Supply Chain Management and Quality Management

Supply Chain Management and Quality Management

Volkswagen

Supply Chain Supply Chain: the facilities, functions and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers)

Value Chain Value Chain: network of trading partners that extends from the manufacturers to end-customers.

The Supply Chain Information Cash Figure 7.1 Customers Suppliers
Products and Services Customers Total satisfaction with quality, price, delivery, and service Distributors Package and delivery Inventory Producers Finished goods, end products and services Suppliers Materials, parts, sub-assemblies, and services Figure 7.1

The Strategic Importance of the Supply Chain
Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers Competition is no longer between companies; it is between supply chains

Effective Supply Chain Management Needs
Good Information Good Communication Cooperation Trust

Inventory Inventory is insurance against Supply Chain uncertainty.
Inventory is used as a buffer at various stages of the supply chain to keep goods and services flowing smoothly. For example, parts order arrives late => producer has parts to continue production. For example, companies may order in large batches to save money on transportation or to get special pricing.

So, Is Inventory good? Although Inventory is insurance against Supply Chain uncertainty, it is very costly Products sitting on warehouses are like money sitting without being used Cost of carrying a retail product in inventory for one year is over 25% of what the item costs

The Bullwhip Effect Distorted information through the supply chain when slight demand uncertainty becomes magnified through the eyes of the managers in each link of the supply chain This leads to stockpiling Very costly Everyone plans for the worst case

How to Handle the Bullwhip Effect:
Supply chain managers should share information, especially demand forecasts This is called “Transparency” If the supply chain exhibits transparency, the uncertainty along the supply chain is drastically reduced or eliminated This leads to lower levels of inventory and great cost savings.

Information Shared in the Supply Chain to achieve Transparency
Centralized coordination of information flows Integration of ordering, production, transportation, and distribution Direct access to domestic and global transportation and distribution channels Locating and tracking the movement of every item in the supply chain

Information Shared in the Supply Chain to achieve Transparency
Consolidation of purchasing from all suppliers Intercompany and intracompany information access Data interchange Data acquisition at the point of origin and point of sale Instantaneous updating of inventory levels

IT: A Supply Chain Enabler
IT links all aspects of the Supply Chain IT enables efficient flow of products through the Supply Chain IT is the most efficient enabler

Electronic Business Supply Chain transactions are conducted via electronic media EDI EFT (electronic funds transfer) Image processing Electronic bulletin boards Shared databases Bar coding Fax Internet (and Internet Websites) Companies can automate processes moving information electronically between suppliers and customers

Electronic Business Means:
Replacement of physical processes with electronic ones Cost and price reductions Reduction or elimination of intermediaries Shortening transaction times for ordering and delivery Wider presence and increased visibility

Electronic Business Means:
Greater choices and more information for customers Improved service Collection and analysis of customer data and preferences Virtual companies with lower prices Leveling the playing field for smaller companies Gain global access to markets & customers

Electronic Data Interchange (EDI)
Computer-to-computer exchange of business documents in a standard format Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency Drastically reduces or eliminates Bullwhip effect

Bar Codes Computer readable codes attached to items flowing through the supply chain Generates point-of-sale data (instantaneous computer record of the sale of a product) which is useful for determining sales trends, ordering, production scheduling, and deliver plans

The Internet Technological innovation with the biggest impact on Supply Chain Management Can communicate with customers Can communicate with other businesses within its supply chain anywhere in the world Allowed geographic barriers to be torn down enabling access to markets and suppliers around the world. Adds speed and accessibility to the supply chain

Figure 7.2 Build-to-Order Cars over the Internet

The E-Automotive Supply Chain
SUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE Customer sales Push—sell from inventory Pull—Build-to-order Production Goal of even and stable production Focus on customer demand, respond with supply chain flexibility Distribution Mass approach Fast, reliable, and customized to get cars to specific customer location Customer relationships Dealer-owned Shared by dealers and manufacturers Managing uncertainty Large car inventory at dealers Small inventories with shared information and strategically placed parts inventories Procurement Batch-oriented; dealers order based on allocations Orders made in real time based on available-to-promise information Product design Complex products don’t match customer needs Simplified products based on better information about what customers want Table 7.2

IT Issues Increased benefits and sophistication come with increased costs Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Security problems are very real Partnership and trust are important elements that may be new to business relationships

Suppliers The most important link between companies and suppliers is their information flow Cross-enterprise teams: coordinate processes between a company and its supplier (eg. Harley Davidson and Porsche) The supplier works with the company in the design process in order to ensure the most effective design possible (not like before where the supplier would design their part around the customer’s design).

