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Assessment of supplier quality cost in automobile industry

Article  in  International Journal of Quality Engineering and Technology · January 2014

DOI: 10.1504/IJQET.2014.059841

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Int. J. Quality Engineering and Technology, Vol. 4, No. 1, 2014 1

Assessment of supplier quality cost in automobile

industry

S.N. Teli and V.S. Majali

Mechanical Engineering Department,
Gogte Institute of Technology,
Khanapur Road, Udyambag,
Belgaum-590 008, Karnataka, India
E-mail: shivanandteli@yahoo.com
E-mail: vijaymajali@yahoo.com

U.M. Bhushi
Sahyadri College of Mangalore Engineering and Management,
‘Sahyadri Campus’, Adyar,
Mangalore-575007, Karnataka, India
E-mail: bhushi@email.com

L.M. Gaikwad*
Mechanical Engineering Department,
Saraswati College of Engineering,
Plot No.46A, Sector-5, Kharghar,
Navi Mumbai-410210, India
E-mail: lokpriya2004@yahoo.co.in
Corresponding author

Abstract: Today the cost of quality (COQ) is of more strategic and economic
importance, which has been previously applied for an internal performance
measure within companies. The purpose of this paper is to present cost of
quality using part per million equivalents (PPMeq) to determine rejected parts
and their associated manufacturing cost. The customer’s products and services
depend upon supplier’s cost, quality and delivery improvement. The purpose is
to communicate expectation to our suppliers that has to be used in the
manufacture, design and development of parts, products. A competitive
advantage can be more effective by supplier quality management practices
which involve a commitment of time, resources, and expertise. This paper
briefly outlines PPM agreement to establish a minimum standard for the
supplied quality and to encourage suppliers to develop ways of working
towards the prevention of non-conformances and their underlying causes
implemented by such manufacturers in supplier quality management.

Keywords: supplier assessment; supplier quality cost; part per million

equivalents; PPMeq.

Copyright © 2014 Inderscience Enterprises Ltd.

2 S.N. Teli et al.

Reference to this paper should be made as follows: Teli, S.N., Majali, V.S.,
Bhushi, U.M. and Gaikwad, L.M. (2014) ‘Assessment of supplier quality cost
in automobile industry’, Int. J. Quality Engineering and Technology, Vol. 4,
No. 1, pp.1–20.

Biographical notes: S.N. Teli is currently working as an Associate Professor

and Head Mechanical Engineer in Saraswati College of Engineering, Navi
Mumbai. He has 15 years of teaching experience. He is doing PhD under VTU
Belgaum.

V.S. Majali is working as the Head and Professor Mechanical Engineer at GIT,
Belgaum, Karnataka. He is guiding five PhD candidates. He has completed
MTech from I.I.T. Mumbai and PhD from NITJ. He has more than 20 years of
teaching experience.

U.M. Bhushi is working as a Principal in Sahyadri College of Engineering and

Management Mangalore. He has completed MTech and PhD from I.I.T.
Kharagpur. Two candidates are completed their PhD under him and three are
ongoing.

L.M. Gaikwad is currently working as an Assistant Professor in Mechanical

Engineering Department, SCOE, Navi Mumbai. He has ten years of experience
and currently doing PG under Mumbai University.

