PURCHASING &SUPPLY MANAGEMENT: TACTICS & OPERATIONS Mrs Lusungu Siame-Lecturer OSM Dept SPECIFYING AND ASSURING THE QUALITY OF SUPPLIERS DEFINITION OF QUALITY • Quality is many things to different people. • “The totality of features and characteristics of a product that bears on the ability to satisfy stated or implied needs.”(ISO 8402) • Conformance to requirements (Philip Crosby) • Fitness for purpose or use (Juran) • Getting things RIGHT FIRST TIME; ‘It costs less to prevent a problem than it does to correct it’ QUALITY AND SUPPLY CHAIN MANAGEMENT • Quality is an important part of the supply chain • Quality inspections should be conducted during the manufacturing process • Quality checks should be conducted before goods arrive at the customer’s premises • All material should be of correct quality specification • An effective purchasing function is one of the essential competencies to quality management and supply chain success. GARVIN’S 5 APPROACHES TO QUALITY DEFINITION • Transcendent definition: absolute and universally recognizable • Product-based definition: precise and measurable variable- quantities of product attributes • User-based definition: fitness for intended use; meeting or exceeding user expectations • Value-based definition: quality vs. price • Manufacturing-based definition: conformance to specifications GARVIN’S 8 PRODUCT QUALITY DIMENSION • Performance-Primary operating characteristics of a product. • Features-Characteristics that supplement basic product performance features. • Reliability-Probability of a product’s success within a specific period of time. • Conformance-Degree to which a product’s design & operating characteristics meet pre-established standards. Garvin's 8 Product Quality Dimension Cont’d • Durability-Measure of product life: Amount of time of use one obtains from a product before it physically deteriorates. • Serviceability-Speed, courtesy ease of use, maintenance and service. • Aesthetics-The look, feel, sound, taste or smell of a product. • Perceived quality -Relates to the customer’s subjective opinion of the product’s or company’s reputation. QUALITY SYSTEMS IN PURCHASING • Organizational Structure, responsibilities, procedures, processes and resources for implementing quality management • Measure how a process, product meet customer needs • Requires integration of all depts to deliver quality products and services • Policy, planning, organization, and administration • Product design assurance and specification development Quality Systems cont’d • Control of purchased materials and component parts • Production quality control and assurance • Customer contact • Employee selection, training, and motivation • Legal requirements - product liability and user safety • Sampling and other statistical techniques QUALITY LOOP PRODUCT DEVELOPMENT DESIGN STAGES IDEA GENERATION •Conducting marketing research •Inviting suggestions from consumers •Inviting suggestions from employees •Brainstorming suggestions for newproduct ideas •Search different markets i.e. national and international markets for newproduct ideas •Getting feedback from agents or dealers about services offered by competitors •Studying the new products of the competitors IDEA SCREENING • Is it necessary to introduce a new product? • Can the existing plant and machinery produce the new product? • Can the existing marketing network sell the new product? • When can the new product break even? CONCEPT TESTING •Whether the consumers understand the product idea or not? •Whether the consumers need the new product or not? •Whether the consumers will accept the product or not? BUSINESS ANALYSIS •Whether the new product is commercially profitable or not? •What will be the cost of the new product? •Is there any demand for the new product? •Whether this demand is regular or seasonal? •Are there any competitors of the new product? •How the total sales of the new product be? •What will be the expenses on advertising, sales promotion, etc.? •How much profit the new product will earn? PRODUCT DEVELOPMENT • Introduce a new product in the market • Takes all the necessary steps to produce and distribute the new product. • Production department will make plans to produce the product. • Marketing department will make plans to distribute the product. • Finance department will provide finance for introducing the new product. • Done as a small scale for Test Marketing TEST MARKETING • Introduce the new product on a very small scale in a very small market. • If the new product is successful in this market, then it is introduced on a large scale. • If the product fails in the test market, then the company finds out the reasons for its failure. It makes necessary changes in the new product and introduces it again in a small market. If the new product fails again the company will reject it. • Reduces the risk of large-scale marketing, safety device, time-consuming but it must be done especially for costly products. COMMERCIALISATION • If the test marketing is successful, then the company introduces the new product on a large scale. • The company makes a large investment in the new product. • It produces and distributes the new product on a huge scale. • It advertises the new product on the mass media like TV, Radio, Newspapers, and Magazines, etc. REVIEW OF MARKET PERFORMANCE •Is the new product accepted by the consumers? •Are the demand, sales and profits high? •Are the consumers satisfied with the after-sales-service? •Are the middlemen happy with their commission? • Are the marketing staff happy with their income from the new product? • Is the Marketing manager changing the marketing mix according to the changes in the environment? • Are the competitors introducing a similar new product in the market? DEVELOPMENT OF SPECIFICATION • Statement of attributes of a product or service • Indicate fitness for use /purpose • Communicates requirements of a user or purchaser to the supplier • Used a comparison between the requirement and what is supplied • Provides evidence in case of a dispute between a buyer and supplier Specification • Key questions when drawing up specifications: 1. Product-performance objectives, functionality, output, outcomes, features, process needs, compatibility, reliability, durability, maintainability, ease of use. 2. Price-purchase price, TCO, package of benefits.. 