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system of supplier
quality performance
Chee-Cheng Chen
Tsu-Ming Yeh and
Ching-Chow Yang
The authors
Chee-Cheng Chen is an Assistant Professor based in the
Department of Business Administration, National Pingtung
University of Science and Technology, Taiwan, Republic of China.
Tsu-Ming Yeh is a Doctoral student and Ching-Chow Yang
is an Associate Professor, both based in the Department of
Industrial Engineering, Chung-Yuan Christian University, Taiwan,
Republic of China.
Keywords
Customer satisfaction, Supplier evaluation,
Quality improvement, Supply chain management
Abstract
This paper establishes an objective-orientation driven supplier
customer satisfaction performance rating system. The purpose is
to provide a methodology for integrating supplier and
manufacturer capabilities and applying different strategies for
quality improvement. This study was undertaken to specify the
interaction and mutual movement among three groups in the
supply chain Supplier-Manufacturer-Customer and integrate
the results from four factors: incoming inspection, line reject
performance, supplier service quality and product reliability.
These factors are transformed into measurable, quantitative,
Just-in-time (JIT) parameters, utilized in planning and
establishing a supplier performance rating system focused on
satisfying both internal and external customers.
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Introduction
From the total quality (TQ) perspective, every
company is a part of the long chain (actually many
long chains) of customers and suppliers. Each
company is a customer to its suppliers and a
supplier to its customers. Therefore, it does not
make sense to think of a company as only one or
the other. One implication of this concept is that
your customers customers are, in a sense, your
customers as well. A company must focus on both
their immediate customers and those next in the
chain (Evans and Dean, 2000). Creating a win-win
situation is a basic requirement for each supplier
and manufacturer. Creating triple wins produces
expansion for the entire industry. The real results
from supply chain management come from the
integration of processes throughout the entire
supply chain from the suppliers supplier to the
customers customer (Ptak and Schragenheim,
2000).
Poor quality of materials is the most common
reason for the failure of Just-in-time ( JIT) logistics
(Copacino, 1997). In todays international
business environment, quality cannot be
underestimated or overlooked by any firm,
regardless of its size or assets (Russell and Taylor,
2000). Who is the user? Ultimately, it is the
companys customer, but the user is also the next
operation in the process. This is important in
maintaining an uninterrupted flow of material
(Arnold and Chapman, 2001). Is it possible to
change the traditional incoming inspection and
performance-rating program based on the
interaction and mutual movement among the three
in the supply chain? How helpful is this in quality
and customer satisfaction promotions? This is the
main focus of our research.
In the literature of this field, most authors
studied the supplier vs manufacturer or
manufacturer vs customer relations and
focused on incoming inspection and material cost.
Most studies ignored the quality factors at
different stages in the process and its consequential
cost that could cause huge potential loss
(The Ernst & Young Quality Improvement
Consulting Group, 1992). The customer is the
judge of quality. A business can achieve success
only by understanding and fulfilling the needs of its
customers. The object of this research is to specify
the interaction and mutual movement among the
three groups in the supply chain and the meanings
Received: March 2002
Revised: March 2003
Accepted: June 2003
The authors thank the anonymous referees for their
constructive comments and valuable remarks on the
content and structure of this article.
599
600
Advantages
Disadvantages
Users
Categorical
Easy to implement
Requires minimal data
Different personnel contribute
Good for firms with limited resources
Low-cost system
Flexible system
Allows supplier ranking
Moderate implementation costs
Combines quantitative and qualitative
factors into a single system
Provides a total cost approach
Identifies specific are as of supplier
nonperformance
Allows objective supplier ranking
Greatest potential for long-range
improvement
Least reliable
Less frequent generation of evaluations
Most subjective
Usually manual
Smaller firms
Firms in the process of developing an
evaluation system
Larger firms
Firms with a large supply base
Weighted-point
Cost-based
score of delivery
601
Cc customer complaint
A customer complaint is defined as a quality or
reliability issue occurring at the external customer
end and confirmed as being caused by material
failure. Normally, a formal notification from the
customer and a formal corrective action report
(CAR) from manufacturer are required and can
be tracked.
Lr line reject
A line reject is defined as incoming materials that
passed incoming inspection or are ship-to-stock.
602
Dv defective value
Defective value is defined as the incoming material
quality status inspected and tested by the IQA
department. The defective value is obtained using:
ABC
3
where A is the number of rejected lots/number of
received lots, B the number of rejected pieces/
number of received pieces and C the number of
rejects/number of inspection pieces.
Dv
Cs complaint service
Complaint service is defined as the efficiency and
effectiveness in handling the manufacturers
complaint (the complaint is made by the
manufacturer when Dv, Lr, Lc or Cc does not
reach the yearly target or one lot of incoming
material is rejected).
The target value of material quality
performance
At the year-end, the manufacturer measures the
materials supplied performance of each supplier
and sets a suitable performance indicator target
value (for example, Dv or Lr, or Dv+Lr). A case
study on a manufacturer is given in Table II.
The target metal material Dv suppliers in 2002
and target glass vendor Lr suppliers in 2002 are
shown in Table III.
Table II Target Dv metal material suppliers, 2002
No
Group
Vendor
Dv (2001)
(per cent)
Target (2002)
(per cent)
1
2
3
Mask
VM1
VM2
VM3
0.16
0.60
2.32
0.2
0.2
0.2
4
5
..
.
..
.
Frame
VF1
VF2
..
.
..
.
1.62
2.56
..
.
..
.
1.0
1.0
..
.
..
.
Dv
Target (2002)
(ppm)
No
Group
Vendor
1
2
3
Screen
VS1
VS2
VS3
15
21
76
10
10
10
4
5
..