1 Introduction

In many manufacturing and service companies, purchases from suppliers can range from
50%–80% of manufacturing costs. The ability of the customer and supplier to control
purchase costs has an enormous impact on the return to shareholder value and
profitability. Supplier-provided product also becomes the most critical quality and
delivery issue due to the impact on final assembly and administrative quality. Quality
costs for inadequate supplier performance in managing defects and deliveries has been
found in some companies to approach over 10% of purchase costs. Other costs associated
with poor delivery and responsiveness can greatly add to the cost of doing business with
suppliers. We will include cost of quality examples from a major automotive
manufacturer who developed a cost component based on the level of PPM achieved by
the supplier and developed a cost of quality formula for the percentage of acceptable
products received.
Part per million equivalent (PPMeq) can be calculated plant-wise, process-wise,
part-wise, supplier-wise so that original equipment manufacturer (OEM) can be
understand which process is critical and which supplier is best for particular component
to do the business in future with lowest quality costs. With the help of PPMeq it is also
possible to determine rejection rate of critical part and process at plant level and supplier
level. Continuous performance evaluation can also possible so that supplier can
understand the requirements of its customers.
Figure 1 shows the contribution of supplier in total cost of product and quality which
motivate systematic analysis of supplier evaluation and selection to increase overall profit
of both supplier-buyer organisations.
 Assessment of supplier quality cost in automobile industry 3

Figure 1 Challenges to profitability by the warranty and quality chain (see online version
for colours)

Source: Aberdeen Group, June 2006

Due to the enormous influence that supplier quality performance has on corporate
profitability and efficiency, companies must evaluate their continuous improvement
processes and systems so that supplier improvement can create greater value for
shareholders and suppliers in its supply management processes. Best practices should be
benchmarked, and new and revised systems and processes should be put in place for
supplier excellence. Companies, in fact, have developed supplier improvement
programmes, using company-specific assessment tools, which include budgeted
resources, continuous improvement efforts, and supplier specific goals.

2 Supplier quality cost

Today, many products are either copied from the original product of its type, reproduced
with poor materials, or both. What makes these products substandard is primarily the
poor quality of the materials from which they were made. These products tend to be
highly unreliable and once they break or malfunction, they cannot be fixed.
Usually, the quality of a product depends on the practices of the supplier. For this
reason, most big automotive companies carefully choose their suppliers. They know that
the standards and operative practices of a supplier have significant impact on buyers’
profits, because they determine product quality and affect the development and speed of
production processes. In fact, according to the Harvard Business Review on Supply
Chain Management (2006), from 1996 to 2002, the top 100 US manufacturers had
increased the proportion of their spending on materials from 43 cents per dollar in 1996
to 48 cents in 2002, showing an increasing reliance on suppliers. According to the same
source, the top three automobile companies in the US – Ford, GM and Chrysler – could
not compete with the two major Japanese car companies, Toyota and Honda. The reason
for this is that these latter two companies have been able to build a ‘close-knit network of
4 S.N. Teli et al.

vendors’, enabling them to produce cars faster than the three US companies (taking
approximately half the production time), with more reliable products, by sourcing 70% to
80% of their manufacturing costs to US suppliers. Their success has come from
integrating the supplier with the company by sharing of learning from each other’s
practices.
Supplier quality cost is significant and good indicators of problem areas. A system of
managing and tracking supplier quality cost are categorised as prevention cost elements
such as the cost of supplier quality survey, appraisal cost elements such as the cost of
receiving and source inspection, and failure cost elements such as the cost of scrap and
rework of supplier caused non-conformances and the cost of site visits to correct supplier
service problems.

2.1 Hidden supplier quality costs

There has been hidden supplier quality cost in any quality cost system. Hidden supplier
quality costs are divided into three parts:
• those incurred by the supplier at the supplier’s facility
• those incurred by the buyer in solving problems at the supplier’s facility
• those usually not allocated to suppliers but incurred by the buyer as a result of
potential or actual supplier problems.
Quality costs incurred by the supplier at their facility are unknown to the buyer and,
therefore, hidden. Even though the magnitude is hidden, the types of costs are not. They
are the same types of quality costs the buyer incurs.
The second type of hidden cost, that which is incurred by the buyer in solving
problems at the supplier’s facility, is usually not specifically allocated to suppliers.
Except for an awareness of troublesome suppliers, an example is the cost to the buyer of
sending a quality engineer to a supplier to resolve a crisis.
The last type of hidden quality cost occurs at the buyer’s facility. This type of cost
may include the following:
• specifying and designing gages that must be used by the buyer’s receiving inspection
and, perhaps as well, by the supplier prior to shipping
• designing appropriate specifications that the supplier must follow in the manufacture
of the product or performing the service
• adding special inspection operations and quality control effort in the buyer’s
• production line related specifically to a supplier product
• reviewing test and inspection data on supplier material to determine acceptability for
processing in the buyer’s facility
• calibrating and maintaining equipment necessary in the quality control of supplier
material
• losing production time due to unavailability of good material.
Field engineering required to analyse and correct a problem caused by a supplier.
 Assessment of supplier quality cost in automobile industry 5

