MGMT 524Class three
Agenda
Introduction to Metrics & Problem SolvingChina Sourcing group discussionCurrent eventsHammer, Field, & Narayanan discussions
Sourcing and quality controlDefinition of terms: quality and quality control
IBM defines quality as the degree in which customer requirements are met. We speak of a quality product or quality service when both supplier and customer agree on requirements and these requirements are met.
Quality control: making sure that the requirements are met and being able to demonstrate this repeatedly.
Sourcing and quality controlThe cost of quality- Prevention costs - the costs of preventing quality
errors
- Assessment costs - the costs related to the timely recognition of quality errors
- Correction costs - the cost that result from (rectifying) mistakes
Internal error costs: result from mistakes noticed in time
External error costs: are result of flaws identified by the customer
Supplier quality assurance (SQA)Internal quality assurance regarding suppliers
-Preparing the purchase order specification-Preliminary qualification of (potential) suppliers-Sample inspection procedure-Delivery of first and subsequent preproduction
series-Manufacture of the first production series-Quality agreement and certification-Periodic verification
Implementing supplier quality assuranceClear task descriptions and performance measures
Maximum rejection percentage per article code or per supplierThe average term in which rejection reports must be dealt with (per
buyer)Number of quality agreements closed with suppliersNumber of certified suppliers
Clarity concerning supplier selection Who in the company is competent to enter into relationships with
suppliers?Who is responsible for ultimate selection of suppliers?Communication to suppliers from one central point (supplier account
management)Quality first
Take responsibility for quality and being accountableRejection percentages and number of quality agreements becoming part
of the buyer’s annual assessmentTo measure is to know
Essential that suppliers receive feedback on their performance (e.g. vendor rating system)
Sourcing performance measurement
Alternative viewpoints
Hierarchical position sourcing
Performance indicators
Operational and administrative activity
Low in the organization Number of orders, order backlog, authorization, …
Commercial activity Reporting to management
Savings, price variances, number of RFQ’s, number of single/sole sources,…
Part of integrated Logistics
Sourcing is integrated with other materials related functions
Quality, purchasing lead time, delivery reliability, …
Strategic business area Sourcing is represented in top-management
Early involvement in purchasing process, ‘Should cost’ analysis, make-or-buy, number of tenders and e-auctions, changes in its supply base, …
Why measure any performance?
What benefits can be derived from a systematic performance
evaluation?
Better decision making Better communication with other departments Better visibility of performance Better motivation of cross departments
Collectively, these comments indicate that sourcing performance evaluation should result in higher added
value of all functions
Collectively, these comments indicate that sourcing performance evaluation should result in higher added
value of all functions
Sourcing Product/Quality dimension
This dimension refers to sourcing responsibility to secure that products and services are delivered by suppliers in conformance with specifications and requirements. Sourcing involvement in new product
development Examples of measures: number of man hours spent by operations on innovation projects, number of technical change orders and initial sampling reject rate
Sourcing contribution to Total Quality Control Examples of measures: reject rates on incoming goods, number of approved / certified suppliers, contract parameters
What should be measured?
For ex: Sourcing Logistics dimension
This dimension refers to sourcing role to contribute to an efficient incoming flow of purchased materials and services. This includes the following major activities: Strategy to reduce inventory and period expenses Control of timely delivery by suppliers Control of quantities delivered, on-time, proper
specifications Cost reductions, less so avoidance Continuity of supply, factory downtime
Supplier evaluation and rating are techniques used to monitor and improve supplier performance in terms of quality and
delivery reliability.
What should be measured?
Metrics – Right ones?
Quality SystemsTQM / Lean / ISO
Above the Shop Floor – Value stream mapping can be applied everywhere
“What is measured improves”Overemphasis on a few can be riskyToo many? (Attention span?)
7 Deadly Sins of Performance Measurements
1. Vanity – cognitive dissonance (IBM PC)2. Provincialism – only measure within an org group3. Narcissism – measure from your point of view, not the
customer4. Laziness – We know best5. Pettiness – only a small component of what matters6. Inanity – Measure what you want to change7. Frivolity – Not taking metrics seriously
Hammer: 7 deadly sins
What are the two sins you have observed in a company or organization?
