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Beginning in the late 1990s, Digitex Corporation began a policy of doing business “using
time as a prime competitive weapon.” Specifically, this involved collapsing time from product
time-to-market as well as faster response to customer demands. The goal was to greatly
improve competitiveness and improve across all key business measures. A set of tools
developed by the company focused on waste elimination, simplicity, flexibility, quality, employee
The new initiative, described as just-in-time/total quality control (JITQC), combined the
initiatives of just-in-time with the concepts of total quality management. The total quality
3. A view of the next process as the customer and a corresponding reduction of organizational
barriers
4. Use of statistical methods and decision making based on facts, data, and problem- solving
techniques
Digitex sought to drive improvement by first ensuring adherence to the JITQC system,
which should lead to an increased analysis of processes and process improvement. Eventually,
the standardization of new business processes should result. The new corporate philosophy
centers around the AT (read as “A – delta – T”) System, which involves the identification of
actual conditions (A), the determination of the theoretical ideal (T) and the elimination of
intervening waste or delta (). The challenge behind this system is to design a function or
process in which the actual time to perform a process (A) equals the theoretical (T) level of the
time to perform. AT provides a way to assess actual conditions and model the ideal process.
As a result, waste can be identified, discussed, analyzed, and removed from the process.
Once the objective of “achieving theoretical time” is clear, the challenge of achieving
theoretical values becomes clearer and the necessary tools and approaches can be
aggressively applied. Achieving the theoretical time becomes a motivating challenge that
should translate into individual action. Digitex applies AT to any process or system that
involves time or cost, such as production, administration, sourcing, communication, new product
and integrated a number of new policies and procedures into the new sourcing management
department. Contracts are now constructed around families of parts for the projected life of a
product, component, or technology. Because product life cycles in the computer industry are so
short (sometimes as little as six to eight months) and demand patterns often erratic, the
contracts include a flexible range of quantity requirements. Suppliers do not receive guarantees
of specific volumes but are assured participation. Quality expectations are also detailed in the
contract, including Cpk/parts per million (ppm) or other definitions that define the required level
of quality. Other contract elements include forecast and release process and timing, longer-
term pricing formulas (both cost reductions and increases), nondisclosure clauses, technology
ownership and license provisions, and liability limitations based on a supplier’s theoretical cycle
time.
Information systems are a major part of Digitex’s sourcing strategy. Digitex provides to
external suppliers an MRP-driven twelve-month forecast via electronic data interchange (EDI)
each time it updates its MRP system. Distant suppliers use the forecast and agreed-upon
shipment authorization windows to schedule their shipments to Digitex. For example, the first
week of the forecast may become the delivery schedule. Local supplier shipments are triggered
by consumption using release mechanisms such as a kanban process, and flow directly to the
production point of use. The consistent use of long-term blanket purchase orders is normal,
while piecemeal internal purchase requisitions, orders, or release approvals are not normally
used. These approaches take time and hence contribute to waste in the process.
Digitex works to integrate suppliers directly into its JIT, total quality control, and
employee involvement strategies. The company then measures each supplier’s progress
toward these strategies and shares the results during supplier performance reviews. When
needed, the company also uses site, group, or corporate assistance teams to help suppliers
adopt JITQC principles, including process capability analysis, cycle-time reduction, pull-system
implementation, and AT assistance. Early supplier involvement (ESI) programs help promote
Digitex aggressively establishes local sources of supply using long-term contracts (from
life of product to two to four years) where appropriate. In sole-source environments where only
one supplier is available to supply a given commodity or item, Digitex develops long-term pricing
processes and contracts based on experience curves derived from previous sourcing
Supplier selection relies on the total cost of sourcing an item or service and takes full
recognition of distribution costs, supplier process capability, ppm quality history, supplier JIT
accordance with resources available to manage JITQC business practices. Supplier selection
for new items involves the use of cross-functional teams with members from design, distribution,
and quality. Joint approval about a supplier from both the new product and manufacturing
organizations also occurs. Purchasing managers are responsible for driving quality at the
Digitex. Three performance areas in particular are an integral part of the evaluation, selection,
and continuous performance review process. The following measurement areas link the
must demonstrate continuous improvement during the initial baseline review and the
achievement of 30% or better improvement toward theoretical best-possible levels during all
subsequent reviews.