Due to the certification programme supplier must follows the guidelines which has
been beneficial for improving quality of the product and reduction in quality cost.

2.2 Supplier rating programme using quality costs

Although not theoretically perfect, this system has proven its effectiveness in improving
supplier quality, and it is certainly an outstanding example of a practical and workable
approach. The company uses dual supplier rating system. The first portion is traditional
in that it tracks price and delivery. The second part, evaluate supplier quality cost
performance for each supplier using an index based on the following equation (1):
Supplier Quality Cost + Purchased Cost
QCPI = (1)
Purchased Cost
No attempt was made to include all supplier quality costs because of the administrative
problems involved. Supplier quality cost: for example company’s supplier quality cost for
the supplier is equals the sum of its costs of:
Processing incoming rejections = ` 200/–
Complaint investigations = ` 200/–
Processing in receiving inspection = ` 750/–
Defective product alter receiving inspection = ` 180/–
Supplier quality cost = ` (200 + 200 + 750 + 180) = ` 1,330/–
Table 1 A ranking of suppliers supplying similar parts by quality cost performance index

Supplier Supplier quality cost (Rs.) Purchased cost (Rs.) Index (QCPI)
A 2,410 99,928 1.024
B 1,950 40,000 1.049
C 2,800 43,643 1.064
D 2,500 12,230 1.204
E 7,000 7,631 1.917

Example of index calculation for supplier A

SQ Cost + Purchased Cost 2,410 + 99,928

QCPI = = = 1.024 (2)
Purchased Cost 99,928

The company also developed a method of interpreting the quality cost performance index
to assess each supplier. A perfect supplier would have no quality costs, since there would
be no rejections, there would be no complaint investigations, and receiving inspection
would be unnecessary. Therefore, the index for a perfect supplier would be

SQ Cost + Purchased Cost 0 + Purchased Cost

QCPI = = =1.00 (3)
Purchased Cost Purchased Cost
6 S.N. Teli et al.

Table 2 The actual assessment used by company

Index (QCPI) Interpretation

1.000-1.009 Excellent
1.010-1.039 Good
1.040-1.069 Fair
1.070-1.099 Poor
1.100+ Immediate corrective action required

Using this assessment, first priority for this company was to obtain immediate corrective
action for supplier D and E. Results for the overall programme were encouraging, with
the percentage of total suppliers rated good or better increasing from 75% to 80% and
supplier quality costs reducing 8.5%, in the first year.

3 Assessing suppliers quality using PPM equivalent

Supplier RPPM (rejected parts per million) is calculated on the basis of the amount of
non-conforming materials versus the total amount of materials received in a given fiscal
month. This calculation is then normalised to reflect a constant basis of one million units
received.
PPMeq for a period is calculated by using equation (4)
N rej + N rew + N rej 951 + 0.5N dew + 0.5N conc + 5.0N rej at F.A.
PPMeq = × 1,000,000 (4)
N Total
where
• Nrej is total quantity rejected (inspection and line).

• Nrew is total quantity reworked (inspection and line).

• Ndev at F.A. is total quantity accepted under deviation (inspection and line) at final
assembly.

• Nconc is total quantity accepted under concession (inspection and line)

• Nrej at F.A. is total quantity rejected at final assembly.

• NTotal is total quantity received.

• Nrej 951 is total quantity rejected on movement 951 for scrap at our end.

