This Document Contains Chapters 9 and Appendix 9A Chapter 9: Managing Supplier Quality in the Supply Chain Chapter Outline The Value Chain Supplier Alliances Supplier Development Applying the Contingency Perspective to Supplier Partnering A Supplier Development Program: ISO/TS 16949 Acceptance Sampling and Statistical Sampling Techniques Building An Understanding Of Supply Chain Quality Management Overview The theme of this chapter is the relationship between suppliers, producers, and consumers. The chapter discusses the roles of purchasing, supplier development, logistics, and other supply chain functions. The interrelationship between these interests is discussed and analyzed. The ISO standard TS 16949 was presented here as a good example of how automakers are developing and evaluating their suppliers. Supplier development efforts have resulted in greatly improved product quality for many firms. As firms learn more about developing suppliers, new practices will emerge. The eventual goal of supplier development is that the supplier resembles a de facto subsidiary of your company. Discussion Questions 1. What is the supply value chain? How does the supply value chain help organizations manage their supply chains? The supply chain is the set of all activities that the company performs and how they interact with each other. The value chain breaks down the activities of the company into its component parts in order to identify and reduce internal competition. Figure 9-1 displays the value chain. These are the core supplier-related activities that a firm performs that add value for the customer. If these supply value chain activities are performed well, the result is high customer satisfaction. Thus, a firm benefits from identifying its supply value chain by recognizing the supplier-related activities that increase customer satisfaction. This process allows the company to concentrate on the expenses that are directly related to the customer. 2. Describe the concept of the hidden factory. How can a realization that the hidden factory exists help managers? Non-value chain activities have costs; however, they do not affect the customer. In essence, they are not tightly coupled to revenue. These activities are referred to as hidden factories. Hidden factories contain the bureaucratic activities. These are identified in Figure 9-1. Identifying these hidden factories allows the company to concentrate on the other core processes, thus increasing customer satisfaction. 3. Think about a job that you have had or a volunteer organization with which you have been associated. Did this organization have a hidden factory? If so, describe at least two activities that you would associate with the organization’s hidden factory. In a youth group such as Boy Scouts or Girls Scouts, the core processes are the adult leaders who deal directly with the children. These core processes are evident at all functions and activities. Behind the scenes are the volunteer committee and professionals who provide all of the logistical support for the youth organization. 4. Describe the concept of chain of customers. How does this concept benefit the ultimate consumer of a product or service? One aspect of the value chain is the chain of customers. This implies that if you look at the value chain horizontally, each step or link in the chain is a person performing tasks for different customers. In Figure 9-1, the chain of customers is: inbound logistics, transformation processes, and outbound logistics. Each step defines an internal customer to the previous step. Transformation processes is an internal customer to inbound logistics. The concept is that if we all try to satisfy our internal customers, the final customer will be satisfied. 5. What is the purpose of single sourcing? How can single sourcing help firms meet their quality objectives? Single sourcing refers to the use of a single supplier for a specific item. The advantage of this is that the relationship between the two companies becomes highly important to both parties. If single sourcing is effective, page 215 explains: … industry, supplier–partner relationships have emerged that treat suppliers as de facto subsidiaries of the customer organization. We say de facto subsidiaries because as information is shared and communications are improved, the relationship begins to resemble a parent/subsidiary instead of separate firms. 6. What are two of the most commonly used sole-source filters? Do you believe that these sources are appropriate? Please explain your answer. Sole-source filtering refers to the situation that exists when a company looks at some mechanism for evaluating potential sole-source relationships. The most obvious filters are the Baldrige criteria and ISO 9000: 2008. Chapter 3 discussed this point. When a company has achieved this level of quality, an assumption can be made that the service will be reliable and consistent. 7. What is the purpose of a supplier certification or qualification program? What is the difference between a supplier certification program and a supplier development program? A supplier certification or qualification program is an intensive investigation into the potential supplier. These programs frequently involve long-term visits and evaluation. A large investment is made in both time and money. The alternative is a supplier development program. In this situation, the company trains the supplier over a long period of time. Potentially, this can provide a better fit between the two companies. 