Analysing reality situation of supplier quality management at datalogic group

Page iv GLOSSARY Acronyms The meaning of acronyms AEO The Authorized Economic Operator ASQ The American Society for Quality Control CAPA Corrective And Preventive Actions CCs Control C

Page iii

ACKNOWLEDGEMENTS

First of all, I would like to thank all teachers in the Faculty of Economics of Ho Chi Minh City University of Technical and Education, they have always been enthusiastic

in imparting knowledge, sharing experiences with students

Secondly, I would like to express my sincere thanks to my instructor – Master Nguyen Thi Anh Van, who always patiently gave me helpful advice during the study period Not only that, she always spent time even on weekends or outside work hours to answer my questions It would be difficult for me to complete this report without her enthusiastic support

Thirdly, my thank also go to DATALOGIC Vietnam Co., Ltd The company has given

me the opportunity to broaden my knowledge and skills In addition, I would like to express my gratitude to Global Procurement Department Especially, Mr Luu Quoc Tam is my direct instructor in Datalogic company, who always willing to answer all my question and give me career orientation in the future

Last but not least, I want to express my gratitude to my family Those who have always sacrificed silently, always by my side and encourage me to overcome all difficulties They are the motivation for me to strive to complete my studies and work

Ho Chi Minh City, 5 th May 2020

Student Nguyen Thi Ngoc Linh

Page iv

GLOSSARY

Acronyms The meaning of acronyms

AEO The Authorized Economic Operator

ASQ The American Society for Quality Control

CAPA Corrective And Preventive Actions

CCs Control Characteristics

CTO Chief Technology Officer

C-TPAT The Customs-Trade Partnership Against Terrorism

DPPM/PPM Defective Part Per Million

EQMS Enterprise Quality Management Software

GPr Global Procurement

ISO The International Organization for Standardization KPI Key Performance Indicator

NCs Non-Conformities / Non-Conformances

NDA Non-Disclosure Agreement

NPI New products introduction

NSR New Supplier Request

ODM Original Design Manufacturing

OEE Overall equipment effectiveness

OEM Original Equipment Manufacturer

OEM Original Equipment Manufacturing

Page v

PPAP Production Part Approval Process QMS Quality Management Systems R&D Research & Development

RCA Root Cause Analysis

RFI Request For Information

RFID Radio Frequency Identification RFQ Request for Quotation

SAP Systems, Applications and Products SCARs Supplier Correction Action Reports SEQ Supplier Evaluate Qualification

Sev 2 VQN cost recovery

SOP Standard Operating Procedure SQA Supplier Quality Assurance

SQE Supplier Quality Engineering T&L Transportation & Logistics

TQM Total Quality Management

UHF Ultra-High Frequency

VNQ Vendor Quality Notification

Page vi

DIRECTORY OF TABLE

Table 3.1: Identify TIER of the supplier of DL 34 Table 3.2: Determine KPI of PPM 38 Table 3.3: Calculation Rule OTD rate of DL 39

