“Improving Suppliers Quality Performance By Quality agreements”

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“Improving Suppliers Quality Performance By Quality agreements”

This research was conducted for

“Developing a Quality agreement for suppliers”

Master’s Thesis

Author:

Jeroen Prins Date:

Roden, April 15, 2005

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University of Groningen - ii -

Title:

Improving Suppliers Quality Performance By Quality agreements

Subtitle:

Developing A Quality agreement For Suppliers

Author:

Jeroen Prins

Graduate student Master of Science Business Administration Faculty of Management and Organization University of Groningen

Supervisor Cordis Europa N.V.

Mr. Drs. Suzanne Bloemsma

Supervisors University of Groningen 1^st supervisor: Prof. Dr. D.J.F. Kamann

2^nd supervisor: Mr. W.W. Wijnbeek Roden, April 15, 2005

The author is responsible for the contents of this thesis; the copyrights are deposited with the author

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Management summary

The product sourcing strategy for Johnson & Johnson Companies is moving towards greater use of external manufacturers. This has local, regional and global implications with associated potential business and compliance risks. Since Cordis Europa N.V. in Roden is a Johnson &

Johnson Company they need to follow this strategy and action is needed. In order to reduce the business and compliance risks for the Supplier Quality Assurance department and the Strategic Sourcing department of Cordis in Roden a research was performed.

The department of Supplier Quality Assurance (SQA) is facing some problems with fine-tuning the agreements that are made with suppliers. These agreements often result in orders which are being produced according to agreed specification but have some inadequacies. These inadequacies originate from unclear agreements between the departments of Strategic Sourcing and the specific supplier. Some of the problems, which are the result of these unclear agreements, are that the products are not conforming the quality requirements of Cordis. Out of these nonconformities MRR’s are written.

The reason for this research is to investigate the communication of products quality requirements between Cordis and the supplier and look for possible solutions to improve these communication so that future MRR’s which are the result of unclear agreements can be banned from existing.

Cordis proposed to investigate the possibility of Quality agreements. Out of this request the objective of this research is formulated:

For the department of Supplier Quality Assurance identify how the development and implementation of a Quality agreement should be done at specific suppliers.

The methodology used for this research is the Process Excellence DMAIC method. This methodology is used by Cordis and implies that projects are executed in a systematic way. This way a step-by-step method is followed in order to realise the main objective.

The research started off with an inventarisation of the requirements stated by Cordis about the Quality agreement. By means of interviews with different departments a Voice of the Customer was created and the requirements of Cordis to the Quality agreement came to light. After this a literature research was conducted to reveal the reasons to use contracts/agreements and investigating other quality requirements that needed to be inserted in a Quality agreement. This resulted in a broad Quality agreement.

After the development of the broad Quality agreement an analysis was conducted in order to reveal if it was possible to develop a Quality agreement for specific suppliers. In this analysis the complexity matrix is used to score the suppliers and statistical techniques are used to realise the distinguishing character of the matrix. This evolved in a model in which 4 groups of suppliers were generated. These groups are the Extreme Q’s, High Q’s, Medium Q’s and Basic Q’s. For every group a Quality agreement is developed.

The implementation of the Quality agreements is captured in the new procedures that were implemented during this research. The Quality agreement is sub part of the specification package that is presented to the supplier during the purchasing process. This specification package contains the following: Quality agreement, processing specification, material specification, drawings, visual standard, equipment specification and statement of work.

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These procedures were implemented during the first three months of this research and the outcome of this project was taken into account with these new procedures. This means that the Quality agreements are embedded in the procedures and implies that the Quality agreements are now being implemented for the suppliers that are entering the new purchasing process.

The procedures that cover the use of Quality agreements are:

- CFM 10294293 Qualification of Supplier Items/Services

- CFM 10307522 Specification Package

- CFF 10309113 Supplier Quality agreement

- CFM 10298913 Supplier Monitoring Strategy

These procedures come forth out of the compliance teams that were initiated during this research.

The development of Quality agreements with suppliers is now a compulsory product in the purchasing process and serves as a tool to guarantee supplier quality.

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Preface

This thesis has been written to finalize my study in Technical Business Administration at the faculty of Management and Organization of the University of Groningen. This research is executed at Cordis Europe N.V., a Johnson and Johnson company.

Writing this thesis required a lot of involvement and perseverance, and it required the help of many people. For that reason I would like to take the opportunity to show my appreciation to those who helped me to bring this research to a good ending.

First I would like to thank Suzanne Bloemsma, my internal supervisor at Cordis, who gave me the opportunity to carry out this research and whose optimism and enthusiasm during the entire research were very contagious. Furthermore, I would like to thank Harry Huizeling, who was always there to answer my questions and I see him as my second internal supervisor. Of course I want to thank all the others at Cordis for the contribution to this research and to the great time I had there.

Next, I would like to thank my supervisors of the Faculty of Management and Organisation of the University of Groningen. Firstly, Prof. Dr. D.J.F. Kamann, for his help, his criticism, and for the time he invested in my research. Secondly, Mr. W.W. Wijnbeek for his criticism that triggered me to think differently about all the aspects of this research.

Last, but certainly not least, I would like to thank friends and family, who are always there with help and good advice.

