PRE – FINAL TERM

LESSON # TOPICS TIME FRAME PAGES

8 CHAPTER 5: MAKE OR BUY, INSOURCING, AND

OUTSOURCING

 Quiz # 5

 Activity # 10

9 CHAPTER 6: NEED IDENTIFICATION AND

SPECIFICATION

 Quiz # 6

10 REPETITIVE AND NON-REPETITIVE REQUIREMENTS

 Quiz # 7

 Activity # 11

PRE - FINAL EXAMINATION NOVEMBER 15-19 ,2021

FINAL TERM

LESSON # TOPICS TIME FRAME PAGES

11 CHAPTER 7: QUALITY

 Activity # 12

 Activity # 13

 Quiz # 8

12 QUALITY MANAGEMENT TOOLS AND TECHNIQUES

 Activity # 14

 Quiz # 9

13 THE QUALITY ASSURANCE AND QUALITY CONTROL

GROUP

 Activity # 15

 Quiz # 10

References

FINAL EXAMINATION DECEMBER 13 – 17, 2022

CHAPTER 5
 MAKE OR BUY, INSOURCING, AND OUTSOURCING

Make or Buy
1. -one of the most critical decisions in any organization.
2. -in organization a series of make or buy decisions is need to be made.

REASONS FOR MAKING

- Reasons that may lead an organization to produce a good or service in house rather than purchase.

REASONS WHY MAKE

1. The quantities are too small and/or no supplier is interested or available.

2. Quality requirement may be so exacting or so unusual as to require special processing
methods that supplier cannot be expected to provide. Nation of supply with the demand.
3. Greater assurance of supply or a closer coordination of supply with the demand.
4. To preserve technological secrets.
5. To obtain lower cost.
6. To take advantage of or avoid idle equipment and/or labor.
7. To ensure steady running of the corporation’s own facilities, leaving suppliers to bear the
burden of fluctuations in demand
8. To avoid sole-source dependency.
9. To reduce risk.
10.The purchase option is very expensive
11.The distance from the closest available supplier is to great
12.A significant customer required it.
13.Future market potential for the product or service is expanding rapidly.
14.Forecasts of future shortages in the market or rising prices.
15.Management takes pride in size.
REASONS FOR BUYING
- There are many reasons why an organization may prefer to purchase goods or services, including
competitive, political social or environmental.
Reasons why buy
1.The organization may lack managerial or technical in the production of the items or service in
question.
2.Lack of production capacity. This may affect relationship with other suppliers or customer as well.
3.To reduce risk
4.The challenge of maintaining long-term technological and economic variability for a noncore
activity.
5. A decision to make, once made, is often difficult to reverse.
6.To assure cost accuracy.
7.There are more options in potential sources and substitute items.
8. There may not be sufficient volume to justify in house production.
9.Future forecasts show great demand or technological uncertainty, and the firm is unable or
unwilling to undertake the risk of manufacture.
10. The availability of a highly capable supplier nearby.
11. The desire to stay lean.
12.Buying may open up markets for the firm’s product or service.
13. The ability to bring a product or service to market faster.
14.A significant customer may demand it.
15.Superior supply management expertise.
THE GRAY ZONE IN MAKE OR BUY
 research by Leenders and Nollets suggests that a “gray zone”may exist in make or buy
situations.
 may offer valuable opportunities or superior options for both purchaser and supplier.
Subcontracting
-Purchase order written with more explicit terms and conditions
Insourcing and Outsourcing
-Occurs when the decisions are made to reverse past make or buy decisions.
Insourcing
-Deals with past buy decisions that are reversed.
-It would greatly enhance our competitiveness.
Outsourcing
• -Organizations outsource when they decide to buy something they had been making in house
previously.
• When they decide to buy something they had been making in-house previously.

IMPLICATIONS FOR SUPPLY

TWO WAYS:
1. Some or all the activities of the supply and logistics functions may be a target for
outsourcing.
2. Supply and logistics may be part of an internal team conducting analysis for a make or
buy, or insource or outsource decision.

