OPERATIONS MANAGEMENT PRESENTATION SUBJECT: DEMING’S FOURTH POINT INSTRUCTOR: DR. JOHN SEYDEL PRESENTED BY: TEAM 9 KOTONA BENSON JOEL BEDWELL SYED AHMED ALI QAZI

“Two or more suppliers for the same item will multiply the evils that are necessarily inherent and bad enough with any one supplier.” Dr. Deming says.

What does Point 4 say?  End the practice of awarding business on price tag alone.  It is customary for purchasing departments to purchase from the lowest- priced vendor.

Major Drawbacks of this Practice  Firstly, this practice almost invariably leads to a proliferation of suppliers.  Also, it causes the buyer not to stick to one vendor and jump from vendor to vendor.  Finally, it causes the buyer to rely on specifications.

Proliferation of Suppliers  This variation causes problems in production.  Also, it causes impairment of quality.

Jumping from Vendor to Vendor  Creates inconsistency in the quality of raw materials acquired.  It is very difficult to go through the development of an item, which demands so much talent and manpower, with two suppliers.

Reliance on Specifications  Raw material may meet specifications but still present problems in production.  Also, it becomes a barrier to continuous improvement.

Price Tag does not Determine Quality  Price has no meaning without a measure of the quality being purchased.  Also, a price tag is unambiguous and therefore appealing.

How to Determine Quality?  Purchasing agent must have education in statistical evidence, supplemented by experience.  Also, purchasing agent must learn how raw materials are used, in order to acquire the right information from the supplier.

Examining the Two Selected Companies  Econo Lodge, which is a U.S.A based chain of hotels, is franchised by Choice Hotels, does not apply Deming’s point four.  Comfort Inn, which is also a U.S.A based chain of hotels, applies Deming’s point four.

Econo Lodge: “Our rates are low. Not our standards.”  Awards business on price tag alone.  Deals with three suppliers for the supply of furniture to be used in the hotel rooms.  Customers often complain about the low quality of furniture in their rooms.  Losing sales even though prices are cheap.

Comfort Inn: “Its more than a room. It’s comfort”  Does not award business on price tag alone.  Deals with one supplier for the supply of furniture to be used in the hotel rooms.  Customers report no such complaint regarding the quality of the furniture.  Earning more sales and profit at high prices.

Econo Lodge’s Sales for 1999

Comfort Inn’s Sales for 1999

Benefits of Applying Point Four  Firstly, buyer will serve his company best by developing long-term relationship of trust and loyalty with the vendor.  Also, all the departments working together to reduce costs and improve quality.  Finally, accounting and other paperwork is simplified.

“A company that adopts the recommendations made here will have wide influence. The suppliers that serve one company also serve other companies, and will deliver to all of them better and better quality with better and better economy.” Dr. Deming says.