveying customers –
then starting all over again

Purchasing & Supply Chain Management, 4e

14
Summary of Deming’s Philosophy

 Although quality is everyone’s

responsibility, senior management has
the ultimate responsibility for quality
 Interacting part of a system must be
managed together as a whole, not
separately

Purchasing & Supply Chain Management, 4e

15
Summary of Deming’s Philosophy

 Psychology helps manager understand

their employees and customers, as well
as interactions between people
 Intrinsic motivation is more powerful
than extrinsic motivation
 Predictions must be grounded in theory
which helps to understand cause-and-
effect relationships
Purchasing & Supply Chain Management, 4e
16
 Quality at the Source

 Evaluate key value-adding points in a

process where defects could occur,
including supplier facilities
 Product and process design
 Early supply management involvement
(ESMI)
 Early supplier design involvement (ESDI)
 Issue of proprietary information
Purchasing & Supply Chain Management, 4e
17
Objective Measurement and Analysis
 Make decisions on facts, not feelings
 Need for a rigorous evaluation system
 Develop a preferred supplier list
 Award future business
 Identify continuous improvement
opportunities
 Provide feedback to support corrective
action
 Track results from improvement initiatives
Purchasing & Supply Chain Management, 4e
18
 Prevention of Nonconformance

 Need for process consistency

 Reduce process variation
 Reduce reliance on appraisal,
inspection, and detection activities
 Supplier certification program
 Use of corrective action requests

Purchasing & Supply Chain Management, 4e

19
Focus on Process, Not on Output

 Move from product orientation to

process orientation
 Quality processes  quality output
 Supplier must provide evidence of
process capability
 Structured, companywide supplier
evaluation and selection system

Purchasing & Supply Chain Management, 4e

20
 Focusing on Sample Inspections

 What supplier would knowingly submit

a poor sample?
 How many parts did the supplier
produce to get an acceptable sample?
 Are the samples representative of the
process under normal conditions?

Purchasing & Supply Chain Management, 4e

21
 Focusing on Sample Inspections
 Did the supplier use the same process,
methods, and materials that will be used
in normal production?
 Or was the sample made under
controlled laboratory conditions?
 Did the supplier actually produce the
sample or use a subcontractor?
 Do the samples show evidence of
capacity or process capability?
Purchasing & Supply Chain Management, 4e
22
 Basics of Process Capability
 Process capability is the ability of a
process to generate outputs that meet
engineering specifications or customer
requirements
 Outputs must fall between pre-
established upper and lower
specification limits
 No special causes of variation exist in
the process
Purchasing & Supply Chain Management, 4e
23
 Basics of Process Capability
 99.73% of all output fall between ± 3
standard deviations of the process
mean
 A stable process and in statistical
control can be expected to produce
virtually all of its output within these
natural tolerance limits
 A process’s natural limits must fall
within specification limits to be capable
Purchasing & Supply Chain Management, 4e
24
 Process Capability
(a) (b)

Specification Specification

Natural Variation Natural Variation

(c) (d)

Specification Specification

Natural Variation Natural Variation

Source:
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008
Evans and Lindsay - Thomson South-Western 25
 Zero Defects

 Conformance to requirements (Crosby)

 Key metrics to identify improvement
opportunities
 Supply base rationalization and
optimization
 Average supplier quality improves as
lower performers are eliminated from the
supply base

Purchasing & Supply Chain Management, 4e

26
 Cost of Quality
 Appraisal costs
 Direct costs of measuring quality
 Failure costs
 Internal – occur before product or service
is provided to customer
 External – occur following production or
after customer takes possession
 Prevention costs
 Prevent defects from occurring
Purchasing & Supply Chain Management, 4e
27
 Appraisal Cost Examples

 Laboratory testing of samples

 Inspection activities during production
 Supplier quality audits
 Incoming material inspections
 Other forms of monitoring

Purchasing & Supply Chain Management, 4e

28
 Internal Failure Cost Examples

 Troubleshooting
 Reinspection following detection of
defects
 Production downtime caused by defects
 Scrap
 Process waste

Purchasing & Supply Chain Management, 4e

29
 External Failure Cost Examples

 Warranty costs
 Replacement of defective products
 Product liability lawsuits
 Loss of customers

Purchasing & Supply Chain Management, 4e

30
 Prevention Cost Examples

 Quality planning
 Equipment calibration
 Quality training
 Maintenance of a quality management
system

Purchasing & Supply Chain Management, 4e

31
 Continuous Improvement

 Value analysis/value engineering

(VA/VE)
 Supplier development
 Supply base rationalization and
optimization
 Supplier incentive and reward systems

Purchasing & Supply Chain Management, 4e

32
 Supplier Incentives

 Longer-term contracts
 Higher share of purchase volume
 Public recognition and awards
 Shared cost savings
 Access to new technology from buyer
 Early insight to new business
opportunities and product development
plans
Purchasing & Supply Chain Management, 4e
33
 Supplier Incentives

