Supply base quality

David M. Lyth, Ph.D., CQE

Department of Industrial and Manufacturing
Engineering
Western Michigan University

Copyright, David M. Lyth, WMU

Purchasings impact on quality

Purchased goods and services

Total organizational revenue

Source: U.S. Census of Manufacturers

Copyright, David M. Lyth, WMU

= 65%

ASQs take on things

Specifications for the manufacture of a product or the
delivery of a service are a translation of these features
and characteristics into manufacturing or performance
terms.
The features and characteristics often are considered in
relationship to the design and specification of the
product or service to the conformance of the product or
service

Copyright, David M. Lyth, WMU

Fundamental Research
PISI Model
(Reck & Long)

Loose vs. tight

relationships
(Monczka and
Landeros)

Copyright, David M. Lyth, WMU

Basic Issues

Source

selection

Specifications

Supplier Rating

Supply Base Management
Copyright, David M. Lyth, WMU

Source Selection
Identify need
(operational, capital)
Identify potential
suppliers
Select suppliers

Copyright, David M. Lyth, WMU

Types of suppliers
Partners critical to
firms success

Certified known level
of performance, dont
need to inspect

Approved need to
pay attention to what
they provide you, but
they are capable

ISO-9000
Copyright, David M. Lyth, WMU

Specifying product
characteristics

Brand

or trade name

Samples

Standard Specification

Design Specification

Performance Specification

Copyright, David M. Lyth, WMU

Specifying product
characteristics brand name
Easily described

Limited competition

Easily purchased

Higher prices

Readily available

Miss competitor

Facilitate obtaining
improvements
special workmanship

Promotional pull of
brand name

Avoid testing

Assurance of quality

Copyright, David M. Lyth, WMU

Specifying product
characteristics - Samples

Easy
communication of
requirements

May required
detailed test and
inspection

No definite
standards

Copyright, David M. Lyth, WMU

Specifying product
characteristics Standard
specifications

Facilitate communication
Avoid cost of developing
specifications
Wide competition
Facilitates standardization
Readily available materials

Specifications may be dated

May require expensive
processing
High test costs
Purchaser has responsibility
for suitability
Standardized material may
conflict with marketings
desire for differentiation

Copyright, David M. Lyth, WMU

Specifying product
characteristics Design
specifications

Avoid sole source

Avoid premium prices
Facilitates
standardization
program

Expensive to prepare
Purchaser responsible
for adequacy of
specification
Miss latest technology
Higher cost than
standard item
Less readily available
More expediting
problems
Late deliveries
Larger inventories

Copyright, David M. Lyth, WMU

Specifying product
characteristics performance
specifications

Possible loopholes
Easily prepared
in
specifications

Gain latest

Decrease breadth of
technology
competition

Obtain specified
level of performance

Increased depth of
competition

Copyright, David M. Lyth, WMU

Specifications - additional
concerns
Product--reliability, tolerances,
acceptance/rejection criteria, user instructions

Analytical manufacturability, capability to
inspect, specifications of materials, Cpk

Raw material source, certifiable, traceability

Quality Management MIL-Q-9858A, ISO9000, FDA-GMP

Copyright, David M. Lyth, WMU

Reck & Longs PISI model

A classification system which categorizes
purchasing systems based on their degree of
sophistication

It addresses the contribution made by
purchasing to the firms competitive strategy

Organizations show different levels of
maturity based on different characteristics

Copyright, David M. Lyth, WMU

Reck & Longs PISI model

A classification system which categorizes
purchasing systems based on their degree of
sophistication

It addreses the contribution made by
purchasing to the firms competitive strategy

Organizations show different levels of
maturity based on different characteristics

Copyright, David M. Lyth, WMU

Reck & Longs PISI model

Integrative
Supportive

Independent

Passive
Copyright, David M. Lyth, WMU

Reck & Longs PISI model

Passive

Purchasing function has no strategic direction and

primarily reacts to the requests of other functions

Independent

The purchasing function adopts the latest

purchasing techniques and practices, but its
strategic direction is independent of the firms
competitive strategy

Supportive

The purchasing function supports the firms

competitive strategy by adopting purchasing
techniques and practices which strengthen the firms
competitive position

Integrative

The firms competitive success rests, in part, on the

purchasing functions expertise and maturity.
Purchasing is a top management peer and it
contributes to the success of the organization by
participating in its choice of strategic direction
Copyright, David M. Lyth, WMU

Monczka & Landeross LooseTight Model

Open Market Cooperative
Buyer/Seller
Relationship

Vertical
Integrations

Supply pool

Numerous
suppliers

One supplier

Alliance

Credible
threat

Credible
commitment

Dispute
resolution

Unyielding
negotiations

Managerial
tradeoffs

Information
exchange

Minimal

Great

Marketplace
Adjustment

Separate

Joint

Copyright, David M. Lyth, WMU

COOPERATIVE BUYER/SELLER RELATIONSHIPS

 Award larger contracts, provide future production
schedules, exchange information, use preferred suppliers
 Supplier can justify use of automation, maintain smoother
production schedule, advise on product/process
developments, identify unnecessary product/process
costs
 Preferred supplier can offer volume discounts due to
economies of scale, plan long term expenditures, better
understand purchase requirements
 Reduces production cost of preferred supplier