With this thesis, also my student time has come to an end. After receiving my bachelor degree in Mechanical Engineering in 2001, and now my Master of Science degree in Business Administration, seven years of studying have come to an end and the time has come to work on a new large project: my career.

Jeroen Prins October 2004

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University of Groningen - vi -

Table of contents

MANAGEMENT SUMMARY... III PREFACE ... V

1 A GENERAL INTRODUCTION TO CORDIS... 8

1.1 INTRODUCTION... 8

1.2 COMPANY HISTORY... 8

1.3 CORDIS AND JOHNSON &JOHNSON... 9

1.4 CORE BUSINESS... 9

1.5 COMPANY STRUCTURE... 10

1.6 SUPPLIER QUALITY ASSURANCE AND SUPPLIER MANAGEMENT... 11

2 RESEARCH OUTLINE... 13

2.2 PROBLEM ANALYSIS... 13

2.3 PROBLEM STATEMENT... 16

2.4 METHODOLOGY... 20

3 ANALYSING RELATIONSHIPS AND CONTRACTS ... 25

3.2 THE TRANSACTION... 25

3.3 SUPPLIER RELATIONSHIP STRATEGIES... 25

3.4 CHARACTERISTICS OF A CONTRACT... 27

3.5 AQUALITY AGREEMENT... 32

3.6 SUMMARY... 35

4 QUALITY MANAGEMENT: IMPROVING SUPPLIERS PERFORMANCE... 36

4.2 SUPPLIER RELATIONS IN QUALITY MANAGEMENT... 36

4.3 PRECONTRACT PLANNING... 37

4.4 JOINT QUALITY PLANNING... 41

4.5 IMPROVING SUPPLIER QUALITY... 46

4.6 COOPERATION WITH SUPPLIERS DURING EXECUTION OF CONTRACT... 47

4.7 SUMMARY... 51

5 DEVELOPING THE CONTRACT ... 52

5.2 THE PARAMETERS FOR THE CONTRACT... 52

5.3 STATEMENTS IN THE CONTRACT... 60

6 DEVELOPING A STANDARD CONTRACT FOR SPECIFIC SUPPLIERS... 61

6.2 ANALYSING THE SUPPLIERS... 61

6.3 DEVELOPING A STANDARD CONTRACT PER CATEGORY... 67

6.4 EVALUATING THE MODEL... 68

6.5 SUMMARY... 68

7 IMPLEMENTATION OF THE QUALITY AGREEMENT... 70

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7.2 IMPLEMENTATION... 70

7.3 CONTROL:MONITORING THE QUALITY AGREEMENT... 72

7.4 IMPLEMENTATION OF A QUALITY AGREEMENT AT DE VRIES... 73

7.5 SUMMARY... 73

8 CONCLUSIONS AND RECOMMENDATIONS... 74

8.1 CONCLUSIONS... 74

8.2 ADVANTAGES OF THE QUALITY AGREEMENT... 74

8.3 DISADVANTAGES OF THE QUALITY AGREEMENT... 74

8.4 RECOMMENDATIONS... 75

8.5 EVALUATION... 75

BIBLIOGRAPHY... 76

REFERENCES... 77

INTERNET... 77

TABLE OF FIGURES ... 78

TABLE OF TABLES ... 79

TABLE OF USED ABBREVIATIONS AND TERMS ... 80

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1 A general introduction to Cordis

1.1 Introduction

For more than 40 years, Cordis Corporation, a Johnson & Johnson company, has pioneered less invasive medical devices for vascular disease. Technological innovation and a deep understanding of the medical marketplace and the needs of patients have made Cordis the world’s leading developer and manufacturer of products for interventional medicine. Other important actors in this market are Boston Scientific and Guidant.

Besides the office in Roden, for which this research project is carried out, Cordis has offices in the United States (Miami, Warren), in Mexico (Juarez) and in Puerto Rico. The corporate headquarters are established in Miami Lakes.

In this chapter the organisation will be introduced. We will start with an overview of the company history, after which a description of the core business and the company structure follows. In the last paragraph the Supplier Quality Assurance department and the Supplier Management will be scrutinized.

1.2 Company history

In 1959 Dr. Wm. P. Murphy founded the Cordis Corporation in Miami, Florida, as a medical device corporation and rapidly gains recognition for being a pioneer in innovative devices and products for interventional vascular medicine and electro-physiology. The first product Cordis developed was an injector, a device with which contrast fluid could be injected under pressure in the vascular system. At the same time a pacemaker was developed, which was implanted in the human body for the first time in 1962. At this time, doctors still made their own catheters. The Cordis Corporation was the first organisation to market pre-shaped and sterilised cardiological catheters on the American and Canadian market.

In 1966 a small business enterprise in Veenendaal got permission to represent Cordis in Europe.

They decided to establish the European plant in Roden, and in 1970 the first products were produced and launched on the market. The main products Cordis manufactured were pacemakers.

The fundamental research was carried out in Miami, but in Roden the need for technical expertise grew. The strict legislation in the United States and the development of the European market made it necessary to start the research and development of new products in Roden.

