Purchasing and Supply Management
by W. C. Benton
Chapter Eleven
Total Quality Management
(TQM) and Purchasing
McGraw-Hill/Irwin
Copyright ©2007 The McGraw-Hill Companies, All Rights Reserved
Learning Objectives
1. To identify purchasing’s functional role in a firm in
light of an overall quality assurance program.
2. To determine the various costs associated with
quality and why it is difficult to measure these
costs.
3. To define what is meant by total quality
management (TQM).
4. To show how quality specifications and targets are
determined.
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Learning Objectives
5. To identify the advantages of statistical process
control (SPC).
6. To show the advantages of six sigma
implementation.
7. To identify the advantages of the Taguchi method.
8. To learn the mechanics of acceptance sampling for
commodity purchasing.
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TOTAL QUALITY MANAGEMENT (TQM)
 Total quality management (TQM) is still one of the
hottest topics in the business world today.
 The Japanese have captured more than 30 percent of
the American automobile and electronics markets by
offering high-value products at lower costs.
 In response to the boom in competition,
___________________________________________
___________________________________________
_________________________.
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TQM and Continuous Improvement
 Effective TQM requires the integration of production planning,
marketing, engineering distribution, and field service.
 TQM is a____________________________.
 TQM reaches much wider than the traditional quality view of
incoming inspection and process control—
_________________________________________________
_________________________________________________
________________________.
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TQM and Innovation
 TQM is an innovative way of thinking that
affects the culture, the strategy,
___________________________.
 Implementing TQM requires the following:
____________________.
____________________.
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EFFECTIVE TQM
 __________________________.
 Negotiating customer requirements.
 Developing a “supplier specification”
________________________________.
 Determining the necessary activities required
to fulfill those requirements and expectations.
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PURCHASING AND TQM
 Purchasing is a critical process
_______________________________________
______________________________________.
 Without high-quality raw materials or component
parts from suppliers,
______________________________________.
 Therefore, any firm that wishes to achieve a high
level of total quality management must carefully
examine its ________________.
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PURCHASING AND TQM
 Traditionally, U.S. firms prefer to use an arm’s-length
purchasing strategy, that is, the best bid usually gets the
business.
 A healthy long-term relationship between suppliers and
manufacturers is
________________________________________________.
 For example, Honda does not inspect the incoming materials
from its suppliers.
 Honda works closely with its suppliers to improve the
___________________________________________ defects
that eventually affect Honda’s production.
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KEY SUPPLIERS
 One of the potential problems in establishing longterm relationships with a few key suppliers is that a
supplier may have increasing power in the supply
chain and may ask for more than the market price.
 ________________________________________
________________________________________.
 The backup suppliers usually get a
_______________________ and do not have a
close working relationship with the manufacturer.
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Quality Assurance Expectations
 The suppliers’ quality assurance systems
__________________________________________
____________.
 Thus, the stated targets and expectations of the
customer must meet the minimum level of
performance.
 In cases where the quality target expectation
__________________________________________
__________________________________________
______________________________.
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Quality Target Commitment
Each buying firm must specify in detail the agreedupon quality targets. As an example, at a minimum,
the following four issues should be addressed in any
purchasing contract:
1.
PPM (parts per million) target agreement. The PPM
________________________________________________
______________________________________________.
2.
Field failure and reliability requirements. Field failures
can be devastating for most firms. It is difficult to precisely
quantify a field failure.
___________________________________________.
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Quality Target Commitment
1.
Warranty agreement. In the unlikely case of a field
failure, there should be a warranty agreement that covers
______________________________________________
______________________________________________
_________.
2.
Urgency to solve problems. The speed to solution of
any quality variance is vital.
______________________________________________
______________________________________________
______________________________________________
__.
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Preventive Quality
• Strategic components are the most critical parts in a project or platform
and require more extensive quality assurance requirements. Strategic
components generally meet one or more of the following criteria:
1.___________________________________________.
2.______________________________________.
3.An expensive component part.
4.___________________________________________.
5.Component parts that require extensive testing.
6.____________________________________
7._________________________________.
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Preventive Quality
The new or modified part agreement between
the buying and the selling firm is usually
complete after an acceptable final test sample
has been generated and verified
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Statistical Process Control and Six Sigma
• The traditional approach to manufacturing process
control is to select production samples and compare
the attributes of the sample to the specifications.
