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Our suppliers are only as good as we let them be– By David W Johnson
in the examination based on marks received. As per GDP growth, government measures the performance of their country. Athletes measure their performance based on their achievement in terms of medals won. Mothers test their culinary skills based on the appreciation they receive from their family members. Similarly, Organizations have KRA/KPI/Quality objectives to measure the performance of their processes.
Supplier performance is key to the success of any organization as they are an equal partner in ensuring effective and efficient processes to satisfy their end customers.
Purpose of Supplier Performance Monitoring:
- a tangible reflection of the performance of their key partners
- current capacity assessment
- any labour issue
- effective planning process
- commitment towards quality
- Cost-effectiveness
Some of the possible suppliers for the organization can be raw material/component suppliers, group company, calibration agencies, training agency and outsource processes like electroplating, welding, tool manufacturing, heat treatment, machine maintenance, utility maintenance etc.
The parameter for performance monitoring will vary based on the kind of industry, the organization is dealing with. For a mass production component manufacturer, Delivery performance is very important but for a tool manufacturer, it may not be of that much importance. Similarly paper quality for a printing organization will be of utmost importance but same for any office work may be of limited importance.
All the 7 Quality Management Principles have a deep relationship for sustained supplier performance. But, Principle number 7 related to ‘Relationship Management’ has a direct bearing on the performance of suppliers.
ISO 9000: 2015 (QMS- Fundamentals & Vocabulary) Definitions:
Provider (Supplier- Clause 3.2.5):
An organization that provides a product or a service. Example: A provider can be internal or external to the organization.
External Provider (External Supplier- Clause 3.2.6):
A provider that is not part of the organization
Performance– Clause 3.7.8):
Measurable result (it can be qualitative or quantitative)
The frequency of the supplier performance monitoring should be based on the risk associated with them. The monitoring frequency can be reviewed in case of
- Suppliers with unaccepted performance (Quality or delivery)
- Customer notification related to quality or delivery
- Customer requirement
- High-risk suppliers (Whose product/service can impact the end-user)
In ISO 9001: 2015, there are no specific guidelines for monitoring supplier performance but as per IATF 16949: 2016 Clause 8.4.2.4, a documented process (Turtle) has to be defined and there are minimum requirements for monitoring their performance.
- Product performance: The quality of product supplied by the supplier as per requirement (Drawing, Technical Specification etc.). It can be monitored in terms of %age or PPM.
- Delivery Performance: As per the planning process, supplier has to deliver the product/service to the organization on time. Delivery performance can be based on on-time delivery per day/week/month/Quantity and can be measured in terms of %age.
- Occurrences of Premium Freight: As per agreement with the organization, the cost of freight is predecided in the purchase order. Whenever it is more than agreed norms, it is considered as premium freight. It can be incurred either due to organization or supplier issue.
- Customer disruption: There are many critical and Pass-Through Characteristics (which are not verified at organisations end) in the supplied product. In-case of any failure, when it is identified at customer end and its failure results in line stoppage at customer end (due to the quality/delivery issue of supplier), the supplier is considered responsible and performance rating gets affected (Supplier-Organization-Customer).
- Special Status customer notifications: Many of the automotive OEM’s (GM, Ford, VW, Daimler, FCA etc.) have specific requirements (penalty) related to substantial failure in Quality and Delivery. Depending upon the criticality, it may result in Q1 revocation (Ford), New Business Hold, Suspension of existing Certification etc. It is the responsibility of the organization to communicate such cases to the supplier.
- Dealer return: If any of the product characteristic related to supplier results in material rejection from the dealer end (after material shipped from OEM to Dealer), the performance of the supplier gets impacted (Supplier-Organization-Customer-Dealer).
- Warranty: If any of the product characteristics related to supplier results in material rejection from end customer (a consumer like vehicle-owner) after usage, the performance rating of the supplier gets impacted (Supplier-Organization-Customer-Dealer-Consumer).
- Field actions: If any of the product characteristic related to supplier results in material rejection from end customer after usage and actions like servicing/segregation/replacement has to be done, the performance rating of the supplier gets hugely impacted.
- Recalls: If any of the product characteristic related to supplier results in recalling the entire finished product back to the customer (OEM), the performance rating of the supplier gets severely impacted.
Although all the above requirements are stated as per IATF 16949, they are logical & generic and can be applied by any industry sector to improve its supplier monitoring process.
Example:
- Moulded component manufacturer (tier 2 organization)
- Supplies to tier 1 organization, who assembles and despatches to Car Manufacturer
- 25,000 numbers per month / 1000 numbers per day
What can be the possible criteria for supplier performance?
- Product performance: In a particular month, if 100 numbers rejected out of 25000 supplied, the product quality performance will be 4000 ppm or 0.4%.
- Delivery Performance: If 1000 numbers on a particular day are delayed out of 25000 supplied, the Delivery performance will be 96% or 40000 ppm.
- Occurrences of Premium Freight: If out of 25 despatches in a month, 2 despatch are done by Air instead of approved transport agreement (one due to the quality issue at supplier end and other due to urgent requirement of the customer), number of occurrences will be 2.
- Customer disruption: The Melt Flow Index (MFI) is a critical characteristic and is checked for plastic raw material by tier 2 supplier only. When the moulded component (after assembling) is supplied by tier 1 to OEM, during incoming inspection, Moulded Product quality (due to MFI) was found not meeting the requirement and OEM line got stopped due to Quality/shortage of material.
- Special Status customer notifications: Some of the moulded components with inadequate MFI mixed and supplied to the end-user in the Car. Due to the MFI issue, the moulded component was brittle and got broken when used by the user. The owner complained to the dealer and car assembly was replaced with the new one. This can be one of the cases of Special Status Customer notification.
- Dealer return: The above case is related to Dealer Return also
- Warranty: The above case can result in warranty failure too.
- Field actions: The above case may result in some action in the field like segregation/repair or servicing.
- Recalls: The above case can result in recall also
Key benefits of Supplier Performance Monitoring
- Better use of scarce but competent supplier base
- Identification for offering future new business
- Verifying the commitment of the suppliers
- Deciding suppliers whose costing can be reviewed and increased
- Sustainability of the suppliers
Challenges:
- How often top management takes an interest in reviewing the performance of their suppliers?
- How often supplier performance is shared with suppliers?
- How often suitable action plan is demanded from the supplier whenever their performance does not meet the criteria?
- How often criteria for supplier performance change based on the risk to the organization, supplier’s share of business and criticality of their product to the organization and customer?
References:
ISO 9000: 2015
ISO 9001: 2015
IATF 16949: 2016
CQI-19 Sub-Tier Supplier Management Process Guideline
This is the 53rd article of this Quality Management series. Every weekend, you will find useful information that will make your Management System journey Productive. Please share it with your colleagues too.
Your genuine feedback and response are extremely valuable. Please suggest topics for the coming weeks.
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