PPS Chapter-3

WHAT IS SUPPLIER
QUALITY?
Supplier quality is a supplier’s ability to deliver goods or services that will satisfy
customers’ needs. Supplier quality management is defined as the system in
which supplier quality is managed by using a proactive and collaborative
approach.
It's in an organization’s best interest to ensure that its service or material

suppliers are providing the highest quality products and services while also
conforming to pre-established requirements. This is often accomplished through
the use of supplier quality management systems (QMS), which allow companies
to monitor supply chains and inspect or audit materials and services at regular
intervals.
Supplier quality management begins early in the product design and supplier
selection process. It continues through the entire life cycle of a product and for
the duration of the relationship with that particular supplier. Proper supplier
quality management tactics include taking inputs (such as employee work,
marketplace requirements, operating funds, raw materials, and supplies) and
effectively and efficiently converting them to outputs deemed valuable by
customers.
THE BENEFITS OF A PROPER

SUPPLIER QUALITY MANAGEMENT
PROCESS
At one time, it was not uncommon to line up multiple suppliers for the same raw
material, usually due to concerns about running out of stock or a desire to play
suppliers against one another for price reductions. This has given way to
working more closely with a smaller number of suppliers in longer-term,
partnership-oriented arrangements.
The benefits of supplier partnerships include:
 Less variation in vital process inputs when working with fewer suppliers
 Reduced need for constant monitoring of suppliers and products if the suppliers
have proven to be effective at controlling their output
Establishing an effective supplier management process requires:
 Mutual trust and relationship building to share expertise and resources and
reduce risk
 An understanding of both organizations’ unique roles in the process
 Support from executives or upper management of both companies involved
SUPPLIER SELECTION CRITERIA

AND STRATEGIES
Supplier selection criteria for a particular product or service category should be
defined by a cross-functional team of representatives from different sectors of
an organization. In a manufacturing company, for example, members of the team
typically would include representatives from purchasing, quality, engineering,
and production. Team members should include personnel with
technical/applications knowledge of the product or service to be purchased, as
well as members of the department that uses the purchased item.
Common vendor and supplier selection criteria includes:
 Previous experience and past performance with the product/service to be

purchased
 Relative level of sophistication of the quality system, including meeting
regulatory requirements or mandated quality system registration (e.g., ISO
9001)
 Ability to meet current and potential capacity requirements on the desired
delivery schedule
 Financial stability
 Technical support availability and support in developing and optimizing
processes
 Total cost of dealing with the supplier, including material cost, communications
methods, inventory requirements, and incoming verification required
 The supplier's track record for business-performance improvement
 Total cost assessment
MANAGING SUPPLIER/BUYER
RELATIONSHIPS
uality, cost, and delivery have long been considered key indicators of supplier
quality management and performance. The arrival of lean methodology has
added another beneficial aspect to the quality supplier network, and more
recently another indicator has emerged in today’s environment: connectedness.
This is a measure of how well an organization is connected to and integrated
with its supply chain. To create a lean but integrated value supply chain, a
strong relationship and collaboration needs to exist between both supplier and
buyer. This partnership includes:
 A readiness on both sides to discuss future plans

 Willingness to understand each others business processes
 Commitment to share in each other’s long-term strategies
The 7 Core Purchasing Strategies
purpose of Purchasing Strategies?

Companies implement purchasing strategies in order to:
1. make cost effective purchasing decisions from a group of efficient

vendors who will
2. deliver quality goods
3. on time and at
4. mutually agreeable terms.
Examples of Purchasing Strategies ...

Some purchasing strategies may include such choices as
making procurement savings by using centralized purchasing which
is concentrating the entire procurement activities within one principal
location & source of authority.
1. Single Source Procurement
For example some companies may decide to undertake a single source
procurement strategy that involves obtaining excellent dedicated
service from a single vendor. These strategies are predominant when
sourcing for IT or indirect purchasing such as office supplies and
cleaning.
2. Purchasing Cycle
Other companies may use a procurement strategy of using a
core purchasing cycle. This is where they order from a group of
regular vendors and use outsourcing procurement for their larger and
ad hoc purchases.
3. Procurement Auctions
Still others, particularly when they are seeking labor for short-term
projects will use procurement auctions in order to obtain the best
pricing levels.
Regardless of the size of the company, there is a core group of 7

purchasing strategies that most of them implement.
1. Supplier Optimization & Relationship Building