• __________________________________________
_____________________________________.
• Statistical process control (SPC) can resolve this
manufacturing process control issue.
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Statistical Process Control and Six Sigma
• SPC uses two control charts to ensure quality in
manufacturing: the sample mean (X-bar) chart and the
sample range (R) chart.
• The control chart limits are
_________________________________________________
______________________________.
•
In most cases,
_________________________________________________
________________________
 The specification is a description of the required output,
including specific characteristics such as weights and
measurements that enable the product to work in a manner
acceptable to the consumer.
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SPC Control Charts
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SPC Control Charts
 The upper control limit (UCL) is the highest fill level without
limit (LCL) is the lowest fill level without causing an error.
_________________________________________________
________________________________________________.
 _________________________________________________
________________________________________________.
 The dividing line between the UCL and the LCL is the mean.
In most cases, the products produced should fall close to the
mean. Of course, the normal distribution is assumed when
implementing traditional SPC.
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SPC Control Charts
 The standard deviation is actually the average distance a
normal point is from the mean.
_________________________________________________
____________________________________.
 Given the normal curve, 68 percent of the values fall between
plus and minus one standard deviation,
______________________________________________.
 The control limits are actually set by customer specifications,
and the specifications remain constant.
__________________________________________. SPC is
then used to detect when the process is (becoming) out of
control. See the following slide.
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11.4
11.2
11.3
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Six Sigma
 As can be seen from the examples, six sigma
requires a near elimination of production process
variance.
 Six sigma will result in variances of 3.4 defects out
of every one million parts produced.
________________________________________
________________________________________
________________________________________
_____________________________.
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Six Sigma
 If the buying firm has implemented six sigma, the
strategic suppliers also should also apply six sigma.
Six-sigma standards can be applied to both
manufacturing and service firms using the same
methodology. SPC provides input to the six-sigma
approach.
 __________________________________________
__________________________________________
__________________________________________
______________________________________.
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Six Sigma and the Supplier
 Six sigma is a way to measure supplier quality. Supplying
firms that follow the core philosophy of six sigma will
make excellent strategic partners.
 Six-sigma suppliers focus on
_____________________________________________
_____________________________________________
____________________________________________.
 If there is a pattern not consistent with the normal
distribution, corrective action could be taken. There are a
number six-sigma implementation approaches.
_____________________________________________
__________________________________.
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11-25
The Taguchi Method
 The Taguchi method (TM) nicely complements many of the
advantages of SPC. Nevertheless, TM has some problems.
 First, although the basic ideas of TM are simple, the statistical
procedures are complex and can be difficult to implement
_________________________________________________
______________________________________.
 Even with high-speed computers and statistical techniques for
simplifying analysis,
_________________________________________________
_________________________________________.
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Commodity Components
 Commodity-based components are those components not
defined as strategic components.
 Intensive price _________________________________
have led to the implementation of a reverse auction
procurement approach for commodity components.
 ________________________________________________
_______________________________________.
 Acceptance sampling is a methodology used to determine
whether to accept or
___________________________________________.
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QUALITY AWARDS
 There are major quality awards that ensure
that suppliers are TQM effective.
 The most universally known quality awards
are the
_____________________________________
_____________________________________
___________________________.
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The Deming Award
 Dr. W. Edwards Deming is known as the father of
the Japanese post-war industrial revival and was
regarded by many as the leading quality guru in the
United States.
 Dr. Deming is
__________________________________________
____________.
 Deming also suggests a 14 point system for
successful quality management.
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The Malcolm Baldridge National Quality Award
 In 1987 Congress established the Malcolm Baldridge National
Quality Award. It was initiated as a result of foreign firms
increasingly dominating American markets.
 The Malcolm Baldridge Award is much more than an award; it
is equivalent to a mini revolution in the business world.
________________________________________________.
 The Malcolm Baldridge Award has led to a national quality
campaign
_________________________________________________
_________________________________________________
________________________________.
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In order to qualify for the award, applicants
Must address the following categories:
1.
Leadership
2.
_________________
3.
Strategic quality planning
4.
________________________________________
5.
________________________________________
6.
Quality and operational results
7.