Page vii

DIRECTORY OF FIGURE

Figure 1.1: Preliminary introduction about Datalogic Group 3

Figure 1.2: Four main sectors of Datalogic Group 6

Figure 1.3: Product group Hand Held Scanners 7

Figure 1.4: Product group Mobile Computer 7

Figure 1.5: Product group Fix Retail Scanners 7

Figure 1.6: Product group Scan Engines 8

Figure 1.7: Product group Safety 8

Figure 1.8: Product group Laser Marking System 8

Figure 1.9: Product group Sensor 8

Figure 1.10: Product group Vision Systems 9

Figure 1.11: Product group RFID 9

Figure 1.12: Organization chart of Datalogic Group 9

Figure 1.13: Organizational structure chart of Golbal Procurement Department 11

Figure 1.14: Organizational structure chart of Quality Department 12

Figure 2.1 Production process quality assurance 16

Figure 2.2 Measurement process quality assurance 17

Figure 3.1: Four phases of supplier quality management of DL 22

Figure 3.2: Supplier quality management process map of DL 24

Figure 3.3: Flow chart of planning select potential suppliers 27

Figure 3.4: Flow chart of evaluating potential suppliers and final approval 30

Figure 3.5: Flow chart of evaluating supplier qualification 34

Figure 3.6: Flow chart of monitoring Supplier’s performance 38

Figure 3.7: Formula for calculation the supplier's performance score 38

Figure 3.8: Flow chart of auditing supplier 41

Figure 3.9: Vendor corrective action request process 43

Figure 4.1 Specification Deviation Form 48

Figure 4.2 The flow chart of planning select potential suppliers 54

Page viii

TABLE OF CONTENTS

EVALUATION OF INSTRUCTOR i

EVALUATION OF REVIEWER LECTURER ii

ACKNOWLEDGEMENTS iii

GLOSSARY iv

DIRECTORY OF TABLE vi

DIRECTORY OF FIGURE vii

PREAMBLE 1

1 Reasons for subject selection 1

2 Research objectives 1

3 Research scope 1

4 Research methodology 1

5 Report structure 2

CHAPTER 1: GENERAL INTRODUCTION ABOUT DATALOGIC GROUP 3

1.1 General introduction about Datalogic Group 3

1.1.1 Preliminary introduction about Datalogic Group 3

1.1.2 History of formation and development 4

1.1.3 Vision and mission of Datalogic Group 5

1.1.4 Main sectors of Datalogic Group 6

1.1.5 Business strategy 6

1.1.6 Some core products 7

1.1.7 Organization structure of Datalogic Group 9

1.2 Introduce the departments related to the supplier quality management 10

1.2.1 Global Procurement Department 10

Page ix

1.2.2 Quality Department 11

CHAPTER 2: LITERATURE REVIEW 13

2.1 Quality 13

2.2 Quality management 13

2.3 Supplier quality management 14

2.4 Application of the perspective of total quality management to supplier quality management 14

2.5 Supplier quality assurance 15

2.5.1 Supplier quality assurance 15

2.5.2 Nine steps of supplier quality assurance 17

2.6 State of supplier quality management 17

2.7 Five Key Metrics of Supplier Quality Management Plus Four Steps of the Supplier Evaluation Process 18

2.7.1 Five Key Metrics Used for Scoring SQM 18

2.7.2 Four Steps of the Supplier Evaluation Process 19

CHAPTER 3: ANALYZE THE IMPLEMENTATION OF SUPPLIER QUALITY MANAGEMENT AT DATALOGIC GROUP 22

3.1 Supplier quality management process 22

3.1.1 Four phases of supplier quality management 22

3.1.2 Supplier quality management process map 24

3.1.3 Evaluate supplier quality management process 24

3.2 SOP for planning select potential suppliers 25

3.2.1 Purpose 25

3.2.2 Phase of the process and timing 25

3.2.3 Flow chart 26

Page x

3.2.4 Analysis process 27

3.2.5 Evaluation implementation 28

3.3 SOP of evaluate potential suppliers and final approval 28

3.3.1 Purpose 28

3.3.2 Phase of the process and timing 28

3.3.3 Flow chart 29

3.3.4 Analysis process 30

3.3.5 Evaluation implementation 32

3.4 SOP of evaluating supplier qualification 32

3.4.1 Purpose 32

3.4.2 Phase of the process and timing 32

3.4.3 Flow chart 33

3.4.4 Analysis process 34

3.4.5 Evaluation implementation 36

3.5 SOP of Supplier’s performance Monitoring 37

3.5.1 Purpose 37

3.5.2 Flow chart 37

3.5.3 Analysis process 38

3.5.4 Evaluation implementation 39

3.6 SOP of audit supplier 40

3.6.1 Purpose 40

3.6.2 Flow chart 40

3.6.3 Analysis process 41

3.6.4 Evaluation implementation 42

Page xi

3.7 SOP of vendor corrective action request 42

3.7.1 Purpose 42

3.7.2 Process map 43

3.7.3 Analysis process 43

3.7.4 Evaluation implementation 44

CHAPTER 4: EVALUATIONS AND SOLUTIONS 45

4.1 Evaluation 45

4.2 Solutions 47

4.2.1 The first solution is to store documents on changing specifications 47

4.2.2 The second solution is to store audit and re-audit documents 49

4.2.3 The third solution is to use electronic signatures 49

4.2.4 The fourth solution is the supplier’s TIER identifier 50

4.2.5 The fifth solution is to create a wide supplier network 50

4.2.6 The sixth solution is retraining staff about how to calculate supplier performance and audit skills 51

4.2.7 The seventh solution is adding a term in agreement about how long suppliers must respond to improvement requests 52

4.2.8 The eighth solution is to reduce the time to collect information when more potential suppliers are selected 52

REFERENCE 56

APPENDIX 58

Page 1

PREAMBLE

1 Reasons for subject selection

There are many groups of factors that contribute to the efficient production and business

of a business In which group of most important factors is the group of input materials Because, input materials are the direct factors that make up the entity of the product, the quality of the raw material will directly impact the product quality as well as the capital efficiency of the business To control the quality of input materials requires businesses

to develop a strict quality control process for suppliers The author had the opportunity

to learn and access the supplier quality management process of Datalogic Vietnam Co., Ltd., a subsidiary of Datalogic Group At there, Datalogic Group has built a strict supplier quality management process However, when applied to practice still exist some limitations Therefore, the author decided to select the topic "Analysis reality situation

of supplier quality management at Datalogic Group" as a research topic for this graduate thesis Wishing to analysis and propose solutions to improve the efficiency of supplier quality management at the group

Page 2

− Participate directly in the actual process to gain a better understanding of supplier quality management

5 Report structure

The report is composed of 4 chapters, which are:

− Chapter 1: General introduction about Datalogic Group

− Chapter 2: Literature review

− Chapter 3: Analyze the implementation of supplier quality management at Datalogic Group

− Chapter 4: Evaluations and solutions

Page 3

CONTENT CHAPTER 1: GENERAL INTRODUCTION ABOUT

DATALOGIC GROUP

1.1 General introduction about Datalogic Group

1.1.1 Preliminary introduction about Datalogic Group

Datalogic Group was founded in 1972 by founder Romano Volta in Bologna, Italy Currently, Datalogic Group is one of the leading groups in the field of automatic data collection and automation processes

