After reading the “teaser” at the end of my last column ("A Better Way to Conduct Supplier Assessments") you may have expected a detailed description here of how to replace the format of supplier assessments. If so you may be a little disappointed, at least at first. I will elaborate on that subject, but what I want to do foremost is to use the example of ongoing supplier assessments to discuss a larger, more pervasive issue. But before I do, though, here’s a higher level follow-up on simplifying the supplier assessment process.
In God We Trust; All Others Bring Data
When you get right down to it, today’s supplier assessments are subjective evaluations used to predict the amount of order fulfillment risk your company is exposed to in working with a particular source. In other words, they forecast a supplier’s capability of delivering quality parts, on-time. What do we know about forecasts? Forecasts always contain some level of error. The theory with supplier assessments is that the better the assessment tool, the less the forecast error.
Subjective assessments, however, tend to have more error than data-based assessments. And unfortunately, in efforts to increase their effectiveness, companies have increased the scope of their current supplier assessment tools. And—as was pointed out in the last column—as the assessments have become more complex so have their associated costs, for both the assessor and the supplier.
Why have the expanded supplier assessments not been more accurate predictors of supplier order fulfillment capability? Because they have lost focus on what is important to ensuring the ongoing flow of quality parts. In other words, the expanded focus of assessments has diluted attention on what’s needed to understand supplier capacity, lead-times (Manufacturing Critical-path Times, or MCTs) and process capability. Sure, all assessments tools (that I am aware of, anyway) do touch on these topics, but they do it from more of an “ISO” (is all process documentation in place?) rather than a “hands-on” (are the actual controls happening and what do they show?) perspective. And with their expansion, that “touching” has become only a minor focus.
Once I’ve confirmed what looks like to be adequate supplier order fulfillment capability in an initial new supplier “prospecting” evaluation, what I’m really interested in seeing on an ongoing basis (or having the availability to see) is real-time data which shows the supplier continuing to perform as previously concluded.
Let’s relate the above thought back to the hydraulic component focused on in the previous article. From a product perspective such components are considered Black Boxes by most customers. With a Black Box component, the product performance features that are important are two-fold, namely:
- Will it successfully connect to the product it is being used on?
- Once it is connected, will it perform as specified?
Other types of Black Box components include things like engines, transmissions, gearboxes, etc. In a nutshell, all that should be important to a customer worried about Black Box order fulfillment is whether it successfully connects up; will it perform per spec; and does the supplier have capacities and MCTs to satisfy reasonably expected demand? If you can confirm a supplier can support these four issues, what else is really needed to predict their supplier order fulfillment performance?
As previously stated, the latter two of these factors should be evaluated during supplier prospecting work. With Black Boxes, the first two factors can be confirmed on a supplier’s final run-in test stand. So, what my company learned with that hydraulic component, the question might be: “Why hadn’t we replaced ongoing production supplier assessment for all Black Box components by confirming that our sources of these products were covering these points at the end of their production process?” Good question.
Checking around with our other suppliers of Black Box components I found that all submitted their product to final run-in tests. If my company could make sure suppliers final tested 100% of products intended for our factories with run-in cycles that met our performance expectations, there was a strong case for eliminating supplier assessments of these suppliers. Over the next year our factory reviewed and confirmed exactly those two things. Doing so eliminated about 40% of our supplier assessment workload. Also, interestingly enough, over two-thirds of the purchased content dollar-wise on our product was eliminated from the supplier assessment requirement.
What about regular non-Black Box parts? I explained in a previous column (Change Management: How to be an Operator) how our part acceptance process had changed to mirror our in-house part approval process. It was an easy stretch to extend this data review to monitor ongoing evaluation of production parts. So in reviewing supplier process capability and ongoing production set-ups we found we could confirm ongoing supplier order fulfillment capability based on facts and data, rather than subjective evaluations.
I’m sure at one time there was a legitimate business case developed for doing ongoing supplier order fulfillment assessments. But if you looked at the organization in the company at the time of my involvement in these assessments we had instituted a significant infrastructure of resources—both dedicated and temporary—to support them. In fact, the dedicated resources included:
- A corporate group that was responsible for defining and standardizing the supplier assessment process across the company. They also published a multitude of documents including manuals, reference cards and assessment related forms. Because of annual review and changes, much of the time these documents needed to be updated on a yearly basis.
- Individual divisional organizations, including managers and staff responsible for managing the supplier assessment process for supplier locations from which divisional factories sourced products.
- Lead individuals at each factory that coordinated assessment efforts with the corporate and divisional resources.
The end result was that my company—a Standard & Poor’s 100 corporation—had, at the time, several dozen quality positions dedicated to the conduct of supplier assessments. Yet we still had interruptions to our assembly lines due to lack of parts, either due to quality issues or supplier capacity/lead-time constraints due to error in the assessments. I think you can see that there is a valid question here about how the idea of validating supplier order fulfillment capability was allowed to grow to the point that such a large amount of resources needed to be dedicated to the function, especially in view of the questionable results these supplier assessments yielded. How could this have happened? That question raises the main point of this column.
In my mind there are two types of managers. The first are those that work to define and develop more efficient ways of getting the job done. In other words, they stay focused and try to simplify. The second is the type that uses an initially narrow focus to increase the scope of their responsibilities. The first type is the kind that I want working for me. In my experience, most supplier assessment functions have grown through the efforts of the second type.
This second class I refer as Empire Builders. The idea behind their focus on increasing responsibilities—and staff—is so they can justify increased labor grades. Unfortunately, all too often this focus results in a loss of focus on the real intent of their responsibilities. As you saw from the hydraulic component example in the previous column, there was a better, more efficient and effective way of ensuring the needed supplier order fulfillment performance if people would only step back and think a little (very little, in fact) “outside of the box.”
What happened at my company? As I said, within a year or two our division stopped conducting traditional supplier assessments and focused on making sure we had available critical process and product test data upon which to judge supplier order fulfillment capability. It took much less effort, both for us and our suppliers.
The move led to a clamor from the rest of the company’s supplier assessment resources which predicted a “doom and gloom” increase to the supplier-caused downtime at our division’s factories. Consequently, the other divisions (and corporate) kept their supplier assessment empires in place. A couple of years later, however, comparisons showed that our division was outperforming the others in terms of supplier production support. As a result, a few years later the supplier assessment function largely converted to what we were doing.
My company’s experience should lead to the question of whether any purchasing function actually needs a large (and expensive) ongoing supplier assessment organization. And it should also lead to a lot of soul searching about whether purchasing functions have added significant non-value added cost to supplier operations in maintaining such organizations.
Does your company reward its managers that develop more efficient ways of getting the job done? Or does it allow managers to build empires? I’ve often thought that programs should be evaluated periodically to see if they continue to justify their value, i.e., sunset reviews. Better yet, don’t let empires be built in the first place.
My next column is going to cover a subject close to my heart: Supplier Development.