OUTSOURCING SUPPLY AND LOGISTICS

3 TYPES OF PROCUREMENT OUTSOURCING CONTRACTS:

1. PROCURE TO PAY (P2P)

2. SOURCE TO CONTRACT (S2C)

3. SOURCE TO PAY (S2P)

Supply’s Role in Insourcing and Outsourcing
1. Providing a comprehensive, competitive process.
2. Identify opportunities for insourcing or outsourcing
3. Aiding in selection of source
4. Identifying potential relationships issues
5. Developing and negotiating the contract.
6. Ongoing monitoring and management of the relationship.

QUIZ # 1

CHAPTER 5
Instruction:
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Quiz will be in the form of google form. I will be sending you the link for the
quiz. Please be reminded that all quizzes are time bounded.

Reminder: Review before taking up your quiz.

ACTIVITIES # 1
Date: _____________ Score: __________

MAKE OR BUY, INSOURCING, AND OUTSOURCING

Instruction: In a long bond paper, complete the table by providing the necessary information needed. List
don at least three (3) pors and cons of the following:

Structure for direct and Pros Cons

indirect spend (Advantages) (Disadvantages)
1. BUY  
 
 
2. MAKE  
 
 

3. INSOURCE  
 
 
4. OUTSOURCE  
 
 

CHAPTER 6
NEED IDENTIFICATION AND SPECIFICATION
Need Criteria in the Value Proposition

1.Strategic Criteria

-Include risk reduction, access to new technology or new markets, assurance of supply in right
markets, revenue enhancement, potential competitive benefits and corporate image or reputation
improvement.

2.Traditional Criteria

-value proposition of:

A. Quality – failure to meet quality criteria makes the products or services unacceptable.

B. Quantity – the quantity supplied has to be sufficient to meet demand.

C. Delivery – Pertains to the time when will be the needs of company to delivered.

D. Price - the distinguishing differences may be the prices and terms offered by the different
suppliers.

E. Service – it includes the design, recordkeeping, transportations, storage, disposal, training,

repairs and inspections.

3. Additional Current Criteria

Current Criteria Include:

a. Financial

- Improvement of the corporate financial statement, both balance sheet and income statement.

b. Risk

i. Operational Risk – the interruption in the flow of goods and services.

ii. Financial Risk – pertains to the prices and total cost acquired.

C. Reputational Risk – reputation of the enterprise and behavior of the supplier.

3. Environmental - Climate change in water, earth and air pollution have caused environmental
concerns that must be all areas of the supply chain.

4. Innovation -Continuing improvement of the existing product or services of the business.

5. Regulatory Compliance and Transparency -All agreements reached between buyers and
sellers have to comply with the relevant laws and regulations.

6. Social and Political Factors -Companies supposed to behave like good corporate citizens and
recognized that they have social responsibilities to the country where business operates.
7. Political-Willingness to support the government in its priorities rather than opposing them.
 CATEGORIES OF NEEDS

1. Resale -Comprise retailers, wholesaler’s distributers, agents, brokers and traders.

2. Raw and semi processed materials -Basic substances in their nature.

3. Semi processed - Used as inputs to a production process

3. Parts, Components and Packaging.

-Design engineers and design experts determine what parts and components to buy and which to
make in-house.
• Assemblers use parts and components produce by their suppliers to create finished products.

Packaging
• It pertains to the aesthetic, sales, appeals, labeling regulatory and safety aspect.
• It has a great impact to the company and consumers.

4. Maintenance, Repair, and Operating Supplies

-The availability of MRO suppliers is to maintain continued uninterrupted operation of the office,
facility, and factory.

5.Capital Assets

- Long term assets that are not bought or sold in the regular course of business and it has
great effects on the organization’s operation.
1. tangible asset (Land, Building, And Equipment)
2. intangible asset (Patents, Copyrights, Idea and Knowledge)

A. Challenges of Procuring Capital Assets - Acquisition of capital goods may represent a

key strategic move for an organization that could affect its competitive, advantage for
years to come.

