Supplier quality management: Value enhancement through value protection!

Autumn is in the air.

Pumpkins burst, leaves change and Thanksgiving cornucopias are filled every second. There’s something about the crisp fall air that makes me romanticize the “coziness” of everything, but can you blame me?

As an ex-American, I sometimes forget that my associations with the fall season don’t match those of my friends here in Stockholm, Sweden. But if we can all agree on one thing, it’s that Thanksgiving dinner is a must.

I started the tradition a few years ago and it has since become an annual event hosted at my home – potluck style. I make the bird, the stuffing, and the taters, and each contestant represents their own dish. It’s a festival of epic proportions, and there’s a food selection big enough to feed Coxey’s army (like my grandmother always says).

There’s something about working together and hanging out with friends that makes the night so special. Each person has the responsibility of preparing a dish that they will serve. Some bring side dishes, some desserts, some drinks, and in the end everyone contributes to the success of the evening. But what would happen if someone forgot the pumpkin pie? Or will the green bean casserole burn? Though it’s a friendly dinner, Thanksgiving’s success depends heavily on harmonizing several moving parts.

The participants’ investment of effort, time and focus during – and before – dinner proves indicative of the outcome of the experience for all involved.

Basically, if we can draw a comparison between Thanksgiving dinner and sourcing, they’re an everyday example of why supplier quality management matters.

What is SQM?

Supplier Quality Management (SQM) is individual to each organization and the business-critical goals of the procurement organization, but in the larger definition: Supplier Quality Management is an overall assessment of delivery and performance within the boundaries of agreed terms and conditions of suppliers and buyers.

Supplier quality management seeks to locate and utilize the suppliers that meet the buyer’s needs and costs without consuming internal resources (minimum need for inspection or development). Good quality can help a procurement team achieve revenue growth and customer satisfaction. However, ignoring SQM can just as easily lead to major problems in a company’s value chain.

A supplier’s quality input is an indicator of a customer’s satisfaction. When that input can be managed, fine-tuned, and streamlined, you’re on your way to great procurement.

What does it cost you to have bad suppliers?

The first step in creating a comprehensive supplier quality management strategy is to understand the cost of working with bad suppliers.

quality costs. That’s fact. But identifying/quantifying the sum of resources (time and money) invested in fixing bad supplier errors allows you to assess the value of prevention costs. This can be quantified and referred to as Cost of Poor Quality (COPQ).

“COPQ in the supply chain cannot be completely eliminated – since no supplier is perfect, calculating these metrics can help you identify opportunities for cost savings as well as problem areas that need to be addressed. For example, by understanding how delivery delays affect COPQ, you can proactively work with suppliers to expedite future deliveries. The COPQ metrics can also help you accurately calculate supplier chargebacks, thereby recovering costs faster.

Standardize quality indicators

What does quality mean to you? Product, Direct Materials, Components, Cost, Availability, Competitiveness, Delivery, Sustainability, Customer Satisfaction or….

If you’re feeling a little overwhelmed, you should be.

Quality is relative from organization to organization and for this reason it is quite difficult to create a blanket definition of quality in relation to supplier management. However, standardization is valuable for measuring quality and performance indicators, evaluating them and collaborating with your suppliers from one place of tangible data.

Quantifying supplier quality helps your organization have datasets that your team can use to identify pain points faster, work more closely with key suppliers, and develop supplier partnerships that need that extra boost.

Obviously there are digital solutions on the market today that can kickstart your sourcing organization in the right direction, but the Kodiak Ratings team believes there are a few focus areas where your sourcing team can start discussing supplier quality what it means for your organization. By discussing these touchpoints, you can identify which areas are having the greatest impact on business value. Some points to start the discussion:

– Delivery and punctuality

– Delivery and arrival quality (full shipments)

– product quality

– Collaboration and communicativeness

– Compliance and corporate governance

– Sustainability and environmental values

– Innovations

– Cost and commercial advantages

– risk

Once you understand which areas of supplier quality and performance are most important to your value chain, you should work on quantifying them by creating a supplier scorecard or evaluation. Again, there are solutions on the market today that can help you streamline this process and consolidate your SQM/supplier data onto one platform. But the starting point is to identify and standardize your definitions/KPIs of supplier quality and performance.

What role does SRM play in SQM?

Now that you have figured out what supplier quality means to your business, you have a clear idea of ​​where your suppliers add value to your core business.

If you know where you have your suppliers and are given clear expectations, you’re in a good place. But that’s just the rolling start for the Grand Prix, which is a supplier partnership.

The real challenge is to manage the continuous development of suppliers’ quality, performance and innovation. For this reason, SQM and SRM must exist in parallel. Tracking your suppliers through supplier assessments, quality reviews (audits/factory visits), internal stakeholder assessment, innovation reviews, financial audits and other governance measures requires a clear vision for the supplier journey – in collaboration with your organization.

Here the clear definition of goals and expectations in relation to quality and performance – which takes place in the first steps of SQM – meets the practicality of practical relationship management.

Remember: suppliers are not just your suppliers, they are potential strategic partnerships/innovation sources and need to be managed accordingly.

Aligning supplier quality as a core business activity within your overall supplier leadership and relationship management strategy empowers you to drive supplier performance, innovation and quality across your organization ( 2018).

Increase value by securing value

SQM is a game of certainty.

By ensuring the quality and performance of your suppliers’ activities, you can increase the value of your core business.

Whether it’s a potluck dinner or a global textile supply chain, quality collaboration requires give and take, leadership, compliance, governance, management, strategy and clearly defined goals.

Now that you have some food for thought, will you focus on supplier quality management?

Supplier Quality Management article and permission for publication here provided by Sam Jenks. Originally published on Supply Chain Game Changer on October 17, 2018.

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