• Rejection – any declaration of the part that has been not respected the engineering
specifications, cannot be salvaged ending up in scrap has termed as rejection.

• Rework – any minor correction done on a particular part, so that it becomes fit for
use is termed as rework. Rework has to be done in consultation of the quality
assurance (QA) personnel of that area.
 Assessment of supplier quality cost in automobile industry 7

• Deviation – any consent sought from product development for supplier part whose
critical dimensions and/or parameters, or, material specifications cannot be
reworked/repaired is termed as deviation.

• Concession – when consent of product development has not taken for the minor
non-conformities that are not specified in the drawing and which does not affect the
product quality, it is termed as concession.

• Segregation – separation of conforming/non-conforming parts, done with consent of

QA personnel of that area, is known as segregation.

• Rejection at final assembly – any rejection of the supplier parts that causes the
rejection of the whole assembly is termed as rejection at final assembly.

3.1 General rules to declare non-conforming parts

• Rejection: A part has been declared rejected only if it does not respect the
engineering specification, and can’t be salvaged. A part rejected only after carrying
out proper investigation. Example, in a case of corrosion, if the supplier has not
respected the treatment or the protection specified, the declaration would be done. If
the supplier has respected the specifications, the declaration will not be done and, an
action plan has been requested to the Engineering Department to improve these
specifications.
• Rework: Products reworked shall be declared as non-conforming only if the supplier
is responsible. An investigation approved by the supplier shall define the
responsibility for the rework (supplier); the supplier can participate in the
investigation depending on the concern or the product. The rework data shall be
entered in SAP. The transaction also houses entries for deviation, concession and
segregation data. Manual records/register to be kept for recording the rework
quantities part wise.
• Deviation: The deviation for the use of non-conforming supplier part has been
approved by the product development and respective plant quality head.
• Concession: The concession has raised by the manufacturing quality and approved
by the respective plant quality head.
• Segregation: The quantities accepted after segregation of the supplier parts has been
taken into account in the PPMeq calculation. This has not been interpreted as the
total quantity which is segregated.
• Quantity of non-conforming parts: The quantity of non-conforming parts has been
declared with the agreement of the supplier and customer. An estimation based upon
a sample has not used to declare the non-conformance.
• Re-acceptance: Re-acceptance of a part has been completed within the same month
of the rejection of that part so as to have correct performance of that supplier on
monthly basis.
8 S.N. Teli et al.

4 Case study

An automotive manufacturing company has been the number of suppliers to supply the
automotive parts, that OEM maintain the record with its supplier related to its supplied
parts and take decision either to continue business or to escalate depending on the quality
cost. Also supplier-wise, part-wise, process-wise, critical analysis is possible with the
help of PPMeq which has been stated as follows:

• supplier-wise PPMeq

• part-wise PPMeq

• plant-wise PPMeq

• process-wise PPMeq.

4.1 Supplier evaluation at plant level through PPMeq (refer to Table 3 and
Figure 2)
Conclusion: From Figure 2, it is clear that supplier code DL022 is high PPMeq as
compared to other suppliers, so critical as compared to other. Suppliers having code
DE004 and DP005 are good and are capable for doing further business.

Figure 2 Supplier evaluation through PPMeq (see online version for colours)
 Table 3
Received Actual rejection QM – line Total deviation Rework
Supplier code Part description PPMeq
quantity (rej-re-acceptance) rejection only FA quantity quantity
DL022 O/P shaft 132 1 7,576
Alternator 55A 2,116 3 7,089
Rear housing 1,731 9 5,199
S/F O/P shaft 864 4 4,630
S/F HYP. pinion 777 3 3,861
Rear flange 1,206 8 3,317
6,826 17 3 8 0 5,274
Supplier-wise part rejection

