Global Supply Chain Management

1. Global Supply Chain Management

2. Chapter #13 Developing High-Quality Logistics Systems

3. The Logistics System

4. Overview • We will define quality • We will discuss quality delivered to both internal and external customers • We will relate customer value to quality as a function of culture/region in the global market • We will examine approaches to quality management • We will discuss quality of logistics functions specifically and related costs • We will introduce the international quality standard, ISO9000

5. Quality • Quality means different things to different customers and must be defined in terms that relate to the customer’s desired “value” • Our concept of quality, that is the firm’s definition, may be totally different from our customers’ • Internal • External • Quality is relative • Quality is a moving target that must be constantly tracked

6. Quality Concepts: Internal View • Recent emphasis on work improvement focuses on internal processes rather than functional effectiveness (TQM) • Deming and the Union Of Japanese Scientists and Engineers (1949) (Juran, Crosby, Hammer, etc.) • Emphasis on a customer focus, internal/external • Focuses on processes • Stressed leadership and team work • Goal was to reduce process variation

7. Quality Concepts: Internal View The Deming Circle

8. Quality Concepts: Internal View Juran’s Quality Wheel

9. Quality Concepts: Internal View • Crosby’s 14 quality steps emphasized zero-defects through: • Management commitment • Teamwork • Training • Adequate measurement

10. Quality Concepts: Internal View • Hammer’s six principles for reengineering emphasized: • Business process • Information technology • Employee empowerment

11. Quality Concepts: Internal View • Objectives of reengineering are often stated as: • Improvement of critical measures of performance • Costs • Quality • Service • Speed • Etc. • By fundamental rethinking and radical redesign of business processes to achieve “breakthrough” performance for competitive advantage

12. Quality Concepts: Internal View • TQM and reengineering are one in the same today • Each effort must be enthusiastically lead by management

13. Quality Concepts: Internal View • Leadership must be characterized by vision and commitment • Senior management plays the central role of defining, motivating and communicating goals • Goals must be realistic and achievable • Management must have the commitment to stay the course

14. Quality Concepts: Internal View • Cooperation, internal and external collaboration is central to achieving quality goals • Teamwork • Employee involvement and empowerment

15. Quality Concepts: Internal View • Organizational Learning is reflected in the firm’s commitment (as in budget) to training • Work improvement concepts/skills • Analysis and teamwork training • Management training

16. Quality Concepts: Internal View • Process management is the set of practices that combine HR management and traditional analysis methodology • Identification, information and analysis of processes supported by • Benchmarking • Data availability • Statistical analysis

17. Quality Concepts: Internal View • Employee outcomes focus on the results of the work effort on those employed • Stress • Fulfillment • Economic well being • Organizational performance measures the end value of the reengineering/quality improvements • Relate back to KPIs , cost , speed, dependability, customer needs

18. Quality Concepts: External View • Customers typically define quality as value or fitness for use • Expectations may embrace quality which is not necessarily a function of the production process • After sale service • Waiting time for order/customer support • Cleanliness and politeness of people, etc. • Challenge is to reconcile external and internal views to ensure true customer satisfaction

19. Quality Concepts: External View • From the point of view of logistics, we should strive to provide “defect-free” service to our customers

20. Service Quality Model • The service quality model represents the process of customer dissatisfaction growth • Basically represents the marketing process • Customer on top/company on the bottom • Managers must • Learn what the customer expects for service • Put together the service package • Communicate the service value to the customer • Deliver the value • Model includes 5 service gaps that may occur

21. Word of Mouth Personal Needs Past Experience Communications Expected Service Customer Gap 5 Perceived Service Service Delivery External Gap 1 (including pre- and Communications to post-contacts) customers Gap 4 Gap 3 Translation of Organization perceptions into service quality specifications Gap 2 Management perceptions of customer service expectations Service Quality Model

22. Service Quality Model • Gap 5 service received different then expected • May be better or worse • If better, raise expectations, wasting money or even offending the customer • If worse, may lose the customer • Gap 1 results when management does not understand customer’s needs • Insufficient market data or badly interpreted

23. Service Quality Model • Gap 2 opens when management does know what the customer wants but won’t/can’t deliver • Customer expectations too high • Company lacks the resources to deliver • Gap 3 opens when management knows what the customer wants, develops an appropriate plan, but fails to deliver • Don’t meet cycle times • Rude employees, etc • Customer dissatisfied with the entire encounter

24. Service Quality Model • Gap 4 opens when something promised is not delivered • Delivery later than promised • Broken promise with respect to after-sale support • Etc.

