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Importance of inventory and purchase management
- Increase in profit by reducing material cost
- improve R.O.R by a) Increase profit keeping capital constant. b) Reduce capital keeping profit constant. a) Increasing profit keeping capital constant: Profit is the life line of an organization Profits give share holder its dividend Profits give employees the wages. Profit gives company to buy materials, machines, tools and other inputs. Profits provide greater job opportunities. Profits help the organization to improve quality of life and increase infrastructure. By taking following measures an organization can control and improve profit. i) increase units sold (S) ii) increase units produced.(N) iii) increase unit price (P) iv) reduce unit cost (C) Purchase objective and Functions Economic purchase operation Consistent Market survey Proper Control over financial commitments To provide information and assistance to top management and other concerned department N (P–C) N × C Unit Cost Unit Produced S × P Unit Price Unit Sold Sales – costs Profit RIGHT PLACE of Delivery Price Communication RIGHT SOURCE Vendor Rating Purchase research RIGHT CONTRACT Legal aspect. RIGHT TRANSPORTATION Cost analysis of transportation logistics RIGHT TIME Re-order point Lead time analysis RIGHT PRICE Negotiation learning curve RIGHT QUANTITY, EOQ & Inventory model. RIGHT QUALITY Rejection and specification RIGHT MATERIALS Value analysis Standardization RIGHT ATTITUDE Training SWOT Materials intelligence
Purchase Parameters Or Goals of purchase department Functions of Purchasing Department / Management
- Recognition of needs: - it has to be anticipated in advanced that what materials should be needed and should buy in sufficient quantity.
- Describe the need accurately by clear specification.
- Selection of proper source of supply.
- Research and Development for potential alternative materials.
- Ascertaining or fixing price.
- Placing purchase order.
- Follow up the purchase order
- Development of vendors and proper procedure.
- Maintenance of good vendor relation.
- Arranging transportation for material
- Development of techniques of communication. Purchasing Systems
- Pre-purchase system.
- Ordering system. 3) Post-purchase system. Principles of Purchasing / 6 Laws of Purchasing 6 R’s of purchasing i) Right quality: ii) Right quantity: iii) Right price: Hand to mouth buying is too small. Scheduled buying can be either economic order quantity, or smaller or larger than EOQ. Forward buying is generally very large covering a long period of consumption. Contract buying is received in staggered lots, each lot at times may equal to EOQ. Negotiation: It is used when there are limited vendors, and /or time available to make purchase is short, and /or items belong to fixed price category. Tender system: It is followed in public sector organization to identify the lowest potential bidder. Learning curve: It is employed to determine the price of the item with high labor content. iv)Right sources:- v)Right time: vi)Right term:
Purchase Cycle
Purchase cycle consists of following eight major activities (Fig 2.3)
**1. Establishing and communicating the need for procurement.
- Scrutiny of the purchase indents.
- Market study and selection of sources of supply
- Order preparation
- Follow up
- Receiving and inspection
- Storage and Record keeping
- Invoicing and Payment.**
Methods of Buying
- Hand to mouth buying.
- Speculative buying
- Hedging
- Forward buying / Market purchasing Apart from these main buying methods there are other buying methods.
- Scheduled buying.
- Contract buying
- Blanket orders.
- Tender buying.
- Seasonal buying.
- Group purchasing.
- Sub-contracting.
- Central purchase organization.
- Directorate general of supplies and disposal. IMPORT SUBSTITUTION – WHAT AND WHY IN INDIA Substitution means to replacement of one material by another for performing the same function. Import substitution refers to indigenous source development so as to:
- Get the materials indigenously.
- Conserve valuable foreign exchange.
- Reduce the cost of production.
