According to Knanji (2002), Total Quality Management is a concept that can be used to achieve Business Excellence.
Wheatley (2001, p27) also realizes purchasing and procurement excellence’s relation to Quality by identifying certain quality award schemes as certain measurable “Yardsticks” that can be used to identify companies engaged in quality deployment activities. Such award schemes are:
- Kelly’s Awards for excellence in purchasing and supply
- The Malcolm Baldridge Award
- The European Quality Award
- ISO 9000
Quality does not assume that a product or service is superior to that of its competitors. Everybody has different tastes and requirements, so therefore, Quality, according to Oakland (1993) “is simply meeting the customers requirements.”
The Department of Trade and Industry (2000) state that “Total Quality Management is far wider in its application than just assuring product or service quality – it is a way of managing people and business processes to ensure complete customer satisfaction at every stage, internally and externally.”
Although, TQM is not primarily concerned with the areas of purchasing and procurement, it is through TQM and other quality models that purchasing and procurement can become world class.
One other excellence model that can be applied to Purchasing and procurement is the European Foundation for Quality Management Excellence Model. As opposed to focusing on quality, the EFQM excellence model recognises that processes are the means by which an organisation harnesses and releases the talents of its people to produce its performance.
(www.efqm.org)
The EFQM website identifies the following fundamental concepts of excellence that are based on the model:
Excellence is achieving results that delight all the organisation’s stakeholders
Excellence is creating sustainable customer value
- Leadership and Constancy of Purpose
Excellence is visionary and inspirational leadership, coupled with constancy of purpose
- Management by Processes and Facts
Excellence is managing the organisation through a set of interdependent and interrelated systems, processes and facts.
- Continuous Learning, innovation and improvement
Excellence is challenging the status quo and effecting change by using learning to create innovation and improvement opportunities.
Excellence is developing and maintaining value-adding partnerships.
- Corporate Social Responsibility
Excellence is exceeding the minimum regulatory framework in which the organisation operates and to strive to understand and respond to the expectations of their stakeholders in society.
The EFQM Excellence model is based on the concept that :
Excellent results with respect to performance, customers, people and society are achieved through leadership driving policy and strategy, that is delivered through people partnerships and resources, and processes.
With regard to purchasing and procurement, this view of excellence is supported by Wheatley (2001) who believes that strong leadership, which is a major factor of the EFQM model, is the key requisite of purchasing and procurement excellence.
Saunders has identified three typical basic causes of product faults that are perceived by customers to be poor quality:
- Weaknesses due to poor design
- Defects due to internal manufacturing errors
- Defects in parts and components supplied by vendors
Quality costs are generated in a number of ways. For example,
- the cost of processing of defective products in the first place,
- the cost of inspecting products,
- the cost of rectifying the defect product.
These causes highlight the need for supplier selection and to improve supplier performance. If suppliers were given the responsibility of preventing defects and inspecting products costs can be lower for both buy and supplier.
Ford et al (1998) has pointed out three changes to buyer – supplier relationships that have become more apparent in the last 15 years:
- Outsourcing activities to suppliers
In order to meet the requirements of their customers, companies are now concentrating on their core competencies. By this the companies hope to increase their effectiveness and efficiency. The move to outsourcing can be attributed to the increasing number of different technologies companies need to have to operate in a certain product area. Because of the cost of developing such technologies companies have become increasingly dependent on the technology of their suppliers.
- Reducing the supplier base
The reduction of suppliers varies between industries, but has occurred most in the automotive industries where it first came about.
- Developing partnerships with suppliers
The partnership between buyers and suppliers has brought about a change in attitudes between companies and frequently means changes in the roles of those suppliers. Partnerships between buyers and suppliers today are of a collaborative nature.
Saunders (1997) compares the characteristics of such partnerships with that of the characteristics of adversarial relationship model.
The Adversarial Model
- Arm’s length, formal communication approach
- Adversarial attitudes
- Lack of trust
- Aggressive, “win-lose” approach in negotiations – Price Focus
- Emphasis on individual transactions and short term contracts
- Little direct contact or involvement in design activities
- Reluctance to share information
- Reliance on goods inward inspection and defect rectification
The Partnership Model
- A high frequency of both formal and informal communications
- Co-operative attitudes
- A trusting relationship
- Problem-solving, “win-win” negotiating styles, with an emphasis on managing total costs
- Long term Business agreements
- Open sharing of information by multi-functional teams
- Vendor certification and defect prevention approaches
Such strategic partnerships are the epitome of purchasing and procurement excellence.
Companies now find assessing and selecting suppliers vital to making the most out of relation whether adversarial or long term. Burt et al (2003) have proposed a plan that is used to select and develop suppliers.
