Importance of Quality Assurance in the Procurement Process - Tata Motors Limited - Case Study Example

Tata’s Procurement Plan Student: Instructor: Course: Institution: Date: Table of Contents Introduction 3 1Discussion 3 1.1The task of the category manager 3 1.2Importance of Quality assurance in the procurement process 6 1.3Implementation of Quality assurance in the supply chain 7 1.4Internal and external relations in the procurement process 8 1.5Factors that influence the decisions in selecting the supplier/s 10 1.6Strategies and methods and techniques to be used to finalise the procurement plan 12 2Recommendation 13 Conclusion 13 References 14 Introduction Tata Motors Limited is India’s largest automobile company. The company was established in 1945 and has experienced tremendous growth to be one of the major automobile manufacturers in the world today. Tata produces compact, midsize and utility vehicles for different market needs. Tata mission is to be most admired by its customers, employees, business partners and shareholders for the experience and value they enjoy from being with the company[Tat16]. To achieve this vision, Tata must have an efficient supply chain that supports its vision and operational goals. This document details an appropriate procurement plan for Tata motors based on several factors including quality assurance, manufacturing excellence, customer needs and value chain development. The plan will detail a discussion on the functions of the category management at Tata, quality assurance importance and its implementation, internal and external procurement relations, supplier selection and procurement strategy implementation. The paper will incorporate relevant literature and concepts to support the rational used to develop Tata’s procurement plan. 1 Discussion 1.1 The task of the category manager Category management is emerging as a very important undertaking in large organisations that deal with several suppliers in their supply chain [Jon09]. Category management is a cross-functional business process that involves all the business departments to ensure the supply chain benefits all the stakeholders involved and more so the business and its customers. Category management enables the business to reduce the cost of buying inventory and also the risks associated with supply inefficiencies such as stock-outs and contractual disagreements. It is only prudent for a business to consider category management as strategic function that adds value to its supply chain and overall strategic plan [Cro12]. A category manager is in charge of specific categories of supply within a business. A category must be well versed with the nature and state of demand for the business goods and the supply situation facing the business [Jon14]. The category manager must ensure that the supply side is capable of helping the business meet its market demand obligations in an efficient and cost-effective manner that adds value to all stakeholders involved. While it may be assumed that suppliers always have the best interests of their business partner, Schäfer (2007) argues that it is not always the case as some may breach contractual terms or conduct their operations unprofessionally thus increasing supply chain risks for the business. For the case of Tata, the category manager will be in charge of ensuring that all parts suppliers help the business deliver affordable, quality cars in a timely and cost-effective manner. This means that the category manager will involve all the company’s departments to ensure the entire value chain can forecast market demand and therefore develop effective and robust supply chain plan. The category manager will manage a cross-functional team that incorporates sales representatives, marketers, customer relations and finance officers and design engineers to understand the needs of the customers in relation to Tata Motors products. This will enable the category manager to forecast trends in the Motors market and thus develop strategic plans and evaluate existing ones to fulfil the market needs. Understanding the market trends will also be important in evaluating the capacity and competencies of suppliers. The category manager must work with production teams, finance, quality assurance and procurement to understand the production process and how efficiency and cost reduction can be achieved through supply chain planning. This will enable the category manager to develop a sourcing plan that delivers quality and affordable inventory through a process that is cost effective and serves the strategic interests of Tata Motors. Some of the most important tasks will include working with suppliers to ensure all production inputs are delivered in full and on time (DIFOT). Having DIFOT at 100% is a strategic tool for Tata as it will enable the company plan for production runs without disruptions or worrying about running out of inventory. The category manager will also analyse the risk associated with suppliers such as overreliance on one or a few suppliers that might halt the production process in case of contractual breach or unavoidable circumstances such as natural calamities. The category manager will also look for new sources of supply that may be cheaper and could be easily aligned with Tata’s strategic plan. Clearly, the category manager’s work at Tata is a cross-functional undertaking that simply seeks to fulfil market demand efficiently and profitably by forecasting demand and