PURCHASING MANAGEMENT DIPLOMA LEVEL MODULE IIT KNEC CODE:2903/201 SB SHELTON 2021PURCHASING MANAGEMENT KNEC NOTES Topic1 ITRODUCTION TO PURCHASING: Definition and scope of purchasing: Purchasing is defined as a process of acquiring goods, services and works in return for a Brice. All organizations invariably need input of goods and services from external suppliersior providers and to this extent therefore, purchasing function plays an integral parpitvensuring the goods/services are provided to the company. The role and contribution ofplaccltasing has increased quite steadily over the second half of 20" century with interest in the activity taking place in the last few years. The reasons behind this paradigm shift based on importance and secdgnition of purchasing entail New management concepts ‘Advanced technology Government policies Fewer but larger suppliers ‘Competition hence the need for quality’ vane The scope of purchasing function is linéwith the following activities: Coordination with user departrents to identify purchase needs Identification of potential Suppliers ‘The conduct of market studies for important materials Negotiation with potential suppliers Analysis of proposals Selection of sUppliers Issuance:of ideal purchase orders Administration of contracts and resolution of related problems Mainf@naiice of a variety of purchasing records 10, Payment approval and follow up 41“inspection and acceptance Objectives of purchasing: Purchasing objectives can be seen from two sides: © General objectives (managerial level) ‘* Functional objectives (operational level) ‘The general objectives are the five rights: that is acquiring materials of:© The right quality ‘+ From the right supplier «© Inthe right quantity + Atthe right time © Atthe right place The perfection of the above purchasing rights invariably creates a desired service level necessary for optimal supply of materials. The functional or operational level objectives of purchasing: 1. To support the company operations with uninterrupted flow of materials end services 2. To buy competitively keeping abreast of the forces of supply and dernand 3, To buy wisely-Continual search for better values of quality, service, price relative to the buyer's needs 4. To keep stock investment and losses at a practical minimum 5. To develop effective and reliable sources of supply 6. To develop good relationships with the supplier community and good continued relationship with active suppliers 7. To achieve maximum integration with other departments of the firm & To handle the purchasing function proactively in @ professional and cost-effective manner, Impact of purchasing and supplies management on organizational efficiency and profitability: The concept of best practices‘in purchasing and supply management (PSM) has become the focus of much interest inrecéht years. This concept asserts that successful organizations employ certain activitiestar processes in line with purchasing that bring forth a high degree of value creation in ougingss transaction. The distinct effects of purchasing and supplies function involve the following? IMPORTANCE OF PURCHASING A. Mtpfbugh negotiation purchasing department enables the company to have enormous direct savings resulting to profitability in the long-run. 2e Purchasing department does supplier appraisal an attribute that makes the company to deal with the only pre-qualified suppliers who add value in return. This function brings forth some semblance of efficiency/profitability in return. 3. Purchasing department ensures that the company has supply continuity an aspect that ‘ensures that the production performs its work continuously. To this extent therefore the company gains efficiency/proft in return once all the activities have been made,4. Establishment of supplier development the purchasing department enables a company to have the right materials hence this affects the profit margins in the long run. The issue of efficiency is being put forth since the supplier(s) will be reliable. 5, Purchasing department act.as a link between the buying company and the external entities (suppliers) hence provide any useful information for decision making thus this ‘creates efficiency in the business transaction. 6. Purchasing department prepares proper documentation and procedures based on acquisition of goods and services hence bring forth efficiency, fairness and transparency. 7. Purchase department coordinates with accounts department to ensure suppliers are paid on time and ensure the right quantities of goods are delivered to the company hence this brings efficiency in the production line. 8. Purchasing department carries out research in order to increase the knewiedge on the market opportunities hence make the right decisions when acqtiiting’goods and. services. 