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Determinants for Quality
Four factors determine the long-run quality
level of a firm’s purchased materials:
• Appropriate specifications for quality
• Selection of right suppliers
• Realistic understanding with suppliers of
quality requirements and creation of the
motivation to perform accordingly.
• Monitoring of suppliers’ quality/cost
Purchasing and quality control
For every transaction between customer and
supplier, they need to agree on:
the basic requirements of the transaction.
the way in which the requirements are to be
how to check that the requirements are
the measures to be taken when the
requirements/expectations are not met.
Quality, Suitability and
What is Quality:
Quality in the simplest sense, refers to the ability of the supplier to provide
goods and services in conformance with specifications. Or performs in actual
use to the expectations of the original requisitioner, regardless of conformance
We speak of a quality product or quality service when both supplier and
customer agree on requirements and these requirements are met.
Suitability refers to the ability of a material, good, or service to meet the
intended functional use. In a pure sense, suitability ignores the commercial
considerations and refers to fitness for use.
Reliability is the mathematical probability that a product will function for a
stipulated period of time.
From procurement stand point, Penalties or premiums may be assessed for
variation from design standard depending on the expected reliability impact.
Close cooperation between buying and selling organizations can overcome quality
problems which stem from goods and services supplied by suppliers.
Quality is a complex term, has at least 8 dimensions.
1. Performance: the primary function of the product or service.
2. Features: the requirements.
3. Reliability : the probability of failure within a specified time period.
4. Durability. The life expectancy.
5. Conformance: The meeting of specifications.
6. Serviceability: The maintainability and ease of fixing.
7. Aesthetics: The look, smell, feel and sound.
8. Perceived quality: The image in the eyes of the customer.
From a procurement point of view, the ninth dimension should be “procurability” –
the short – and long-term availability on the market at reasonable prices and
subject to continuing
The cost of quality
30 to 40 per cent of final product cost may be
attributable to quality.
1) Prevention costs - the costs of preventing quality errors
2) Assessment costs - the costs related to the timely recognition of
3) Correction costs - the cost that result from (rectifying) mistakes
Internal error costs: result from mistakes noticed in time
External error costs: are result of flaws identified by the
Quality assurance concerns keeping methods and procedures of quality control
up to date
The purpose of supplier quality assurance is improvement of supplier quality in
the broadest sense, including environmental and sustainability aspects.
Quality assurance group plays a key role in supplier certification.
Quality Assurance survey (supplier’s equipment, facilities , personnel , systems)
on the supplier’s premises - to ensure that the supplier is capable of meeting
the specifications and quality standards required
Methods for assessing a supplier’s capabilities:
Provides an image of the degree in which a company succeeds in making
everything run perfectly by inspecting final products.
A systematic investigation of the extent to which the (technical) processes are
capable of meeting the standards.
Compares the quality system to external standards (e.g. ISO 9000)
Assessing supplier quality
Guidelines for selection and application of ISO 9000 through 9004
Requirements concerning quality control in purchasing, development,
production and sales
Requirements concerning quality control in purchasing, production and
Requirements concerning quality control of final inspection and testing
Guidelines for the organization of a quality system
The ISO 9000 series of quality assurance standards
TOTAL QUALITY MANAGEMENT
Total quality management --- a philosophy and system of management focussed
on customer (internal or external) satisfaction. . customer can be and is any
one in the supply chain who receives materials from a previous step in the
Four important features of TQM are:
• Quality must be integral throughout the organization’s activities with
committed and involved management.
• There must be employee commitment and empowerment to continuous
improvement supported by performance measures..
• The goal of customer satisfaction and the systematic and continuous
research process related to customer satisfaction, drives TQM systems.
• Suppliers are partners in the TQM process.
For TQM to work, all stages in the production process must conform to
specifications that are driven by the needs and wants of the end customers.
All processes, those of the buyer and the suppliers, must be in control and
possess minimal variation to reduce time and expense of inspection.
TQM involves the use of tools, such as Continuous Improvement, quality
function deployment (QFD) and statistical process control, to achieve
Continuous improvement, sometimes called by its Japanese name, kaizen, refers to
the relentless pursuit of product and process improvement through a series of small,
progressive steps. Continuous improvement should follow a well-defined and
structured approach and incorporate problem-solving tools such as
Pareto charts—used to distinquish between criticakl and trivial problems
Cause and effect diagrams(fish bone diagram)----possible causes of a problem
through brain storming to identify cause of defects
Process flow charts---for identifying bottlenecks and non value added activities.
Run pilots-to idntify whether process is subject to change or behaves consistently
Frequency histograms-shows the istribution of some variables that is thought to be
Scatter diagrams----show correlations between two variables typically the problem
and potential cause
The four integrated stages of the QFD process are:
Product planning, to determine design requirements,
Parts deployment, to determine parts characteristics.
