Suppliers are, without a doubt, an integral factor in the success of any organization. They can work like a well-oiled machine, where confidence levels are high, and the quality and delivery of products and services from your suppliers exceeds your expectations.
Or they can become a burden to bear, swallow up precious resources and cost your business thousands of dollars in administration and performance management.
Like most purchasers and importers, you probably find yourself in a situation somewhere between these two extremes.
But there’s hope when it comes to finding and developing great supplier relationships. Stick to this step-by-step approach, and you’ll soon be reaping the rewards of supplier quality development.
1. Supplier selection
Choosing suppliers is crucial to your business. And categorizing your supply base is also vital to making the most of your available resources when managing those suppliers.
You would ideally want all of your suppliers to be performing at a high level. However, companies may have large supplier lists stretching into the thousands with some naturally more critical to quality than others. Selection should be the first priority for active supplier development management.
Importers and purchasers often consider various criteria for evaluating potential suppliers when beginning their search, such as:
- Minimum order quantity (MOQ): smaller purchasers or those with a limited budget, in particular, will be sensitive to the minimum order size a supplier requires.
- Payment terms: importers large and small may consider payment terms an important factor in choosing a supplier.
- Certifications: common certifications like ISO 9001 and ISO 14001 may be valuable to you. But remember that certifications may not always be legitimate, especially in developing countries like China or Vietnam, and are best verified through an on-site audit.
- Production capabilities and capacity: an obvious point but one that many importers don’t know how to verify. Requesting and approving a pre-production sample and performing an on-site audit are among the most reliable ways.
The criteria for selection vary from company to company and are also influenced by which quality standard you have chosen for your business model, as well as the objectives and policies of your organization.
2. Developing an approved suppliers list
We often find that a company’s supply base invariably expands over time. Indeed, taking advantage of the “risk management” option of a “second source supply” is a very prudent business strategy.
However, it is occasionally a good practice to review your supply base and consolidate the number of suppliers you have to manage, which is an expense in itself.
Every business should make use of their approved supplier list and measure the performance of each with regard to cost, quality and delivery at a minimum. As mentioned above, listing your suppliers by category will make this a more efficient and value-added initiative.
Categorizing suppliers by criteria
Your supplier list should contain categories based on the following criteria:
- Supplier type – critical, tooling, office supplies, maintenance and training
- Spending – high, medium, low
- Frequency of use – often, occasionally, rarely
- Second source supplier – yes or no
Filtering information in approved list to manage suppliers
By adding categories such as these to the supplier list, you can then filter this information in numerous ways to find:
- The top five highest spending suppliers
- The top 10 critical suppliers
- Critical suppliers with no second source
- Infrequently used suppliers with low spending
A categorized list becomes a powerful tool for managing suppliers and making the most of your resources to get the best added value from your supply chain.
The list will help you plan the most efficient audit schedules that will have the greatest impact on the performance of your suppliers and, therefore, your own business.
3. Auditing suppliers
As with most audits, supplier audits represent a snapshot in time. Lots of information can be collected by this method, and it is indeed a mandatory requirement for most quality management systems (QMS). There are two main types of supplier audits:
Questionnaire-type supplier audits
Most sourcing professionals are familiar with the questionnaire, or phone call audit. It’s an initial step that often saves time by helping you vet suppliers quickly.
Questionnaires are effective at collecting basic factual data about an organization, rather than determining how effective and efficient their processes are. A questionnaire would answer queries such as:
- “What quality standards do you have?”
- “How many personnel do you have, and how many employees work in quality assurance?”; and
- “What type of industries do you supply and at what quantities?”
Though you can get information efficiently with a questionnaire-type audit, its main limitation is that such information is unverified. You’ll likely be relying on a sales representative from the supplier, who may simply be telling you what they think you want to hear.
You’re also limited in the scope of information you can gather from a simple, questionnaire-type audit. An on-site supplier audit is typically the best way to get more in-depth and reliable information.
On-site supplier audits
On-site auditing would, of course, provide you all of the information from a questionnaire-based audit and much more, such as:
- The structure of the company’s QMS
- Performance data
- Product and process management
- Results of supplier internal audits and certification audits
- A tactile feeling of how the company operates and the atmosphere within the organization
- Personal interaction with key members of the supplier’s staff
There are a couple ways you can perform such an audit.
Performing your own informal audit during a supplier visit
One way is to audit your supplier informally while you’re visiting their facility. You can get a lot of valuable insight just from having a look around the production area, warehouse and other grounds.
