Total Quality Management.

University Degree Business and Administrative studies

University of Strathclyde

Strathclyde Business School

MSc Procurement Management

Total Quality Management

By: Maurice Morwood

June 2003

Introduction

As competition in the global marketplace increases the importance of quality and in particular Total Quality Management (TQM) has become a key management issue within most major corporations. (Dewhurst et al 1998). More and more companies are applying the principles of TQM and the topic is well publicised in many books and papers. The procurement function plays a key role within any company, as they are the link between the business and its suppliers. In essence the buyers interpret the requirements of the business and convert this into the materials required to satisfy the needs of the customer (Sullivan, 1999).

Before attempting to answer the assignment questions it is important to try and understand the definition of the term “Total Quality Management”. This is not an easy task as much has been written on this subject and most authors have their own thoughts and ideas as to what it is. In simplistic terms TQM is often defined as “A leadership philosophy and strategy that is based on continuous improvement of every process, empowerment of people, continuous learning, all creating transformations towards an organisation that is providing excellent products and services”. (Dr R. Benner, 2001).

1. The costs and benefits which may be associated with the development of long-term partnerships with suppliers.

TQM is changing the role of the procurement function within corporations. In a modern organisation which is driven by quality the buyer views the supplier as a customer and will provide them with the technical information required to supply the materials or services that are needed (Sullivan, 1999). Long-term supplier partnerships or alliances within a TQM framework can be very beneficial to companies. The quality guru Deming saw the need to develop loyalty and involvement through the supply chain. By supplier partnerships we do not mean long-term contracts with a 30-day cancellation clause buried in the terms and conditions. Supplier partnerships are defined as: An ongoing relationship between the supplier and buyer that involves not only some security in terms of payment, delivery and quality specifications as defined in a contractual agreement but involves the exchange of information, often of a confidential and strategic nature (Sullivan 1999). The idea of working closely with suppliers is not new. Lord Nuffield worked closely with his suppliers during his early days of establishing car production within the United Kingdom. He offered help in planning and organising production, and contributed to the development of components to ensure that they were easier to assemble into the final product (Baily, Jessop et al 1998). Figure 1 summarises the principal characteristics of partnership sourcing.

The primary benefits of a long-term supplier partnership are:

Lower total costs achieved through early supplier involvement of the product or service that is being developed. By involving the supplier as early as is possible costs can be reduced through value engineering, which may include materials, tooling and labour expenses.
Reducing the time to the market. This is achieved by reducing the design and development time that is required to launch the product or service.
Improved quality. Quality is designed into the product or services and will eliminate the need to inspect for errors. The result is improved quality at a lower total cost.
Continuity of supply is improved through open channels of communication.
Elimination of buffer stock. A successful partnership may allow for the introduction of Just-In-Time (JIT) inventory systems, which will improve the business cash flow. The use of JIT has become more practical as those involved with the partnership are sharing information. Goodrich Aerospace based in Prestwick give their strategic partners access to their ERP system to manage both material requirements and inventory control. (Morwood, 2003).

A successful partnership is based on mutual trust and respect and cannot be entered into lightly. The partnership will develop over a period of time and by maintaining a close relationship with the key strategic suppliers further opportunities for cost reduction through technological development and continuous improvement should be achieved.

2. Possible approaches to development of purchasing strategies to achieve improvement in “quality”, contrasting the views of Deming with other major authors in this field.

There are a number of highly respected quality gurus who have made a significant contribution to TQM. For the purposes of this ...

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2. Possible approaches to development of purchasing strategies to achieve improvement in “quality”, contrasting the views of Deming with other major authors in this field.

There are a number of highly respected quality gurus who have made a significant contribution to TQM. For the purposes of this assignment question I have chosen to contrast the thoughts of W. Edwards Deming and Philip B. Crosby.

Deming’s work relied heavily on the use of statistical control and systemic thinking. This is in direct contrast to Crosby who rejects statistically acceptable levels of quality. Figure 2 compares the thoughts of Deming to those of Crosby.