DH015 Blank 392 1 2,551

Crank shaft 4,023 10 2,486
Idler gear assembly 1,785 4 2,241
Side gear forging 12,600 27 2,143
18,800 42 0 0 0 2,234
DM210 Clamp spring band 22,000 45 2,045
S/F syn. sleeve 4,050 8 1,975
Rotary pump 8,000 3 1,875
Face hob 2,671 5 1,872
Spacer wheel bearing 10,200 18 882
Assessment of supplier quality cost in automobile industry

46,921 58 3 0 18 1,748
DA081 Water pump assembly 3,528 1 1,417
Frame with shield 713 1 701
Suspended pedal assembly 780 1 1,282
S/F hyper pinion 3,369 4 1,187
9
 10

Table 3

Received Actual rejection QM – line Total deviation Rework

Supplier code Part description PPMeq
quantity (rej-re-acceptance) rejection only FA quantity quantity
DD019 Thermostat housing 4950 1 1,010
S.N. Teli et al.

Wheel bearing spindle 5022 5 996

Rear housing 4080 4 980
Valve seat ring 88000 85 966
O/P shaft 2,091 2 956
104,143 96 1 0 0 970
DC001 Spindle wheel bearing 2,124 2 942
Disc brake 3,420 3 877
Shim 0.1 mm 24,000 21 875
Supplier-wise part rejection (continued)

Rear hub 16,348 14 856

45,892 40 0 0 0 872
DM090 Rear housing 12,865 10 777
Fuel inj. pump assembly 2,590 2 386
Front housing 6,717 5 744
Assembly pedal 4,260 3 704
Brace fender LH 6,460 4 310
Piston MDI 18,132 2 552
51,024 18 2 0 6 608
 Assessment of supplier quality cost in automobile industry 11

4.2 Part-wise PPMeq (refer to Table 4 and Figure 3)

Conclusion: Figure 3 shows part-wise PPMeq at supplier level which indicates critical
supplier for particular part that help to evaluate the supplier for particular part at supplier
level and plant level.
Table 4 Supplier-wise part PPMeq

Received QM –
Supplier code Part description PPMeq
quantity line rejection
DD019 Wheel bearing spindle 5,022 5 996
Valve seat ring 88,000 50 568
O/P shaft 2,091 2 956
Total 95,113 92 967
DE026 Wheel bearing spindle 4,000 1 250
O/P shaft 5,685 1 176
3rd gear 4,171 1 240
Total 13856 3 217
DE004 Wheel bearing spindle 6,876 2 291
S/F hyp. pinion 6,241 2 320
Front housing 13,478 4 297
Total 26,595 8 301
DP005 Wheel bearing spindle 11,076 3 271
S/F counter shaft 3,800 1 263
S/F syn. sleeve 10,412 3 288
Total 25,288 7 277
DC001 Disc brake 3,420 3 877
Rear hub 16,348 14 856
Rear housing 12,865 10 777
Total 32,633 27 827

Figure 3 Part-wise PPMeq (see online version for colours)

12 S.N. Teli et al.

4.3 Part- wise PPMeq (refer to Table 5 and Figure 4)

Conclusion: Figure 4 shows PPMeq of different parts for different supplier which
indicates that particular part is critical to manufacture for particular supplier and those
advantage over other suppliers. Also total PPMeq indicates plant level rejection from
different suppliers.
Table 5 Part-wise PPMeq

Part description Supplier code Received quantity Line rejection PPMeq

Wheel bearing spindle DD019 5,022 5 996
DE026 4,000 1 250
DE004 6,876 2 291
DP005 11,076 3 271
Total 26,974 11 408
Disc brake DC001 3,420 3 877
DA012 3,500 5 1,429
Total 6920 8 1156
Valve seat ring DA012 88,000 85 966
DA081 85,000 65 765
Total 173,000 150 1156
S/F hyper pinion DA081 3,369 4 1,187
DD029 2,702 1 370
DE004 6,241 2 320
Total 12,312 7 569
F/R housing DD029 3,050 1 328
DE004 13,478 4 297
DC001 12,865 10 777
DM090 6,717 5 744
Total 36,110 20 554

