Ricardo R. Fernandez, CPM, PE
Ricardo R. Fernandez, CPM, PE, Managing Principal, Advent Group Inc., Miami, FL 33265-0005, 305/227-9478
This presentation discusses a uniquely integrated Purchasing and Supplier Quality Management Process that aligns the role of Purchasing and the Suppliers they manage to the organization's overall quality strategies. This process also multiplies the benefits gained from a Total Quality Management system by focusing Supplier efforts to meet organizational objectives in a systematic way.
The benefits of having an integrated Supplier Quality Management process in place are also discussed and the process is described. A unique methodology that combines the concepts of Quality Functional Deployment with Strategic Procurement Planning is explained. The concepts of Process Management and Improvement are introduced and tied to the effect that they have on the quality of the products and services being provided to the customer. The impact of the Supplier on these processes is then discussed showing the need to manage the selection, improvement, and feedback processes through the implementation of this unique Purchasing and Supplier Quality Management process. Supplier certification processes are also discussed with a focus on ISO9000 certification.
Recently I was giving a speech on this topic to a group of manufacturers. The people present were mostly from their production and inventory controls areas. I asked them whether their companies spent most of their time trying to improve their internal processes or do they spend more time dealing with suppliers. Almost unanimously, the answer was that most of the time is spent worrying about their own manufacturing process, not how the supplier affected that process. They felt that they really didn't have much control over that. Yet when I asked them how much of the total product variability provided to their customers came from their suppliers they almost unanimously responded that more than 50% of that variability came from the product that are provided by their suppliers. Then I asked why they were concentrating mostly on their own processes only? One should be aligning their suppliers to be helping them in their processes and vice versa.
This is the whole emphasis of this article. One cannot simply accept what you are getting from your suppliers. It also isn't enough to think that you can simply certify your suppliers. You must also identify which of them are most linked to your processes and will improve what they provide to you because it is in their own best interest to do so.
In this article we will introduce a Purchasing and Supplier Quality
Management System that was described in my recent book on this subject.
There are two key differences between this Purchasing and Supplier Quality
Management System and other approaches which uniquely satisfies the Malcolm
Baldrige National Quality Award requirements for Strategic Quality Planning in
the Supplier related functions. The first is the Quality Functional
Deployment (QFD or Policy Deployment) cascading approach used to link the
objectives of a Purchasing and Supplier Quality Management program to the
Business Drivers of the organization as a whole. The second is the unique
systematic approach to continuously improve internal and supplier processes to
meet or exceed the objectives of the organization.
(Figure 1 not available in text-only format of these Proceedings.)
The following key components are developed in this Supplier Quality Management
process (see Figure 1):
Customer Supplier Relationship. The environment within which everything else takes place must first be established. It is the long-term partnership culture that must be developed between the supplier and the organization. No longer can purchases be considered as if they are the only time the supplier will be doing business with us, but rather the whole business relationship needs to be managed. Overall the key is that both parties are gaining from the relationship into the future and not just in the short term.
Linking. This is the main thrust of this article. It is the emphasis on connecting the key business drivers of the organization with the key business drivers of the supplier that are most needed. This will allow for an organization to select suppliers that are most in tune with their own direction. Once this is done then what is good for one will also be good for the other, thereby strengthening the mutually beneficial relationship.
Improvement. Once a set of suppliers has been selected to work with, an organization should try to determine what processes and therefore what products will each particular supplier be asked to work on in concert with the organization. The organization can set up an improvement project with the supplier that will improve the overall supply chain for a particular product or service that the supplier provides for the organization. Once the supplier has shown results in this product it not only helps the organization, but also it helps the supplier since they now have a product or service that probably now exhibits improved characteristics of quality, function, and price and is more marketable.
Feedback. How well are we doing? This question is not asked frequently enough. An organization should determine their key business drivers and subsequently implement a good measurement system in order to assess how well they really are doing. If the efforts of suppliers are aligned to these same business drivers then they will in fact affect the results of the business drivers. They need to gain feedback on the degree to which these effects are evident. In return, the way that the organization conducts business with the supplier and the way that they cooperate with the supplier will alternately affect the results that the supplier can achieve. Therefore it is important that bilateral feedback systems be implemented and used to analyze the cause and effect relationships that each side has on the other....always with the common goal of mutual benefit and improvement.
Benefits. Why would anyone spend the time and effort to establish a systematic approach to the management of purchasing and suppliers? The main reasons include:
Aligning the Supplier (Linking). Most organizations have a separate Purchasing Department devoted to finding the highest quality and most cost effective products or services to meet or exceed the needs of their internal customers. These customers might range from Engineering to Manufacturing to Marketing or even to the Purchasing department themselves. The emphasis these days is to improve the supplier base, in fact the whole supplier chain, many times limiting the number of suppliers, so that the organization can be assured of lesser variability of incoming quality at a reduced cost. In addition we need to determine which suppliers will best be able to provide these products and services in the quickest fashion.
