The Supplier Management Handbook Sixth Edition James L. Bossert, Editor Customer–Supplier Division, ASQ ASQ Quality Press Milwaukee,Wisconsin American Society for Quality,Quality Press,Milwaukee 53203 ©2004 by ASQ All rights reserved. Published 2004 Printed in the United States of America 12 11 10 09 08 07 06 05 04 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data The supplier management handbook / James L. Bossert,editor.—6th ed. p. cm. Includes bibliographical references and index. ISBN 0-87389-629-7 (hard cover,case bound :alk. paper) 1. Industrial procurement—United States—Quality control—Handbooks, manuals,etc. 2. Quality control—United States—Handbooks,manuals,etc. I. Bossert,James L.,1951– HD39.5.S87 2004 658.7'2—dc22 2004009629 Copyright Protection Notice for the ANSI/ISO 9000 Series Standards:These materials are subject to copyright claims of ISO,ANSI,and ASQ. Not for resale. No part of this publication may be reproduced in any form,including an electronic retrieval system,without the prior written permission of ASQ. All requests pertaining to the ANSI/ISO 9000 Series Standards should be submitted to ASQ. ISBN 0-87389-629-7 No part of this book may be reproduced in any form or by any means,electronic, mechanical,photocopying,recording,or otherwise,without the prior written permission of the publisher. Publisher:William A. Tony Acquisitions Editor:Annemieke Hytinen Project Editor:Paul O’Mara Production Administrator:Randall Benson Special Marketing Representative:Matt Meinholz ASQ Mission:The American Society for Quality advances individual, organizational,and community excellence worldwide through learning, quality improvement,and knowledge exchange. Attention Bookstores,Wholesalers,Schools,and Corporations:ASQ Quality Press books,videotapes,audiotapes,and software are available at quantity discounts with bulk purchases for business,educational,or instructional use. For information,please contact ASQ Quality Press at 800-248-1946,or write to ASQ Quality Press,P.O. Box 3005,Milwaukee,WI 53201-3005. To place orders or to request a free copy of the ASQ Quality Press Publications Catalog,including ASQ membership information,call 800-248-1946. Visit our Web site at www.asq.org or http://qualitypress.asq.org. Printed on acid-free paper Foreword T here has never been a more important time for you to refer to our sixth edition of The Supplier Management Handbook. Why,you ask? It’s quite simple. In past editions,we have focused on the business service/manufacturing base primarily within the United States. Our orientation was that of enhanc- ing the quality support mechanisms that provided for improved products, services,and customer satisfaction. That has all changed. The American economy is now a global one. It has become more and more focused on price due to overseas competition. The hard question is, where does quality now fit in with all of this? It is obvious that quality will have to adapt to these changes,and,more impor- tantly,for the right reasons. We,as quality professionals,can either evolve and continue to lead with commitment or become a secondary participant, due to factors or forces that will end up leading the global corporate community. We must be com- mitted to leading such change. If we are going to lead,we must do this with global thinking. We are no longer an island. In the old days, the sales rep would argue features and benefits over price. He got the sale this way. We may find ourselves discovering that we will have to justify,more than ever,what it is that quality will deliver,both today and in the future. The key is,like the old-time sales rep,the argument can be made! It is for this reason, and many others, that our membership is kept informed of this ongoing evolution in quality. In reading our sixth edition of the Supplier Management Handbook,you are participating in this ongo- ing migration toward business excellence. As always, your feedback and participation makes all of this possible. Together,we will make history for the Customer–Supplier Division learning community. Much success to all of you in your personal and business lives. William (Bill) Mizak Customer–Supplier Division Chairman ix Table of Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . x Chapter 1 Why Procurement Quality? James L. Bossert and Janet R. Raddatz . . . . . . . . . . . . . . . 1 The Changing/Transitional Role of Purchasing . . . . . . . . 2 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Chapter 2 How Do You Appear to Your Suppliers? Michael Zimmer . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Chapter 3 Basic Issues:Specifications James L. Bossert and Janet R. Raddatz . . . . . . . . . . . . . . . 25 Quality Management Specifications . . . . . . . . . . . . . . 29 Government Quality Specifications and Standards . . . . . . 30 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Chapter 4 Basic Issues:Record Keeping James L. Bossert . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Chapter 5 Basic Issues:Site Inspection James L. Bossert . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Endnote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Chapter 6 Basic Issues:Measurement Assurance James L. Bossert and Janet R. Raddatz . . . . . . . . . . . . . . . 47 Analytical Data Accuracy . . . . . . . . . . . . . . . . . . . 47 Routine Testing . . . . . . . . . . . . . . . . . . . . . . . . . 51 Chapter 7 Basic Issues:Supplier Rating James L. Bossert,Arthur Blank,and Brian Margetson . . . . . . 55 Reasons for Rating . . . . . . . . . . . . . . . . . . . . . . . 55 v vi Table of Contents Use of Rating . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Potential Rating Problems . . . . . . . . . . . . . . . . . . . 61 Example of a Supplier Rating Scheme . . . . . . . . . . . . . 