- Encourage and develop our industry and trade. India is a developing economy. The policy of import substitution should enshrine as a major national objective. As far as possible the process of import substitution is the resultant effect of many national instruments aimed at achieving self-reliance as well as a favourable balance of payment position. The programmes of the various government departments like the planning commission, dept. of science and technology, director General of technical Development(DGTD), Chief controller of Import and Export(CCIE), Metals and minerals trading corporation(MMTC), State trading corporation(STC), etc should be proper coordinated to achieve the landable objective of self reliance. Thus import substitution implies substituting what is imported by indigenous items as far as practicable. Strategy for Import Substitution A new strategy for import substitution has to be based on: (a) Enlightened corporate policy of source development, (b) standardization, (c) National technology policy. Many organizations like B.H.E.L., T.E.L.C.O , H.M.T., L. & T., T.V.S. group etc. have established company policies for source development. Financial and technical assistance are provided by some of these companies for developing indigenous suppliers. Many organizations pay only lip service to source development and they strongly feel that tangible results will be obtained only if the developments of suppliers are interwoven with the long term corporate plans of the buying organizations. Source Development: In developing indigenous sources the Companies have to consider initial problems relating, to high cost, poor workman ship, need for technical help, availability of raw materials etc. These problems will arise only when the supplier is building up his competence. Standardization: Standardization has been accepted as a basic necessity for mass production. It is a continuous and time consuming process. In the case of industrially developing countries, a systematic approach for establishing priorities, and a total view of industrial sectors is called for. Due consideration has to be given, for the rapid advances taking place in the technological fields in the world. The Indian Standards Institution has developed over 7000
standards. Role of Materials Managers: Materials managers who are in change of source development and import substitution can play a significant role in this direction. They should encourage the engineers to adopt value analysis techniques which is a very fruitful area for import substitution. In this context the country has made a significant break through by replacing imported copper through indigenous aluminium. Import Policy or International Purchase Volume 1: deals with the policy of government with regard to users’ import of materials. Volume 2: deals with government policy with regard to registered exporters. Highlights of Import Policy, 1992- General guide lines:
- Trade is free, subject only to a negative list of imports and a negative list of export which may pruned now and then with an aim to make the trade as free as the country’s economic and trade environment warrants.
- Stable policy for five years 1992-97 subject to review every quarter.
- Simplicity and transparency is the sole aim of the new policy. Import Guidelines:
- Negative list of import is the smallest one.
- Consumer goods will continue to remain under restraint.
- Import of 3 items banned, 68 items restricted, and 8 items canalized.
- Special import facilities for i) hotels and tourism industry, and ii) sports bodies.
- Negative list to be administered by general schemes. Case –by-case licensing is minimized.
- Actual user condition is eliminated except in a few special cases.
- Import of capital goods liberalized. Capital goods have been removed from negative list of imports.
- Import of second-hand capital goods allowed subject to certain sector wise restriction. In some sectors it is allowed with out license and in others under license. Export promotion Capital Goods ( EPCG) scheme is liberalized and two windows have been opened for concessional duty imports A) Rate of concessional customs duty i) 25%CIF value ii) 15%CIF value. B) Export obligation i) 3 times CIF value ii) 4 times CIF value C) Period of fulfillment of export i) 4 years ii) 5 years.
- EPCG scheme extended to components of capital goods with concessional customs duty of 15%.
- Import of raw material liberalized barring few items.
- All licenses under duty exemption schemes transferable.
- Permission is accorded to install machinery on lease.
- Special import licensing schemes makes the following three categories wherein special import licenses may be issued.
- National campaign for quality awareness, along with up-gradation and accreditation of laboratories/ testing houses, to be launched. Procedures are to be made simple, transparent and easy to administer INVENTORY MANAGEMENT Inventory: - inventory is a list or, schedule of article / materials held on charge of a person or, stock of articles and materials held-on behalf of an organization. Inventory Management: - it means planning, procurement, holding & accounting and distribution of these article and materials. Needs of Inventory Management:- to cope with uncertain conditions of availability to cater better consumption pattern. To counter act lead time To attend probable up-ward fluctuation in customer demand. Advantage while purchasing a lot. To cope with uncertainty resulting from national and international politics. Main purpose of inventory management: What quantities are required? When should we order /reorder?
d) Overhead cost. e) Profit of the manufacturer.