25. Service Quality Model • Service marketing model is different then the product marketing mix introduced earlier • Satisfactory service results from the interaction of organization controllable and uncontrollable factors • External factors may also impact level of service the organization can deliver

26. Service Quality Model • Management’s challenge is to minimize the size and occurrence of service quality gaps • Understanding the customer’s needs • Providing the right service mix • Taking corrective action when required

27. TQM in Logistics • TQM goals with respect to logistics are • Cost reduction • Service enhancement • Increased customer satisfaction/perceived value • QC, QA and TQM • QC (quality control) is internally focused • QA (quality assurance) is externally focused • TQM focuses on quality as a competitive advantage

28. TQM in Logistics • At the focal point of any quality enhancement effort must be customer service (value) including the customer’s perception of quality

29. TQM in Logistics • Elements common to many formal quality processes include: • Emphasis on customer requirements/expectations • Measurable results from the process • Continuous improvement • Elimination of waste and rework • Measurement and concern for process variability • A total organizational commitment…beyond words • Dedication to a formal quality process

30. Developing a Quality Process • A formal quality process improves the long-term likelihood of sustainable improvement • Step 1. Make an organizational commitment • Top management must walk the talk • Should have meaningful, well-developed statements of mission, goals, measures, etc. • Step 2. Understand the customer’s needs and requirements • Seems obvious, but…. • Must specifically and scientifically understand them • Should include our supply chain partners, not just the final customer!

31. Developing a Quality Process • Step 3. Measure current levels of performance • Must acquire such information specifically and scientifically • Without something to measure, how do you know if you have made progress? • Must find performance indicators that can be measured and monitored • Step 4. Develop a quality strategy • Specific initiatives planned and time-lined • Focus on understanding customer needs • Appropriate initiatives like training, measuring performance, monitoring variability, etc.

32. Developing a Quality Process • Step 5. Implement the quality process • Must take action to change • Implementation should be smooth • Timeline, resource requirements, budget, etc. • Step 6. Continually improve the process • Process should recognize both CPI and breakthrough improvement • Like strategic planning, good quality programs have no end (Deming cycle) • Must constantly monitor customer expectations for changes and be prepared to react • Be proactive, not reactive!

33. Step 1 Organizational Commitment Step 2 Step 3 Customer needs Current level of System and requirements performance Design/redesign Step 4 Quality Strategy Step 5 Marketing Operations Implementation Strategies Strategies Step 6 Continuous Quality/Process Improvement The Quality Process

34. Success Factors • For success we must recognize and ensure that: • Senior logistics managers must believe • Every employee must accept responsibility for performing quality work • Management must earn employee’s commitment • Errors must be captured and corrected immediately

35. Success Factors • For success we must recognize and ensure that (continued): • Employees must be empowered and really know that they are • Each activity must be addressed as a process with measurable inputs and outputs…use statistics • Everyone must understand that a quality program takes time and resources to establish and see returns from

36. ISO 9000 • The ISO 9000 standards are based on sound business practice • Defined and made available in 1987 • Framework that requires each organization to define much of the structure…not prescriptive • Recognizes that even within the same industry, each organization is different • Adopted by 100+ countries • Becoming a necessary “stamp” for companies operating in the global market • Ensures that an organization has taken an inward look to improve the way they address customers.

37. ISO 9000 • Benefits of ISO 9000 compliance include: • Improved discipline, awareness of activities and contributions • Continuous process improvement institutionalized • Process analysis and reengineering emphasized • Identification and elimination or redundancy • Structured training for employees • Focus on improving customer value delivered

38. ISO 9000 • Compliance should not be viewed simply as a necessary evil • Time consuming and costly to achieve…but the payback can be tremendous

39. Cost of Quality • Quality pays…but generally costs something to achieve • Initial efforts may bring improvement without great cost • When the system is stable, improvements generally will require significant investment

40. Cost of Quality • Three types of cost associated with any quality program: • Cost of failure • Cost of prevention • Cost of appraisal • All must be considered to get a true Benefit/Cost