ASQ Supplier Evauation

8/7/2019 ASQ Supplier Evauation

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Supplier Performance Evaluation

A Partnership Approach

To Quality


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An Analysis Of Supplier Evaluation

By Becoming More Competent In

Supplier Evaluation, Firms Can ExpectA Number Of Financial And NonFinancial Benefits

Each Particular Quality Sought In ASupplier Provides A Different Type OfBenefit


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Benefits Technical Capabilities Selecting Suppliers That Are Technology

Leaders Rather Than Followers

Translates Into Ability For Buying Firm ToBe A Technology Leader

Both Sides Are More Likely To ContinuallyImprove Products & Equipment


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Benefits Quality & Reliability

Suppliers Who Provide Products That

Meet Requirements On The FirstDelivery And Every Delivery

Save Time And Money On Inspections

Eliminate Costs Associates WithDiscrepant Materials


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Benefits - Delivery Exceptional Delivery Eliminates Waste

Inventory Costs

Storage Expenses

Costs Of Transferring Materials

Reduces Downed Production Costs

Saves Unnecessary Transportation Costs


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Benefits - Flexibility

Suppliers Offering Flexibility Provide

Seize Opportunities Or Avert Crises DueTo Last Minute Changes

Survive Unavoidable Changes


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Benefits Fair Price

Suppliers Offering Fair Price

Provide Buyers Cost Reduction

Provide Themselves A Fair Profit


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Fair Price - Considerations

Suppliers Earning Lower Profit

Margins Than Competitors

Likely To Cut Corners

Exit The Business


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Benefits Cost Control

Change To More Cost-Effective

Designs

Reduce Packaging Costs

Economic Lot Quantities


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Benefits - Familiarity

Selecting Responsive Suppliers Results InBenefits When Issues Arise

Supplier Knows Buyers Business WellEnough To Resolve Issues Properly

Buyer Knows Who To Call When TimeIs Of Extreme Importance


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Benefits Financial Stability Selecting Firms With Financial And

Business Stability IncreasesLikelihood Than The Partnership WillSurvive Through Tough Times

Firms That Are Financially Stable Are

Likely To Offer Long TermRelationships, Quality Products AndDevelopment Services


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Costs A massive Commitment Is Required

By Both Buyers And Sellers To

Achieve A Truly Valuable Relationship

Suppliers Engineering Team AndBuyers Product Engineers Must BeIntegrated Into The Decision makingProcess


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Costs Firms Can Become Captive To Their

Strategic Supply Partners Due To

Excessive Switching Costs

Firms Run The Risk Of PartnersLeaking Information Gained From ALong Term Buyer-SupplierRelationship


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The First Steps Determine Attributes To Be Considered

Focus On What Is Most Important

Some Attributes Are Easy To Measure

Some Are Not

Consider Total Costs


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The Metrics Quality Level

Service Level

Correct Quantity

On-Time Delivery

Price/Cost of Product


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More Metrics

Willingness To Share Sensitive Info

Presence Of Certification Or OtherDocumentation

Flexibility To Respond To UnexpectedDemand Changes


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& More Metrics

Communication Skills, Systems

Quick Response Time In Case OfEmergency, Problem Or Special

Request


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& Even More Metrics

Willingness To Change Their Products

And Services To Meet Your ChangingNeeds

Willingness To Participate In YourFirms New Product Development AndValue Analysis


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Supplier Evaluation

Common Approaches


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Most Common Approaches

Categorical System

Weighted Point Average System

Cost-Based System


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Categorical System

Chose Attributes Most Important To

The Particular Situation

Assign Preferred (+), Neutral (0)OrUnsatisfactory (-) For Each SelectedAttribute To Each Supplier


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Categorical System Total Ratings For Each Supplier

Example: Two Preferred (++), OneNeutral (0) & One Unsatisfactory (-)Equals One Positive (+)

Comparison Of Total Scores RevealsHighest Rated Supplier


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Categorical System

Easiest Approach To Implement

Suffers From Subjectivity

Lacks Detailed Insight Into SuppliersTrue Performance Because AllAttributes are Weighted Equally


