Chapter 8 Supplier Quality Management

PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e
Supplier Quality
Management
Chapter 8
© 2016 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Chapter Overview
 Overview of supplier quality

management
 Factors affecting supply management’s
role in managing supplier quality
 Supplier quality management using a
Total Quality Management perspective

2
a publically accessible website, in whole or in part. Purchasing & Supply Chain Management, 6e
Chapter Overview
 Pursuing Six Sigma supplier quality

 Using ISO standards and MBNQA
(Malcolm Baldrige National Quality Award)
criteria to assess supplier quality
systems
 Basic contents of a supplier quality
manual

3
What Is Supplier Quality?
 Ability to meet or exceed current and

future customer expectations or
requirements within critical
performance areas on consistent basis
 Keys to supplier quality
 Ability to meet or exceed
 Current and future expectations or
requirements
 Critical performance on a consistent basis
4
Why Be Concerned
with Supplier Quality?
 Supplier impact on quality
 Continuous improvement requirements
 Outsourcing of purchase requirements

5
Factors Affecting Supply
Management’s Role
 Ability of supplier to affect buyer’s total
quality
 Internal resources available to support
ongoing supplier quality management
and improvement
 Ability of buyer to practice world-class
quality

6
Factors Affecting Supply
Management’s Role
 Supplier’s willingness to work jointly to
improve quality
 Supplier’s current quality levels
 Buyer’s ability to collect and analyze
quality-related data

7
Key Principles of TQM
 Define quality in terms of customers

and their requirements
 Deming’s 14 Points
 Pursue quality at the source
 Stress objective rather than subjective
analysis
 Emphasize prevention rather than
detection of defects
8
Key Principles of TQM
 Focus on process rather than output

 Basics of process capability
 Strive for zero defects
 Cost of quality
 The Seven Wastes
 Establish continuous improvement as
way of life
 Make quality everyone’s responsibility
9
Quality: The Customer’s Perspective
 Nonconforming supplier quality is often

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

10
Developing Clarity
 Ability of buying company to succinctly

identify, clearly define, quantify, or
specify its technical and sourcing
requirements
 Buyer’s ability to effectively
communicate these requirements to
suppliers, including change orders

11
Deming’s 14 Points
1. Create a vision and demonstrate

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

12
6. Institute training
7. Institute leadership
8. Drive out fear
9. Optimize the efforts of teams
10. Eliminate exhortations

13
11. Eliminate numerical quotas and

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

14
Summary of Deming’s Philosophy
 Variation is primary source of quality

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

15
 Although quality is everyone’s

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

16
 Psychology helps manager understand

employees and customers, as well as
interactions between people
 Intrinsic motivation is more powerful
than extrinsic motivation
 Predictions must be grounded in theory
that helps to understand cause-and-
effect relationships
17
Quality at the Source
 Evaluate key value-adding points in

process where defects could occur,
including supplier facilities
 Product and process design
 Early supplier design involvement (ESDI)
 Issue of sharing proprietary
information

18
Objective Measurement and Analysis
 Make decisions on facts, not feelings
 Rigorous supplier measurement system
 Develop a preferred supplier list
 Award future business
 Identify continuous improvement
opportunities
 Provide feedback to support corrective
action or future development
 Track results from improvement initiatives
19
Prevention of Defects
 Need for predictable consistency and

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

20
Focus on Process, Not on Output
 Move from product orientation to

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

21
Focusing on Sample Inspections
 What supplier would knowingly submit

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

22
Focusing on Sample Inspections
 Did supplier use same process,
methods, personnel, and materials that
will be used in normal production?
 Or was prototype made under controlled
laboratory conditions?
 Did supplier or subcontractor actually
produce the sample?
 Do samples give enough evidence of
real capacity or process capability?
23
Basics of Process Capability
 Ability of process to generate outputs
that meet engineering specifications
and/or customer requirements
 Must be in a state of statistical control
 Output must fall between stated
upper/lower specification limits
 No special causes of variation present

24
Basics of Process Capability
 99.7% of all output falls between ± 3
standard deviations of process mean
 Stable process, in statistical control,
can be expected to produce virtually all
of its output within these natural
tolerance limits
 Process’s natural limits must fall within
specification limits to be capable

25
Which Process Is Capable?
(a) (b)
Specification Specification
Natural Variation Natural Variation
(c) (d)
Specification Specification
Natural Variation Natural Variation

26
Process Capability Study Information
 Determine the operating baseline of a
process
 Prioritize potential quality improvement
projects
 Provide evidence of process
performance to a customer

27
Striving for Zero Defects
 Conformance to requirements (Crosby)

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

28
Cost of Quality
 Really is cost of “poor” quality
 Often aggregated into overhead
accounts
 Impact
 Costs of nonconformance
 Costs of improvement and avoidance of
poor quality
 Highly complex issue