- Ordering cost:- This cost is associated with the placement of an order for the acquisition of inventories. Components are – a) Manpower cost – money spent in sending enquiries, receiving quotation, companies, placing and typing order. b) Finalizing orders and placing order cost. c) Transportation cost and stationary cost. d) Inspection cost.
- Inventory carrying cost or holding cost: - it is defined as the cost of holding material inside and outside the stores. It is associated with level of inventories, components of inventory carrying out are – a) Interest on capital invested in the inventory. b) Storage space cost including rent, electricity. c) Handling cost. d) Insurance and taxes. e) Inventory maintenance cost. f) Obsolescence cost. g) Deterioration of quality cost. h) Cost of maintaining inventory records cost.
- Cost of shortage: - it is an extremely important cost that never appears in accounting records. Different components of EOQ :- D= Annual Demand. It is expressed in unit. Q = Quantity to be ordered (units/cycle) N = Nos. of times order placed for material. It is expressed in Nos. /year. t = Time period between placement of orders. It is expressed in year/ month / week. Co = Ordering cost, expressed in Rs. / order. Ch = holding cost , expressed in Rs. / unit/ annum or percentage of total cost. Cb= Basic price of item expressed in Rs./ unit. Tc = total cost for inventory control expressed in Rs. (annual cost) tl = lead time , expressed in months or weeks. Bs = Buffer stock, expressed in unit. ROL = the reorder is placed whenever the inventory level comes down to certain level. This level is called ROL or ROP (Re Order Level or Re Order Point) Derivation of EOQ :-
- Annual ordering cost or total ordering cost. Toc = NCo = (D/Q)Co.
- Total ( Annual ) holding /carrying cost. Thc = (Q/2)*Ch.
- Since, the minimum to cost occurs at the point where ordering cost and inventory carrying cost are equal. So, Toc = Thc Or, (D/Q)Co =(Q/2)Ch Or, 2DCo = Q² Ch Or, Q² =( 2DCo)/Ch Or, Q = √( 2D*Co)/Ch
- Optimum nos. of order placed = N* = D/Q* = D/(√( 2D*Co)/Ch)
- Total optimum time between two orders t* = Q/D = (√( 2DCo)/Ch)/D
- Total cost Tc* = ( D/Q) Co + (Q/2)Ch +(D*Cb)
- Tc* = [D/(√( 2DCo)/Ch)]Co + [(√( 2D*Co)/Ch)/2] *Ch
- (D*Cb) Establishing EOQ by problem:- XYZ manufacturing Co. wants to determine the EOQ on the basis of the following information. Annual usage = 5000 units. Price/unit = Rs. 4/- Carrying cost = Re 1/-/unit Cost per order =Rs. 100/- Solution
- No. of orders/yr.
- Order size (or) value of order
- Average Inventory (2)/ 4.Carrying cost (Re.1/unit)
- ordering cost @Rs.100/order (1. *100)
- Total cost /yr. (4+5) 1 5000/1=5000 5000/2=2500 Re.1*2500= 0
EOQ under Wilson lot size formula or, Simple situation formula or, EOQ model under infinite ( instantaneous replenishment rate. Assumption :-
- the replenishment of stock is instantaneous (demand is fixed).
- No shortage is allowed ( no back ordering)
- price per unit is fixed and is independent to the order quantity. In the above figure the materials are used in a constant rate and continuously. The annual consumption being D unit t o t o r d c a r i n v Cost Q u E O
When, marketer takes different inventory control mechanism to control A, B,&C items, then it is called selective control of inventories. Methods of selective inventory control:-
- Fixed order Quantity System (Q-System).
- Fixed interval System or, periodic review System (P-System).
