Chapter 08 Supplier Quality Management XXX

Chapter 8
Supplier Quality Management
Monczka/Handfield/Giunipero/Patterson, Purchasing & Supply Chain Management, 6 th Edition. © 2016 Cengage. All Rights
Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter Overview (1 of 2)
• Overview of supplier quality management

• Factors affecting supply management’s role in managing supplier quality
• Supplier quality management using a Total Quality Management perspective
Chapter Overview (2 of 2)
• Pursuing Six Sigma supplier quality

• Using ISO standards and MBNQA criteria to assess supplier quality systems
• Basic contents of a supplier quality manual
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
Why Be Concerned with Supplier Quality?
• Supplier impact on quality

• Continuous improvement requirements
• Outsourcing of purchase requirements
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
• Supplier’s willingness to work jointly to improve quality
• Supplier’s current quality levels
• Buyer’s ability to collect and analyze quality-related data
Key Principles of TQM (1 of 2)
• 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
Key Principles of TQM (2 of 2)
• 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
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
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
Deming’s 14 Points (1 of 3)
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
6. Institute training
7. Institute leadership
8. Drive out fear
9. Optimize the efforts of teams
10. Eliminate exhortations
11. Eliminate numerical quotas and measurement by objective

12. Remover barriers to pride in workmanship
13. Encourage education and self-improvement
14. Take action
Summary of Deming’s Philosophy (1 of 3)
• 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
• 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
• 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
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 (E SDI)
• Issue of sharing proprietary information
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
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
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
Focusing on Sample Inspections (1 of 2)
• 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?
Focusing on Sample Inspections (2 of 2)
• 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?
Basics of Process Capability (1 of 2)
• 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
Basics of Process Capability (2 of 2)
• 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
Which Process Is Capable?
Process Capability Study Information
• Determine the operating baseline of a process

• Prioritize potential quality improvement projects
• Provide evidence of process performance to a customer
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
Cost of Quality (1 of 2)
• 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
Cost of Quality (2 of 2)
• 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
Appraisal Cost Examples
• Laboratory testing of prototypes and samples

• Production inspection activities
• Supplier quality audits
• Incoming material inspections
• Other forms of product monitoring
Internal Failure Cost Examples
• Process troubleshooting
• Re-inspection following detection of defects
• Production downtime caused by defects, scrap, and process waste
External Failure Cost Examples
• Warranty costs
• Replacement of defective products
• Product liability lawsuits
• Loss of customer goodwill
Prevention Cost Examples
• Design for quality

• Quality planning
• Equipment calibration
• Quality training
• Development of a quality manual
• Maintenance of quality management system
Common Causes of Waste
• Inadequate processes
• Inadequate tools or equipment
• Inefficient layouts
• Lack of training
• Inadequate suppliers
• Lack of standardization
• Poor management decisions
• Mistakes by operators
• Inadequate scheduling
The Seven Wastes
• Over-production
• Idle time
• Delivery
• Inventory
• Waste in the work itself
• Waste from rejected parts
• Wasted operator motion
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
Supplier Incentives (1 of 2)
• 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
Supplier Incentives (2 of 2)
• 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
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
Pursuing Six Sigma Quality
• Proven quality principles and techniques

• Virtually error-free performance
• Expressed as 3.4 defects per million opportunities (D PMO)
• Increasing customer expectations
• Focus on defect prevention, cycle time reduction, and cost savings
• Use of Six Sigma Black Belts
The DMAIC Model (1 of 3)
• Define
• Improvement activity and goals
• Measure
• Existing system, establish metrics, and identify performance baseline
• Analyze
• System and develop causal hypotheses
• 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
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
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
Main Sections of ISO 9000:2008
• Quality management system (QMS)

• Management responsibility
• Resource management
• Product realization
• Measurement, analysis, and improvement
Quality Management System (1 of 2)
• 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
Quality Management System (2 of 2)
• Consists of …
• Quality manual
• Related procedures
• Work instructions
• Common templates are available
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
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
Product Realization
• How an organization designs and delivers its goods and services

