Basics of Supply Chain Management : BSCM

Basics of Supply Chain Management : BSCM

Ch.9 Quality Management and Purchasing

Chapter 9. Quality Management and Purchasing.

Main Issues :

· Understand the Definition of Quality and Quality Dimensions.

· Understand Total Quality Management and its Elements.

· Describe Quality Cost and Variations.

· Describe Problem Solving Methods.

1. What is Quality ?

□ Definition of Quality.

- When asked to define quality, people's responses are influenced by personal opinion

and perception.

- The most commonly accepted ideas in business today.

□ Quality means user satisfaction : that goods or services satisfy the needs and

expectations of the user."

□ Factors considered to achieve quality.

1. Product Policy.

· Product policy must decide the market segment to be served, the level of

performance expected, and the price to be charged, and must estimate the

expected sales volume.

· The basic quality level of a product is thus specified by senior management

according to its understanding of the wants and needs of the market segment.

2. Product Design.

· A firm's studies of the marketplace should yield a general specification of the

product, product designers must then build into the product the quality level

described in the general specification.

· They determine the materials to be used, dimensions, tolerances, product

capability, and service requirements.

3. Manufacturing.

· Manufacturing is responsible for meeting the minimum specifications of the

product design.

· Tolerance establish the acceptable limits and are usually expressed as the

amount of allowable variation about the desirable amount.

· Quality in manufacturing means that all production must be within specification

limits and the less variation from the normal the better the quality.

4. Use.

· To the user, quality depends on an expectation of how the product should perform.

This is sometimes expressed as "Fitness for use."

· Customer do not care why a product is defective, but they care if it is defective.

· If the product exceeds the customer's expectations, that is superb quality.

Figure 1. Product Development Cycle.

□ Quality has a Number of Dimensions.

- Performance.

· Performance implies that the product or service is ready for the customer's use

at the time of sale.

· Three dimension of performance : Reliability, Durability, and Maintainability.

- Features.

· These are secondary characteristics such as remote control on a VCR.

- Conformance.

· Meeting established standards or specification.

· This is manufacturing's responsibility.

- Warranty.

· An organization's public promise to back up its products with a guarantee of

customer satisfaction.

- Service.

· Service is an intangible generally made up of a number of things such as

availability, speed of service, courtesy, and competence of personnel.

- Aesthetics.

· Aesthetics means pleasing to the senses.

- Perceived Quality.

· Many intangibles such as a company's reputation or past performance influence

perceived quality.

- Price.

· Customer pay for value in what they buy.

2. Total Quality Management.

□ Definition and Objectives.

- It is based on the participation of all members of an organization in improving

processes, product, services, and the culture they work in.

- The objective of TQM is to provide a quality product to customers at a lower price.

- TQM is both a philosophy and a set of guiding principles that lead to a continuously

improving organization.

□ Basic Concepts.

1. A committed and involved management directing and participating in the quality program.

2. Focus on the customer.

3. Involvement of the total work force.

4. Continuous process improvement.

5. Supplier partnering.

6. Performance measures.

□ Management Commitment.

· If senior management is not committed and involved, then TQM will fail. These

managers must start the process and should be the first to be educated in the TQM

philosophy and concepts.

· Some activities of a quality council

1. Clear vision.

: A set of long-term goals and the program.

2. Core values.

: include principles as customer-driven quality, continuous improvement,

: employee participation, and fast response.

3. Quality statement.

: A vision, mission, and quality policy statements.

: The vision statement - describes what the organization should become five

: to ten years in the future.

: The mission statement - The function of organization.

: The quality policy statement - A guide for all in the organization about how

products and services should be provided.

4. Strategic plan.

: The TQM goals and objectives of the organization and how it hopes to achieve them

□ Customer Focus.

- TQM implies an organization that is dedicated to delighting the customer by meeting or

exceeding customer expectation.

- It means not only understanding present customer needs but also anticipating

customer's future needs.

- There are two types customers : External and internal.

· External customers - exist outside the organization and purchase goods or

service from the organization.

· Internal customers - Persons or departments who receive the output from

another person or department in an organization.

- Customers have six requirements of their suppliers.

1. High quality level.

2. High flexibility to change such things as volume, specifications and delivery.

3. High service level.

4. Short lead time.

5. Low variability in meeting targets.

6. Low cost.

□ Employee Involvement.

- In a TQM environment, people come to work not only to do their jobs but also to

work at improving their jobs.

- To gain employee commitment to the organization, TQM requires the following.

1. Training.

· People should be trained in their own job skills and, where possible, cross

trained in other related jobs.

· They should be trained to use the tools of continuous improvement,

problem solving, and statistical process control.

