Supplier Performance Management: What are the benefits of a collaborative approach?

Whether managing a multi-tier supplier network or a handful of local suppliers, manufacturers are likely to face issues with supplier performance.

In fact, a recent study conducted by McKinsey found that over 40 percent of quality incidents at the manufacturing organisations that were surveyed were due to supplier performance issues.

Managing suppliers to consistent, high quality standards is not only a powerful cost reduction tool but also an important aspect of achieving manufacturing excellence across plants. So what can manufacturers do to ensure the consistency and quality of their suppliers’ performance?

It is understandable why manufacturers might want to fine a supplier for the incurred cost of their poor performance or why a manufacturer might choose to terminate their agreement with a supplier due to persistently poor standards. However, neither of these responses provides a long-term solution to poor supplier performance and neither of them leverages the full impact that manufacturers can have on driving standards.

What is the alternative?

Establishing a collaborative approach to supplier performance management (SPM), based on transparency, proactive communication and shared commitment to continuous improvement can benefit suppliers, manufacturers and their networks and help to drive operational excellence along the supply chain.

Such an approach also helps organisations to transition from the inefficient and costly practice of fire-fighting recurrent issues to a preventative culture that eliminates risks and the associated losses – truly the definition of a win-win situation.

This might sound like a complex task as it might require the revision and re-design of both internal and supplier operations. However, with he extant array of digital tools that enable instant data capture and communication  a collaborative approach to SPM is more accessible than ever.

So what specific steps do suppliers and manufacturers need to take?

Measurement

“Process improvement is impossible without process measurement” the old Six Sigma wisdom goes. Manufacturers need to ensure that they have clear targets, are measuring KPIs in a consistent way and are providing suppliers with visibility over these KPIs.

Capturing data in a consistent, easy to access format can help manufacturers and suppliers to identify and correct issues within minutes and hours rather than days and months. Rather than having to wait until the end of the day to input a bunch of supplier non-conformance reports into an Excel spreadsheet, operators can use QR code scanners on a mobile or wearable device. The wrong QR would automatically alert of the non-conformance and prompt corrective action within minutes of the non-conformance.

The collected data can provide insights into the root causes of recurrent issues as well as indicate areas of high risk or necessary improvement. Rather than auditing a supplier every few months to then point out inefficient processes and poor practices, manufacturers can provide suppliers with continuous visibility over the data on their performance. Such transparency helps to raise accountability, prompt timely improvement and build a collaborative relationship.

Implementation (and some more measurement)

Once manufacturers and suppliers have identified the areas of improvement and collaborated on the required processes and best practices, it is important to record their implementation and measure their effectiveness.

A high percentage of wrong shipments, for example, can be addressed by requiring two separate operators to verify and sign off the shipment before it leaves the warehouse. Suppliers, for example, can record the implementation of the process with electronic signatures from their operators. Manufacturers can then measure the impact of the improvement and feed back to the supplier, continuously refining processes and driving greater efficiency.

Sharing improvements with the wider network

Recording all the best practices and implemented improvements in a standardised and easily accessible format helps manufacturers and suppliers to build a repository of knowledge that can be shared across their networks.

For instance, Plant A might advise Plant B to test the SOPs that have already been successfully implemented in dealing with faulty shipments. This can help Plant B to resolve an issue faster, without needing to re-invent the wheel. Plant B can also provide feedback on the effectiveness of the procedure and suggest improvements, contributing to a continuously evolving knowledge base.

These are some of the benefits of a collaborative approach to Supplier Performance Management. What has your experience with suppliers been? How have you addressed non-conformances? Let me know in the comments!