Deming who excelled in the use of statistics believed that statistical methods of quality control must be used. He encouraged managers to understand variability and the difference between special and common causes. Special causes of variation in a product, process or service are those which prevent its performance from remaining constant in a statistical sense and are generally easier to rectify than the common causes of variation, which are caused by processes, procedures or other issues that employees may identify but do not have the authority to alter the root cause. (Sullivan, 1999). Deming believed that variability should be reduced through continuous improvement. This issue of causes is one of the main differences between Deming and the other quality gurus. Crosby rejected the use of statistics and did not believe it was possible to set “targets of non-conformance”. He believed in prevention rather than inspection. Crosby felt that senior management were responsible for quality in contrast to Deming who felt that they were responsible for 94% of all quality problems. Crosby developed the four absolutes of quality management which were: -

The definition of quality is conformance to requirements.
The system of quality is prevention.
The performance standard is zero defects.
The measurement of quality is the price of non-conformance.

Source: Petersen B. Peter – Journal of Management History – 1999.

Crosby was a popular figure within the TQM environment. He impressed corporate executives with his professional presentations that were both very graphical and convincing. Deming tended to focus his corporate discussions on concepts and theories. Crosby’s advice was easy to understand, to the point and precise. (Petersen B.Peter, 1999). Both Deming and Crosby developed 14 quality improvement points with Deming’s being a summary of his thoughts and a recipe for success through Total Quality Management. Crosby’s 14 points were designed as a management tool or route map for quality implementation within the organisation believing that quality should be clearly defined, understood and communicated to all employees in a practical manner. (Sullivan, 1999).

In summary Deming relied more on statistics and practical theory to promote quality. His style was sensible and philosophical when compared to Crosby’s outgoing corporate executive image and use of slogans and buzzwords to promote the use of Total Quality Management.

3. Problems and issues in the management of quality likely to be encountered by procurement managers intending to source from local Chinese suppliers.

The economic advances made by China over the last two decades have been spectacular. The manufacturing sector has made the most significant contribution to this impressive growth, which has been achieved by their competence of being low cost manufacturers. (Lee & Zhou, 2000). The TQM concept and the popular quality system, ISO 9000 which took decades to establish globally was accepted in China during the 1980’s right after it opened its trading borders. (Tuan & Fung-Yee Ng, 1998). China formally adopted TQM by legislation in 1980 to facilitate the “quality first” policy to aim at the improvement of product quality for industrial production. (Tuan & Fung-Yee Ng, 1998).

Despite the adoption of TQM and the apparent willingness of the Chinese to embrace it, procurement managers of Western corporations who have established International Joint Ventures in China encounter a variety of problems when they source from local Chinese suppliers. It is often argued that long term supplier relationships are preferred to short-term “ad-hoc” purchases or contracts that may only last 12 months. Supplier selection is time consuming and can severely draw on the resources of the procurement function. Local Chinese suppliers have a tendency to be both unreliable in terms of quality and delivery and lack technical innovation, which impacts the ability to enter into long-term partnerships. (Lihong & Goffin, 2001).

Due to the quality issues encountered by corporations operating in China it is common policy for local management to initiate an expensive incoming inspection process for all parts that are bought locally. Switch-Co a Sino-German manufacturer of digital switches has in the past terminated the contracts of 10 local suppliers due to inconsistent levels of quality. Another corporation, Elva-Co who have been manufacturing in China for more than 15 years have experienced a 30% failure rate at incoming inspection on capacitors that they sourced locally. Consequently they have had to start importing these parts again demonstrating how difficult it is to establish a reliable local source. (Lihong & Goffin, 2001).

On time delivery of parts is another major problem facing procurement managers wishing to use local suppliers. Local suppliers’ production output is often affected by power cuts, water shortages, machine down time and poor business management coupled with the issue of committing to deliver more than they are capable of.

The lack of technological capability also impacts the ability of purchasing managers to source from local companies. This is particularly obvious during the introduction of a new product at which point the percentage of local supplier involvement significantly decreases. (Lihong & Goffin, 2001).

The issue of poor quality and reliability has seriously affected the ability of Chinese enterprises to be as competitive as they could be in the global market. These problems have arisen due to a lack of quality commitment, poor training and communication and the lack of technology and innovation. (Tuan & Fung-Yee Ng, 1998). Purchasing managers recognise the potential opportunities of buying locally sourced materials and in particular the associated cost and delivery benefits that could be attained if there was a higher degree of confidence in the reliability of the products being purchased. (Lihong & Goffin, 2001).

4. The extent to which implementation of strategies of strategic partnerships/alliances and of supplier base rationalisation may be relevant and practicable in the Chinese environment.