The pacemaker production was sold in 1987. Cordis enters the interventional marketplace with a full line of PTCA (percutaneous transluminal coronary angioplasty) guiding catheters. The technology becomes the industry standard. The research and development department in Roden was granted the responsibility for the whole design and development of diagnostic catheters.

Cordis only made catheters for the heart (cardiology), but the growing need for catheters for other parts of the human vascular system (radiology) did Cordis decide to focus on radiology as well.

In 1990 Cordis introduces the first PTCA balloon utilizing nylon balloon technology. This material also becomes the industry standard. By inflating the balloon on the place of the stricture in a blood vessel, the stricture could be improved. The researchers in Miami developed a radiological balloon-dilatation-catheter. The production in Roden started in 1992. A year later Roden was the first with the production of cardiological balloon-catheters. For both successful production lines Roden was given the responsibility for further development, and as a result the product-offer expanded enormously.

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The development of new products has a high priority. In 1990 Johnson & Johnson Interventional Systems Company receives FDA clearance to market the so-called stent, which is cited by physicians as a “breakthrough in interventional medicine”. Stents are slotted steel tubes developed for strictures in the vessels, which are often the result of a disease of the vascular wall. When the stricture is pushed open by a balloon-catheter, a new stricture often appears on the same place.

Stents are developed to prevent these vessels to slip again. A stent is crimped on the balloon- catheter and during the procedure it is permanently left behind in the blood vessel.

Another important development was the Cypher™ stent, a drug-eluting stent to evaluate the risk of in-stent restenosis. This stent significantly reduces late lumen loss and reduced the incidence of restenosis to zero after placement in patients with coronary artery disease.

In 2002 Cordis receives approval in Europe for the Cypher™ Sirolimus-eluting stent, the first approved drug-eluting stent, signalling a new era in the treatment of cardiovascular disease.

In 2003 Cordis received FDA approval to market its Cypher™ stent in the United States, making it the first drug/device combination for the treatment of restenosis.

The next few years Cordis will aim at continuous cooperation to attain the best results. The objective of Cordis is to become number one in the area of treatment and diagnosis of heart-and vascular diseases. In Roden the fast development of new products for heart-and vascular diseases at the lowest cost is the core business.

1.3 Cordis and Johnson & Johnson

On the 23rd of February 1996 Cordis Corporation merges with Johnson & Johnson Interventional Systems Co. to form Cordis Corporation, a Johnson & Johnson company with approximately 3,500 employees worldwide. Johnson & Johnson is globally an active player in the healthcare industry. The Johnson & Johnson head office is situated in New Brunswick, New Jersey. In total they own 188 companies in more than 52 countries. The products are sold in more than 175 countries. Well over 100,000 employees work for Johnson & Johnson in the following three branches: Consumer products, Pharmaceutical market, and Professional market.

Johnson & Johnson is very concerned about renewal and invests about 10% of its’ turnover in Research and Development. The success of Johnson & Johnson is owed to the company philosophy, which has been expressed in the company Credo. The Credo is the basic philosophy of Johnson & Johnson and contains all norms and values that Johnson & Johnson employees have to respect. Clients occupy the first place, followed by employees, the community and finally the shareholders. The most important lines of policy are renewal, the delivery of quality as a motive, inspiring leadership, good support for employees, and customer orientation.

1.4 Core business

The core businesses of Cordis are:

1. The development of new products. The department product development is occupied with the development of new products or improvements of existing products.

2. The production of new products. The products Cordis manufactures are produced under strict requirements. To meet these requirements the organisation possesses 9000 m² clean room. In these dust-reduced areas production can take place under controlled circumstances. Unique for Cordis Roden is the presence of an own 100% Ethylene Oxide steriliser, by which the products can be sterilised in-house.

3. The distribution of products. Supply Chain Management stores all Cordis-products that are produced elsewhere before further distribution in Europe. Roden ships the end- products to Johnson & Johnson and Cordis companies, who distribute the products to the hospitals.

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Furthermore, Cordis Roden is occupied with legislation regarding to medical devices. The department of Quality Compliance Services makes sure that the legislation in countries where Cordis-products are sold is met. Other important activities of Cordis Roden are quality assurance, which will be discussed in paragraph 1.6, and customer support.

1.5 Company structure

Cordis has two business units: Cordis Cardiology for cardiovascular disease management and Cordis Endovascular for the treatment of peripheral vascular and obstructive diseases. Cordis Roden is managed by site management. This means management is responsible for all general and operational issues related to the plant in Roden. The site management consists of the management team led by the chairman. The directors of the main departments all form part of the management team. Every department has a few sub departments led by department managers. The sub departments are divided into groups. In Figure 1 the company structure is visualised. The Quality Assurance department is taken as an example, because this is the department for which this research is carried out.