9, Purchasing department initiate purchasing and supply training activities to increase competence of its staff which in turn creates efficiency 10, Purchasing department implement proper purchasing policies and other appropriate strategic purchase decisions which bring forth efficiency in return. Relationship between the purchasing and-supply function with other departments: Some issues on which interaction and codperation may take place between purchasing and ‘other company departments includethe’following: Purchasing and finance/accounts department: ‘« Finance/accotifits department prepares budget allocation for goods/services to be purchasad ima given time period + The purchase department establishes and forwards to finance/accounts department value’analysis report for goods/services to be purchased ‘+. Ginahee/accounts department briefs the purchasing department on issues based on ‘supplier payment =yPUrchasing department gives accounts department information based on damaged items and obsolete items * Purchasing department gives out information based on stock movement to the accounts department ‘+ Purchasing/supplies department works together with accounts department during stock taking exercise which is based on assessing the variance status of the company's inventory. ‘+ Stores personnel who works under purchasing/supplies department works together with the accounts personnel when it comes to the issue of receiving goods from thesupplier(s). The accounts personnel checks whether the amount indicated in the invoice correspond with the amount indicated in the jocal purchase order (LPO). Purchasing and design department: ‘+ Preparation of specifications for purchase of materials and components = Quality assurance or defect prevention «Value engineering and value analysis ‘Information to departments regarding availability of materials, suppliersan@cdsts «Agreement of alternatives when specified materials are not available ‘+ Creation of library of books, catalogues, journals and specifications forjaint use the design and purchasing departments Purchasing and production (User department) ‘Preparation of material schedules to meet just in time requirements © Ensuring that delivery schedules are mainraicied = Control of inventory to meet production requirements «Disposal of scrap and obsolete items = Quality control or defect detection afid'sorrection © Approval of ffirst-off samples’ ‘+ Make or buy decisions «General involvement in suehtéthniques and systems as optimised production technology, computer integrated technology, materials requirement planning (MRP) and manufacturing resolirce planning (MRP 2) Purchas ig and|hurman resource development: + Purgflsing professionals gives out technical expertise when a prospective purchasing staff is being interviewed for a job. = “Human resource personnel liaise with purchasing managers on checking the performance of purchasing employees through job appraisal analysis. «Human resource development relates with purchasing department when it comes to issues of arranging training and seminars for the purchasing staffs, «Human resource development work hand in hand with purchasing department through provision of motivational incentives for the purchasing staffs, This entail the acknowledgment of best employees through giving out Awards, presents and so on. + Purchasing department warks also with human resource development on disciplinary matters of the employees.Purchasing and marketing: «Provision of sales forecasts on which purchasing can base its forward planning of materials, components ete + Ensuring that through efficient buying, purchasing contributes to the maintenance of competitive prices + Obtaining materials on time to enable marketing and production to meet promised) delivery dates to the end-customer «Exchange of information regarding customers and suppliers = Mar keting implications on partnership sourcing Purchasing and information technology department (IT): Purchasing department and IT have an increasing number 6¢interdependencies. In some cases \T function is outsourced the purchasing function. To this extent therefore its performance is evaluated accordingly the purchasing department. Alsowth¢ fianager of IT works closely with purchasing manager to develop automated procedures and reports in line with purchasing. To add on that IT department establishes computer/devices to purchase and to this extent the IT manager prepares purchase order requisition (POR) for such items and forwards the same to purchasing department. On the other hand/tfie purchasing department sources for such devices on behalf of the IT department. TOPIC2 PURCHASING STRUCTURE AND ORGANISATION 1. Organisation.and structures in supply organisation: Organisational structure can be defined as the pattern of relationships among positions cutting across varidlsdepartments, in the organisation and among members of the organisation Organisation design and structure is concerned with such elements as: 1y/ The definition and allocation of specific tasks 2. The grouping of related tasks into manageable functions, divisions, departments, sections or other units 3, The allocation of responsibility within the organisation and to constituent functional units, Purchase organisation structure :1. Vertical 2, Horizontal 1, Status of Purcha: 1. High level 2. Middle level 3. Lowlevel Centralization Vs decentralization: ‘The supply function focus primarily on centralised and decentralized purchasing when building up the structures for the organisation. Centralized purchasing encompass grouping of purchasing tasks and specialist functions or services into one seryingiunit and under unified control, On the other hand decentralized purchasing en tail division.ct purchasing function into sections whereeach section is mandated to control the functiéns within its scope. Here each department or branch is entirely responsible for its own bélying. + Centralized purchasing: The advantages-of concentrating purchasing in a strong central department with a responsibility. oF coordinating across functions include: «Economies of scale: Centralized purchasing enables an organisation to use its purchasing power or leverage fo'the best effect, since: * Consolidation of quantities.camzake