Global Supply Chain Management

Developing High-Quality Logistics Systems Chapter #13 Developing High-Quality Logistics Systems

The Logistics System 11/22/2018

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 11/22/2018

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 11/22/2018

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 11/22/2018

Quality Concepts: Internal View The Deming Circle 11/22/2018

Quality Concepts: Internal View Juran’s Quality Wheel 11/22/2018

Quality Concepts: Internal View Crosby’s 14 quality steps emphasized zero-defects through: Management commitment Teamwork Training Adequate measurement 11/22/2018

Quality Concepts: Internal View Hammer’s six principles for reengineering emphasized: Business process Information technology Employee empowerment 11/22/2018

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 11/22/2018

Quality Concepts: Internal View TQM and reengineering are one in the same today Each effort must be enthusiastically lead by management 11/22/2018

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 11/22/2018

Quality Concepts: Internal View Cooperation, internal and external collaboration is central to achieving quality goals Teamwork Employee involvement and empowerment 11/22/2018

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 11/22/2018

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 11/22/2018

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 11/22/2018

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 11/22/2018

Quality Concepts: External View From the point of view of logistics, we should strive to provide “defect-free” service to our customers 11/22/2018

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 11/22/2018

Service Quality Model Customer Organization Gap 5 Gap 1 Gap 4 Gap 3 Word of Mouth Communications Perceived Service Management perceptions of customer service expectations Service Delivery (including pre- and post-contacts) Expected Service Past Experience Personal Needs External Communications to customers Translation of perceptions into service quality specifications Customer Organization Gap 3 Gap 1 Gap 5 Gap 2 Gap 4 11/22/2018

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 11/22/2018

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 11/22/2018

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. 11/22/2018

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 11/22/2018

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 11/22/2018

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 11/22/2018

TQM in Logistics At the focal point of any quality enhancement effort must be customer service (value) including the customer’s perception of quality 11/22/2018

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 11/22/2018

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! 11/22/2018

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. 11/22/2018

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! 11/22/2018

The Quality Process Organizational Commitment Quality Strategy Operations Strategies Marketing Continuous Quality/Process Improvement Implementation Current level of performance Customer needs and requirements Step 1 Step 6 Step 3 Step 5 Step 2 Step 4 System Design/redesign 11/22/2018

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 11/22/2018

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 11/22/2018

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. 11/22/2018

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 11/22/2018

ISO 9000 Compliance should not be viewed simply as a necessary evil Time consuming and costly to achieve…but the payback can be tremendous 11/22/2018

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 11/22/2018

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 11/22/2018