Main Department Director main department

Department Department manager

Group Group Coordinator

Suzanne Bloemsma Supplier Quality Assurance

Group Group Coordinator Florence Wagter

Manager

QA Logistics and Purchasing

Department Department manager Kees den Besten

QA Director

Main Department Director main department Management Team

Chairman MT Directors Main Departments

Figure 1: Company structure

Cordis is made up of the following main departments:

• Operations (production)

• Engineering

• Supplier Management (purchasing)

• Supply Chain Management (distribution centre)

• Safety and Environment

• Regulatory Affairs

• Quality Assurance

• Information Management

• Human Resources

• Finance

• Materials Management

• New Product Development

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1.6 Supplier Quality Assurance and Supplier Management

American and European legislation set high requirements with regard to the quality of medical devices. The Quality Assurance department has to secure that the Cordis Quality System is in compliance with the legislation. The department is divided in the following four groups:

• QA Operations PTA (percutaneous transluminal angioplasty)

• QA Operations PTCA (percutaneous transluminal coronary angioplasty)

• QA Logistics, Purchasing and CAPA (corrective and preventive action)

• Complaint Analysis

Together these four groups make sure that Cordis works according to the generally received opinion. Cordis’ main responsibilities are the physicians, patients, family, and all the others that use their products.

This research is carried out for the department Supplier Quality Assurance (SQA), which is part of QA Logistics and Purchasing. SQA contributes to the assurance of purchasing quality, which is important for both physical items and services, for each can affect the quality of the overall product shipped to the customer. The three main activities of SQA are:

• Qualification of suppliers and materials, based on specifications;

• Monitoring and Corrective Action Management;

• Evaluation, development and Certification.

By carrying out these three activities the supply of qualitatively good products and services should be assured. Figure 2 represents the supplier quality assurance process.

Selection (Purchasing)

Qualification Monitoring Evaluation

Supplier Quality Assurance

Figure 2: The supplier quality assurance process

Supplier evaluation is also a task of the Supplier Management department. Whereas SQA is in the first place concerned about the quality of the materials and services delivered, Supplier Management is more concerned with the purchasing-process, outlined in Figure 3.

Figure 3: The purchasing process

It is the task of Supplier Management to:

Select suppliers;

Conclude contracts with suppliers;

Conclude confidential agreements with suppliers;

Make price-agreements with suppliers;

Control the purchasing process.

The development of the contract during the purchasing process will be the main focus of this thesis. The purchasing contract will be expanded by a so-called Quality agreement.

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The Supplier Management department distinguishes two areas of attention. Firstly, the components-area, which addresses materials and services that are used in the end-products. It concerns the strategic and cost side of the purchasing process and is carried out in close cooperation with the Materials Management department. Secondly, the non-inventory & capital area, which addresses the processing of internal purchasing-requests for materials and services that, are not included in the end-product.

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2 Research Outline

2.1 Introduction

During this research the main goal is to develop and formulate a Quality agreement for specific suppliers. This contract needs to be developed with collaboration of the Strategic Sourcing Department and Supplier Quality Assurance because these people have the connections with the suppliers. Furthermore the sourcing department actually implements the Quality agreement together with a purchasing contract. In this chapter the main reason of this research will be outlined. From this a problem statement will be formulated together with a main question and derived sub questions. In the last paragraph the used methodology during this research will be scrutinized.

2.2 Problem analysis

2.2.1 Reasons for research

The department of Supplier Quality Assurance (SQA) is facing some problems with fine-tuning the agreements that are made with suppliers. These agreements often result in orders which are being produced according to agreed specification but have some inadequacies. These inadequacies originate from unclear agreements between the departments Strategic Sourcing and the specific supplier. Some of the problems, which are the result of these unclear agreements, are that the products are not conforming specifications. Out of these nonconformities MRR’s are written.

MRR’s are Material Re-assessment Reports and they refer to an entire lot of material. An MRR has to be completed when materials do not conform to the specifications agreed with Cordis. Non- conformities can be discovered at the Receiving Inspection department, where delivered materials enter the company, or during the production process. Completed MRR’s have to be checked and signed by several persons. Every so often an MRR is checked and signed after the period (quarter) in which it occurred. When the MRR is signed a decision is made about the settlement of the MRR. When an MRR is settled three options are available: Use as Is, Return to Vendor, or disposal. An MRR delivers the department SQA a lot of extra work. As a result of these MRR’s, deceleration of the production process and increasing costs are the result.

The reason for this research is to investigate the communication of products quality requirements between Cordis and the supplier and look for possible solutions to improve these communication so that future MRR’s which are the result of unclear agreements can be banned from existing.

2.2.2 The current situation

Cordis is a large company, which exists already for more than 30 years. From this they have developed a lot of experience in outsourcing some of their products. At this moment Cordis uses many techniques to make clear agreements with suppliers. Some of these techniques are a purchasing contract in which price, logistics and due date requirements are arranged. The function of the purchasing contract is to make clear the basic requirements about the purchasing of products. Of course, after these basic requirements many quality aspects need to be realized because Cordis develops products for the medical industry. In order to get these requirements right there are several extra tools to make sure the supplier can deliver conform the demanded quality requirements.

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As an example the following tools already exist:

• Certificate of Analysis

• Certificate of Compliance

• No Change Agreement

• Supplier Agreement Specification

• Cordis Supplier Manual

A Certificate Of Analysis (CoA) is a statement in which the supplier lets Cordis take a look in the measuring and analysis data of the supplier. Contents of a CoA are: identification of supplier, Identification of material (part number, lot number), Measuring and analysis data conform supplier contract. It has to be stated that this document is lot specific.

A Certificate Of Compliance (CoC) is a statement, which is a confirmation by the supplier that he delivers conform agreed product specifications.

