Suppliers on a Short Leash

July 31, 2009
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During the past 10 years, changes have occurred within the supply chain that are quite possibly greater than any others seen during post-war time. As a result of these changes and pressures, the management of suppliers has become more important to ensuring that the supply base is both efficient and effective. The single largest change impacting the management of suppliers has been engendered by the global economy’s development of suppliers in low-cost regions (LCRs) such as China, India and Mexico. Suppliers in these regions are flocked to because of the labor cost advantages they can provide; however, LCR suppliers can come with some unanticipated risks.

Supplier management software allows organizations to not only measure a supplier’s OTD to the promised or contractual due date, but also to measure performance to the date needed to fulfill the customer’s due date. Source: Cebos Ltd.


During the past 10 years, changes have occurred within the supply chain that are quite possibly greater than any others seen during post-war time.

Quality systems have matured both at home and abroad, resulting in shifts in competition as new regions with low-cost labor have appeared and now compete with traditional suppliers. There have been fluctuations in commodities and currency exchange rates that impact how companies procure materials, components and services. The speed at which orders fluctuate has increased rapidly as systems within the supply chain are integrated. As a result of these changes and pressures, the management of suppliers has become more important to ensuring that the supply base is both efficient and effective.

The single largest change impacting the management of suppliers has been engendered by the global economy’s development of suppliers in low-cost regions (LCRs) such as China, India and Mexico. Suppliers in these regions are flocked to because of the labor cost advantages they can provide; however, LCR suppliers can come with some unanticipated risks.

Lead-times tend to be much longer, not only because of transport time, but also because customs delays can impact on-time delivery (OTD). Typically, LCR suppliers tend to have less mature quality systems, which can lead to quality and consistency issues.

Another observation is that suppliers have smaller core competencies in these LCRs because they are simply not as mature in their knowledge and competence as suppliers in other regions. For example, just because a supplier is great at a given product line does not necessarily mean they will be great at others.

Section 7.4 of the ISO 9001: 2008 standard states: “The organization shall evaluate and select suppliers based on their ability to supply product in accordance with the organization’s requirements. Criteria for selection, evaluation and re-evaluation shall be established. Records of the result of evaluations...shall be maintained.”

Supplier management software provides suppliers with trending of PPM and OTD as well as an overall score for suppliers. Source: Cebos Ltd.

Traditionally, the generally accepted metrics for evaluating suppliers have been part per million (PPM) calculations as a measure of a supplier’s quality, on-time delivery (OTD) and the much talked about-but more difficult to measure-assessment of excessive shipping costs. Other traditional tools in the quality toolkit are arguably supplier corrective actions and on-site audits of the supplier, which both can be as much work for the customer as for the supplier.

All of these methods are good, but organizations need to get smarter and change their practices to accommodate today’s global business environment. Organizations need better systems to manage suppliers. Systems can ensure quality product is delivered in a timely manner while facilitating compliance to the ISO standard’s requirements.

Unfortunately, many manufacturing resource planning (MRP) and enterprise resource planning (ERP) systems are great at doing resource planning, but getting meaningful data out of the systems to help with supplier management requires a great deal of post processing. To effectively and efficiently manage traditional and new challenges, today there are supplier management software tools that provide the following capabilities:

  • Pre-approval of supplier shipments via the Web.
    LCR suppliers likely have a longer lead-time induced by geography. Their quality systems and knowledge are limited because they are new and the costs of having an on-site presence in the region to monitor suppliers are high.

    With supplier management software, the organization can set up predefined receiving characteristics and have suppliers submit them on the Web with required approval before shipping product. This can ensure that good product reaches the receiving dock and eliminates major delays that could occur if the product were received with quality problems.

  • Measurement of supplier’s ability to ship based on promise date vs. need/want date.
    Often times the lead-time negotiated with suppliers is not adequate to support some customer orders or changes to them. Supplier management software allows the organization to not only measure a supplier’s OTD to the promised or contractual due date, but also to measure performance to the date needed to fulfill the customer’s due date. This will give an idea of how well the organization can meet the commitments to its customers and help it understand what suppliers need development to better meet those commitments.