place resulting in quantity discounts + Suppliers dealing with a ceftral purchasing department have an incentive to compete for the whole propértiorof an undertaking’s requirements + Cheaper prices enabliig Suppliers to spread overheads over longer production runs + Specialist staff can be employed for each of the major categories of purchase #=)Lower administration costs eg. itis cheaper to place and process one order for one million shillings than ten each for one million. (i) Coordinating of activity: «Uniform policies can be adopted e.g. single sourcing, partnership sourcing etc. ‘+ Uniform purchasing procedures can be followed© Competitive buying between departments within the organisation is eliminated + Standardization is facilitated the use of company’s wide specification «The determination of order quantities and delivery dates is facilitated. ‘+ Staff training and development can be undertaken on a systematic basis. * Purchasing research into sources, quantities and supplier performance is facilitated ‘= Suppliers find it more convenient to approach one central purchasing department. (lit) Control of activity: «The purchasing department may become either a separate cost centré’i Bva/location within the organisation in relation to which costs may be ascertained'@rd profit centre. ‘= Budgetary control may be applied both to the purchasing department and to the total ‘expenditure on supplier ‘= Uniformity of purchase prices obtained centralized purchasing assists standard costing, «Inventories can be controlled, reduced obsolescence and [Oss of interest on capital locked up in excessive stocks. © Approaches such as just-in-time and MRP ii can bé implemented Purchasing department performance can be monitored Setting objectives and comparing actual results with pre-determined standards. Disodvantages of centralized purchasiig: ‘+ Centralized can result'id siany activities that involve expenditure and time without adding value. SV + Centralizationsean foster emphasis on functional objectives with a minimum concern for overall ofanizational goats. + User dendrtnents will resort to informal procedures if formal purchasing procedurésvare too slow. ‘+ Training’6f managers with broad perspectives and wide understanding of business thay be inhibited. ‘9 Eriployee identification with a specialist group or function can make it difficult to implement change. It is @ more rigid structure, «” -Long chain of command. ‘+ -Slow-decision making. + -More bureaucratic. (b)Decentralized PurchasiAdvantages: . The local buyer will have better knowledge of the needs of his/her Factory and local suppliers for improved service. 2. Itis more responsive to clients i.e, the user departments, 3. The buyer will be able to respond more quickly to emergency requirements. 4, Local purchase will be emphasized ans this attribute will save on transport costs. 5. Local purchase will contribute to local prosperity of the local community etc 6. Small and easy to manage. 7. Easy to instil team spirit 8. Fastin decision making Disadvantages: 1, -May lead to buying expensively for lack of economies of stale. 2. -Duplication of purchases may result 3, -Standardization of materials and procedures may Besditficult to implement. 4, Specialized staff training may not be possible 5. -Rivals can emerge Combined TOPIC3 TIT. PMGROUP. QUALITY ASSURANCE AND CONTROL Antreduction te concepts in quality management: Quality: ISO 8402 defines quality as the totality of features and characteristics of a product that bears on the ability to satisfy stated or implied needs. In this definition, features and characteristic of product implies the ability to identify what quality aspects can be measured, or controlled, or constitute an acceptable quality level (AQL) and ability to satisfy given needs relates to the value of the product or service to the customer including economic value as well as safety, reliability, maintainability and other relevant features.Crosdefines quality as conformity to requirements not goodness. He also stresses that the definition of quality can never make any sense unless it is based on what the customer wants, i.e. a product is a quality product only when it conforms to the customer's requirements. Juran defines quality as fitress for use’. This definition implies quality of design, quality of conformance, availability and adequate field service. Garvin has identified five approaches to defining quality and eight dimensions of quality. Five approaches of quality: «The transcendent approach: quality is absolute and universally recognisabté, ‘+ The product-based approach: quality is precise and measurable variable «The user-based approach: quality is defined in terms of fitness for use or how well the product fulfil its intended functions + The manufacturing-based approach: quality is conformance tolspécifications ie. targets and tolerances determined product designers. + The value-based approach: quality is defined in terms of,costand prices. Here, a quality product is one that provides performance at an acceptable price or conformance at an acceptable cost. Eight dimensions of quality: «Performance: The product's operating chatatteristics * Reliability: The probability of a prodtict Surviving over a specified period of time under stated conditions of use. + Serviceability: the speed, accessibilityand ease of repairing the item or having it repaired. * Conformance: The degreettawhich delivered products meet the pre determined standards. + Durability: Measurés.thé projected