.
Bulb
VB1
VB. 2
..
2,102
1,932
..
.
1,500
1,500
..
.
Lr
PDv performance of Dv
Operating
.
The calculation is based on the IQA inspection
results
.
On a monthly basis
.
The performance depends on the target Dv
achievement level.
Formula
PDv achievement level of target Dv, ALn
1:00 AL1 : Dv lower than target above
60 per cent
0:95 AL2 : Dv lower than target
41-60 per cent.
..
.
0:80
AL5 : Dv equivalent to target ^5 per cent
..
.
0:65 AL8 : Dv higher than target
41-60 per cent
0:60 AL9 : Dv higher than target above
60 per cent
A0 S 4 B0 S 3 C0 S 2 D0 S 1
;
number of corrective action request 4
when Cs $ 1
PCs 1; when Cs 0
603
A0 S, Vendors response/action is
excellent times. Return handling is very quick.
The improvement with detail analysis is effective.
B0 S, Vendors response/action is
acceptable times. Having improvement actions,
but the response is delayed.
C0 S, Vendors response/action is poor times.
Only return complaint sheet, no improvement
action.
D0 S, Vendors response/action is not
acceptable times. No response.
PLc Lc performance
Operating
.
Based on the number of cases verified by IQA
and the production line
.
The target Lc is 0
.
On a monthly basis
r i $ 0; 1 # i # 5
5
r 3 PLc r 4 PLr r 5 PCc
where
r 1 r 2 r 3 r 4 r 5 1;
where n . 1
Formula
PLc 1; when Lc1 Lc2 0
PLc 0; when Lc1 Lc2 $ 1
r1 r2 r3 r5 1
.
PLr performance of Lr
Operating
.
Based on the line reject rate verified by IQA
and the production line
.
On a monthly basis
.
The performance depends on the Lr target
achievement level
r2 r3 r4 r5 1
Results comparison
Formula
1:0 AL1 ; Lr lower than target above
30 per cent
0:9 AL2 ; Lr lower than target 11-30 per cent
0:8 AL3 ; Lr equivalent to target ^10 per cent
0:7 AL4 ; Lr higher than target 11-30 per cent
0:6 AL5 ; Lr higher than target above
30 per cent
PCc performance of Cc
Operating
.
Based on the number of issues verified by IQA,
Engineering, the production line and Outgoing
Quality Assurance (OQA) department
.
The target Cc is 0
.
On a monthly basis
Formula
PCc 1; when Cc 0
PCc 0; when Cc $ 1
Cc: Customer complaint is caused by released
material quality or reliability problem times.
Conclusions
The proposed supplier performance rating model
with customer satisfaction orientation could be
applied by different manufacturers to address all
kinds of vendors in different industries. The
proposed model can assist manufacturers in
selecting the best vendor and integrating vendor
capabilities to develop an appropriate quality
604
Table IV The basic data on manufacturers purchased material from 3 suppliers (VF1, VF2, VF3), part no.: 2000118 Group: Frame (metal),
time: January-February, year 2002
Indicator
Weight
Target
PDV
0.3
1 per cent
PLr
0.3
1,000 ppm
PCs
0.2
PLc
0.1
PCc
0.1
0
0
0
Basic data
January
VF1
February
January
VF2
February
January
VF3
February
Rejected lot
Received lot
Rejected qty
Received qty
Defects qty
Inspected qty
Defects qty
Total used quantity
AS
BS
CS
DS
LC1
LC2
Cc
0
21
0
210,000
4
4,200
3
19,000
0
0
0
0
0
0
0
1
22
10,000
220,000
16
4,400
1
230,100
0
0
1
0
0
0
0
0
18
0
180,000
8
3,600
500
205,000
0
1
0
0
0
1
0
0
19
0
190,000
2
3,800
3
199,800
0
0
0
0
0
0
1
0
27
0
270,000
2
5,400
5
257,000
1
0
0
0
0
0
1
0
27
0
270,000
3
5,400
88
272,000
0
0
0
0
0
0
0
VF1
VF2
VF3
100.0
99.9
100.0
100.0
100.0
100.0
VF1
VF2
VF3
January, 2002
February, 2002
100.0
78.0
73.0
90.0
90.0
100.0
References
Arnold, J.R.T. and Chapman, S.N. (2001), Introduction to Material
Management, 4th ed., Prentice-Hall, Upper Saddle River,
NJ, pp. 404-5.
Bhote, K.R. (1991), Next Operation as Customer (NOAC), AMA
Membership Publication Limited, American Management
Association, New York, NY, pp. 54-60.
Breyfogle, F.W., Cupello, J.M. and Meadows, B. (2001),
Managing Six Sigma: A Practical Guide to Understanding,
Assessing, and Implementing the Strategy that Yields
Bottom-line Success, Wiley, New York, NY, pp. 95-135.
Chiu, M-L. (1994), The selection and evaluation of suppliers in
manufacturing industry, Masters thesis, Graduate School
of Industrial Management, National Institute of
Technology, Taiwan, (in Chinese).
Copacino, W.C. (1997), Supply Chain Management, The Basics
and Beyond, St. Lucie Press, Boca Raton, FL, p. 60.
Dobler, D.W. and Burt, D.N. (1996), Purchasing and Supply
Management: Text and Cases, 6th ed., McGraw-Hill,
New York, NY, pp. 430-63.
605
Further reading
Roodhooft, F. and Konings, J. (1996), Vendor selection
and evaluation, an activity based costing
approach, European Journal of Operational Research,
pp. 97-102.
606