Purchase Descriptions, Quality Specifications and Standardization

The fundamental to any purchasing program is the determination of quality specification and the cost of achieving those specifications. Quality is viewed as quantifiable or measurable characteristics or attribute of product’s or service. It is also termed as the product fitness for use, and it entails identifying the dimension of product or service that the customer wants.

This unit concerns with the importance aspects of written descriptions of quality and their impact on good purchasing. Purchase descriptions directly affect the quality and performance of the item purchased and the price paid. The unit also deals with the discussion of total quality management, specifications, standardization and simplification.

 

It is not easy to define the concept ‘quality’ in a precise way. Different people interpret quality in different ways. Few can define quality as measurable terms that can be operationalized. Quality is frequently defined as ‘fitness, excellence, free of defect”. This is the definition most people have in mind when they think of quality.

In industrial and institutional purchasing, quality is related to suitability and cost rather than to intrinsic excellence. The best quality is that which can be purchased at the lowest cost to fulfill the need or satisfy the intended function for which the material is being purchased.

Moreover, the functions of design, production and service may find it difficult to use the definition as a basis for quality measurement.

I. The product based definitions

Quality is viewed as a quantifiable or measurable characteristics or attribute. For example, durability or reliability can be measured and the engineer can design to that bench mark. Although this approach may have benefits, it has limitations as well. Where quality is based on individual test or preference the bench mark for measurement may be misleading.

II. User based definition

Quality is an individual matter, and products that best satisfy this preferences (i.e. perceived quality) are those with the highest quality. This is the rational approach but it leads to two problems. First consumer preference vary and secondly it is difficult to aggregate these preferences into products with wide appeal.

III. Manufacturing based definition

Quality “Conformance to requirement”. Requirement or specifications established by design and any deviation implies a reduction in quality. The conformance quality refers to the degree to which the product or service design specifications are met. Execution of the activities involved in achieving conformance are of a tactical day-to-day nature. It should be evident that a product or service can have high design quality but low conformance quality, and vice versa.

One of the most important responsibilities of a buyer is to ensure that suppliers have the ability, the motivation and adequate information to produce materials and components of the specified quality in a cost-effective manner. In fulfilling this responsibility a buyer can, to a great extent, control the quality and related cost of incoming material.

Generally, speaking four factors determine the long-run quality level of a firm’s purchased materials.

   i. Creation of complete and appropriate specifications for quality requirements.

   ii. Selection of suppliers having the technical and production capability to do the desired quality.

   iii. Development of a realistic understanding with suppliers of quality requirement and creation of the motivation to perform accordingly.

   iv. Monitoring a supplier’s quality/cost performance and exercise of appropriate control. Purchasing and supply management is directly responsible for the second and third factors and it should play a strong cooperative role in the first and fourth factors.

 

Total quality management (TQM) is the integration of all functions and processes within an organization in order to achieve continuous improvement of the quality of goods and services.

Quality has become the major concern in many organizations, particularly in light of intense foreign competition, more demanding customers and poorer profit performance owing to reduced market share and highest cost.

TQM is a philosophy that uniform commitment to quality in all areas of the organization will promote a culture that meets consumer’s perceptions of quality. It involves coordinating efforts directed at improving customer satisfaction, increasing employee participation and empowerment, forming and strengthening supplier partnerships and facilitating an organizational culture of continuous quality improvement.

TQM is based on a number of ideas. It means thinking about quality in terms of all functions of the enterprise and is a start-to-finish process that integrates interrelated functions at all levels. It is a system approach that considers every interaction between the various elements of the organization. Thus, the over all effectiveness of the system is higher than the sum of the individual outputs from the sub-system. The subsystem include all the operational functions in the life cycle of a product such as design, planning, production, distribution and field service.

The management subsystem also requires integration, including strategy with a  customer focus, the tools of quality and employee involvement (the linking process that integrates the whole). A corollary is that any product, process or service can be improved, and a successful organization is that consciously seeks and exploits opportunities for improvement at all levels.