Contents of a CoC: Cordis article number with revision number, Supplier lot number or traceability number, Declaration of Cordis specification conformance, Date and signature of supplier. Like the CoA, this document is also lot specific.

The No Change Agreement is an agreement in which Cordis and suppliers agree that if any changes occur in the process of the supplier or end-product he is obliged to let Cordis know about these changes and Cordis has to approve these changes before they can be implemented.

The Supplier Agreement Specification (SAS) is the most detailed agreement in which many quality aspects are arranged. The SAS is developed and used by the Cordis site in Warren. Cordis only develops an SAS for suppliers who produce a product, which is a medical device itself. This SAS is very detailed and cannot be used for a broad range of suppliers because of the high level of details in this agreement.

The last tool Cordis uses to make the requirements, asked from suppliers, clear stand in the Cordis Supplier Manual. In this manual main regulations of the FDA (QSR) are represented and Cordis requires suppliers to comply with these regulations. Furthermore the supplier requirements for release of materials are described. Then Cordis acceptance activities are represented. Here the handling of incoming inspection and rejection of material are described. The qualification of new suppliers and on what terms this is executed is also stated in the supplier manual.

The supplier manual serves as an information bundle to establish a common understanding of Cordis’ requirements and expectations that will allow the supplier and Cordis to further improve quality.

The reason for research lies in the fact that Cordis Roden wants to develop a tool to get the quality requirements clear for a broad spectrum of suppliers and not only for medical device suppliers but also for service suppliers and other product suppliers. This tool needs to smoothen the exchange process between Cordis and its suppliers and eventually can decrease the MRR’s or other problems. A possible solution is a Quality agreement or contract that agrees on terms with a high aggregate level.

During this research (after 3 months) new procedures have been released by Cordis for the supplier management and purchasing policies. In these procedures Quality agreements are stated as a compulsory tool to make sure the supplier knows what the quality requirements of Cordis are.

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Cordis has stated the following requirements of a Quality agreement:

- To document the responsibilities of any company and Cordis associated with the manufacture, packaging, testing, storage, and release of product

- To ensure mutual understanding of key responsibilities

- Ensure Cordis products are produced according to agreed upon specifications

- Ensure Compliance with all applicable governing regulations and corporate policies

- To be a continuously evolving document that requires concurrence of both parties to amend In this procedure it is also stated that the Quality agreement is:

- Not a purchase contract

- Not a replacement for specifications

- Replaces the quality sections of the existing Supplier Agreement Specification.

The development of such a contract is the main focus of this research.

2.2.3 Developing a process for building a contract

A Quality agreement needs to be developed systematically. A useful tool to do this is the creation of a SIPOC. A SIPOC is an acronym for Supplier, Inputs, Process, Outputs and Customers and is a Process Excellence tool. Process Excellence will be outlined in paragraph 2.4.4. The SIPOC describes who are the customers of the process. The customers can be described as the users, or stand in contact with, the process or end-product. In this research the customers are the departments who are going to work with the Quality agreement. The departments who are going to work with the contract are SQA and Strategic Sourcing and of course also the Suppliers are obliged to work with the contract. The output of the process for this research is a Quality agreement. In Figure 4 the SIPOC is represented.

•Internal Rules

•Cordis Quality Requirements

•External Rules

•FDA, MDD, ISO

•Literature quality parameters

•Legally valid

Quality agreement

•SQA

•Purchasing

•Suppliers

•SQA

•Purchasing

•Engineering

•Material Management

Suppliers Inputs Process Outputs Customers

Supplier selection

Demands and Requirements Cordis

Develop agreement for supplier

Implementation &

signing of agreement

Figure 4: SIPOC of the research process: Developing a Quality agreement

2.2.4 Description of requirements for the contract

In the so-called Voice-Of-the-Customer (VOC) the problem tangle is outlined. The problem tangle concerns different but connected problems, perceived by different persons in the organization. These persons can be defined as the “problem-owners”. Problem owners are people experiencing a problem, or in other words “those who are (more or less) concerned about how they think a part of the world is and how it should be” (De Leeuw, 1996: p.175). The term

“problem-owner” is more extensive than the term “client”.

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Also those whose problem solving you do not immediately pursue, can perceive a problem.

Besides the Supplier Quality Assurance department and the Strategic Sourcing Department, who both consider the Quality agreement as reason for research, also the Materials Management department can be considered as a relevant problem-owner. Materials Management are in contact with suppliers on a daily basis and therefore very concerned about the topic of this Quality agreement because they give the repeating order to the supplier. Material Management can therefore be seen as a customer of the project. Other departments who can give a contribution to the contract are Engineering, Packaging and Quality Assurance Engineering.

The client is the person perceiving the problem you want to solve particularly. Since this research aims to serve both the Supplier Quality Assurance department and the Strategic Sourcing Department we speak of a client-system, which is defined as “the sub-system of problem-owners whose interests you primarily want to serve” (De Leeuw, 1996: p.177).

In addition to the problem-owners and the client-system, we can distinguish the formal principal of the research project. The formal principal is the person who defined the problem and who, in most of the cases, also finances the project and gives the official permission for the research project. Principal of this research project is the Supplier Quality Assurance department.