use available from the product over its intended operating cycle before it deteriorates. «Features: The bells and whistles’ or secondary characteristics which supplement the product fhe product's basic functioning, * Aesthetlts: personal judgements of how a product looks, feels, sounds, tastes or smells. + Peréeived quality: Closely identified with the reputation of the producer, Like aesthetic, i€'sz personal evaluation. Quiality control and quality management-ISO 9000, 2000. TQM: Quality control: \s concerned with defect detection and correction. Inspection activities can be classified as quality contro} processes, along with other activities which involve monitoring to ensure that defectives or potential defectives are spotted. Quality control can also be defined as a process employed to ensure certain level of quality or service, it may includ whatever actions a business deems necessary to provide for the control and verification of certain characteristics of a product or service. The basic goal of quality control is to ensure that theproducts, service or processes provided meet specific requirements and are dependable, satisfactory and fiscally sound, C.Quality assurance: Differs from quality control and is defined as all those planned and systematic activities implemented within the quality system and demonstrated as needed to provide adequate confidence that an entity will fulfil requirements for quality. Quality assurance can also be defined as a planned and systematic production processes that provide confidence in a product's suitability for its intended purpose. It can also be defined.as a set of activities intended to ensure that products and services satisfy customer's requirements ina systematic and reliable fashion. ‘Two key principles characteristics of quality assurance entail’ fit for purposel{(the product should be suitable for the intended purpose) and "right first time” (mistakes should be eliminated). Quality assurance include regulation of the quality of rawmaterials, assemblies, products, components, services related to production, managementiproduction and inspection processes. Quality assurance is concerned with defect prevention and:ha&become synonymous with quality systems such as Kenya bureau of standards (KEBS/855750 and international counterpart ISO 9000. uality assurance includes all activities connected with the attainment of quality such as: 1. Design, including proving and testifig, 2. Specification, which must be tlear’arid unambiguous 3. Assessment of supplier ta’efisure that they can perform 4. Motivation of all concerned parties 5, Education and traininig.of supplier's staff 6. Inspection and testing 7. Feedback to ensure that all measures are effective Quality Assurance objectives: 1... Reduction of errors and enhancement of quality 2.,/ Problem prevention rather than detection and correction 3. Reduction in product or service costs 4, Improved productivity 5. Improved employee involvement, motivation, job satisfaction and commitment 6, Improved teamwork and working relationships 7. Development of employee problem-solving ability.C.Advantages/ Importance of quality Assurance: Both buyers and sellers gain benefits from a good quality control. The following are the principle advantages: 1, Minimum possible rejection and wider acceptance of the supply is made possible the supplier's effective quality control system. 2, Minimum inspection time and effort help the vendor as well as the purchase in delivery and receiving the supply at a lower cost Prospect of zero defects increase Scraps are minimised and wastage is reduced due to good quality assuranc&isystem 5. Goodwill of both vendor and purchaser is enhanced as there are fewer difficult and problems in regard to quality products 6. Sometimes inspection at the purchaser's end is eliminated if vendor quality certificate and statistical date regarding the quality of the goods suppliedis enclosed. 7. Quality consciousness is developed resulting in benefit to all Concerned. Accumulation of obsolete material is reduced to the,minimum 9. It results in reduction of lock-up capital due to decrease in‘inventory. aw 5999000000000 1. KENYA BUREAU OF STANDARDS, ‘The Kenya Bureau of Standards .(KE85) is a government agency responsible for governing and maintaining the standards anid Bractices of metrology in Kenya. It was established an Act of Parliament of Kenya's NationalAssembly, The Standard Act, and Chapter 496 of the Laws of Kenya. The Bureau started it8 operations in July 1974. It has main offices in Nairobi, and regional offices thratighout Kenya." The KEBS Boa oPDirectors is knowin as the National Standards Council (’(NSC”) and is the policy-makingiodty for supervising and controlling the administration and financial managemenvof the Bureau. The Bureau's chlef executive Is the Managing Director. TWe.aims’and objectives of KEBS include preparation of standards relating to products, ‘measurements, materials, processes, etc. and their promotion at national, regional and international levels; certification of industrial products; assistance in the production of quality goods; quality inspection of imports at ports of entry; improvement of measurement accuracies and dissemination of information relating to standards. To keep close liaison with and render e'ficient service to industry, trade and commerce in different paris of the country, KEBS has opened Regional Offices in Mombasa, Kisumu, Nakuru, Garissa, Nyeri and has import inspection offices at all the legal points of entry