ISQA 4/539

Specifications

Sourcing Strategy

Supplier Selection

Specifications

ResponsibilityPurchasing’s RoleHow Described

Descriptive Design Performance Statements of Work

Specification Provides Performance Requirements Parameters Which Describe Including Units of Measure Materials to be Used Production Processes Inspection, Test Requirements Reference to Other Documents or

Specifications Mil Specs, Drawings, SAE Specs, etc.

Elements of Specifications Intended Use, Quality RequirementsStandardizationValue Analysis

Internal Negotiation Opportunities

QualityHow would you define ‘Quality’?

Quality DefinitionsQuality - Quality ControlPROCESS ControlsRule of 10Quality and Multiple SourcingSupplier Certification

Quality DefinitionsManufacturing-Based - Philip Crosby

“Quality means conformance to requirements”

Value-Based - Feigenbaum “Quality means best for certain customer

conditions. These conditions are (a) the actual use, and (b) the selling price of the product”

Quality DefinitionsCustomer-Based - Juran

“Quality is fitness for use”Customer-Based - AT&T

Quality is meeting customer expectations.”

Philip CrosbyQuality is Free, pp. 15-16

Quality has much in common with sex. Everyone is for it (under certain conditions, of course). Everyone feels they understand it (even though they wouldn’t want to explain it). Everyone thinks execution is only a matter of following natural inclinations. (After all, we do get along somehow). And, of course most people feel that all problems in these areas are caused by other people. (If only they would take time to do things right).

Quality Is Quality Free?Can We Achieve 100% Quality?

Total Quality Management TQM Principles

Know/Understand Customers and Requirements Satisfy/Delight Customers Continuous ImprovementElements of TQM Process Identification Process Mapping Process Simplification Process Controls Track - Monitor Continuous Improvement

TQM and Six Sigma

Value Analysis Begun by Larry Miles at GE Basic Objectives

Reduce Cost While Maintaining Function or

Increase Function While Maintaining Cost

NEVER Cheapen Product While Reducing Cost

Focus is Always on Function and Value

Value Analysis, cont. Exploded View Parts Diagram Question Each Part

Really Necessary? An Industry Standard? If Custom,

of Most Suitable Material? Do Specs Reflect Need Manufactured in Most Efficient Way?

Assembled in Most Efficient Way? Does Each Component “Match” Overall Design?

An Example

Standardization Internal

Processes Materials Equipment

External Industry Standards (Materials) Industrial Standardization (SAE) Multi-Industry (ANSI, ASTM) International (ISO, Metrics)

Standardization

Industry Standards Company Standardization

Impacts on Inventory Impacts on Purchasing Impacts on Maintenance and Repair Impacts on Quality

Implementation

Why Involve Purchasing in the Design Process?

Define Requirements Generic or Proprietary

Determine Availability and Lead TimesExamine Alternative GoodsMake/Buy AnalysisMinimize Total CostEarly Supplier Involvement

Suppliers and New Product Development

Create Competitive AdvantageEarly Supplier Involvement

Supplier Expertise and Cost Latest Technology Faster to Market Improved Quality Fewer Changes, Change Orders

Sourcing Strategies

General Supply Chain Strategies

Supply Base Reduction Supply Base Addition Supplier Development Inventory Strategies

VMI Consignments

Lean Operations Simplification Standardization

Automation

Risk Management Identification Mitigation

Cost Reduction Administrative Commodities Services

Leveraging Technology Lead Time

Management Sustainability

Sourcing Strategies Industry Standard or Custom?CriticalityTerm of AgreementAutomationRisk MitigationSustainability

Supplier Selection

Dave Hoover’s Purchasing Axioms

A Firm Has The Suppliers It DeservesA Supplier Will Only Be As Good As It

Has To BeThe Best Way To Get More From

Suppliers Is To Ask For It

Supplier SelectionGoal: Long Term, Close Relationship

with World Class SuppliersCreate Competitive Advantage from

Supply Base

CapabilitiesPerformanceFuture Considerations

Capabilities Financial Capabilities

Today To Grow With Us

Technical Capabilities Engineering Buyer Support

Quality Process Controls Manufacturing Capabilities

Production Capabilities Capacity

Supplier CharacteristicsProximityAccess to InfrastructureUnion Shop

ForecastingOthers

Own Trucks Engineering Maintenance and Service

Terms 2/10, Net 30?

