Cost-Effectiveness Based Performance Evaluation for Suppliers and Operations

Abstract

This research establishes a cost-effectiveness based performance evaluation 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 towering the cost of purchased materials.” The merits of measuring supplier quality performance using total involved quality cost (TIQC) include: 1) a common measurement language— money, and 2) very simple and visible numbers along with direct and indirect toss 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, and customer), and integrated the results from different stages (incoming inspection, internal customers, external customers) and identified severity levels for quality events (rejects, sorting, rework, shutdown, scrap, and customer returns). A TIQC along with a predetermined cost structure and the principle of management by objectives were developed and used in planning and establishing this evaluation system for supplier performance. Very satisfactory and exacting results were obtained in the system simulation and demonstration. The evaluation system using TIQC as proposed in this study can be very beneficial for manufacturers in selecting the best suppliers and driving operational quality improvements.

• management by objective
• quality cost
• quality improvement
• supply chain
• supplier performance evaluation

Additional information

Notes on contributors

Chee-Cheng Chen

Chee-Cheng Chen is a doctoral candidate at the Department of Industrial Engineering, Chung-Yuan Christian University, Taiwan. He is currently the quality manager for DELTA Electronics, Inc. His research interests include the study of quality management, process improvement, and supply-chain management. He is a member of ASQ and the Institute of Industrial Engineers.

Chen has worked in the electronics industry for more than 15 years. He was the general manager for Taiwan and director of quality for the Asia Pacific region at two respective U. S. invested companies in Taiwan from 1993–2000; a marketing manager and quality assurance manager of an electronics manufacturer in Taiwan from 1990–1993; and head of the vender quality assurance department at Philips (Chupei), Taiwan from 1987–1990.

He received his M.B.A degree at the Graduate School of Management Science, I-Shou University, Taiwan, and his bachelor's degree in industrial engineering from Chung-Yuan Christian University in Taiwan in 1985. He can be reached by e-mail at [email protected].

Ching-Chow Yang

Ching-Chow Yang is an associate professor at the Department of Industrial Engineering, Chung-Yuan Christian University, in Taiwan. He teaches courses in project management, total quality management, quality management of service business, and policy and strategy management. He is presently on the board of assessors for the Notional Quality Award of the R.O.C.

Yang has consulted for more than 100 companies in Taiwan and in Mainland China on policy and strategy management, project management, and total quality management (TQM) studies. He leads several project teams in TQM and six-sigma approaches in some manufacturing and service industries. He has published books on TQM and service quality management. He has also published a number of journal articles and conference papers. Yang received his doctorate in management science from National Chiao-Tung University, Taiwan. He may be contacted by e-mail at [email protected].