Suppliers Required to provide “on-demand” delivery to support JIT
Required to provide “continuous replenishment” where orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart)

Continuous Replenishment
Orders are supplied in a short period of time according to a predetermined schedule (Wal-Mart) Means making more frequent, partial deliveries, in order to reduce inventory and overall costs (instead of large batch orders) Increases flexibility since there is no large investment in inventory

Suppliers Often are required to move close to their customer
Example: Honda in Marysville, Ohio 75% of the US suppliers for Honda are located within 150-mile radius of the Marysville, Ohio assembly plant

Suppliers Are required to deliver high quality, low prices, process improvement, better deliver performance Require their own suppliers what is required of them: high quality, low prices, process improvement, better deliver performance

Sourcing, Outsourcing, and Single Sourcing
Sourcing: the selection of suppliers Outsourcing: the purchase of goods and services from a supplier Single-Sourcing: purchasing goods from only one (or a few) suppliers

Why Outsource? Many companies are outsourcing in order to focus more on their core competencies (Nabisco)

Why Single-source? Companies single-source in order to have more direct influence and control over the quality, cost, and delivery performance of a supplier (since the company will have a major portion of that supplier’s volume of business)

E-Procurement B2B Commerce on the Internet
Direct purchase from suppliers over the Internet E-Marketplaces: websites where companies and suppliers do B2B activities (for industry specific companies) Reverse Auction: a company posts orders on the Internet for suppliers to bid on

Logistics Transportation and distribution of goods and services

Vendor-Managed Inventory (Wal-Mart)
Vendor-Managed Inventory is an integral part of supply chain collaboration Manufacturers receive electronic data via EDI or Internet about distributors sales and stock levels. Manufacturers see point of sale data, expected growth, promotions, lost business, inventory goals Manufacturers use this information to create and maintain a forecast and inventory plan

Vendor-Managed Inventory
Manufacturers generate orders, not distributors Increased speed, reduced errors, and improved service

Collaborative Logistics
Different companies (even rival companies) are finding ways to collaborate in distribution Example: Nabisco discovered it was paying too much for half-empty trucks and now they share trucks and warehouse space with other companies, even competitors (Dole, Lea & Perrins, General Mills, Pillsbury) Example: General Mills worked out a collaborative agreement with Fort James Corp. (Dixie Cups) sharing truck routes. General Mills saved $800,000 in it’s first year. Reduce costs

Make-or-Buy Decisions
Maintain core competence Lower production cost Unsuitable suppliers Assure adequate supply (quantity or delivery) Utilize surplus labor or facilities Obtain desired quality Remove supplier collusion Obtain unique item that would entail a prohibitive commitment for a supplier Protect personnel from a layoff Protect proprietary design or quality Increase or maintain size of company Reasons for Making Table 11.4

Make-or-Buy Decisions
Frees management to deal with its primary business Lower acquisition cost Preserve supplier commitment Obtain technical or management ability Inadequate capacity Reduce inventory costs Ensure alternative sources Inadequate managerial or technical resources Reciprocity Item is protected by a patent or trade secret Reasons for Buying Table 11.4

Ethics in the Supply Chain
Opportunities for unethical behavior are enormous and temptations are high Many companies have strict rules and codes of conduct that define acceptable behavior Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior

Principles and Standards for Ethical Supply Management Conduct
LOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOM YOU DEAL FAITH IN YOUR PROFESSION Table 11.5

Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and granted authority Avoid any personal business or professional activity that would create a conflict between personal interests and the interests of the employer Table 11.5

Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, supply management decisions Handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and government regulations Promote positive supplier relationships through courtesy and impartiality Avoid improper reciprocal agreements Table 11.5

Know and obey the letter and spirit of laws applicable to supply management Encourage support for small, disadvantaged, and minority-owned businesses Acquire and maintain professional competence Conduct supply management activities in accordance with national and international laws, customs, and practices, your organization’s policies, and these ethical principles and standards of conduct Enhance the stature of the supply management profession Table 11.5

