The Role of Supplier Approval and Assessment in the Creation of

Competitive Supply Chains

David Warren, CPIM, CSCP May 26, 2010

Competitive Supply Chains

Strategically leverage CRM and SRM

—Demand enhancement

—Reduced cost

Integrated Networks

CREATE

Steps for Creating a Customer-focused Business

Align busines

s to customer focus

Identify customer needs

Create customer

segment map

Implement CRM program

Monitor, measure, and reportSource: APICS,APICS Certified Supply Chain Professional™

Learning System, Chicago, Illinois: APICS, 2009

Steps in Implementing SRM Strategy

Define SRM

strategy

Prepare partners

Conduct pilot

Implement full

program

Monito

r and improve

Source: APICS,APICS Certified Supply Chain Professional™ Learning System, Chicago, Illinois: APICS, 2009

Develop

criteria and enroll

partners

Approval and

Performance Assessment

Tools &Criteria

Approval—RFI/Questionnaire

• Management and key contact information

• Prerequisites

• Operational standards and performance

• Financial/Insurance/Legal

• Ethical sourcing standards

SUPPLIER SELF ASSESSMENT

(Page 1 of 2)Self-assess-ment example(page 1 of 2)

or Stored There

Source: Amway, 2005(copy included in handouts

Self-assess-ment example(page 2 of 2)

Source: Amway, 2005(copy included in handouts

Approval – cont.

—On-Site Evaluation/Qualification Checklist

• Corrective Actions

Examine evidence for customer-focused strategy

• Required Certification• Training• Control Plans• Lot Traceability

Look at tab titled “Phase 3 Site Audit Verify” at http://www.wtg.ca/QS-9000%20Quality%20System%20Assessment.xls for a good example of a checklist

Assessment

—Periodic review of core information• Management and key contact

information

• Quality systems certification maintenance

• Legal

• Insurance

• Financial Health

Altman’s Z-score

—Uses five common business ratios

• Original – Public Manufacturer

• Alternate 2 – Private General Firm

• Alternate 1 – Private Manufacturer

—Greater than 70% accurate

—Three models

Assessment – cont.—Performance measures

• Perfect order

• Quality• Customer Service• Responsiveness

On time Complete Undamaged Invoiced correctly EDI-supported

Performance Metrics Examples

Source: Amway, 2010 (copy included in handouts)

On-Time Shipping

Fill Rate

Performance Metrics Examples – (cont.)

Invoice Accuracy

Source: Amway, 2010 (copy included in handouts)

—Deficient performers• They know who they are• Your actions: based on risk

Containment – change supplier status Contingency Plan Improvement Plan

Two-front War

Restore

Replace

Implementing a Supplier Approval and Assessment

Program(or revised program)

A Six Sigma approach to building continuous

improvement into the process

Why a Six Sigma Approach?

Comprehensive

Fits strategy for managing change

Stakeholder involvement

nalyze

A Six Sigma Project has Five Stages

efine

D

easure

M A

mprove

I

ontrol

C

Define Strategy alignment

o TQM

“Musts”

Segregate requirements

SMART goals.

−Continuous Improvement (CI)o Quality Standard Certification

– Lean

“Wants”

– Six Sigma

– HSE

Measure−Operations Performance Metrics

−Enabling behaviors or cultural factors

Measure−Operations Performance Metrics

On time delivery Complete delivery Quality of delivery Responsiveness Customer service call response time

−Enabling behaviors or cultural factors EDI/Automation CI philosophy 3rd party certification Employee training Financial health

MeasureChallenges—Relevant to business

—Incorporate into routine

—Subject matter experts

—Best practices

Analyze

—Pareto Charts

—5 Whys

—Brainstorming

—Cause and Effect Diagram

—Affinity Diagram

—Flow Diagrams

Improve

—Failure Mode Effects Analysis (FMEA)

—Change management

—Pilot the new program

—Key deliverables Action plan with timeline RACI responsibility matrix

Control

—Process owners take responsibility

—Control Plan / SOP Process Maps Monitoring requirements Defines business goals Dashboards Response / Contingency Plans Defines the update process

Six Sigma may not be the right approach for you if

Little/no stakeholder participation or support

Your company has not undertaken a type of CI initiative

No top-level support

Competitive supply chains are integrated networks

−CRM and SRM leveraged

Enhance demand

Reduce cost

Supplier approval and assessment is integral to SRM

−Examples of criteria and tools

Approval

Assessment

Thorough

Six sigma project management

Well-suited for Continuous Improvement environment

Stakeholders participate

Resources Vendor Audits Slideshow (by Anand Subramaniam)

http://tinyurl.com/kodk8t

Vendor Management Slideshow (by Anand Subramaniam)http://tinyurl.com/l7z3r6

Here are a few examples of Supplier Rating Systems

Flextronics - Powerpoint http://www.flextronics.com/partners/supplierinfo/Files/SRS2_0SupplierInformation12-28-09.ppt#256,1,SRS

Kohler http://kohler.com/corp/supplier/SQM_GPI_3009_Rev1_1_2008.pdf

Northrup Grumman https://oasis.northgrum.com/misc/SupplierScorecardGuidelines.pdf

Johnson & Johnson procurement policies

http://www.jnj.com/wps/wcm/connect/2078cc804f55640c9e6dbe1bb31559c7/procurement-policies-and-guidelines.pdf?MOD=AJPERES

Amway Supplier Scorecard Handout

http://supplier.amway.com/_layouts/files/north%20america/supply%20management/performance%20evaluation/2009%20Supplier%20Scorecard%20Handbook.pdf