51
6
Supplier Development
Overview
In the last chapter, we addressed the issue of segmentation and we offered
some benets for both the customer and supplier. In this chapter, we focus
on supplier development.
ISO 9001:2008 contains two subclauses—7.4.1, Purchasing Process, and
7.4.2, Purchasing Information—that make an organization responsible for
ensuring that its suppliers are capable of meeting the organization’s (and
its customer’s) specications, but they do not require the organization to
develop its suppliers so products and services purchased from those suppli-
ers are improving. ISO 9001:2008 also requires the organization to continu-
ally improve the effectiveness of its quality management system (QMS), so
any competitive company should include supplier efciency and effective-
ness as improvement goals. (Note: By the end of 2015, a new revision of the
ISO 9001 is expected and the anticipated changes will follow a structure that
makes it easier to use in conjunction with other management system stan-
dards, with increased importance given to risk.)
ISO/TS 16949:2009 (ISO/TS 2009) goes farther than ISO 9001:2008 and spe-
cically requires your organization to pursue supplier development, which
means ensuring any supplier that affects your product has an effective QMS
and is improving its processes to meet your customers’ needs. Of course,
the ISO/TS 16949 is an automotive-specic requirement but similar industry
international standards have the same or very similar requirements such as
medical device ISO 13485, aerospace AS 9100, and many others.
Therefore, we see that the international standards suggest and the industry-
specic requirements require supplier development. However, what is sup-
plier development? At a minimum, a supplier development program should
be aimed at achieving the following four goals:
1. Make sure capacity requirements are met.
2. Make sure delivery requirements are met.
52 Quality Assurance
3. Make sure any risk is minimized by anticipation, monitoring, or
mitigation.
4. Make sure quality requirements are met or exceeded. This, in turn,
will cause
a. Lower supply chain total cost
b. Increased protability for all supply chain participants
c. Increased product quality
d. Near-perfect on time delivery at each point in the supply chain
Understanding the Fundamentals of Supplier Development
Perhaps the most important fundamental issues that any formal supplier
development program must take into consideration as part of its design to be
successful (effective) are the following items:
• Establish, dene, and govern the relationship between customer and
supplier.
• Observe, monitor, improve, and sustain operations. Unless the oper-
ations are studied and understood, they will not be improved.
• Transfer technology and lend nancial support. We are in an age
where technology is changing too fast. The organization must be
prepared to support innovations in production, quality, and ef-
ciency methods for improvement.
• Train management and the workforce. One cannot perform excel-
lence unless one is trained appropriately and timely. Everyone in the
organization must be trained to do their job in an optimum way and
to look for improvement opportunities.
• Enforce environmental and social compliance. In the last 10–15 years,
all of us have been sensitized to both environmental and safety con-
cerns. The ISO 14000 and the application of failure mode and effect
analysis as well as hazard analysis should be part of the culture of
the organization.
• Identify and mitigate all sources of risk. It is the responsibility of the
supplier to make sure that all risks have been identied and appro-
priate and applicable corrective actions are in place to either mini-
mize or eliminate those risks.
On the other hand, critical success factors for an ongoing successful sup-
plier development program from our experience have been the following:
53Supplier Development
• Providing information about products, expected sales growth, etc.
Poor communication is one of the biggest wastes with a Lean supply
chain. Lack of information translates into additional costs (usually
in the form of just-in-case inventory). Suppliers need to become
extensions of their customers. However, the customers must also be
sensitive to providing timely information for applicable adjustments
whether it may be cost, delivery, capacity, performance, and so on.
• Training in the application of Lean and quality tools. Asking sup-
pliers to drop their price without giving them the knowledge to
lower their costs through Lean implementation is not sustainable
long term. In other words, this will drive suppliers out of business,
which goes against the purpose of supplier development. This actu-
ally happened under the directorship of Mr. Lopez while at GM in
the early 1980s. It is profoundly important for the OEMs not to bully
their suppliers—just because they can—to suppress quality at the
benet of price. Both suppliers and customers must understand that
value (total cost) is more important than just plain price. It is the
responsibility of the customers to educate what they really want and
how the supplier can deliver it.
Therefore, to succeed, a supplier development program requires participa-
tion and cooperation from both internal and external stakeholders. Across-
functional team representing internal stakeholders and with an executive
sponsor needs to be created. This team gets the internal stakeholders on
board and then ensures alignment of the external stakeholders to success-
fully accomplish the initiative. To this end, the customer must designate
someone (most OEMs actually have such a person) to facilitate both the
needs of the customer and help in resolving issues and problems with sup-
pliers. Many organizations call that individual supplier technical engineer,
supplier quality engineer, supplier technical assistant, or some other name.