B. New Technology- New Equipment -New technology frequently permits an organization

to gain competitive advantage

6. Services -Intangible and non-manufactured

7. Energy, water and air.

QUIZ # 2

NEED IDENTIFICATION AND SPECIFICATION

Instruction:
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our Google Class.

Quiz will be in the form of google form. I will be sending you the link for the
quiz. Please be reminded that all quizzes are time bounded.

Reminder: Review before taking up your quiz.

REPETITIVE AND NON-REPETITIVE REQUIREMENTS

Requirements - system or process of acquisition can be designed.

-the process consists of order receive and pay according to contract terms and conditions.

Non-repetitive Requirements -depend on the category and the need criteria.

COMMERCIAL EQUIVALENTS

a. Identification what is needed

b. Translate to commercial equivalents

*Every acquisition is intended to fulfill a need

Early Supply and Supplier Involvement - help assure that what is specified is also procurable
and represents good value.

Methods of Description - Begins the process of allocating risks and reward between the buyer and
seller by divvying up responsibility for performance or functionality.

Description - any one of the various methods by which a buyer conveys to a seller a clear, accurate
picture of the required item or service.

Methods 0f Description

1.Brand

-indicate a reliance on the integrity and the reputation of the supplier

2. “Or Equal”

-the buyers try to shift the responsibility for establishing equality or superiority to the bidder
without going to the expensive of having to developed detailed specifications.

3. Specification

- a detailed, exact statement prescribing materials, dimensions, and quality of work for
something to be built installed or manufactured.
 Specification by physical and chemical characteristics -provide definitions of
the properties of the materials the purchaser desires.
 Specification by material and method of manufacture - special requirements
exist and when the buying organizations willing to assume the risk and responsibility
for results.
 Specification by Performance or Function -the understanding of the required
functions.
 Description by Engineering Drawing -it is an expensive method of description
not only because of the cost of preparing the print or computer program itself but
also because it is likely to be used to describe an item that is quite special as the
supplier is concerned

Miscellaneous Methods of Description

1. Description by Market Grades -confined to certain primary materials

2. Description by Sample - submission of a sample of the item desired

Sources of Specification Data

1.Individual Standards --require extensive consultation among users, engineering, supply,

quality, control, supplier, marketing, and possibly ultimate consumer.
 2. Standard Specification -result of a great deal of experience and study of both government
and nongovernmental agencies.

3. Government, legal, and Environmental Requirements

Standardization and Simplification

Standardization - agreement on definite sizes, design, and the like.

Reduction - the number of sizes designs and so forth.

QUIZ # 3

REPETITIVE AND NON-REPETITIVE REQUIREMENTS

Instruction:
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our Google Class.

Quiz will be in the form of google form. I will be sending you the link for the
quiz. Please be reminded that all quizzes are time bounded.

Reminder: Review before taking up your quiz.

ACTIVITY # 2

NEED IDENTIFICATION AND SPECIFICATION

Date: _________________________________________________ Score: _________

PLEASE CHECK OUR MESSENGER ACCOUNT ANG GOOGLE CLASSROOM

I WILL BE POSTING THE QUESTIONS
FOR YOUR THIS ACTIVITY.

FINAL TERM
CHAPTER 7
 QUALITY

I.) ROLE OF QUALITY IN SUPPLY MANAGEMENT

 Quality of the supplier’s product
 Quality on the processes to produce the supplies
Figure 7-1 Market Niches for Quality

