Digitex Corporation Beginning in the late 1990s, Digitex Corporation began a policy of doing business “using time as a prime competitive weapon.” Specifically, this involved collapsing time from product time-to-market as well as faster response to customer demands. The goal was to greatly improve competitiveness and improve across all key business measures. A set of tools developed by the company focused on waste elimination, simplicity, flexibility, quality, employee effectiveness, self-controlling mechanisms, creating awareness that whole processes take precedence over individual operations, and continuous improvement. The new initiative, described as just-in-time/total quality control (JITQC), combined the initiatives of just-in-time with the concepts of total quality management. The total quality principles emphasized at Digitex involved: 1. An emphasis on quality first, not short-term profit 2. Orientation toward the consumer and customer, not the producer 3. A view of the next process as the customer and a corresponding reduction of organizational barriers 4. Use of statistical methods and decision making based on facts, data, and problem- solving techniques 5. Full employee involvement in problem solving 6. Broader, more flexible management perspective Digitex sought to drive improvement by first ensuring adherence to the JITQC system, which should lead to an increased analysis of processes and process improvement. Eventually, the standardization of new business processes should result. The new corporate philosophy centers around the A(T (read as “A – delta – T”) System, which involves the identification of actual conditions (A), the determination of the theoretical ideal (T) and the elimination of intervening waste or delta ((). The challenge behind this system is to design a function or process in which the actual time to perform a process (A) equals the theoretical (T) level of the time to perform. A(T provides a way to assess actual conditions and model the ideal process. As a result, waste can be identified, discussed, analyzed, and removed from the process. Once the objective of “achieving theoretical time” is clear, the challenge of achieving theoretical values becomes clearer and the necessary tools and approaches can be aggressively applied. Achieving the theoretical time becomes a motivating challenge that should translate into individual action. Digitex applies A(T to any process or system that involves time or cost, such as production, administration, sourcing, communication, new product introduction, and so on. Purchasing’s Role in JITQC To support the JITQC initiative, Digitex renamed purchasing “Supplier Manufacturing” and integrated a number of new policies and procedures into the new sourcing management department. Contracts are now constructed around families of parts for the projected life of a product, component, or technology. Because product life cycles in the computer industry are ...

1. Digitex Corporation
Beginning in the late 1990s, Digitex Corporation began a policy
of doing business “using time as a prime competitive weapon.”
Specifically, this involved collapsing time from product time-
to-market as well as faster response to customer demands. The
goal was to greatly improve competitiveness and improve across
all key business measures. A set of tools developed by the
company focused on waste elimination, simplicity, flexibility,
quality, employee effectiveness, self-controlling mechanisms,
creating awareness that whole processes take precedence over
individual operations, and continuous improvement.
The new initiative, described as just-in-time/total quality
control (JITQC), combined the initiatives of just-in-time with
the concepts of total quality management. The total quality
principles emphasized at Digitex involved:
1.
An emphasis on quality first, not short-term profit
2.
Orientation toward the consumer and customer, not the producer
3.
A view of the next process as the customer and a corresponding
reduction of organizational barriers
4.
Use of statistical methods and decision making based on facts,

2. data, and problem- solving techniques
5.
Full employee involvement in problem solving
6.
Broader, more flexible management perspective
Digitex sought to drive improvement by first ensuring
adherence to the JITQC system, which should lead to an
increased analysis of processes and process improvement.
Eventually, the standardization of new business processes
should result. The new corporate philosophy centers around the
A(T (read as “A – delta – T”) System, which involves the
identification of actual conditions (A), the determination of the
theoretical ideal (T) and the elimination of intervening waste or
delta ((). The challenge behind this system is to design a
function or process in which the actual time to perform a
process (A) equals the theoretical (T) level of the time to
perform. A(T provides a way to assess actual conditions and
model the ideal process. As a result, waste can be identified,
discussed, analyzed, and removed from the process.
Once the objective of “achieving theoretical time” is clear, the
challenge of achieving theoretical values becomes clearer and
the necessary tools and approaches can be aggressively applied.
Achieving the theoretical time becomes a motivating challenge
that should translate into individual action. Digitex applies A(T
to any process or system that involves time or cost, such as
production, administration, sourcing, communication, new
product introduction, and so on.
Purchasing’s Role in JITQC