With more than 45 years of establishment, Datalogic Group has achieved some outstanding achievements as follows:

- 1,200 patents in multiple jurisdictions;

- 11 research and development centers (in Italy, USA, China, and Vietnam);

- Thousands of prestigious partners and customers deployed over five continents

Today, Datalogic Group employs about 3,157 employees from 28 different countries worldwide There are 10 manufacturing and repair facilities in the United State, Brazil, Italy, Slovakia, Hungary and Vietnam Datalogic S.p.A (headquarters of Datalogic Group in Bologna, Italy) has been listed on the STAR segment of the Italian Stock Exchange since 2001 with the name DAL.MI

Figure 1.1: Preliminary introduction about Datalogic Group

(Nguyen, 2018)

Page 4

1.1.2 History of formation and development

From being a pioneer to a world-class enterprise in data collection Datalogic Group has always affirmed its ability in every stage with great changes 5 stages are summarizing

the formation and development process of Datalogic Group as follows:

❖ Stage 1: pioneers

- 1972: Romano Volta founded Datalogic on the outskirts of Bologna, Italy In the direction of designing and manufacturing photoelectric sensors for textile, ceramic and packaging industries

- 1974: Romano Volta opened a small office in Germany to distribute Datalogic products, international expansion was started here

- 1976 – 1978: Datalogic started selling products in Japan, USA Datalogic also strengthened its sale network and customer service by establishing subsidiaries in European countries

❖ Stage 2: expending horizons

- 1980: there was a strong drive towards research in the field of optical bar code reader The laser scanner was an exclusive product that makes Datalogic the

leader in technology and standards in this field

- 1984: the first barcode reader was applied at an airport in Milan – Linate

- 1988: Datalogic opened new research, sales, and production In this decade, Datalogic had distributors, plants and subsidiaries in America, Europe, Africa and Oceania

❖ Stage 3: turning point

- 1993: Romano Volta directed Datalogic to a new management organization

An ambitious 3-year improvement plan to turn Datalogic into an internationally recognized, stable, industrial entity with results, reputation,

and image This was a major turning point for Datalogic

- 1995: a new production plant opened at Pescara

- 1997: Datalogic acquired ID-Ware Mobile Computing & Communications

(the largest European producer of portable terminals)

- 1999: Datalogic achieved the world’s first application of RFID technology in

a post office

Page 5

❖ Stage 4: innovation for growth

- 2000: the first self-shopping solution is created − Shopevolution

- 2001: Datalogic is listed on the star segment of the Italian Stock Exchange with the name DAL.MI

- 2002: Datalogic acquired Minec, a Swedish mobile device manufacturer

- 2004: Datalogic acquired Laservall, a laser marking trading company

- 2005: Datalogic acquired US PSC Datalogic became the third-largest company in the world for barcode readers, doubling sales Affirmation is the true pioneer in the field of barcode readers

- 2006: Datalogic opened a new factory in Slovakia with an area of 5,400 m2

- 2008: Datalogic acquired Datasensor, a high-value transaction, confirming Datalogic's position in the field of industrial automation

- 2009: Datalogic received the "Premio Imprese per l’Innovazione" award from the President of Italy

- 2009: continuing to expand into Asia, successfully building a factory in Vietnam's hi-tech park

- 2010: Datalogic acquired Evolution Robotics Retail, a company equipped with advanced image pattern recognition technology

- 2015: Datalogic acquired 20% Caen RFID S.r.l, an Italian company leading

in the field of RFID in the state of UHF frequency This acquisition created

an opportunity for Datalogic to provide its products in the Nonfood Retail,

Warehousing, and T&L segments

❖ Stage 5: flying higher

- 2016: Datalogic recorded revenues of 576,5 million Euro and investing in research and development over 50 million Euro, had approximately 1,200

patents in multiple jurisdictions

- 2017: Datalogic adopted a new strategy, transforming the company’s

organization from a product-oriented one, to a customer-centric model

1.1.3 Vision and mission of Datalogic Group

❖ Vision: “A world identified, viewed, inspected, marked and verified by

Datalogic.” (Datalogic S.p.A, 2019)

Page 6

❖ Mission: “To provide customers in Retail, Manufacturing, Transportation &

Logistics and Healthcare the best quality and efficiency in data collection and process automation, thanks to superior product technology, and extremely

talented people.” (Datalogic S.p.A, 2019)

1.1.4 Main sectors of Datalogic Group

After more than 45 years of establishment, Datalogic has gradually expanded its business in size and field of operation Based on data collection technology, Datalogic has defined manufacturing and business areas based on customer needs Specifically, Datalogic aims at four main sectors, namely the four main product consumption groups

As follows: retail, manufacturing, health care, transportation and supply chain

Figure 1.2: Four main sectors of Datalogic Group

(Synthesis of the author)

❖ The advantage: Datalogic moving from a Product-Centric company to a Customer-Centric company, leveraging on its wide range of products, that can fulfill its customers’ needs for both data collection and process automation and providing end-to-end solutions across the entire flow of operations