As a management philosophy TQM relies heavily on the talents of employees to improve continually the quality of the organization’s goods and services.

 

The purchase description forms the heart of the procurement. Whether or not a purchase order or contract will be performed to the satisfaction of the buying organization frequently is determined at the time the purchase description is selected or written, specifying the quality requirements. Purchase descriptions directly affect the quality and performance of the item purchased and the price paid. Purchase description serves a number of purposes.

   i. It communicates to the buyer in the purchasing department what to buy

   ii. It communicates to prospective suppliers what is required

   iii. It serves as the heart of the resulting purchase order

   iv. It establishes the standard against which inspection, tests, and quality checks are made.

Many firms pay a “fair and reasonable” price for materials; however, they do not always pay the right price. The right price is paid only when the right material is specified after all reasonable efforts to improve the purchase descriptions have been exhausted.

Purchase descriptions can be classified into two broad categories

   i. Detailed specifications

   ii. Other purchase descriptions

 

6.4.1 Detailed specifications

Specifications are most detailed method of describing requirements. Various types of designing specifications are the detailed descriptions of the materials, parts, and components to be used in making the product. They are verbal and written descriptions that tell the seller exactly what the buyer wants to purchase. Because they impact the activity of engineering, operations, purchasing, and quality, optimum specifications vitally influence the contribution made by all these departments to the firm’s success.

In a manufacturing firm, when specifications are fixed the final design is also fixed when the final design is fixed; the products competitive stance and its profit potential are also fixed.

 

     6.4.1.1 Importance of Specifications

Specifications are very important because the cost of materials clearly dictates that their selection is an important consideration during product design. The important characteristics of a product are specified when it is designed, prior to its manufacture. These characteristics are called the design specification. After the product has been produced, we can observe the extent to which it conforms to or deviates from the design specifications. The costs of many materials are identified through specification during the design stage. This is the first and sometimes the only point at numerous costs can be reduced and controlled.

It is at the time of original design that the greatest cost saving obtained from both specification and standardization.

Since specifications are important, the activity of engineering, operations, purchasing and quality optimum specifications mainly influence the contribution made by these entire department to the firm’s success. A good specification is to satisfy the procurement consideration of clear, concise, and an unambiguous communication.

Preparing specification for a product involves four major considerations:

   i. Design considerations of function

   ii. Manufacturing consideration of economical production

   iii. Procurement consideration of markets, materials availability, supplier capability and cost.

   iv. Marketing considerations of consumer acceptance

It is common for these considerations to conflict with one another. But top management must provide the encouragement and direction that will motivate all departments to cooperate and seek a company solution, rather than departmental solutions.

When specifications conflict arises, final authority for the decision should rest with the departments having responsibility for the product’s performance. This is usually the design-engineering department. However this is not a justifiable reason for engineering unnecessarily to subordinate the design considerations of manufacturing, procurement, quality and marketing. From a company viewpoint, the right specifications are those that blend the requirements of all departments only. Such specifications can satisfy the goals of top management i.e. increased sales, decreased costs and the added corporate security which comes with an increasing strong competitive positions.

To develop specifications that properly become product quality characteristics and product cost, management must coordinate the firm’s technical and business skills. Four approaches can be used.

   i. early purchasing and supplier involvement

   ii. the formal committee approach

   iii. the informal approach

   iv. the purchasing coordinator approach

 

* Early purchasing and suppliers involvement

During the early stages of new product development, more and more, progressive firms involve purchasing and potential suppliers. Such early involvement optimizes the development of specifications since the technical and commercial issues are addressed at a point where there is maximum objectivity and flexibility. This can improve product quality and reliability, while compressing development time and reducing total material cost.

As more and more firms embrace the use of cross functional teams in the development of new products, early purchasing and supplier involvement becomes an inherent component of the process that culminates in the development of specifications. Progressive firms find that this approach is an important element in their quest at realistic costs.