Process planning, to determine manufacturing requirements.
Production planning, to determine production requirements.
Using the QFD methodology, buyer and supplier integration into the process can
benefit the organization by
(1) reducing or eliminating engineering changes during product development
(2) reducing product development cycle time, (
3) reducing start-up cycle time,
(4) minimizing product failures and repair costs over the product life and
(5) creating product uniformity and reliability during production.
Quality control: making sure that the requirements are met and being able to
demonstrate this objectively.
Statistical quality control.
Process capability refers to the ability of the process to meet specifications
consistently. Statistical process control (SPC) is a technique that involves
testing a random sample of output from a process in order to detect if non-
randum changes in the process are occurring.
Control charts-----upper and lower limits of process variable help in monitoring
Inspection and Testing
Inspection and testing ----- done at two different stages in the acquisition
1, Before commitment is made to a supplier,
Testing and Samples: Use of samples to test for intended purpose and
Laboratory Tests to ascertain conform ation to specific values of parameters.
2. After a purchase commitment has been made,
inspection may be required to ensure that the items delivered conform to the
original description. The type of inspection, its frequency and its thoroughness
vary with circumstances.
In setting specifications, it is desirable to include the procedure for inspection
and testing as protection for both buyer and seller.
Adjustments and Returns: The actual decisions as to what can or should be
done with material that does not meet specifications is both an engineering and
a procurement question.
What is Inventory?
Inventory is in the form 1. raw material, ,Finished/purchased parts, 2. Work in
process, 3. Finished goods, Consumables, 4.MRO items /Spare parts 5. resale
items, that are held at a location in the supply chain.
Independent demand – finished goods, items that are ready to be sold.. a
Dependent demand – components of finished products.. parts that make up the
Inventory is one of the biggest corporate assets.
One of the major areas of cost leaks is in the area of Inventory Management.
To increase profits,It is important to plug cost leaks before they become cost
It is sometimes true that a company loses more on non-availability of materal
despite high inventory investment.
Inventory control is a goldmine for saving. Understanding where (and why)
inventory should be positioned in the supply chain can improve customer
service, lower total costs, or increase flexibility
• To gain economy in purchasing
--ordering cost / set up cost minimisation
-- to avoid frequent order.
• Hoarding to prevent future price increase.
• To satisfy demand during period of replenishment.
• To carry reserve stocks to avoid stock out.
• To stabilise production and ensure smooth flow of goods through the
productive process :
- Seasonal demand vendors
- Peak and through of demand to be managed
- To levelise resource allocation
• To prevent loss of sales.
• To satisfy other business constraints.
- Condition of minimum order
- Seasonal availability.
• To provide and maintain good customer service.
Classification of inventory functions
Transit or pipeline inventories ---to stock the supply and distribution
pipelines linking an organization to its suppliers and customers as well as
internal transportation points.In just-in-time (JIT) production, the use of local
suppliers, small batches in special containers and trucks specifically designed
for side loading in small quantities used to reduce transit inventories.
Cycle inventories ----to purchase, produce or sell in lots rather than
individual units or continuously.
Buffer or uncertainty inventories or safety stocks ---to address variability
in demand . efforts to may have substantial payoffs in reduced inventories. ----
increasing supply alternatives, using local sources, reducing demand
uncertainty, reducing lead time or having excess capacity can reduce supply
variability ------ should be determined by balancing carrying cost against stock
Anticipation or certainty inventories are accumulated for a well-defined
Decoupling inventories make it possible to carry on activities on each side of
a major process linkage point independently of each other.
COSTS OF INVENTORIES
For every items carried in inventory, the costs of having it must be less than the
costs of not having it. Inventory exists for this reason alone.
Carrying, holding or possession costs include (1) capital costs(cost of
storage facilities , equipment to handle inventory), (2) inventory service
costs,(handling charges ,storage rentals, labour, and operating costs; insurance
premiums) (3) storage space costs and (4) inventory risk costs.(breakage;
Ordering or purchase costs include the managerial, clerical, material,
telephone, mailing, fax, e-mail, accounting, transportation, inspection and
receiving costs associated with a purchase or production order.
Setup costs refer to all the costs of setting up a production run.
Stock out costs are the costs of not having the required parts or materials on
hand when and where they are needed. They include lost contribution on lost
sales (both present and future), change over costs necessitated by the shortage.
Variations in delivered costs are costs associated with purchasing in
quantities or at times when prices of delivery costs are higher than at other
Indicators of poor Inventory
• Stock on hand is high compared to lead time * average consumption
• Frequent stock outs
• Backlog of orders or frequent failure of delivery commitments of high turn
over of customers due to cancellations.
• Uniform inventory policy to different items
• Adhoc policy on minimum stock maintenance
• Uneven production with frequent lay offs and over time working or break
down due to
• Non-availability of spare parts.]
• Discrepancies in stock counts.