NAME: Carlos Manuel S.

Abalos DATE: November 6, 2017

SUBJECT: BEC102-Total Quality Management SECTION: III-BSBA-H

CHAPTER 9 SUPPLIER PARTNERSHIP

INTRODUCTION

 Supplier partnership is one of TQM elements. In this chapter we will learn the following:
o Importance of suppliers
o Supplier selection
o Early involvement of suppliers in product development
o Product audit
o Vendor rating
o Bonus and penalties
 Company or organization or vendee refer to the organization receiving their supplies from others.
The supplier of materials and supplies are referred to as vendor or supplier. It is also assumed that
the supplies are not those products available commercially of the shelf.

IMPORTANCE OF SUPPLIERS

 In a virtual organization, the main function of the company is to make the core of the system and
depend on a large network of suppliers for the rest of the subassemblies needed for building the
system and depend on a large network of suppliers for the rest of the sub-assemblies needed for
building the system. Thus, a large portion of the network is outsourced
 Outsourcing enables the manufacturers to focus their attention in managing their brands rather
than capital equipment required for manufacturing every part

SUPPLIER SELECTION

 Selection of the right suppliers is the most important activity with regard to supplier partnership.
The organization has to depute a team of executives to assess the quality of proposed suppliers. If
the supplier is already certified under ISO9000 or similar standards, the job becomes a little easier.

TOYOTA SUPPLIER STANDARDS

 “We at Toyota rely on outside suppliers for most of the parts and materials in the vehicles we
make. Every step in making Toyotas from development to production, consists of joint work with
suppliers. The suppliers we seek are companies that have the will and the ability to become active
partners with us. We are looking for suppliers who possess world class competitiveness in terms of
quality, cost, delivery, and technological capabilities.”
 Quality – Quality is essential to customer satisfaction. Defective products lead to complaints and
even recalls. Toyota counts on suppliers to pursue quality levels well above our minimum
standards.
 Component Requirement
Our standard practice is to trust the suppliers to provide us with
Preventing defects defect-free products. Toyota does not ordinarily inspect the parts and
materials that we source.
The best way to assure quality is to build quality into products
Built-in quality systematically. That means designing products and processes to
maximize quality.

 Delivery – Providing customers with the products they want on schedule and on the amounts
required.

Component Requirement
Suppliers must deliver the products on schedule and in the amounts
Reliable delivery
required
Flexibility in production and Customer tastes change constantly. Suppliers need to be able to
delivery respond flexibility in production and delivery

 Technological Capabilities

Component
Competitive technology
Value-ad and sophistication
Speed
Dramatic cost reductions
Requirement
Is something to pursue through continuing advances in product
development and in production engineering
A big consideration in evaluating supplier’s technological
capabilities is the ability to offer products that are a step ahead of the
competition
The ability to translate concepts into products quickly is another
important aspect
Suppliers should foster the ability to broaden the marketability of
their products through dramatic reductions in cost

 Getting supplies from too many suppliers will increase the variability of the product in addition
to increasing the workload in the organization. The selected suppliers should be clearly intimated
about the requirements. Some of the essential information is given below:
o Quantity required
o Quality requirements
o Specifications for the materials
 Style
 Workmanship
 Acceptable quality level
o Delivery instructions
o Payment terms
LONG-TERM CONTRACTS

 The commercial off-the-shelf (COTS) items can be purchased from the market as needed.
However, the other raw materials and supplies are to be purchased only from selected vendors. It
is advantageous to procure the COTS from the same selected vendor to avoid variability in the
quality of the end products.
 Due to unforeseen circumstances, the company may not be able to buy the products as committed,
but the company does not start operations in the hope of unforeseen circumstances. Therefore, they
should be confident enough to enter into long-term contract with the vendors. If the vendor does
not maintain the committed quality, schedule, price or services, the company should be free to
change the vendor.
 Long term contracts are important to both vendor and the vendee. It is important to the vendor
because he can invest in tooling, process, machinery, and inspection equipment and even in new
plants. It is important to the vendee because it reduces expenditures on the account of selection of
new vendor every time.
 Cost – Offering high quality and excellent function at low prices increases product appeal. The
conservation of material and energy that stem from cost-saving measures helps safeguard the
environment.

Component Requirement
We welcome ow prices from suppliers only when we can see that
Low prices through low costs
they are the result of genuine cost competitiveness
Unceasing effort on behalf of Suppliers need to strive to continuously reduce costs and to translate
cost savings their reductions into lower prices.

INVOLVEMENT OF SUPPLIER IN DEVELOPMENT

 Involvement of supplier in development can help in giving the necessary lead-time for the
supplier. It will also help in reduction of design cycle time for the company. Thus suppliers should
develop and grow with the organization. Such a partnership is one of the objectives of TQM.

ALIGNMENT OF QUALITY SYSTEM

 The quality system of the vendor should be aligned with that of the company. One the quality
systems in the company and its vendors are aligned, then the efforts of the company to check the
quality of the supplies will greatly be reduced.

