1. Reducing Supplier Risk with a Supplier Development Program
Reducing Supplier Risk
with a Supplier Development
By Kreg Kukor Program
There are many ways for companies to improve Product, Total Number of Supplier Product Inspections, Total
their business management practices; however Corrective Action Requests (CARs) written, Total Line down
the ability to establish successful practices for time, Customer returns due to supplier related issues and, lastly,
developing and managing suppliers is critical to Total Cost of Supplier. To ensure proper execution, there should
a company’s bottom line. The reality is that most be executive level ownership for strategic level planning and
companies engage with a supplier based on cost, measurement.
ability to deliver and the terms of their supplier
charge-back agreement. Once a supplier is online, Tactical Phase of Supplier Development
its Supplier Performance is measured reactively, Tactical Level review is focused on defining a strategy around plant
focusing on cost and time metrics. The metrics used or divisional specific issues to help determine which supplier(s)
to measure suppliers themselves are often suspect, should be used when items are sourced and which suppliers need
being derived from multiple manual systems
with consolidation processes that provide dated
Strategic, Tactical, Execution Phases of Supplier Development
information. It is the equivalent of driving your car by Supported by a Meta Data Platform
looking out of the rear view mirror.
Executive Level Ownership and Planning
The recent spate of brand-killing issues in the supply chain is Executive Reports
Strategic • COE, Chairman,
forcing companies across industries to re-think their approach to Board of Directors
PPM by Geography
Phase Supplier total cost by location
managing suppliers. For those companies looking to secure their • VP of Global Operations
On-time delivery by geography
On-time launches
supply chain, a Supplier Development approach is an excellent Cost of warranty by geography
• Divisional VPs
method to reduce risk and improve profitability. Roll-up of supplier scorecard
Future-Proofing the Supply Chain Facilities Operations Director
When companies consider the effort and cost required to establish
a supplier in the first place, they are reluctant to change failing Tactical • Mexico Facility
PPM by supplier by facility
On-time delivery by facility
suppliers while there is still a chance to turn them around . Even Phase • UK Facility Number of rejects by supplier
PPM by manufacturing
though this is the de facto process in most organizations, the • Toledo, OH Facility geography
Supplier Development approach provides an alternative to the
chaos and inefficiency of “trial by error”. Supplier Development
Department Managers
implies a proactive process of outlining key measurements from
a strategic, tactical and execution standpoint that will determine Execution • Plant Manager Plant specific PPM
Supplier PPM by facility
whether or not a supplier’s activity is fostering or hindering your Phase • Quality Manager Total rejects internally/
externally by facility
overall business goals. – Manager Level • Materials Manager On-time delivery
Number of engineering changes
• Engineer Manager Total training hours
Strategic Phase of Supplier Development • Human Resources
Absenteeism
Strategic Initiatives are based on forward planning items such as
geography, political climates, capabilities, global growth strategies
and cost. Strategic supplier reviews should include total cost to do Employees
business with the supplier, the proactive vs. reactive nature of the • Quality Engineer
Total inspections
Execution • Inspection
supplier, and its innovation and engineering cooperation. • Manufacturing Engineer
Total audits
Phase • SQA
Total noncomformances written
Cycle count performance
– Employee Level • Planner
Stock outs
Measurements at a strategic level are a roll up of the entire division, • Maintenance
• Facilities
Expected shipments –
inbound/outbound
business unit or corporation (See Strategic Phase in diagram). • Trainers Past due PM
• Production
Common starting point metrics are Total Nonconformances • Buyer
Equipment downtime scheduled
Training effectiveness
(NCM) written, Total Quantity Rejected, Total Cost of rejected • Design Roll-up of throughput yield
• Benefits by product line
Data Acquisition Platform powered by IQS, 29 Summer 2008
Enterprise Risk and Quality Management Software

2. to be further developed (See Tactical Phase in diagram). Issues such
as supplier development plans, supplier education days, supplier
planning, incoming inspection reduction, ship to stock programs,
supplier specific Part Per Million (PPM), on-time delivery, number
“ The key to a successful and cost effective
supplier eco-structure is to release and
of rejects found at plant and proactive supplier involvement rollup the supplier data instantaneously,
should fall within the tactical initiatives and ownership taken at a allowing the tactical level immediate access
managerial level.