Quality

Better than Same as Lower than

Competitor Competitors Competitors

II.) DEFINING QUALITY

Quality- Ability of the supplier to provide goods and services in conformance with specifications.
• refer to whether the item performs in actual use to the expectations of the original
requisitioned, regardless of conformance with specifications.
* Function- the actions that an item or service is designed to perform.
* Suitability- ability of a material, good, or service to meet the intended functional use.
* Reliability- the mathematical probability that a product will function for a stipulated period of
time.
 Quality Dimensions (by Professor David Garvin of the Harvard Business School):
1. Performance- the primary function of the product or service.
2. Features- the bells and whistles.
3. Reliability- the probability of failure within a specified time period.
4. Durability- the life expectancy.
5. Conformance- the meeting of specifications.
6. Serviceability- the maintainability and ease of fixing.
7. Aesthetics- the look, smell, feel, and sound.
8. Perceived quality- the image in the eyes of the customer.
9. Procurability (procurement point of view)- the short and long- term availability on the market at
reasonable prices and subject to continuing improvement.
 “Best Buy”- a combination of characteristics which are always a compromise. This may
include any of the following:
A. reliability
B. ultimate customer needs
C. cost and procurability
D. transportation
E. disposal
F. lifetime of the item
G. efficiency in operation
H. installation and ease of making repairs, etc.
 Determining the “Best Buy”
Relevant stakeholders involved in deciding the “best buy”:
 Marketing
 Engineering
 Operations
 Supply
III.) THE COST OF QUALITY
- the cost of not producing a good or providing a service right the first time.

5 MAJOR COST CATEGORIES:

1. Prevention Cost - activities that eliminate the occurrence of future defects or nonconformance to
requirements.
Examples:
 Quality assurance programs
 Recertifying and qualifying suppliers and processes
 Employee training and awareness programs
 Machine, tool, material, and labor checkouts
 Preventive maintenance
 Single sourcing with quality suppliers
 Associated personnel, travel, equipment, and space costs
2. Appraisal costs - cost of inspection, testing, measuring, and other activities designed to ensure
conformance of the product or service to quality standards and performance requirements.
Examples:
 Process or service audits
 Checking and testing purchased goods and services
 In-process and final inspection/ test
  Field testing
 Calibration of measuring and test equipment
3. Internal Failure Costs - costs incurred within the operating system as a result of poor quality.
Examples:
 Returns to suppliers
 Scrap and rework
 Reinspection and retesting
 Lost labor and order delay cost
4. External Failure Costs - incurred when poor quality goods or services are passed on to the
customer.
Examples:
 Cost of returns
 Replacement of services
 Warranty cost
 Management time handling customer complaints
 Cost of correcting a bank statement
 Reprocessing an application
 Reteaching a seminar
5. Morale Costs - costs of producing or having to use defective products or services.

FINAL: QUIZ # 1

ROLE OF QUALITY IN SUPPLY MANAGEMENT,

DEFINING QUALITY &
THE COST OF QUALITY
Instruction:
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quiz. Please be reminded that all quizzes are time bounded.

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IV. QUALITY MANAGEMENT TOOLS AND TECHNIQUES

 A. LEAN THINKING – management philosophy focused on maximizing customer value while
minimizing waste.
- Also called as Just- In- Time (JIT) manufacturing and was first used by the Toyota’s
Production System in 1980s.
B. Total Quality Management (TQM) - philosophy and system of management focused on
long term success through customer satisfaction.
- A system of management based on the principle that every member of the organization must
be committed to maintaining high standards of work in every aspect of a company’s
operations.
- Introduced by Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru
Ishikawa, and Joseph M. Juran.
DEMING’S 14 POINTS:
1. Create constancy of purpose for improving products and services.
2. Adopt the new philosophy
3. Cease dependence on inspection to achieve quality
4. End the practice 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, production, and service
6. Institute training on the job
7. Adopt and institute leadership
8. Drive out fear
9. Break down barriers between staff areas
10.Eliminate slogans, exhortations, and targets for the workforce
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 rating or
merit system
13. Institute a vigorous program of education and self- improvement for everyone
14. Put everybody in the company to work accomplishing the transformation
4 Important features of TQM:
1. Quality must be integrated throughout the organization.
2. Employee commitment to continuous improvement.
3. The goal of customer satisfaction and the systematic and continuous research process related
to customer satisfaction drive TQM systems.
4. Suppliers are partners in the TQM process.
Several tools used in the TQM:
a.) Continuous improvement/ Kaizen – relentless pursuit of product and process improvement
through a series of small, progressive steps.
*Deming Wheel/ Plan-do-check-act Cycle
-A model used for conducting continuous improvement activities.
o Plan: Collect data and set performance target.
 o Do: Implement countermeasures.

o Check: Measure and evaluate the results of countermeasures.