- Fixed order Quantity System (Q-System): The order quantity is fixed. The order is placed when inventory drops to re-order level. It is most suitable when carrying cost is measurable and significant It is preferred when the supplier places a minimum order quantity restriction. It is suitable for A and X items having highest consumption value and highest unit cost respectively. It is also known as two –bin system or maximum –minimum system, in this system re-order made when inventory falls on re-order level =lead time requirement +BS. Further, the bin of an item is of two types, namely the main bin and reserve bin. From main bin we meet the demand that occurs before lead time and from reserve bin we meet the demand during lead time. When main bin is empty. Fresh order is placed which should arrive well before the reserve bin is exhausted. D =Average Demand in lead time. BS= Buffer stock = D *(Tmax-Tmin)= lead time demand ROL =tl * D + BS tl =( Tmax- Tmin) Average Demand = D = Annual Demand/week or month Tl, Tmax, Tmin = lead time The above figure shows:
- Supply equal to EOQ is received at point O and quantity in stock reaches a point A.
- The materials are then issued and at time F, when the stock reaches the ROL, an order is placed for quantity Q=EOQ, and supply continued.
- At point B, the supplies of order placed at point F are received and the stock reaches P.
- At the point E there is delayed in receiving the supplies and we cut in to Buffer stock.
- Thus for this system of ordering , we fixed up the size of the order i.e., every time same quantity ‘Q’ is ordered but the time of placing the order is allowed to vary depending upon the actual usage or demand. In this case, the firm has to decide on three aspects of an item before placing the order. a) EOQ=√2DCo/Ch. b) Optimum Buffer Stock c) R.O.L
- Fixed interval System or, periodic review System (P-System). This is also known as the FIXED-ORDER INTERVAL SYSTEM or CYCLIC REVIEW SYSTEM.
- the reorder time is fixed.
- the re-order quantity varies according to inventory on hand.
- it is suitable when carrying cost in meaning less and insignificant.
- it is preferred when the supplier will only ship at fixed date.
- it is suitable for B and C class items. This system has a fixed ordering interval but, the size of order quantity may vary with the fluctuations in demand. The system is specified for any item by i) Review period and ii) Replenishment level ( R ) The operating procedure consists of review the inventory position regularly. once in every t unit of time. At each review period, an order is placed for an amount equal to difference between a fixed replenishment level and actual inventory level. the calculation of R is based on the formula –
R= Avg. consumption during review period + lead time +BS. Since, the order quantity would be large than usual. When the demand has been less than the expectation. The order quantity is variable in size from one review date to another date. LIMITATIONS OF EOQ MODEL:-
- The demand for inventory is seldom constant:- when demand fluctuates, the EOQ model will give misleading results. In a period of rising demand , EOQ model based on historic demand level will suggest smaller inventory levels than are economical.
- The lead time for any supplier is generally unpredictable:- therefore buffer stocks are required to insure against changes in lead time. It is difficult to determine buffer stock as it depends upon uncertainty in the lead time.
- it is very difficult to determine carrying cost:- only a rough estimate can be made of obsolescence and deterioration costs.
- The EOQ formula is based on assumption that no stock out will take place:- in some cases an occasional stock-out position may be less costly than carrying excessively large stock, but, it is not easy to determine the cost of stock out. SELECTIVE CONTROL OF INVENTORIES / CLASSIFICATION/ ABC,VED, GOLF, FSN ….ANALYSIS Analysis criteria Classification
- COST a) ABC (annual usage value of an item expressed in monetary value. i.e., annual quantity * price /unit) ABC stands for Always Better Control. a) HML ( it is based on unit cost of materials). HML stands for – H- High unit cost. M-Medium unit cost. L-Lower unit cost. c) XYZ ( it is based on stock value)
- CRITICALITY VED items ( it is based on criticality in usage) VED stands for – V- Vital E- Essential D-desired
- PROCUREMENT DIFFICULTIES/ AVAILABILITY /SEASONALITY SDE (it is based on procurement difficulties and availability) SDE stands for S- Scare item , which is not easily available in the country. D- Difficult items. E- Easy available items. S-OS analysis. S-Seasonal. OS- Off –seasonal
- SOURCE OF PROCUREMENT GOLF analysis ( it is based on source of procurement or supplier) G- Government. O- Ordinary L- Local F – Foreign
- CONSUMPTION FSN analysis ( it is based on movement of the item) F- Fast moving goods. S- Slow moving N- Not moving item
very low level immediately at optimum price. Y * Deplete the stock further at good price Disposed off as early as possible. Z Liberalize control ( to reduce clerical cost)
- Dispose off as early as possible even at lower price.