The complete, worked out Voice-Of-the-Customer in which the problems perceived by the problem-owners are outlined can be found in appendix A. The problems came to light by way of interviews, and have been translated into demands made on the design of the new Quality agreement. These demands have been summarized in the Critical-To-Quality tree. The CTQ-tree helps to move from high-level requirements to detailed requirements, and it ensures that all aspects of the need with regard to the design of the Quality agreement are identified. These aspects can serve as main subjects in a contract. Furthermore possible subjects that are found further on in this research can complement these aspects. The overview has been divided into main-groups, also called “drivers”, and the forthcoming “critical success-factors”. Both the Voice- Of-the-Customer and the Critical-To-Quality-tree are Process Excellence techniques.

2.3 Problem statement

The problem statement can be defined with the help of the CTQ-tree. The success factors in the textboxes of the CTQ-tree are those aspects that will be addressed in this research project.

Supplier Selection Supplier Selection

Content of the agreement Content of the agreement Quality agreement

for suppliers Quality agreement for suppliers

Quality questions Quality questions

Component Complexity matrix Component Complexity matrix

Voice of the Customer Voice of the Customer

Literature Literature

CTQ’s Drivers

Need

Figure 5: Critical-To-Quality-Tree

The factors stated as CTQ are the quality questions, the component complexity matrix for the Supplier selection driver and the Voice of the Customer and Literature for the content of the Quality agreement. See Figure 5 for the CTQ-tree.

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In the CTQ-tree the voice of the customer is a sub part of the content of the agreement. This means that out of the voice of the customer some parameters are derived that serve as inputs for the Quality agreement. These parameters can be seen as the derivative of the real CTQ’s and we will name them the voice of the customer parameters.

It should be noted that not all observations from the Voice-Of-the-Customer could be encountered in the derived Critical-To-Quality Tree in exactly the same terms. The reason for this is the fact that the customers tend to give too much information and that they come up with observations that can be seen as their own problems and don’t have a clear relationship with this research.

Therefore the inputs out of the interviews had constantly needed to be evaluated and transformed in statements that can serve as a CTQ.

Compliance with standards Compliance with standards

Process Requirements Process Requirements

Product Requirements Product Requirements

Documentation Documentation

Packaging Requirements Packaging Requirements

Permission of Audits Permission of Audits Content of a

quality agreement Content of a quality agreement

Compliance with internal standards (CFM, CFF)

Compliance with external standards (FDA, ISO, MDD) Compliance with external standards (FDA, ISO, MDD)

Process Validation Process Validation

Documented Quality System Documented Quality System

Test Method Validation (Gage R&R, Final Release DATA) Test Method Validation

(Gage R&R, Final Release DATA)

Risk Analysis Risk Analysis

Drawing Drawing

Raw Materials (sub tier) Raw Materials (sub tier)

Certificate of Analyses Certificate of Analyses

Certificate of Compliance Certificate of Compliance

No Change Agreement No Change Agreement

Packaging Packaging

Labeling information Labeling information

Storage Storage

Transportation Transportation

Concurrence to Specification Concurrence to Specification

Figure 6: The Voice of the Customer: possible content of a Quality agreement

The content of a Quality agreement is derived out of the voice of the customer. This is realised by interviews with employees that are involved or have a vision on the development of a Quality agreement.

The problem statement, which consists of the objective of the research, the research question and the preconditions, has been formulated in agreement with the desires of the clients of the process.

It describes “what we want to know and why”, or in a more managerial variant, “what we want to

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produce and what for”. It constitutes on the one hand the link with the specific problem in actual practice and on the other hand it is a link with the theory, which can be considered as a thinking- tool to get a grip on reality.

2.3.1 Research question and preconditions

Out of the problem analysis a problem statement needs to be formulated in order to clarify the main objective of this research. A main objective specifies what the customer (Cordis) can expect from his researcher (Verschuren, 1986). In the objective the customer and the expected end- product need to be represented. From the main objective a main question can be derived.

During this research answers need to be found to the main and underlying sub questions.

The main objective for this research is:

For the department of Supplier Quality Assurance identify, how the development and implementation of a Quality agreement should be done at specific suppliers.

The main question is:

What should a Quality agreement look like, in order to meet the requirements set by Cordis, to make clear quality requirements with suppliers?

The preconditions relate to the limitations with regard to the method that will be followed and to the restrictions to make the research feasible (De Leeuw, 1996: p.90). Since this research project should result in a Cordis Quality agreement, we will have to look at the setting in which the contract is developed. The current situation at Cordis serves as the starting point for this research project, which means the contract is restricted in the first place by the organization. This also means that the people who have to work with the contract will be involved in the development.

More specifically, the preconditions for successfully ending the research are:

• The research has to be finished within a period of 6 months;

• The Quality agreement should comply with internal and external rules and regulations;

• Successful cooperation between researcher and supervisors;

• The cooperation of those persons whose assistance is essential for the research;

• The research has to comply with the requirements of the research organisation and the list of demands presented by the faculty of Management and Organisation of the University of Groningen;

• The answers to the sub-questions should be relevant and connected to the existing problems.