o Act: Standardize and apply improvement to other parts of the organization.

b.) Quality Function Deployment (QFD) – a method for listening and effectively responding to
the voice of the customer to develop higher quality new products at less cost and in less time.
- a comprehensive quality system that:
 Aimed specifically at satisfying the customer throughout the development and business
process- end to end.
 Seeks both spoken and unspoken customer needs.
 Maximizes positive quality that creates value.
 Translates these into actions and designs by using transparent analytic and prioritization
methods.
 Empowers organizations to exceed normal expectations.
 Provides a level of unanticipated excitement that generates value.
4 Integrated stages of the QFD process:
1. Product or service planning – design requirements
2. Parts deployment – characteristics for manufactured goods
3. Process planning – manufacturing requirements or service process elements
4. Production or action planning – production requirements or service action plans
Benefits of Buyer and Supplier Integration:
1. Reducing or eliminating engineering or service design changes during product or service
development.
2. Reducing product or process development cycle time.
3. Reducing start-up cycle time.
4. Minimizing product or service failures and repair or service replacement costs.
5. Creating product or service uniformity and reliability.
c.) Six Sigma Approach – focuses on preventing defects by using data to reduce variation and
waste.
-Developed by GE and Motorola.
-Defined by Kubiak and Benbow as:
1. A philosophy based on the view that all work is processes that can be defined, measured,
analyzed, improved, and controlled. Processes require inputs (x) and produce outputs (y).
2. A set of tools, including statistical process control (SPC), control charts, failure mode and
effects analysis, and flowcharting. These are qualitative and quantitative techniques to drive
process improvement.
3. A methodology with five steps: define, measure, analyze, improve, and control
(DMAIC).
Common Elements of Six Sigma:
• Management environment that supports the initiatives as business strategy.
 • Well- defined projects with bottom- line impact.
• Teams whose members have statistical training.
• Emphasis on the DMAIC approach.
d.) Statistical Process Control (SPC) – a technique that involves testing a random sample of
output from a process in order to detect if nonrandom, assignable changes in the process is
occurring.
- Developed by Dr. W. Edwards Deming and some Japanese manufacturers in the 1950s.
 Causes of Variation
Types of Variation:
a. Common or chance causes of variation – these causes are intrinsic to the process and will
always be there unless the process is changed.
b. Special or assignable causes of variation – these causes are outside, nonrandom
problems such as breakdown of machinery, material variation, or human error.
 Process Capability
- A process is capable when:
a. No special or assignable causes of variation
b. Meet specifications consistently
c. Stable and predictable
o Upper specification limit (USL) – maximum acceptable level of output.

o Lower specification limit (LSL) – minimum acceptable level of output.

o Tolerance – difference between a physical feature and its intended design.

o Process capability index (Cp) – combines process spread and tolerance into one index and
indicates whether process variation is satisfactory.
- The higher the Cp, the more capable the process is of producing parts that are consistently
within specification.
- Formula: Cp = USL – LSL
6σ
o Cpk index – an index which adjusts the Cp for the effect of noncentered distribution.

Formula: the lower between = upper tolerance – process mean

Process spread
or = process mean – lower tolerance limit
Process spread
 Process Control – method of monitoring a process to prevent defects.
o Quality control charts

a. X- bar Chart – used for charting the population means

b. R Chart – used for charting the dispersion
SAMPLING, INSPECTION, AND TESTING
3 different stages where these quality management tools may be used:
 1. Before a purchase commitment is made to a supplier
2. During the commitment to a supplier
3. After a purchase commitment has been made
 Sampling – involves selecting a small number of items (called sample) from a larger group or
population of items.
a. Random sampling – sampling where in every element in the population has an equal
chance of being selected.
b. Sequential sampling – used to reduce the number of items inspected in accept–
reject decisions without loss of accuracy.
 100 Percent Inspection or Screening – considers the whole population of items.
 Testing
a. Use Tests – an item is tested for the particular purpose for which it is intended and
under the particular conditions in which it will be used.
b. Laboratory test – conducted by a commercial testing laboratory.
 Inspection upon receipt – assure the buyer that the supplier has delivered an item that
corresponds to the description furnished.
 Adjustments and Returns
3 Major Classes of Cost Incurred when Materials Are Rejected:
1. Transportation Costs
2. Testing Cost
3. Contingent Expense

FINAL: QUIZ # 2

QUALITY MANAGEMENT TOOLS AND TECHNIQUES

Instruction:
Kindly look on with the upcoming quiz in our Messenger Group Chat or in
our Google Class.

