ISQA 407 Introduction to Global Supply & Logistics Management Winter 2012 Portland State University

Agenda Quick review of last class Lecture Intro to Metrics & Quality Hammer Presentation Lecture Cont. Metrics Q&A

Sourcing and quality control Definition of terms: quality and quality control IBM defines quality as the degree in which customer requirements are met. We speak of a quality product or quality service when both supplier and customer agree on requirements and these requirements are met. Quality control: making sure that the requirements are met and being able to demonstrate this repeatedly.

Sourcing and quality control The cost of quality - Prevention costs - the costs of preventing quality errors - Assessment costs - the costs related to the timely recognition of quality errors - 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 customer

Supplier quality assurance (SQA) Internal quality assurance regarding suppliers -Preparing the purchase order specification -Preliminary qualification of (potential) suppliers -Sample inspection procedure -Delivery of first and subsequent preproduction series -Manufacture of the first production series -Quality agreement and certification -Periodic verification

Implementing supplier quality assurance Clear task descriptions and performance measures Maximum rejection percentage per article code or per supplier The average term in which rejection reports must be dealt with (per buyer) Number of quality agreements closed with suppliers Number of certified suppliers Clarity concerning supplier selection Who in the company is competent to enter into relationships with suppliers? Who is responsible for ultimate selection of suppliers? Communication to suppliers from one central point (supplier account management) Quality first Take responsibility for quality and being accountable Rejection percentages and number of quality agreements becoming part of the buyer’s annual assessment To measure is to know Essential that suppliers receive feedback on their performance (e.g. vendor rating system)

Why measure any performance? What benefits can be derived from a systematic performance evaluation?  Better decision making  Better communication with other departments  Better visibility of performance  Better motivation of cross departments Collectively, these comments indicate that sourcing performance evaluation should result in higher added value of all functions Collectively, these comments indicate that sourcing performance evaluation should result in higher added value of all functions

Metrics – Right ones? Quality Systems TQM / Lean / ISO Above the Shop Floor – Value stream mapping can be applied everywhere “What is measured improves” Overemphasis on a few can be risky Too many? (Attention span?)

Sourcing Product/Quality dimension This dimension refers to sourcing responsibility to secure that products and services are delivered by suppliers in conformance with specifications and requirements.  Sourcing involvement in new product development Examples of measures: number of man hours spent by operations on innovation projects, number of technical change orders and initial sampling reject rate  Sourcing contribution to Total Quality Control Examples of measures: reject rates on incoming goods, number of approved / certified suppliers, contract parameters What should be measured?

For ex: Sourcing Logistics dimension This dimension refers to sourcing role to contribute to an efficient incoming flow of purchased materials and services. This includes the following major activities:  Strategy to reduce inventory and period expenses  Control of timely delivery by suppliers  Control of quantities delivered, on-time, proper specifications  Cost reductions, less so avoidance  Continuity of supply, factory downtime Supplier evaluation and rating are techniques used to monitor and improve supplier performance in terms of quality and delivery reliability. What should be measured?

Some Performance Measurements Customer Service / Internal efficiency / Flexibility / NPI Quality – PPM, FPY, IC, FMEA Cost to Target – OPEX & Procurement On Time Delivery Flexibility – cycle time improvement Productivity Improvement – output / hour Supplier’s Management Program Progress Toward Certification ISO 14,000 Technology roadmap (products & IT infrastructure) Inventory turns Return rate Cash-to-cash cycle time Utilization / capacity

Measuring Performance – Cont. Forecast Accuracy Formal Sharing of Information – Markets & customers Minimize expediting and Schedule Changes Focus on Total Cost - Not Price On Time A/P & A/R Program to Manage Supplier Relationships – NPI -> Obsolescence Contractual Protection and Liabilities Period Expenses – Variances Project milestones / cycle time of projects Number of SKUs SCOR Model & scorecard : (P. 152, 159) Strategic / Operational / Tactical

Measuring Performance – Cont. Developing – New Markets: Where both supply and demand are unknown. Partnering in risk with suppliers understanding technology roadmaps Growth – Demand exceeds supply: where parts are hot commodities Inventory forecasting Measure OTD, order fill rate Mature – Supply exceeds demand: Older steady product Postponement models Ensure continuity of supply EOL measurements Steady – Established markets: where communication is key Costs measurements Lean applications

The hp way: TQRDCEB: Technology Quality Responsiveness Delivery Cost Environment Business Kropf, W. C. & Russell, P. L. (N.D.). Hewlett-Packard's Packaging Supplier Evaluation Process and Criteria. Retrieved May 24, 2009 from:

Incentives -Awareness of problems -Sharing information is key -Conducting audits -Changing periodically -Developing trust -Not too many / not too few -Openly discuss bad performance

7 Deadly Sins of Performance Measurements 1.Vanity – cognitive dissonance (IBM PC) 2.Provincialism – only measure within an org group 3.Narcissism – measure from your point of view, not the customer 4.Laziness – We know best 5.Pettiness – only a small component of what matters 6.Inanity – Measure what you want to change 7.Frivolity – Not taking metrics seriously