Vendor Development, rating and evaluation
The stages of procedures of source selection as follows: Searching stage Selection stage: Negotiation and trial order Rating and experience stage: Factors influencing Source/ vendor selection Price: Quality: Delivery: Services Location: Inventory policy of the supplier: Flexibility: In addition to the above major factors several other factors are also considered in supplier selection. Reserve capacity Internal factors and quality control procedures Labour Relation: Warranties: Plant visits: Types of Vendor Development 1) The vendor is given a plot outside the buyer’s premises : Local source (nearby source a) _Far away source:
- captive development:_ Techniques and Procedures of Vendor Development 1 st^ step: identify the problem of current vendor. 2 nd^ step: investigate the genuinity of the problem. 3 rd^ step: in case of a genuine problem the buyer has to identify the area problem after identification buyer may give assistance to the vendor. 4 th^ step: sit with the supplier with the problem. 5 th^ step: if the vendor posses any managerial incapability, then buyer may assist them with managerial support. Else, buyer proposed them to be sole vendor of them or, negotiate with other vendor apart from this vendor. Vendor Evaluation Vendors are generally evaluated on the basis of the following attributes. i) Delivery as per schedule. ii) Reliable quality. iii) Quick replacement of rejection. iv) Supplier with out asking for any financial consideration. v) Answering queries readily. During course of inspection of suppliers premises all the following factors are also to be ascertained –
- Technical know how.
- Financial capability
- Organization set-up and man power.
- Records of past performance of supplier in delivering materials in right time with right quality and quantity.
- Own manufacturing units.
- Staff and line capacity of firm.
- Service level.
- History of labor relation.
- Quality control and testing facilities.
- Financial adequacy and stability
- R&D facilities.
- After sales service.
- Reputation in the market regarding price, quality, quantity and behavior.
- Whether he is vendor or agent of vendor. Different Methods of Vendor Evaluation
- Categorical method:- In this method the buyer makes out a list of all the factors, which he considers necessary for evaluation, and at periodic intervals he makes out a performance report. 2) Weighted point method: Suitable point should be allotted on different criteria such as, quality conformation, delivery scheduling, total price, innovative attitude, etc. Example: (A company for which quality is the key factor) Quality – 50 points Delivery – 30 points Price – 15 points Service – 05 points For vendor ‘X’ i) for quality, we calculate Quality Performance Ratio (QPR) = No. of Delivery without rejection / Total No. of deliveries. Say, total no. of deliveries =100. Deliveries without rejection = Therefore, QPR = 70/100 = .7 = 70% ii) for Service, we calculate Service Performance Ratio ( SPR) = No. of calls Attended / Total No. of deliveries. Say no. of calls attended = 10 SPR = 10/100 =. iii) Price Performance Ratio (PPR) = lowest offer received / price offered by vendor Example: Vendor ‘X’ quoted – Rs. 40/- per unit. Vendor ‘Y’ quoted = Rs. 50/- per unit. Vendor ‘Z’ quoted = Rs. 60/- per unit. PPR for – Vendor ‘X’ = 40/40 = 1 Vendor ‘Y’ = 40 /50 =. 8 Vendor ‘ Z’ = 40/60 =. Note : in ideal situation the ratio should be = iv) Delivery Performance Ratio ( DPR) = Nos. of delivery on schedule / total no. of delivery = 60 /100 =. 6 Total weightage = (50 * QPR) + (30 * DPR) + (15 * PPR) + ( 5* SPR) For vendor ‘X’ – TW = (50. 5) + (30. 6) + (15 * 1) + (5*. 1) = 35 +18 +15 +. 5 = 68. 5 In this way value can be compared with other vendors. Merits: a) Any number of evaluation factors can be included and they can be assigned relating weight as required by the organization. b) Subjective evaluation is minimized. c) Cost Ratio Methods: it involves a good systems of determining the actual costs incurred in purchasing, follow-up, transaction, packaging, receiving, etc. and determining the unit cost incurred by the buyer on the material when actually received. The higher the cost, the lower the supplier’s comparative rating. Example: Cost related to quality—
Legal Aspects of Buying The Indian “sale of goods” act,1930 and “Indian contract Act”, 1872 cover some of the important legal aspects. Materials manage and purchasing manager should know some of the legal aspects, such as 1) law of agency, 2) Law of contracts, 3) law pertaining to sales of goods and 4) Arbitration.