Burt et al (2003)
Discovery
Potential suppliers can be discovered by means of the many sources such as the world wide web, existing or past supplier information files, supplier catalogs, Trade journals, Phone directories, Trade shows and sales reps.
Evaluation and Assessment
Saunders (1997) has stated that when assessing and selecting potential suppliers, the process usually involves 3 elements:
- Potential suppliers may have to complete a self assessment document which is designed to give company the relevant information that is needed.
- An on site visit by buyer company. These visits will clear up any uncertainty and doubt about the information already received and allows buyer company to carry out its own investigation.
- Total finding are evaluated in order to come to a decision on the supplier to be selected. Such evaluation of findings are based on quantitive methods using rating scales to make the selection process as objective as possible.
Selection and Development
When it comes to selecting suppliers that who will subsequently become partners, there is a need for further evaluation and assessment of the potential list.
The following is a list of criteria that can be used for supplier selection:
- Economic performance
- Financial stability
- Organisational culture and strategy issues
- Feeling of trust
- Management attitude/ outlook for the future
- Strategic fit
- Top management compatibility
- Compatibility across levels and functions of buyer and supplier firms
- Supplier’s organisational structure
- Assessment of current manufacturing facilities/ capabilities
- Assessment of future manufacturing capabilities
- Supplier’s design capabilities
- Supplier’s speed in development
- Safety record of the supplier
- Business reference
- Supplier’s customer base
Other such criteria that can be used are:
- Total quality management policy
- ISO 9000 certification or equivalent
- Consistent delivery performance, service standards and product quality
- Willingness to change, flexible attitude of management and workforce.
The above criteria can be used also as a basis of supplier development. By carrying out assessments intermittently, areas that could be improved can be identified, followed by action plans being drawn up. Progress can then be monitored.
The EFQM Excellence model can also be used as a basis for assessing supplier performance and improving their performance.
Zairi (1996) stresses that, there is a relationship between best practices and buyer supplier relationships.
“In the best of relationships, the customer understands that what constrains their attempts to keep their own customers satisfied is often the ability of their suppliers to perform to the same high standards that they are aiming for themselves. The role of the supplier in this sense is to catch up with best practice and become a full business partner to their customers”
Strong relationships can also facilitate continuous improvement which is the essence of supplier development.
Saunders (1997) has stated that Product innovation and the ability of a firm to develop new and modified products effectively and efficiently are essential to sustain a competitive advantage. Solid supplier – buyer relationships can facilitate this.
Purchasing professional from the buying organisation can intervene in the suppliers design and development stage and make improvements and modifications that create value making the product more appealing to the consumer.
Multi-functional teams are the usual approach to accommodate such buyer supplier liaison. Such multi-functional teams can be based on:
- Project teams
- Value engineering and value analysis teams
- Merchandising teams
- And Materials or product user committees.
Burt et al (2003) states that, the most common approach to supplier development is the “Deming Cycle”, otherwise known as the Plan-Do-Check-Act (PCDA) Cycle.
Such an approach to supplier development can and usually takes place through cross functional and multi functional teams.
Multi functional teams can provide benefits such as:
- Reduced costs
- Better control of Quality
- Faster time to market
Purchasing and Procurement in leading organisations
There is a great emphasis on supplier development and continuous improvement in leading organisations.
Companies such as Honda, Toyota, Nippondenso and Parker Hannifin have instituted “Supplier quality circles or quality teams”. Through such quality teams or circles, competitions take place which concentrate on the strengths of the production workers. The teams are guide buy Honda or Toyota to tackle through production problems such using classical techniques such as the Deming cycle, Cause and effect analysis and root cause analysis.
The Supplier survey was an initiative that was developed by Motorola. It quickly gained commendations and was adopted by companies such as Sun Microsystems and Honda. Supplier surveys survey how customer are communicating and working with suppliers. Using the information gathered by the surveys, the buyers can improve and adjust their internal operations that are
impeding their suppliers performance.
John Deere realize that their customers want to buy the best products and John Deere to provide the best products, their suppliers must supply the best products. To make this happen, John Deere sends out 80 qualified personnel that they call supplier development engineers and specialists, to their suppliers to help them achieve their best. These engineers apply Six sigma to the assessment of their suppliers processes and to identifying performance gaps.
Analysis
Green Isle Foods are an Irish based frozen foods company that specialise in 3 different business units, namely Pizzas, Pastries and Breaded fish products.
Green Isle originally did not rely on purchasing and procurement as a means of gaining competitive advantage, however, a number of pressures have made Green Isle change their view with this regard.
The pressures that Green Isle were facing were:
- Demand for chilled convenience foods was rising rapidly and was eroding market share and growth of frozen products
- As a result of the retail sector developing strategies designed to increase the share of their own brand labels, there was increasing pressure on branded lines.
