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Webinar Notes: Introduction to Quality Management in Procurement
Processes will always have some variations in output despite the best controls. Constant measurement is the best approach, tracking variations on a sampling of product. The key measurement technique is sigma, a measurement of standard deviation. A small sigma (or deviation) is most desirable, with the expectation that supplier quality will be within six sigmas (or 2 parts per billion) of the center.
Lowercase six sigma is not to be confused with (uppercase) Six Sigma, the most common usage of the phrase, a quality program (used at Motorola and General Electric for example) which is 3.4 defects per million opportunities.
Purchasing’s role in the Quality Management Process
Purchasing or procurement is responsible for quality; if there is an issue with goods or services it is a failure in either supplier selection or supplier management. The best way to get started is to select one supplier that already has excellent quality or one that really wants to improve their quality. Involve a cross-functional team of engineers or QA specialists and business resources to evaluate and select suppliers based on measured quality.
Failures may be seen at different points in the process. They may be discovered at an incoming inspection, in the production line, or in the worst case, at customer sites. All of the information regarding failure needs to be passed back to suppliers. It is reasonable to expect more data at the start of a quality management program because there will naturally be more issues in the beginning. Purchasing will need to stress continuous improvement, and set the expectations internally that this is a multi year journey.
The Cost of Quality Failures
Although specific terms may be built into a contract to require quality standards and establish punishments for failures, it is difficult to get suppliers to agree to these terms and certainly does not set the stage for a collaborative working relationship. Another options is to make sure that the internal cost of failures is factures in during supplier performance reviews, scorecarding and at award time. An example of this is to assess an additional ‘cost’ to the buying company of $10 per failure at discovered at delivery, $100 per failure discovered in the production line, and $500 per failure discovered at a customer site.
If the cost of failures can be associated with services that must be performed by the buying organization, it may be possible to actually charge the suppliers for the cost of errors. For example, if the outsourcing the repair of components is outsourced, some components may come back as ‘repaired’ but would fail inspection after being put into use. In these cases, suppliers might be billed an hourly wage for a mechanic’s time to install, test, and remove a bad part. The remedy ultimately depends on the industry and the criticality of the parts in place.
Identifying Quality Practices
When you are speaking with a supplier’s salesperson, there are some questions you can ask to assess their quality management programs. What is your quality level? What is your parts per million outgoing parts rate? What were your quality goals last year and what will they be next year? Do you have a statistical control process in place? Looking into quality is similar to asking about on time delivery – measurement and specifics are the key to proving that the supplier can deliver what they promise. If you are on a supplier factory tour, look for indications of employee involvement, like total quality management and employee feedback programs.
The three structured quality programs commonly found at suppliers are Six Sigma, Lean and ISO 9001. All indicate a formal commitment to ensuring quality that will allow you to measure performance and work with the supplier to make improvements as needed.
If you make award decisions based on quality (plus price) that needs to be reflected in all measurements like annual productivity and performance.