The company chooses an optimum mix of vendors who can provide the
best prices and terms. This process usually means that the less able
suppliers who cannot provide a quality service at the terms and prices
required are discarded. This is by far the most common of the various
purchasing strategies.
2. Total Qualify Methods (TQM)

Total Quality Methods, require the vendors to provide an ever increasing
quality service with zero errors. The supplier ensures purchasing best
practices using a number of tools such as six sigma.
3. Risk Management
As more companies obtain their supplies from countries such as China
and India, they are more concerned with the risk management of this
supply chain. Whilst these countries can supply products at very
advantageous prices, these advantages can be soon negated by a
natural or human disaster.
 Japan's Fukushima Nuclear Disaster!
Japan's Fukushima Nuclear Disaster in 2011 shook up the supply

chain as in the race to provide better quality at lower prices,
manufacturers picked very narrow, optimized supply chain. They put all
their eggs with one supplier that had the best product at the lowest price.
This resulted in production delays, product shortages and higher prices,
since manufacturers had not factored risks from a natural disaster of
such a great scale.
 Covid-19 Risks Reversed?!
With Covid-19 in 2020 the situation became 'funny'. When Covid-19 hit
China in January 2020 Buyers from Europe were confirming whether
their Chinese suppliers could deliver as agreed - these suppliers were
struggling to meet demand due to lock-downs in China.
However 2 months later the situation 'turned-around' because Covid-19
hit Europe, US & other parts of the world - now the Buyers were asking
their Chinese suppliers to delay delivery as they were not operating due
to lock-downs in Europe.
4. Global Sourcing
Large multinational companies see the world as one large market and
source from many vendors, regardless of their country of origin.
Implementing a global strategic sourcing strategy means efficiently
sourcing goods and services from any country that can manufacture the
goods or provide the service more economically.
While Global Sourcing is here to stay, organizations need to tread
carefully and have plans in place to manage risks.
5. Vendor Development
Depending on the scale and depth of services or goods a vendor
provides, it might be necessary to work closely with such vendors.
Helping in developing processes that assist these vendors to come with
better or cheaper products, helps companies to reduce costs.
Or in cases where a company is dependent upon just one supplier for
their products & the supplier is unable to perform to the required
standards, the purchaser may assist the vendor in improving their
service or implement processes to improve their procurement cycle. This
ultimately would help the purchaser/buyer have a reliable supplier and
product deliveries.
6. Green Purchasing
This is one of the more common purchasing strategies for governments
and local governments. This strategy champions the need for recycling
and purchasing products that have a negative impact on the
environment.
7. Building & Training People's Procurement Skills

While training people is the soft-side of purchasing & procurement
strategies, this is probably the most important strategy - all the other
strategies above would have to be implemented by people, and if they
don't have the necessary skills to deliver the procurement strategy, the
strategy delivery will fail.
For many years since it started in 2014, Deloitte Annual CPO
Survey reveals that more than half of CPO's & Procurement Director's
worldwide, say that their teams do not have the necessary skills &
capabilities to deliver their procurement strategy. This number remains
more or less constant regardless of the year the survey is published.

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WHAT IS SUPPLIER

It's in an organization’s best interest to ensure that its service or material

THE BENEFITS OF A PROPER

The benefits of supplier partnerships include:

Establishing an effective supplier management process requires:

SUPPLIER SELECTION CRITERIA

Common vendor and supplier selection criteria includes:

 Previous experience and past performance with the product/service to be

 A readiness on both sides to discuss future plans

The 7 Core Purchasing Strategies

purpose of Purchasing Strategies?

1. make cost effective purchasing decisions from a group of efficient

Examples of Purchasing Strategies ...

Regardless of the size of the company, there is a core group of 7

1. Supplier Optimization & Relationship Building

2. Total Qualify Methods (TQM)

 Japan's Fukushima Nuclear Disaster!

Japan's Fukushima Nuclear Disaster in 2011 shook up the supply

 Covid-19 Risks Reversed?!

7. Building & Training People's Procurement Skills

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