in Kenya.ROLES OF KEBS The functions of KEBS are to: 1, Promote standardization in industry and commerce Provide facilities for testing and calibration of instruments and scientific apparatus and determine their degree of accuracy or issue of certificates 3, Provide facilities for examination and testing of commodities, material or substance in which they may be manufactured, produced, processed or treated 4, Control the use of standardization and distinctive marks 5. Prepare, frame, modify or amend specifications and cades of practice 6. Help the Government, local authority, public institution or person in the preparation and framing of specifications or codes of practice 7. Cooperate with the Government, representatives’ industry, locahauthority, public body ‘or person in adopting and applying standards 8. Provide testing services on behalf of the Government of |ofally manufactured and imported goods at the ports of entry or country of originand determine whether goods comply with the law on standards of quality 9. Test goods destined for export for purposes of expolt-certification KEBS has approved a Kenyan Standard. It provides for common use, rules; guidelines or characteristics for products, services, processes and production miethods aimed at achieving order 10. It may also deal exclusively with terminology, symbols, packaging, marking or labelling reguirements on products, processesomproduction methods. OOOOH ISO — International Standards Organization The Role of ISO and Its Affiliates The International Stancaeds Organization (SO) is well known for its international management standards for quality assurance in a broad range of business and industrial applications. Generally these standards are referred to as IS0-90xx accreditations and they apply to corporations ApproximatélySeven years ago, ISO and its state-level affiliates around the world established new stagdards, 17021 and 17024, for the certification of individual practitioners in various pfofessicnal disciplines. The American National Standards Institute (ANSI) is the state-level organization to which U.S. corporations apply for ISO accreditation Please note that, while this site refers to "ISO standards,” any formal reference is required to use the full name: ISO/ICE/ANSI Standard 17021 or 17024. For more on this, see: www.ansi.orgIn addition to the steps listed in the Key Events graphic above, accreditation requires ongoing reports, audits and a range of other activities that are needed to ensure that this certification program is, and remains, current, comprehensive, effective, predictive, fair and secure. The rigor involved in qualifying and maintaining ISO accreditation is the basis for our belief that State Regulators will approve this certification as one of the methods they use to test the theoretical knowledge of candidate BENEFITS Benefits of International Standards International Standards bring technological, economic and societal benefits (They help to harmonize technical specifications of products and services making industry more efficient and breaking dav barriers to international trade. Conformity to InternatiGnal Standards helps reassure consumers that products are safe, efficient and good for,the environment, Benefits of standards: the ISO Materials ISO has developed materials describing the economic and sécial benefits of standards, the ISO Materials. They are intended to be shared with decisionmakers and stakeholders as concrete ‘examples of the value of standards. Facts and figures about the benefits of standards The repository of studies on economic aril sAtial henefits of standards provides an insight of the approaches and results of the studiés, ufdertaken different authors, such as national and international standards bodies, resgarth institutes, universities and other international agencies. For business International Standard3jare strategic tools and guidelines to help companies tackle some of the most demandingchallénges of modern business. They ensure that business operations are as efficient as possible increase productivity and help companies access new markets. Benefitsinclude: ae}COst savings - International Standards help optimise operations and therefore improve the bottom line 2. Enhanced customer satisfaction - international Standards help improve quality, enhance customer satisfaction and increase sales 3. Access to new markets - international Standards help prevent trade barriers and open up global markets 4, Increased market share - International Standards help increase productivity and competitive advantage5. Environmental benefits - International Standards help reduce negative impacts on the environment 6. Globalisation 7. Change with technology &. Ecologi conformanve Businesses also benefit from taking part in the standard development process. Read more about the benefits of gettcb Total quality management (TQM): This is the overall management philosophy. TQM is defined as a way of managing an organisation so that every job, every process is carried out right, first ¢méand every time. This mean each stage of process is carried out right, first time and everytimie: This also means that each stage of manufacture or service is 100% correct before it prcgeds. TQM is also defined as an integrative management concept of continually improvifigth@quality of delivered goods and services through the participation of all levels and functions,of the organisation. TOM principles: TQM is based on three important tenets: + Afocus on product improvement fram the customer's view point. The term ‘customer here is assoclated with cOncept of quality chains which emphasizes the linkages of suppliers and customets: Quality chains are both internal and external Internally, purchasing is th¥e Customer of design and the supplier of production. Staffs within a function are alse, Suppliers and customers. ‘= Arecognition that personal at all levels share responsibility for product quality. It is based on team/rather than individual performance. Thus, while top management provides leadership, continuous improvement is also understood and implemented at shop flogrtevel.