29
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
 Keep defects from occurring
30
Appraisal Cost Examples
 Laboratory testing of prototypes and

samples
 Production inspection activities
 Supplier quality audits
 Incoming material inspections
 Other forms of product monitoring

31
Internal Failure Cost Examples
 Process troubleshooting
 Re-inspection following detection of
defects
 Production downtime caused by
defects, scrap, and process waste

32
External Failure Cost Examples
 Warranty costs
 Replacement of defective products
 Product liability lawsuits
 Loss of customer goodwill

33
Prevention Cost Examples
 Design for quality

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

34
Common Causes of Waste
 Inadequate  Lack of
processes standardization
 Inadequate tools or  Poor management
equipment decisions
 Inefficient layouts  Mistakes by
 Lack of training operators
 Inadequate  Inadequate
suppliers scheduling

35
The Seven Wastes
Idle time
Over-
Delivery
production
Inventory
Wasted
Waste in the
operator
work itself
Waste from motion
rejected
parts
36
Continuous Improvement as
a Way of Life
 Value analysis/value engineering
(VA/VE)
 Supplier development
 Supply base rationalization and
optimization
 Supplier incentive and reward systems

37
Supplier Incentives
 Longer-term contracts
 Higher share of purchase volume
 Public recognition and awards
 Shared cost savings
 Access to new technology
 Early insight to new business and
product development plans

38
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
39
Quality: Everyone’s Responsibility
 Aligned vision and goals

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

40
Pursuing Six Sigma Quality
 Proven quality principles and techniques

 Virtually error-free performance
 Expressed as 3.4 defects per million
opportunities (DPMO)
 Increasing customer expectations
 Focus on defect prevention, cycle time
reduction, and cost savings
 Use of Six Sigma Black Belts
41
The DMAIC Model
Define
Control Measure
Improve Analyze

42
The DMAIC Model
 Define
 Improvement activity and goals
 Measure
 Existing system, establish metrics, and
identify performance baseline
 Analyze
 System and develop causal hypotheses

43
The DMAIC Model
 Improve
 Develop ideas, test solutions, and
implement new process, structure, and
system
 Control
 Establish standard measures and
procedures to ensure new system stays in
control

44
Using ISO and MBNQA Criteria
 Widely accepted quality management

frameworks
 ISO 9000:2008
 ISO 14000:2004
 Malcolm Baldrige National Quality Award
 Criteria are often used as basis for
supplier certification programs

45
ISO 9000:2008
 Originally developed in European

Common Market in 1987
 Updated in 1994, 2000, and 2008
 Third-party registration process
 Internationally accepted and
recognized process quality standards,
not product standards

46
Main Sections of ISO 9000:2008
 Quality management system (QMS)

 Management responsibility
 Resource management
 Product realization
 Measurement, analysis, and
improvement

47
Quality Management System
 Activities and steps required to

implement ISO 9000:2008
 Clearly delineate and document …
 Process and related activity interaction and
sequencing
 How processes are operated and controlled
 How supporting information is generated and
disseminated
 How measurements and process analysis are
conducted
48
Quality Management System
 Consists of …
 Quality manual
 Related procedures
 Work instructions
 Common templates are available

49
Management’s Responsibility
 Information on firm’s quality policy and

objectives
 Must demonstrate quality responsibility
and authority through organization
 Standardized job descriptions
 Common quality-oriented language
 Senior-level manager with specific authority
and responsibility for entire organization

50
Resource Management
 Resources necessary to implement,

maintain, and improve QMS
 Address human resources needs and
customer satisfaction in resource
allocation
 Quality improvement
 Training
 Personnel development needs

51
Product Realization
 How an organization designs and

delivers its goods and services
 Design
 Production
 Evaluation
 Handling
 Shipping
 Customer requirements  goods and
services
52
Measurement, Analysis, and
Improvement
 Metrics, measurements, and monitoring
processes
 Internal audit procedures
 External supplier audits
 Customer feedback mechanisms
 Most important section
 Manage by fact, not conjecture

53
Eight Principles of ISO 9000:2008
 Customer focus  Continual

 Leadership improvement
 Involvement of  Factual approach
people to decision making
 Process approach  Mutually beneficial
 Systems supplier
approach to relationships
management
54
Supplier’s Benefits of ISO 9000:2008
 Buyers have immediate confirmation of

supplier’s registration
 May substitute for variety of individual
buyer certification programs
 Included on master list of certified
firms and may garner additional
business
 Helps address ANSI standards
55
Buyer’s Benefits of ISO 9000:2008
 Does not have to create its own

comprehensive supplier certification
audit system
 Supplier assumes responsibility for
meeting ISO 9000:2008 standards and
paying own registration fees
 Supplier demonstrates higher quality