62 A Final Word on Supplier Ratings . . . . . . . . . . . . . . . 72 Endnote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Chapter 8 Basic Issues:Communications James L. Bossert and Janet R. Raddatz . . . . . . . . . . . . . . . 73 Chapter 9 Basic Issues:From Ship-to-Stock to Just-in-Time Richard J. Laford . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Endnote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Chapter 10 Basic Issues:Data Evaluation James L. Bossert and Janet R. Raddatz . . . . . . . . . . . . . . . 83 Chapter 11 Supplier Certification James L. Bossert and John O. Brown . . . . . . . . . . . . . . . . 91 Step 1. Document the Process . . . . . . . . . . . . . . . . . 93 Step 2. Select Suppliers for the Process . . . . . . . . . . . . 93 Step 3. Establish Partnership for Improvement . . . . . . . . 94 Step 4. Perform Initial Quality Systems Validation . . . . . . 94 Step 5. Establish Approved Suppliers . . . . . . . . . . . . . 95 Step 6. Establish Preferred Suppliers . . . . . . . . . . . . . 95 Step 7. Review for Certification . . . . . . . . . . . . . . . . 96 Step 8. Certify Suppliers . . . . . . . . . . . . . . . . . . . . 96 Step 9. Recognize Suppliers . . . . . . . . . . . . . . . . . . 96 Step 10. Maintain Certification . . . . . . . . . . . . . . . . 97 Business Sector Applicability . . . . . . . . . . . . . . . . . 97 Chapter 12 How to Conduct a Supplier Survey Vendor-Vendee Technical Committee . . . . . . . . . . . . . . . 101 Goals of a Survey . . . . . . . . . . . . . . . . . . . . . . . 102 Preparation for the Survey . . . . . . . . . . . . . . . . . . . 103 Team Organization . . . . . . . . . . . . . . . . . . . . . . . 104 The Use of Quantification in the Evaluation Format . . . . . 106 Opening Conference . . . . . . . . . . . . . . . . . . . . . . 107 How to Gain the Most from a Plant Tour . . . . . . . . . . . 111 Evaluation of a Record System . . . . . . . . . . . . . . . . 112 Closing Conference . . . . . . . . . . . . . . . . . . . . . . 114 Final Report . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Follow-Up to Supplier Qualification Surveys . . . . . . . . . 116 Post-Survey Team Critique . . . . . . . . . . . . . . . . . . . 117 Table of Contents vii International Suppliers . . . . . . . . . . . . . . . . . . . . . 120 Supplier Information and Reassurance . . . . . . . . . . . . . 121 Chapter 13 How to Evaluate a Supplier’s Product Vendor-Vendee Technical Committee . . . . . . . . . . . . . . . 123 Preaward Conference . . . . . . . . . . . . . . . . . . . . . . 124 Initial Production . . . . . . . . . . . . . . . . . . . . . . . . 127 Product Qualification . . . . . . . . . . . . . . . . . . . . . . 128 Process Identification . . . . . . . . . . . . . . . . . . . . . 129 Process Audit . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Qualification by Suppliers . . . . . . . . . . . . . . . . . . . 130 Qualification by Independent Laboratory . . . . . . . . . . . 130 Certification Program . . . . . . . . . . . . . . . . . . . . . 131 Incoming Inspection . . . . . . . . . . . . . . . . . . . . . . 131 Utilizing Supplier Data . . . . . . . . . . . . . . . . . . . . . 138 Nonconforming Product . . . . . . . . . . . . . . . . . . . . 140 Supplier Total Performance Evaluation . . . . . . . . . . . . 141 Chapter 14 How to Establish Effective Quality Control for the Small Supplier Bruce Kelsey . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Quality Control and the Small Supplier . . . . . . . . . . . . 145 Planning for Quality . . . . . . . . . . . . . . . . . . . . . . 149 Organizing for Quality . . . . . . . . . . . . . . . . . . . . . 151 Ensuring Quality . . . . . . . . . . . . . . . . . . . . . . . . 160 Product Certification,Documentation,and Traceability . . . 170 Planning for a Customer Quality Survey . . . . . . . . . . . 174 Chapter 15 Procurement Quality in the Food Industry Janet R. Raddatz . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Bulk Materials . . . . . . . . . . . . . . . . . . . . . . . . . 185 Destructive Testing . . . . . . . . . . . . . . . . . . . . . . . 187 Qualitative Methods . . . . . . . . . . . . . . . . . . . . . . 189 Limited Shelf Life . . . . . . . . . . . . . . . . . . . . . . . 190 Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Chapter 16 Management of Service Suppliers Ricardo Fierro . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Why Pay Attention to Services? . . . . . . . . . . . . . . . . 197 The Service Supplier Management Process . . . . . . . . . . 199 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 viii Table of Contents Chapter 17 Software Acquisition and Software Supplier Management Bruce Kelsey . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 The Three Phases of Software Supplier Management . . . . . 227 Auditing A Software Supplier . . . . . . . . . . . . . . . . . 242 Appendix A Procurement Quality Definitions . . . . . . . . . . 247 Appendix B Audit Guidelines . . . . . . . . . . . . . . . . . . . 253 Appendix C Food Industry Associations . . . . . . . . . . . . . 261 Appendix D Federal Government Agencies Involved with Food Safety . . . . . . . . . . . . . . . . . . . . . . . . . 265 Appendix E Prior Contributors . . . . . . . . . . . . . . . . . . 269 Bibliography and Suggested Reading . . . . . . . . . . . . . . . . 