Chapter 8

Supplier Partnership and

Total Quality Management

Atthe end of the chapter the students shall be able to:

Give the importance of supplier in the production of goods;

Discuss the importance of the supply chain partnership;
Enumerate the factors for supplier's identification standards;

Give the importance of intensified supplier relationships;

'relationships;
Give benefits that will be derived in supplier's long term
Gmiavena
management;

 Discussbetween purchasing and total quality

Discuss the requirements for supplier's in the implementation of

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THE IMPORTANCE OF SUPPLIER

The world of business cannot stand alone. Partnership is the cornerstone

of business development and supplier partnership is essential for every
organization. The dynamics of m arket forces demand every organization to
convert itself into a virtual corporation for cost effectiveness and improved product
quality. In the virtual corporation, the focus is the building of the core system. The
virtual company depends on large scale of supplier for the rest of the sub-assemblies
needed for the making of the core products.
Outsourcing has become the new byword in the intricate business
condition as everyone is racing for quality market competitiveness. In the
manufacturing sector, outsourcing enables the manufacturer to focus their
attention in managing the quality of their brands rather than invest their capital
resources in producing lower value-added components.
Organization in its quest for leadership in the industry should evolve in
finding the most appropriate supplier. The job of proper identification of
supplier goes through a process of careful evaluation and analysis. The supplier
is selected based on their technical capabilities and their ability to supply the
materials in short lead-time. There should be the existence of mutual
relationship of management trust and confidence once the relationship has been
established.
THE SUPPLY CHAIN PARTNERSHIP

Supply chain partnership has existed for a long time in the

business organization but has not been given abundant recognition
until pioneering organizations like Toyota has led the way for its
effective use. Supply chain partnership is a continuum of inter-
firm relationship that involves a discrete arm's length distance
affair between two organizations. This is equivalent to the length
of time it takes to complete a single transaction as it evolves special
influences on the partner organization. Partnership moves beyond
special transactional influence by involving effort of both firms to
coordinate functionally in their activities.
 Logistics Management

SUPP LIER STANDARDS IDENTIFICATION

The selection of supplier must meet the standard requirement

in terms of quality, lead time delivery and other specifications
stipulated in the agreements. The compliance with specific
requirements will help the buying organization to move ahead of
its competitors. The experience of Toyota in the car industry is a
living example that made them the leading car manufacturer in the
world ahead of the many car industries in the Western countries.
To safeguard against stock outs, the buying organization
must have developed at least two reliable suppliers to take care
of sudden demand. This will also enable the buying organization
to check on price fluctuations. On the other hand, the limitation
of the supplier to at least two is precept on the parameter that too
many suppliers will increase the variability of product quality and
increase workload in the buying organization.
The selected suppliers must be clearly intimidated to the
definition of the following standard requirements:

1. Quantity required
The required quantity of materials must be ready in the
production line when it is needed. The supplier must be able
to commit to the buying organization to supply the specific
quantity requirements based on the production schedule.
Failure on the supplier to meet the required quantity will mean
lost operating time.

2. Quality requirements
This is one of the most critical points in the supply chain
management. Guaranteed quality is the essence of the supplier
index for continuous patronage and commitment. It means
that quality is the prevailing point of customer patronage of a
particular brand of products that the outsourcing organization
15 more focused on.

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3. Specifications for the required materials

The specifications are based on the following.

Style - the supplier must be able to supply the ref, • materials based on
designs and.engmeering spec Bred submitted by the buying organization. Th e prociv ahoy
samples must be approved first by the buying orgon arlizati-t
vn
before producing in large quantity the component p arts.°4
a.Workmanship the component features must be accePtabi
-

in terms of workmanship. It refers to the neatness and sulit,7-e

of finished product. It must meet the required specificatio-'
101 and conform to the engineering design that will fit into the
core product.
The supplier must be trusted to provide defect-free
by the supplying organization. Acceptable level means
...
.., components through coordination and traini n g t h e m
in quality assurance. The supplier must continue t o
-i organization.
pursue advances in product development and produ ction
:72 engineering as a component conduit of the buyin g
d e: c. Acceptable quality level the level of quality must
-

meeting the standard product specifications in terms of

hardness, thickness, workmanship, and the other required
standards of durability and performance.
$71 The best way to assure quality is designing the products
and processes to the specification and requirements of the buying
organization. The big consideration in the choice of the
supplier is their technological capability and their ability to
offer products that are two steps ahead of their
competitors.
4. Delivery instruction
It is providing the customer with the product they want. The
important element of customer satisfaction is on time delivery.
The supplier must deliver the products on speci fied schedule
and the total amount required. Customers change constank,
and the supplier must respond flexibly
delivery. in production afte