Page 7

1.1.6 Some core products

Currently, Datalogic focuses on producing and trading 9 main product groups, namely: Hand Held Scanners, Mobile Computers, Fix Retail Scanners, Scan Engines, Safety, Laser Marking System, Sensor, Vision Systems and RFID

❖ Hand Held Scanners

Figure 1.3: Product group Hand Held Scanners

(Synthesis of the author)

❖ Mobile Computers

Figure 1.4: Product group Mobile Computer

(Synthesis of the author)

❖ Fix Retail Scanners

Figure 1.5: Product group Fix Retail Scanners

(Synthesis of the author)

❖ Scan Engines

Page 8

Figure 1.6: Product group Scan Engines

(Synthesis of the author)

❖ Safety

Figure 1.7: Product group Safety (Synthesis of the author)

❖ Laser Marking System

Figure 1.8: Product group Laser Marking System

(Synthesis of the author)

❖ Sensor

Figure 1.9: Product group Sensor (Synthesis of the author)

❖ Vision Systems

Page 9

Figure 1.10: Product group Vision Systems

(Synthesis of the author)

❖ RFID

Figure 1.11: Product group RFID (Synthesis of the author)

1.1.7 Organization structure of Datalogic Group

1.1.7.1 Organization chart of Datalogic Group

Figure 1.12: Organization chart of Datalogic Group

Page 10

(Datalogic S.p.A, 2019) 1.1.7.2 Functions of the divisions

❖ Executive Chairman: the executive chairman directly manages the real estate, merger and acquisition In addition, the executive chairman reviews all the company's finances, checks the status of the organization, and implements programs to improve the organization in every way The Executive Chairman also oversees the compliance of the subsidiaries and joint ventures to ensure compliance with the law and the organization's mission

❖ Board of Directors: the board of directors has many functions, but the mandate

of the board of directors is to protect the assets of the shareholders, ensuring they receive a high dividend from their investments

❖ Group CEO: Group CEO is representative of the group in dealing with shareholders, organizations, government and the public Making short-term and long-term strategies for the corporation Creating and implementing the vision and mission of the corporation

❖ Core Functions: core functions are group include Marketing, R&D & Product Marketing, Operations, Customer Service, and OEM divisions

❖ Sales: this division is divided into a separate group in the organizational structure

to emphasize the goal that the group is aiming to provide products and services

to the main product consumption groups including Retail, Manufacturing, Healthcare and Transportation & Supply Chain

❖ Corporate Staff: corporate staff is group include Finance & Controlling, Human Resources, and Information and Communication Technologies divisions

1.2 Introduce the departments related to the supplier quality management

1.2.1 Global Procurement Department

1.2.1.1 Preliminary introduction

In 2017, Datalogic was found that selecting suppliers through price and quality criteria needed to consolidate to work more efficiently Datalogic has merged the Purchasing Department and Supplier Quality Management Department into the Global Procurement Department This is a big difference in the structure of Datalogic compared to other

Page 11

organizations Because of this integration, the Global Procurement will be responsible for both the price and quality of the input products

1.2.1.2 Organizational structure chart

Figure 1.13: Organizational structure chart of Global Procurement Department

(Nguyen, 2018) 1.2.1.3 Function of each position in the department

❖ Commodity Management: searching for suppliers, selecting suppliers through

price factor, managing order issue issues, etc

❖ Supplier Quality Management: managing supplier quality issues, participate

in supplier selection process based on quality factor together with Commodity Management

❖ Supplier Quality Engineering: this position is divided by the type of input

products such as plastic products, categories, cables, stickers, etc SQE's responsibility is to handle input product quality issues, identify identified anomalies by the production department, proposing a solution to the problem

at the production department or the supplier (depending on the severity of the problem), evaluating the suppliers, collect data, control data and request suppliers to improve when necessary

1.2.2 Quality Department

1.2.2.1 Preliminary introduction

Page 12

The quality department is a part of the operation division, responsible for setting quality standards, implementing and controlling all activities to ensure the proper implementation of the given quality standards This department is directly coordinated with the Global Procurement department to perform supplier quality management

1.2.2.2 Organizational structure chart

Figure 1.14: Organizational structure chart of Quality Department

(Nguyen, 2018) 1.2.2.3 Function of each position in the department

❖ Operation Quality: operation quality staffs are responsible for quality

assurance, overcome quality problems in the manufacturing sector

❖ Customer Quality: customer quality staffs monitor customer satisfaction and

manage customer complaints

❖ System & Audit Quality: system quality and audit quality staffs implement a

quality management system and periodic quality assessment

❖ Product Quality: product quality staffs support the development of new

products by testing new products on demand and issuing production orders if new products meet the requirements Guaranteed to meet the requirements for each target market

The definition of quality was formed long ago, it was formed from the product, the manufacturer or the requirements of the market In each of these different fields, people create another definition of quality because the quality is very wide and complex Although there are many definitions of quality, in today's market economy, organizations that want to develop sustainably must provide what the market needs, therefore quality should be defined based on the needs of the end consumer