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Categorical System

Team Members Assign Ratings

Involves Perceptions Rather ThanQualitative Data


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Weighted Point Method

Select Relevant Attributes

Assign Each Attribute A Weight BasedOn Importance

Team Reaches Consensus ToMinimize Subjectivity


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Weight For Each Attribute Multiplied

By The Performance Score That IsAssigned To It

Total Weighted Scores To DetermineFinal Supplier Rating


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Often Used

Highly Reliable

Combines Qualitative andQuantitative Data


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Change Weights Or Performance

Categories Depending On StrategicPriorities Of The Firm

Sometimes Difficult In Practice


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Cost Based System

Quantify Additional Costs Associated

With Poor Supplier Performance

Calculate Cost Of Doing Business ByThe Supplier Performance Index (SPI)


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Cost Based System

Calculated For Each Item Or

Commodity Provided By A Supplier

Base Value = 1


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Cost Based System

SPI = (Purchase Price +

Nonperformance Cost) / PurchasePrice

The Closer SPI Is To 1, The BetterThe Supplier


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Cost Based System

Benefits: Ability To Source Based On Total Cost

Consideration

Methodology To Increase SupplierAccountability And Control

Equitable & Consistent Evaluation Tool


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Cost Based System Benefits:

Definition Of Supplier PerformanceExpectation

Communication Of Firms BuyingPriorities To Suppliers

The Ability To Perform Sourcing RiskAssessment


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Cost Based System

Benefits:

Enhances Internal Communication ForReporting Sourcing Information

Ability To Provide Positive SupplierReinforcement

Basis For Supplier Award System


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Cost Based System

Least Subjective

Quantifies Total Cost Of DoingBusiness By ConsideringNonperformance Costs


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Cost Based System

Difficulties:

Complexity

Requires Well Developed CostAccounting System

Difficult To Identify Costs Of SupplierNonperformance


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Other Methods Of Evaluation

Statistical Analysis

Total Cost Of Ownership


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Total Cost Of Ownership (TCO)

Similar To Cost Ratio System

More Comprehensive

Considers Costs Associated WithQuality, Delivery And Service


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TCO Method

Considers Costs Of Non Value AddedActivities

Service Costs

Receiving Costs

Inspection, Rework Reject Costs

Failure Costs

Administrative Costs


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TCO Method

Proactive

Comprehensive

Examines Issues Outside OfSuppliers Cost Structure


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TCO Method

Complex To Implement & Maintain

Consumes A Great Deal Of Time


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TCO Method

Frequency Of Assessment:

Monthly

Quarterly

Annually (Most Common)


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TCO Method

Frequent Supplier Meetings Facilitate

Prevention Of Inefficient Practices Continuous Improvement

Beneficial Only If Both Sides

Cooperate

Provide Necessary Inputs


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Supplier Evaluation

Getting Started


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When Is An Evaluation Appropriate?

Type of Product

Expected Price

Quantity

Complexity

Potential Impact on End Products


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Initial Supplier Meeting

Products Application

Availability

Pricing

Technical Issues


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Gather Preliminary Data

Completed Supplier Survey

Copy of Quality Manual or a WrittenDescription of Quality System

Company Financial Data


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Preliminary Evaluation

Organizational History and

Background

Critical Material or Labor Issues

Technical Support Issues


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Preliminary Evaluation

Computer Systems Capabilities

Warehouse and InventoryCapabilities

Transportation and Delivery Issues


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Supplier Facility Tour

Employees Knowledge and

Understanding of the SuppliersQuality Policy

Extent and Adequacy of OperatingControls to Ensure Consistent Quality


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Production Methods and Efficiencies

