9/7/2006 10:04 AM Page 183 * After a designated number of inspections and tests, designate the appropriate rating for the supplier with suggestions for correction, if appropriate. * The supplier now ships directly to the buyer workstations with no buyer inspection or testing. * Conduct periodic random inspection as a check for consistency. * Continue regular meetings with the supplier to ensure open communication and suggestions for continuous improvement. This procedure is not the only way to certify a supplier but it is pragmatic.22 Avoid having such an elaborate procedure that both sides become buried in a mountain of paperwork. Do not require suppliers to work toward applying for the Baldrige Award as the cost of doing so outweighs the benefits for most companies. Requiring ISO 9000 certification is appropriate: Just give them time and support to do it. Benchmarking Michael J. Spendolini is a pioneer in benchmarking, as the word is now used in quality assurance. Following his original work at Xerox, he became a leading consultant and trainer in the field. He defines benchmarking as "a continuous, systematic process for evaluating the products, services, and work processes of organizations that are recognized as representing best practices for the purpose of organizational improvement." 23 While "best practices" could mean any area of an organization, modern benchmarking was developed as part of the TQM movement in the 1980s. The process usually involves literature searches and personal visits by teams of managers of one organization visiting managers at another organization judged to be best in certain quality aspects of manufacturing, service, marketing, ROI, purchasing practices, and any other performance index or factor. One excellent source for Purchasing benchmarks is the Center for Advanced Purchasing Studies (CAPS) in Tempe, Arizona. World automobile manufacturers have long compared each other on the number of hours required to produce comparable models in terms of type and quality. Teams of purchasing managers visit organizations thought to be proactive and very effective. The teams measure the gap between the best organization's practices and their own and then study "the best" process used to achieve the desired results. Processes include policies, procedures, techniques, organization structure, and any other tools used to be successful. Spendolini and other benchmark experts feel the Baldrige Award stimulated the movement. The award criteria do include a category on competitive comparisons and benchmarks. The theory is that firms can visit the leaders, compare their practices with their own, and then go home to copy and implement the best practices. A word of caution: Do not copy a practice you do not really need or one that does not fit your company's culture, mission, or resources. 9/7/2006 10:05 AM Page 184 The Roles of Purchasing in Quality Assurance While purchasing personnel do not need the technical depth of knowledge required of the quality engineers, they do need to know the terminology and basic mechanics of the statistical tools reviewed in this chapter. It is in the sourcing step and certification process, in which Purchasing prepares the survey questionnaires and organizes the visits to supplier plants, that buyers apply their understanding of quality assurance tools, procedures, and policies. As members of commodity-sourcing teams, they must understand the language of quality but do not need the technical ability of the quality assurance team members. In addition, as purchasing personnel manage the contract, they must be able to help detect the first signs of quality problems and then communicate to the supplier the corrective action to be taken by its quality engineers. A Challenge We have reproduced the Deming letter to Pinkerton, Exhibit 12-3, because it is a bit of history but more importantly, it represents a challenge to focus on quality versus price. The letter was written 13 years ago and purchasing has made enormous strides to correct the observations of Dr. Deming. However, both authors still meet buyers who select suppliers based on price alone because of pressure from senior management to lower costs. One more time: Price is just one component of costs. Defects are the major cost drivers up and down the supply chain. Summary Quality is fitness for a required use or conformance to correct specifications as defined by the customer. The dimensions of quality run from performance to perceived quality. TQM is the basic platform for all quality, efforts and is best explained by Deming's 14 points. We can't inspect quality in, but we can help prevent defects from being produced by better training, SPC, precontrol, and other methods and techniques. Training and empowering workers to identify and help correct quality problems are the key aspects of TQM. We have to map the progress of TQM. QFD does just that, starting with customer input. TQM strives for CI and this philosophy and system should become a habit, a way of life, and not a one-time project. SPC and other such control tools do not tell why a process is going out of control-that's the job of investigative tools such as DOE and Pareto analysis. DOE is by far the most powerful tool. Poka-yoke systems that shut down machines before they produce defects will become more popular as we keep developing more exotic sensing apparatus. 