Recently, the definition of quality has been standardized in the international standard and accepted by many countries around the world Specifically, according to the International Organization for Standardization – ISO (2015) quality is “Degree to which

a set of inherent characteristics of an object fulfils requirements”

2.2 Quality management

Quality management is a very wide and complex field With the development of all industries in the world, quality management has now expanded to many areas, from manufacturing management to service or quality management throughout the entire product cycle Some authors and associations have defined quality management as follow:

According to ISO (2015): quality management is “coordinated activities to direct and control an organization with regard to quality” In which direction and control activities relate quality often include setting quality policies, quality objectives, quality planning, quality control, quality assurance and quality improvement

Or according to Crosby (1989): “Quality management involves the proper conditions for construction work process concerned with the formulation of strategies by creating the attitude and environment that makes prevention possible.”

And according to Dale & Lascelles (1997): “Quality management deals with the operation process, organization planning and formulation of strategies.” Quality

Page 14

management will make the process of introducing products to consumers easier It affects customer satisfaction If a quality product reaches consumers, it will be a promotion and increase financing for businesses because customers will trust more In addition, quality is an effective impact on production planning, help produce more efficiently, reduce defects and deliver on time

Quality management can also be called total quality management (TQM) Because it covers the activities and functions of creating and implementing quality plans, quality policies, quality control and quality improvement All the above activities are aimed at total quality management to improve customer satisfaction and promote financial activities

2.3 Supplier quality management

Supplier quality is defined by the supplier's three main duties:

− Ability to meet or exceed the customer expectations;

− Ability to continually improve performance by constantly changing with the changing needs of customers;

− Ability to meet buyer’s requirements in many areas, not only providing physical products but also mixed services

Supplier quality management is defined as the system in which supplier quality is managed by using a proactive and collaborative approach “It's in an organization’s best interest to ensure that its service or material suppliers are providing the highest quality products and services while also conforming to pre-established requirements This is often accomplished through use of supplier quality management systems (QMS), which allow companies to monitor supply chains and inspect or audit materials and services at regular intervals.” (The American Society for Quality Control - ASQ Quality Press, 2020)

Thus, supplier quality is very important to product quality If the company loses the ability to manage supplier quality, it can lose the reputation of the best brand in the world

2.4 Application of the perspective of total quality management to supplier

quality management

Page 15

To create value for the end customer and bring profit to the company Supplier quality management professionals must understand in detail and commit to complying with overall quality management principles Applying these principles is very important because it helps us identify errors from the beginning, minimizing quality problems TQM principles will create a strong business philosophy for each business Because it creates a sustainable quality and promotes customers' trust through quality

Base on the thinking of W Edwards Deming, Philip Crosby and Joseph The summary

of “Eight Key Principles of Total Quality Management” was summarized by Trent (2001) as follows:

[1] Define quality in terms of customers and their requirements;

[2] Pursue quality at the source;

[3] Stress objective rather than subjective analysis;

[4] Emphasize prevention rather than output;

[5] Focus on process rather than output;

[6] Strive for zero defects;

[7] Establish continuous improvement as a way of life;

[8] Make quality everyone’s responsibility

2.5 Supplier quality assurance

2.5.1 Supplier quality assurance

Page 16

(Taylor, 1985)

According to Larsen (2017): “Supplier Quality Assurance (SQA) is the process intended

to ensure that a supplier reliably supplies goods or services that satisfy the customer’s needs This process is collaborative to ensure the supplier’s offerings meet the agreed-upon requirements with minimum inspection or modification.”

Quality can be achieved with a dedicated effort, careful attention to detail and the application of recognized quality assurance rule Such efforts must create favorable conditions for quality assurances As Taylor (1985) noted: “Quality assurance is more than a program It is a philosophy, a way of life.” The quality assurance will fail if only follow the quality assurance program without efforts On the contrary, we will get back

a great quality product when we follow the quality assurance program as a philosophy

to follow And Taylor (1985) also noted: “Experience dictates the kind and degree of control that must be achieved and maintained to obtain products of desired quality Random samples of the output are tested or inspected with respect to specifications in order to release or accept the production lot, to reject it, or to take corrective actions in

the process.” This is the explain for the production process quality assurance - Figure 2.1

The quality assurance aspects of a typical measurement process are illustrated in Figure 2.2 quality control procedures are used to tune and maintain the system in a state of

statistical control in which it may be considered as capable of generating an infinite number of measurements on any material, of which the data of the moment are a typical

Figure 2.1 Production process quality assurance

2.5.2 Nine steps of supplier quality assurance

According to the research of the US quality guru Joseph Moses Juran quoted from Business Dictionary (2020) divides the supplier quality assurance process into nine steps how to split the process into 9 steps of supplier quality assurance as follow:

[1] Product quality requirements defined

[2] Alternative supplier evaluations

[3] Best supplier selections

[4] Dual quality planning conduction

[5] Relationship period cooperation

[6] Conformance to requirements validated

[7] Qualified supplier certifications

[8] Implementing quality improvement plans

[9] Use of created supplier ratings

2.6 State of supplier quality management

Page 18

According to Dan Jacob (2017):