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2.3.2 Conceptual model

The conceptual model represents the environment of this research. In this conceptual model the focus is on the Quality agreement and the relations that exist between the overall purchasing contract and the stakeholders of the Quality agreement. The stakeholders are the departments of Strategic Sourcing and Supplier Quality Assurance and on the other side the Suppliers.

Purchasing Contract

Price Logistics

Quantity Strategic Sourcing

Supplier Quality

Assurance Suppliers

System Boundary

Quality

Quality Agreement Specification

Figure 7: The Conceptual Model

The system boundary represents the main focus of this research. This not implies that other relationships will be ignored and these sidelines will be kept in mind during this research. The Quality agreement serves as an agreement in which quality requirements of the products are defined and the agreement serves as part of the purchasing contract. Strategic sourcing and materials management determine the other aspects that are stated in Figure 7. During this research the goal is to investigate what the content of a Quality agreement should be and how the agreement should be implemented.

2.3.3 Sub questions

Out of the main research question, sub questions need to be derived to split the research in manageable phases. The answers found for the sub questions need to result in one final answer to the main question. For this research the following sub questions are formulated in order to create a more stepwise sequence for this research project.

1. What kind of tools does Cordis now use for specifying agreements with suppliers?

This sub question is answered in paragraph 2.2.2. Here the certificate of analysis, certificate of compliance, no change agreement, supplier agreement specification and the Cordis supplier manual are outlined.

2. What criteria are important for a Quality agreement?

These criteria not only imply quality aspects but also the aspects that are present at a higher level above the Quality agreement. Aspects like supplier relations and purchasing contracts will be outlined. In order to examine these aspects the search for theory about these subjects is launched.

In chapter 3 and 4 the most important outcomes of this search is discussed. In these chapters the criteria for the Quality agreement according to the theory are derived.

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Of course, also the criteria coming out of the VOC can serve as criteria for the contract; this is integrated in chapter 5. The answer to this sub question will result in a broad and basic Quality agreement.

3. Is it possible to develop standard Quality agreements for specific suppliers?

In sub question 2 the criteria that serve as the footing of the contract are researched. Out of these criteria a broad contract is developed. Out of this broad contract a question arises whether or not it is possible to develop a standard contract. This way it is easier and faster to implement the Quality agreements at suppliers. During this phase certain clauses can be erased, or not applicable declared. This will result in a supplier specific contract.

4. How does the implementation of these contracts need to be organized and what are the consequences of these Quality agreements for the Cordis Organisation?

The eventual implementation of a Quality agreement will have some consequences for the Cordis organization. With this sub question an answer will be given about the implementation of the Quality agreement. Therefore the procedures involved with the implementation of the Quality agreement will be scrutinized and an advice about the changes in the procedures is presented. The answer to this question will be found through desk research of the procedures and interviews with representatives.

2.4 Methodology

In this paragraph the design of the research process will be outlined. In paragraph 2.4.2 the type of research is described, after which the data collection methods and data sources are discussed.

Finally, the research planning and the research methods used will be presented. For the last paragraph the research of Doedens (2003) is used as reference.

2.4.1 Type of research: Scientific vs. Practical research

The difference between scientific research and practical research is that the latter recognizes a concrete demonstrable client (or clients) who has a need for knowledge, while scientific managerial research contributes to the general knowledge base of business administration. The difference is based on the distance between the research and a certain client or group of clients (De Leeuw, 1996: p.74). This research is carried out for two demonstrable clients: the Supplier Quality Assurance department and the Strategic Sourcing department of Cordis. The objective is not to contribute to the general knowledge base of business administration, but to provide the client with company-specific knowledge on contracts, supplier quality, Quality agreements and supplier relations.

The knowledge-products this research project has to produce are:

- An analysis of the expectations and requirements of Cordis for such an agreement (Chapter 2)

- An analysis of the theory that describes some of the aspects around the Quality agreement and supplier relations. (Chapter 3 and 4);

- A Quality agreement for specifying the quality requirements of Cordis to their suppliers (Chapter 5)

- An advice whether or not a Quality agreement can be standardized. Is it to be supplier specific, or can it be industry specific? (Chapter 6)

The result of the research will be reported to the department of Supplier Quality Assurance.

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2.4.2 Problem solving research

De Leeuw (1996: p.77) distinguishes five different types of research, namely:

- Pure scientific research

- Society relevant research

- Policy-relevant research

- Policy-supporting research

- Problem solving research

The prototype of scientific practical research is problem-solving research. Problem-solving research is the creation of knowledge about necessary or in any case sufficient measures, to solve management problems. It is, unlike policy-supporting research, integral. This research project will be problem solving of nature. It aims at giving an answer to the complete need for knowledge in order to solve the problem in terms of a complete Quality agreement (De Leeuw, 1996: p.201).

Data collection and data sources

Research data will be collected by means of both desk research and field research. Desk research exclusively makes use of documents. It concerns, among other things, literature study and analysis of written documents. Written documents are for example books, magazines, reports, protocols and archives. These are all examples of primary data sources. A report from another research project is an example of a secondary data source. Both primary and secondary data sources will be used during this research project.