Figure 4 Part-wise PPMeq (see online version for colours)

Part Rejection Comparision Supplier's

DC001=877 contribution in part
1400 rejection
DA012=1429
DA012=966
1200 DA081=765
DD029=328
1156 DA081=1187 DE004=297
1000 DD029=370 DC001=777
DE019=996 DE004=320
DE026=250 DM090=744
800 DE004=291 867
PPMeq

DP005=271
600
569 554
400
408
200

0
Wheel Brg Spindle Disc Brake Valve Seat Ring S/F Hyp. Pinion F/R Housing
Part Description
 Table 6

Process Supplier code Reasons Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 F6
Casting DC075 Receipt 9,230 10,530 9,743 12,150 10,800 9,700 62,153
Rejections 24 56 50 23 34 68 271
PPMeq 2,600 5,318 5,132 1,893 3,148 7,010 4,360
Receipt 3,326 4,461 1,522 4,966 2,303 3,289 19,867
DM042 Rejections 47 68 65 131 125 97 566
PPMeq 14,131 15,243 42,707 26,379 54,277 29,492 28,489
DL019 Receipt 4,321 5,213 2,312 5,435 4,532 8,765 30,578
Supplier-wise rejected casting and their PPMeq

Rejections 56 72 45 43 67 115 429

PPMeq 12,960 13,812 19,464 7,912 14,784 13,120 14,030
Plant level PPMeq 7,525 9,701 11,785 8,736 12,815 12,871 11,244
Assessment of supplier quality cost in automobile industry
13
 14

Table 7
S.N. Teli et al.

Process Supplier code Reasons Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 F6
Machining DM075 Receipt 6624 7421 7231 7518 7898 7654 44346
Rejections 52 9 35 79 38 9 241
PPMeq 7850 1213 4840 10508 4811 1176 5435
DM042 Receipt 3326 4461 1522 4966 2303 3289 19867
Rejections 41 37 8 45 33 20 143
PPMeq 12327 8294 5256 9062 14329 6081 9262
DL019 Receipt 5038 5079 3906 5446 6032 4715 30216
Rejections 17 7 78 35 57 22 285
PPMeq 3374 1378 19969 6427 9450 4666 9432
Supplier-wise rejected machining parts and their PPMeq

Plant level PPMeq 7339 3125 9558 8868 7885 3257 7519
 Assessment of supplier quality cost in automobile industry 15

4.4 Supplier evaluation through process-wise PPMeq

4.4.1 Casting process PPMeq (refer to Table 6 and Figure 5)

Figure 5 Casting process PPMeq (see online version for colours)

Figure 6 Machining process PPMeq (see online version for colours)

16 S.N. Teli et al.

4.4.2 Machining process PPMeq (refer Table 7 and Figure 6)

Conclusion: In Figure 6, machining process PPMeq is shown at supplier level and plant
level which indicate critical supplier for machining process and overall rejection at plant
level for the time period of six month. Also total rejected parts of particular supplier for
that particular month which make analysis simple.
Table 8 Typical problems and action taken against different issues at supplier stage

