STRATEGIC SOURCING & SRM

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CHAPTER-5: Supplier Quality Management

5.1 Introduction: Supplier quality management
5.1 Introduction: Supplier quality management
• Before discussing supplier quality, we should define the generic term “quality.”
• One renowned quality expert, Armand Feigenbaum, defines quality as:

• This definition differs from other popular definitions that typically view quality as primarily conforming to
customer requirements:

• In recent years, the concept of quality has changed radically from meeting customer requirements or expectations
to exceeding them.
5.1 Introduction…
Supplier quality represents the ability to meet or exceed current and future
customer (i.e., buyer and eventually end customer) expectations or requirements
within critical performance areas on a consistent basis.
• There are three major parts to this definition:
5.1 Introduction…
Confidence in a supplier’s ability to deliver a good or service that will satisfy
the customer’s needs. Achievable through interactive relationship between
the customer and the supplier, it aims at ensuring the product’s ‘fit’ to the
customer’s requirements with little or no adjustment or inspection.
 5.1 Introduction…
• Part of supply management’s role in supplier quality management involves being a good customer to
its suppliers.
• It is difficult to maintain a trusting and collaborative relationship and receive quality goods and services when
suppliers do not enjoy doing business with the buying company.
• For this reason, supplier quality performance requires that a buyer learn how to become a preferred
customer by understanding what suppliers appreciate in a buyer-seller relationship .
• Some of the expectations that suppliers have within a supply chain relationship include:
• minimizing product design changes once production begins,
• providing visibility to future purchase volume requirements, and
• sharing early access and visibility to new product requirements.
Suppliers also value:
• adequate production lead time,
• ethical treatment from the buyer, and
• accurate and timely payment of invoices. .
• Buyers should also strive for negligible changes in purchase orders after sending material releases
to suppliers to alleviate supply disruptions.
• A buyer cannot expect the highest levels of supplier performance when the supplier must respond to
frequent or short-lead-time changes.
• Stability allows a supplier to minimize its costs and effectively plan on the basis of timely and consistent buyer
information.
• Frequent changes limit a supplier’s ability to meet the buyer’s expectations, including quality requirements, in
a timely and consistent manner, as well as increasing the supplier’s costs.
• Supply management plays a central role in ensuring that its suppliers perform in a defect-free manner.
5.1 Introduction…
• Under
 5.2 Factors affecting Supply mgt’s role in managing supplier quality
• Supply management must assume primary organizational leadership for managing quality with its external suppliers.
• A number of factors influence how much attention supply management should commit to managing supplier quality:
5.3 Supplier Quality Mgt using a TQM perspective
• Supply management professionals at all organizational levels must fully understand and commit themselves
to the principles of total quality management if they expect to create upstream value in the supply chain
that benefits downstream customers.
• Exhibit 8.1 presents an integrated set of quality principles based on the thinking of W. Edwards Deming,
Philip Crosby, and Joseph Juran.
• The following slides present each principle along with a selected (but certainly not compressive) set of
activities that, if fully put into place, will help ensure that firms truly practice TQM in their pursuit of superior
supplier quality.
5.3 Supplier Quality Mgt using a TQM perspective…
• Su
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5.3 Supplier Quality Mgt using a TQM perspective…
• Su
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5.3 Supplier Quality Mgt using a TQM perspective…
• Su

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5.3 Supplier Quality Mgt using a TQM perspective…
• Su
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5.3 Supplier Quality Mgt using a TQM perspective…
• Su
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5.3 Supplier Quality Mgt using a TQM perspective…
• Su

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5.3 Supplier Quality Mgt using a TQM perspective…
• Su

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5.3 Supplier Quality Mgt using a TQM perspective…
• Su
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5.4 Pursuing Six Sigma Supplier Quality
• Su
5.4 Pursuing Six Sigma Supplier Quality…
• Su
5.4 Pursuing Six Sigma Supplier Quality…
• Su

6
 Defects Per Million Opportunities (DPMO)
• Earlier it was noted that a literal interpretation of Six Sigma is 3.4
defects per million opportunities (DPMO). This may have caused
some confusion for more statistically inclined readers, which we shall
now attempt to reconcile.

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DPMO for Alternative Process Sigma Levels

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Motorola’s Assumption the Process Mean Can Shift
by as Much as 1.5 Standard Deviations

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Comparison of 3 Sigma Process and 6 Sigma Process

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 3 Sigma and 6 Sigma Quality

Lower Upper
specification specification

1350 ppm 1350 ppm

1.7 ppm 1.7 ppm

Process
mean
+/- 3 Sigma

+/- 6 Sigma
3 Sigma and 6 Sigma Quality

Lower limits Upper limits

2,700 defects/million

3.4 defects/million

Mean

±3
±6
A Brief History of Six Sigma
• The Six Sigma concept was developed by Bill
Smith, a senior engineer at Motorola, in 1986 as a
way to standardize the way defects were tallied
and process quality was defined.
• Sigma is the Greek symbol used in statistics to
refer to standard deviation which is a measure of
variation.
• Adding “six” to “sigma” combines a measure of
process performance (sigma) with the goal of
nearly perfect quality (six).

