A Better Way to Conduct Supplier Assessments

April 18, 2016
Supplier capability assessments are often expensive and inefficient, and don't produce desired results. Have you considered just eliminating them?

I had several assignments in Quality Engineering and Quality Control prior to ending up in Purchasing. Through these I became involved in supplier assessments of strategic suppliers, both from “prospecting” and an “ongoing monitoring” perspectives. In fact, at that time in my company, Quality Engineering was responsible for leading such assessments. This was because their primary focus was on evaluating supplier processing capability—the bread-and-butter of quality control analysis. These assessments, however, went way beyond this, including evaluation of just about every aspect of supplier operation, including finance and engineering support. The following discussion will focus on “ongoing monitoring” assessments.

Scheduling these assessments wasn’t easy. The biggest issue tended to be getting the specialized manpower needed to be able to competently perform them. For instance, both quality and design engineers were required to audit areas related to their field of expertise. In fact, it wasn’t unusual to need between six and nine personnel from my factory to make the necessary time commitment, including a half-day pre-assessment planning/training meeting; travel to and from the supplier; the actual on-site assessment (which often took the better part of three days); developing a cumulative rating in each area of responsibility according to defined guidelines; and contributing to the write-up of the overall assessment and any associated “follow up” recommendations. In other words, the commitment usually took a week or so out of each assessor’s normal routine. Our department was responsible for organizing one supplier assessment per month, so you can see that the manpower commitment was large.

I came to understand that the commitment on the part of the supplier was much larger, in both time and resources. I learned that suppliers often took weeks (or months) to prepare for such customer assessments, which on average they were subjected to by each of their major customers every two or so years. And the preparations involved their entire operational team, often leading to significant overtime since such preparations were required on top of their normal duties of “getting product out the door.”

Remember, this was before I worked in purchasing so I was interested in why suppliers felt they had to put this type of effort into preparing for them. The answer I generally got from suppliers when I asked this question was along the lines of “one low rating and/or unfavorable comment in the final report and/or in the follow-up recommendations could lead to a significant loss in business or overwhelming remedial work to remove the perceived deficiencies.” I remember early in my supplier assessment career taking aside my host—the supplier’s general manager—and asking him how much manpower he had budgeted preparing for and hosting our assessment of his operation. I was blown away when he said they set aside over a man-year—yep, 240 man-days—in people’s time and had a six-figure budget to support it!

From my perspective there seemed something wrong with the whole assessment process approach. From a tactical point-of-view we were pulling my company’s people out of their normal roles and putting them into positions they weren’t really trained for. Realize, it was rare to get a person from another department to agree to participate in more than a couple assessments a year. This meant that we relied on a variety of functionally focused participants who really never got used to—or even good at—the role we were putting them in. I was also concerned that during these assessments we were observing “showcased”—rather than normal—operational processing. And finally, I wondered whether what seemed like an excessive resource commitment by both companies really delivered a meaningful return. I continued in my responsibility to manage the assessments but started actively thinking about alternatives.

At this point in my career I had never had a personal one-on-one meeting with my factory’s general manager, so I was a bit surprised one morning to see a note on my desk from his secretary to come up to his office right away. When I got there he showed me a report documenting that one of the suppliers we had recently assessed had been granted an outside, third-party quality certification. The supplier’s pride in receiving this status had apparently led them to send documentation of it to the top executives at their important customers. I was wondering why he had brought me up to see this but remained quiet, i.e., waiting for what I assumed would be “the other shoe to drop.”

The general manager then asked me whether the results of our recent assessment at this same supplier had corresponded to the third-party certification he had just received notice of. I replied “in general, yes.” Then the “other shoe” dropped.

He slammed a piece of paper on his desk and asked me to read it over. The document was a Reject Report from that same morning, showing that some of this supplier’s assemblies—a supplier of hydraulic components—were leaking at our machine final run-in station and as a result had shut down one of our production lines. After I read the Reject Report he told me two things. First, that the supplier’s initial feedback was that it would take a minimum of two weeks for them to get to the root cause of the problem such that they could re-start production and resume supply of the product to our factory. My general manager told me that as of “right now” I was assigned to that supplier’s factory and he expected our production to be back up and running in two days. The second thing he told me was, “Obviously, your supplier assessments don’t mean sh*t, do they?” I really didn’t think he was asking for a reply so I remained silent. He then went on to tell me that once I got back I should start re-thinking “the whole supplier assessment approach.”