aligning supply with the business’s strategic plan and operations. Category management at Tata Motors can also be based on the Kraljic matrix the aim of the Kraljic tool is to reduce supply chain risks and costs to the benefit of the business and the stakeholders involved. The Kraljic matrix has four classifications of products depending on profit impact and supply risks. They can be allocated to different categories in the business and managed by a category manager[Cro12]. When it comes to strategic items (high profit impact, high supply risks), the category manager at Tata should develop long-term strategic relation with suppliers to ensure the products are affordable and their delivery is cushioned from risks such as stock-outs. It might also be important to pursue in-house production and increased emphasis on a portfolio of suppliers as opposed to reliance on a single supplier to avoid situations that may disrupt product and impact profitability negatively. For leverage items (high profit impact, low supply risk) the category manager at Tata could consider setting purchase terms and contracting a huge portfolio of suppliers to benefit from low prices. Bottle neck items (low profit, high supply risks) may force the category manager to enforce strict contractual agreements to ensure consistent supply to avoid stock out and low quality supplies. For non critical items (low profit impact, low supply risks), the category manager task may be focused on ensuring standardization of products and high volume ordering. 1.2 Importance of Quality assurance in the procurement process Quality forms the basis for success in any business from several perspectives. From the brand reputation perspective, a higher emphasis on quality procurement means the business can be able to deliver quality outputs with minimal or no defects thus maintaining a high value of the brand in the market [Del14]. Several Motors manufacturers including Toyota, Honda and Volkswagen have recently suffered from negative brand publicity due to faulty brakes and exploding airbags in their cars [Aut16]. Apart from the brand damage, these manufacturers also incurred financial losses in product recalls and legal penalties fines. The brakes and airbag problems were caused by faulty inputs from suppliers. This means that quality assurance within the procurement process is strategically important in any business as it can avert catastrophic situations that damage brand image and result in financial losses. In light of this logic, it will be important for Tata to place a higher emphasis on quality assurance in the procurement process to reduce the possibility of the business incurring the aforementioned costs that may be difficult to recover from. 1.3 Implementation of Quality assurance in the supply chain Tata procurement process and the entire organisation must adopt a total quality control (TQC) system that incorporates all the departments and levels in the organisation. This means that Tata’s vehicles must be developed, designed, produced and delivered economically and will always satisfy customer needs and expectations. To achieve this, quality must be emphasised from inputs procurement to final delivery of the product to the consumer. Tata must implement Kaizen (continuous improvement) principles to achieve quality assurance in it value chain. First, a company has to plan quality by determining goals and standardised work procedures that will guarantee quality output [Qru13]. The company should then implement a quality plan that involves staff training and education on quality issues. Systems should also emphasise quality by aligning supplier contractual terms and delivery procedures with quality expectations [Qru13]. Indeed, all suppliers must be aligned with Tata’s quality assurance plan by adhering with certification requirements including ISO/TS 16949:2009 certification. It will be important for Tata to engage its suppliers continuously to ensure that quality inadequacies in the supply chain are identified and averted before damage occurs. This means that the third Kaizen principle of checking standards and regulations must involve a concerted effort by all the stakeholders in the supply chain [Qru13]. A proactive approach to addressing quality problems must be adopted to limit the extent of costly quality mistakes or negligence. An appropriate action must and should be taken whenever a quality inadequacy is discovered despite the implication on costs and reputation [Mic08]. For instance, Toyota recalled all its cars with faulty braking systems, this averted further brand damage and possible litigation losses. Alternatively, Tata Motors may adopt the six sigma tool ensure there is no supply material variation by meeting the CTQ requirements. Quality defects in a production process are a result of variation in areas such as production, input materials and lead-time. To ensure Tata’s procurement process enhances the quality of vehicles the company produces, it is important that the entire procurement process minimises material variation. The six sigma tool places a higher emphasis on quantifiable or measurable approach to addressing quality defects [Del14]. This means that Tata may define its sigma levels at 99% where the chances of getting a defective product are as low as logically possible. All stakeholders including the suppliers should be aware of the critical-to-quality (CTQ) parameters used by Tata to enhance six sigma quality levels in its manufacturing process. In fact, such CTQs should be incorporated in the contractual agreement and used in selecting potential suppliers. However, it is important for Tata to continuously review the CTQs in line with market needs to ensure higher standards of quality in the entire value chain. Indeed, six-sigma could be used to address specific continuous improvement issues such as production costs, pollution and customer satisfaction in line with Tata’s strategic long-term goals. 