Copyright,
DavidTO
M. Lyth,
WMU
LOWER PURCHASED
PRICE
THE
BUYING FORM

COOPERATIVE BUYER/SELLER RELATIONSHIPS

 Use preferred suppliers design capabilities, research

and development activities and participate in joint
product development
 Preferred supplier can develop product/process
innovations, expand R & D, jointly develop
product/process innovations
USE PRODUCT/PROCESS INNOVATIONS TO FURTHER
DIFFERENTIATE THE BUYING FIRM

Copyright, David M. Lyth, WMU

Supplier Rating Systems

Requirement of many standards, requirement of
good supply base management
Incorporate PISI model into system design
Track performance based on standard measures
Quality
Cost
Delivery
Service
Flexibility
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What motivates you to

evaluate supplier
1.
2.
3.
4.

Regulatory agency requirements

Part of PDCA
Good to give feedback on system
Integral part of supply management program

Copyright, David M. Lyth, WMU

Performance measures

Price

Image

Efficiency

(Operational)

Efficiency (Administrative)

Effectiveness (Requested)

Effectiveness (Initiated)

Copyright, David M. Lyth, WMU

Price
Criteria

Zone
1

Zone
2

Zone
3

Zone
4

Offers competitive prices

Maintains stable prices

Copyright, David M. Lyth, WMU

Image
Criteria

Zone
1

Zone
2

Zone
3

Zone
4

Fair and honest in dealings

Keeps promises

Exhibits desire for business

Exhibits favorable attitude

Provides reliable sales staff

Copyright, David M. Lyth, WMU

Efficiency (operational)
Criteria

Zone
1

Zone
2

Zone
3

Zone
4

Consistent delivery

Conformance to quality
specifications

Offers technical assistance

Solves problems quickly

Initiates cost reduction ideas

Helpful in emergencies

Advises of potential problems

Supplies special reports

Provides product in time of

shortage

Follows up problems voluntarily

Copyright, David M. Lyth, WMU

Efficiency (Administrative)
Criteria

Zone 1

Zone 2

Zone 3

Zone 4

Handles rejections promptly and efficiently

Handles routine documents promptly and

efficiently

Complies with procedures

Helpful in overcoming errors

Answers all communications promptly

Delivers without constant follow-up

Adheres to order quantities

Handles complaints quickly

Responds to requests promptly

Provides sales staff as needed

Provides knowledgable sales staff

Sales calls useful and frequent

Copyright, David M. Lyth, WMU

Effectiveness (Requested)
Criteria

Zone
1

Zone
2

Zone
3

Zone
4

Provides value analysis

assistance

Provides aid in problem

solving

Copyright, David M. Lyth, WMU

Effectiveness (Initiated)
Criteria

Zone
1

Zone
2

Zone
3

Zone
4

Aids new product development

Expands capabilities to meet

long term needs

Copyright, David M. Lyth, WMU

Supplier Rating System Model

Competitive
Strategy

Stage of Purchasing
Development

Supplier
Performance

Primary
Criteria

Rating
Criteria

Screening
Decision

Applicable Performance
Rating Criteria

Secondary Screening
Decision

Products Components and

Service Mix

Focused Performance
Rating Criteria

Supplier Rating System

Design

Mathematical and
Statistical Models

Copyright, David M. Lyth, WMU

What else is there to control?

Supplier Assessments
Product Assessment

Quality Process
Assessment

Compliance and
Compliance focused
Improvement
Use a checklist to
report product/service Use checklist as a
tool.
compliance with
specifications.
Focuses on quality
Data collected is
systems, e.g. second
tier supplier control,
based on drawing or
corrective action,
performance
specification
type of inspection
throughout system,
records

Copyright, David M. Lyth, WMU

Manufacturing
Process Assessment
Compliance and
improvement
Technical report
providing results and
recommendations
Address
manufacturing
responses to CAR
Look at overall
improvement of
processes

Supplier certification
A certified supplier is one who, based on
history and objective evidence, is found
to be capable of performing at a level of
service that no longer requires any
verification activities on our part (the
customer),
John O. Brown, Quality Progress, January
1998
Copyright, David M. Lyth, WMU

Certification Steps
1. Define the measurable aspects of the service in customer
terms.
2. Commence measurement.
3. Meet with supplier and share initial results.
4. Gain agreement on measures and measurements.
5. Commence setting of acceptable performance levels or
tolerances jointly with the supplier.
6. Set improvement goals.
7. Perform ongoing measurement.
8. Develop certification plan.
9. Include subjective factors for discussion.
10. Gain certification/recognition.
11. Renew certification status.
Copyright, David M. Lyth, WMU

Typical criteria for certification

High

quality

Cost efficiency

Precise delivery

Strive for long-term partnership

Copyright, David M. Lyth, WMU

Why bother?
Advantages

Disadvantages

Marketing tool
Procurement inclusion
Network opportunities
Less Inspection/Cost
Savings
Increase profitability and
customer satisfaction
Long term relationship
with suppliers

High Cost
Time Consuming
Documentation
Requires employee
support

Copyright, David M. Lyth, WMU