Global Supply and Third Generation Quality ManagementIssues, Performance and Strategy

Overview Current issues and trends of quality in

global supply Process performance assessment in

global supply Quality strategy development in global

supply

Global Supply in History

The Finance Minister to Louis XIV wrote in 1664:“If our factories, through careful work, assure

the quality of our products, it will be to the foreigner’s interest to get supplies from us and their money will flow into the kingdom”

This is still a trend today, but ….

…. poor quality hurts! The USA federal government stated:

Poor quality imports hurt the economy [in 2007]

Suppliers were not primarily the causeBuyers did not pay enough attention to what

the suppliers were doing

Responsibility for Quality and SCM Responsibility for the quality of supplies:

The suppliers / manufacturing processes The customers / buying processes = 3rd Gen QM

Supply Chain Management (SCM) Management of processes across organisational

boundaries Systems approach for the flow of information, goods

and services Materials and distribution management that evolved

from purchasing and logistics Quality is typically disregarded in SCM

‘Transaction’ vs ‘Relationship’ Attributes of transactional based behaviour in

supply: Minimal or no co-operation in continual improvement

or business planning Data and status limited to ‘need-to-know’ basis Systems are not inter-related or linked Emphasis is on the day to day purchasing and

logistics transactions, written specifications, etc. A defensive attitude towards quality problems The customer is THE stakeholder

‘Transaction’ vs ‘Relationship’ Attributes of relationship based behaviour in

supply: Close co-operation and sharing of ideas Joint improvement projects and open planning Access and / or exchange of data and status Systems are inter-related or linked Emphasis is on building mutual success through

partnership and strategic alliance A collaborative attitude towards quality problems The customer is A stakeholder = 3rd Gen QM

‘Transaction’ vs ‘Relationship’ Differences between customers and suppliers result in

complex difficulties and misunderstandings Affects customers’ decisions for selecting suppliers (e.g.

supplier approval) Affects suppliers’ decisions for selecting customers (e.g.

supply chain relationship pegging) = 3rd Gen QM Affects strategic supply decisions and business risks

including quality: ‘Make’ vs ‘Buy’ decisions Technology transfer and licensing agreements

Counterfeit Goods Familiar counterfeit:

Currencies Passports and documents

Goods counterfeit: Infringement of brand

names and / or logos Reverse engineered

products Altered product

identification (as a higher grade item)

Counterfeit Goods

The motives for counterfeiting goods: To make quick $$$ from premium brands To shift market share To damage competitor brand reputation To create vulnerability for takeover

The high (quality) costs of counterfeit goods: False warranty claims Contaminated inventories throughout the supply

chain

Process Performance Assessment Criteria and methods to choose from:

Process requirements conformity (e.g. ISO 9001, etc) Process maturity / performance (ISO 9004:2000) Lean (value chain vs waste) Six Sigma (S-I-P-O-C) Supply Chain Operations Reference (SCOR) model Risk (exposure, likelihood, consequence)

Measure performance of SCM processes Factor in the importance of the criteria and

performance measures

S-I-P-O-C

PIS O C

REQUIREMENTS REQUIREMENTS

Inputs Process Outputs CustomersSuppliers

Supply Chain Operations Reference (SCOR) Model

Plan (P) Source (S) Make (M) Deliver (D)

DeliverReturn (DR)

SourceReturn (SR)

SCOR business processes – Level 1

RATING PERFORMANCE LEVEL GUIDANCE

5 Integrated improvement

· High level of compliance with documented systems and/or standard requirements.· Existing processes and their implementation are assessed as being effective· Strongly integrated improvement process, ‘best practice’ results demonstrated.

4 Continual Improvement

· Good level of compliance with documented systems and/or standard requirements.· Only minor concerns observed.· Improvement process is in use, good results and sustained trends.

3 Stable · General compliance with documented systems and/or standard requirements.· Some areas of concern observed.· Processes and their implementation are fundamentally effective· Improvement is recommended.· Process based approach, conformance to objectives and improvement evident.

2 Reactive · Low level of compliance with documented systems and/or standard requirements.· Multiple concerns observed· Documented systems fail to meet standard requirements.· Effectiveness of existing processes needs to be improved.· Only corrective action available, minimal data and improvement results available.· No process based approach· Process requirements, responsibilities and/or authorities are generally evident.

1 No or negligible process

· No or negligible compliance with documented systems and/or standard requirements.· No or negligible presence of documented systems.· Existing processes are not effective.· No results, poor results or unpredictable results· No control, no visibility, no process based approach evident.

(Based on ISO 9004:2000, Annex A.2 )

Process Performance Assessment Proposed methodology:

1. Segment the supply areas by location, factory or product

2. Build a set of process performance requirements or criteria

3. Conduct process assessments to identify: Importance of each criteria to each area (e.g. 1-5 score) Current performance status and maturity of the SCM

processes (e.g. 1-5 score)4. Use Quality Function Deployment (QFD) to collate

the data and develop the Supply Quality Strategy

Quality Strategy Development SCM is complex:

Technology, distribution, infrastructure Customers and suppliers:

AS 4912:2002 “General Conditions of Contract for Periodic Supply of Goods”

AusIndustry “Enhanced Project By-law Scheme” “Full, fair and reasonable opportunity provided to Australian

vendors.” Inventory Value chains, systems, processes, wastes

Quality Strategy Development

Supplier auditing programmes: Relevance varies to extremes Complement vs substitute to 3rd party certification Bias to the particular customer Audit to the supply contract Supplier audits at an appropriate stage:

Prior to ordering After order placement as a condition of contract

Supplier auditing complements ‘transactional’ and ‘relationship’ based behaviour

Quality Strategy Development Overfilled bulk containers of bolts Some bolts are damaged from stacking Do we reject or accept this supply?

Alternate supplier delivers a twisted and tangled electricity cable

No departure from supply contract or specification Do we reject or accept this supply?

Main supplier

Alternate supplier

Source of photos (with grateful permission): Olex Australia Pty Ltd

Quality Strategy Development

Summary1. Customers sometimes cause their own

supply quality problems2. ‘Transactional’ behaviour vs ‘relationship’

behaviour in supply has a strategic impact on quality performance

3. Counterfeit goods in supply chains are an escalating problem that quality management has the potential and position to address

Summary (continued)4. The first two steps to manage and

improve quality of supply:i. Self-assess the SCM systems and processesii. Develop a ‘Supply Quality Strategy’ that

focuses and prioritises initiatives to be the most effective and economical (i.e. the highest added value)