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and conditions
ray ment Willis
5.
The buyer welcomes low prices from supplier only when they
are the results of genuine cost competitiveness. It is the ffering of
high q
ouality materials with excellent functions. Good p
ducts sold at lower price increases appeal to customers. The o r
'conservation of materials and energy that stems from cost-
saving measures helps increase profit and at the same time
safeguards the environment.
The supplier must consistently strive to reduce cost. Their
production effort must be translated into reduction of the
processing cost. The terms of payment are subject to amicable
agreement of both parties. Long-term contract may stipulate
later payments of 30 days or longer depending on the capability
of the supplier to finance the material supply system. Short and
small volume delivery maybe negotiated on cash payments.
INTENSIFIED SUPPLIER RELATIONSHIPS

The development of supplier relationship in the implementation

of the purchasing and supply management technique should end in
the long-term supply chain partnership. It is the strategic alliance of
two independent entities in the supply channels to achieve specific
objectives and benefits. The building block is formed that allows
the flow of information and develops subsequent coordination
in the delivery of quality products. The twine management
philosophy builds tighter bonds that matured through time
towards the adversarial nature of greater bonding in the supply
chain management.
The partnership dyad share goals as well as inherent risks in
the business system through joint planning and control. It seeks to
.create a supply chain with increased information flow and enhanced
lo
yaltY. This allows improved services, technical innovations, and
product design and quality.
The Partnership and alliance may be able to arrive with
d
e c r e a s e d
coordination operating cost. With coordinated planning and greater
Lunahon
der
_..r ea _ by the buyer and the supplier, both companies will
fe .z uncertainty, greater cost savings, short cycle time and to
wer
i
nventories. Finally, greater quality products will be delivered

satisfied customer.
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T
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P
art
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co
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of
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act
ivit
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bri
dg
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bet
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Organizational
synergy is the
cooperative
partnership
,la of functional
activities that the
two independent
entities are
E f f
working as one
body. The
alliance of both
organizations
5 created a
commonality of
goals and
objectives. This
will
—
mi drive their
respective
organization
towards a
cohesive
rel
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SUPPLY CHAIN MANAGEMENT
.11r,
4.11

The
changing
business world of
materials
management has
evolved to realize
the advantages
enjoyed from
sharing
technology,
information and
planning with
other firms. Many
modern business
executives have
opened up their
minds and
develop rational
attitude of
cooperative
relationships and
alliances. The
idea of
rationalism seeks
to move away
from discrete
transactions,
breaking down
traditional inter-
firm barriers. The
partnership and
alliance has
reduced
uncertainty and
increased control
that reaps the
benefits of joint
effort.
Supply chain
management
alliance began
with the
inclusion of the
supplier of
materials in the
cross-functional
sourcing teams.
The
improvement of
supply chain
effectiveness is
based on the
philosophy of
strategic alliance
and cooperation.
It requires the
total involvement
of the supplier in
the planning of
the material
requirement of
the buying firm.
The intensive
interdepen.denrt
relationship
encouraged
mutual sharing
of information,
trans.t of
technology and
other vital
components of
the outsourcing
organization.

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 Logistics Management

Benefits of supplier partnerships:

1.B u yers gain higher quality of products

2.Reduce transaction cost through economies of scale
3.Decrease in administrative cost through collaboration
4.Process integration and improve process oriented layout
5.Enjoyment of quantity discounts
6.Enhance market stability
7. Better product design
8.Enhance communication and development of goal congruence
9.Less conflict resolution
10. Less probability of opportunism and decrease risk from
externalities

Risks involved in the supplier partnership:

1.Heavy reliance on one or two partners if partners failed to meet

expectations.
2.Loss of competitiveness if partners lost control.
3.Break up of ties when values and ethical standards failed to
flourish in the partnership.
4.Failure in product quality when performance control fails to
detect defects.
5.Abandonment of partnership causes losses to both organizations.

There is a growing industry wide inclination for corporate

integration on the supply chain management. The members of
the supply chain synthesize processes and strategies that allowed
the entire chain to work together towards the attack of industrial
pressures from cost reduction, faster cycle time and increase in
quality benchmark. The supply chain management grants the
supplier a potential source of competitive advantage. This will
Increasingly become important part of the industry strategy, as the
world market is getting smaller due to the increase in technological
marketing communications.