SQM is the quality management process area that covers supplier selection, collaboration, monitoring and oversight, and continuous improvement There can be many industry-specific requirements and variants to SQM processes, but many industries leverage core processes such as waivers, Non-Conformances (NCs), Supplier Correction Action Reports (SCARs), and Supplier Audits

Supplier scorecards may be used to rate supplier performance and identify supplier risk Processes, such as Production Part Approval Process (PPAP), are becoming more widely used across industries to ensure that a supplier is equipped to deliver a known product that meets quality and production volume Identification of Control Characteristics (CCs) is embedded in this process Proper identification and monitoring

of CCs have become a focal point for quality, manufacturing and engineering leaders looking to drive improved quality earlier in development

Many companies look to leverage a supplier portal to provide secure communication of this sensitive quality data While the contract manufacturing relationship has existed for many years, relationships between suppliers and customers have evolved In some cases, this is to include much more active participation of suppliers in the customer’s new products introduction process, or for full product development and manufacturing outsourcing

2.7 Five Key Metrics of Supplier Quality Management Plus Four Steps of the Supplier Evaluation Process

2.7.1 Five Key Metrics Used for Scoring SQM

According to LNS Research quoted from Flash Global (2015):

There are five key metrics of supplier quality management as bellow:

➢ Cost of quality: this metric measures the cost to manufacture a quality product

Two main cost categories are: good quality and poor quality The cost of quality definition and enterprise quality management software part 2, cost of quality details these metrics and offers insights on measuring them

➢ Overall equipment effectiveness (OEE): creating a metric with better visibility

for key operations areas by calculating the OEE formula:

OEE = Availability × Performance × Quality

Page 19

OEE first measures how often an asset is available when it should be producing product for a customer and if an asset is close to producing a buyer product to its theoretical maximum OEE also measures percentages of met quality specifications for products produced

➢ Products in compliance percentage: this metric is crucial in regulated fields

such as medical devices, biotechnology, pharmaceutical, and the food and beverage industries Also, the automotive as well as the aerospace and defense fields need this vital data metric It measures compliance with government regulations and internal guidelines by percentage of products With many changes in the compliance landscape, it’s a challenge for most firms to stay current

➢ Complete, on-time shipments: product quality should not delay final delivery

While on-time and complete shipments as a metric sounds easy for companies measure this metric can be very different LNS Research defines it as the percentage of products delivered wholly complete and on-time

➢ New products introduction (NPI): NPI metric is defined as new products’

percentage that meet volume, quality, and time goals New products introduced for a competitive advantage are vital to industries like consumer electronics and automotive Profit growth depends on how well a firm handles new product introduction while effectively meeting NPI goals

Executives are provided critical insight through the five keys metrics into their supplier’s financial and operational performance

2.7.2 Four Steps of the Supplier Evaluation Process

According to LNS Research quoted from Flash Global (2015):

There are four steps of the supplier evaluation process as bellow:

➢ Step 1: evaluation of risk criteria

SQM: Assessment of Risk

A full overview of compiling your supplier risk portfolio can be supplied to your firm through individualized risk assessments, which certainly should be calculated in multiple ways for every supplier’s performance results Globalization has affected traditional on-site audits unless multiple suppliers are

Page 20

chosen strategically within nearly proximity of each other this can be too costly

a proposition Another method of collection that can be employed instead is a supplier quality agreement that includes data reports and audits delivered upon request and/or at specific times during the contract period

SQM is a key part of the total cost of quality, Enterprise Quality Management Software (EQMS) and firms have started adding it into software solutions Integrating EQMS with that of suppliers and, when possible, with supplier’s suppliers by management (commonly using shared web-portal) is wise This method is ideal to obtain improved visibility in real-time and constant performance assessments That level of integration, however, might appear overreaching to smaller businesses that prefer to be independent of larger firms

A supplier’s risk can be quantified as a function of two variables (likelihood and impact of adverse events occurring) and ultimately is assigned a level of risk for comparison and prioritization The first variable relates to the performance of the supplier By analyzing performance indicators in a way that creates standardized metrics (the average response time for corrective actions, inventory levels, delivery times, customer complaints, etc.), suppliers can be rated based

on their overall performance relative to others SQM facilitates this greatly Data

is recorded and made available in the SQM software, which allows a firm to assess whether a supplier will experience a failure in a standardized way

The second risk variable, impact, depends greatly on a supplier’s criticality to production and their final product If they have no substitute material to use in production, then a supplier should be marked as riskier regardless of its levels of performance, automatically If you must use the supplier, make sure it holds considerable weight in your risk portfolio If it is less critical to continuity, assign

it less risky

SQM should be of great consideration in defining a strategic vision By quantifying supplier risk, we can effectively prioritize what issues require the most attention Treat these external risks similar to the internal inefficiencies Employing closed-loop CAPA (Corrective And Preventive Actions) or deviation management techniques, as you would in-house, will mitigate supplier risk while cutting future incidences

Page 21

➢ Step 2: audit strategy

Prioritize based upon risk (including time since the last audit)