- As a result of price discounts and promotions on slow growing categories there is increased pressure on margins. As a result, retailers are putting this business out to tender creating uncertainty among incumbent suppliers.
Green Isle in response to these pressures hired a purchasing professional. Prior to this, Green Isle had no single person responsible for this function. A Procurement strategy was put in place.
This strategy was based on 6 principles:
- Local sourcing wherever possible
- Long term relationships
- Shared information and technical expertise
- No more than two potential sources of supply for all major raw materials
- Positive release
- Value for money
Cheese was the most important raw material Green Isle Procured. Prior to the implementation of a Purchasing strategy, Green Isle had the product delivered in 25kg blocks which was wrapped in blue plastic. Before this cheese was used in the manufacturing of Green Isles products, it would have to have the plastic removed and then be reduced to small cubes and be blended depending on the product. Only then can it be forwarded to the manufacturing assembly lines.
This has the disadvantages that it uses up facility space that was needed for increased capacity utilisation.
The deliveries were by the suppliers themselves. The suppliers did not provide any quality control so, therefore, Green Isle had to carry out the quality control themselves.
Green Isle’s change to its purchasing and procurement activities with regard
The change to Green Isle’s purchasing function, involved rationalising the supply base, concentrating on core competencies which was manufacturing. For instance, Green Isle made arrangements to their leading cheese supplier on a non-contractual basis that they supply the cheese already cubed and blended in addition to being delivered on a “Just In Time” basis. Green Isle also made their supplier be responsible for providing the capital to finance the equipment needed to work on Green Isle’s terms. This arrangement would develop a close working relationship.
Aswell as changes to the procurement of raw materials, Green Isle made adjustments to its procurement of materials used for packaging of the end product. Originally, Green Isle had 42 suppliers for packaging, but after the adjustments, their packaging suppliers was reduced to just one.
Green Isle’s new purchasing strategy has been very effective and has noted benefits such as less costs as a result of less inventory, increased facility utilisation and increased flexibility. The sum of such benefits results in increased quality with respect to customer service, delivery and price giving Green Isle a competitive advantage.
However, the measures Green Isle have taken to improve their procurement operations seem to achieve what is now threshold competencies, as the frozen food market is almost commodity based. The strategic partnership will work to Green Isles advantage.
What is excellent about Green Isle’s Procurement function is its leadership. Top Management at Green Isle took the initiative of hiring a dedicated Purchasing manager. They negotiated with key suppliers convincing them of the benefits of long term partnerships. The packaging suppliers did not rely on business from Green Isle, so to make them agree to Green Isle’s proposal’s would have taken much persuasion. Internally, there would have to be major changes made, so good leadership would be required to make such changes occur uneventfully.
References
-
Bailey, P. & Farmer, D. (1990) “Part 1: Objectives and Organisations”, in Purchasing: Principles and Management. 6th edn London: Pitman, pp.3-9.
-
Wheatley, M. (2001) “Going for Gold”, Supply Management, October 2001, pp.26-30.
-
Oakland, J.S. (1993) “Understanding Quality”, Total Quality Management, Oxford: Butterworth Heinemann.
-
Ford,D. Gadde, L.E. Hakansson, H. Lundgren, A. Snehota, I. Turnbull, P. Wilson, D. (1998) “Managing relationships with suppliers”, Managing Business Relationships, West Sussex: J. Wiley & Sons, pp. 109-113.
-
Ryder, R. & Fearne, A. (2003), “Procurement best practice in the food industry: supplier clustering as a source of competitive advantage”, Supply Chain Management: An International Journal, 8(1), pp.12-16.
-
Saunders, M. (1997), “Strategic Management of Quality”, Strategic Purchasing and Supply Chain Management, 2nd edn. London: Pitman .
-
Saunders, M. (1997), “Strategic Management of Supplier Relationships”, Strategic Purchasing and Supply Chain Management, 2nd edn. London: Pitman.
-
Burt, D. Dobler, D. Starling, S. (2003) “Chapter 15, Sourcing”, World Class Supply Management, 7th edn. New York: McCraw Hill, pp.327-360
-
Zairi, M. (1996) “Benchmarking supplier partnerships for best practice” , Benchmarking for best practice: Continuous learning through sustainable innovation, Oxford: Butterworth Heinemann.
-
Kanji, G. K. (2002) “Review of Business Excellence”, Measuring Business Excellence, London: Routledge.
-
Nelson, D. Moody, P.E. Stegner, J. (2001), “The Twenty Best Practices Levelling Up”, The Purchasing Machine, New York: The Free Press.
-
(Accessed: 19 December 2004)