Sr. no. Supplier code Issues in supplied parts Action taken

1 DL016 Driver seat bottom spring foul
2 DM056 LCCR crankcase water drain
plug chatter marks
3 DT094 Coupling flange position shift
CNG CATCON
4 DD016 Transfer case diameter
undersized
5 DS167 Burr in sintered hub keyway
6 BNC Bearing cup OD undersize
7 DY001 Rear housing (semi finish)
distance 154.9 observed 156.5
8 DM071 Rear housing bolt crack
9 DS172 5th rev fork crack
10 DN009 Puppet plug Allen head
slipping
11 DI005 High pressure pipe choke up
12 DY001 Rear housing NGT 520 dust
cover threading not ok
Segregation done
Fins are removed only by chipping
operation grinding stopped.
100% inspection started. Arrow
sticker pasted in opposite direction.
Segregation done. All parts found
ok. CAPA received. (cause – tool
having normal cartridge used.
action-micro-cartridge will be kept
in spare.)
Mix up at grinding stage. Both
bearing taken on different line to
avoid mix up.
Mix up at grinding stage. Both
bearing taken on different line to
avoid mix up.
Segregation done 3 nos. Found
defective. Setting parts mixed up
by supplier, Awareness through
training and complaint given to
concern people.
Lot quarantined. All parts are to be
checked by supplier @125%
torque. Root cause analysis forging
fold suspected. MPI done to find
out crack trials successful. Supplier
initiated further testing for lots,
which are produced on new
machine witnessed and approved
by CDMM
Supplier has identified all possible
causes and verified those. All
possible causes found within the
spec. Detail report submitted by
supplier.
Die corrected and aligned.
Blockage testing with auto marking
machine implemented.
Segregation done. Gauge wear out
issue, calibration frequency
increased by supplier.
 Assessment of supplier quality cost in automobile industry 17

Table 8 Typical problems and action taken against different issues at supplier stage
(continued)

Sr. no. Supplier code Issues in supplied parts Action taken

13 DM016 Brake disc face parallelism 100% checking started with
not ok marking.
14 DS075 Door lock opening effort high Burr found on inner rivet. Rivet
cutting method changed.
15 DB050 Brake shoe assembly wrong Pokayoka implemented for
lever assembled detection of wrong lever during
assembly.
16 DP008 Rattling noise at transmission Draw die corrected for flatness.
joint
17 SP012 Piston cir clip breakage during Broken piece given to lab for
assembly analysis. Pieces found ok.
Assembly error instructions given
to operator.
18 DM056 Chips in oil hole 100% air cleaning with
identification mark started at all
suppliers. Air cleaning with
Manifold type fixture started
immediate after drilling operation.
19 DS413 Paint uncover age on number Conveyor jig modification done
plate which avoid fewer gaps between
two plates.
20 DS063 Hole missing on radiator Pin provided on welding fixture.
guard
21 DI008 1st/2nd/3rd sleeve face run Mandrill introduced for checking
out, out of specification the face run out as earlier checking
method not correct. Broaching tool
holding pin design changed.
22 DR017 Master tie rod fouling to 100% lot inspected and re-worked.
diff-case in 4WD Assembly fixture modified to
ensure correct orientation of
Master tie rod.
23 DS063 Air intake pipe EGR Pokayoka made for insertion of
mounting plate orientation not guide pins in flange during welding
ok operation.
24 DP081 Air intake manifold joint face Fixture modification planned.
leak
25 DS117 Casting defect on valve seat Carbon % controlled up to 0.8 to
1.2 from 0.8 to 1.4

5 Results and discussion

This shift in the perception of supplier importance results primarily from three trends that
will continue to affect companies over the next several years. These trends include:
18 S.N. Teli et al.

