How to Improve Supplier Quality Management- 6 Best Practices

Supplier Quality Management December 18, 2020

Chloe Henderson

Writer

Businesses that provide physical goods must have at least one supplier in their network to manufacture and ship the products. As the supply chain grows, companies must also expand their management capabilities to prevent quality risks.

By practicing supplier quality management, organizations can ensure that merchandise consistently meets their quality standards and customer demand.

5 Key Metrics of Supplier Quality Management

Supplier quality management (SQM) illustrates how well a vendor can source and deliver goods or services to meet customer demand. Proper SQM requires little to no adjustments after inspection.

While there are several factors to consider when scoring SQM, businesses can assess their suppliers by monitoring key performance metrics-

1. Cost of Quality

Cost of quality measures the expense to produce a good and is separated into two subcategories- the cost of poor quality and the cost of good quality.

Cost of poor quality includes resources leftover from production, such as scraps and returned materials. Cost of good quality refers to prevention expenditures, such as management software and appraisals.

2. Overall Equipment Effectiveness

The overall equipment effectiveness (OEE) measures suppliers' availability, efficiency, and quality to determine their overall performance. The OEE monitors how often assets are available or being produced, as well as how often products meet quality standards.

3. Products in Compliance Percentage

Compliance is vital in highly-regulated fields such as biotechnology, pharmacy, and medical industries. By monitoring the compliance percentage, companies can ensure products abide by laws and regulations to avoid legal repercussions.

4. Complete, On-Time Shipments

Product quality should not mean that companies have to sacrifice timeliness. Suppliers must be able to provide complete, on-time deliveries to prevent stockouts.

5. New Products Introduction

New product introduction (NPI) refers to the percentage of new products that meet volume, quality, and time targets. Many industries, including automotive and electronic, rely on NPI to stay relevant and maintain sales. Therefore, suppliers should meet the company's unique NPI goals.

6 Best Supplier Quality Management Practices

Businesses need to prioritize SQM in order to remain competitive, consistently meet customer demand, and avoid stockouts. To improve SQM techniques, companies should consider-

Measuring the Cost of Poor Supplier Quality

In the case of a product quality issue, the business that acquired the goods typically has to bear the cost even if it was the supplier's fault. This can lead to hefty expenses, significantly limiting profits.
While companies cannot completely avoid poor supplier quality, they can actively filter out unreliable vendors by measuring the expense they undertake.

For example, organizations can track how often they experience order errors and delays from each supplier, as well as how much these blunders cost. By quantifying the cost of poor quality (COPQ), businesses can renegotiate supplier terms, end non-beneficial partnerships, and arrange chargebacks.
Organizations that measure COPQ can recover lost sales and out-of-pocket expenses faster.

Cross-Examining Supplier Risk Management with Quality Audits

To ensure suppliers are meeting quality standards, many companies perform audits that affirm products have all specifications. However, auditing suppliers can be challenging for businesses with a network of several vendors.

Therefore, organizations should create a classification system that ranks suppliers by risk to organize and streamline auditing procedures. High-risk suppliers should be audited more frequently, as they pose the biggest threat to product quality and availability.

After suppliers are evaluated and ranked, businesses should schedule in-person audits ahead of time to avoid delays and identify potential issues. Companies should also create a positive auditing experience, giving suppliers time to respond to feedback, questions, and concerns.

Enhancing Quality Control

It can be difficult to manage the quality and cost of large supply chains. To efficiently manage the supply chain, businesses can intermittently check in to assess the quality and determine the best way to optimize control. This keeps businesses aware of how many suppliers they have and their capabilities to ensure they meet the expected standards.

Some companies even use this process to determine which vendors are most beneficial to eliminate non-critical suppliers. This keeps the supply chain smaller for easier risk management, as vendors that fail to consistently meet quality requirements pose a significant threat to business.

Standardizing Supplier Quality and Performance Metrics

While every company has its own unique quality requirements, businesses can evaluate suppliers through a standardized set of key performance indicators (KPIs). These metrics quantify different performance measures so that organizations can efficiently assess vendors. They also define strengths and weaknesses so suppliers can actively improve their operations.

Many organizations couple KPIs with supplier scorecards to rank vendors according to overall performance. As suppliers continue to improve their quality, delivery, and responsiveness, companies can reevaluate their rank.

Establishing a Collaborative Corrective Action

In order to catch quality and compliance issues promptly, businesses need a collaborative internal corrective process. This requires participation from each department and an established supplier corrective action request (SCAR) procedure. SCAR analyzes the issue at hand to get to the root cause, enabling the businesses to correct the problem and implement preventative measures.

It is important that companies also offer guidance to suppliers alongside SCARs, as it can often be overwhelming. Management should reach out directly to the vendor to explain what the document is for and how they should respond.

Improving Supplier Quality Visibility with Technology

The more extensive a supply chain, the more limited the visibility, making it difficult for companies with dated management methods to adequately monitor quality. With inventory management software, businesses can connect directly with external partners. This opens a communication line throughout the network, promoting transparency and providing an opportunity to address concerns.

Management systems also allow organizations to evaluate suppliers' product lines, quality, compliance records, policies, and potential risks through a universal dashboard. Inventory managers can even generate detailed reports on each vendor to streamline audits and risk assessments.