8. How does electronic data interchange facilitate the supply-chain process? Electronic data interchange is a system by which the customer’s and supplier’s information systems are able to communicate. This provides the ability for the two entities to work together to produce the needed product in a more efficient manner. On page 218, the text uses Chrysler Motors as an example: …suppliers of seats to Chrysler Motor Corporation must be able to meet the schedule changes within 36 hours. Schedules are communicated through an electronic data interchange link on a real-time basis. 9. How does the contingency perspective apply to supplier partnering? Different companies in the supply chain can have different perspectives of what customers want from their suppliers. Assemblers, suppliers, and indirect suppliers all have a different set of priorities. Knowledge of these different priorities assists in a better relationship between customers and producers. The contingency perspective can be summarized as in Chapter 1: 10. What is a supplier audit? How does a supplier audit differ from a supplier certification program? In a supplier audit, a team of auditors audits the supplier’s quality procedures and objectives. This audit reports on the current state of quality at the supplier’s end. The audit is just a reporting mechanism. A supplier development program, as stated in Discussion Question 7, allows the company to train the supplier over a long period of time. 11. Describe the concept that is referred to as supplier alliances. How does this concept differ from the traditional form of supplier–customer relationship? Page 214 states: Supplier–alliance relationships have emerged that treat suppliers as de facto subsidiaries of the customer’s organization. We say de facto subsidiaries because as information is shared and communications are improved, the relationship begins to resemble a parent/subsidiary instead of separate firms. The theme of this material has been about improving the communications between the supplier and the customer as well as reducing the number of suppliers. This improved communication enables a better product to be delivered and, potentially, a better product for the end user. This concept is called supplier partnering. 12. ISO/TS 16949 is a concept that was developed by Chrysler, Ford, and General Motors. Explain what ISO/TS 16949 is and how it has helped its developers. This concept is defined on page 221. ISO/TS 16949 is a standard that specifies the quality system requirements for the design/development, production, and, where relevant, installation and servicing of automotive-related products. This is basically an extension of ISO 9000:2008 that is applicable to the automotive industry. On page 222, Table 9-2 provides the content of the standard: 13. Is ISO/TS 16949 a good thing for auto suppliers as well as auto manufacturers? Explain your answer. The standard makes clear the expectations that the auto manufacturers have of the auto suppliers, which reduces ambiguity and sets specific standards and objectives for the suppliers to meet. The standard allows suppliers to recognize and document their processes and ensure that a continuing pattern of quality improvement exists. 14. How does ISO/TS 16949 differ from ISO 9000:2008? Is the distinction between the two quality concepts important for the adopters of ISO/TS 16949? As ISO 9000 gained universal acceptance in the automotive industry, the need for a standard that was designed for the automotive industry was discussed. After some revision, IS/TS 16949 was developed to fill this need. This standard is defined on page 221: ISO/TS 16949 is an International Standards Organization (ISO) Technical Specification that aligns existing automotive quality system requirements within the global automotive industry. ISO/TS 16949 specifies the quality system requirements for the design/development, production, and, where relevant, installation and servicing of automotive-related products. 15. What is acceptance sampling? When is acceptance sampling needed? Acceptance sampling is a statistical procedure in which a predefined number of products are inspected for quality. This number of items can range from 100% to a small sample. There is a fair amount of controversy over this procedure. Deming stated that sampling can be most effective in a controlled number of cases as opposed to inspecting all products. (Refer to Acceptance Sampling 9A in this Instructors Manual.) Acceptance sampling might be needed regarding the following: when dealing with unproven suppliers during start-ups and when building new products when products can be damaged in shipment when dealing with extremely sensitive products that can be damaged easily when products can spoil during shipment when problems with a certain supplier have been noticed in the production processes that bring the supplier’s performance into question Case 9-1: AT&T: Setting High Standards for Suppliers and Rewarding Supplier Performance 1. Do you believe that AT&T’s standards for its suppliers are too rigid? Why or why not? The obvious answer is that AT&T's standards are not too rigid. Supply chain management is important to AT&T, and the company has every right to be demanding of its suppliers. In addition, AT&T discloses its requirements to its suppliers in advance of any action. As a result, if a supplier thinks that the requirements are too rigid, it can simply opt out of a relationship with AT&T. AT&T’s standards for its suppliers might be seen as rigid by some due to their emphasis on high performance and strict criteria. However, these standards are often necessary to ensure quality, reliability, and alignment with AT&T’s business goals. Rigidity can be justified if it leads to improved overall performance and customer satisfaction. 