Supply-Chain Strategies
Negotiating with many suppliers Long-term partnering with few suppliers Vertical integration Keiretsu Virtual companies that use suppliers on an as needed basis

Many Suppliers Commonly used for commodity products
Purchasing is typically based on price Suppliers are pitted against one another Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers Buyer forms longer term relationships with fewer suppliers Create value through economies of scale and learning curve improvements Suppliers more willing to participate in JIT programs and contribute design and technological expertise Cost of changing suppliers is huge

Computers Watches Calculators
Vertical Integration Vertical Integration Examples of Vertical Integration Raw material (suppliers) Iron ore Silicon Farming Backward integration Steel Current transformation Automobiles Integrated circuits Flour milling Forward integration Distribution systems Circuit boards Finished goods (customers) Dealers Computers Watches Calculators Baked goods Figure 11.2

Vertical Integration Developing the ability to produce goods or service previously purchased Integration may be forward, towards the customer, or backward, towards suppliers Can improve cost, quality, and inventory but requires capital, managerial skills, and demand Risky in industries with rapid technological change

Keiretsu Networks Supplier becomes part of the company coalition
Often provide financial support for suppliers through ownership or loans Members expect long-term relationships and provide technical expertise and stable deliveries May extend through several levels of the supply chain

Virtual Companies Rely on a variety of supplier relationships to provide services on demand Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands Exceptionally lean performance, low capital investment, flexibility, and speed

Transportation Important element of Supply Chain Management, often overlooked Common methods are railroads, trucking, water, air, intermodal (combining several modes), package carriers, and pipelines

Global Supply Chain Free trade & global opportunities
Nations form trading groups No tariffs or duties Freely transport goods across borders

Quality Management What is Quality?

Defining Quality The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs American Society for Quality

Defining Quality Getting what you pay for
Getting more than what you pay for Getting a high level or degree of excellence Getting a superior product or service A product or service with distinguished features A product with outstanding traits

Key Dimensions of Quality
Performance Features Reliability Conformance Durability Serviceability Aesthetics Safety Value 7

Different Views User-based – better performance, more features
Manufacturing-based – conformance to standards, making it right the first time Product-based – specific and measurable attributes of the product

Quality and Strategy Managing quality supports differentiation, low cost, and response strategies Quality helps firms increase sales and reduce costs Building a quality organization is a demanding task

Ways Quality Improves Profits
Sales Gains Improved response Higher Prices Improved reputation Improved Quality Increased Profits Reduced Costs Increased productivity Lower rework and scrap costs Lower warranty costs Figure 6.1

The Flow of Activities Organizational Practices Leadership, Mission statement, Effective operating procedures, Staff support, Training Yields: What is important and what is to be accomplished Quality Principles Customer focus, Continuous improvement, Benchmarking, Just-in-time, Tools of TQM Yields: How to do what is important and to be accomplished Employee Fulfillment Empowerment, Organizational commitment Yields: Employee attitudes that can accomplish what is important Customer Satisfaction Winning orders, Repeat customers Yields: An effective organization with a competitive advantage

Implications of Quality
Company reputation Perception of new products Employment practices Supplier relations Product liability Reduce risk Global implications Improved ability to compete

Malcom Baldrige National Quality Award
Established in 1988 by the U.S. government (named after former Secretary of Commerce) Designed to promote TQM practices Winners AT&T, Motorola, Xerox, Federal Express, Texas Instruments, Cadillac

Deming Prize Japanese National Quality Award named after Dr. W. Edwards Deming

Takumi A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence

Giants in the field of Quality
W. Edwards Deming 14 Points for Management Joseph M. Juran Top management commitment, fitness for use Armand Feigenbaum Total Quality Control Philip B. Crosby Quality is Free

Giants in the field of Quality: Deming
Management is responsible for building good systems The process dictates the level of quality and employees cannot produce products at a higher quality than what the process dictates Developed the 14 points for implementing quality

Giants in the field of Quality: Juran
Management involvement in quality effort Teams raise quality standards Focus on the customer Cost of poor quality: “are huge, but the amounts are not known with precision”

Giants in the field of Quality: Feigenbaum
Laid out 40 steps in Quality Improvement (TQC) His ideas where people learn from each other led to the field of “cross –functional teamwork”

Giants in the field of Quality: Crosby
Quality is free: “It is not a gift, but it is free. What costs money is the unquality things – all the actions that involve not doing it right the first time” Coined the term “zero defects” Cost of poor quality: includes all the things that are involved in not doing the job right the first time.