Purchasing managers working within a Total Quality Management corporation have a number of different strategies that they can adopt as they attempt to improve the quality and delivery of materials from their suppliers to their manufacturing plants. Developing a strategy to source from local Chinese suppliers must carefully consider the issues that I have discussed in question 3 of this paper. The key strategic options that may be considered are:

The development of long-term partnerships with local Chinese suppliers. The top management of both companies and their ongoing commitment clearly demonstrated must support the relationship. They must be able to trust each other. The alliance must be to the mutual benefit of both companies. (Sullivan, 1999)
Supplier rationalisation. This is an important strategic question and must be carefully considered. The quality guru Deming was in favour of single sourcing as opposed to multiple suppliers as it would reduce the variation of product quality being received by the customer, increase the volume of parts purchased which would ultimately lead to cost reduction and would encourage the swift resolution of problems. (Sullivan, 1999). The Prestwick Service Center, Goodrich Aerospace completed a supplier rationalisation program in April 2001. As a result of this initiative some 5000 part numbers spanning 10 commodity groups and 110 suppliers are now sourced and procured by one strategic partner. This has resulted in savings of circa 25% and the improved delivery of parts. (Morwood, 2003).
Supplier certification using quality systems such as ISO 9000 is a means for the customer to gain confidence in the suppliers’ processes. This will include the flow of information as well as the quality of the products or services being supplied. By adopting a certification process suppliers who are certified may be expected to supply materials to their point of use within the buyer’s manufacturing site. The need for incoming inspection would be eliminated which would represent a major cost saving for the buyer. Sample inspections would be necessary during the qualification period to ensure the integrity of the goods being supplied. The main benefit to a local Chinese supplier who obtains certification is that they would be considered a supplier of quality products and would be potentially viewed as a long-term partner. (Burt, Dobler, Starling, 2003). The major disadvantage of certification is the impact that it can have on small suppliers who may have several customers invoking certification programs at the same time. (Sullivan, 1999).
With the development of long-term partnerships with a few suppliers the opportunity to introduce Just In Time (J.I.T.) inventory management becomes more realistic. The requirements of J.I.T. means that suppliers are usually located in close proximity to the customer and are capable of delivering small quantities of parts on a regular basis. This will reduce the inventories held by the customer and should ensure that the deliveries are more reliable. J.I.T. can be defined as “products or services of the right quality, being delivered in the right quantity, at the right time”. (Oakland, 2002).

Summary

The core of Total Quality Management (TQM) is the customer-supplier relationship, where all of the processes must be managed. (Oakland, 2002). As the quality guru Deming once stated, “the customer is the most important part of the production line”. (Sullivan, 1999). Procurement is an integral part of TQM where the provision of materials and services must meet the expectations of the customer. There are major opportunities for procurement professionals to harness TQM as they develop their purchasing strategies to support the needs of their business and ultimately that of their customers. Procurement functions will consider supplier partnerships and single sourcing as two major elements of their business strategy as they seek to improve the quality and reliability of the materials or services that are being procured. As the guru Philip Crosby stated, “ it is poor quality that costs money and that achieving quality is cost neutral”. (Sullivan, 1999).

Word count: Circa - 2600

References:

Baily, Farmer, Jessop and Jones (1998) Purchasing Principles & Management, Pearson Education Limited.

Benner R. Dr. (2001) “Recent aspects on the implementation of TQM in German enterprises”. Speech held in honour of the Chinese Society for Quality in Neuffen, Germany 28th August, 2001.

Burt, Dobler & Starling (2002) World Class Supply Management, McGraw-Hill.

Dewhurst F., Barrie G. D. and Martinez-Lorente A.R. (1998) “TQM: Origins and evolution of the term” The TQM Magazine, Vol 10, No 5.

Lee. Y. C. and Zhou. X. (2000) “Quality management and manufacturing strategies in China”. International Journal of Quality and Reliability Management, Vol 17, No 8.

Lihong Zhang and Goffin Keith (2001) “Managing the transition” – supplier management in international joint ventures in China. International Journal of Physical Distribution & Logistics, Vol 31, No 2.

Oakland John (2002) TQM “Text With Cases”, Butterworth Heinemann.

Petersen B. Peter (1999) “Total quality management and the Deming approach to quality management” Journal of Management History, Vol 5 No 8.

Sullivan R. (1999) Total Quality management, Strathclyde University.

Tuan Chyau and Ng Fung-Yee Linda (1998) “System building and implementations of TQM in Greater China”: an overview. International Journal of Quality Science, Vol 3, No 2.