(based on Japanese concept of Kaizen-on- going improvement which affectSievéryone), The characteristic s of this principle include: 1, Prowisioh of leadership from the top 2. Création of quality culture dedicated to continuous improvement «_/Team-work- ie. quality improvement teams and quality cycles 1, Adequate resource allocation 2. Quality training of employees 3. Measurement and use of statistical concepts * Quality feedback ‘+ Employee recognitionIt has bean stated that “once 2 culture of common beliefs, principles, objectives and concerns has been established, people will manage their own tasks and will take voluntary responsibility to improve processes they own’, «Recognition of the importance of implementing a system to provide information to managers about quality processes which enable them to plan, control and evaluate performance. Issues in mana; ality in supply chain: + Specification and standardization: Specification: A specification for an item has been defined as ‘astatement of the attributes of a product or service. It is basically a description of an item, its‘dimensions, analysis, performance or other relevant characteristics in sufficient detail to ensufe.rfiat it will be suitable in all aspects for the purpose for which itis intended. There are two main approaches to specification that are performance and conformance. «The idea of performence specifitetidn is that a clear indication of the purpose, function, application and performance expécted of the supplied material or service is communicated and the supplier is allowed or encouraged to provide an appropriate product. In this case, ¢h@\g tailed specifications is in the hands of the supplier where applicable, performante-Specifications are to be preferred in that they allow a wider ‘competition andienable suppliers to suggest new or improved ways of meeting the requirements: © Conformancesspecifications apply in situations where the buying organisation lays down clear ang Unambiguous requirements that must be met (In this case the specification is of the’protduct, not the application). This type of specification is necessary where for ‘exemple items for incorporation in an assembly are required or where a certain {Chemical product is to be acquired for @ production process. It has been said that ssBecifications restrict innovation, Additional methods of specification; «Use of brand or trade name: This will be applicable under the following circumstances: + When manufacturing process is secrete or covered a patent«When manufacturing process of the vendor call a high degree of skill that cannot be exactly defined in a specification «| When only small quantities are bought so that the preparation of the specifications the buyer is impracticable + Bysample: The sample can be provided either buyer or seller and is useful method of specification in relation to printing and some raw materials e.g. cloth. When sample specifications are used: «The bulk must correspand with the sample in quality +The buyer must have a reasonable opportunity of comparing the bulky with the'sample «The goods must be free from any defect making their quality unsatisfactory which a reasonable examination of the sample would not reveal. The value of specifications: Specification will ensure that: + Allcommodities specified will be suitable for their/fitentled purpose when put in place «© Materials is of a consistent quality at all times = The inspection or testing to be applied to(goods purchased is notified in advance to the inspection section and to suppliers ‘© In respect of the purchase of the Spetified items, all suppliers will have the same date ‘on which to base the quotations Preparation of specifications: «Avoid over-sptification: This may lead to goods becoming more expensive and also may be diffictittto find a manufacturer willing to quote = Avoid Undelss pecification since this may lead to inferior goods and services #.. tordef to be practicable, pay attention to convenience in handling and storage #™)iFihere is to be inspection after delivery, the specifications ought to state what tests are to be applied = IFany special marking or packing is wanted, include the relevant instructions in the specifications. Standardization: This is the process of agreeing and adopting generic specification or descriptions of the items required, Standardization can also be defined as the process of grouping like items together inorder to simplify examination of the complete range of any given type of items within the store. Astandard differs from specification in that while every standard is a specification not every specification is a standard. Standard may be distinguished according to their subject ~matter, purpose and range of application, Advantages of standardization: There Is accurate comparison of quotation since all prospective suppliers are quoting for the same thing. lear specification helps to achieve reliability