1. ©2004 Prentice-Hall S. Thomas Foster, Jr. Boise State University PowerPoint prepared by prepared by Dave Magee University of Kentucky Lexington Community College Chapter 9 Managing Supplier Quality in the Supply Chain

2. Slide 9-2 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Chapter Overview Chapter Overview The Value Chain Supplier Partnering Applying the Contingency Perspective to Supplier Partnering A Supplier Development Program: QS 9000 Acceptance Sampling and Statistical Sampling Techniques

3. Slide 9-3 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition The Value Chain Slide 1 of 4 The Value Chain Slide 1 of 4 The Value Chain –A tool that disaggregates a firm into its core activities to help reduce costs and identify sources of competitiveness. Value System –Consists of a network of value chains.

4. Slide 9-4 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition The Value Chain Slide 2 of 4 Firm infrastructure Human resource management Technology development Procurement Inbound logistics OperationsOutbound logistics Marketing and sales Service Support Activities (Hidden factory) Core Activities Margin Figure 9.1

5. Slide 9-5 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition The Value Chain Slide 3 of 4 The Chain of Customers –Looking at the activities along the value chain sequentially, we see that the links in the value chain are really people performing different functions. –The chain of customers is revealed when you view the next step in the chain after you as your own customer. –This means that if you work at workstation 4 in a process at the core of the value chain, you will make sure that the work you do is absolutely impeccable before you release it to your “customer” in workstation 5.

6. Slide 9-6 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition The Value Chain Slide 4 of 4 Managing the Supply Chain –The concept of supply chain management extends the economic concept of value chain. –One of the most significant aspects of the value chain is the linkage between a series of suppliers and consumers. –This linkage is especially tenuous because it involves the complex interaction of logistics, systems, and human behavior.

7. Slide 9-7 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supplier Partnering Slide 1 of 5 Supplier Partnering Concept –Several approaches to improving suppliers result in what is called supplier partnering. –Inspired by JIT purchasing approaches learned from Japanese industry, supplier-partner relationships have emerged that treat suppliers as de facto subsidiaries of the customer organization.

8. Slide 9-8 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supplier Partnering Slide 2 of 5 Supplier Development Approaches –Single sourcing –Dual sourcing –Supplier evaluation –Souring filters ISO 9000:2000 MBNQA –Supplier certification or qualification programs –Supplier development programs –Supplier audits –Partnering

9. Slide 9-9 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supplier Partnering Slide 3 of 5 Supplier Partnering Approaches –Single sourcing Refers to narrowing down the list of approved supplier for a single component to just one supplier. –Dual Sourcing Companies that are uncomfortable with using a single supplier may use dual sourcing where the number of approved suppliers is reduced to just a few. –Supplier Evaluation Is a tool used by many firms to differentiate and discriminate between suppliers. Supplier evaluations are often recorded on report cards in which potential supplier are rated on criteria such as quality, technical capability, or ability to meet schedule demands.

10. Slide 9-10 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supplier Partnering Slide 4 of 5 Supplier Partnering Approaches –Sole-Source Filters That are used in many companies rely on external validation of quality programs. Two of the most common filters are the Baldrige criteria and ISO 9000:2000. –Supplier Evaluations Many companies perform lengthy inspections of their suppliers. These programs are often called supplier certification or qualification programs if the focus is entirely on evaluation. –Supplier Development If the focus is on helping the supplier improve, then the programs are called supplier development programs.

11. Slide 9-11 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supplier Partnering Slide 5 of 5 Supplier Partnering Approaches –Supplier Audit Similar to supplier certification except that a team of auditors visits the supplier and then provides results to the customer. Performed to ensure that product quality and procedural objectives are being met. Tend to not have the developmental component that is found in supplier development programs.

12. Slide 9-12 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition

13. Slide 9-13 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Electronic Data Interchange –Is a system that aids customer and supplier communication by linking together supplier and customer information systems. –Customer now are helping suppliers to isolate bottlenecks in operations, balance production systems, and reduce setup times in an effort to reduce lead times.