Which of these were present in the China Sourcing case?
How do you measure the “right way?”How do you create a measurement friendly
world?
Lean
Sorting (Seiri)Straightening or Setting in Order (Seiton) –
SimplifyingSweeping or Shining or Cleanliness /
Systematic Cleaning (Seiso)Standardizing (Seiketsu)Sustaining the discipline (Shitsuke)Safety
Lean Drives Surplus ValueSimple formula / Complex question: How do
you lower wages while growing income for employees and profit?
C+V+S=W
C= CapitalV=Value (wages)S=Surplus Value (profit)W=Price
Definitions for LeanMuda: Reducing waste: When a process upstream
breaks down or is inefficientValue: “Meets” the customer’s needs; drive out
complexitiesWhat happened in Autos?Who is the worst at this: examples?Core competency: What is Blount’s?How is Apple unique: Cognitive interface
What is your org’s Value Statement? Is this where you want to go?
Value Stream: NPI – CLSC or “soup to nuts and back again”
Definitions for Lean
Value /stream is intra and inter firm, must go beyond the one process to include customers
Flow: Question the process activities, are they run in batches?
Pull vs. push processes, putting your problem on someone else is not productive
Perfection = transparency
18
Fishbone Chart - Problems with Airline Customer Service
19
Pareto Analysis of Wine Glass Defects (Total Defects = 77)
54
125 4 2
72%
88%93% 97% 100%
0
10
20
30
40
50
60
70
Scratches Porosity Nicks Contamination Misc.
Causes, by percent total defects
Freq
uenc
y (N
umbe
r)
0%
20%
40%
60%
80%
100%
Cum
ulat
ive
Perc
ent
20
Histograms
A chart that shows the frequency distribution of observed values of a variable like service time at a bank drive-up window
Displays whether the distribution is symmetrical (normal) or skewed
The Force Field Analysis is a method to: Investigate the Balance of Power involved in
issue
Identify the most important player (Stake
holder) & target group for the campaign on
the issue
Identify opponents and Allies
Identify how to influence each target group
Metrics vs. incentivesFirst: What are the strategic objectives?
Reduce product development cycle time by 500 days in the next three years.
Second: How does this affect the customer?Increase Patient Satisfaction by 20%
Third: What are the key drivers?Market share, cost reduction, etc
Four: Define MetricsOn time Shipments to target goal
Five: Change and evaluate metrics7 deadly sins of performance
Six: Develop incentives to support metricsLimit Key metrics to between 5-7
IncentivesOn time shipments metric:
Hoard inventoryReduce inventory metric:
Buy based on historyImprove quality metric:
Test & quality check growthImprove forecasting metric:
Pay sales people based on on-time shipments
Some Performance Measurements
Quality – PPM, FPY, IC, FMEACost to Target – OPEX & ProcurementOn Time DeliveryFlexibility – cycle time improvementProductivity Improvement – output / hourSupplier’s Management ProgramProgress Toward Certification ISO 14,000Technology roadmap (products & IT infrastructure)
Measuring Performance – Cont.
Forecast AccuracyFormal Sharing of Information – Markets & customersMinimize expediting and Schedule ChangesFocus on Total Cost - Not PriceOn Time A/P & A/RProgram to Manage Supplier Relationships
– NPI -> ObsolescenceContractual Protection and LiabilitiesPeriod Expenses - Variances
Narayanan & Raman and Field: IncentivesHow do incentives work against each other?When do incentives get out of line?How can incentives be transparent?How do metrics and incentives relate in your
opinion?What is the author’s step by step approach to
incentives, are these adequate?How often should incentives be changed /
audited?
China Sourcing – On Time Delivery - What is the issue in this case?- What areas can be identified for
improvement? - NPI- Compliance- Quality- Logistics- Innovation
- Who is responsible for the above areas?- What should the metrics be for OTD?