- Law of agency : - in this era trans-nation business enables a business man to depend up on the service of a person is called Agent. Agent: - An agent is person employed to act on behalf of another called principal, for the purpose of bringing the principal in to contractual relationship with third person. Essential of relationship of Agency: i) Agreement between principal and agency. ii) Intention of agent to act on behalf of principal. 1) Agreement: Agency depends on agreement but, not on contract. There is no consideration is necessary. Principal has to agree to be represented by the Agent is sufficient determinant. This relationship can be created by the express agreement and by the implied agreement. a) Expressed agreement: it is usual power of attorney within stamp paper. b) Implied agreement:- Agency is not contractual in nature. A B C 2) law of contract: The Indian contract Act, 1872 (Act IX of 1872) lays down certain general rules regarding contracts. Sec (6) of Indian Law of Contract provides that “ An agreement when enforceable by law ” is a contract. A contract has been defined as “an agreement enforceable by law” or “a legal binding, agreement between two or, more persons b which rights are acquired by one or more to act or, bearance on the part of other or others. In the definition there are two things – agreement and enforceability by law. To form an agreement there must be n offer from one party and acceptance by another party. Agreement = offer+ acceptance. But, social agreement is not contract. Contracts are those agreement which are enforceable by law courts. So , contract = Agreement + enforceable by law. Therefore, all contracts are agreement but all agreements are not contract. Essential Elements of Contract
- Offer and acceptance: There must be lawful offer by a party and lawful acceptance by another party.
- Legal relationship: The agreement must create legal relationship between two parties.
- Lawful consideration: The agreement to be enforceable by law must be supported by a consideration. The agreement is legally enforceable only when the parties give something and get something in return.
- Capacity of parties -- competency: The parties to the agreement must be competent o enter in to the contract. He or she is of – Sound mind Age of majority. Not disqualified from contracting by any law to which he is a subject.
- Free and genuine consent:- Both the parties must be of the same min on all the material terms and condition.
- Lawful object: the object must be lawful.
- Agreement not declared void – the agreement must not have been declared void by any law of the country.
- Certainty and possibility of performance: the terms and condition must be certain and not vague.
- Legal formalities: the agreement may be oral or, in writing. Where it is in writing is must comply with the necessary legal formalities as to writing, registration and attestation. a) Statutorily declared void: b) Statutorily declared void sec (26-30) of contract act, 1872 a) Not fulfilling essential requirement Void agreement
Sec 26: Any agreement restraining the degree of freedom of choice of marriage in respect of adult is void. Sec 27: Freedom of commerce, trade, business, unreasonable restriction on commerce, trade, business to any one is void. Sec 28: Full restriction on legal proceeding is void. Sec 29: If language of a contractual not meaningful and no capable to mean anything that is vague, then the agreement is void. Sec 30: ( wagering agreement or contract) – it is an agreement either parties stands to gain or loose depending upon the outcome of an uncertain event over which both the parties have no control , is void. 3) SALE OF GOODS ACT, 1930 When an offer to sell or buy goods for a price is made , It is known as contract of sale. However, it is binding only when accepted by the buyer and his acceptance is communicated to the seller on the terms and conditions is equivalent to a rejection of the original offer. Definition of sale Sale:- sale is defined by Indian Sale of Goods Act, 1930 as: “A contract of sale of goods is a contract whereby the seller transfer or agrees to transfer the property in goods to the buyer for a price”. from the above definition of a sale, the following may be derived as essential features of a sale:
- A sale is a bilateral contract.