  • Ability to look at PPM as a measure of the quality of the product.
    Although this is a traditional measurement, it is often not easy to retrieve the data from traditional systems, and some systems may be implemented in such a way that not all defects are being logged against a supplier. Supplier management software allows easy access to this information.


  • Supplier management software with today’s online analytical processing cube technology allows data to be looked at and drilled into from many different perspectives, giving users the ability to graph and move throughout it as they require. Source: Cebos Ltd.

  • Capability for suppliers to respond to corrective actions via the Web.
    Traditional supplier corrective action systems require the customer to detect the problem, write it up, send it to the supplier, remind the supplier to respond, review a typically inadequate response, type the information into a tracking system and conduct the validation/closure. This is a tedious and non-value-added process.

    Supplier management software will automatically notify a supplier, allow its employees to enter responses, enforce behavior through checklists, send out reminders and allow the supplier to enter data via the Web directly into a tracking system.

  • Ability to share documents and drawings with suppliers via the Web.
    Sharing documents and drawings can be costly for customers because they need to e-mail or ship the documents or drawings to suppliers not only when they are created but every time they are changed.

    Supplier management software has the capability to allow suppliers to see certain documents from the Web at their will. This can greatly reduce costs and eliminate the cost of ensuring the supplier gets the most recent version of the file.

  • Measurement of partial shipments.
    Tracking actual shipping costs can be very difficult and often leads to the accidental reporting of nonrelated costs.

    Supplier management software can correct this problem and also can consider the number of partial shipments for each purchase order line item. This gives an objective assessment of what it takes for a supplier to ship product.

  • Supplier scorecards showing trending and receiving history.
    In order for anyone to react to a problem, they need to understand the problem through metrics. The same holds true for suppliers. Supplier management software provides suppliers with trending of PPM and OTD as well as an overall score for suppliers.

  • Use of business intelligence technology for drilling down.
    To have an efficient and effective tool, anyone from corporate supply chain managers down to plant managers needs to graphically manipulate and drill into data to understand where the problems lie. One individual may be interested in knowing which suppliers have the worst delivery for a specific plant. Another individual may be interested to know which plant has a supply base with the highest PPM. Supplier management software with today’s online analytical processing cube technology allows data to be looked at and drilled into from many different perspectives, giving users the ability to graph and move throughout it as they require.

  • Use of span.
    Another concept to consider employing is span-the number of days before or after a due date that a given supplier delivers product. Span allows one to make an assessment of the overall distribution of a supplier’s OTD. What this entails is the ability to statistically calculate both the number of days before and number of days after a due date that a supplier has a certain percentage of shipments.

    Supplier management software does this by calculating the number of days before a due date that the earliest 5% arrive and the number of days after the due date that the latest 5% arrive. Span allows organizations to gain a general confidence with respect to the due date at which a certain supplier will provide shipments. Span removes the earliest and latest X percent to show the days before and after a due date that the majority of the shipments will be received. Therefore, if span is larger for one supplier than another, it indicates not only that a supplier has a larger fluctuation in the OTD, but also provides a range at which a shipment will likely arrive.

    Given the changes in the economy and shifts in sourcing during the past decade, there are risks in the supply chain that accompany attaining pricing benefits. The good news is that there are methods to mitigate risks and software tools that help organizations be more efficient and effective in managing their supply chains. Q


  • Quality Online

    For more information on ISO compliance software, visit www.qualitymag.com to read these articles:

    “The Automated Management System”
    “Moving to an Automated Management System”
    “Software Takes on ISO”

    Tech Tips

    Among other functions, supplier management software allows organizations greater supplier management control by giving them the ability to:

  • Pre-approve supplier shipments via the Web.
  • Have suppliers respond to corrective actions via the Web.
  • Share documents and drawings with suppliers via the Web.
  • Measure a supplier’s ability to ship based on promise date vs. need/want date.
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