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Six Sigma – Meaning & Terminology

• Six Sigma - A business management strategy for improving the quality

of process outputs by identifying and removing the causes of defects
and variation in the processes.
• Striving for failure rates less than 3.4 out of one million
possibilities
• Sigma- A Greek letter (σ) that is used to represent standard deviation, a
measure of variation in a statistical population.
• The term is used in Six Sigma methodology process to represent
99.9997% consistency—six standard deviations between the process
mean and the nearer of two specification limits.
• Defects per million opportunities (DPMO) - A standard measurement in
Six Sigma methodology, used to facilitate measurement and
comparison of processes.
• Defect - Any undesired result or any variation in a required
characteristic that does not conform to requirements.
• Opportunity - Any area within a product, a service, or a process in
which a defect could occur.
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The term ‘sigma’ (σ) is used in statistics to measure variation from the mean; in a
business context the higher the value of sigma the more capable the process of
delivering an output within customer specifications. The diagram below illustrates the
difference between two processes: one with a low capability and the other with six
sigma capability.
5.4 Pursuing Six Sigma Supplier Quality
• Su
5.4 Pursuing Six Sigma Supplier Quality
 •
The DMAIC Improvement Process

• Six Sigma projects generally follow a well defined

process consisting of five phases.
• define
• measure
• analyze
• improve
• control
pronounced dey-MAY-ihk

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5.5 Using ISO Standards to Assess Supplier Quality Systems

• International Organization for Standardization - Geneva Switzerland


• “Isos” Greek for equality
• Management standards
• May be a requirement of doing business
• Most recent standard - ISO9000:2000
ISO 9000: 2000

• Created by International Organization for Standardization (IOS) which was

created in 1946 to standardize quality requirement within the European market.
• IOS initially composed of representatives from 91 countries: probably most wide
base for quality standards.
• Adopted a series of written quality standards in 1987 (first revised in 1994, and
more recently (and significantly) in 2000).
• Prefix “ISO” in the name refers to the scientific term “iso” for equal. Thus,
certified organizations are assured to have quality equal to their peers.
• Defines quality systems standards based on the premise that certain generic
characteristics of management principles can be standardized.
• And that a well-designed, well-implemented and well managed quality system
provides confidence that outputs will meet customer expectations and
requirements.
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 ISO 9000

• Guidelines for designing, manufacturing, selling, and servicing

products.
• Selecting an ISO 9000 certified supplier provides some assurance that
supplier follows accepted business practices in areas covered by the
standard.
• Required by many companies, esp. in Europe, before one can be a
supplier.

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ISO 9000:2000
• A set of procedures and
policies for international
quality certification of
suppliers
• Standards
• ISO 9000:2000
• Quality Management
Systems—Fundamentals
and Vocabulary
• defines fundamental
terms and definitions used
in ISO 9000 family
• ISO 9001:2000
• Quality Management Systems—
Requirements
• standard to assess ability to
achieve customer satisfaction
• ISO 9004:2000
• Quality Management Systems—
Guidelines for Performance
Improvements
• guidance to a company for
continual improvement of its
quality-management system
ISO 9000: 2000 structure

• Consists of three documents

1. ISO 9000:2000 – Fundamentals and vocabulary.

2. ISO 9001:2000 – Requirements.

Organized in four sections: Management Responsibility; Resource Management;
Product Realization; and Measurement, Analysis and Improvement.

3. ISO 9004:2000 – Guidelines for performance improvements.

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ISO 9000: 2000 Quality Management Principles
ISO 9000: 2000 registration

• Originally intended to be a two-party process where the supplier is audited by its

customers, the ISO 9000 process became a third-party accreditation process.
• Independent laboratory or a certification agency conducts the audit.
• Recertification is required every three years.
• Individual sites – not entire company – must achieve registration individually.
• All costs are to be borne by the applicant.
• A registration audit may cost anywhere from $10,000 to $40,000.
(more information at http://www.iso.ch)

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ISO 14000
• Series of standards covering environmental management
systems, environmental auditing, evaluation of environmental
performance, environmental labeling, and life-cycle assessment.
• Intent is to help organizations improve their environmental
performance through documentation control, operational
control, control of records, training, statistical techniques, and
corrective and preventive actions.

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 Malcolm Baldrige Award

• Established in 1987 to promote better quality

management practices and improved quality results by
American industry.
• Named for Malcolm Baldrige, former Secretary of
Commerce
• Criteria and points (See Table 4.10 and the Web site:
http://baldrige.org/)

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The Malcolm Baldrige National Quality
Award

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