For example, you don’t have to be a professional auditor to notice when a factory is obviously disorganized, doesn’t maintain production equipment or employs workers in unsafe working conditions. It’s also often immediately apparent from a visit whether a supplier:
- Is the manufacturer (factory) or a middleman (vendor); and
- Can actually manufacture or supply the product you hope to procure
A main limitation of this kind of informal audit is that the supplier will likely be in control of what you see during your visit. They can coach staff on how to answer any questions you might ask and limit your tour to only the areas of the facility they want you to see.
The other limitation is that you may lack the necessary expertise to conduct a thorough audit. Results from a professional auditor tend to be far more detailed than those from a layman purchaser or importer. This is especially true when using a specific compliance framework, such as Sedex or C-TPAT.
Remember that the most effective auditing technique is a continual process. Each time you visit your suppliers, for whatever reason, some kind of audit takes place.
You’ll be able to proactively manage supplier audits and factory visits in the most efficient way by analyzing the information in the approved supplier list and key performance indicators (KPIs) data, such as “right first time”, “delivery on time” and others.
4. Measuring supplier performance
You can easily measure supplier performance if your systems support making the data readily available. And KPIs will become a very powerful tool if used correctly. Supplier KPIs are a good measure of overall supplier performance, such as:
- Right first time
- Delivery on time
- Response time, quotes and inquiries
- Defect rate
- Inspection and auditing results
Tracking supplier performance through a third-party QC partner
While some large purchasers invest in their own integrated enterprise resource planning (ERP) software, most small and mid-sized companies don’t.
But a growing number of independent inspection and auditing firms offer access to ongoing reporting of product quality and supplier performance metrics.
These firms vary in the digital solutions they provide. Some simply offer cloud-based access to previous inspection or audit reports. While others offer a robust analytics dashboard, including a charted breakdown of quality defects by severity, SKU, product type and supplier.
Clear and consolidated supplier performance data, whether through a third-party solution or your own digital ERP, can greatly enable supplier selection and continuous quality improvement.
5. Supplier development
Some larger companies will have a team of dedicated supplier quality engineers who spend most of their time at their own office, rather than at suppliers’ facilities. This defeats the purpose of supplier quality engineering.
The engineer should spend most of his or her time at the suppliers' facilities where they’ll have the greatest impact and influence on “right first time” quality. Smaller companies, in particular, need to approach this in a smart way and use all the data available at their disposal to make informed choices with regard to supplier status.
The value of personally visiting your suppliers
Even if you’re a small businesses, you must allocate time to visiting suppliers, reviewing the organizations’ requirements and clearly defining your company’s deliverables and expectations.
Make sure you plan each visit well by developing an agenda in advance. If this is one of your key suppliers, you may want to stay a few days and go through the whole process with them: design, manufacturing, inspection, packaging, delivery, etc.
Make the most of your visit, and you can come away with a good feeling that all parties have a clear understanding of what is required. Nothing beats spending time upfront with your suppliers to avoid problems later.
6. Supplier management
Once the development stage has matured to an acceptable level, it’s time to tailor on-going management to the needs of each supplier.
Tracking ongoing supplier performance is key to understanding each supplier’s needs and any required corrective actions.
For example, you may experience disruptions in shipments due to seasonal fluctuations in production capacity of a particular supplier. Tracking on-time delivery over time can help you take appropriate actions to avoid subsequent disruptions at that facility.
Historical quality reporting can similarly help you find and address any recurring product issues that occur at certain facilities. This transparency lends to better supplier management strategies.
And through effectively managing your existing suppliers, you can make informed choices regarding the retention, removal or further development of each supplier to suit the needs and requirements of your business.
Sourcing to find the right suppliers is one of the most important functions of manufacturing. Your suppliers have a direct impact on the quality of your product or service. "Fighting fires" later in the process is costly, wasteful and invariably leads to customer dissatisfaction—in one form or another—and loss of revenue.
Begin by choosing the suppliers that best match your criteria. Compile your suppliers into a categorized list for ease of organization. Audit each supplier, either by phoning them and asking important questions, or better still, visiting them in person to perform a more comprehensive audit on site.
Measure the performance of your suppliers, and evaluate each objectively, by looking at their KPIs. Work with your suppliers directly to cultivate a strong relationship and improve quality. By taking all of the steps above, you can make informed decisions about which makes the cut and which needs further development.
Invest the time in your suppliers, maintain good lines of communication, speak to the right people and avoid confusion. Suppliers are an essential key to your success. And the ones you choose to work with can either make or break you.
Editor’s note: This post was originally published in November 2014 and has been updated for freshness, accuracy, and comprehensiveness.
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