Costs of Quality Prevention costs - reducing the potential for defects
Appraisal costs - evaluating products, parts, and services Internal failure - producing defective parts or service before delivery External costs - defects discovered after delivery

Costs of Quality Total Cost Total Cost Quality Improvement
External Failure Internal Failure Prevention Appraisal

International Quality Standards
ISO 9000 series (Europe/EC) Common quality standards for products sold in Europe (even if made in U.S.) Revised in 2000, it places greater emphasis on leadership and customer satisfaction (ISO 9001:2000) ISO series (Europe/EC): emphasis in environmental management (public image, pollution prevention)

Quality Standards in Food
BRC (British Retail Consortium). This standard published by the union of British supermarket chains, the BRC, requires documented approval to ensure food quality and safety. IFS (International Featured Standard). This food quality and safety standard is published by the union of German supermarket chains, HDE FCD (Fédération des entreprises du Commerce et de la Distribution) is the French Equivalent to the IFS

What are BRC and IFS? These food quality and safety standards are published by retail trade groups. Any company wishing to supply its food products to those retailers must meet the required standards. The retailers request that an independent third party approves the quality and food safety system of the supplier.

What are the key benefits?
Access to your markets in the UK, Germany and France Strengthened relationships with retail distributors Increased transparency Reinforced customer confidence Streamlined production Minimization of significant food risks Effective control of internal processes and minimizing risk of failure Signal sent about a proactive approach to food safety

Encompasses entire organization, from supplier to customer
TQM Encompasses entire organization, from supplier to customer Stresses a commitment by management to have a continuing, companywide drive toward excellence in all aspects of products and services that are important to the customer

W.E. Deming’s 14 Points Create a constancy of purpose toward product improvement to achieve long-term organizational goals Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally Eliminate need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design Select a few suppliers or vendors based on quality commitment rather than competitive prices

W.E. Deming’s 14 Points Constantly improve the production process by focusing on the two primary sources of quality problems, the system and employees, thus increasing productivity and reducing costs Institute worker training that focuses on the prevention of quality problems and the use of statistical-quality control techniques Instill leadership among supervisors to help employees perform better Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems

W.E. Deming’s 14 Points Eliminate barriers between departments, and promote cooperation and a team approach for working together Eliminate slogans and numerical targets that urge employees to achieve higher performance levels without first showing them how to do it. Eliminate numerical quotas that employees attempt to meet at any cost without regard to quality

W.E. Deming’s 14 Points Enhance worker pride, artisanry, and self-esteem by improving supervision and the production process so that employees can perform to their capabilities Institute vigorous education and training programs in methods of quality improvement throughout the organization, from top management down, so that continuous improvement can occur Develop a commitment from top management to implement the previous 13 steps.

Concepts of TQM Continuous improvement Six Sigma Employee empowerment
Benchmarking Just-in-time (JIT) Knowledge of TQM tools

Continuous Improvement
Represents continual improvement of all processes Involves all operations and work centers including suppliers and customers People, Equipment, Materials, Procedures

Six Sigma Originally developed by Motorola, Six Sigma refers to an extremely high measure of process capability A Six Sigma capable process will return no more than 3.4 defects per million operations (DPMO) Highly structured approach to process improvement

Six Sigma: Example 20,000,000 passengers pass through London’s Heathrow Airport with luggage each year At 6-sigma, 72 passengers would have misplaced luggage At 3-sigma (most common) 2,076 would have misplaced luggage

Six Sigma Implementation
Provide extensive training Focus on corporate sponsor support (Champions) Create qualified process improvement experts (Black Belts, Green Belts, etc.) This cannot be accomplished without a major commitment from top level management

Employee Empowerment Getting employees involved in product and process improvements 85% of quality problems are due to process and material Techniques Build communication networks that include employees Develop open, supportive supervisors Move responsibility to employees Build a high-morale organization Create formal team structures

Use internal benchmarking if you’re big enough
Selecting best practices to use as a standard for performance (Chrysler uses Toyota as a Benchmark) Use internal benchmarking if you’re big enough Determine what to benchmark Form a benchmark team Identify benchmarking partners Collect and analyze benchmarking information Take action to match or exceed the benchmark