9/7/2006 10:05 AM « Previous Page Go Next » Page 185 Exhibit 12-3. Letter from W. Edwards Deming to Richard L. Pinkerton. 9/7/2006 10:05 AM Page 186 ISO 9000 certification will become even more important as companies around the world demand that their suppliers be registered. ISO 9000 forces a firm into TQM, which is well worth the cost as we strive to eliminate rework and recalls, the real cost drivers. The Malcolm Baldrige Award is a worthy goal but only for a few firms who want marketing recognition beyond ISO 9000. The Baldrige Award does require more customer input but QFD accomplishes the same objective. Supplier certification programs, which are mini ISO 9000 efforts with individual key suppliers, give precise quality target goals to suppliers, help them achieve these goals, and audit to ensure compliance to criteria for various ratings. Is quality free? The net savings from TQM and QFD indicate it is. Life cycle costing also gives evidence that if good quality isn't free, it is worth the investment, that is, the payoff is huge. By now, it should be apparent that the IPS approach to proactive procurement requires teamwork. How are teams developed? How do they function? How do they "improve" themselves? This crucial topic is the subject of our next chapter. Notes 1. J. M. Juran, Juran on Planning for Quality (New York: The Free Press, 1988), p. 5. 2. David A. Garvin, Managing Quality: The Strategic and Competitive Edge (New York: The Free Press, 1988), pp. 49-60. Adapted with permission of The Free Press, an imprint of Simon & Schuster. 3. W. E. Deming, Out of the Crisis (Cambridge, Mass.: MIT, Center for Advanced Engineering Study, 1986). 4. Howard S. Gitlow and Shelly J. Gitlow, The Deming Guide to Quality and Competitive Position (Englewood Cliffs, N.J.: Prentice-Hall, 1987). Reprinted by permission of Prentice-Hall, Upper Saddle River, N.J. 5. John R. Hauser and Don Clausing, "The House of Quality," Harvard Business Review (May-June 1988), p. 72. 6. Martin K. Starr, Operations Management: A Systems Approach, from the preview of this text to be published in 1996 by Boyd and Fraser Publishing Co., Danvers, Mass., p. 49. We recommend readers buy this exciting and new approach to the study of operations. 7. Ricardo R. Fernandez, Total Quality in Purchasing and Supply Management (Delray Beach, Fla.: St. Lucie Press, 1995), pp. 199-202. 8. Keki R. Bhote, World Class Quality: Using Design of Experiments to Make It Happen (New York: AMACOM, 1991), p. 181. 9. Ibid. pp. 182-183. 10. Philip B. Crosby, Quality Is Free: The Art of Making Quality Certain (New York: McGraw- Hill, 1979). 9/7/2006 10:05 AM 11. Juran, op. cit., pp. 26-27, 276-278. 12. Kaoru Ishikawa, What Is Total Quality Control? The Japanese Way, translated by David J. Lu (Englewood Cliffs, N.J.: Prentice-Hall 1985), pp. 63-64, 203. Used with permission of Prentice-Hall, a division of Simon & Schuster. 13. Ryuji Fukuda, Managerial Engineering (Cambridge, Mass.: Productivity, Inc., 1986). 14. Ishikawa, op, cit., pp. 59-71. 15. Shigeo Shingo, Zero Quality Control: Source Inspection and the Poka-Yoke System (Cambridge, Mass.: Productivity Press, 1986). Also see by the same author, Non-Stock Production: The Shingo System for Continuous Improvement (Cambridge, Mass.: Productivity Press, 1987). 9/7/2006 10:05 AM Page 187 16. Tracy Goings Gorny, "Quality Standards: Meeting on Common Grounds," NAPM Insights (November 1991), pp. 22-23. Also see John Nolan, "Understanding ISO 9000," NAPM Insights (September 1992), pp. 28-29. 9/7/2006 10:05 AM 17. John T. Rabbitt and Peter A. Bergh, 9000 Compliance and Certification (White Plains, N.Y.: Quality Resources, 1993), p. 9. Note: The American Management Association in New York City (AMACOM) also distributes this book. 18. Jonathan B. Levine, "Want EC Business? You have Two Choices," Business Week (Oct. 19, 1992), pp. 58-59. Also see Mary Siegfried, "ISO 9000 Benefits and Concerns," NAPM Insights (May 1994), pp. 57-59, and the supplement to the June 1994 issue of the Management Reviews: Industry Forum, "Does the ISO 9000 Need Fixing?" 