Quality in the Purchasing Process
Supply Chain Quality Training
FreeQuality.org
Jeff Nelson
November 28, 2012
Marriott School of Management, BYU
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This Training Will Include
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Importance of Quality in Purchasing
Cost of Low Quality (COLQ) in Purchasing
Avoiding the COLQ and Increasing Quality
Determining the Specifics of Items to Purchase
Choosing and Selecting Suppliers
Quality and Purchasing Tools
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Quality Purchasing… Defined
The purchasing process is the series of steps
required to procure either materials, finished
products, or services. Purchasing from
suppliers plays a vital role in the supply chain
of every business and when driven by quality,
can lead to saved time, increased profits, and
higher levels of customer trust.
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Your Organization’s Purchasing
• Brainstorm how Quality Purchasing applies
to your organization:
– Do You Purchase:
• Raw Materials?
• Finished Product?
• Outsourced Services?
• How has Quality Management played a role
in your purchasing process?
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Quality in the Purchasing Process
• Why is it important?
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Reduces Costs, Saves Money
Saves Time
Prevents Larger Problems
Maintains and Increases Goodwill (reputation)
with those further downstream in the supply
chain (customers)
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The Cost of Low Quality (COLQ)
(Cost of Noncomformance)
• Loss of defective product or material
• Loss of any and all products or services
associated or connected with the defective
product or material
• Loss of goodwill and reputation with
customer(s)
• Potential loss of sale(s)
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The Bullwhip Effect of Cost
• Bullwhip Effect – the damage or cost is
more intense the further you are away from
that event (purchase) in the supply chain.
Supplier(s)
Production Processes
End Consumer
Cost of Faulty Product/Material
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The Bullwhip Effect in Action
• The Widget Corp:
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Material-1 from Supplier-A = $5
Material-2 from Supplier-B = $15
Manufacturing Cost = $30
Warehousing & Final Transportation Fees = $5
• What is the cost of damage if the end
consumer finds that material-1 is defective?
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The Bullwhip Effect in Action
• The total cost of the defective $5 material is
$55 plus any lost goodwill/business from
that customer.
Simple, But True
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Evaluate Your Own Bullwhip Effect
• Discuss in groups how one damaged input
translates to final output in your business
model.
• Discuss what the cost could be if the defect
is found early in the supply chain and
compare to the bullwhipped cost.
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Avoiding the Bullwhip Effect
“Our problem is not just the outgoing; it starts with
the incoming” – S. Thomas Foster, Managing Quality
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“Quality at the Source” Attitude
Sourcing the Correct Materials
Choosing and Building up the right suppliers
Product Traceability
Quality Inspections, Acceptance Sampling
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Determining What to Purchase
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Arguably most important
Voice of the Customer (VOC)
During the design process
Collaboration of Marketing, Engineering,
and Supply Chain
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Supplier Relations
• Relationships are everything in the supply
chain world… The relationships make all
the difference.
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Choosing a Quality Supplier
• Consider the Following:
– Total Cost of Ownership (TCO)
– Location
• Cheaper Logistics and Traditionally Better Quality
Control
– Customized Factor-Weight Scale
• Determine Factors, apply weights to each factor,
rate each supplier independently for each factor.
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Sourcing Pricing
• Catalog Pricing (for simple goods)
• Request for Proposal (RFP)
- Price is set in proposal
• Reverse Auction
- Request for bids
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Purchase Order Efficiency
• Purchase agreement document
• Ensure filled out correctly
• Electronic sourcing systems can help
streamline the PO process.
• Blanket Order PO’s
– Traditionally lower price with higher volume
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Electronic Sourcing
• Reduces human errors in purchasing
process.
• Connects supplier and buyer to enable a
lean automatic Just-In-Time (JIT)
Purchasing process.
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Supplier Awards
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Motivation for suppliers to perform
Increases competition among suppliers
Establish Stronger Relationships
Rewards and Recognizes Excellence
Helps identity most valuable suppliers
Low cost to implement award program
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A Real-World Example of Award Recognition
Hormel Receives Supplier of the Year Award from Walmart
“We are honored to be recognized by Walmart for
this outstanding accomplishment,” said Patrick J.
Connor, vice president at Hormel Foods and senior
vice president of sales-Walmart. “This award
recognizes the extraordinary efforts of our entire
team throughout the U.S. and symbolizes our longterm growth and strategic alignment with one of our
top customers.”
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http://www.hormelfoods.com/Newsroom/Press-Releases/2012/03/20120319
Procurement Standards
• Establish in-house standards for the
purchasing process
– Suppliers must agree on standards
– Can be in the form of performance
measurements (defined,
measureable specs)
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Product Traceability
• Essential in achieving “Quality at the
Source”
• Consider traceability components as a
requirement in procurement.
– Can be in the form of code on product
indicating supplier, date, factory, etc.
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Acceptance Sampling
• Tool used for quality inspections
• Upon receiving large quantities of
purchased good or materials, inspect a
sample for quality.
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Continuous Improvement
• Supply Chains can always be improved
even if not Broken
• NO: “If it ain’t broke, don’t fix it.”
• YES: “If it ain’t perfect, continue to
improve it.”
• Develop a Continuous
Improvement Attitude
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Summary
• Attention to quality is essential to a successful
purchasing process with higher efficiency.
• The cost of purchasing low quality goods is often
higher than anticipated if not controlled.
• Supplier relationships are the key to purchasing and
maintaining quality in procurement.
• Use quality control techniques such as acceptance
sampling and product traceability.
• Develop a “Quality at the Source” attitude and always
continue to improve.
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Excellent Readings
• Managing Quality: Integrating the Supply Chain by S.
Thomas Foster, Fourth Edition (Educational Textbook)
• Proactive Procurement by David N. Burt, 1984
• Supply Chain Management: From Vision to
Implementation by Fawcett, Ellram, and Ogden, 2007
(Educational Textbook)
• TQM for Purchasing Management by James F. Cali, 1993
• Operations and Supply Management: The Core by Jacobs
and Chase, Second Edition (Educational Textbook)
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