Pick the top five highest risk suppliers and schedule audits throughout the year

Hire another SQE for every fifteen suppliers that require on-site auditing

➢ Step 3: review of supplier audit frequency

The manufacturer audit is just for control and requires no set repetition unless new, persistent problems occur without supplier correction Major supplier yearly auditing (top five) is recommended, either by you or your choice of a subcontracted auditing firm Occasional, unplanned audits will best evaluate a normal production day at the supplier site

➢ Step 4: audit priorities review

A key area is insuring a top management focus that is knowledgeable and understanding of the quality/auditing process across industry type Review their quality budget and quality table of organization Determine their goals and who manages quality for ongoing training and education including for a continually updated Supplier Quality Manual The audit priority is a balanced scorecard of measurements focused on cost, quality and timeliness

Page 22

CHAPTER 3: ANALYZE THE IMPLEMENTATION OF

SUPPLIER QUALITY MANAGEMENT AT

DATALOGIC GROUP

3.1 Supplier quality management process

3.1.1 Four phases of supplier quality management

At Datalogic, the corporation adopts a rigorous supplier quality management process from beginning sourcing of suppliers to monitoring the performance of the selected supplier and ultimately deciding on continuing cooperate or remove suppliers Specifically, at Datalogic, the supplier quality management process is divided into four main stages as follows:

Figure 3.1: Four phases of supplier quality management of DL

(Le Thanh Nam, 2018)

Analysis process:

- Phase 1: Planning select potential suppliers

This is a planning step to gather sufficiently information about the components

to buy, suppliers so that DL can assess and select the right suppliers The information needed to collect in this step is as follows:

o Information about products and services in need of purchasing

o List of suppliers being considered and selected

o List of advantages and disadvantages of suppliers

o List of possible risks when buying new materials

o List of documents, procedures to control risks are listed

- Phase 2: Evaluating potential suppliers and final approval

This is the stage of direct assessment of potential suppliers by professional methods (usually using evaluating supplier qualification method) to make a

Phase 3

Approved supplier(s) quality management

Phase 4

Feedback & Communicate

Page 23

final decision on whether to cooperate in the purchase and sale of products or not

- Phase 3: Approved supplier(s) quality management

This is the stage of implementing monitoring activities for suppliers To track supplier performance and continue to refine approved supplier records

Some of the monitoring activities carried out during this period are:

o Checking input products based on the standards of each product

o Measuring the success rate of the product and the supply ratio to determine supplier performance

o Recording the performance of the supplier for performance analysis

- Phase 4: Feedback and communicate

This is a period of information exchange between a supplier and a Datalogic to solve problems with the product or require process improvement and even termination of working with the supplier

Page 24

3.1.2 Supplier quality management process map

3.1.3 Evaluate supplier quality management process

In general, Datalogic has built a detailed, rigorous process for supplier quality management starting from supplier selection to purchasing and post-purchase management Strict control of input materials has helped the operations of related parts such as production and supply chains go smoothly

Here are some specific assessments of implementation:

3 Approved supplier(s) quality management

Track vendor performance, keep records to maintain approved supplier records

Establish strict inspection process

4 Feedback & Communicate

Communicate to resolve quality defects in the product and ask for supplier improvements

1 Planning select potential suppliers

Define what is to be obtained: part requirements, specifications, procedure, work instructions, identify potential suppliers, risk(s) and controls

Complete the selection of potential supplier(s)

2 Evaluate potential suppliers and final approval

Evaluate and make a final decision (whether to use a supplier or not)

Negotiate Purchase Agreement

Planning Select Potential

Suppliers

Evaluating supplier qualification

Release Supplier to the

System

Receiving and Inspecting

Materials Supplier’s performance Monitoring Supplier Re-audit

Vendor Corrective Action

Request Phase out Supplier (if any)

Figure 3.2: Supplier quality management process map of DL

(Le Thanh Nam, 2018)

Page 25

- Supplier evaluation based on an existing process, along with detailed documents, specific responsibilities and diagrams to make supplier assessment easier and lower risk of occurrence

- Datalogic holds huge database resources This is an advantage in the process

of searching, evaluating and selecting suppliers It helps save time and avoid risks during supplier selection

- Datalogic with more than 45 years of establishment has created a strict organizational structure, most of the activities from asking new suppliers, selecting and evaluating are carried out by specialized departments and experienced staff

- Effective use of the QlikView tool to evaluate vendor performance

- Effective use of SAP software in declaring and managing suppliers

❖ Limitations:

- All materials that DL requires suppliers to make are based on specifications of the drawings However, there are many specifications that are not yet consistent for each material, causing some problems when working Changes

or additions to the specifications are not made clear in the contract, but are merely a non-evidence agreement

3.2 SOP for planning select potential suppliers

3.2.1 Purpose

- Limiting the unnecessary proliferation of the number of active suppliers of Datalogic because this leads to difficult to manage the supplier base as well as

to identify risk factors in the business activities of the company

- Collecting necessary information for the assessment and supplier selection process