Just-in-Time (JIT) Relationship to quality:
JIT cuts the cost of quality JIT improves quality Better quality means less inventory and better, easier-to-employ JIT system

Just-in-Time (JIT) ‘Pull’ system of production scheduling including supply management Production only when signaled Allows reduced inventory levels Inventory costs money and hides process and material problems Encourages improved process and product quality

Just-In-Time (JIT) Example
Scrap Unreliable Vendors Capacity Imbalances Work in process inventory level (hides problems)

Just-In-Time (JIT) Example
Reducing inventory reveals problems so they can be solved Unreliable Vendors Capacity Imbalances Scrap

Tools of TQM Tools for Generating Ideas Tools to Organize the Data
Check sheets Scatter diagrams Cause and effect diagrams Tools to Organize the Data Pareto charts Flow charts Tools for Identifying Problems Histogram Statistical process control chart

(a) Check Sheet: An organized method of recording data
Tools for TQM (a) Check Sheet: An organized method of recording data / / / // / / /// / // /// // //// /// // / Hour Defect A B C Figure 6.5

Tools for TQM (b) Scatter Diagram: A graph of the value of one variable vs. another variable Absenteeism Productivity Figure 6.5

Incorrect specifications
Tools for TQM (c) Cause-and-effect diagram (also called an Ishikawa or Fishbone Diagram): A tool that identifies process elements (causes) that might effect an outcome Quality Problem Out of adjustment Tooling problems Old / worn Machines Faulty testing equipment Incorrect specifications Improper methods Measurement Poor supervision Lack of concentration Inadequate training Human Deficiencies in product design Ineffective quality management Poor process design Process Inaccurate temperature control Dust and Dirt Environment Defective from vendor Not to specifications Material- handling problems Materials Figure 6.5

Cause-and-Effect Diagrams
Inadequate supply of magazines Inadequate special meals on-board Insufficient clean pillows & blankets on-board Material Broken luggage carousel Mechanical delay on plane Deicing equipment not available Machinery Dissatisfied Airline Customer Methods Understaffed ticket counters Understaffed crew Poorly trained attendants Manpower Overbooking policies Bumping policies Mistagged bags Poor check-in policies Figure 6.6

Percent from each cause
Tools for TQM Percent from each cause Causes of poor quality Machine calibrations Defective parts Wrong dimensions Poor Design Operator errors Defective materials Surface abrasions 10 20 30 40 50 60 70 (64) (13) (10) (6) (3) (2) (d) Pareto Charts: A graph to identify and plot problems or defects in descending order of frequency

Room svc Check-in Pool hours Minibar Misc.
Pareto Charts 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0 – Frequency (number) Causes and percent Cumulative percent Data for October – 100 – 93 – 88 – 72 Room svc Check-in Pool hours Minibar Misc. 72% 16% 5% 4% 3% 12 4 3 2 54 Number of occurrences

Pareto Charts It was named after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy was received by 20% of the Italian population. The principle was suggested by management thinker Joseph Juran The Pareto principle (also known as the rule or the law of the vital few) states that for many phenomena, 80% of the consequences stem from 20% of the causes Examples: "20% of clients are responsible for 80% of sales volume." “80% of the resources are typically used by 20% of the operations “ “80% of the defective units are a result of 20% of the causes”

Tools for TQM (e) Flow Charts (Process Diagrams): A chart that describes the steps in a process. Helps focus on where in a process a quality problem might exist Figure 6.5

Tools for TQM (f) Histogram: A distribution showing the frequency of occurrence of a variable Distribution Repair time (minutes) Frequency Figure 6.5

Tools for TQM (g) Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic Upper control limit Target value Lower control limit Time Figure 6.5

Statistical Process Control (SPC)
Uses statistics and control charts to tell when to take corrective action Drives process improvement Four key steps Measure the process When a change is indicated, find the assignable cause Eliminate or incorporate the cause Restart the revised process

Plots the percent of free throws missed
An SPC Chart Plots the percent of free throws missed Upper control limit Coach’s target value Lower control limit Game number | | | | | | | | | 20% 10% 0% Figure 6.7

Supply Chain Management and Quality Management

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