Management

It’s time to take the mystique out of supplier management, especially for small and medium sized organizations.

By Daniella Picciotti

What Your 3rd Party Auditor Wishes You Knew About

Supplier Management

It’s time to take the mystique out of supplier management, especially for small and medium sized organizations.

By Daniella Picciotti

It has been said so often, and it holds so true – the events of the last year and a half have been unprecedented. The global effects of COVID-19 have rippled through the supply chain impacting every industry including, but not limited to, delays in shipping, rising prices, and material availability. The processes for selection, evaluation, and monitoring of supplier performance are increasing in importance for organizations large and small. The information in this article is intended to take the mystique out of supplier management, especially for small and medium sized organizations as it relates to ensuring compliance to quality management system standards ISO9001.

The control of external provided processes, products, and services clause in standards like ISO9001, ISO13485, and AS9100 (to list a few) encompass key supplier management process elements: supplier selection, evaluation, and performance monitoring, control over supplier provided materials/services and information flowed to suppliers. Supplier management, especially for small and medium sized companies, does not need to be complex or complicated. Whether it is customized software, an access database, or an Excel spreadsheet – the criteria used to select, evaluate, and monitor supplier performance are not prescribed in any of the standards; it is up to the organization to determine what is important related to managing suppliers.

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Supplier Selection, Evaluation, And Performance Monitoring

Supplier Selection:

The process for selecting a new supplier does not need to be lengthy. Every supplier that an organization utilizes has an importance to the product, process, or service provided to their customers. While not all suppliers are the same, there are some common elements that an organization can include as part of the selection process. Some examples include whether the supplier has a quality management system, the capabilities of the supplier to provide the products, processes, and services in question, to name just a few. Many organizations use a supplier self-assessment survey or questionnaire to gather information about a potential supplier. It is recommended to give some consideration to the questions on the survey; what is important to you as a customer about this potential supplier? When a supplier provides the responses, who reviews the survey? What if any “red flags” might be identified based on those responses? There is an opportunity to tailor the survey to add specific questions relevant to the product, process, or service being purchased. The survey can include potential customer flow down requirements to gain insight into a supplier’s potential compliance with your customer’s requirements. The criteria for supplier selection are a key input into the supplier evaluation process.

Supplier Evaluation:

Supplier evaluation is an ongoing activity, not meant for just the initial approval of a supplier’s use. Initial supplier evaluation, the activity of considering a supplier for approval for use and putting them on the Approved Supplier List or ASL is the start of the process, and it is the baseline for the re-evaluation activities. As your organization changes and evolves, so too do those in the supply base. Suppliers move, merge, or even get acquired; how does your organization evaluate these events to ensure the supplier is still capable of meeting your requirements and expectations? Supplier evaluation is typically performed annually and based on performance (delivery, quality, and responsiveness), but there is an opportunity to check in with the supplier to assess any changes such as new capabilities, expansion, or reduction in capacities, even changes in management or key personnel. This information can provide insights into potential risks and opportunities with any given supplier and prompt proactive actions to mitigate identified risks or take advantage of opportunities.

Supplier Performance Monitoring:

Let’s address the general question of timing: how often should an organization measure/monitor supplier performance? The quality management system standards do not dictate a timeframe so it is up to the organization to determine how often supplier performance can be monitored. The frequency can be whatever works for the organization based on resources, data availability, etc. Some guidance to consider when determining the frequency of performance monitoring is the criticality of the product/process/service being procured and the volume or frequency of the deliveries. The more frequent the receipts, the more critical the receipts, the more frequent the performance monitoring could be.

This is not to say that every supplier needs to have their performance monitored with a high frequency. Rather, consider a tiered or supplier classification approach. Classifying suppliers and/or products into categories such as: critical, important, and general can be a way to approach supplier performance monitoring. For example, critical suppliers may have their performance monitored monthly, important suppliers are monitored quarterly, and general supplier monitored annually. Determining the level of satisfactory performance can be daunting. A good reference is the satisfactory performance levels that your customers have for your organization’s performance. Essentially, what your customers expect of your performance can be the same that you expect from your suppliers.

Objective evidence is needed to confirm the performance monitoring was performed, the outcome related to the satisfactory level of the supplier’s performance, and any actions needed based on the performance. Large organizations tend to have software systems and personnel in place to track performance monthly, sometimes even weekly. Small and medium sized organizations may not have sophisticated software or a plethora of personnel to monitor performance. It starts with what is currently measured, what data is collected and available for use in supplier management. Start with the basics to establish a good baseline for supplier performance and use that for trending over time.

Type Of Control Over Suppliers

Control over suppliers can encompass activities such as supplier audits and inspection (receiving or source inspection). This clause in the quality management system standards is to assure both the organization and its customers the supplier-provided products, processes, and services are compliant to requirements and meet expectations. The activities conducted to support this clause also support the performance monitoring processes; there is data to be collected especially at a receiving inspection process: quantity delivered, on-time/early/late delivery, correctness of the delivery (right part number, quantity, etc.). This is an opportunity to assess the level of importance or criticality in the product, process, or service being procured and match the level of control to that criticality.

While no system is 100% escape proof, an organization can increase the level of confidence of preventing defects from getting into the system through planning the oversight or control to align with the importance of the purchased process/product/service. Consider integrating a sampling plan where there is high volume and low part criticality or for high performing suppliers with low to no rejection history utilizing a skip lot inspection or even a ‘dock to stock’ system to increase the capacity of inspection resources for the more critical items. Reduced inspection systems are not recommended for some industries and may not be permissible under some industry or government regulations such as medical device or pharmaceuticals.

Information Provided To Suppliers

The intent of this process is to ensure the organization provides information to suppliers sufficient to confirm requirements are defined to assure the product, process, or service delivered or provided complies with the stated requirements. Auditors look at purchase orders or contracts with suppliers to review what is included in the PO; part number, revision, description of any process or services to be provided, expected delivery dates, requirements for qualifications/certifications held by the supplier, to list but a few.

The information on a PO to a supplier should contain requirements and data elements that would be part of the performance evaluation and monitoring such as on time delivery, quantity being procured/processed, special requirements like packaging and documentation, change notifications, etc. In addition, customer flow down requirements related to supplier products, processes, and services are to be included. Having a documented process to identify the handoff from the receipt of a customer contract or purchase order review to the purchasing function is an approach to connect these activities.

Summary

This article is intended to provide insights and suggestions in supplier management particularly for organizations that have quality management system certifications such as ISO9001, AS9100, and so on. A key takeaway is that managing suppliers is not a single person or function’s task. Those in the purchasing function can benefit from the insights that those in the quality and operations functions have when it comes to selecting and evaluating suppliers. Likewise, those in purchasing can provide valuable information and perspectives on both risks and opportunities with potential suppliers.

It is recommended to have some type of defined process in a procedure or work instruction. The reason for this recommendation is twofold:

  1. To have some documentation to use for performing the activity itself and
  2. To have a resource for training when new personnel may be involved in the process.

Taking an active role in managing suppliers ensures an organization is not only in compliance with the quality management systems standards like ISO9001, it also ensures the organization is managing the risks associated with suppliers.

Opening Video Source: Marco VDM/Creatas Video via Getty Images.

Daniella Picciotti is the president of QMS Alliance. For more information, call (619) 766-5133, email daniella@qmsallaincesd.com or visit qmsalliancesd.com.

November 2021  |  Volume 60  |  Number 11

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