3. To support the JITQC initiative, Digitex renamed purchasing
“Supplier Manufacturing” and integrated a number of new
policies and procedures into the new sourcing management
department. Contracts are now constructed around families of
parts for the projected life of a product, component, or
technology. Because product life cycles in the computer
industry are so short (sometimes as little as six to eight months)
and demand patterns often erratic, the contracts include a
flexible range of quantity requirements. Suppliers do not
receive guarantees of specific volumes but are assured
participation. Quality expectations are also detailed in the
contract, including Cpk/parts per million (ppm) or other
definitions that define the required level of quality. Other
contract elements include forecast and release process and
timing, longer-term pricing formulas (both cost reductions and
increases), nondisclosure clauses, technology ownership and
license provisions, and liability limitations based on a
supplier’s theoretical cycle time.
Information systems are a major part of Digitex’s sourcing
strategy. Digitex provides to external suppliers an MRP-driven
twelve-month forecast via electronic data interchange (EDI)
each time it updates its MRP system. Distant suppliers use the
forecast and agreed-upon shipment authorization windows to
schedule their shipments to Digitex. For example, the first
week of the forecast may become the delivery schedule. Local
supplier shipments are triggered by consumption using release
mechanisms such as a kanban process, and flow directly to the
production point of use. The consistent use of long-term
blanket purchase orders is normal, while piecemeal internal
purchase requisitions, orders, or release approvals are not
normally used. These approaches take time and hence
contribute to waste in the process.
Digitex works to integrate suppliers directly into its JIT, total
quality control, and employee involvement strategies. The

4. company then measures each supplier’s progress toward these
strategies and shares the results during supplier performance
reviews. When needed, the company also uses site, group, or
corporate assistance teams to help suppliers adopt JITQC
principles, including process capability analysis, cycle-time
reduction, pull-system implementation, and A(T assistance.
Early supplier involvement (ESI) programs help promote strong
supplier input to new product design.
Digitex aggressively establishes local sources of supply using
long-term contracts (from life of product to two to four years)
where appropriate. In sole-source environments where only one
supplier is available to supply a given commodity or item,
Digitex develops long-term pricing processes and contracts
based on experience curves derived from previous sourcing
experience. Joint supplier-Digitex cost-appraisal benchmarking
programs based on theoretical cycle time and cost are also in
place.
Supplier selection relies on the total cost of sourcing an item or
service and takes full recognition of distribution costs, supplier
process capability, ppm quality history, supplier JIT
manufacturing processes, supplier employee involvement
programs, and historical cost improvement contributions. The
number of active suppliers is continually reduced in accordance
with resources available to manage JITQC business practices.
Supplier selection for new items involves the use of cross -
functional teams with members from design, distribution, and
quality. Joint approval about a supplier from both the new
product and manufacturing organizations also occurs.
Purchasing managers are responsible for driving quality at the
source after supplier selection is complete.
Performance measurement supports the supplier selection and
evaluation process at Digitex. Three performance areas in
particular are an integral part of the evaluation, selection, and

5. continuous performance review process. The following
measurement areas link the sourcing process directly to
Digitex’s stated JITQC initiatives:
1.
Cost of quality/price of nonconformance (PONC) and
responsiveness measurements, which must demonstrate
continuous improvement during the initial baseline review and
the achievement of 30% or better improvement toward
theoretical best-possible levels during all subsequent reviews.
2.
Customer satisfaction and small group improvement activities
must exhibit continuous improvement during both baseline and
subsequent reviews.
3.
Employee contribution criteria, which Digitex establishes
during the baseline review and which the supplier must
continuously improve.
Cost of Quality/Price of Nonconformance (PONC)
The cost of quality consists of prevention, appraisal, and failure
costs. Prevention costs include areas such as design reviews,
supplier quality evaluations, quality training programs, quality
audits, and preventive maintenance. Appraisal costs include
supplier source inspection, incoming inspection and/or testing,
in-process inspection, and status measurement. Failure costs
include redesign cost, engineering change cost, rework, and
scrap and warranty cost. To be relevant, the company compares
the cost of quality to some base activity such as gross inventory
spending or transfer cost.