19. Greg Hutchins, ISO 9000: A Comprehensive Guide to Registration, Audit Guidelines and Successful Certification (Essex Junction, Vt.: Oliver Wight Publication, 1993), pp. 164-166. We feel this is the best of the general guide books. ISO 9000 guides and manuals are available directly from ISO, Case Postale 56, CH-1211, Geneve 20, Switzerland. The latest is ISO 9000 International Standards for Quality Management, 4th ed., 1994. 20. Francis X. Mahoney and Carl G. Thor, The TQM Trilogy: Using ISO 9000, the Deming Prize, and the Baldrige Award (New York: AMACOM, 1994), pp. 71-99. 21. For a fine example of a supplier quality evaluation and audit, see Keki R. Bhote, Strategic Supply Management: A Blueprint for Revitalizing the Manufacturer-Supplier Partnership (New York: AMACOM, 1989). This work is an excellent reference on all quality issues. 22. Also see Fernandez, op. cit., pp. 127-138, and the May 1993 issue of NAPM Insights, the theme of which is Supplier Certification, pp. 18-39. 23. Michael J. Spendolini, The Benchmarking Book (New York: AMACOM, 1992), p. 9. Also see Benchmarking: A Tool for Continuous Improvement, by C.J. McNair, CMA, and Kathleen H.J. Leibfried, Omneo, imprint of Oliver Wight Publications, Inc., Essex Junction, Vermont, 1992; and Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance, by Robert Camp (White Plains, N.Y.: Quality Resources, 1989). Page 188 13 Team Building Kim Chen, purchasing manager for Medical Test Equipment Company, is frustrated and angry. She has just returned from an electrical component commodity-sourcing team meeting that she considers a waste of time. Two key members sent substitutes who had no idea of what was going on, one engineer wanted to change all the specifications, the representative from Production had no idea of the needed quantities for the next quarter, the Quality Assurance representative read his ISO-9000 manual during the discussion, and the team leader kept asking, "Why are we here?" Kim wonders what to do. She is still uncertain as to top management support for the team concept at Medical Test Equipment. What Is a Team? 9/7/2006 10:05 AM We have stressed the need for and value of forming cross-functional teams to allow the simultaneous integration of necessary inputs from all members of the organization who are and will be affected by incoming materials. This includes design and sourcing or commodity teams. As Ellram and Pearson write, these teams ensure that more in-depth information will make for better decisions as multiple needs and concerns are discussed together, as opposed to the traditional sequential approach that often requires expensive revisions.1 The advantage of team input is enhanced when suppliers participate (as needed) on these teams. Teams reduce product development time, improve quality, reduce cost, and reduce engineering changes. Chrysler's Cross-Functional Platform teams reduced new auto development from four and a half years to three years. The Honeywell's Building Controls Divisions teams reduced new product development time by 50%.2 Contrary to early fears, these teams do not diminish Purchasing's authority; they increase Purchasing's involvement in the total decision-making process .3 The question now becomes, how do we make these teams productive and efficient? The Team's Charter Top management must define the purpose of the teams, how they will be staffed, what their authority is, and how they will operate. There will always be resistance 9/7/2006 10:05 AM Page 189 by those who historically have made decisions alone, especially if they are senior in rank. Thus, the first step is to issue a written policy and procedure guide to all relevant personnel. A Recent Case History One of the authors has installed teams in a high-tech firm, but only after extensive interviews with key management revealed the hazards and waste of sequential decision making by separate departments. This review included the documentation of the excessive costs involved with too many purchase orders, with too many suppliers, and frequent change orders caused by unilateral department action with little advanced supplier involvement. In addition, the purchasing department was relegated to order entry status and a very reactive mode. In fact, orders were often given directly to suppliers by engineering and production personnel prior to the completion of purchase requisitions and purchase orders. After the review, a list of the critical materials was developed with the goal of consolidating the total volume of each material into long-term contracts with one prime and one backup supplier (when possible and needed). Blanket orders and system contracts are negotiated by teams composed of representatives from