Supplier Selection Process

Clear SpecificationMarketplace Surveys Identification of Available SuppliersDetermining Supplier QualificationsMake/Buy AnalysisSelecting from Qualified SuppliersReverse Auctions

Supply Base Analysis

Industry Average Numbers of SuppliersHow Many Suppliers Do You Have?How Many Suppliers Do You NEED?RiskView Suppliers as You View

Investments Is the Supplier Making Money For You? Is the Supplier a Good Return on Your

Investment

Supply Base Reduction

Maximize Leverage Increase Quality and Reduce Variability Utilization of Resources Minimization of Administrative Cost Create Stable Supply Base Develop Synergy Create Competitive Advantage Through

Supply Base Manage Risk

Supplier Performance

QualityOn Time DeliveryFlexibilityProblem ResolutionProductivity ImprovementTheir Supplier Management ProgramProgress Toward CertificationOther Important Criteria

Buyer Performance

Forecast AccuratelyShare InformationMinimize Rush Orders and Schedule

ChangesFocus on Total Cost - Not PricePay Bills On TimeManage Supplier Relationships

Supplier Visits Housekeeping Inventories Order Processing Procedure Quality Processes Their Purchasing Process Financial Statements Other Capabilities

Engineering, Logistics, Technology Logistics, Process Improvement Credit Policies and Terms

Other Supplier Selection Criteria

Social Goals Minority/Women Owned Small Business Buying Local (Governmental Set-Asides)

Manufacturer vs DistributorEnvironmental ConsiderationsSupply Chain Risk

Intangibles IntuitionPersonality TypesCorporate PhilosophyReputationReferences

Global Sourcing

Global SourcingDomestic Sourcing

Same Language Same Cultural/Ethical Expectations Same Legal System Same Banking System Same Transportation No Customs, Tariffs

Global SourcingWhy Look for Global Sources?

Lower Total Cost (Landed) Access to Markets (Countertrade) Access to Raw Materials Access to Technologies Other Reasons

Quality Competition

Global Sourcing Finding Global Suppliers

Directories Trading Companies Embassies/Consulates Trade Shows

Countertrade Logistics Issues

INCOTERMS Other Logistics Costs

Global Sourcing Problems With Global Sourcing

Good Specifications Cultural Issues Language Difficulties Long Lead Times Paperwork Payment Issues Political Risk Currency Risk Security Issues Sustainability

Global Sourcing Methods

Intermediaries Foreign Subsidiaries International Purchasing Offices Direct Purchases

Inspection Services Customs Brokers and Freight Forwarders

Global Sourcing: Communication

Understanding the True Barriers Speaking Reading and Writing Slang and Colloquialisms Two Word Verbs

Vocabulary Conversational Business Technical

Global Sourcing: Communication

Translators Local, At Destination Types

Translating Written MaterialsBusiness Cards and Titles

Global Sourcing: Payment

Domestic Payment Payment Up Front (Avoid) COD On Account

International Payment Payment Up Front (Avoid) Against Documents Letters of Credit On Account

International NegotiationAge, GenderStatus, AuthorityFormalityNumbers and Team CompositionProfessionalism “Yes” and “No”

International NegotiationSilenceSubtletiesDeadlinesCultural RespectOn Being Alone

Make/Buy and Outsourcing

Make/BuyProducts We Never MakeProducts We Always Make In Between Products: Make/Buy

Make/Buy Industry Standards, Proprietary Products and

Make/Buy Procurement from Suppliers Procurement by Manufacture Fluid Decision Revisit at Regular Intervals

As Economic Conditions Change As Internal Conditions Change

Always Maintain Internal Capability

Reasons to Make Quantities Too Small Quality Too Critical Timing Too Critical Trade Secrets (for a time) Cheaper Keep Crew Busy Avoid Sole Source (perhaps) Union Shop Unreliable Supplier

Reasons to BuyQuantities Too LargeSupplier Quality AcceptableHave Sufficient Lead TimeLack of Necessary CompetenciesLack of CapacityCheaperReciprocity

Vertical IntegrationCost and Responsiveness Insure Performance

Scheduling Control Boeing

OutsourcingStrategic DecisionActivity is Not Core CompetencyWill, In Future Completely Depend on

SuppliersWill No Longer Maintain Internal

CapabilityManagement of Outsourced Activities

OutsourcingOur Core CompetenciesSuppliers’ Core CompetenciesDependence on Suppliers

Strategic Vulnerability Technology Transfer Source from Competitors’ Suppliers

Supplier Exploitation Price Creep Service

OutsourcingFirms Rethinking Outsourcing

Rising Wage Rates Rising Transportation Costs Currency Exchange Rates Long Lead Times

Recent Survey (Global Retail Goods Firms): 50% of firms in survey are considering

moving out of China 26% actually doing it