____________________________________
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Continuous Improvement and the Supplier
 In most industrial settings there is aggressive
________________________________________________
___________________.
 In order to successfully achieve a zero defect target,
________________________________________________
_____________________________________________.
 Fundamental to remaining competitive in the Automotive
industry, is a well developed program to pursue Continuous
Improvement (CI) in all areas of business.
________________________________________________
________________________________________________
____________________________________.
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Continuous Improvement and the Supplier

Although the actual details will vary from supplier to
supplier, the following list details the basic elements of
a CI system:
1.
2.
__________________________________________
__________________________________________
3.
Data Driven Improvement Based On Key Measures (Using
a QOS / MOS format)
4.
________________________________________
5.
________________________________________
Improvements to be embodied in the normal operating
procedures of the business.
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ISO 9000
ISO 9000 is a set of standards that document
the implementation of a quality program.
 Most companies require their supplier
______________________________________________
________________________________________
 In order to be certified, suppliers need to provide
documentation to an external examiner that they meet the
ISO 9000 requirements.
 Once a firm is certified,
_____________________________________________.
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Quality Function Deployment (QFD)
 Quality Function Deployment (QFD) focuses
on how businesses develop high quality
products for its customers. QFD is driven by
cross functional market research.
 _____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_________.
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Quality Function Deployment (QFD)
Customer expectations include 1) function, 2)
appearance, 3) maintainability, and 4) reliability.
 It is impossible to consistently design products which will
attract customers unless businesses understand what
customers want.
 _____________________________________________
____________________.
 _____________________is a methodology for collecting
customer information to drive product development.
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Supplier Evaluations
 The buyer’s evaluation of the supplier’s performance is a
catalyst for the supplier development activities. There are two
main categories for the supplier evaluation:
_________________________________________________
_________________________.
 The performance-based evaluation is an assessment of the
supplier’s actual performance on a variety of criteria, such as
delivery reliability, cost, quality defect rate, etc.
 It is a more tactical assessment and measures the day-today actual performance of the supplying firm; hence it is an
after-the-fact evaluation.
_________________________________________________
_______________________________________________.
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Supplier Evaluations
 Once completed, the evaluation can be compared
to either the buying firm’s stated goals or
benchmarked to the performance evaluations of the
supplier’s competitors.
 The buying firm chooses whether to communicate
the evaluation to the supplier.
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Taguchi Method
 The Taguchi method (TM) addresses design and engineering
(offline) as well as manufacturing (online) quality.
 This fundamentally differentiates
__________________________________.
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LOSS FUNCTION
 The heart of the Taguchi philosophy is
______________________________________________________
____________________________.
•
This definition sets the Taguchi method apart from the traditional SPC
approach to quality, which defines the cost of poor quality chiefly as
the cost of scrap, rework, and warranty repair. Any deviation from
target reduces the value of the product to society.
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Acceptance Sampling
 One of the key techniques in purchasing is
acceptance sampling.
_________________________________________
_________________________________
 Acceptance sampling is a methodology used to
determine whether to accept or reject a batch of
components or items.
 Customers must never be dissatisfied with the
expected quality of products or services
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Acceptance Sampling
The most severe penalty for poor quality expectations is
the loss of sales. If the quality of the inputs to the
productive system is inferior, the final product will be
inferior.
 Acceptance plans must be developed to determine the
disposition of a lot of raw materials on component parts.
_________________________________________________
___________________________________________.
 Setting the acceptance criteria is usually based on either
predetermined standards or basic statistics.
 Examples of predetermined attributes
________________________________________________.
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OPERATING CHARACTERISTIC (OC) CURVE
 An OC curve is used
_________________________________________________
_________.
 The curve shows
________________________________________________.
 As can be seen in the figure, a lot with 1 percent of
defects would have a probability of about .90 of being
accepted or .10 (1.00 – .90 = .10) chance of being rejected.
 The .10 percent is the producer’s risk. At the same time, if
a lot contains 6 percent defects, the probability of
acceptance drops to .10. The .10 is the consumer’s risk.
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Acceptance Sampling
 Acceptance sampling plans can be classified as ________,
_______, or ___________.
 With multiple samples, if a clear-cut decision cannot be
made after the first sample, additional samples are taken
until the choice is clear.
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Acceptance Sampling
 The single sampling plan requires the
inspector to compare the number of defective
items from a single sample with an
acceptance number.
 Double sampling is similar to multiple
sampling, except that no more than two
samples are taken.
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