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Supplier Quality Management: Drive Value by Safeguarding Value

Fall is in the air.  

Pumpkins are chunkin’, the leaves are changin’ and Thanksgiving cornucopias are being filled by the second. There’s something about autumns crisp air that makes me romanticize the ‘coziness’ of it all, but can you blame me?  

As an ex-pat American, I sometimes forget that my associations with the autumn season don’t align with those of my friends here in Stockholm, Sweden. But, if there’s one thing we’ve all come to an agreement upon, it’s that Thanksgiving dinner is a must.  

I introduced the tradition a few years ago and it’s been an annual event since then, hosted at my place- in potluck fashion. I fix the bird, stuffing, and taters, and each attendee stands for their own dish. It is a feast of epic proportions, and there’s a spread of food big enough to feed Coxey’s Army (as my Grandmother always says).  

There’s something about the collaboration and gathering amongst friends that makes the night so special. Each person has a responsibility to make a dish that they will serve. Some bring sides, some bring desserts, some bring drinks, and in the end everyone has a hand in the success of the night. But, what would happen if someone forgets the pumpkin pie? Or, burns the green bean casserole? Though it’s a friendly dinner, Thanksgiving’s success is heavily dependent on the harmonization of multiple moving parts.  

Input of effort, time and focus by participants during – and previous to – the dinner proves to be indicative of the output of the experience for everyone involved.  

If we can draw a comparison between Thanksgiving dinners and procurement, they are essentially an every day example of why supplier quality management is important.  

What is SQM?  

Supplier quality management (SQM) is individual to each organization, and the procurement organization’s business-critical goals, but in the larger definition: supplier quality management is an overall evaluation of delivery and performance within the boundaries of agreed upon terms and conditions of supplier and buyer.  

Supplier quality management seeks to pinpoint, and help leverage, the suppliers that fit demands and costs, from the buyer, without being demanding upon internal resources (minimal need for inspection or development). A quality fit can help a procurement team create top-line growth and customer satisfaction. But, ignoring SQM can just as easily cause major problems in an organization’s value chain.  

The input of a supplier’s quality is indicative of a customer’s satisfaction. If that input can be managed, fine-tuned, and streamlined… well you’re on your way towards procurement excellence.

  What is it costing you to have poor suppliers?

  The first step for creating a comprehensive strategy, for managing supplier quality, is to understand the cost of working with poor suppliers.  

Quality will cost. That’s a fact. But, identifying/quantifying the sum of resources (time and money) being put into fixing the mistakes of poor suppliers will allow you to evaluate the worth of prevention costs. This can be quantified and labeled as the Cost of Poor Quality (COPQ).  

“COPQ in the supply chain cannot be eliminated completely – since no supplier is perfect calculating these metrics can help you identify opportunities for cost savings, as well as problem areas to address. For instance, by understanding how the COPQ is affected by delays in supply delivery, you can proactively work with suppliers to expedite future deliveries. The COPQ metrics can also help you calculate supplier charge-backs accurately, and thereby recover costs faster (metricstream 2018)”.  

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 bit overwhelmed, you should be.  

Quality is relative from organization to organization, and for that reason, it’s rather hard to create a blanket definition of quality in relation to supplier management. However, there’s value in standardization for gauging quality and performance indicators, evaluating them, and working with your suppliers from a place of tangible data. Quantifying supplier quality will help your organization have data sets to work with, allowing your team to identify pain points quicker, collaborate more closely with key suppliers and develop supplier partnerships that need that extra push.  

Obviously, there are digital solutions on the market today that can help give your procurement organization a kick-start in the right direction, but the Kodiak Rating team believes that there are some focus areas in which your procurement team can begin discussing supplier quality, and what it means to your organization. Talking through these touch-points will help you determine which areas are the most impactful to core the business value. Some points to start discussing:

– Delivery and Timeliness

– Quality of Delivery and Arrival (Complete shipments)

– Product Quality

– Collaboration and Communicativeness

– Compliance and Governance

– Sustainability and Environmental Values

– Innovation

– Cost and Commercial Benefits

– Risk  

Once you’ve understood which areas of supplier quality and performance are most meaningful to your value chain, you should work to quantify by creating a supplier scorecard or supplier rating. Again, there are solutions on the market today that can help you streamline this process, and consolidate your SQM/supplier data to one platform. But, the starting point is identifying and standardizing your definitions/KPIs of supplier quality and performance.

What’s SRM’s role in SQM?  

Now that you’ve identified what supplier quality means to your organization, you have a clear idea of where your suppliers are adding value to your core business.  

If you know where you have your suppliers, and they have clear expectations communicated to them, you’re in a good place. But, this is just the rolling start for the Grand Prix, which is a supplier partnership.   Managing the ongoing progression of supplier quality, performance and innovation is where the real challenge lies. For this reason, SQM and SRM must exist in parallel with each other. Following up with your suppliers via supplier assessments, quality checks (audits/factory visits), internal stakeholder evaluation, innovation reviews, financial audits, and other governance actions will require a clear vision for the supplier’s journey – in collaboration with your organization. This is where the clear definition of goals and expectations within quality and performance – done within the first steps of SQM – meet the practicality of hands on relationship management.  

Remember: Suppliers aren’t just your vendors, they are potential strategic partnerships/sources of innovation, and they need to be managed accordingly.  

Aligning supplier quality as a core business activity within your general supplier governance and relationship management strategy, will position you to drive supplier performance, innovation and quality throughout your entire organization (metricstream.com 2018).  

Drive Value by Safeguarding Value  

SQM is a game of assurance.  

By safeguarding the quality and performance of your suppliers’ activities, you’re able to drive value to your core business.  

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

Now that you have some food for thought, will you be focusing on Supplier Quality Management?

Until next week.