As part of our consulting engagements, we are frequently asked about industry best practices in structuring supplier quality teams. And often, the discussion turns to the evolution of the organization from supplier quality management to supplier development. Here are our thoughts on this subject.
In general, a Supplier Quality team operates at the part-feature or process-parameter level, making corrections and improvements to manufacturing processes and quality control methods to fix and prevent problems. This team ensures that parts coming in from suppliers, meet specifications, and that you can continue to ship finished products out to your customers. The payback on these efforts is usually in the short term. Supplier Quality activities are supported by a contractual obligation on the part of the supplier to ensure only conforming parts are shipped.
A Supplier Development team, on the other hand, operates at the organizational or business process level, and focuses on developing the supplier’s capabilities, to ensure that both your supplier (on whom you depend) and you, continue to be successful in the long run. Supplier Development may not have a contractual basis, and instead requires a collaborative relationship between buyer and supplier. Supplier development programs begin with a mutual recognition of dependence, and a commitment of support by executives at both buyer and supplier.
You do not need to, and nor should you attempt to develop all of your suppliers. Instead, you need to identify the subset of suppliers that makes critical components, and cannot be easily replaced due to a technical or a capital investment barrier. Next, you need to identify one or more areas for improvement. Most companies measure suppliers on Quality, Cost, and Delivery. To improve these outcomes, we need to focus our efforts on building the suppliers capabilities in multiple areas. Here are some examples:
Before you can begin a supplier development process, your supplier will need to acknowledge the need for improvement, and commit resources and management support for the project.
Your Supplier Development team will also require internal support from your Supply Chain and Sourcing teams. The support of the Head of Purchasing, and the Supply Chain / Sourcing Manager responsible for the commodity must be engaged and committed to a longer-term vision, to ensure that tactical challenges around cost reduction don’t disrupt the strategic efforts around capability development.
It is also important to consider how strong this capability is within your own organization. Can you truly add value to your supplier, or are you disrupting their operations? We have seen attempts to implement lean at suppliers often fail because the buyer’s own understanding of lean is very weak, and their own operations are poorly run.
And finally, always take the longer-term view. Don’t waste your time worrying about how to split the benefits from the development efforts. Recognize that if your supplier’s performance improves, you save money. For example, if the supplier improves quality, his yield improves, and you save money from fewer inspections and fewer defects. Similarly, if your supplier's capacity is freed-up, his on-time delivery to your factories will improve, making your production smoother and more predictable.