Extent of Reserve Production Capacity

Location and Extent of ProductionBottlenecks


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Plant Equipments Age, Cleanliness

and Suitability for the ProductsConsidered

The Facilitys Overall Housekeeping

Working Conditions and Turnover


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Use of Safety Equipment

Harmonious Working RelationshipsBetween Operating Personnel andManagement


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Manufacturing

AssemblyFinal Inspection

Inventory Control

Packaging


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In-Process Inspection

Tooling

Production Control

Shop Floor Control


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Surplus & Scrap Staging

MRB Bonded Storage

Research & Development


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Order Entry

Documentation Control

Training & Development

Information Services


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Purchasing

Shipping & Receiving

Receiving Inspection

Stores


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Approval Process Steps

Place Initial Order

Pass First Article Inspection

Contingent Approval

3 Production Orders With No Issues

Added to Approved Supplier List


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After Approval

All Deliveries Subject toReceiving Inspection

Discrepant Material Reports(DMRs)

Corrective Action Requests(CARs)


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Annual Performance Evaluation

Sourcing Review Team

Purchasing

Procurement Quality Assurance

Engineering

Manufacturing


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Rating System

Objective: Based on Data &Documentation (Max=100 points)

Conformance: 50 Points

Delivery: 25 Points

Service: 25 Points


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Conformance: Start With 50 Points

Points Are Deducted As Follows

DMR / Use-As-Is: -2 Points

DMR / Return to Supplier: -3 Points

Second DMR for Same Non-Conformity: -4 Points


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Conformance: Point Deductions

Corrective Action: CAR Causes No

Initial Deduction of Points. NoWritten CAR Response: -3 Points

Continuation of Same Non-ConformityAfter CAR Response: -10 Points


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Delivery: Start With 25 Points

All Deliveries Support Build Plan:

No Point Deductions

Each Incident Which Impacts BuildPlan: -5 Points


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Service: 0 to 25 Points

Responsive to Changes in Demand andSchedule

Communication / Keeps Agent Informed

Technical Support / Samples

Continuous Improvement


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Subjective Consensus Points

Up to 20% (5 Points) Can Be Addedor Subtracted Based on a ConsensusAgreement of the Evaluation TeamThat Such an Adjustment Is

Appropriate


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Case Study SolarWorld (SWIA)

70-100 Points: Approved

Less Than 70 Points

Disapproved

CAR Issued

Re-Review After 3 Months

If No Improvement: No New Orders


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How Measurements Are Used

Ratings Data Valuable Only If BothSides Use It To Improve TheirPartnership

Track Performance Of Supplier

Identify Supplier ImprovementOpportunities

Develop Supplier Benchmark Suppliers Against Best

Practices


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Supplier Performance Ratings

Using Scores In Bid Evaluations


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Case Study: Graphite Rebid

Graphite Rebid In 1999 & 2005

Used Weighted Bid Evaluation AsSecondary Screening Technique


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Bid Evaluation Strategy

Bid Tabulation Prepared (Actual BidPrices)

Actual Bids: Low and 2nd Low BidsHighlighted for Each Item Any Supplier with


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Bid Evaluation Strategy

Weighted Bid Evaluation to DetermineFinal Qualified Bidders

Best Bid Determined Low Cost Per Run Best Bid Based on Material Grade Quality & Technical Considerations May

Override Commercial


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Why Use Weighted Bids?

Supplier Performance Issues CostMoney Lost Production Causes Significant

Financial Impact Purchasing Replacement Parts

Increases Costs Domino Effect Causes Losses in

Camarillo Plant Impacts on Customer Deliveries Cost

Reputation, Lost Market Share


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Weighted Bid Evaluation

Bid Weighting Factor = Reciprocal ofSupplier Performance Score

Supplier A: Score = 90 Points_1_= Factor x Actual Bid = Weighted Bid

.90 1.11 x $100 = $111

Supplier B: Score = 70 Points_1 _ = Factor x Actual Bid = Weighted Bid

.70 = 1.43 x $95 = $135


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Are the Weighting Factors Fair?

All Graphite Suppliers Have Same T&C,Performance Expectations

All Graphite Suppliers Treated SimilarlyDuring PO Term

All Graphite Suppliers PerformanceReviews Held on Same Day to EnsureEqual Treatment/Scoring


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What Did We Accomplish?

Cost Reduction for Purchased Parts

Consistent On-Time Deliveries

Significantly Reduced MachineDowntime

Improved Hotzone Performance

ASQ Supplier Evauation

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Transcript of ASQ Supplier Evauation