to the data and allow immediate change in
Execution Phase of Supplier Development focus to adjust the program to maximize
Execution is simply identifying the actual touch points in your
”
return on investment.
facilities that interact daily with your supply base, typically
the Incoming Quality team, the facilities’ Buyers/Planners or
Purchasing groups, your supplier development staff and your application that allows for a high-level tactical review of the global
engineers (See Execution Phases in diagram). This group focuses supply chain. During my tenure as Global Director of Quality, I
on executing the tactical plans of incoming inspection, dock to often asked four simple questions of the supplier and the team
stock plans, new product launches, daily communications and making the decisions of product sourcing.
issues resolution. Typically, data collection is conducted at the 1. Do you believe we pay a good price for your product?
execution levels and is painstakingly tabulated in a report that 2. Do you expect High Quality and on time delivery from your
includes PPM, number of NCM issued, corrective actions spills, suppliers?
line downs, delivery, warranty, stop ship, and yard hold, to name a 3. Why do I need to have incoming Inspection in my facility for
few. In general this data collection takes up the full calendar month your products when I pay you a fair price for your parts?
and another 10-15 days into the next month to process a scorecard 4. Are you willing to hire a incoming inspector for my facility to
extending the data feedback loop to the supplier potentially 45 inspect the parts that went through your final inspection? If
days out from the occurrence. Not only is the data outdated, the not, then why do I have to have one to inspect your parts?
information creates a reactive mode at the Tactical and Strategic
levels Enterprise-Wide Risk Management
Data at the execution level is obtained daily in most organizations.
Total Cost of Supplier Business The key to a successful and cost effective supplier eco-structure
The executive/strategic team is focused on efficiencies of the is to release and rollup the supplier data instantaneously, allowing
supply chain but more importantly on the total cost of doing the tactical level immediate access to the data and allow immediate
business within the supply chain. Changes in economics, labor, change in focus to adjust the program to maximize return on
and geographies all impact the strategic team. If their decisions are investment. This cannot be done without a web-based or meta data
inaccurate because of dated data their competitive advantage within enterprise-wide system, fully integrated from bottom to top and a
the supply chain is also at risk. tiered metrics approach.
Example: Supplier “A” is located overseas and every part the By investing in a comprehensive quality and risk management
supplier manufactures is on 100% inspection. Five supplier business system companies can automate data aggregation for real-
shipments are received per day in your facility requiring four time supplier information and create repeatable, proven supplier
inspectors and an inspection supervisor. One out of every 20 lots development processes across their global supply chains.
received results in a NCM to be written which when tabulated adds
an estimated $300.00 in processing time (accounting, engineering, Benefits of an enterprise-wide solution include a consistent
shipping, receiving, inspection, return shipment, re-inspection). data form that facilitates data aggregation world-wide, data can
be analyzed electronically and in real-time, connect and share
Supplier “B” is also located overseas and has a slightly higher piece relevant data across plants, suppliers and customers, and centralize
price and has the same shipping schedule of five shipments per information flow to monitor trends and use data to your advantage.
day; however, you have not had a rejection in your facility since
launch and the supplier is proactive in every aspect of dealing with Global supply chains are here to stay and by taking a best practices
you, i.e. their invoicing is correct, their bill of lading and all other approach to replicating supplier monitoring and development
paperwork impeccable, their engineering team is highly cooperative throughout a supply chain, companies are able to turn suppliers
and innovative. into trusted business partners and keep their products in
production with minimized risk of product failure.
Through these examples it becomes clear that when viewing only
the piece price or landed cost, in most cases the true cost of the Kreg Kukor, is a consultant with IQS whose expertise in
supplier is hidden. Tactical and strategic decisions based solely on Global Quality Management and supplier development
price and not on tactical or strategic initiatives can, and in most has spanned 20+ years and many diverse industries. IQS -
cases will, create chaos in your supply chain. The challenge in Integrated Quality Systems helps companies reduce costs and
most every organization today is the lack of an enterprise-wide risk by improving quality throughout their enterprise and
supply chain.Visit www.iqs.com for more information.!
31 Summer 2008