14. Slide 9-14 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Supply Chain Priorities Table depicts relative priorities between auto assemblers, their direct suppliers and their indirect suppliers. Ranks Auto Assemblers Importance Direct Suppliers Importance Indirect Suppliers Importance Factors Consistency111 Reliability233 Relationship322 Technological capability444 Flexibility554 Price666 Services777 Finances888

15. Slide 9-15 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition A Supplier Development Program: QS 9000 QS 9000 –A supplier development program developed by a Chrysler/Ford/GM supplier requirement task force. –The task force was impaneled to develop standard reference manuals, reporting formats, and technical terminology. –The goal of QS 9000 is to enhance quality systems for suppliers while eliminating redundant requirements and reducing costs.

16. Slide 9-16 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 1 of 10 RequirementSection Number Management responsibility4.1 Quality system4.2 Contract review4.3 Design control4.4 Document and data control4.5 Purchasing4.6 Control of customer-supplier product4.7 Product identification and traceability4.8 Process control4.9 Inspection and testing4.10

17. Slide 9-17 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 2 of 10 RequirementSection Number Control of inspection, measuring, and test equipment4.11 Inspection and test status4.12 Control of nonconforming product4.13 Corrective and preventive action4.14 Handling, storage, packaging, preservation, and delivery4.15 Control of quality records4.16 Internal quality audits4.17 Training4.18 Servicing4.19 Statistical techniques4.20

18. Slide 9-18 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 3 of 10 Management Responsibility –Supplier management is responsible for defining and documenting its policies for quality along with its objectives and its level of commitment. Quality System –The supplier firm is required to establish, document, and maintain a quality system so that the product conforms to requirements. Contract Review –The supplier examines the steps associated with contracting with its own suppliers.

19. Slide 9-19 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 4 of 10 Design Control –This standard focuses on designing processes. To meet requirements, suppliers establish and maintain procedures for controlling the design of the product. Document and Data Control –Includes the procedures or approvals used in issuing documents and data and making changes to such data. Purchasing –To satisfy requirements for purchasing, the supplier must establish and maintain documents of procedures to ensure that purchased products conform to specified standards.

20. Slide 9-20 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 5 of 10 Control of Customer-Supplied Product –The standard for this part of the QS 9000 standard is worded as follows, “Suppliers must establish and maintain documented procedures for the control of verification, storage, and maintenance of customer- supplied product provided for incorporation into supplies or for related activities.” Product Identification and Traceability –QS 9000 requires documented procedures for product traceability during all stages of the production process.

21. Slide 9-21 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 6 of 10 Process Control –The element relating to process control establishes that suppliers identify and plan the production, installation, and servicing processes that result in quality products. Inspection and Testing –These activities are put in place to ensure that specified requirements for products are met. Control of Inspection, Measuring, and Test Equipment –Suppliers must establish and document procedures to control, calibrate, and maintain test equipment.

22. Slide 9-22 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 7 of 10 Inspection and Test Status –The QS 9000 standard requires that inspection test status be maintained throughout the production process, installation process, and service processes of the product. Control of of Nonconforming Product –When nonconforming products are produced, they can be reworked to meet specified requirements accepted with or without repair concessions regraded for alternative applications rejected and scrapped.

23. Slide 9-23 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 8 of 10 Corrective and Preventive Action –When problems result in defective products, a standard process for addressing them is needed so that corrective and preventive action can take place in a disciplined way. Handling, Storage, Packaging, Preservation, and Delivery –This standard addresses logistics and inventory control. –Among the areas to be documented are inventory control methods, such as models, the way inventory turnovers are optimized and how inventory levels are minimized.

24. Slide 9-24 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 9 of 10 Control of Quality Records –The records control standard states that the supplier must establish and follow documented procedures for identifying, collecting, indexing, accessing, filing, storing, maintaining, and disposing of quality-related records. Internal Quality Audits –Suppliers are required to perform internal quality audits to ensure compliance with QS 9000 requirements.