and reduce costs Less dependability on specialist suppliers and greater scope for negosiatibr Facilitation of international sourcing reference to !SO standards. Reduction in error and conflicts thus increasing supplier goodwill, Quality is easier to monitor because visual inspection is easiehand use of tried or tested items means that defects are less likely to occur. It gives clear specification and removal of any uncéttainiy as to what is required on part of both buyer and the supplier. Save time and money eliminating the need ta prepare specifications each time and reducing the need for explanatory teleghone calls. Easier communication and less room fetmisunderstanding and disputes between buyers and users. ‘Save inventory cost through variéty reduction. After standardization is introdticed the following attributes should be observed: Vari Ensure specifications are observed Ensure néiy sécifications are suitably revised and approved. EnsGré gid specifications are reviewed, replaced, amended or even eliminated if they afendt necessary. it This is the process of reducing the number of varieties stocked to a controlled workable minimum. Procedure for variety reduction:Variety reduction involves a complete examination of the list of commodities stacked to determine: + The use or users for which each item is intended ‘= Which items have similar characteristics and can be used as substitutes for each other ‘© What range of sizes is essential * Which items can be eliminated + What specifications are necessary for retained items Reasons that lead to variety reduction: ({)Lack of specification when procuring items (2) Where there are many suppliers of the same item (3) Different sizes of containers or packages for items (4) Lack of guidelines on how to use stocked items (5) When there are varieties of the same item Advantages of variety reduction: (1)Reduction of stack holding cost, (2) Release of money tied up in’stotks (3) Easier specification whil@ordering (4) Narrow range of inventory which leads to reduction in administrative cost (5) Reduced supplié base: facilitates the building of long term relationship and supplier development? Manat wality Servi¢é quality is bout ensuring customers, both internal and external, get what they want. AS ‘the technology brings markets, people and products ever closer, itis the single most effective and sustainable means of differentiation between competing companies. Managing service quality is packed with case histories, insights and guidance to the latest and most insightful academic thought in the field of service quality senior managers and board directors share with Junior employees ideas, experience and advice as they strive for excellence in service quality. For an organization to succeed, intensely managing service quality is absolutely essential. itis only through customer alignment that the organization is on track toward a single, sharedvision of customer focus and customer value; a vision that energizes people and the ‘organization to accomplish extraordinary things. In order to embrace proper management based on service quality aspects the following concepts should invariably be focussed on: + Voice of the customer Customer focus + Customer alignment «Linking the customer to results TECHNIQUES OF QUALITY ASSURANCE: The traditional tools to help organisations to understand their processes with’a View to improving their quality techniques encompass: 1. Cause and effect diagrams: The cause-and-effect diagram is a method for analysing process dispersion. The diagrar’s purpose is to relate causes and effects. Three basic types aré! Dispersion analysis, Process classification and cause enumeration, Effect = problem ta’bavesolved, opportunity to be ‘grasped, result to be achieved. Excellent for capturing teanrbrainstorming output and for filing in from the ‘wide picture’. It helps to organise and'relate factors, providing a sequential view. It also deals with time direction but no quantity ch Become very complex. It can also be difficult 10 identify or demonstrate interrelationships. Cause and Effect, Fishbone, Ishikawa Diagram: 1. Pareto principle: The Pareto principle suggests that most effects come fram relatively few causes. In quantitative ‘terms: 80% of the problemscome from 20% of the causes (machines, raw materials, operators etc.); 80% of the wealthis‘owned 20% of the people etc. Therefore effort aimed at the right 20% can solve 80% of the,prablems. Double (back to back) Pareto charts can be used to compare ‘before and after’ Situations and also can be used to check general use, to decide where to apply initial effort for maximum effect. Part principle: 1. Scatter diagram: A scatter plot is effectively a line graph with no line - ie. the point intersections between the two data sets are plotted but no attempt is made to physically draw a line. The ¥ axis isconventionally used for the characteristic whose behaviour is used to predict and use to define ‘the area of relationship between two variables. Warning: There may appear to be a relationship on the plot when in reality there is none, or both variables actually relate independently to a third variable. Scatter plots: 1. Control charts: Control charts are a method of Statistical Process Control, SPC. (Control system foPipréduction processes). They enable the control of distribution of variation rather than attempting to contral each individual variation. Upper and lower control and tolerance limits are calculated for a process and sampled measures are regularly