A STUDY OF SUPPLIER PERFORMANCE RATING USING TOTAL-INVOLVED-QUALITY-COSTS ANALYSIS

ABSTRACT

This research establishes a cost-effectiveness based performance rating system for suppliers and operations. The purpose is to provide a methodology for “integrating supplier and manufacturer capabilities through a common goal-“profitability improvement” based on lowering the cost of purchased materials. The merits of measuring supplier quality performance using Total-Involved-Quality-Costs (TIQC) analysis include: 1). a common measurement language-money, 2). very simple and visible numbers along with direct and indirect loss ratios to help management and employees understand the importance of “doing things right the first time”. This study investigated the interactions and mutual movements among the three groups in the supply chain: “Supplier-manufacturer-customer”, integrated the results from different stages: Incoming inspection, internal customers, external customers and severity levels for quality events: rejects, sorting, rework, shutdown, scrap and customer returns. A total-involved-quality-costs analysis along with a pre-determined cost structure and the Management By Objectives (MBO) principle were developed and utilized in planning and establishing this rating system for supplier performance. The rating system using total-involved-quality-costs analysis, as proposed in this study could be beneficial for manufacturers in selecting the best suppliers and driving operational quality improvements.

Keywords:

• MBO
• quality cost
• supplier performance rating
• supply chain
• total costs