1 a focus on core competencies and technologies with outsourcing of non-core

requirements
2 pressure to innovate and improve continuously in critical performance areas,
including quality, delivery, cycle time, and product and process technology
3 the presence of intense worldwide competition with constant cost reduction pressure.
In fact, the two most cited reasons by executive managers for the increasing importance
of suppliers are the need for suppliers to help reduce the total cost of acquisition and the
need for cost containment.
A critical area to focus purchasing attention continues to be supplier quality
management. Although supplier performance has likely improved in real terms over the
last several years, supplier quality still does not fully satisfy continuously changing
performance expectations. When asked to rate supplier delivery and product/service
quality performance, two quality-related performance areas, procurement managers
maintain that performance in these areas is just above average (a rating of 4.8 and 5.1
respectively where 1 = poor, 4 = average, and 7 = excellent performance). Furthermore,
the perception that executive ratters have of supplier quality across most quality-related
areas has not changed appreciably over the last several years. The challenge facing
managers concerns how to make actual supplier quality performance align with expected
quality performance.
Measuring continuous supplier performance is not the only time when firms should
evaluate suppliers. The supplier evaluation and selection process also provides
opportunities for assessing supplier performance and capabilities. For most firms,
supplier evaluation is central to their philosophy of quality at the source. Almost 70% of
procurement managers say their firm uses a formal, quantitative-based supplier
evaluation process to assess potential suppliers. Almost 80% formally assess supplier
capabilities directly by cross-functional team site visits. These site visits usually
investigate supplier process capability, control techniques, and commitment to
continuous quality improvement.
Purchasers have many ways to reward superior supplier performance and
improvement:
• share the benefits resulting from supplier-initiated improvements
• provide early insight into future product development plans
• award longer-term purchase contracts
• offer a greater share of a purchaser's total volume
• provide access to new technology
• offer opportunities for early new product design involvement, which can provide an
advantage in securing a purchase contract.
Semi-finished and raw material supplied by selected suppliers has considered for
calculating PPMeq. Selected suppliers scoring PPM > 500 has been called/visited and
reviewed. Suppliers appearing consistently in the high PPM list, in spite of reviews and
support shall be considered for deletion.
Two of the major charges levelled against the domestic component manufacturers
have that they lack quality consistency and delivery reliability. According to a study done
 Assessment of supplier quality cost in automobile industry 19

by McKinsey11 for Automotive Component Manufacturers Association (ACMA), the

rejection rate12 for Indian auto components is 2,900 parts per million (PPM), which is
more than ten times the world level of 240 PPM. The same study estimated the
sub-suppliers' rejection rate to be 31,500 PPM, unacceptable by world standards. Quality
parameters have still been an issued faced by the industry. Although most quality
standards have been fulfilled still there is a long way to go, hence quality up-gradation is
the most important challenge for auto component industries. Reports of ACMA say that
170 members have already received ISO 9000 certification and 23 have received QS
9000 certification but quality is still an aspect which the component industry is fighting
with and needs time to reach the excellence.
• Minimum expectations – in the combined categories of delivery and RPPM’s: the
minimum expectation is 85%, (combined total of 51 points out of 60 possible).
• Corrective actions – the following has applied to suppliers who do not meet these
minimum expectations.
• First month – notification letters has been sent to suppliers stating the minimum
score has not been met and why. A corrective action plan may be required.
• Second consecutive month – a second notification letter has been sent stating that the
minimum score has not been met and why. A corrective action plan is required.
• Third consecutive month – the supplier’s senior management has either be visited or
called to a meeting regarding their performance. The supplier may be placed on
probation at this time.
To simplify communication and wherever technically practical and feasible, only one
target value should be agreed for each product family delivered by suppliers or if possible
for all products delivered.

6 Conclusions

• Many organisations rely on cross-functional teams to work with and involve

suppliers. These teams are also responsible for developing the sourcing strategies
that directly affect supplier quality. Plant level buyers simply do not have the
resources or time to execute the externally-focused and intensive activities required
to support total quality with suppliers.
• World-class manufacturers are realising the need to maintain a consistent and
systematic quality process to gain real time inspections data with analytics of trend
analysis.
• Few companies have an effective, structured and value-added supplier improvement
process. This is primarily due to the lack of a process of ensuring ongoing supplier
improvement that includes the resources required to accomplish the needed
improvement. By using a structured process, companies will have a more consistent
way of determining the status or maturity of the supplier’s quality system and to
develop an organised plan for improvement, which potentially could be for suppliers
to reach specific world-class benchmarks. The proper resources should be applied
 20 S.N. Teli et al.

and long term goals should be set, along with supplier input. The entire process
should be evaluated for completeness and output quality.
• Use of PPMeq to monitor supplier performance indicate the criticality of supplier
related to particular part and also the OEM has evaluated its number of suppliers
through part-wise, process-wise, plant-wise to do the business in future and also to
calculate the cost of quality of a particular part related to its supplier.

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