Planning
11. Purchasing, new product
development and quality
control
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Program
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Purchasing and new product development
Benefits and risks related to early supplier involvement
Purchasing and quality control
Assessing supplier quality: diagnostic methods
Implementing supplier quality assurance: consequences
for purchasing
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and new product development
Stages in the development process:
1.
Product development
Marketing ideas are translated into functional designs
2.
Product design
Functional designs are worked out in detail, prototypes are made.
3.
Preproduction planning
Production requirements are take into account. Ends with trial
runs and preproduction series.
4.
Start of the production
Preproduction series are examined. Design and technical
changes are documented in change-orders.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and new product development
Purchasing’s relationship to the new product development process
Degrees of
freedom specification
Costs/degrees of freedom
High
100%
Cost of engineering changes
Low
0%
Product
development
Degrees of freedom
purchasing
Product
Preproduction
Design
planning
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Production
Time
Purchasing and new product development
How do large manufacturers communicate with their first
tier suppliers in product development projects?
 Purchasing engineering
A specialist function to provide the liaison between the engineering
department and the purchasing department
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Early supplier involvement (ESI)
Best-in-class suppliers are invited to participate in the company’s
product/process development projects at an early stage.
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Residential engineering
Engineers from the other party are located on a more or less
permanent basis within the organization.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and new product development
One supplier
Monopoly
Engineering
function
Purchasing
function
Purchasing
Market
More suppliers
Competition
Conflicting interest between purchasing and engineering activities…
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and new product development
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Involving buyers in development processes at an early
stage can result in contribution of new knowledge and
better understanding of:
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Construction
Suitable materials
Suppliers
Supplier knowledge
Involving the supplier in new product development can
also result in considerable savings
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and new product development
Figures in table indicate percentage of savings on cost price
Degree of design complexity
or product uniqueness (%)
Stage of product design
Low
Average
High
Initial design
2-5
10-25
30-50
Changing existing design
1-3
3-15
15-25
Redesigning to improve quality
10
15-30
40-60
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Benefits and risks related to early supplier
involvement
In assessing the benefits of ESI companies need to differentiate between
short term and long term benefits
Short term benefits
Long term benefits
Benefits resulting from:
 improved product quality
 reduction of product cost
 reduction of development time
 reduction of development cost

More efficient and effective
collaboration in future new product
development projects
 Alignment of future technology
strategies
 Better access to technology
resources of the supplier
 Contribution of suppliers to product
differentiation
Van Echtelt, 2004
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Benefits and risks related to early supplier
involvement
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ESI is not without risks. In most cases the risks are related to
companies being afraid of:
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Losing crucial product- or process knowledge and skills to the supplier
Becoming locked in into a specific supplier technology
Slowing down the development process by involving suppliers early in
the process
Increasing relationship and/or coordination costs
Changing interests and levels of commitment
Companies that want to involve suppliers in new product
development need:

to develop a long term view on their make or buy policies, supplier
selection and other strategic supply processes
 to be experienced in applying modern project management techniques
 to develop partnership relationships with suppliers that go far beyond
the traditional buyer-supplier relationships
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
Definition of terms: quality and quality control
IBM defines quality as the 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 objectively.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
For every transaction between customer and supplier, they
need to agree on:
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the basic requirements of the transaction.
the way in which the requirements are to be realized.
how to check that the requirements are (being) fulfilled.
the measures to be taken when the requirements/expectations
are not met.
Quality assurance concerns keeping methods and
procedures of quality control up to date
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
Requirement
Feedback
The requirement
-verification cycle
Realization
Check/verification
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
The cost of quality
1)
2)
Prevention costs - the costs of preventing quality errors
Assessment costs - the costs related to the timely recognition of
quality errors
3)
Correction costs - the cost that result from (rectifying) mistakes
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Internal error costs: result from mistakes noticed in time
External error costs: are result of flaws identified by the customer
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
Quality Costs Model
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Purchasing and quality control
Supplier quality assurance building blocks:
 Preparing the purchase order specification (sign-off procedures)
 Preliminary qualification of (potential) suppliers (quality audit)
 Sample inspection procedure to determine the initial sampling
reject rate
 Delivery of first and subsequent preproduction series and
evaluation
 Manufacture of the first production series
 Quality agreement and certification
 Periodic verification (supplier rating systems)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Assessing supplier quality: diagnostic
methods
Methods for assessing a supplier’s capabilities:
 Product audit
Provides an image of the degree in which a company succeeds in
making everything run perfectly by inspecting final products.
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Process audit
A systematic investigation of the extent to which the (technical)
processes are capable of meeting the standards.
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Systems audit
Compares the quality system to external standards (e.g. ISO 9000)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Assessing supplier quality: diagnostic
methods
The ISO 9000 series of quality assurance standards
Standard Title
ISO 9000 Guidelines for selection and application of ISO 9000 through 9004
ISO 9001 Requirements concerning quality control in purchasing, development,
production and sales (equivalent to AQAP 1)
ISO 9002 Requirements concerning quality control in purchasing, production
and sales (equivalent to AQAP 4)
ISO 9003 Requirements concerning quality control of final inspection and testing
(equivalent to AQAP 9)
ISO 9004 Guidelines for the organization of a quality system
ISO 8402 Terminology and definitions
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Implementing supplier quality assurance:
consequences for purchasing
The most important changes to be prepared for by purchasing:
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Clear task descriptions and performance measures
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Clarity concerning supplier selection
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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
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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
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
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Essential that suppliers receive feedback on their performance (e.g. vendor
rating system)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)