2. Is the Supplier Quality Report a good idea or are monthly reports too frequent and intrusive? Please explain your answer. Again, the obvious answer is that the Supplier Quality Report represents a good vehicle for AT&T and its suppliers to maintain an ongoing dialogue. In that respect, the report is good. In addition, if a supplier is disappointing to AT&T in any way, the supplier quality report causes the problem to surface very quickly, and corrective action can be taken. This process works to the advantage of both AT&T and its suppliers. The Supplier Quality Report can be a good idea as it helps maintain high standards and provides regular feedback. Monthly reports are frequent but can be beneficial for promptly identifying and addressing issues. They ensure ongoing monitoring and continuous improvement. However, the frequency should be balanced to avoid being overly burdensome for suppliers. 3. Do you believe suppliers should receive awards and designations of merit from the companies that purchase its products? Please explain your answer. Answers will vary. Awards and designations reinforce positive behavior. In addition, the possibility of winning an award or receiving a special designation provides a supplier an incentive to perform well within the context of a supplier-customer relationship. Yes, suppliers should receive awards and designations of merit. These recognitions motivate suppliers to maintain high performance, strengthen relationships, and encourage continuous improvement. They also help build a positive and competitive supplier ecosystem. Case 9-2: Managing the Supply Chain at Honeywell 1. Why does Honeywell spend so much time dealing with supply chain management issues? Wouldn’t the company be better off focusing on its own manufacturing operations? Explain your answer. Like many firms, Honeywell does not make all of the components that go into its finished products. The company uses a number of suppliers that provide component parts to Honeywell's manufacturing and assembly operations. As a result, Honeywell can avoid a lot of downstream problems by ensuring that the parts that it receives from its suppliers are of high quality at an affordable price. A close eye on supply chain management does not preclude Honeywell from focusing on its own manufacturing operations too. However, if Honeywell focuses too much time on its own operations, it may neglect supply chain management, which is important in its own right. 2. What aspect or aspects of Honeywell’s approach to supply chain management appear to be particularly prudent? Can you suggest any additions to Honeywell’s supply chain management program? This question hinges on the definition of the word prudent. This question should make a good discussion topic for the class. Honeywell’s approach to supply chain management is prudent due to its focus on strategic supplier partnerships, rigorous performance metrics, and continuous improvement initiatives. To enhance this, Honeywell could consider incorporating more advanced technologies like AI and blockchain for better real-time visibility and predictive analytics, which could further optimize supply chain efficiency and resilience. 3. Do you believe that Honeywell’s approach to supply chain management creates a win-win situation between the company and its suppliers? Why or why not? The obvious answer is that Honeywell's approach to supply chain management does create a win-win situation between the company and its suppliers. Honeywell wins by establishing criteria to ensure that it will get exemplary performance from its suppliers. Its suppliers win by having clear criteria to work with, good quality feedback, and hopefully a steady and successful customer. Yes, Honeywell’s approach to supply chain management can create a win-win situation as it emphasizes collaboration, performance improvement, and shared goals. By fostering strong relationships and providing clear performance expectations, both Honeywell and its suppliers benefit from improved efficiency, quality, and mutual growth. Chapter 9A Appendix Acceptance Sampling - Supplement to Chapter 9 Discussion Questions 1. Define producer’s risk and consumer’s risk. Statistically, this concept is called hypothesis testing. Producer’s risk is the risk of rejecting a good shipment. Consumer’s risk is the risk of accepting a poor shipment. Table 9A-1 shows this situation: The probabilities of producer’s and consumer’s risk can be computed and used as an aide in decision making. 2. Define the concept of acceptable quality level. Why has this concept been troublesome to many people? Acceptable quality level is defined as the percentage of potential rejects that are allowed. To some, this is acceptance of poor quality. This is contrary to Deming’s concept of continual improvement. Six Sigma, which is discussed later in the text, is a movement to drastically reduce the level of rejected items. 3. What is the term that is used to designate the level of poor quality that is included in a lot of goods? Please describe the role of this term in the quality management process. Lot tolerance percent defective (LTPD) is the level of poor quality that is included in a lot of goods. This can be contrasted with acceptable quality level (AQL), which is defined as the maximum percentage or proportion of nonconforming items (or number of nonconformities) in a lot or batch that can be considered satisfactory as a process average. 