 

* The formal committee approach

This approach recognizes that a good specification is a compromise of basic objectives. A specifications review committee is established, with representatives from design engineering, production engineering, purchasing marketing, operations, quality and standards. When a new product design is proposed, all members of the committee receive copies of all drawings, bills of material and specifications. No design becomes find until it is approved by the committee.

 

* The informal approach

This method emphasizes the concept of a buyers responsibility to “challenge” materials requests. At the same time, top management urges designers to request advice from buyers and work with them on all items that may involve commercial considerations. Emphasis at all times is placed on person to person communication and occupation between individual buyers and designers. Using this approach, a company oriented, cost-conscious attitude is developed at the lower level through out the organization.

 

* The purchasing coordinator approach

One or more positions are created in the purchasing department for individuals, frequently called material engineers, to serve in a liaison capacity with the design department. Typically, the materials engineers spends most of his or her time in the engineering department reviewing design work as it comes off the drawing boards.

 

     6.4.1.2 Writing specifications

After the design of a product determined, the next step is to translate the individual part and materials specifications into written form. The need for clarity and precision of expression is important in all business communications.

To meet the needs of all departments, specification must satisfy many requirements.

• Design and marketing requirements for functional characteristics, chemical properties, dimensions, appearance etc.
• Manufacturing requirements for workability of materials and producability
• Inspection’s requirements to test materials for compliance with the specifications.
• Stores requirement to receive, stores, and issue the material economically.
• Purchasing and supply management’s requirement to procure material without difficulty and with adequate competition from reliable sources of supply
• Production controls and purchasing requirement to substitute material when such action become necessary.
• Total firm’s requirement for suitable quality at the lowest over all cost.

 

     6.4.1.3 Types of specifications

There are different types of specifications

1. Chemical specifications. Explain the nature of material and how it reacts in relation to another materials and environment.
2. Physical specification. Explain the size and dimension of the materials such as length, weight, thickness etc.
3. Material specification. Explain from what materials the product is made such as wood, plastic, steel etc.
4. Method specification. It explains the method used to in making a product i.e. manual, mechanical etc.
5. Blue prints. These are special types of specifications used for constitution. Blue prints are usually diagrams and illustrating of building and other construction items.

 

6.4.2 Other purchase description

     6.4.2.1 Performance Specifications

A performance specification in theory is a perfect method of describing a requirement. Instead of describing an item interms of its design characteristics, performance specifications describe in wards, and quantitatively where possible, what the item is required to do.

This type of description is used extensively in buying highly technical military products. For example the product wanted could be a missile capable of being launched from particular place with a designated speed, range and accuracy.

Potential suppliers are told only the performance that is required. Though performance is specified in precise detail, suppliers are not told how the product should be manufactured or what material should be used in its manufacture.

Performance specifications are not limited to such complex items as spacecraft electronic air craft and automobile companies. It is also possible to use this method to buy such common materials as electric wire, batteries and radios. A performance specification for wire may require it to withstand a given temperature, have a designated resistance to abrasion, and have a given conducting capability.

Industry uses performance specifications extensively to buy expensive complicated machines and machine tools. Today more production machines are replaced because of technological obsolescence than because of wear. Therefore, in buying such a machine, a firm should make every effort to obtain the ultimate in technological advancement. Often this can be done best by using performance specifications. To reduce and control the expense associated with this approach to describing requirements, descriptions should be written as explicitly as possible.

There are two primary advantages of describing quality by performance specifications

i. Ease of preparing the specifications

ii. Assurance of obtaining the precise performance desired. For complex type of products it is the easiest type of specification to write.

 

     6.4.2.2 Function and fit specifications

Such purchase descriptions are a variation of performance specifications and are used in early supplier involvement programs. With this approach, the design team describes the function to be performed and the way the item is to fit into the larger system. For example, automobile, computer etc, together with several design objectives such as cost, weight, reliability. As early supplier involvement becomes more common this approach to describing requirements undoubtedly will increase in popularity.