plotted about a central lige between the two sets of limits. The plotted line corresponds to the stability/trend of thé prdcess. Action can be taken based on trend rather than on individual variation. This preyénts 6ver- correction/compensation for random variation, which would lead to.many rejects. Control chan 1, Histogram or Bar Graph: A Histogram is a graphic summary of variation in’ set of data. It enables us to see patterns that are difficult to see in a simple table of numbéFs, jt can also be analysed to draw conclusions about the data set. Ahiistogram is a graph in which the contiriuous variable is clustered into categories and the value of each cluster is plotted tolgive a series of bars as above. The examples below reveal the skewed distribution of a setof Product measurements that remain nevertheless within specified limits. Without using.same form of graphic this kind of problem can be cifficult to analyse, recognise or identity. Histogram or bar Graph: 1. )Check sheets ACheck Sheet Is a data recording form that has been designed to readily interpret results from ‘the form itself. It needs to be designed for the specific data it is to gather. It is used for the collection of quantitative or qualitative repetitive data and also it is adaptable to different data gathering situations. Minimal interpretation of results is required. Itis easy and quick to use. No control for various forms of bias - exclusion, Interaction, perception, operational, non- response, estimation.1, Check list: AChecklist contains items that are important or relevant to a specific issue or situation Checklists are used under operational conditions to ensure that all important steps or actions have been taken. Their primary purpose is for guiding operations, not for collecting data, Generally used to check that all aspects of 2 situation have been taken into account before action or decision making, Value analysis and V: jn Value analysis: This is a systematic procedure aimed at ensuring that necessary functidhis, af achieved at minimum cost without detriment to quality, reliability, performance.and-delivery. Value analysis, can also be defined as the process of analyzing a product or a prdcess to determine aspects or elements that do not add value and have the same eliminated. Value analysis results in the orderly utilization of alternative materials, newer processes, afd abilities of specialist suppliers. it focuses manufacturing and purchasing attention on gneoBjective; equivalent performance at lower cost, Having this focus, it provides step-by-stepprocedures for accomplishing its objective efficiently and with assurance. Value analysis procedure: The job plan for value analysis project eomprises the following stages: Project selection: what project shows the greatest potential for savings etc Information stager@brain essential information relating to the Items under consideration, define the functions of the product ete # Speculation gtage: Have a brain storming session in which many ideas are put forward tor achieving the desired function, reducing costs or improving the product «Investigation stage: Selects the best ideas produced at the speculation stage and evalluate their feasibility ‘© Praposal stage: Recommendations be presented to the level of management able to ‘authorise the suggested changes = implementation stage: When approved the responsibility execuitive, the agreed recommendations will be progressed through the normal production, purchasing or other procedures. Purchasing and value analysis:Where no value analysis exists, all buyers should be encouraged to understand and apply the approach. Purchasing can make the following contributions: ‘+ Provision of information concerning: + Materials and components ‘© Material cost of bought-out components ‘+ Use of supplier standard part instead of special 2) Suggestions for buying economics such as: + Economic order quantities + Reduction costs of packing, handling and transportation «Alternative reliable suppliers etc 3) Encouraging supplier participation: This involves examyriing with suppliers, the function of ‘the items being analysed and seeking their specialist adviceas to how the cost can be reduced. Value engineering: This is the application of value analysis.at the pre-production or development stage. Value engineering can also be defined as a'method ological systematic study of all phases of the design of a given item or processi{pirelation to the function (value) of the finished product or processes to perform, itis imperative to néte that the terms value analysis and value engineering are invariably used synonymously, HéweVer, the distinction may be summarized the statement that value analysis is concerned with cOst correction while value engineering is concerned with cost avoidance. The basic organisational approaches to value analysis and value engineering include specialized staff approach (value analyst) the cross-functional team approach (committees members drawn from alldepartments) and the staff training approach. Developing understanding of the con€ept and working knowledge of techniques among most professional and operating persdnnel responsible for specifying purchasing and using production materials plays a significant role in perfection of both value analysis and value engineering, Fi re models and effect analysis (FMEA) FMEA is defined as a systematic approach that applies a tabular method to aid the thought process used engineers to identify potential failure modes and their effects.