Managing Supplier Quality Chapter 9 Managing Supplier Quality in the Supply Chain

Supplier management Chapter 9 The value chain (Tools for focusing core business reducing costs and identify competitive sources) Supplier partnering (to improve ) Applying the contingency perspective to supplier partnering A supplier development program Acceptance sampling and statistical sampling techniques

There are many suppliers. How we manage them

What is VALUE? Something benefit to someone.

Supplier management The Value Chain The value chain consists of a network of value chains Value chain activities … are the tasks that add value for the customers Non-Value chain activities typically have costs but no effect on customers Value added- something that giving value to customers Porter (1995) has identified value and non-value activities. Value (Core activities): Operation, Logistics, marketing, services Non-value: no effect on the customers such as firm infrastructure, Human resource management, Procurement

Supplier management The Value Chain The chain of customers When you view the step in the chain after you as your own customer. If you work at workstation 4 in a process … you will make sure that the work you do is impeccable (free from mistake) before you release it to … workstation 5

Supplier management The Value Chain Managing the supply chain … The linkage between a series of suppliers and customers.

Supplier management Supplier Development Approaches = Supplier partnering There is a trend towards developing closer relationships with fewer suppliers Developing and assisting suppliers Inspired by JIT supplier-partner relationships have emerged 1) Single sourcing (Reduce vendor-easy to implement quality improvement program)

Supplier management Supplier Partnering 2) Dual sourcing (Reduce to few supplies) 3) Supplier evaluation is a tool to differentiate and discriminate between suppliers (Potential supplies will evaluated and recorded on report card based on quality, technical capability and delivery) 4) Sole-source filters -Comes from the external validation of quality program. The company must be accredited. Baldridge ISO 9001:2008

5) Supplier certification/ qualification programs (Long term visits and focus on evaluation) 6) Supplier development – Focus on helping customers. Improve supplier by training over long periods of time through supplier development program 7) Supplier audit - Visit suppliers and provide result to customers. Not have developmental components.

Supplier management Supplier Partnering Electronic Data Interchange (EDI) Communication system between supplier and customers for linking information system. Schedules are communicated through an electronic data interchange link on a real time basis. Example of information: Balance production system, order Vendor Managed Inventory (VMI)- Supplier needs to responsible their inventories and keeping at lost cost.

Supplier development Supplier development is activities under a buyer to improve the performance of its suppliers. The activities include supplier evaluation, supplier training, consultation, sharing data and sharing processes. 7 steps for supplier development.

Supplier management Supplier Partnering 7 steps for Supplier Development Identify critical products (high cost and high volume) and services Identify critical suppliers (Not meet reliability and delivery) Form cross-function teams (Buyer forms) Meet with supplier top-management (Discuss the strategies, performance target, measurement and process for improvement)

Supplier management Supplier Partnering Supplier Development 5. Identify key projects (Improvement content and where) 6. Define details of agreement (Cost, resources, improvement) 7. Monitor status and modify strategies 9- 14 14

Supplier management Supplier Partnering Supplier Relationship Management Systems (SRMS) focus on upstream activities Spend analytics Sourcing execution Procurement execution Payment Supplier score-carding Performance monitoring Much like CRMS

Supplier management Applying the Contingency Perspective to Supplier Partnering One variable which affects what customers want from their suppliers is … position in the supply chain Suppliers are only marginally more interested in relationships than customers

Supplier management A Supplier Development Program: ISO/TS 16949 The ISO/TS 16949 standard applies only to automotive companies Provide high quality to customer Developed by the International Automotive Task Force (IAFT). Members include: Ford GM Daimler Chrysler

The ISO/TS 16949

Supplier management A Supplier Development Program: ISO/TS 16949 ISO/TS 16949 elements Includes: Quality management system Management responsibility Resource management Product realization Measurement, analysis and improvement

Quality management system Must recognize key process and document for the process Establish sequences and linkage for the process. Determine how effective their operation are; make resources and information available. QMS- how you manage quality in the organisation You must identify

Management responsibility The extent to which management is committed to the development and implementation of QM and continuous improvement. Management is responsible to developing policy, communication with organisation, quality objectives, management review and providing resources.

Resource Management Management must provide resources Training and development Infrastructure; equipment, machine, tools Work environment; Safe, clean and adequate

Product Realization Product and process should be adequately planned. Customer related process should be designed Should consider all aspects of products and process design

Measurement, Analysis and Improvement Company need to provide documentation than can demonstrate product conformity, quality management system conformity and continual improvement.

Supplier management Acceptance Sampling and Statistical Sampling Techniques Acceptance sampling is controversial.

Supplier management Acceptance Sampling and Statistical Sampling Techniques Acceptance sampling might be needed when: Dealing with unproven suppliers During start-ups and when building new products When products can be damaged during shipment When problems with a certain supplier have been noticed

Producer Risk (Consumer reject) Consumer Risk (Consumer accept)

Sampling Plan

Sampling size

Supplier management Acceptance Sampling and Statistical Sampling Techniques Operating characteristic (OC) Curves Assessment of the probabilities of acceptance given the existing quality of the shipment Identifies the consumers risk (Product is defective but consumer accept the products) Producer risk (Product is good but consumer rejects the product)

Supplier management Acceptance Sampling and Statistical Sampling Techniques More complex sampling plans: Double standard plans Multiple sampling plans Acceptance sampling in continuous production

Supplier management Summary If you purchase components or supplies from another firm, to insure high quality, you need a process for making sure that that you can believe in the products and services you are receiving.

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