Supplier risk isn’t just the supplier’s problem. It’s the customer’s problem. If customer companies don’t take action to mitigate the risk, it will invariably (and adversely) impact their customers. Result: loss of business and reputation. The top supplier performance expectations that I hear mentioned most often are on-time delivery and quality. People always say that “quality is a given”. Sure, but do your supplier really know how to provide a quality product or service? I’ve spent time in my career as a quality manager. I can list over 150 supplier quality performance expectations. But listing that many here is probably, well, ridiculous. So here are 5 ways to tell if your supplier understands quality:
1. Quality system. Do suppliers have a quality system? Suppliers should show evidence of having a real quality system. They should have the necessary organizational structure, procedures, processes and resources to deploy a quality system.
2. Cost of poor supplier quality (COPSQ). COPSQ is a major contributor to Cost of Poor Quality (COPQ) at the customer. In fact, it may comprise 50% or more of COPQ. Quantifying your COPSQ and then tracing the problems will pinpoint specific suppliers who are contributing to this cost. While it cannot be totally eliminated, suppliers who impact this metric can be addressed. Here’s a graphic to illustrate COPSQ:
3. On-time delivery. This metric can can indicate supplier quality strength or problems. Supplier deliveries can be delayed for many reasons, but one underlying cause of late deliveries is quality problems. If a supplier is busy with rework, then they will be busy fixing and not shipping on-time.
4. Preventive approach to quality. Does your supplier inspect quality into its products? That is, do the checkers find quality problems after the fact and have to get them fixed? Or is each associate responsible for the quality of their own work before it is sent to the next step, aka, quality at the source. If a supplier’s approach to quality is reactive, not preventive, then the supplier is at risk of losing control of quality. You do not want to be in charge of finding your suppliers’ quality problems and especially you don’t want your customers to be.
5. Continuous improvement. When asked, all suppliers will say that they do it. But in reality, many suppliers do not. In fact, many smaller companies truly do not understand what continuous improvement is. Nor do they understand how to do it. They think continually fixing problems that arise (and not preventing them) is continuous improvement. In fact, some think that the more they fix, the more they’re improving. It’s continuous fixing. Also, in many company cultures, finding problems is considered a criticism, not a cause for appreciation of an opportunity to make things better. So if a customer has an expectation that suppliers know how to find root causes of problems and work to continually improve products and processes, they will be sorely disappointed. And if the customer finds opportunities for the continuous-fixer supplier to improve, the supplier may not know how.
-Sherry R. Gordon