273 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 1 Why Procurement Quality? James L. Bossert and Janet R. Raddatz Summary • The evolution of procurement quality • The new role of procurement • The basic requirements of a procurement system • The consideration of primary business goals • The development of a supplier strategy • The benefits attained from a sound supplier system T oday the word quality appears on almost every product we come across—food, appliances, automobiles, and software. No matter where you turn,you see or hear about quality. In fact,we demand a certain level of quality in everything that we buy. This is evident in the increase of consumer complaint features in newspapers and on television. What is meant by the word quality? TheAmerican Society for Quality (ASQ) defines quality as “the totality of features and characteristics of a product or service that bear on its ability to satisfy given needs.”1 The features and characteristics of any product are how we as con- sumers evaluate how good that product or service is. For example, in a restaurant,the amount we leave as a tip is a direct reflection on the quality 1 2 Chapter One of the service that we have received. Satisfying given needs can include the quantity, price, or purity of something. Quality is what we as consumers have defined as our minimum acceptable standard. If,for example,there is a need for a chemical with a 99.9 percent purity level,but that level cannot be obtained unless we pay an exorbitant amount,that need may have to be redefined to a level that is more cost-effective. So,the need for good spec- ifications is established. These specifications will give the supplier the per- formance features that the customer requires. ASQ states that: Specifications for the manufacture of a product or the delivery of a service are a translation of these features and characteristics into manufacturing or performance terms. The features and characteris- tics often are considered in relationship to the design and specifi- cation of the product or service; to the conformance of the product or service to specifications and to the compliance of the supplier of the product or service to requirements.2 This approach serves as a reminder of the distinction between the func- tional and implemented aspects inherent in the design concept and specifi- cations and in the conformance and compliance aspects of the product and implementation process. So, now our definition of quality has expanded beyond the traditional designing and conformance aspects to the implementation and delivery of the product. Where does the product fit? How do we perceive it? How can we buy it? How do we know what we are buying? We need to answer these questions in the design reviews before manufacturing the product. Then and only then should we have confidence in the components we are purchasing. THE CHANGING/TRANSITIONAL ROLE OF PURCHASING Years ago,before the industrial revolution,products were made by skilled craftspeople. Only the highest quality was made and sold to those who could afford those products. The feedback to manufacturers was immediate because they could see if the quality was unacceptable by the expression on the consumers’ faces. Only when Eli Whitney developed the concept of interchangeability of parts did the need for procurement quality begin. As the complexity of products has increased,so has the need for qual- ity. With this, purchasing agents have assumed the added responsibility of quality assurance. Traditionally, the role of the purchasing agent has been Why Procurement Quality? 3 one of getting the product at the lowest cost. Potential suppliers were eval- uated in terms of their ability to provide the following: 1. The desired quality defined as the suitability of product or service for use as intended 2. The total number of products required,including the schedule by which the product or service is required 3. Tangible and intangible services that are benefits over and above quality and price 4. Price,which is a measure of value Purchasing agents also took into account additional factors that supple- mented these four requirements. These included such things as geographic location,labor relations,the supplier’s internal facilities,the supplier’s reserve or backup facilities, capability of the supplier’s management services, sup- plier’s service capability,and supplier’s financial status. After this information was compiled, the purchasing manager might draw together a team to conduct plant visits for the prospective suppliers. This would be done only after the number of suppliers had been reduced to a manageable number. This on-site visitation might be used to appraise fac- tors such as production control,cost control,morale,and the quality of the materials management activities. Purchasing agents also might be asked to evaluate or rate suppliers. Supplier rating can take many forms, some simple and some complex. In Chapter 7,supplier rating will be examined more closely. When analyzing supplier performance, a purchasing agent evaluates how a supplier measures up to a defined set of performance standards that the purchasing agent applies to all suppliers. This enables a differentiation between good and marginal suppliers. A good system has guidelines that provide assistance in scoring all areas of resource selection. Any past expe- rience with a supplier’s quality and delivery performance is important because it is quantifiable data. Any past experience with technical,financial, and managerial services also can help in making an assessment. Price is not considered at this time. In fact,any quoted prices must be referred back to quality and delivery performance to have any validity. We need to know what to expect to determine the total cost of a purchased product accurately. Performance standards reflect the cost that purchasing agents must incur in the satisfying of user requirements. For example,suppliers may be rated on quality in terms of three categories: cost of defect prevention, defect detection, and defect prevention. The sum of these costs for each
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