3. Quantity-one-off or continuous requirement, demand forecasts, etc 4. Quality-desired level of quality 5. Timing-time-phased requirements (daily, weeks) and tolerances. 6. Place-delivery address, delivery requirements e.g consolidated or breaking of bulk, packaging and transport requirements. The process of developing the specification Advantages of specifications • Ensures uniformity when buying from more than one source. • Specs provide a criteria for measuring the quality and acceptability of purchases once delivered. • Specifications provide evidence of what the purchaser requires to be part of the contract. Disadvantages of Specifications • Coming up with detailed specification is expensive and time consuming process. • The cost of inspection and QC are greater for complex specifications. • Specifications sometimes stifle innovation and initiative. • Specs creates a temptation to over specify and add costs. Effective Specifications • Specify requirements clearly and in non-technical language. • Enable potential bidders for the contract to self select. • Enable supplier flexibility and innovation in coming up with VFM solutions. • Avoid over or under specification. • Avoid the use of brand specification Ineffective Specifications • Misunderstanding with suppliers over requirements and expectation. • Misunderstanding with stakeholders over requirements and expectation. • Quality defects in the goods supplied. • Goods may fail to function as they should. • Goods or services may be over-specified. Types of Specifications 1. Conformance specifications also known as technical or design specs 2. Performance specs also know us output, functional or outcome specs Conformance Specs • Buyers details exactly what the required product, part or material must consist of. • Examples are: • Engineering drawing, • a chemical formula or recipe of ingredients, • a sample of a product to be duplicated • The supplier may not know in detail the function of the product. Technical and Design Specs A technical spec would include the following: • The scope of specification (its objectives and contents) • Definitions: explanation of any technical or specialised terms used. • The purpose of the equipment or material • Drawings, samples, or models of the required product. • Maintenance and reliability requirements • Material requirements • Specification on packaging and protection Specification by Chemical or Physical Properties • These are similar to technical specs, they are important where: • Certain physical properties (strength, flexibility, durability) are important for safety or performance. • Certain material are restricted by law e.g lead in petrol. Specification by Brand Name •The buyer must be familiar with a particular brand. •Such may include Toyota for cars, Gucci for clothes etc. •A buyer may simply order the units need since brands have quality reputation Specification by Sample • If a purchaser knows exactly what he wants because he has a sample of the item. • The supplier simply duplicate the features and the units required. • Common in some industries e.g paint, architectural works, etc Limitations of Conformance Specs • Difficult, time consuming and costly to draft. • The buyer bears all the risks of design not performing to expectations. • Conformance specifications may restrict the potential supplier base. • Conformance specification restrict innovation and range of solutions to problems. Strengths of Conformance Specs • Where technical dimensions, weights and tolerances are critical for functional, operational and safety and quality reasons. • Composition specifications may be critical in the production of chemicals, plastics, engineering and construction works. • It may be important for compliance issues where materials are restricted, e.g lead in petrol and paint. Performance specification • A performance spec is a brief document that defines functionality, performance, outputs and outcomes to be achieved. • The functionality, performance, capabilities, outputs or outcomes to be achieved within specified tolerances. • The key process inputs e.g energy use, etc • The operating environment and conditions. • How the product will interface with other processes. • Required quality levels. • Relevant standards • Criteria and methods to be used to evaluate performance Advantages of Performance Specs • They are easier and cheaper to draft. • They do not depend on the technical knowledge of the buyer. • Suppliers can use their full expertise, technology and innovative capacity to develop optimum low-cost solutions. • Risks are borne by the supplier. • The potential supplier base is wider. Pre-condition to use Performance Specs • Suppliers should have a relevant technical and manufacturing expertise than the buyer. • Technology is changing rapidly in the supply industry. • There are clear, objective criteria for evaluating solutions put forward by suppliers. • The buyer has sufficient time and expertise to assess the potential functionality and outcomes of supplier proposals. Specifying Services • Why services are different: 1. Services are intangible. 2. Services are variable. 3. Services are inseparable and perishable. 4. Services are consumed at the point of provision. Specifying Services •Agree on the services levels •Schedules •Basis for charges before the contract is signed. •Professional input is important. •Supplier management is also important.