My next few days were a whir on-site at the supplier as I reviewed their quality control program for the impacted component. This involved assembly was an off-the-shelf item for this supplier so the product was not unique to our application—in fact it was sold to many other customers. As is often the case with hydraulic assemblies there was a test fixture at the end of the assembly line which could be used to check all product functions, confirm pressure capabilities and fluid usages. I was perplexed. I asked, “Doesn’t your final run-off assure function and quality?” My internal supplier contact answered, “Yes.” I asked then how was it possible my factory had received parts that leaked. His answer was that assembled units were only tested periodically since the testing of each individual unit “would require increasing their current manufacturing takt time significantly.” Whoa Nelly!?!

I immediately requested that they re-start production and test 100% of the units to be shipped to my factory. The supplier replied that with their current equipment they didn’t have the capacity to test all scheduled production and maintain the schedule. In addition he said if they started testing 100% of the units they would have to increase our price. Remember, my company’s usage represented only a portion of the overall annual volume of this product—well under 50%. Based on this I pointed out that if they continued periodic testing for their other customers they should have the necessary test fixture availability to test ours 100%. I went on to promise him that once units started hitting my factory’s production line again we’d revisit the pricing issue. The supplier agreed to start-up production—but only of units intended for our factory—and to test them 100%.

After a day of running and testing we identified that about one-out-of-eight units indeed leaked and thereby failed their final run-in. But only the ones that passed the test would be shipped to my factory so I was okay with the result!

Next I sat down with the supplier’s general manger—who I was very familiar with due to our recently completed supplier assessment—to discuss a possible revision in pricing. I started by asking him if their final run-in test was “foolproof” and he confirmed his employee’s previous assertion that it was as close to being so as was possible. I next told him that from this point on all of our units would be required to go through that run-in process. He responded that they would do this but that doing so would require a cost increase—due to the need to purchase additional test fixtures and the extra run-time involved—and this would have to be reflected in the price they charged us. I asked him to quantify the cost/price increase and he responded immediately, having been clued by his people to be ready with this information. I countered that I thought that the change to 100% testing could actually result in a cost reduction and wondered if he would be interested hearing about this? He responded with a confused frown and asked what I was thinking.

I questioned him how much he had spent in preparing for our recent supplier assessment and what that meant relative to piece-price, assuming our current projected annual usage. He estimated the manpower and other costs associated with preparing for and hosting that supplier audit and—surprise, surprise—they exceeded what he was planning on adding to our price for the upgraded inspection requirement. I responded that since the 100% run-in testing was considered foolproof, if it was continued our company would forgo any future supplier assessments—and I wouldn’t even tell my purchasing group about the cost reduction we had just configured. He smiled and we shook on it. I was definitely out of my authority in making this move but I felt that with everything that had happened that week I was probably in a good enough position to get support on this, if needed.

The next week—after our production had resumed—my general manager stopped by my desk to discuss the recent production shut-down. He wanted to know how we had gotten production up and running in such a short time—three days. I explained and he replied, “I know I told you two days but I wasn’t expecting anything under a week, so good job.

“By the way,” he continued, “I like it that your solution involved eliminating ongoing supplier assessment there. Why don’t you take a month or so and come back to me with a proposal for eliminating it for most—say 80%—of the suppliers we are currently doing ongoing assessments for.”

I was happy for his support but left wondering how I could come up with such a proposal in the timeframe he had laid out. I was also a bit worried about the reaction I would receive from my colleagues in quality control—both at the factory and corporate level—about potentially eliminating one of our function’s basic job responsibilities!

The proposal I came up with will be the topic of the next article.

About the Author

Paul Ericksen | Executive Level Consultant; IndustryWeek Supply Chain Advisor

Paul D. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers. At the second he was chief procurement officer. He then went on to head up a large multi-year supply chain flexibility initiative funded by the U.S. Department of Defense. He presently is an executive level consultant in both manufacturing and supply chain, counting Fortune 100 companies among his clientele. His articles on supply management issues have been published in Industrial Engineering, APICS, Purchasing Today, Target and other periodicals. 

Read Paul's articles

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