QUALITY AUDIT

 At periodic intervals, the company should carry out formal second party quality audit to check
the effectiveness of the vendor’s quality system. The quality audit will be carried out as per the
agreement with the vendor with regard to the elements of quality system covered by the contract.
The agreement may stipulate the requirements of the relevant clauses of the ISO 9000 standards
either partly or fully. The scope of the audit should be documented
PRODUCT AUDIT

 A thorough evaluation of vendor’s products at periodic intervals is required to assess the quality
of their design and manufacturing. For this purpose, the company should pick up samples at random
from the vendor’s premises and get them evaluated in the independent test laboratory or in their
own personal test laboratory
 The vendor should inform the company whenever design changes are made so as to carry out
another evaluation, if needed. The type testing or qualification approval testing or product audit as
above should be repeated at periodic intervals, say once in three years to check the continued
suitability of the supplies

INCOMING INSPECTION

 Appraisal or incoming inspection of materials on sampling basis may be required although the
suppler would have already inspected the items before shipment. The company should gradually
make the supplier take the full responsibility for the quality of the supplies.
 As confidence is gained, the company can reduce the level of inspection. Nevertheless, they
should continue to carry out inspection on sampling basis. The results of inspection should be
communicated to the vendors, immediately without loss of time, so that it will alert them for
improving quality.

SUPPLIER RATING

 The vendors are to be continuously assessed/rated, based upon the performance of the supplies
with respect to some or all of the following parameters:
o Quality
o Price
o Services
o Delivery
 Vendor rating is an objective oriented method of continuous assessment of the supplier’s ability
to supply on time, with quality at the agreed prices and as per the requirements of the company

VENDOR RATING SYSTEM

 Vendors may be rated based o any or all of the following factors:

o Quality
o Price
o Delivery
 Quality Rating – Quality Rating (QR) for a lot or consignment is given by:
𝑄1 + 𝑋1 𝑄2 + 𝑋2 𝑄3
𝑄𝑅 =
𝑄
o Where:
 Q1 = quantity accepted
 Q2 = quantity accepted with deviation
 Q3 = quantity accepted with rectification
 Q4 = quantity rejected
  Q = total quantity supplied = Q1 + Q2 + Q3 + Q4
 X1 = demerit factor (less than one) when material is accepted with deviation
 X2 = demerit factor (less than one) when material is accepted with rectification
 The values of X1 and X2 are to be decided by management
 Price Rating – Price Rating (PR) for a lot or consignment is given by:
𝑃𝐿
𝑃𝑅 =
𝑃
o Where:
 PL = Lower of the prices quoted by vendors for the items
 P = Price quoted by the vendor being rated
 Delivery Rating – Delivery Rating (DR) for a lot or consignment depends upon the quantity
supplied within the stipulated delivery time and also on the actual delivery time for the full
consignment. The delivery rating may therefore be obtained by the following formula:
𝑄1 𝑇
𝐷𝑅 = ( ) [ ]
𝑄 (𝑇 ∗ 𝑝) + (1.5 ∗ 𝑇1 ∗ 𝑞)

o Where:
 Q = quantity promised to be supplied within the stipulated delivery time
 Q1 = actual quantity supplied within the stipulated delivery
 T = promised delivery time for the full consignment
 T1 = actual delivery time for the full consignment
 p = Q1/Q
q =1–p
 Composite Vendor Rating – This is obtained by assigning weightages for each of the ratings.
For some supplies price may be more important, for some item quality may be the most important
and so on. Depending on the relative importance, the management has to assign weightages for
each of the ratings.

𝑉𝑅 = 𝑄𝑊 𝑋 𝑄𝑅 + 𝑃𝑊 𝑋 𝑃𝑅 + 𝐷𝑊 𝑋 𝐷𝑅

o Where:
 QW = weightage for quality rating
 QR = quality rating
 PW = weightage for price rating
 PR = price rating
 DW = weightage for delivery rating
 DR = delivery rating
 Vendor rating of a product is obtained as weighted average of the ratings for the lots received
over a period of time.
𝑛1 𝑉𝑅1 + 𝑛2 𝑉𝑅2 + 𝑛3 𝑉𝑅3 + ⋯ + 𝑛𝑘 𝑉𝑅𝑘
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑛𝑔 =
𝑛1 + 𝑛2 + ⋯ + 𝑛𝑘

o Where:
 VRi = vendor rating of the ith lot
  ni = lot size for the ith lot

PROPER COMMUNICATIONS

 The relationship between the vendor and the vendee may deteriorate due to inadequate and
improper communication
 The company should formulate a clear specifications for each raw material that is bought. A copy
of the specifications and its latest amendments if any, should be made available to the vendor. The
specification for the raw materials should be a controlled copy with the vendor being given a
controlled copy of the specifications. Whenever changes are made to the controlled documents,
copies of the amendments should automatically be given to the holders of the controlled documents
 Faster communication modes, such as fax and email, could be utilized to improve the
communication between the vendor and the vendee. The supplier’s seminars, the visit of the
executives from the company to the vendor and vice versa should be utilized to improve the
communication and bridge gaps.

SUPPLIER SEMINARS

 At regular intervals, the executives of the company should visit the vendors. During the visit, they
should also conduct seminar for the employees of the vendors. During the seminar, they should
educate them about the latest trends in manufacturing, quality assurance and other related matters.
They should also make use of the opportunity to bring out the defects noticed in the materials
supplied by the vendor

SUPPORT FOR IMPROVING INFRASTRUCTURE

 The company can help the vendors in improving their infrastructure. They could give short-term
loans to help them buy necessary instruments or machinery. They can also allow them to use some
of the spare facilities available in the company. These should be given on a charge basis to avoid
any bitterness later on.

BONUS AND PENALTIES

 The vendors should also be treated carefully and tactfully. They should be motivated to perform
better. The measures of motivation can be as simple as timely payment or early payment or even
advance payment depending upon the quality of the product supplied. The award-winning suppliers
will further improve by conforming to quality and delivery schedules.