From Supplier Quality to Supplier Development

As part of our consulting engagements, we are frequently asked about industry best practices in structuring supplier quality teams. And often, the discussion turns to the evolution of the organization from supplier quality management to supplier development. Here are our thoughts on this subject.

In general, a Supplier Quality team operates at the part-feature or process-parameter level, making corrections and improvements to manufacturing processes and quality control methods to fix and prevent problems. This team ensures that parts coming in from suppliers, meet specifications, and that you can continue to ship finished products out to your customers. The payback on these efforts is usually in the short term. Supplier Quality activities are supported by a contractual obligation on the part of the supplier to ensure only conforming parts are shipped.

A Supplier Development team, on the other hand, operates at the organizational or business process level, and focuses on developing the supplier’s capabilities, to ensure that both your supplier (on whom you depend) and you, continue to be successful in the long run. Supplier Development may not have a contractual basis, and instead requires a collaborative relationship between buyer and supplier. Supplier development programs begin with a mutual recognition of dependence, and a commitment of support by executives at both buyer and supplier.

Building Capabilities

You do not need to, and nor should you attempt to develop all of your suppliers. Instead, you need to identify the subset of suppliers that makes critical components, and cannot be easily replaced due to a technical or a capital investment barrier. Next, you need to identify one or more areas for improvement. Most companies measure suppliers on Quality, Cost, and Delivery. To improve these outcomes, we need to focus our efforts on building the suppliers capabilities in multiple areas. Here are some examples:

1. Capacity: On-time delivery is a function of capacity, yield, and shop-loading. Many small suppliers view capacity as a function of how many shifts they run, and how many machines they operate, while ignoring efficiency and yield. A buyer can usually help by teaching the supplier the basics of lean manufacturing, and guiding the supplier through a set-up and cycle-time reduction process or a yield-improvement process, which free up capacity, without the need for adding shifts or equipment.
2. Change Control: One of the most common root-causes for defects is inadequate change control at suppliers. When a buyer provides a new drawing or revision, how does the supplier ensure that the old drawing, the old fixtures, the old CNC code, the old quality control plans are all updated? Similarly, when a supplier makes a component substitution or change, how does he communicate the change?
3. Inventory Control: Many suppliers, both small and large, do not have robust inventory controls in place. As a consequence, parts are everywhere in the shop, and raw, WIP, and finished products are intermingled. Worse, defective parts are right next to good parts, and mix-ups occur frequently. Simple 5S efforts can go a long way in preventing these issues.
4. Sub-tier Supplier Management: Most suppliers can barely get their own quality control work done. They definitely don’t have the resources to control their sub-tier suppliers. When sub-tier suppliers play a critical role (for example: cleaning, packaging, or anodizing etc), your supplier will need help in developing a sub-tier supplier management process.
5. Data Analysis: One of the parts we purchased involved a heater element attached to an aluminum plate. The resulting temperature uniformity across the plate was critical to the performance of our equipment. When a customer reported a problem with uniformity, we scrambled to find data and characterize (after-the-fact) the temperature distribution. It was difficult to pinpoint by then whether the problem came from the heater element or the attachment process. For complex components and manufacturing processes like these, you want to help your supplier establish data collection systems, and teach them how to analyze and act on the data collected. In situations like these, you are only going to be as successful as the weakest link in your supply chain.
6. Training: Developing the supplier’s human resources, also falls within the scope of supplier development. As an example, machining suppliers may benefit from technical courses for GD&T, and packaging, sterilization, and cleaning standards etc.

Alignment of Objectives

Before you can begin a supplier development process, your supplier will need to acknowledge the need for improvement, and commit resources and management support for the project.

Your Supplier Development team will also require internal support from your Supply Chain and Sourcing teams. The support of the Head of Purchasing, and the Supply Chain / Sourcing Manager responsible for the commodity must be engaged and committed to a longer-term vision, to ensure that tactical challenges around cost reduction don’t disrupt the strategic efforts around capability development.

It is also important to consider how strong this capability is within your own organization. Can you truly add value to your supplier, or are you disrupting their operations? We have seen attempts to implement lean at suppliers often fail because the buyer’s own understanding of lean is very weak, and their own operations are poorly run.

The Long-Term View

And finally, always take the longer-term view. Don’t waste your time worrying about how to split the benefits from the development efforts. Recognize that if your supplier’s performance improves, you save money. For example, if the supplier improves quality, his yield improves, and you save money from fewer inspections and fewer defects. Similarly, if your supplier’s capacity is freed-up, his on-time delivery to your factories will improve, making your production smoother and more predictable.