Engineering, Production, Purchasing, Quality, and others as needed. The managers of the basic product lines submits names for team membership to the purchasing manager, who is responsible for establishing the teams and their meeting schedules. If the purchasing manager disagrees with the selection, she can appeal up the rank ladder, even to the president if necessary. The buyer most familiar with the product line is always a member of the particular "commodity team" (as it is called). The teams are told to select their own leader and the preferred supplier by voting or consensus. These teams negotiate the final contract subject to the ordinary upper management review. Prior to actually starting the teams, the author conducted a three-hour meeting on the new team approach and the new supply management system. The new purchasing procedure allows a planner-scheduler to order releases directly via fax from the supplier selected by the team, eliminating the previous waste of repeat requisitions and purchase orders every time material was needed. The cost of this paperwork was estimated to be $50 for each transaction, and it was estimated the new system will save at least $100,000 a year by substantially reducing purchase requisitions and orders. Another half-day session on the techniques of negotiation including role playing was conducted. In addition, the president arranged for the consultant (one of the authors) to visit once a month to actually "sit in" on team meetings and negotiations. Previously, the consultant and members of the purchasing department had visited several key suppliers to test the validity of the proposed program. After about five months of operations, the five teams started to become productive and indeed, two teams actually negotiated several consolidated contracts. The consultant met with the teams about once a month for mini training sessions to give advice. In addition, he constantly met with senior management to clarify the objectives and stimulate continued support from the corporate leaders. However, most of the teams experienced great difficulty trying to define objectives and learning to live with one another. The consultant had to jump start the teams many times as they matured. 9/7/2006 10:05 AM Page 190 This case history represents a fairly normal sequence of developments, in particular when commodity and other cross-functional teams are formed at the same time the purchasing department is just starting to evolve from reactive to proactive status. Any major organizational change is traumatic to individuals accustomed to either status quo or ''having their own way'' in departments "doing their own thing." Nobody likes to give up power or autonomy and it is normal to encounter resistance of various degrees in individuals charged with both instigating and accepting change. A fair amount of research has produced several guidelines to making teams effective. The characteristics of effective procurement teams as developed by Larson and La Fasto are rather common in most of the literature simply because they are based on real experience and common sense. 4 How to Have More Effective Teams Clearly Defined Objectives, Explicit Goals, and Vision In our opening case study, we see a group of teams making some progress but not quite sure of their mission. One of the reasons for this confusion was the uncertainty of whether the policy that established the teams was actually in force because the policy was stalled in an ISO 9000 document review committee. This delay was the result of confusion over just who was responsible for the final statement regarding the new supply management policy and the role of teams. Six months elapsed without the official adoption of the policy and procedure statement, (the same period during which the teams were formed and started operation). The president of the firm and key management had all reviewed and approved the basic concepts of the policy and initial training sessions had been held for team members. But the failure to publish the policy led to an initial lack of commitment and confusion over objectives and goals. The teams were formed to pursue the enormous dollar savings by consolidating the supplier base into a few key quality driven suppliers operating under long-term "partnership" agreements. The early limited success of the teams in our case study did stimulate the final policy adoption. But the general rule is to first adapt, publish, and communicate the goals and rationale for the teams who would operate under a new supply management philosophy and system. Prior to starting detailed agenda preparation, teams must have defined objectives and deadline dates with clarity of purpose supported by the rationale for the policy and endorsement from all senior management. [...]