What are the benefits of creating a vendor certification

Question

You have just been hired as the director of process improvement, a new position, by the VP of Operations for the ABC Manufacturing Company. ABC has been plagued by both internal and external vendor issues; the vendor issues involved repeated late deliveries and poor quality, while internally poor deliveries to customers resulted from both vendor issues, as well as quality and scheduling issues. The CEO's instinct is that the factory could benefit from some wide-reaching process improvements.

The VP of Operations has decided that a far greater focus on vendor quality and internal process improvements must be taken. The VP of Procurement, prior to your coming on board, had already met with the CEO's of ABC's 4 major vendors and alerted them that he expected them to begin turning around their quality performance. About a month prior, he had sent each a letter suggesting several formal overall quality programs that they may embark upon, which included the following:

• TQM
• Juran's Trilogy
• Crosby's program
• Deming's program
• Six Sigma

The VP has already received the following responses from each of the main vendors, and he asked you, in coming months, to work with each vendor as they implement their quality initiatives.

1. Company A had written back that it was planning to implement the Juran program but had not yet begun, hoping you could visit and shed some light on the overall concept, methodology, pros, and cons.
2. Company B had written back that it was planning to implement the Crosby program but had not yet begun, hoping you could visit and shed some light on the overall concept, methodology, pros, and cons.
3. Company C had written back that it was planning to implement the Deming program but had not yet begun, hoping you could visit and shed some light on the overall concept, methodology, pros, and cons.
4. Company D had written back that it was planning to implement a TQM program but had not yet begun, hoping you could visit and shed some light on the overall concept, methodology, pros, and cons.
5. Company E had written back that it was planning to implement the Six Sigma program but had not yet begun, hoping you could visit and shed some light on the overall concept, methodology, pros, and cons.

In addition, you know that as far as internal processes and overall supply chain management goes, that there may be opportunities for improvement. Currently, the following internal opportunities exist for possible process improvement:

Supply Chain Management

The company communicates separately with each vendor; usually when a forecast or production change is made, not every vendor finds out the same day. This leads to confusion, excess inventories, and stock outs.
Demand Planning

The primary method to establish the master production schedule is to use a forecast that is created prior to the beginning of the year and updated monthly using salesmen's inputs. Invariably, the company ends up producing too much of the wrong items (not demanded) and too few of what is in demand (real customer orders).
Multistage Inventory

To create ABC's final finished product requires a multiple-step supply chain, which looks something like the following:

• Raw material to vendors factory
• Vendor processes raw materials to make their parts
• Those parts are shipped to ABC's factory
• ABC processes purchased parts through a succession of departments, each one adding more and more vale
• Finally, all finished components are assembled into a finished product.

o Currently, every step in this entire supply chain is scheduled, monitored through some kind of MRP system, reported throughout the day, and seems to take an inordinate amount of system updating.

· Transportation Planning

o ABC continues to use its own fleet to deliver finished goods all over the country and to have common carriers deliver parts from its vendors, also located all over the country.

· Process Control, Performance, and Variability

o ABC's own internal process seem to all of a sudden go in and out of quality specifications; the company always seems to find out too late to avoid massive amounts of scrap, rejected parts, or labor costs to rework parts.

· Negative and Positive Cash Flow

o The company goes through frequent swings from positive to negative cash flows as inventory purchases for large lots create negative cash flows, but then using up these materials occur at a slower rate, and with less outgoing, cash flow becomes positive. The CFO really struggles with managing these cash flow swings.

Before you begin to put together a vendor visitation schedule together, your boss, the VP of Procurement, advised you that the CEO expects a comprehensive report, in about a month, covering the following specific topics:

The key characteristics and requirements and the pros and cons of each of the following overarching quality programs should be put into a chart format. The chart should have columns for an overall 1-sentence description of each program, its pros, and its cons.

• TQM
• Juran's Trilogy
• Deming
• Crosby
• Six Sigma

1. Provide your view on how a formal process improvement program could help at both vendor locations and inside ABC's own factory.
2. Specifically, in the areas of vendor quality and delivery performance, what are the benefits of creating a vendor certification program, and what does it involve?
3. Specifically, in the area of ABC's own internal workings, what opportunities for continuous improvement exist, and what exactly would you do?
4. How do you get ABC itself to adopt a more continuous improvement mentality?

Finally, and most importantly, all these operational improvements could create a strategic advantage for ABC because most of its competitors have similar internal and vendor quality challenges, as well as internal operational challenges.