Another distinction that can be made with regard to desk research is that between internal and external data sources. Examples of internal data sources are company documents (procedures, protocols, etc.) and company specific literature. External data sources are not company specific.

Both internal and external sources will be applied.

Interviews, brainstorm sessions, and questionnaires are examples of field research, and they will all be used in the course of this research project. Interviews vary to the extent in which they are structured. A distinction should be made between open versus closed interviews (unstructured versus structured interviews respectively). Furthermore, one can distinguish individual and group interviews. For this research primarily individual, relatively open (semi-structured) interviews will be used, where the interviewed persons have the possibility to put forward matters that can bring about insight for the interviewer.

The table below represents for every sub-question the methodology and the data sources that will be used to answer the question.

Table 1: Methodology and data sources used to answer the question Sub-

Question

Methodology Data sources Chapter

1 Desk and field research

Internal data sources, relatively open interviews

2

Literature, relatively open interviews, 3, 4, 5 3 Desk and field

research

Brainstorming, semi-structured interviews, Literature

6

Semi-structured interviews, Cordis Procedures, Literature

7

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Moreover, relatively open interviews with people from the departments directly involved are arranged, i.e. Supplier Quality Assurance, Strategic Sourcing, and Materials Management, Packaging technology. The company-specific information required to answer the first sub- question (What kind of tools does Cordis now use for specifying agreements with suppliers?) is acquired through the same interviews. Besides, to answer this question internal data sources and literature will be used. To answer the second sub-question, (What criteria are important for a Quality agreement?) first a literature review will be conducted, in order to find out what criteria are considered essential for quality requirements of suppliers. After that, we will focus on the company-specific criteria. The third and fourth sub-question (Possibility to develop standard Quality agreements for specific suppliers and the implementation of these contracts and what are the consequences for the Cordis Organisation) will be answered with the help of literature and internal data sources. Literature will be used, where possible, to define the criteria, after which by means of interviews information will be collected on how the criteria can be inserted as a clause.

2.4.3 Research planning

The time schedule of the research, which is represented in Table 2, is drawn up on the basis of the different stages that can be distinguished in Process Excellence. Process Excellence is a research method used by Cordis, and practically corresponds to the Diagnosis, Design, and Change (DOV) model of De Leeuw. It is a method to work in a structured way on improvement, guided by the Six-Sigma approach. This is an approach where one constantly strives to decrease the number of deviations, to achieve continuous and pioneering improvements. With this approach Cordis tries, among others, to decrease the number of mistakes, waste and rework. In the next paragraph both the DOV-model and the Process Excellence-method will be scrutinized.

Table 2: Time schedule of the research

Research phase Start date End date Define April 1^st 2004 May 1^st 2004 Measure May 1^st 2004 June 1^st 2004

Analyse June 2004 August 2004

Improve / implement September 2004 October 2004

Control October 2004

2.4.4 DOV vs. Process Excellence The DOV-model

The DOV-model is a problem-solving method, and can be divided into three phases, namely:

diagnosis, design and change. These phases do not always follow each other in time, but for convenience’s sake we will discuss them in this order.

The diagnosis process can be explained as a transformation of a signal in a diagnosis, in other words, a transformation of a problem situation in a management problem. With “signal” we mean a request for help. In this research the signal has been described in the reasons for research.

The design-phase encloses developing the diagnosed problem (or the mess of problems) into a concrete solution, and in the change-phase the designed problem has to be implemented. Here there is question of an operational problem, for here the organization has to change. It is the transformation of a design (a solution) in a concrete system (De Leeuw, 2000: p.297).

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Process Excellence

Process Excellence is a method to improve a process, and consists of five phases: Define, Measure, Analyse, Improve / Implement and Control. In table 3 an overview of the objectives of the different phases is presented, but first every phase will be shortly discussed.

Define

In the define-phase customer issues and requirements are being identified. Then the internal processes need to be identified which “manage” these issues and requirements. The trigger- question one can ask in this phase is: “What are the customer expectations of the process?” The objective is “to define the project’s purpose and scope and get background on the process and customer.”

Measure

In the measure-phase information is gathered to determine how well the process performs in reality. The trigger-question one can ask is: “What is the frequency of defects?” The objective is

“to focus the improvement effort by gathering information on the current situation.”

Analyse

The analyse-phase concerns the research of the process and the identification of the main issues of the problem. The question one can ask here is: “Why, when, and where do defects occur?” The objective is “to identify deep causes and confirm them with data.”

Improve / Implement

This phase is about generating solutions and developing an implementation plan. “How can we fix the process?” The objective is “to develop, try out, and implement solutions that address deep causes.”

Control

In the control-phase the new process is being standardized and controlled to secure that the desired improvements are permanent. The question one can ask here “How can we make the process stay fixed?” The objective is “to use data to evaluate both the solutions and the plans; to maintain the gains by standardizing the process; and to anticipate next steps.”

Table 3: Overview of goals in every phase of Process Excellence Phase Goal

1. Define Define purpose and scope

2. Measure Focus improvement effort by gathering information on the current situation

3. Analyse Identify root causes and confirm them with data

4. Improve / Innovate Try out and implement solutions that address root causes 5. Control Evaluate the solutions and the plan, maintain the gains by

standardizing the process and outline steps for ongoing improvements