... proper mandate for team organization and to give reasonable time for the teams to develop We seem to forget that great teams have to first practice, then play the game, and they can't play it without good coaches, able players, and team leaders who are a mixture of coach, player, and referee It takes two to three years to document the real, bottom-line savings of teams, especially when the organization... on operational tasks Carlisle and Parker use the term mandate teams to describe the commodity teams' efforts to prepare the agenda and data for the actual negotiation team The mandate team must have the authority and responsibility, which actually means a charter and resources from senior management.8 Although the negotiation team should be selected from the mandate team, its membership may have new... assistance To these goals must be added future needs and improvement goals, targets The four desirable design features common to all teams as identified by Larson and La Fasto are :7 1 Clear goals and accountability for each member 2 Effective communication from credible sources, agenda flexibility (we can add topics not on the planned agenda), and documentation 3 Monitoring individual performance and... Teams," 79 th Annual International Purchasing Conference Proceedings, May, 1994 (Tempe, Ariz.: National Association of Purchasing Management), p 81 15 Robert J Trent and Robert M Monczka, "Effective Cross-Functional Sourcing Teams: Critical Success Factors," International Journal of Purchasing and Materials Management (Fall 1994), pp 3-11 16 Diane Brown, "Supplier Management Teams," NAPM Insights (August... individuals to calm everybody down and reach consensus 3 Collaborators Collaborators are the integrators; they see the big picture and help to bring the team back to focus when it wanders from the agenda 4 Challengers All teams need challengers who may appear to be negative but who have the ability, knowledge, and nerve to ask the tough questions, such as "Is it realistic to expect the supplier to ship... issue at hand In effect, the commodity team prepares the RFP The purchasing manager will have to relinquish total power and authority and learn to accept the team decisions, not an easy behavior change for the autocratic manager Competent Team Members The description "competent team members" refers to a combination of the right technical and personal skills including the desire and ability to work together... the early stages of team development As each teach member is selected, assign background reading including Teamwork: What Must Go Right/What Can Go Wrong by Carl E Larson and Frank M J La Fasto (Thousand Oaks, Calif.: Sage, 1989) Another very fine paperback with interesting case histories of business teams is The Wisdom of Teams by John R Katzenbach and Douglas Smith.18 The National Association of Purchasing. .. constructive feedback for assignments and rewards 4 Decision making based on facts and informed judgment The key goal of team structure is to facilitate action, accomplishment, movement, and change These teams cannot be allowed to develop analysis paralysis, pure procrastination, a status quo mentality, a department vs function focus, or any other disadvantage associated with committees that never come to closure... They are far easier to reach than explicit agreements Although neither party makes a formal commitment, the terms of the tacit agreement are quite clear to each A tacit agreement is easier to reach than is an explicit one because both parties realize that the "agreement" may be broken without an interpretation or charge of "bad faith." Tacit agreements become binding only in the context of the entire agreement... many negotiations, it is possible to reach a mutually satisfactory agreement at this point However, if such an agreement is not yet possible, it is necessary to employ hard bargaining Bargaining employs persuasion in moving the other side toward one's goal If persuasion fails, threats may be employed For example, either party may threaten to break off negotiations The buyer may threaten to take all his . cross-functional teams are formed at the same time the purchasing department is just starting to evolve from reactive to proactive status. Any major organizational change is traumatic to individuals accustomed. use the term mandate teams to describe the commodity teams' efforts to prepare the agenda and data for the actual negotiation team The mandate team must have the authority and responsibility,. problem-resolution team is trust; for a creative team, autonomy; and for the tactical team, clarity. 6 The tactical team must have a well-defined set of negotiation objectives and tasks based upon analysis