Taking Control of Supplier's Quality Part-II

We continue with yesterdays article on how we can manage the supplier's quality.

Managing the supply chain is like chasing a moving target. As with any organization, suppliers change their locations, people, ownership, and infrastructure. This creates perfect conditions for internal systems to develop redundant and duplicate data.

Coupled with this, globalized supply chains are becoming the norm, which means that companies must consider physical distance, lead time, cultural and local knowledge factors, and local and global economic conditions that can affect supplier stability.

From an internal perspective, most organizations in quality-critical industries have an excellent internal network of quality experts. Unfortunately, these resources are finite, and too often bogged down in nonvalue-adding activities such as traveling to global supplier locations.

Another challenge of the supplier quality function in larger organizations is to stay connected. Many organizations maintain a largely decentralized supplier quality function to remain responsive to individual divisions, operations, or even plants. Unfortunately, this leads to a lack of information sharing and standard practices that could offer economies of scale across the organization.

The tools and techniques of the supplier quality function also need to be in sync with the supply chain. Companies still operate processes that are facilitated by email and isolated data repositories.

Increasing supply chain diversity also increases risk. Reducing that risk means increasing the number, frequency, and duration of supplier evaluations (typically quality system audits). Even without increasing the scope of the audit function, the natural growth and diversification of the supplier base will outpace the structure and resources of a static supplier audit program.

Harnessing data

Integrating supplier data in supplier scorecards, dashboards, or profiles enables supplier quality managers to make informed, risk-based decisions, usually about how much money to invest.

Broadly speaking, these integrated data cover:

• Compliance—rating the supplier infrastructure (e.g., systems, processes, resources)

• Performance—monitoring elements such as on-time delivery, price, and quality

• Criticality—measuring the effect of supplier performance on the supply chain, based on questions such as, “What is the intended use of their product?” These considerations play a major role in determining the amount of attention to give each supplier, and the standard to which it must be held.

• External factors—viewing the supply chain from an industrywide perspective to identify scenarios such as resource shortages, regional instability, or even an increase in criminal activity (e.g., counterfeiting or raw material adulteration)

Mining and integrating the above data come under the broad heading of data analytics. Leading companies are extremely good at prioritizing and directing limited supplier resources because they make good use of data analytics. Without these data, companies are at risk of over-allocating resources to good performers, and under-allocating resources to poor performers. Understandably, many companies focus their efforts on strategic or well-performing suppliers; however, many industry leaders set aside a significant portion of their resources to handle their worst-performing suppliers—i.e., those with the greatest potential for improvement.

This prioritization of resources is consistent with a “risk-based approach” to supplier quality, wherein suppliers with higher risk attract greater attention and resources.

With an integrated supplier quality view, it is possible to develop “supply chain intelligence.” These data help companies identify the gaps and improvement areas within their supply bases. Most companies collect supplier data in one way or another, but few tie it together effectively.