ISQA 407 Introduction to Global Supply & Logistics Management Winter 2012

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

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

3. Sourcing and quality control Definition of terms: quality and quality control IBM defines quality asthe 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.

4. 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

5. 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

6. 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)

7. 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

8. 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?)

9. What should be measured? 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

10. 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.

11. 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

12. 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

13. 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

14. 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: http://www.hp.com/packaging/Procurement/paper.doc

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

16. 7 Deadly Sins of Performance Measurements • Vanity – cognitive dissonance (IBM PC) • Provincialism – only measure within an org group • Narcissism – measure from your point of view, not the customer • Laziness – We know best • Pettiness – only a small component of what matters • Inanity – Measure what you want to change • Frivolity – Not taking metrics seriously