6. The Price of Nonconformance (PONC) includes all
nonconformance costs related to production (scrap, rework and
repair, inspection, and test and diagnosis) along with inventory-
related costs. This category is related to gross inventory
spending, which includes all spending for material, material
acquisition, production, administration, and variances. The
equation for PONC% is:
PONC% =
PONC Expense
Inventory Spending
The theoretical target for PONC is zero. Digitex expects
suppliers to achieve at least a 30% improvement from review to
review, using the equation
Target PONC Improvement = Previous PONC% – .3 X (Previous
PONC).
Supplier Responsiveness
The ability of a supplier to respond quickly with a minimum of
inventory cost exposure has a direct effect on raw and work-in-
process (WIP) inventory and WIP cycle time. Inventory
measurement includes days of supply (current inventory
dollars/volume of sales per working day). However, a more
relevant measure is the cycle-time performance ratio (CTPR),
which stresses the elimination of all unnecessary factory floor
cycle time. CTPR is calculated as:
CTPR =
Actual Cycle Time in Hours

7. Theoretical Cycle Time in Hours
Actual cycle time starts at the point of entry of key components
to the production line and concludes with delivery of finished
assemblies to the customer or stock. Actual cycle time is
measured using the formula
Actual WIP Cycle Time in Hours =
Average Work-in-Process Inventory $
Average Daily Output $ X (manufacturing hours per day)
Theoretical cycle time is the cycle time with all unnecessary
activities eliminated. Examples of unnecessary activities
include setup, move, rework, wait, queue, burn-in, inspection,
kitting, counting, and transaction. Examples of necessary
activities include machine operation time, operator value-added
or hands-on assembly, and functional tests.
Cycle time initially measured production time improvement.
However, Digitex soon expanded the approach of cycle-time
ratio analysis in the A(T program to include a great deal more.
The measurement system can track an entire product cumulative
cycle time, a total plant cycle time, or a particular machine
operation. A(T also applies to inventory levels, cost models, or
any administration process using the generalized ratio of actual
cycle time to theoretical cycle time. As before, Digitex targets
30% improvement in inventory and cycle-time ratios from
review to review.
Customer Satisfaction and Small Group Improvement Activity

8. Suppliers must demonstrate the use and understanding of
customer satisfaction feedback. (Digitex is the primary
customer but feedback can also originate with end users of
Digitex product.) The format and content of the feedback is
site-specific and defined by Digitex. Suppliers must
demonstrate that a feedback review process is in place, the data
is an accurate reflection of customer satisfaction, and an action
plan is in place to improve customer satisfaction.
Continuous improvement in customer satisfaction results
include the total elimination of customer inspection, zero
customer line interruptions due to supplier performance, mean
time between failures, mean time to repair, problem-free
installation, and customer survey responses.
Small-group improvement activities are a primary source of
improvement ideas. Therefore, Digitex expects the number of
employees at the supplier’s facility involved in such activities
to increase over time.
Employee Contribution
The number of employee ideas generated and carried out at the
supplier is an indication of the level of employee empowerment,
contribution, and effectiveness of the overall employee
involvement program. Small-group involvement activity
participation is a necessary but insufficient indicator of
employee involvement. It is possible for small groups to
formally exist at the supplier but not really be empowered to
make suggestions or effect change. By tracking the status of
ideas actually contributed and implemented by supplier teams,
Digitex can evaluate the level of employee empowerment. The
measurement system tracks the number of ideas submitted and
implemented and, when necessary, Digitex encourages action to
improve the level and quality of employee activity.

9. Conclusion
Sourcing is a key part of the JITQC initiative at Digitex.
Supporting this effort requires a different type of purchasing
organization: one that focuses externally, has the resources to
support a supplier’s technical needs, links directly to corporate
JITQC goals and objectives, and has the right measures and
information systems to evaluate performance. Firms that
demonstrate this level of commitment to their sourcing process
are placing themselves in ideal positions to achieve significant
competitive advantage.