2. Organization.

· The organization must be designed to put people in close contact with their

suppliers and customers, internal or external.

· One way is to organize into customer-, product-, or service-focused cells or teams.

3. Local Ownership.

· People should fee ownership of the process they work with.

· They should be empowered.

□ Continuous Improvement (CI)

- Some features of CI

1. Improving Productivity.

· CI is a low-cost method of designing or improving work methods to

maximize productivity.

· The aim is to increase productivity by better use of existing resources. CI

is concerned with removing work content, not with spending money on

better and faster machines.

2. People Involvement.

· People are the primary source of improvement because they are the

experts in the things they do.

· Everyone in the workforce must be given the opportunity to improve the

processes they work with.

· Workers have two jobs :

1. Their "as defined" job.

2. To improve their "as defined" job.

※ Empowerment.

· It means giving people the authority to make decisions and take action in

their work areas without getting prior approval.

· Giving people the authority to make decisions motivates them to

accomplish the goals and objectives of the organization and to improve their jobs.

3. Teams

· A team is a group of people working together to achieve common goals

and objectives.

· Not all problems can be solved by teams, nor are all people suited to

team. However, they are often effective. Often problem cross functions lines

and thus multi-functional teams are common.

- The Six Steps in CI.

1. Select the process to be studied.

2. Record the existing method to collect the necessary data in a useful form.

3. Analyze the recorded data to generate alternative improved methods.

4. Evaluate the alternatives to develop the best method of doing the work.

5. Install the method as standard practice by training the operator.

6. Maintain the new method.

□ Supplier Partnerships.

- Partnering implies a long-term commitment between two or more organizations to

achieve specific goals.

- It is so important to emphasis not only on supplier performance but also on supplier

relations. Supplier are looked on as co-producers, not as adversaries.

- There are three key factors in partnering.

1. Long-term commitment.

2. Trust.

3. Shared vision.

- If properly done, the supplier has the following benefits.

1. A greater share of the business with long-term security.

2. Ability to plan more effectively.

3. More competitive as a just-in-time supplier.

- Some factors for supplier selection

1. The supplier has a stable management system and is sincere in implementing

the partnership agreement.

2. There is no danger of the supplier breaking the organization's secrets.

3. The supplier has an effective quality system.

4. The supplier shares the vision of customer satisfaction and delighting the customer.

□ Performance Measures.

- Performance measures can be used to :

· Discover which process needs improvement.

· Evaluate alternative processes.

· Compare actual performance with targets so corrective action can be taken,

· Evaluate employee performance.

· Show trends.

- There are many basic characteristics that can be used to measure the performance of

a particular process or activity :

· Quantity.

· Cost.

· Time/Delivery.

· Quality. (Function, Aesthetics, Accuracy)

- Performance measure areas

· Customer.

: Number of complains, on-time delivery, dealer or customer satisfaction.

· Production.

: Inventory turns, scrap or rework, process yield, cost per unit, time to perform operations.

· Suppliers.

: On-time delivery, rating, quality performance, billing accuracy.

· Sales.

: Sales expense to revenue, new customers, gained or lost accounts, sales

: per square foot.

3. Quality Cost Concepts.

□ Costs of Failure.

- The cost of failure to control quality are the costs of producing material that does not

meet specification.

- They can be broken down into :

1. Internal failure costs.

· The cost of correcting problems that occur while the goods are still in the floor.

· Scrap, rework, and spoilage.

2. External failure costs.

· The cost of correcting problems after goods or services have been

delivered to the customer.

· Warranty cost, field servicing of customer goods, and all the other costs

associated with trying to satisfy customer complaints.

Figure 2. Total Quality Costs.

□ Costs of Controlling Quality.

- The costs of controlling quality can be broken into :

1. Prevention costs.

· The costs of avoiding trouble by doing the job right in the first place.

· Training, statistical process control, machine maintenance, and quality

planning costs.

2. Appraisal costs.

· The costs associated with checking and auditing quality in the organization.

· Product inspection, quality audits, testing, and calibration.

4. Variation.

□ Chance Variation.

- People.

: poorly trained operations trend to be more inconsistent compared with well-trained operators.

- Machine.

: Well-maintained machines tend to give more consistent output.

- Material.

: Consistent raw materials give better results than poor quality materials.

- Method.

: Changes in the methods of doing a job will alter the quality.

- Environment.

: Changes in temperature, humidity, dust and so on can affect some processes.

- Measurement.

: Measuring tools that may be in error can cause incorrect adjustments and poor

: process performance.

□ Assignable variation

- There is a specific reason for these causes of variation, which is called assignable variation.