4. What is an operating characteristic curve? What is the function of this curve in the quality management process? The operating characteristics (OC) curve provides an assessment of the probabilities of acceptance for a shipment, given the existing quality of the shipment. The OC curve presents the probability if accepting a lot when there might be an excess of defective items. Problems The following operating characteristic curves can be used to design the following sampling plans in questions 1 to 4. 1. Using Figure 9A-2, with a sample size of n = 100 and an acceptance number of c = 1, if a good shipment has no more than .05 defective, what is the probability of acceptance? What type of risk is this? Pa .94 (estimate) Producer’s risk 6% 2. Using Figure 9A-2, with a sample size of n = 100 and an acceptance number of c = 2, if a bad shipment has 40% defective, what is the probability of acceptance? What type of risk is this? Pa .38 (estimate) Consumer’s risk 38%. 3. Using Figure 9A-2, with a sample size of n = 100 and an acceptance number of c =3, if a good shipment has no more than .02 defective, what is the probability of acceptance? Pa .98 (estimate) Producer’s risk .02 4. Using Figure 9A-2, with a sample size of n = 100 and an acceptance number of c =1, if a good shipment has no more than .30 defective, what is the probability of acceptance? Note: The x-axis on Figure 9A-2 should be .1, .2, .3, etc. Pa .38 (estimate) Producer’s risk 62% 5. Develop an OC curve using Table 9A-2, a sample size of 50, and the following np values: 0.5, 1, 2, 3, 4, and 5. The maximum acceptance number is c = 1. 6. From the OC curve developed in Problem 5, if a good shipment is 0.02 defective, what is the probability of a Type I (producer’s) error? Probability of Acceptance at .02 defective = 75%, therefore the producers risk is 25%. 7. From the OC curve developed in Problem 5, if a bad shipment is defined as having at least 10% defective, what is your estimate of Type II (consumer’s) risk? LTPD = 10%, therefore consumer risk is 9%. 8. Develop an OC curve using Table 9A-2, a sample size of 50, and the following np values: 0.5, 1, 2, 3, 4, and 5. The maximum acceptance number is c = 3. 9. From the OC curve developed in Problem 8, if a good shipment is .04 defective, what is the probability of a Type I (producer’s) error? Probability of Acceptance at .04 defective = 88%, therefore the producers risk is 12%. 10. From the OC curve developed in Problem 8, if a bad shipment is defined as having at least 15% defective, what is your estimate of a Type II (consumer’s risk) error? Estimate based on the OC curve, very low, less than 10%. 11. Please explain the following sampling plan in easily understood terms: n1 = 50 c1 = 2 n2 = 100 c2 = 5 r1 = 4 r2 = 6 Fifty items from the incoming lot are drawn at random. If two, one, or zero defective pieces are found, accept the lot. If four or more defective pieces are found, reject the lot. If three pieces inclusive are found defective, perform a second sample with 100 pieces. If the combined number of defective pieces in both samples (total 150 pieces) is less than or equal to six, the lot can be accepted. 12. Please explain the following sampling plan in easily understood terms: n1 = 125 c1 = 3 n2 = 150 c2 = 6 n3 = 200 c3 = 12 125 items from the incoming lot are drawn at random. If three, two, one, or zero defective pieces are found, accept the lot. If seven or more, reject the lot. If four, five or six defective pieces are found, randomly choose another sample of 150 items. If the number of defectives in the combined two samples is less than or equal to 12, the lot is accepted. If the number of defectives is greater than 12, reject the lot. 13. We want to develop a double-sampling plan where n1 = n2 (see Table 9A-3). Here are the needed parameters: AQL = .010 LTPD = .030 Producer’s risk = .05 Consumer’s risk = .10 LTPD/AQL = .030/.010 = 3.0 Plan #11 since closest to R 3.09 c1 = 4, c2 = 8, P = 2.62 n1 = 2.62/.010 = 262, therefore n2 is also = 262 14. Rework Problem 13 where n2 is twice the size of n1 (see Table 9A-4). LTPD/AQL = .030/.010 = 3.0 Plan #10 since closest to R 2.96 c1 = 3, c2 = 10, P = 2.27 n1 = 2.27/.010 = 227 therefore n2 is 2(n1) = 454 15. We want to develop a double-sampling plan where n1 = n2 (Table 9A-3). Here are the necessary parameters: AQL = .020 LTPD = .080 Producer’s risk = .05 Consumer’s risk = .10 LTPD/AQL = .080/.020 = 4.0 Plan #7 since closest to R 3.88 c1 = 2, c2 = 5, P = 1.43 n1 = 1.43/.020 = 71.5, therefore n2 is also = 71.5 16. Rework Problem 15 where n2 is twice the size of n1 (Table 9A-4). LTPD/AQL = .080/.020 = 4.0 Plan #7 since closest to R 4.19 c1 = 1, c2 = 5, P = 0.96 n1 = 0.96/.020 = 48, therefore n2 is also = 96 17. Your boss wants you to develop a double-sampling plan where n1 = n2 (using Table 9A-3). Here are some parameters for your use: AQL = .015 LTPD = .040 Producer’s risk = .05 Consumer’s risk = .10 LTPD/AQL = .040/.015 = 2.66 Plan #13 since closest to R 2.60 c1 = 5, c2 = 11, P = 3.68 n1 = 3.68/.015 = 245.3, therefore n2 is also = 245.3 18. Rework Problem 17 where n2 is twice the size of n1 (Table 9A-4). LTPD/AQL = .040/.015 = 2.66 Plan #12 since closest to R 2.62 c1 = 4, c2 = 13, P = 3.07 n1 = 3.07/.015 = 204.7, therefore n2 is also = 409.3 Solution Manual for Managing Quality: Integrating the Supply Chain Thomas S. Foster 9780133798258
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