END OF PRODUCT LIFE: CLOSING THE LOOP ISQA 511 Mellie Pullman.
ISQA 510 Outsourcing, Quality & Metrics Lecture 2.
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Transcript of ISQA 510 Outsourcing, Quality & Metrics Lecture 2.
Agenda-Thoughts on Port of GZ? Questions?-Outsourcing & Scott’s case-Intro to Quality & Metrics-Incentives & metrics-Tour Nike Shoe-Town
Definitions Off-shoring: Off-shoring relates to the commissioning of
work and ownership to another country. Maintain ownership.
Partial outsourcing: only a part of an integrated function is outsourced. The coordination of the function, activities, and decision rights still lie with the client (the buyer).
Turnkey outsourcing: applies when the responsibility for the execution of the entire function (or activities) lies with the external provider. This includes not only the execution of the activities, but also the coordination of these activities. May also include decision rights and design.
Rationales for outsourcing
Strategic reasons for outsourcing
1. Improve company focus2. Gain access to world class capabilities & Markets3. Get access to resources that are not available
internally4. Accelerate reengineering benefits5. Improve customer satisfaction6. Increase flexibility7. Sharing risks
Tactical reasons for outsourcing
1. Reduce control costs and operating costs2. Free up internal resources3. Receive an important cash infusion (next slide)4. Improve performance5. Ability to manage functions that are out of control
All these reasons underlie one overall objective: to improve the overall performance of the outsourcing firm
Critical success factors of outsourcing
Understanding company goals and objectivesInclusion of outsourcing in the strategic vision and planSelecting the right supplierA properly structured contractOpen communication with the individual groups involvedOngoing management of the relationship (not embeddedness)Senior executive support and involvementCareful attention to personnel issues & resourcesConstant reflection on core competencies and IP versus
outsourcing, including decision and alienable rights
www.theoutsourcinginstitute.com
Scott’s CaseOffshore is burdened: by $8M up front investment
minus the savings in EMS GM%Outsourcing is burdened:
Risk for currency exchange of 5% annually Start-up costs of $1.5M Lease buy-back $1.5M Freight costs of $7M
Temecula is burdened:High labor, electricity, lease of building, etc.
What is beyond the numbers?????
Scott’s caseVariables:- Ramp- Inventory- SKU proliferation- Closing time of Temecula- Seasonality- Made in USA- China market?- What did they do? Keep Temecula (Read
their 10K)
Sourcing and quality controlDefinition 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 repeatedly.
Sourcing and quality controlThe 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
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
Implementing supplier quality assuranceClear task descriptions and performance measures
Maximum rejection percentage per article code or per supplierThe average term in which rejection reports must be dealt with (per
buyer)Number of quality agreements closed with suppliersNumber 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 accountableRejection percentages and number of quality agreements becoming part
of the buyer’s annual assessmentTo measure is to know
Essential that suppliers receive feedback on their performance (e.g. vendor rating system)
Sourcing performance measurement
Alternative viewpoints
Hierarchical position sourcing
Performance indicators
Operational and administrative activity
Low in the organization Number of orders, order backlog, authorization, …
Commercial activity Reporting to management
Savings, price variances, number of RFQ’s, number of single/sole sources,…
Part of integrated Logistics
Sourcing is integrated with other materials related functions
Quality, purchasing lead time, delivery reliability, …
Strategic business area Sourcing is represented in top-management
Early involvement in purchasing process, ‘Should cost’ analysis, make-or-buy, number of tenders and e-auctions, changes in its supply base, …
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
Collectively, these comments indicate that sourcing performance evaluation should result in higher added
value of all functions
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
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.
What should be measured?
Metrics – Right ones?
Quality SystemsTQM / Lean / ISO
Above the Shop Floor – Value stream mapping can be applied everywhere
“What is measured improves”Overemphasis on a few can be riskyToo many? (Attention span?)
IncentivesOn time shipments metric:
Hoard inventoryReduce inventory metric:
Buy based on historyImprove quality metric:
Test & quality check growthImprove forecasting metric:
Pay sales people based on on-time shipments
Some Performance Measurements
Quality – PPM, FPY, IC, FMEACost to Target – OPEX & ProcurementOn Time DeliveryFlexibility – cycle time improvementProductivity Improvement – output / hourSupplier’s Management ProgramProgress Toward Certification ISO 14,000Technology roadmap (products & IT infrastructure)
Measuring Performance – Cont.
Forecast AccuracyFormal Sharing of Information – Markets & customersMinimize expediting and Schedule ChangesFocus on Total Cost - Not PriceOn Time A/P & A/RProgram to Manage Supplier Relationships
– NPI -> ObsolescenceContractual Protection and LiabilitiesPeriod Expenses - Variances
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
Incentives- Awareness of problems- Sharing information is key- Conducting audits- Changing periodically- Developing trust- Not too many / not too few- Openly discuss bad performance
Manfield CoatingsWhat do we know? Add to this list….- Short lead-times- Strong niche player- Uses quality as comparative
advantage- Cost containment and speed for
customers- Satisfy customers, not surpass
expectations
Manfield Coatings – 5 Questions
1. How does quality help Manfield?2. What made the Q-S successful?3. What metrics would have made Manfield
more successful?4. Are they moving in the right direction?5. Seven deadly sins & aligning incentives;
how does this relate?
7 Deadly Sins of Performance Measurements
1. Vanity – cognitive dissonance (IBM PC)2. Provincialism – only measure within an org group3. Narcissism – measure from your point of view, not the
customer4. Laziness – We know best5. Pettiness – only a small component of what matters6. Inanity – Measure what you want to change7. Frivolity – Not taking metrics seriously
Scientific GlassHelpful Hints:1. What are the Options & savings with
each?1. Fill rate lowered & trunk stock
eliminated2. One Warehouse vs. logistics costs3. Outsource 4. Combination of the above?5. What about Cash????6. Look at incentives