- A tool shift, a gage move, a machine wear, or an operator mistake.

Figure 3. Frequency Distribution.

□ Statistical control.

- If there is an assignable cause for variation, the process is not in control and is

unlikely to produce good product.

- The objective of statistical process control is to detect the presence of assignable

cause of variation.

· To help select processes capable of producing the required quality with minimum defects.

· To monitor a process to be sure it continues to produce the required quality and

no assignable cause for variation exists.

5. Problem-Solving Methods.

□ Pareto Analysis.

- The theory of Pareto is the same as that used in ABC analysis.

- In the quality field, about 80 percent of the defective work comes from 20 percent of the causes.

- Identifying these "significant few" and separating them from the "trivial many" allow

efforts to be focused on the best use of resources and the biggest gains.

- Steps in Pareto Analysis.

1. Define the category to be analyzed.

2. Select the measurement unit.

3. Compile occurrences by unit of measure, and calculate the total in each category.

4. Rank the items in descending order.

5. Find the total cost.

Figure 4. Pareto Diagram.

6. Calculate the percentage by item.

7. Calculate the cumulative, or

running, total of the percentage.

8. Graph the data.

9. Separate the "significant few" for

the "trivial many."

□ Fishbone Diagrams.

- It takes many ideas from a group and organizes them in a simple fashion.

- It involve every member of a group, getting idea and the support of the group

- Steps in developing a Fishbone diagram.

1. Identify the quality characteristics.

2. Label the skeleton with a main cause for each of the main "bones" of the diagram.

3. Write down the factors identified under each cause, and connect them to the

main causes with smaller bone.

4. Once all possible cause have been listed, try to identify the most likely root

causes and work on these.

Figure 5. Cause and Effect diagram.

□ Process Capability.

- Refers to the ability of the process to produce parts that conform to engineering

specifications.

- Process capability relates to the inherent variability of a process that is in a state of

statistical control.

- Process Capability Index (Cp, Cpk)

· The process capability index combines the process capability and the tolerance

into one index.

· If the capability index is greater than 1.00, the process is capable of producing

99.7% of parts within tolerance and is said to be capable.

· The larger the capability index the fewer the rejects and the greater the quality.

.· Cp =	USL - LSL
	6[eqn: sigma]

· The Cpk index is the lesser of :

USL - Mean	or
3[eqn: sigma]

Mean - LSL

3[eqn: sigma]

Figure 6. Process Capability : Cp

Figure 7. Process Capability : Cpk

□ Control Charts.

- Control charts are records of measurements taken by the operator at regular intervals

throughout the day.

- It shows the upper and lower limits of normal variation of the process.

- If the sample readings fall within the control limits and have no pattern, the process is

considered to be "in control"

Figure 8 [eqn: bold{barX~ and ~R}] Control Chart

□ Sample Inspection.

- Reasons for sampling inspection.

· Testing the product is destructive.

· There is not enough time to give 100 % inspection to a batch of product.

· It is too expensive to test all of the batch.

· Human error is estimated to be as high as 3% when performing long-term

repetitive testing.

- Conditions necessary for sampling inspection.

· All items must be produced under similar or identical conditions.

· A random sample of the lot must be taken.

· The lot to be sampled should be a homogeneous mixture.

· The batches to be inspected should be large.

- Some considerations for sampling plan.

· Consumer's risk and producer's risk.

· Sample size and Accepted number of defects.

6. Purchasing.

□ Focus, Objectives, and Some basic functions.

- The objectives of purchasing.

· Obtaining goods and services of the required quantity and quality.

· Obtaining goods and services at the lowest cost.

· Ensuring the best possible service and prompt delivery by the supplier.

· Developing and maintaining good supplier relations and developing potential suppliers.

- To satisfy these objectives, some basic functions must be performed :

· Determining purchasing specifications : right quality, right quantity, and right delivery.

· Selecting supplier : right source.

· Negotiating terms and conditions of purchase : right price.

· Issuing and administration of purchase orders.

□ Purchase Cycle.

- The purchasing cycle consists of the following steps :

1. Receiving and analyzing purchase requisitions.

2. Selecting suppliers.

3. Determining the right price.

4. Issuing purchase orders.

5. Following-up to assure delivery dates are met.

6. Receiving and accepting goods.

7. Approving supplier's invoice for payment.

□ Establishing Specifications.

- In purchasing an item or a service from a supplier, several factors which include

specifications of products and the types of specification must be considered in the

package bought.

- These can be divided into three broad categories.

· Quantity requirements.

· Price requirements.

· Functional requirements.

1. Quantity requirements.

· The quantity is important because it will be a factor in the way the product is

designed, specified and manufactured.

