1. 11. Purchasing, new product development and quality control
Planning
11. Purchasing, new product development and quality control 1
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

2. Program Purchasing and new product development
Benefits and risks related to early supplier involvement
Purchasing and quality control
Assessing supplier quality: diagnostic methods
Implementing supplier quality assurance: consequences for purchasing
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

3. Purchasing and new product development
Stages in the development process:
Product development Marketing ideas are translated into functional designs
Product design Functional designs are worked out in detail, prototypes are made.
Preproduction planning Production requirements are take into account. Ends with trial runs and preproduction series.
Start of the production Preproduction series are examined. Design and technical changes are documented in change-orders.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

4. Purchasing and new product development
Purchasing’s relationship to the new product development process
Degrees of
freedom specification
High
100%
Cost of engineering changes
Costs/degrees of freedom
Degrees of freedom
purchasing
Low 0%
Product
development
Product
Design
Preproduction
planning
Production
Time
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

5. Purchasing and new product development
How do large manufacturers communicate with their first
tier suppliers in product development projects?
Purchasing engineering A specialist function to provide the liaison between the engineering department and the purchasing department
Early supplier involvement (ESI) Best-in-class suppliers are invited to participate in the company’s product/process development projects at an early stage.
Residential engineering Engineers from the other party are located on a more or less permanent basis within the organization.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

6. Purchasing and new product development
Market
One supplier
More suppliers
Engineering
function
Monopoly
Competition
Conflicting interest between purchasing and engineering activities…
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

7. Purchasing and new product development
Involving buyers in development processes at an early stage can result in contribution of new knowledge and better understanding of:
Construction
Suitable materials
Suppliers
Supplier knowledge
Involving the supplier in new product development can also result in considerable savings
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

8. Purchasing and new product development
Figures in table indicate percentage of savings on cost price
Degree of design complexity
or product uniqueness (%)
Stage of product design
Low
Average
High
Initial design
2-5
10-25
30-50
Changing existing design
1-3
3-15
15-25
Redesigning to improve quality 10
15-30
40-60
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

9. Benefits and risks related to early supplier involvement
In assessing the benefits of ESI companies need to differentiate between
short term and long term benefits
Short term benefits
Long term benefits
Benefits resulting from:
improved product quality
reduction of product cost
reduction of development time
reduction of development cost
More efficient and effective
collaboration in future new product
development projects
Alignment of future technology
strategies
Better access to technology
resources of the supplier
Contribution of suppliers to product
differentiation
Van Echtelt, 2004
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

10. Benefits and risks related to early supplier involvement
ESI is not without risks. In most cases the risks are related to companies being afraid of:
Losing crucial product- or process knowledge and skills to the supplier
Becoming locked in into a specific supplier technology
Slowing down the development process by involving suppliers early in the process
Increasing relationship and/or coordination costs
Changing interests and levels of commitment
Companies that want to involve suppliers in new product development need:
to develop a long term view on their make or buy policies, supplier selection and other strategic supply processes
to be experienced in applying modern project management techniques
to develop partnership relationships with suppliers that go far beyond the traditional buyer-supplier relationships
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

11. Purchasing 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 objectively.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

12. 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 realized.
how to check that the requirements are (being) fulfilled.
the measures to be taken when the requirements/expectations are not met.
Quality assurance concerns keeping methods and procedures of quality control up to date
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

13. Purchasing and quality control
The requirement
-verification cycle
Requirement
Feedback
Check/verification
Realization
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

14. Purchasing 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
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

15. Purchasing and quality control
Quality Costs Model
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

16. Purchasing and quality control
Supplier quality assurance building blocks:
Preparing the purchase order specification (sign-off procedures)
Preliminary qualification of (potential) suppliers (quality audit)
Sample inspection procedure to determine the initial sampling reject rate
Delivery of first and subsequent preproduction series and evaluation
Manufacture of the first production series
Quality agreement and certification
Periodic verification (supplier rating systems)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

17. Assessing supplier quality: diagnostic methods
Methods for assessing a supplier’s capabilities:
Product audit Provides an image of the degree in which a company succeeds in making everything run perfectly by inspecting final products.
Process audit A systematic investigation of the extent to which the (technical) processes are capable of meeting the standards.
Systems audit Compares the quality system to external standards (e.g. ISO 9000)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

18. Assessing supplier quality: diagnostic methods
The ISO 9000 series of quality assurance standards
Standard
Title
ISO 9000
Guidelines for selection and application of ISO 9000 through 9004
ISO 9001
Requirements concerning quality control in purchasing, development, production and sales (equivalent to AQAP 1)
ISO 9002
Requirements concerning quality control in purchasing, production and sales (equivalent to AQAP 4)
ISO 9003
Requirements concerning quality control of final inspection and testing (equivalent to AQAP 9)
ISO 9004
Guidelines for the organization of a quality system
ISO 8402
Terminology and definitions
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )

19. Implementing supplier quality assurance: consequences for purchasing
The most important changes to be prepared for by purchasing:
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)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed ( )