The biggest challenge faced by purchasing managers: the balance between quality and cost

By justchinait
December 14, 2020

At present, the quality cost in procurement in the electronics industry is far more than that. It includes related losses caused by any risks (delivery risks, financial risks, etc.) in the procurement process and early investment to avoid these risks. The quality cost has become a vital evaluation index for more and more companies in supplier management.

In the actual operation process, there is a contradiction between quality and cost: the purchaser hopes to reduce the purchase price as much as possible while meeting the quality requirements. However, the blind reduction of procurement costs has led suppliers to choose poor quality raw materials, quality problems frequently occur, and prices increase. On the other hand, when the purchaser requested to improve the quality of the product, it faced the supplier’s request to increase the amount. How to balance the relationship between cost and quality in purchasing and how to manage the cost of quality in purchasing has become a challenge for purchasing managers.

Quality problems in logistics procurement

The procurement process’s quality problems mainly come from two aspects: raw material quality problems and supplier quality problems.

The quality of raw materials is mainly reflected in product quality and delivery.

The quality problems of raw materials are manifested in:

The quality of the purchased raw materials is inferior, and certain performance indicators cannot meet the purchaser’s specifications.

Due to changes in procurement requirements by customers or purchasers, the existing components cannot meet the new quality standards.

In terms of product delivery, quality problems are manifested in:

Product damage, damaged packaging of incoming materials, damaged or missing incoming materials, wrong delivery of goods, and mixed packaging of incoming materials are caused during transportation.

Supplier quality problems mainly include three aspects:

⑴. Poor operation of the supplier leads to unstable supply quality and delivery time;

⑵. The supplier’s investor or partner changes the direction of investment, resulting in a change of production or withdrawal from the creation of raw materials required by the purchaser;

⑶. The supplier’s financial failure caused the bankruptcy.

Once the above types of problems occur, the purchaser must take immediate action to deal with and remedy the various expenses incurred, such as the cost of analysis and inspection of non-conforming products, the transportation cost of return and exchange, and the use of other alternative products or The increase in expenditure caused by the replacement of the supplier, the cost of contacting and negotiating with the supplier or sending personnel to the supplier’s production site to investigate and supervise, and the loss of production suspension caused by poor quality are all quality costs.

Six measures to prevent quality problems

The loss caused by poor quality is fantastic. After the problem occurs, the purchaser needs to invest a lot of effort and cost to solve the problem. Although it is not too late to make up for it, if we can manage quality with the idea of “doing things right the first time” and prevent problems, it will be more beneficial to balance the relationship between quality and cost.

How to prevent quality problems in procurement, six measures are very useful:

1. Establish an organization with a clear division of labor

At present, more and more large-scale OEM companies separate the functions of supplier development and supplier management from procurement management, set up independent resource development and resource management departments, and set up specialized personnel to manage supplier quality. Supplier quality management includes the management of various indicators such as raw material quality, cost, delivery date, and Service related to supplier performance. A clear division of labor brings clear responsibilities: the supplier development engineer is responsible for the preliminary assessment of the supplier’s product conformity and technical and technological capabilities; the supplier quality engineer will use various system tools to evaluate the supplier’s quality performance during the production process Effective management and regular evaluation. Such a management structure effectively controls and prevents the occurrence of procurement quality risks.

2. Implement clear supplier certification procedures

Careful audit and certification of potential suppliers is the best way to understand the capabilities of suppliers fully. Through the supplier’s on-site inspection, the purchaser can fully understand the supplier’s production and operation status, technical level, research and development capabilities, management system and information level, which lays the foundation for avoiding procurement risks. More procurement dry goods focus on the content of the WeChat public account review of the procurement practitioners, including the quality certification system, equipment and process capabilities, R&D capabilities, production processes and process control, production capabilities and production saturation, financial status, order management, customer management and customers Service, raw material management, staff quality, and environmental protection measures, etc.

3. Regularly evaluate supplier performance.

Regular evaluation of suppliers can enable purchasers to promptly understand and grasp the changes in all aspects of the supplier so that they can make scientific inferences about their technical capabilities, management capabilities, supply capabilities, and various risks. The main evaluation indicators include supply capabilities, internationalization/localization capabilities, R & D and innovation capabilities, initiative and flexibility, informatization capabilities, quality performance, transportation performance, warehousing advantages, service performance, price methods, and financial advantages, profits and Inventory turnover rate and potential risks.

4. Establish clear quality standards and communicate them to suppliers promptly

Precise requirements are the key to communicating with suppliers. In many cases, unclear standards are the leading cause of component quality problems, resulting in increased modification/update costs and delays in delivery.

5. Assist suppliers in improving product quality

In many cases, the purchaser sends quality control or technical personnel to discuss ways to improve product quality with suppliers, which can effectively improve the efficiency of quality improvement. Although this approach adds some costs on the surface, it speeds up the development of product quality and reduces the enterprise’s overall quality cost.

6. Improve the quality of procurement staff

A high-quality procurement team can make supply management highly efficient and scientifically judge and prevent procurement risks while pursuing cost reduction. Excellent communication skills, familiarity with the raw material market, and market sensitivity determine whether the procurement personnel can effectively control the occurrence of risks. To achieve cost reduction, some procurement personnel did not conduct a serious analysis of existing costs, but instead blindly suppressed supplier prices, often forcing suppliers to choose low-cost materials that did not meet the standard for production, or reduce the quality of the production process The control standards have resulted in the frequent occurrence of quality accidents, which makes the purchaser’s cost to deal with quality problems far more than the cost savings brought about by the price reduction of raw materials. Therefore, cultivating and improving the quality of procurement personnel and establishing an efficient procurement team is essential.

The four-quadrant analysis method balances quality and cost.

Can quality improvement and cost reduction be balanced? The four-quadrant analysis is a helpful tool. The products of suppliers are divided into four types according to the two factors of quality and cost, and corresponding measures are taken for different types of suppliers.

First, the product quality is good, but the cost is high. Such suppliers often master certain core technologies or are in a leading position in the market. If the purchaser wants to get a reasonable price, it must carefully analyze its cost structure and adopt a negotiation method to strive for cost reduction. In this case, the preparation before the negotiation is essential, it can help the purchaser take the initiative in the consultation.

Second, the product quality is good, and the cost is also satisfactory. This is a supplier that the purchaser needs to work hard to maintain and conduct regular communication and evaluation with it, and appropriately adopt some incentive measures or establish a long-term strategic partnership with it to maintain excellent performance.

Third, the product quality is not good, but the cost is satisfactory. The purchaser must analyze this type of supplier. Suppose the product quality problem is caused by factors that can be improved (such as unreasonable process flow, imperfect quality record, etc.). In that case, the purchaser can work with the supplier to tackle the problem and try to find the best way to improve without increasing costs. If the quality cannot be adjusted after hard work or is caused by factors that cannot be developed, the purchaser should start to replace the supplier.

Fourth, the product quality is not good, and the cost is high. The purchaser must immediately start looking for alternative suppliers to replace. Otherwise, the company will be forced to pay a lot of additional expenses.

In addition to the four-quadrant analysis method, there are also some commonly used tools such as the fishbone diagram analysis method and quantitative analysis method that can effectively help purchasers trace the source and find the best countermeasures to balance quality and cost. However, the quantification of the quality cost is not an easy task. How to scientifically quantify the quality cost management investment is still a difficult point in the logistics procurement management process.

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