1.4 Internal and external relations in the procurement process The category management function at Tata will be in charge of managing the internal relationship between procurement and all other relevant departments. The category manager will establish and maintain close working relations between the procurement department, finance, production, and sales and marketing to ensure that the forecasted demand is melt with adequate and quality supplies that deliver value to the manufacturing process. Cooperation between procurement and the aforementioned departments enhances organisation efficiency and cohesion between different functions to eliminate costly errors, quality variations and production lapses that limit productivity [Ire05]. Indeed, it will be important for Tata’s to clearly define and support the role and authority of procurement department to ensure there is no conflicting procedures and protocols when it comes to materials acquisition and supplier engagement in the organisation. The procurement department at Tata should strive to benefit all the involved departments in several ways including cost-cutting, quality assurance, and consistent inventory availability. In any case, the procurement department at Tata should support The Company’s vision of being the most admired by its customers, employees, business partners and shareholders for the experience and value they enjoy from being with it. This can only be achieved through continuous alignment of the procurement plan with the operations and objectives of all the other functions in the business including customer relations [Sah06]. The category manager is also in charge of managing external relations comprising of suppliers, government and other interest groups [Jon09]. The procurement process should fulfil the interests of all external relations involved. However, the fulfilment of such interests should factor in the strategic objectives of Tata that include growth, cost-cutting, profitability and quality assurance. It is critically important for category managers at Tata to ensure that all the contracted suppliers meet the CTQs established by the company. For instance, all the suppliers must be ISO/TS 16949:2009 certified to guarantee quality parts supplies. Suppliers must also adhere to human rights, labour laws and environmental sustainability standards established by authorities and those that form an ethical and social responsibility obligation to Tata. This will not only cushion Tata motors against costly legal actions but also enhance its brand’s reputation in the market. Supplier management goes beyond enforcing contracts to encompass initiatives designed to strengthen the capacity of suppliers through training and technological cooperation. Sharing of information and knowledge within the supply chain will also strengthen Tata’s supply chain leading to a situation where the company is exposed to minimal supply shocks and risks. Indeed, supply chain cooperation may ultimately lead to quality assurance and cost minimisation for Tata. 1.5 Factors that influence the decisions in selecting the supplier/s Supplier selection constitutes one of the most critical functions of category management as the activity is linked with quality assurance, supply chain reliability and strategic goals of the business [Jon14]. Tata motors procurement plan will consider the following factors in selecting suppliers. History Suppliers who have long-established, successful relationship with Tata will be considered for supply contracts to deliver the required inputs to the company. The consideration of such companies is cost-effective to Tata as their backgrounds are well understood. Additionally, Tata may have invested substantially in increasing their capacity and competencies through extensive cooperation. Capacity to meet requirements Potential Suppliers to Tata must also meet the prequalification requirements that prove they have adhered to all certifications including ISO, taxation, legal, ethical and sustainability. They must also have the capacity and financial ability to provide supplies to Tata with minimal disruptions. Reliability Tata will also consider the reputation of suppliers in the industry by reviewing their relationship with other manufacturers and the quality of their products. Innovative suppliers with efficient systems and longstanding culture of high professionalism should be shortlisted among Tata’s suppliers. Cooperation and long-term relationship The category management will focus on suppliers who are willing to develop special supply chain relations with Tata in order to protect the interests of the company in the long run. Such relations will provide for joint technological research to improve product attributes, information and knowledge sharing, and cost minimisation. Suppliers that exhibit little or no interest in fostering supply chain cooperation and commitment to long term relations should not be considered by Tata as their interests may not be consistent with the company’s strategic plan. Cost The cost of supplies is also an important consideration factor in assessing potential suppliers to Tata. Cost is determined by factors such as currency stability for international suppliers, distance, choice of production technology and materials, labour and taxation [Qru13]. Tata must consider such cost factors in settling for potential suppliers to the business. 