 

     6.4.2.3 Brand or Trade Names

When manufacturers develop and market a new product, they must decide whether  or not to brand it. Branding or differentiating a product is generally done to develop a recognized reputation and gains repeated sales, protect the product against substitutes, maintain price stability; and simplify sales promotion. The primary reason most manufactures brand their product is to obtain repeated sales. Consumers develop a preference for brands. Therefore, branded products can generally be sold at higher prices than unbranded products of similar quality. A brand represents the manufacturers pledge that the quality of the product will be consistent from one purchase to the next. A buyer can be certain that a reputable manufacturer will stirve to keep this pledge.

Brand name products are among the simplest to describe on purchase order. Thus, they save purchasing time and reduce purchasing expense. Inspection expense is also low for branded products.

 

     6.4.2.4 Samples

Samples have been called the lazy person’s method of describing  requirements. When samples are used, the buyer does not have to look for an equal brand, pick standard specification, or describe the performance wanted. Samples are neither the cheapest nor the most satisfactory method of purchase. Usually the money saved in description costs is substantially exceeded by the money spend on inspection costs. It is difficult to determine by inspection that the product delivered is the same as the sample.

Samples generally should be used only if other methods of description are not feasible. Color and texture, printing and grading are three broad areas in which other method of descriptions are not feasible.

 

     6.4.2.5 Grading

Grading is a method of determining the quality of commodity. A grade is determined by comparing a specific commodity with standards preciously agreed on. Grading is generally limited to natural products such as lumber, wheat, hides, cotton, tobacco, food products and so on. The value of grades as a description of quality depends on the accuracy with which the grades can be established and the ease with which they can be recognized during inspection.

In buying graded commodities, industrial buyers often use personal inspection as a part of their buying technique. Just as individuals select by inspecting the shoes, dresses and shirts they buy, so industrial buyers select by inspecting some of the commodities they buying in primary markets. There can be a significant difference between the upper and the lower grade limits of many commodities. The difference is so great that materials near the lower limit of the grade may be unacceptable.

 

     6.4.2.6 Combination of methods

Many products cannot adequately be described by a single method of description. In such case, a combination of two or more methods should be used. For example, in describing the quality desired for a particular vehicle, performance specifications could be used to describe numerous over all characteristics of the vehicle, such as its ability to withstand certain temperatures, to perform certain predetermined maneuvers in space at precise time sequences, etc. physical specification could be used to describe the vehicles configuration as well as other instruments it will carry. Commercial standards or brand names might be used to describe selected pieces of electrical or mechanical hardware used in the vehicle’s support systems. A chemical specification could be used to describe the vehicles paint. Finally, a sample could be used to show the color of this paint.

 

Standardization is the process of establishing agreement on uniform identifications for definite characteristics of quality, design, performance, quantity, service and so on.

Standards reduce Varity and create consistencies. Standards are usually essential in exchange of parts. The use of standards permits a firm to purchase fewer items in large quantities and  lower price. This reduces purchasing, receiving, inspection and payment costs. Stocking fewer items makes controlling inventories easier and less costly. Consequently, the purchase of standard materials saves money in the following ways.

i. Lower price

ii. Lower processing costs

iii. Lower inventory carrying costs

iv. Fewer quality problems

 

     6.5.1 Kinds of industrial standards

In industry there are three basic kinds of material standards.

i. Company standards

ii. Industry or national standards

iii. International standards

If a delegator or user cannot adopt a national or international standards for his purpose, the second choice is to use a company standards. Where can one get standard specification? Specification for items that have been standardized can be obtained from the organization that have developed them such as international standard organization (ISO), National Bureau of Standard etc.

 

     6.5.2 International Standards

The need for international standards is fundamental. By eliminating technical trade barriers, international trade standards facilitate increased international trade and prosperity. The ISO 9000 serves the quality standards, now used voluntarily world wide is good illustration. Establishing the multi national trade agreements, the mechanism used to create international standard was relatively easy. However, actually getting international standards adopted in some cases will be a long difficult task. The economic states associated with the development of international standards are so high-in terms of increased international trade and prosperity. Because private organizations national and regional governments, and other international organizations are all involved in the adaption process, political fighting is unescapable.