56
ISO 14000:2004
 Established in 1993 to promote
environmental awareness and
protection as well as pollution
prevention
 Used to analyze supplier’s ability to
proactively manage its environmental
impact, sustainability, and carbon
footprint
 Intentionally broad and general
57
ISO 14000:2004
 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

58
ISO 14000:2004
 Helps develop firm’s environmental
management system (EMS)
 Labeling
 Performance evaluation
 Life cycle analysis
 Communication
 Auditing
 Buyers may require suppliers to comply
with ISO 9000:2008 and ISO 14000:2004
59
EMS Guidance
 How to …
 Evaluate its environmental impact
 Improve its environmental performance
 Implement a systematic approach to
environmental issues, including
monitoring and measurement

60
Benefits of ISO 14000:2004
 Fewer pollutants generated

 Reduced liability
 Improved regulatory compliance
 Better public and community relations
 Lowered insurance premiums
 Enhanced profitability through:
 Improved resource management
 Reduced waste generation
61
The Malcolm Baldrige National
Quality Award
 Competition established in 1987
 De facto definition of TQM and
competitive set of criteria
 More comprehensive set of quality-
related criteria than ISO 9000:2008
 Implies that an organization excels not
only in quality management but also in
quality achievement
62
The Malcolm Baldrige National
Quality Award
 Much of current criteria is used
internally as quality management tool
and not for award purposes
 May take 8 – 10 years to adequately
prepare competitive quality system
 Built upon continuous improvement
philosophy
 Both process and results oriented
63
MBNQA Criteria Items
 Leadership
 Organizational leadership
 Public responsibility and citizenship
 Strategic planning
 Strategy development
 Strategy deployment
 Customer focus
 Customer and market knowledge
 Customer satisfaction and relationships
64
 Measurement, analysis, and knowledge
management
 Organizational performance
 Workforce focus
 Work systems
 Employee education, training, and
development
 Employee well-being and satisfaction

65
 Operations focus
 Product and service processes
 Support processes
 Supplier and partnering processes
 Results
 Customer-focused results
 Financial and market results
 Human resource results
 Supplier and partner results
 Organizational effectiveness results
66
a publically accessible website, in whole or in part.
Basic Contents of a
Supplier Quality Manual
 Quality control and process
management procedures
 Metrics and measurement protocols
 Testing and acceptance procedures,
definitions, and documentation control
 Basic responsibilities of both buyer
and supplier

67
Basic Contents of a
 Minimum process required for supplier
regarding …
 Inspections
 Use of statistical process control
 Continuous improvement
 Testing
 Sample evaluations
 Performance improvement

68
Basic Contents of a
 Description of supplier selection and
evaluation process
 Conduct of buyer audits
 Description of buyer’s quality
improvement programs and activities
 Copies of relevant forms along with
instructions

69
Basic Contents of a
 Requirements and procedures for
control of proprietary information
 Including nondisclosure agreements
 Description of production parts
approval process and/or sample
acceptance procedures
 Description of engineering change
order process
70
Basic Contents of a
 Description of process capability study
process
 How to handle and/or store non-
conforming products
 Description of claims process
 How to develop and submit corrective
action plans
 Supplier certification process
71

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 6e

© 2016 Cengage Learning. All rights reserved. May

 Overview of supplier quality

© 2016 Cengage Learning. All rights reserved. May

 Pursuing Six Sigma supplier quality

© 2016 Cengage Learning. All rights reserved. May

 Ability to meet or exceed current and

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Define quality in terms of customers

 Focus on process rather than output

 Nonconforming supplier quality is often

© 2016 Cengage Learning. All rights reserved. May

 Ability of buying company to succinctly

© 2016 Cengage Learning. All rights reserved. May

1. Create a vision and demonstrate

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

11. Eliminate numerical quotas and

© 2016 Cengage Learning. All rights reserved. May

 Variation is primary source of quality

© 2016 Cengage Learning. All rights reserved. May

 Although quality is everyone’s

© 2016 Cengage Learning. All rights reserved. May

 Psychology helps manager understand

 Evaluate key value-adding points in

© 2016 Cengage Learning. All rights reserved. May

 Need for predictable consistency and

© 2016 Cengage Learning. All rights reserved. May

 Move from product orientation to

© 2016 Cengage Learning. All rights reserved. May

 What supplier would knowingly submit

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Natural Variation Natural Variation

Natural Variation Natural Variation

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Conformance to requirements (Crosby)

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Laboratory testing of prototypes and

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Design for quality

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Early participation in new-product and

 Aligned vision and goals

© 2016 Cengage Learning. All rights reserved. May

 Proven quality principles and techniques

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Widely accepted quality management

© 2016 Cengage Learning. All rights reserved. May

 Originally developed in European

© 2016 Cengage Learning. All rights reserved. May