1.6 Strategies and methods and techniques to be used to finalise the procurement plan For Tata’s procurement plan to be effective, it must pursue supplier relationship management strategy. This approach considers suppliers as strategic partners in the business’s value chain. The business dedicates time and resources towards building mutually beneficial relations with suppliers where both parties exchange information and ideas towards improving the value chain and the final product [Cro12]. Indeed, Tata will be more innovative, robust, and less exposed to risks such as stock-outs and defective parts. Tata could also adopt supplier development strategy to complement supplier relationship management. Supplier development entails closer cooperation and collaboration with suppliers to improve their processes, products, technology and capacity. While this is an expensive undertaking, it is an effective approach towards reducing risk, enhancing product quality and reducing production cost significantly [Mic08]. The benefit of such as strategy can only be enjoyed in the long-run meaning the category managers should only involve suppliers who are willing and able to be committed for a longer period of time. Supplier development will also offer Tata the opportunity to acquire the best practices from some suppliers and share its knowledge and expertise with them. In addition, Tata may be able to form mergers or acquire some suppliers as part of its vertical integration strategy that will reduce risks and cost thus making the company competitive. Category managers at Tata should develop clear guidelines of supplier selection based on the aforementioned factors including capacity, reputation, expertise and reliability. This technique will ensure Tata is able to contract appropriate suppliers that can be accommodated in its supplier relationship management and development strategies successfully. 2 Recommendation This procurement plan and the concepts discussed herein are of immense importance and relevance to Tata motors. Tata’s board of directors and management should consider adopting this procurement plan as it will enhance the company’s competitiveness and strengthen its value chain be engaging suppliers extensively in the company’s strategies. Indeed, Tata will be able to align its suppliers with the company’s strategic plan through collaboration, cooperation, and strong supply chain relationships. This means that Tata will deliver quality vehicles to its target market and reduce its production costs significantly since the suppliers and the manufacturer will work as partners in addressing issues such as cost, quality, reliability, lead-times and other vital elements that impact manufacturing efficiency and value chain robustness. However, it is important for Tata to exercise caution and expert knowledge in selecting its suppliers to avoid compromising on quality and getting caught up in costly supply chain inefficiencies such as delayed deliveries and high costs of production. All in all, the category managers should use this plan as a guide in developing closer supplier relations and strategies that integrate suppliers into Tata’s strategic plan. Conclusion From the analysis and discussions made in this paper, it is clearly evident that Tata has a great opportunity to strengthen its supply chain and convert it into a competitive advantage. To achieve this, Tata has to rely on effective category managers who will manage cross-functional teams within the organisation to be able to forecast demand and understand the production needs of the company in view of enhancing competitiveness. The category managers should be closely engaged with external relations including suppliers to align their contribution to the strategic and operational plans of Tata. Tata should focus adopting and implementing methods and techniques such as Six Sigma and Kaizen within its procurement processes to guarantee the quality of its final products. This means that the employees understand the quality assurance procedures and work towards improving quality along the value chain. Suppliers should also be closely engaged to ensure their have the appropriate ISO certifications and sustainability in order to contribute positively to Tata’s quality assurance efforts. This means that Tata should select its suppliers meticulously to ensure they benefit the company by reducing supply chain costs and risks and can play a greater role in product innovation and development. Overall, Tata should be focused on developing supplier capacity and ensuring closer supply chain collaboration, cooperation and engagement to enhance competiveness and reduce risks. References Tat16: , (Tata Motors Limited, 2016), Jon09: , (O'Brien, 2009), Cro12: , (Crocker & Emmett, 2012), Jon14: , (O'Brien, 2014), Cro12: , (Crocker & Emmett, 2012), Del14: , (Dellana & Kros, 2014), Aut16: , (Auto Express, 2016), Qru13: , (Qrunfleh & Tarafdar, 2013), Mic08: , (Micheli, et al., 2008), Ire05: , (Ireland & Crum, 2005), Sah06: , (Sahay, et al., 2006), Read More