12-1 Purchasing, Inventory, And Quality Control Purchasing & Suppliers Purchasing & Suppliers Purchasing Procedures & Inventory Control Purchasing Procedures & Inventory Control Planning & Quality Control Planning & Quality Control Chapter 12

12-2 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Purchasing “…determines the company’s needs and then finds, orders, and assures delivery of those items.” Must Consider Quality Control Must Consider Quality Control

12-3 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Purchasing Involves: Just-In-Time Supplier-Base Downsizing Fully Integrated Production Networks Stockouts Royalty-Free/CORBIS

12-4 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Special Situations Affecting Purchasing Expected Changes In Price Orders For Specialty Goods Short Supply Of Materials Expected Changes In Product Demand

12-5 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Sources Of Suppliers Yellow Pages- Thomas Register of American Manufacturers- McRae Bluebook

12-6 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Types Of Suppliers Brokers Brokers Jobbers Jobbers Wholesalers Wholesalers Producers Producers Use few or many suppliers? Use few or many suppliers? PhotoLink/Getty Images

12-7 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Supplier Selection/Standards  Price  Quality  Service  Reliability  Evaluate Performance PhotoLink/Getty Images

12-8 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Purchase Order Flowchart

12-9 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Requisition Origination 1)Inventory Low- Observation 2)Need For Item- Automatic Recognition 3)Manager Request 4)Customer Request 5)Standing Order Ryan McVay/Getty Images

12-10 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Purchasing & Computers Track Items Spot Needs Identify Sources Of Supply Provide Information For Ordering For Ordering Checking Accuracy Of Receipts Checking Accuracy Of Receipts

12-11 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Inventory “…formal list of all the property of a business, or the property so listed.” John A. Rizzo/Getty Images

12-12 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Inventory Carrying Costs $Storage $Insurance/Taxes $Lost Opportunity $Theft/Destruction $Obsolescence/Deterioration

12-13 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Economic Order Quantity “…is the quantity to purchase that balances the cost of placing the order with the cost of carrying the inventory.”

12-14 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Handling Demand Variations  Allow To Occur  Use Self-Service/Hire Temps  Inventory Buildups/Drawdowns  Carry Seasonal Products  Subcontract  Lose Sales  Inducements During Low Demand Royalty-Free/CORBIS

12-15 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Scheduling “…setting the times and sequences required to do work.”

12-16 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Quality “…product characteristics and/or the probability of meeting established standards.” Standards = Customer Expectations

12-17 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Quality Involves  Look  Capacity  Accomplishment  Creativity  Reliability  Etc. Total Quality Management –  Strength  Color  Taste  Smell  Content  Weight  Tone

12-18 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Improving & Controlling Quality o Quality Circles o Design o Good Process John A. Rizzo/Getty Images

12-19 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Quality Circle Operation

12-20 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Deming’s 14 Points 1.Create Constancy 2.Adopt Philosophy 3.Cease Inspection 4.End Price Tag Awards 5.Constant Improvement 6.Train 7.Lead 8.Drive Out Fear 9.Break Down Barriers 10.Eliminate Slogans 11.Eliminate Quotas 12.Pride Of Workmanship 13.Educate 14.Transform

12-21 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Quality Control Steps Set Standards Measure Performance Compare Performance Make Corrections

12-22 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Quality Control Feedback

12-23 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Six Sigma Set of process improvement techniques Set of process improvement techniques Control charts (from 1903/26) Control charts (from 1903/26) 3.4 defects per million opportunities (DPMO) 3.4 defects per million opportunities (DPMO) 6 standard deviations 6 standard deviations Motorola then GE Motorola then GE

12-24 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Improve Existing Process DMAIC (Existing process) DMAIC (Existing process) Define the process improvement goals that are consistent with customer demands and enterprise strategy. Define the process improvement goals that are consistent with customer demands and enterprise strategy. Measure the current process and collect relevant data for future comparison. Measure the current process and collect relevant data for future comparison. Analyze to verify relationship and causality of factors. Determine what the relationship is, and attempt to ensure that all factors have been considered (fishbone). Analyze to verify relationship and causality of factors. Determine what the relationship is, and attempt to ensure that all factors have been considered (fishbone). Improve or optimize the process based upon the analysis using techniques like Design of Experiments. Improve or optimize the process based upon the analysis using techniques like Design of Experiments. Control to ensure that any variances are corrected before they result in defects. Set up pilot runs to establish process capability, transition to production and thereafter continuously measure the process and institute control mechanisms. Control to ensure that any variances are corrected before they result in defects. Set up pilot runs to establish process capability, transition to production and thereafter continuously measure the process and institute control mechanisms.

12-25 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. New Process DMADV DMADV Define the goals of the design activity that are consistent with customer demands and enterprise strategy. Define the goals of the design activity that are consistent with customer demands and enterprise strategy. Measure and identify CTQs (critical to qualities), product capabilities, production process capability, and risk assessments. Measure and identify CTQs (critical to qualities), product capabilities, production process capability, and risk assessments. Analyze to develop and design alternatives, create high-level design and evaluate design capability to select the best design. Analyze to develop and design alternatives, create high-level design and evaluate design capability to select the best design. Design details, optimize the design, and plan for design verification. This phase may require simulations. Design details, optimize the design, and plan for design verification. This phase may require simulations. Verify the design, set up pilot runs, implement production process and handover to process owners. Verify the design, set up pilot runs, implement production process and handover to process owners.

12-26 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Cute Terms Champions, master black belts, black belts, green belts, yellow belts Champions, master black belts, black belts, green belts, yellow belts Criticisms Criticisms Nothing new, arbitrary standard of six sigma, companies have under-performed S&P500 Nothing new, arbitrary standard of six sigma, companies have under-performed S&P500

12-27 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Other Quality methods TQM (PDCA) TQM (PDCA) BPR BPR Top down/bottom up struggle Top down/bottom up struggle ISO9000 ISO9000 Educational Assessment Educational Assessment Importance for small business? Importance for small business?