· For only one item : At least cost, or a suitable standard item would be selected.

· For several thousand items : It would be designed to take advantage of

economies of scale.

2. Price requirements.

· The price specification represents the economic value that the buyer puts on the item.

· The economic value placed on the item must relate to the use of the item and

its anticipated selling price.

3. Functional Requirements.

· Functional specifications are concerned with the end use of the item and what

the item is expected to do.

· In a sense, functional specifications are the most difficult to define. To be

successful, they must satisfy the real need or purpose of an item, in many

cases, which has both practical and aesthetic elements.

· Functional specifications are intimately tied to the quality of a product or service,

then it must be obeyed to four phases to providing user satisfaction : Product

planning, product design, manufacturing, and use.

· Functional specification can be described in the following ways :

: By brand.

: By specification of physical and chemical characteristics, material and method

: of manufacture, and performance.

: By engineering drawings.

: Miscellaneous.

□ Selecting Suppliers.

- A good supplier is one that has the technology to make the product to the required

quality, has the capacity to make the quantities needed, and can run the business well

enough to make a profit and still sell a product competitively.

- There are three types of sourcing : Sole, multiple, and single.

· Sole sourcing.

: Only one supplier is available because of patents, technical specifications,

; raw material, location, and so forth.

· Multiple sourcing.

: The use of more than one supplier for an item.

: The potential advantages of multiple sourcing are that competition will result

: in lower price and better service and that there will be a continuity of supply.

: In practical, there is a tendency toward an adversarial relationship between

: supplier and customer.

· Single sourcing.

: It is a planned decision by the organization to select one supplier for an

: item when several sources are available.

: It is intended to produce a long-term partnership.

- Factors in Selecting Suppliers.

· Technical ability.

· Manufacturing capability.

· Reliability.

· After-sale service.

· Supplier location.

· Price.

· Financial stability & Management attitude.

□ Supplier Agreements.

- When an organization decides to buy a product or service, it establishes an agreement

with the supplier and often documents the agreements with a purchase order.

- The purchase order must address a number of categories to ensure that both parties

agree and to resolve any problems.

- The five categories covered by a supplier agreement.

· Price.

· Terms.

· Delivery.

· Quality.

· Quantity.

- Price negotiations can get complicated when purchasing engineered products.

Negotiations should consider tooling costs, warranties, delivery, proper handling, and

penalties for late delivery or cost overruns.

■ Performance Check.

1. A fishbone diagram is an example of which of the following ?

A. A cost buildup method.            B. Organization method.

C. Capability analysis.                D. Another name for Pareto analysis.

2. Which of the following will ensure quality in manufacturing parts ?

A. Applying as much automation as possible.

B. Inspecting all parts for known defectives.

C. Improving customer warranty coverage.

D. Reducing the variation in the process.

3. Which of the following statements is true ?

A. In the long run, quality is more expensive but necessary for survival in today's business world.

B. Most companies spend less than 10 percent on quality-related activities.

C. In the long run, quality is less expensive.

D. Quality-related costs (failure costs) are an integral part of doing business and should be

built into every product cost buildup.

4. Which of the following statements is true regarding Pareto analysis ?

A. It separate the significant few from the trivial many.

B. It uses the six categories of quality.

C. It is an extension of the 50-50 rule of quality.

D. It assigns weighted costs associated with internal versus external failure costs.

5. Which of the following statements is best regarding building quality into products ?

A. It is very difficult to do.

B. It is most easily accomplished through automations.

C. It is best accomplished by production workers.

D. It is the responsibility of the quality inspectors.

6. Which of the following is an objective of purchasing ?

A. To keep many sources of supply available to ensure competitive pricing.

B. To control budgetary expenditures of all employees through sound purchase order control.

C. To obtain goods and services of the required specification and quality.

D. To ensure that goods are always purchased at the lowest price.

7. In a purchasing system, which of the following originates with the department or person who will be the ultimate user ?

A. A purchase requisition.

B. A purchase order.

C. Vendor selection.

D. A request for quotation.

8. When an invoice is received for payment, it is compared with which of the following documents before payment is made ?

A. The bill of lading.

B. The original purchase order.

C. The purchase requisition.

D. The account debt memo posted at the time of entry.

9. Which of the following would be considered the most important factor in supplier selection ?

A. Proximity to the plant.

B. Lowest price.

C. Product quality.

D. Reciprocal arrangements.

10. A control chart is primarily used to determine which of the following ?

A. The percentage defective in the goods being produced.

B. The specification limits.

C. The capability of the process.

D. Normal variation versus assigned variation.

Solutions :

1  2  3  4  5  6  7  8  9  10

B D C A C C A B C D