• Design
• Production
• Evaluation
• Handling
• Shipping
• Customer requirements → goods and services
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
Eight Principles of ISO 9000:2008
• Customer focus
• Leadership
• Involvement of people
• Process approach
• Systems approach to management
• Continual improvement
• Factual approach to decision making
• Mutually beneficial supplier relationships
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
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
ISO 14000:2004 (1 of 3)
• 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
ISO 14000:2004 (2 of 3)
• 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
ISO 14000:2004 (3 of 3)
• 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
EMS Guidance
• How to …
• Evaluate its environmental impact
• Improve its environmental performance
• Implement a systematic approach to environmental issues, including monitoring
and measurement
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
The Malcolm Baldrige National Quality Award (1 of 2)
• 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
The Malcolm Baldrige National Quality Award (2 of 2)
• 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
MBNQA Criteria Items (1 of 3)
• Leadership
• Organizational leadership
• Public responsibility and citizenship
• Strategic planning
• Strategy development
• Strategy deployment
• Customer focus
• Customer and market knowledge
• Customer satisfaction and relationships
• Measurement, analysis, and knowledge management

• Organizational performance
• Workforce focus
• Work systems
• Employee education, training, and development
• Employee well-being and satisfaction
• 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
Basic Contents of a Supplier Quality Manual (1 of 5)
• 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
• Minimum process required for supplier regarding …

• Inspections
• Use of statistical process control
• Continuous improvement
• Testing
• Sample evaluations
• Performance improvement
• 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
• 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
• 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

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Chapter 08 Supplier Quality Management XXX

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Chapter 8

Supplier Quality Management

• Overview of supplier quality management

• Pursuing Six Sigma supplier quality

• Ability to meet or exceed current and future customer expectations or

• Supplier impact on quality

• Ability of supplier to affect buyer’s total quality

• Define quality in terms of customers and their requirements

• Focus on process rather than output

• Nonconforming supplier quality is often due to inconsistent communication

• Ability of buying company to succinctly identify, clearly define, quantify, or

1. Create a vision and demonstrate commitment

11. Eliminate numerical quotas and measurement by objective

• Variation is primary source of quality nonconformance

• Although quality is everyone’s responsibility, senior management has

• Psychology helps manager understand employees and customers, as well as

• Evaluate key value-adding points in process where defects could occur,

• Make decisions on facts, not feelings

• Need for predictable consistency and reduced process variation

• Move from product orientation to process orientation

• What supplier would knowingly submit a poor sample?

• Ability of process to generate outputs that meet engineering specifications

• 99.7% of all output falls between ± 3 standard deviations of process mean

• Determine the operating baseline of a process

• Conformance to requirements (Crosby)

• Really is cost of “poor” quality

• Laboratory testing of prototypes and samples

• Design for quality

• Value analysis/value engineering (VA/VE)

• Early participation in new-product and process development projects

• Aligned vision and goals

• Proven quality principles and techniques

• Widely accepted quality management frameworks

• Originally developed in European Common Market in 1987

• Quality management system (QMS)

• Activities and steps required to implement ISO 9000:2008

• Information on firm’s quality policy and objectives

• Resources necessary to implement, maintain, and improve QMS

• How an organization designs and delivers its goods and services

• Metrics, measurements, and monitoring processes

• Buyers have immediate confirmation of supplier’s registration

• Established in 1993 to promote environmental awareness and protection as

• Set of voluntary standards

• Helps develop firm’s environmental management system (EMS)

• Fewer pollutants generated

• Competition established in 1987

• Measurement, analysis, and knowledge management

• Quality control and process management procedures

• Minimum process required for supplier regarding …

• Description of supplier selection and evaluation process

• Requirements and procedures for control of proprietary information

• Description of process capability study process

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