 Early participation in new product and

process development projects
 Use of buyer’s supply agreements to
obtain favorable pricing
 Participation in executive buyer-
supplier councils
 Listed as preferred supplier with first
opportunity for new business
Purchasing & Supply Chain Management, 4e
34
Quality: Everyone’s Responsibility

 Aligned vision and goals

 Physical co-location
 Executive-level buyer-supplier councils
 Shared technologies
 Joint projects
 More collaborative buyer-supplier
relationships

Purchasing & Supply Chain Management, 4e

35
 Six Sigma Quality

 Proven quality principles and techniques

 Virtually error-free business performance
 Expressed as 3.4 errors (or defects) per
million opportunities (DPMO)
 Increasing expectations from customers
 Focus on defect prevention, cycle time
reduction, and cost savings
 Use of Six Sigma Black Belts
Purchasing & Supply Chain Management, 4e
36
The DMAIC Model

Purchasing & Supply Chain Management, 4e

37
 The DMAIC Model
 Define improvement activity and goals
 Measure existing system, establish
metrics, and identify performance
baseline
 Analyze system and develop hypotheses
 Improve – develop ideas, test solutions,
and implement new process, structure,
and system
 Control – measures and procedures to
ensure system stays in control
Purchasing & Supply Chain Management, 4e 38
 Using ISO and MBNQA Criteria

 Widely accepted quality management

frameworks
 ISO 9000:2000
 ISO 14000
 Malcolm Baldrige National Quality Award
 Criteria are often used as the basis for
supplier certification programs

Purchasing & Supply Chain Management, 4e

39
 ISO 9000:2000

 Originally developed in the European

Common Market in 1987
 Updated in 1994 and 2000
 Expected to be updated again in 2008
 Third-party registration process
 Internationally accepted and
recognized quality process standards

Purchasing & Supply Chain Management, 4e

40
Eight Principles of ISO 9000:2000

 Customer focus  Continual

 Leadership improvement
 Involvement of  Factual approach
people to decision-making
 Process  Mutually beneficial
approach supplier
 System approach relationships
to management
Purchasing & Supply Chain Management, 4e
41
Buyer’s Benefits of ISO 9000:2000

 Few firms have sufficient resources to

develop and implement their own
comprehensive supplier certification
audits
 Supplier assumes responsibility for
meeting the ISO 9000:2000 standards
and paying its own registration fees
 Supplier demonstrates higher quality
Purchasing & Supply Chain Management, 4e
42
 ISO 14000
 Established in 1993 to promote
environmental protection and pollution
prevention
 Used to analyze a supplier’s ability to
proactively manage its environmental
impact
 Range from environmental management
systems to addressing auditing,
labeling, and product standards
Purchasing & Supply Chain Management, 4e
43
 ISO 14000

 Set of voluntary standards

 Classifications
 Process-oriented standards
 Product-oriented standards
 But, it does not:
 Build on existing governmental regulations
 Establish emissions and pollution levels
 Detail any specific testing methods
Purchasing & Supply Chain Management, 4e
44
 Benefits of ISO 14000

 Fewer pollutants generated

 Reduced liability risk
 Improved regulatory compliance
 Better public and community relations
 Lowered insurance premiums
 Enhanced profitability through:
 Improved resource management
 Reduced waste generation
Purchasing & Supply Chain Management, 4e
45
 The MBNQA

 Established in 1987
 A de facto definition of TQM and
competitive set of criteria
 More comprehensive set of quality-
related criteria than ISO 9000:2000
 Implies that an organization excels not
only in quality management but also in
quality achievement
Purchasing & Supply Chain Management, 4e
46
 The MBNQA

 Much of current application is for

internal use as a quality management
tool and not for award purposes
 May take 8 – 10 years to adequately
prepare a competitive quality system
 Built upon a continuous improvement
philosophy
 Both process and results oriented
Purchasing & Supply Chain Management, 4e
47
 MBNQA Criteria Items
 Leadership
 Organizational leadership
 Public responsibility and citizenship
 Strategic planning
 Strategy development
 Strategy deployment
 Customer and market focus
 Customer and market knowledge
 Customer satisfaction and relationships
Purchasing & Supply Chain Management, 4e
48
 MBNQA Criteria Items
 Information and analysis
 Measurement of organizational
performance
 Analysis of organizational performance
 Human resource focus
 Work systems
 Employee education, training, and
development
 Employee well-being and satisfaction
Purchasing & Supply Chain Management, 4e
49
 MBNQA Criteria Items
 Process management
 Product and service processes
 Support processes
 Supplier and partnering processes
 Business results
 Customer focused results
 Financial and market results
 Human resource results
 Supplier and partner results
 Organizational effectiveness results
50
Supplier Certification at Alcoa

Purchasing & Supply Chain Management, 4e

51