In our purchasing organizations we find ourselves in a difficult situation since we are asked to improve everything at once. We recognize that due to limited resources, this is impossible, but we don't know how to focus our efforts or those of the suppliers in order to align them better with organization goals and objectives. This is critical if we are to become a true service entity for our organization.
Although Total Quality Management has been used successfully in many organizations, both in the Manufacturing and Service industries, many times Supplier Quality is not given the importance it deserves. The efforts to improve Supplier Quality are not well linked to the resulting improvements in the value of the products and services being provided, to the improvements in customer satisfaction and retention, and to the improvements in competitiveness. This usually is the case when the Supplier Quality Management processes being utilized do not align the efforts of Purchasing and the Suppliers to the critical quality strategies of the organization. (Figure 2 not available in text-only format of these Proceedings.)
Alignment starts with the organization's Vision, Mission, Values and Key Business Drivers. These can be deployed to all areas of the company through a cascading process referred to as Policy Deployment. This Policy Deployment process is an application of the concepts of Quality Functional Deployment on the Strategic vs. the Operational means and targets of the organization. As can be seen from Figure 2, the process starts on the outside with the Vision, Mission, and Values of the organization. These are linked to the Processes that are most important to the success of the organization and which need the most improvement.
The assessment of importance and need for improvement should be made with the use of the Business Drivers and the relationship that each of the processes has with these. If one of the Business Drivers is the reduction of Cycle Time in all processes then a process that contributes a lot of cycle time to the overall business cycle then would be considered very important and one that is not meeting the benchmarked goals, targets or customer requirements then would be a process needing a lot of improvement. It is then necessary to find the process that in combination meets both criteria the most.
A prioritization matrix which would be similar in application to the House of Quality from Quality Functional Deployment can be used [3,4,5]. Figure 3 shows a sample application of this type of matrix. It is being used for a simplified manufacturer where the only processes to be considered are Design, Production, and Distribution. The Business Drivers for this manufacturer are Quality, Cycle Time, Quantity, Reliability, Cost, and Service. Weights were first determined for each of these Business Drivers utilizing market research and correlation techniques to determine which are the ones that contribute the most to the success of the organization as a whole. These weights are shown in the column next to the Business Drivers. (Figure 3 not available in text-only format of these Proceedings.)
The prioritization of the processes is accomplished by determining the level of relationship that each process has to each of the Business Driver, namely Importance (this is shown by the bullseye, circle, and triangle symbols). In addition the level of Need for Improvement that each Process has as it relates to each Business Driver should be assessed. Lastly a priority score is calculated for each Process and Business Driver combination by multiplying the Weight X Driver Relation X Need. A total score is created for each Process. The Process with the highest total score is considered to be the highest priority since it is the most important and needs the most improvement.
Once the highest priority processes are selected then the commodities that are most tied to these processes need to be considered for selection. Another matrix similar to the prioritization matrix shown in Figure 3 can be utilized to determine the relationship between each of the processes and the related commodities. Once the commodities most related to the priority processes are selected, these commodities need to be compared to the business drivers in another prioritization matrix. This would help narrow in on the commodities that need the special attention of a Commodity Team. Similarly the priority products/services are selected and the priority suppliers would also be selected. This process  is depicted in Figure 4.
When the suppliers have been selected and Commodity Teams have been
established, the Commodity Teams can determine which suppliers they want to
try to develop a long-term relationship with. One way that has been shown to
be successful is to determine specific improvement projects for the suppliers
to work on in tandem with the organization. These projects should be selected
to be of mutual benefit. During the development of the improvement project,
the organization can determine if in fact the supplier is one that they want
to strengthen a long-term relationship with.
(Figure 4 not available in text-only format of these Proceedings.)
A determination such as this can be made utilizing predetermined criteria to measure the supplier's performance. This criteria can be the basis for a supplier performance feedback system. Suppliers that are finally certified and are asked to be a part of the "Extended Organization" can help to develop a feedback report not only for themselves but also to provide information to the organization about their performance. This two way communication can help to further develop the relationship.
A systematic approach to Supplier Quality Management can be much more successful than the current methods used by many organizations. Many companies are successful using other approaches, but the question is whether or not they have just been lucky or do they really understand the cause and effect relationships of their approach. Do they know the contribution that a particular supplier and the relationship established with that supplier actually makes to the overall success of the organization. The focused energy that a systematic approach such as the one described in this article can bring is difficult to reproduce otherwise. The fact that a link is made from the organization to the supplier unites both entities in the search for better improved processes that benefit them mutually in the long-run. These improvements lead to the survival and continued growth of both companies. What more could we ask for?