In general, the concept and advantages of international standards are widely recognized and accepted. Progress toward their implementation is being made. As in most international efforts, however, progress is slow.

 

      6.5.3 Commercial Standards

Recurring needs for the same materials have led industry and government to develop commercial standards for these materials. A commercial standard is nothing more than a complete description of the item standardized. The description includes the quality of materials and workships that should be used in manufacturing the item, along with dimensions, chemical composition, etc. It also includes a method for testing both materials and workmanship. Commercial standards are a cornerstone of the mass production system. Therefore, they are important to efficient purchasing and to the standard of any product.

Materials order by standard specifications leave no doubt on the part of either the buyer or the seller as to what is required. Standard specifications have been prepared for many goods in commercial trade. National trade associations, standards associations, national engineering societies, the government and national testing associations all contribute to standard specificaitons and standard method of testing. Commercial standards are applicable to raw materials, fabricated materials, individual parts and component and sub assemblies.

Purchasing by commercial standards is some what similar to purchasing by brand name. In both methods, the description of what is wanted can be set forth accurately and easily. With the exception of proprietary products, most widely used items are standard in nature; hence, they are highly competitive and readily available at reasonable prices. There are many users of standard products; therefore, manufacturers who make them can safely schedule low-cost production runs for inventory.

Inspection is only moderately expensive for materials purchased by commercial standards. Commercial standard products require periodic checking in addition to sight identification to assure buyers that they are getting the quality specified.

Commercial standard items should be used whenever possible. They contribute greatly to the simplification of design, purchasing procedures, inventory management and cost reduction. Copies of standard specifications can be obtained from a number of government, trade association, and testing association sources. However the easiest way to get a particular specification is to ask a manufacturer to provide a copy of the standard specification of material.

 

Simplification means reducing the number of standard item a firm uses in its product design and carries in its inventory.

Some authorities consider simplification an integral part of standardization, rather than a corollary of it. They visualize the simplification process or taking place primarily at the design level, rather than at the stocking level, they think in terms of simplifying (or reducing) the number of related items that are approved as standard in the first places.

The absence of a simplification program affected the cost of goods sold in another way. In many instances, design engineers were specifying raw materials that were similar but not identical to materials already in use for other products. 

For example, one company formerly used twenty-seven different kinds of standard lubricating greases in the maintenance of its machinery. Analysis showed that in some cases the same greases could be used for several different applications and that totals of only six kinds of greases were needed. Hence, through simplification the number of standard greases used was reduced from twenty-seven to six.

 

We have said that quality is frequently defined as “fitness, excellence, free of defect”, Quality is defined on various basis. On the basis of product, quality is viewed as quantifiable or measurable characteristics or attributed. On the basis of its manufacturing, quality is “conformance” to requirement. On the basis of the user quality is an individual matter, and products that best satisfy this preferences.

Quality is viewed from its total management. In this sense, total quality managements (TQM) is a philosophy that uniform commitment to quality in all areas of the organization will promote a culture that meets consumer’s perceptions of quality.

Purchase description is specifying the quality requirement when at the time the purchase order is written. Purchase description serves the purpose to:

• Communicate to the buyer in the purchasing department what to buy
• Communicate to prospective suppliers what is required
• Serve as the heart of the resulting purchase order
• Establish the standard

Purchase description is classified into two broad categories – detailed specification and other purchase descriptions.

There are four approaches to develop specifications. These are:

• Early purchasing and supplier involvement
• The formal committee approach
• The informal approach and
• The purchasing coordinator approach

Standardization is the process of establishing agreement on uniform identifications for definite characteristics of quality, design performance etc.

Simplification is simply reducing the number of standard items a firm uses in its production design and carries in its inventory.