The Role of Quality in Supply Management

1. Materials ManagementBUS 3 – 141Quality and Specification Leveraging Technical Excellence Week of Aug 30, 2011

2. The Role of Quality in Supply Management

3. How this Course supports Supply Chain Objective & Process The Right PRICE The Right SERVICE paying The Right SUPPLIER and The Right PLACE with the The Right TIME at the The Right QUANTITY at the The Right QUALITY with the

4. Quality Defined Eight (8) Quality Dimensions * • Performance • Features • Reliability • Durability • Conformance to specifications • Serviceability • Aesthetics • Perceived quality in the eyes of the Customer * From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

5. Basic Assumptions The HIGHER the Quality, the higher the Customer Service, the lower the Inventory, and the lower the Cost The LOWER the Quality, the lower the Customer Service, the higher the Inventory, and the higher the Cost

6. Highest Level Supply Chain Objective Revenue Utilization of Assets (People, Plant, Equip) Cash Inventory BALANCING keeping Customers completely satisfied and Resources optimally utilized ……. against spending the least amount of Cash and carrying the least amount of Inventory

7. Variability requires Inventory to Compensate Supply Demand • Forecast variance • Market Conditions • Global Supply (Allocation) • Competitor Pricing • Competitor Supply • Customer Returns (Quality) • Other • Build variance • Scrap • Rework • Shortages • Delays • Other Requires excess Finished Goods and component Inventory to eliminate (minimize) impact on Customers

8. Illustration of Process Capability vs. Product Specifications The Supplier is likely to produce conforming parts all the time 36 USL UCL 34 32 X Key Characteristic (dimension, functionality, delivery, etc..) 30 28 LCL 26 LSL 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Observation

9. Illustration of Process Capability vs. Product Specifications The Supplier is likely to produce a quantity of non-conforming parts 36 UCL 34 USL 32 X Key Characteristic (dimension, functionality, delivery, etc..) 30 LSL 28 LCL 26 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Observation

10. If a Supplier CAN miss, the Supplier WILL miss! Applying Process Capability to Supplier Selection • If a Supplier’s process consistently meets or exceeds Customer Specifications, consider the following: • Increasing spend on the items (if not Single Source) • Introducing new items to be supplied • Partnerships and collaborative design where appropriate • If a Supplier’s process misses Customer Specifications, consider: • Changing the Supplier • Changing the Specification (when possible) • Improving the Supplier (if business case justifies)

11. Other Quality Considerations • Quality is relevant far beyond product characteristics and specifications (e.g. delivery, paperwork, billing, responsiveness, etc..) • The cost of mitigating the effects of poor quality is much higher than the cost to prevent poor quality…. “Get it right the first time” • Relying on Inspection to prevent poor quality items from reaching Customers or the production line will inevitably fail. Some percentage will always escape through • Quality is a key determinant in Supplier Selection: • Partnering with key suppliers as single source providers • Use of approved Suppliers • Qualifying Suppliers While understanding all the complexities of Quality Management and Statistical Process Control may be out of scope to Materials Management practitioners, an understanding of the critical importance of Product Quality cannot be overlooked. It is important to partner with Quality Management experts to assure that all technical and quality aspects are optimized with Suppliers

12. EstablishingProduct Specifications

13. Selected Methods of Description • By Brand • Predictable quality • Can be expensive • Limits ability to source other Suppliers • Specification • Physical or Chemical characteristics (most common) • Material and Manufacturing Method • By performance or function (focus is on results or end use) • Engineering Drawings • Blueprints • CAD output • Requires Non-Disclosue Agreements (NDA) • Protection of Intellectual Property

14. The Standardization Challenge Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers, drive efficiencies in design, and provide other benefits BUT… Unique parts often differentiate products and performance, and can provide competitive advantage to the seller

15. The Impact of Materials Specifications on Life Cycle Costs* The Initial Development & Design is the biggest factor in Life Cycle spend 100% 90% 80% 70% 60% % of Dollars COMMITED to the Item 50% 40% 30% 20% While volume buying takes place to support full scale production 10% 0% 0 1 2 3 4 5 6 7 8 % of Dollars SPENT on the Item over Time * For illustration only; numbers are approximations

16. Other Design and Spec Considerations • Decisions made EARLY affect Dollars spent LATER • Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly) • Several software applications are available to enable designers to re-use existing components when developing new products • CAD systems are integrated with Component and Supply Management systems to minimize the amount of new Items introduced • CAD systems are integrated with Quality systems to capture performance and reliability data to determine suitability for re-use in future products • Partnering with proven Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost • Expertise in analyzing requirements and generating a list of new product ideas • Understanding of the manufacturing costs, with the dollar impact of alternative design concepts and components