Quiz will be in the form of google form. I will be sending you the link for the
quiz. Please be reminded that all quizzes are time bounded.
Reminder: Review before taking up your quiz.
 THE QUALITY ASSURANCE AND QUALITY CONTROL GROUP
Responsible for:
 Establishing and maintaining effective controls for monitoring processes and equipment and
supporting efforts to help suppliers for continuous quality improvement programs.
 Inspecting incoming material or monitoring in-house production.
 Supplier certification
 Initiates material studies.
ASSURING THE QUALITY OF PURCHASED SERVICES
 Service Quality- the degree of discrepancy between customers’ normative expectations for the
service and their perceptions of the service performance. (by Parasuraman, Zeithaml, and
Berry)
 Desired Service- level of service representing a blend of what customers believe “can be” and
“should be” provided.
Factors to be considered in assessing the quality of services:
 Value of the service
 Degree of repetitiveness
 Degree of tangibility
 Direction of the service
 Production of the service
 Nature of the demand
 Nature of the service delivery
 Degree of standardization
 Skills required for the service
V. QUALITY STANDARDS AND AWARDS PROGRAMS
 ISO 9000 Quality Standards – represents an international consensus on good quality
management practices.
*International Organization for Standardization (ISO) – based at Geneva, Switzerland.
* ISO 9001: 2008 – standard that provides a set of standardized requirements for a quality
management system, regardless of what the user organization does, its size, or whether it is in the
private or public sector.
 ISO 14000 Environmental Standards
* ISO 14004: 2004 – provides guidelines on the elements of an environmental management
system and its implementation and discusses principal issues involved.
* ISO 14001: 2004 – specifies the requirements for such an environmental management
system.
* ISO 14006: 2011 – focuses on guidelines for incorporating eco-design.
 * ISO 14064-1: 2006 Greenhouse Gases Part 1 – a specification with guidance at the
organization level for quantification and reporting of greenhouse gas emissions and removals.
 The Malcolm Baldrige National (U.S.) Quality Award – intended to recognize U.S. organizations
which excels in quality achievement and quality management in areas like manufacturing,
service, small business, health care, education, and non-profit.
* 7 Categories of the Criteria:
1. leadership
2. strategic planning
3. customer focus
4. measurement, analysis, and knowledge management
5. workforce focus
6. operations focus
7. results
 The Deming Prize – established in 1950 and was created by the Union of Japanese Scientists
and Engineers (JUSE).
- given annually to domestic or overseas organizations that have implemented TQM suitable
for their management philosophy, scope/ type/ scale of business, and, management
environment.
* Deming Grand Prize – given to previous winners of Deming Prize that maintained and
enhanced their level of TQM for more than 3 years.

FINAL: QUIZ # 3

THE QUALITY ASSURANCE AND QUALITY CONTROL GROUP

Instruction:
Kindly look on with the upcoming quiz in our Messenger Group Chat or in
our Google Class.

Quiz will be in the form of google form. I will be sending you the link for the
quiz. Please be reminded that all quizzes are time bounded.

Reminder: Review before taking up your quiz.

References:

Internet: retrieved from

 Https://www.Kbmanage .Com
 www.Easternct.Edu
 Https://www.Slideshare.Net/mobilr/venuyadav37/computer-integrated-
production-plan.
Books
 Johnson, F. (2015). Purchasing and Supply Management, New York, McGraw-Hill
publishing.
• Medina, R. (2015). Entrepreneurship and Small Business Management, Rex
Bookstore: Manila, Philippines.

• Morato, E. (2016). Entrepreneurship, Rex Bookstore; Manila, Philippines.