Materials Management BUS 3

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Materials ManagementBUS 3 141 Quality and
Specification Leveraging Technical Excellence
Week of Feb 5, 2007
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Agenda

• Questions from Last Week
• Deal of the Weekend
• Quality
• Specifications
• Initial MRP overview

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How this Course supports Supply Chain Objective
Process
The Right PRICE
The Right SERVICE
paying
The Right SUPPLIER
and
The Right PLACE
with the
The Right TIME
at the
The Right QUANTITY
at the
The Right QUALITY
with the
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The Role of Quality in Supply Management
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Quality Defined
Eight (8) Quality Dimensions

• Performance
• Features
• Reliability
• Durability
• Conformance to specifications
• Serviceability
• Aesthetics
• Perceived quality in the eyes of the Customer

From Leenders, Johnson, Flynn, and Fearon,
Purchasing and Supply Management, Thirteenth
Edition, McGraw Hill Irwin
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Basic Assumptions
The HIGHER the Quality, the higher the Customer
Service, the lower the Inventory, and the lower
the Cost
The LOWER the Quality, the lower the Customer
Service, the higher the Inventory, and the
higher the Cost
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Highest Level Supply Chain Objective
Revenue Utilization of Assets (People, Plant,
Equip)
Cash Inventory
BALANCING keeping Customers completely satisfied
and Resources optimally utilized . against
spending the least amount of Cash and carrying
the least amount of Inventory
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Variability requires Inventory to Compensate
Supply
Demand

• Forecast variance
• Market Conditions
• Global Supply (Allocation)
• Competitor Pricing
• Competitor Supply
• Customer Returns (Quality)
• Other

• Build variance
• Scrap
• Rework
• Shortages
• Delays
• Other

Requires excess Finished Goods and component
Inventory to eliminate (minimize) impact on
Customers
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Illustration of Process Capability vs. Product
Specifications
The Supplier is likely to produce conforming
parts all the time
36
USL
UCL
34
32
X
Key Characteristic (dimension, functionality,
delivery, etc..)
30
28
LCL
26
LSL
24
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Observation
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Illustration of Process Capability vs. Product
Specifications
The Supplier is likely to produce a quantity of
non-conforming parts
36
UCL
34
USL
32
X
Key Characteristic (dimension, functionality,
delivery, etc..)
30
LSL
28
LCL
26
24
1
2
3
4
5
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Observation
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Applying Process Capability to Supplier Selection

• If a Suppliers process consistently meets or
  exceeds Customer Specifications, consider the
  following
• Increasing spend on the items (if not Single
  Source)
• Introducing new items to be supplied
• Partnerships and collaborative design where
  appropriate
• If a Suppliers process misses Customer
  Specifications, consider
• Changing the Supplier
• Changing the Specification (when possible)
• Improving the Supplier (if business case
  justifies)

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Other Quality Considerations

• Quality is relevant far beyond product
  characteristics and specifications (e.g.
  delivery, paperwork, billing, responsiveness,
  etc..)
• The cost of mitigating the effects of poor
  quality is much higher than the cost to prevent
  poor quality. Get it right the first time
• Relying on Inspection to prevent poor quality
  items from reaching Customers or the production
  line will inevitably fail. Some percentage will
  always escape through
• Quality is a key determinant in Supplier
  Selection
• Partnering with key suppliers as single source
  providers
• Use of approved Suppliers
• Qualifying Suppliers

While understanding all the complexities of
Quality Management and Statistical Process
Control may be out of scope to Materials Managemen
t practitioners, an understanding of the critical
importance of Product Quality cannot be
overlooked. It is important to partner with
Quality Management experts to assure that all
technical and quality aspects are optimized with
Suppliers
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EstablishingProduct Specifications
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Selected Methods of Description

• By Brand
• Predictable quality
• Can be expensive
• Limits ability to source other Suppliers
• Specification
• Physical or Chemical characteristics (most
  common)
• Material and Manufacturing Method
• By performance or function (focus is on results
  or end use)
• Engineering Drawings
• Blueprints
• CAD output
• Requires Non-Disclosue Agreements (NDA)
• Protection of Intellectual Property

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The Standardization Challenge
Standard parts are generally lower cost, more
abundantly available, provide the largest number
of potential suppliers, drive efficiencies in
design, and provide other benefits
BUT
Unique parts often differentiate products and
performance, and can provide competitive
advantage to the seller
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Opportunity to Affect Value during the Buying
Process
High
Opportunity to affect value
Low
3. Potential suppliers
4. Selection
5. Receipt
6. Payment
1. Need recognition
2. Description
Acquisition Process Steps
From Leenders, Johnson, Flynn, and Fearon,
Purchasing and Supply Management, Thirteenth
Edition, McGraw Hill Irwin
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The Impact of Materials Specifications on Life
Cycle Costs
The Initial Development Design is the biggest
factor in Life Cycle spend
100
90
80
70
60
of Dollars COMMITED to the Item
50
40
30
20
While volume buying takes place to support full
scale production
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0
0
1
2
3
4
5
6
7
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of Dollars SPENT on the Item over Time
For illustration only numbers are
approximations
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Other Design and Spec Considerations

• Decisions made EARLY affect Dollars spent LATER
• Whenever possible it is recommended to re-use
  existing components when developing new products
  (rather than creating numerous new components
  whenever creating a new subassembly)
• Several software applications are available to
  enable designers to re-use existing components
  when developing new products
• CAD systems are integrated with Component and
  Supply Management systems to minimize the amount
  of new Items introduced
• CAD systems are integrated with Quality systems
  to capture performance and reliability data to
  determine suitability for re-use in future
  products
• Partnering with proven Suppliers during the
  Design process is a major opportunity to reduce
  both Time To Market and Cost
• Expertise in analyzing requirements and
  generating a list of new product ideas
• Understanding of the manufacturing costs, with
  the dollar impact of alternative design concepts
  and components