2. Customer satisfaction and small group improvement activities must exhibit continuous
3. Employee contribution criteria, which Digitex establishes during the baseline review and
The cost of quality consists of prevention, appraisal, and failure costs. Prevention costs
include areas such as design reviews, supplier quality evaluations, quality training programs,
quality audits, and preventive maintenance. Appraisal costs include supplier source inspection,
incoming inspection and/or testing, in-process inspection, and status measurement. Failure
costs include redesign cost, engineering change cost, rework, and scrap and warranty cost. To
be relevant, the company compares the cost of quality to some base activity such as gross
production (scrap, rework and repair, inspection, and test and diagnosis) along with inventory-
related costs. This category is related to gross inventory spending, which includes all spending
for material, material acquisition, production, administration, and variances. The equation for
PONC% is:
The theoretical target for PONC is zero. Digitex expects suppliers to achieve at least a
Supplier Responsiveness
The ability of a supplier to respond quickly with a minimum of inventory cost exposure
has a direct effect on raw and work-in-process (WIP) inventory and WIP cycle time. Inventory
measurement includes days of supply (current inventory dollars/volume of sales per working
day). However, a more relevant measure is the cycle-time performance ratio (CTPR), which
stresses the elimination of all unnecessary factory floor cycle time. CTPR is calculated as:
Actual cycle time starts at the point of entry of key components to the production line and
concludes with delivery of finished assemblies to the customer or stock. Actual cycle time is
Examples of unnecessary activities include setup, move, rework, wait, queue, burn-in,
inspection, kitting, counting, and transaction. Examples of necessary activities include machine
Cycle time initially measured production time improvement. However, Digitex soon
expanded the approach of cycle-time ratio analysis in the AT program to include a great deal
more. The measurement system can track an entire product cumulative cycle time, a total plant
cycle time, or a particular machine operation. AT also applies to inventory levels, cost models,
or any administration process using the generalized ratio of actual cycle time to theoretical cycle
time. As before, Digitex targets 30% improvement in inventory and cycle-time ratios from
review to review.
feedback. (Digitex is the primary customer but feedback can also originate with end users of
Digitex product.) The format and content of the feedback is site-specific and defined by Digitex.
Suppliers must demonstrate that a feedback review process is in place, the data is an accurate
satisfaction.
customer inspection, zero customer line interruptions due to supplier performance, mean time
between failures, mean time to repair, problem-free installation, and customer survey
responses.
Therefore, Digitex expects the number of employees at the supplier’s facility involved in such
The number of employee ideas generated and carried out at the supplier is an indication
of the level of employee empowerment, contribution, and effectiveness of the overall employee
insufficient indicator of employee involvement. It is possible for small groups to formally exist at
the supplier but not really be empowered to make suggestions or effect change. By tracking the
status of ideas actually contributed and implemented by supplier teams, Digitex can evaluate
the level of employee empowerment. The measurement system tracks the number of ideas
submitted and implemented and, when necessary, Digitex encourages action to improve the
Conclusion
Sourcing is a key part of the JITQC initiative at Digitex. Supporting this effort requires a
different type of purchasing organization: one that focuses externally, has the resources to
support a supplier’s technical needs, links directly to corporate JITQC goals and objectives, and
has the right measures and information systems to evaluate performance. Firms that
demonstrate this level of commitment to their sourcing process are placing themselves in ideal
Assignment Questions
2. How does Digitex’s sourcing strategy link directly to the corporate goals and objectives
of JITQC?
3. Digitex argues that once the objective of “achieving theoretical time” is clear, the
challenge of achieving theoretical values becomes obvious and the necessary tools and
approaches can be aggressively applied. Discuss the tools and approaches used in
purchasing to help reach the corporate goal of achieving the “theoretical time.”
4. Digitex details its quality expectations directly in supplier contracts, including Cpk/parts
per million (ppm) target levels or other definitions that define the required level of quality.
Why do you think Digitex spells out the expected supplier quality performance levels in
the contract?
5. What types of costs are included in the PONC? What does the PONC% represent?
6. The case presented six total quality principles emphasized at the corporate level by
Digitex. Discuss how suppliers, through their performance, can impact each of these
principles.
7. Digitex aggressively establishes local sources of supply using long-term contracts (from
life of product to two to four years) where appropriate. What are the advantages of using
local sources of supply? Why does the company rely on longer-term contract
agreements?
8. When needed, the company uses site, group, or corporate assistance teams to help
suppliers adopt JITQC principles. Discuss the advantages to Digitex of using cross-
9. Discuss the different types of supplier development support that a buying company
10. Distant suppliers use the forecast and agreed-upon shipment authorization windows to
schedule their shipments to Digitex. Local supplier shipments are triggered by Digitex
consumption using release mechanisms such as a kanban process, and flow directly to
the production point of use. What is the advantage to Digitex of having shipments
shipments?
11. Information systems are a major part of Digitex’s sourcing strategy. Discuss how Digitex
12. With JITQC, Digitex works to integrate suppliers directly into its JIT, total quality control,
and employee involvement strategies. The company then measures each supplier’s
progress and shares the results during supplier performance reviews. What benefit
does the measurement of supplier performance provide to Digitex? What benefit does
13. What is the value of regularly scheduled performance reviews between suppliers and
Digitex?
14. How does Digitex promote continuous supplier improvement through its performance
measurement system?
15. Explain the statement “Performance measurement supports the supplier selection
process at Digitex.”