25. Slide 9-25 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition QS 9000 Requirements Slide 10 of 10 Training –A supplier firm must have documented procedures for assessing training needs and for training all personnel who might impact a company’s quality. Servicing –This requirement states that servicing efforts should meet the customer’s specified requirements. Statistical Techniques –SPC and process capability measures must be maintained. Appropriate statistical techniques are chosen during advanced quality planning and must be maintained in the control plan.

26. Slide 9-26 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Reflecting on QS 9000 QS 9000 is fundamentally different from ISO 9000. QS 9000 is specifically designed to help automakers prove they have standardized processes for dealing with their customers. There is much more guidance given to suppliers in the QS 9000 standard.

27. Slide 9-27 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Acceptance Sampling Slide 1 of 4 Acceptance Sampling –Technique used to verify that incoming goods from a supplier adhere to quality standards. –Acceptance sampling inspection can range from 100% of the delivery to a relatively few items from which the receiving firm draws inferences about the whole shipment.

28. Slide 9-28 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Acceptance Sampling Slide 2 of 4 Examples of when acceptance sampling might be needed When dealing with new or unproven suppliers. During start-ups and when building new products. When products can be damaged in shipment. When dealing with extremely sensitive products that can be damaged easily. When products can spoil during shipment. When problems with a certain supplier have been noticed in the production process that bring the supplier’s performance into question.

29. Slide 9-29 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Acceptance Sampling Slide 3 of 4 Acceptance Sampling Fundamentals –We define acceptance sampling as a statistical quality control technique used in deciding to accept or reject a shipment of input or output. Producer’s and Consumer’s Risk –Producer’s risk is the risk associated with rejecting a lot of materials that has good quality. –Consumers risk is the risk associated with accepting a lot of materials that has poor quality.

30. Slide 9-30 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Acceptance Sampling Slide 4 of 4

31. Slide 9-31 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 1 of 8 Acceptable Quality Level (AQL) –The maximum percentage or proportion of nonconformities in a lot or batch that can be considered satisfactory as a process average. Lot Tolerance Percent Defective (LTPD) –The level of poor quality that is included in a lot of goods.

32. Slide 9-32 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 2 of 8 n and c –Assignment of AQL, LTPD, alpha and beta is a management decision for the most part. –These values define the sampling plan n = the sample size of a particular sampling plan c = the maximum number of defective pieces for a sample to be rejected

33. Slide 9-33 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 3 of 8 OC Curves –The operating characteristic (OC) curve provides an assessment of the probabilities of acceptance for a shipment, given the existing quality of the shipment. –Constructed to show the probability of accepting individual lots. –Higher values of c lead to higher probabilities of accepting bad shipments (consumer’s risk). –Higher values of n create a greater confidence that a good shipment has been accepted.

34. Slide 9-34 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 4 of 8 Pa P’ 1.00.01.02.03.04 Lot fraction nonconforming Probability of acceptance

35. Slide 9-35 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 5 of 8 Various OC Curves Figure 9.4

36. Slide 9-36 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 6 of 8 Building an OC Curve –Binomial distribution –Poisson distribution. Estimating AQL and LTPD –OC curves can be used to estimate both AQLs and LTPDs. The figure on the next slide (Figure 9.8 in the text) shows an OC curve for a single sampling plan with n = 50 and c = 1.

37. Slide 9-37 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 7 of 8 OC Curve of Single Sampling Plan n = 50 and c = 1 Figure 9.8

38. Slide 9-38 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Statistical Sampling Techniques Slide 8 of 8 More Complex Sampling Plans –Multiple sampling plans have advantages over single sampling plans. – Samples sizes will be smaller on average with the same amount of protection. Developing Double Sampling Plans –Although OC curves can be used to develop double sampling plans, the calculations to develop the OC curves are much more complex than for single sampling plans. –The textbook uses a standard approach that is used by many practitioners. The main limitation of this plan is that sample sizes must be specified, as well as AQL, LTPD, producer’s risk, and consumer’s risk.

39. Slide 9-39 © 2004 Prentice-Hall Managing Quality: An Integrative Approach; 2nd Edition Summary Summary The Value Chain Supplier Partnering Applying the Contingency Perspective to Supplier Partnering A Supplier Development Program: QS 9000 Acceptance Sampling and Statistical Sampling Techniques