- Money consideration is a must for a sale of goods.
- There is distinction between sale and contract of work and material. But, according to Avtar singh “ the dividing line between the two is not very clear. The only conclusion that can be drawn from English authorities is that every case must be judged of by itself”.
- Goods must be a subject –matter of the contract for sale. The “ goods” is defined by Section 2(7) of Indian Sale of Goods Act, 1930 as under: “ goods means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” Condition: - It is stipulation in a contract of sale of goods, which is so essential to the fulfillment of the contract. Important Ingredients of a transaction of sale:
- There must be two competent parties. ( buyer and seller)
- There must be definite goods in the contract of sale.
- Goods must be in deliverable form.
- Title of goods or effects transfer of goods.
- Must be concluded by delivery in one hand and payment of price ( consideration in one hand) Document for title of goods:-
- Dock warrant
- Bill of loading
- railway receipt, etc. 4) Arbitration: Arbitration is a judicial process under which one or more outsider render binding award in the merit of the dispute. Voluntary arbitration is only in a name, in reality it is same as adjudication. Quality Definition Joseph Juran ~ Quality is fitness for use. Dimensions for Tangible Product:
i) Performance ~ Colour and picture quality as well as audio-reproduction (Operation characteristic)
ii) Features ~ Remote and other available controls (What the product provides)
iii) Reliability ~ How frequently the repairing is needed. (Product survivability)
iv) Maintainability/Serviceability ~ How difficult/expensive to repair (Ability for repair)
v) Durability ~ How long it will last (i.e., life span)i.e., Economic length of use
vi) Conformance ~ How well it meets the design specifications (Physical characteristic)
vii) Aesthetics ~ How does it look.
The Principles of TQM are as follows:
- Quality can and must be managed.
- Everyone has a customer and is a supplier.
- Processes, not people are the problem.
- Every employee is responsible for quality.
- Problems must be prevented, not just fixed.
- Quality must be measured.
- Quality improvements must be continuous.
- The quality standard is defect free.
- Goals are based on requirements, not negotiated.
- Life cycle costs, not front end costs.
- Management must be involved and lead.
- Plan and organize for quality improvement. Processes must be Managed and Improved Processes must be managed and improved! This involves: Defining the process Measuring process performance (metrics) Reviewing process performance Identifying process shortcomings Analyzing process problems Making a process change Measuring the effects of the process change Communicating both ways between supervisor and user Key to Quality The key to improving quality is to improve processes that define, produce and support our products. All people work in processes. People Get processes "in control" Work with other employees and managers to identify process problems and eliminate them Managers and/or Supervisors Work on Processes Provide training and tool resources Measure and review process performance (metrics) Improve process performance with the help of those who use the process
- Recognize that what you are doing is a "PROCESS"
- Identify the commodity being processed.
- Define some measurable characteristics of value to the commodity.
- Describe the "PROCESS"
o Process Flow Analysis's o Flow charts o List of steps
- Identify the "Big" problem o Brainstorming o Checklists o Pareto analysis
- "BRAINSTORM" what is causing the problem.
- Determine what past data shows. o Frequency distribution o Pareto charts o Control charts - sampling
- Determine the relationship between cause and effect o Scatter diagrams o Regression analysis
- Determine what the process is doing now o Control charts
- Determine what change would help Your knowledge of the process Scatter diagrams Control Charts - sampling Pareto analysis
- Determine what change worked (confirmation). Histograms Control charts - sampling Scatter diagrams
- Ensure the fix is embedded in the process and that the resulting process is used. Continue to monitor the process to ensure: A. The problem is fixed for good. and B. The process is good enough Control charts - sampling Dimensions for Tangible Product / Concept of QUALITY IN SERVICE
- TIME
- TIMELINESS
- COMPLETENESS
- COURTESY
- CONSISTENCY