PURCHASING AND TOTAL QUALITY MANAGEMENT

Total quality management is the byword in the industry and

in the academic community as the world of business is competing
for supremacy in terms of quality and service. The customers shift

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to quality products is brought about by the increasi ng ec

activity and the influence of faster communication and techn °11°11
advancement. ologicai
The boom in competitive advantage has brought abo ut th
emergence of quality programs that necessitate the integration the
production planning, purchasing, engineering and product designo-
In its simplest sense, the total quality management is an innovatrv.. way
of thinking that affects the culture, the strategy and th e
corporate technology. The entire system must be working as a team
e

towards the delivery of quality products for customer satisfaction,

TQM and purchasing requires the following:
a.Redefining the mission and vision
b.Identify system output
c.Identify customer wants and needs
d.Negotiate customer requirements for quality
e.Develop supplier specifications and expectations
f.Develop systems and procedure to accomplish the above
requirements
Purchasing and total quality management are twined
components in the delivery of total customer satisfaction. The buyer
and supplier must focus on total quality materials and finished
product. High quality material from supplier is the most important
factor in the delivery of quality finished product. The buying firm
must examine the purchasing process implemented in the supply
chain if it wanted to develop supremacy in quality products.
Today's market scenario is driving the buyer of materials with
the establishment of long term agreement. The involvement of the
suppliers in the early stages of product design and development
must be implemented to be assured of quality materials. The buying
firm needs to provide the supplier long-run demand forecast and
give performance feedback and suggestions. This is necessary to
maintain the objective of long run supply chain relationships. This
relationship must reduce transactional cost by working together to
improve incoming materials. While partnership is the essence of
the good relationship, the supplier should be held responsible for
any defects in the materials supplied in the core product.
of
The success of any long-run relationships in the suPP
quality materials rested on the balance of power playing field , that
both parties are honest enough in their transactions. If one pet)

13
6
 Logistics Management

es advantage of the other party, then the imbalance will create takre

pro ems than benefits. The culture of trust and confidence 1111:st be
bl

T the strong foundation. The practice is prevalent in most

apanese organizations.
For the benefit of buying organizations to solve this problem,
there must be an alternative supplier. This alternative supplier must be
given enough volume to supply the required materials. This will pro
vide a check valve mechanism in price manipulations by the m ajor
supplier. The backup supplier gets the lesser volume and do not enjoy
the closer management relationships of cooperative alliance in
production processes.
QUALITY REQUIREMENTS FOR SUPPLIER

1.Materials quality requirement

The supplier quality assurance in the materials delivery must

be consistent with the needed requirements of the production
system. It must meet the level of quality performance of the
buyer. The buyer must be assured that quality components are
the same with that of the expectations of the buying company.
When quality targets failed to meet customer expectations, a
programmed response to the agreed quality target must be
immediately communicated.

2.Quality target commitment

The buying firm must specify in detail the agreed upon

quality targets. The following requirements must be addressed:

a.Parts per million (PPM) is the value of rejected parts divided by

those delivered.
Field failure and reliability requirement is failure of the
a. products component that is already put in place and used
already by the customer. It is quite difficult to detect and it
is devastating to the brand's reputation.
Warranty agreements. When component parts failed to
meet quality specifications, it shall be replaced. Handling
C costs and other field failure cost must be charged to the
supplying organization.

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 Logistics Management

d. Urgency to solve problems — customer satisfaction

related to respond immediately to problems. s
dir
ectly
3. Preventive quality in strategic component

These are the critical parts in the component th at .

more extensive quality assurance. requIre
It must go through a series of studies and tests alon th
following: g e

a.The supplier must participate in the component design

b.High level of integrated research and development. for
complex products.
c.The parts are expensive and must pass series of tests
d. Longer lead time to develop
e.It requires extensive testing before production
f.The parts require legal implication and critical characteristics

The complexity of the above components parts requires

qr
part quality assurance (PQA). The following formal process of
documentation goes through the process of validation by the
buyer.
a.Review the technical specification
b.Validate the reliability of the design characteristics
c.Develop and document a quality assurance plan
d.Identify the need for a tooling plan
e.Perform a pre-process audit of the component
f.Perform a legal and government conformity audit
g.Perform a packaging analysis and plan
h.Project the effect of process mode failure
i.Develop a statistical process control plan
j. Perform a production test plan
k. Perform a process audit
1. Develop a parts handling plan
The above requirements must be complied before an):
supply agreements will be signed by the buyer and seller. Th .
parts quality assurance (PQA) is finalized only after final
of the
a ncomponent
d p parts
e randf verified
o r m as toa itsnquality
c e compliance
. testing

138