3.2.2 Phase of the process and timing

The process starts with an initial need of parts, technologies, capabilities or costs which cannot be fulfilled by the existing suppliers Category Manager first evaluate if we have already a Supplier which might be capable to satisfy the requirement or might be able

to do it after a certain development process; if this does not seem to be possible, the

5

Submits for approval the new supplier research request to the Global Procurement Manager (or more requests if some alternatives are needed)

I A/R

7

Category Manager adding the reasons

for refusal

A/R I

No Yes

No Yes

Page 27

9

Send supplier documents, as follows:

RFI NDA (when needed, see the NDA procedure)

RFQ Quality Guidelines Applicable Technical Standards Applicable Legal Agreements SEQ &CTP

A/R I

Figure 3.3: Flow chart of planning select potential suppliers

(Fasolato, Bassini, Calonghi, & Suppini, 2015)

3.2.4 Analysis process

❖ Phase 1: the request for a new supplier can be originated either by Procurement,

by R&D or by Product Marketing

❖ Phase 2: the requester fills in the relevant form New Supplier Request Form and sends it to the Category Manager Category Manager checks if the need might be covered by a supplier between those already in use as qualified Datalogic suppliers or if it is needed to find a new one

❖ Phase 3: if all current vendors are not in compliance with the requirements, CM submits to the Global Procurement Manager the new supplier research request (or more requests if some alternatives are needed)

❖ Phase 4: if exists the current supplier matches the requirements, CM informs applicant adding the reasons and closes the request

❖ Phase 5: Global Procurement Manager checks if the request may be accepted or not, eventually evaluating with the CTO and with Legal the risk in case of unique

❖ Phase 8: in case the request is accepted the process can move forward with the next steps

❖ Phase 9: CM selects the potential suppliers sending to them the RFI, the NDA according to the related Procedure Only after the signature of the NDA, the CM sends to the Suppliers the RFQ form, the Supplier Quality Guidelines, the applicable Technical Standards to allow a correct quotation, the suitable Purchase Agreement, if any, the Supplier Evaluation Questionnaire and the C-TPAT/AEO form eventually after evaluation of the RFQ

❖ Phase 16: upon receipt of all necessary documents, close the process

3.2.5 Evaluation implementation

❖ Good point

- Detailed procedures for each activity

- The process is quite tight, collecting a lot of information about the ability of the supplier so the ability to choose the right supplier is high

❖ Limitations

- In case the raw material becomes popular, many potential suppliers are

selected Sending a lot of exploration and standard documents to many suppliers is time-consuming and labor-intensive

3.3 SOP of evaluate potential suppliers and final approval

- When the new recommended Supplier is selected, based on the risk evaluation meeting outcome, the qualification process can start and as well as the negotiation

of the suitable purchase agreement

- At the end of the qualification process, the SAP system is setup accordingly to the results; in case of positive outcome it is possible to start doing business with the new Supplier, in any other case this won’t be allowed

3.3.3 Flow chart

Qualification and decide how

to manage supplier

Procurement Management

4

Supplier not selected for the Qualification, informs all the interested parties, adding the reason

Management

No Yes

Figure 3.4: Flow chart of evaluating potential suppliers and final approval

(Fasolato, Bassini, Calonghi, & Suppini, 2015)

3.3.4 Analysis process

❖ Phase 2: upon the receipt of all the filled forms, the Category Manager calls a meeting with Supplier Quality Leader representatives to evaluate all the risk dimensions which are relevant for the supplier(s) (1st risk evaluation)

❖ Phase 3: the risk evaluation with the recommendation from the meeting participants are sent to the Global Procurement Manager who can decide to escalate the decision involving other executives depending on the issues to be addressed

❖ Phase 4: if the supplier is not selected for the qualification, ask the Category Manager to inform the Applicant and the Supplier adding the reasons for refusal

No Yes

Page 31

❖ Phase 5, 6, 7, 8: if the supplier is evaluated as “eligible for qualification”, ask the Category Manager to create the Supplier in setting the flag of “Purchasing block”, then:

- negotiates Purchase Agreement, if any;

- initiates the Supplier Qualification Process

- If one or both of the two condition between “Supplier Qualified” and

“Purchase Agreement signed” is/are not satisfied and there is an urgency to start business with the Supplier regardless, the Category Manager calls a meeting with the Global Procurement Manager, the Supplier Quality Leader, Finance and Legal representatives to evaluate the risk of activating the supplier on a temporary basis

Based on the risk evaluation and the recommendations from the meeting participants the Global Procurement Manager can:

- Decide to escalate the decision involving other executives depending on the

issues to be addressed

- If the risk is deemed as not acceptable establish to wait till both purchase

agreement and quality conditions are satisfied

- If the risk is deemed as acceptable, ask the Category Manager to remove from

SAP the “Purchasing block” flag and activate the supplier on a temporary basis informing all the relevant parties involved

In case the supplier has been activated on a temporary basis, being one of the two conditions above not fully satisfied (“Supplier Qualified” or “Purchase Agreement Signed”), it is mandatory to set the SAP expiration date to a certain date If the missing condition is satisfied before the expiration date, the CM will modify on SAP tool and set the expiration date to blank In case the expiration date is reached and the missing