To be sure, not all supplier development initiatives are successful. From my
experience working with the automotive and many other industries over the last
35 years, I can say 40%–60% of all initiatives have failed primarily due to poor
implementation, articial commitment from both customer and supplier, and
very poor follow-up. Some specic issues that I have observed over the years are
1. Most rms engage in reactive supplier development approaches
(which addresses sporadic problems), as opposed to strategic
supplier development approaches (which addresses continuous
improvement of the entire supply base). In other words, suppliers
react to res, not to preventing res.
2. Most organizations focus on convenient approaches to supplier
development, which include rewarding performance (the carrot),
penalizing poor performance (the stick), ongoing detailed assessment
54 Quality Assurance
and feedback (measurement), and direct involvement in suppliers’
operations (hands-on approach). In other words, customers play a
game of got you rather than working with the supplier and demon-
strating the benets of a good long-term relationship for both.
3. Most organizations lack real data to support decisions; that is, lack of
research on which approach is most effective for the best outcome or
data to suggest that a combination of approaches may be appropri-
ate under different circumstances, depending on the nature of the
supplier, the type of commodity, and the management team at the
supplier. In other words, most OEMs push for resolutions that are
fast and temporary rather than focusing on long-term effective solu-
tions. On the other hand, suppliers are eager to satisfy the customer
as soon as possible with band-aids based on temporary xes of the
past rather than systematic problem resolution and prevention.
If the supplier is new to quality thinking, it is strongly suggested to follow
the guidelines of the quality system assessment checklist, which is accompa-
nied by all industry-specic requirements. In the case of the automotive, it is
the AIAG edition 2009 (AIAG 2013).
Benefits of Supplier Development
To be sure, any endeavor to improve supplier relationships comes with effort
and commitment in the form of strategy for volume, location (proximity),
historical performance, and time of existence. All these must be veried and
substantiated, usually with an on-site audit and paper historical evaluation.
It is of paramount importance to realize that this strategy in the past quite
often never went beyond fullling orders and exhibited only supercial levels
of collaboration—just to get by. Additionally, there was no effort to tap into the
hidden potential of these relationships. In the future world of improvement,
this strategy must be active and open to consider all issues and problems. If that
occurs, then the extra effort typically accumulates into at least the following:
• Improving overall communication internally and externally
• Reducing product defects
• Improving on-time delivery
• Reducing cycle time
• Improving overall performance and customer satisfaction
• Reducing nonvalue activities
• Improving capacity
55Supplier Development
How do we make sure that this strategy is being followed? By an on-site
audit in which both customer and OEM representatives participate. A suc-
cessful audit must cover at least the following areas:
• Organization: management, people, quality, innovation
• Resources: technology, process
• Health: nance, supply risk
• Responsibility: environment, certications
The on-site supplier audit must be carried out by a cross-functional team,
and must cover various main areas as well subsections of these areas. In
other words, the audits must have appropriate and applicable breadth and
depth in their evaluation process. Obviously, for each main area and sub-
area a checklist and questions must be prepared to be investigated and
answered. The results should be tabulated in a scoring system developed
by the OEM and should indicate excellence as well as decient points for
improvement.
In the nal analysis, a Lean supply chain may be created by commitment
of both OEM and supplier to improve the overall performance and safety by
doing the following:
• Redene organization/supplier relationships.
• Develop and implement an effective e-business strategy that will
enhance communication across the supply chain—especially the
advanced product quality process (APQP).
• Use appropriate and applicable metrics (performance measures) that
will provide feedback on the supply chain.
• Increase collaboration across the organization/supplier interface.
• Employ a cost out strategy, not merely reducing price.
• Align the customer with its suppliers so that they form a single
value-generating entity.
• Improve process stability, process capability, and capacity.
References
AIAG. (2013). Checklist to ISO/TS 16949, 4th ed. Southeld, MI: AIAG, Daimler
Chrysler, Ford Motor Company, and General Motors Corporation.
ISO/TS 16949. (2009). Technical Specication ISO/TS 16949, 2nd ed. Corrected copy.
Southeld, MI: AIAG, Daimler Chrysler, Ford Motor Company, and General
Motors Corporation.
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