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Supplier Risk Management - IV
March 18, 2008
Strategic supply management means, among other things, taking a pro-active role in the comprehensive identification of risk, and ongoing risk management.
Is measuring the incoming quality of your supplier’s product, before you put it into your manufacturing process, sufficient? No. If that surprises you, think about it this way: the measured quality of your supplier’s product is a lagging indicator of what is happening in their production (and supply management) processes. It’s useful information to include as one part of a supplier scorecard, but it does not necessarily provide you with an indication of their future quality performance.
That is why some companies take the time to thoroughly audit their key suppliers on a number of dimensions – including their business and manufacturing processes. Doing so can give you the confidence (or raise good questions) about the supplier’s underlying business processes that ultimately drive product quality, delivery performance, etc. What you are looking for is a set of metrics that can serve as leading indicators of your supplier’s future performance.
Doing this well can translate into some very practical benefits – such as retaining the goodwill of your customers. Think about it this way: what would it be worth to your company to avoid having its own negative headline story such as we’ve seen in recent months regarding contaminated products coming from China?
Posted by Robert A. Rudzki on March 18, 2008 | Comments (2)
In response to: Supplier Risk Management - IV
Sherry Gordon commented:
I agree with you that measuring incoming supplier quality is an example of a lagging indicator, and I wanted to add a thought. While perhaps a downward trend in the data may indicate a bigger problem, it is not particularly useful for helping either the supplier or the customer understand why there is a quality problem at the supplier in the first place. Not understanding the root cause makes it more difficult to correct and, more importantly, prevent in the future. If, for example, the supplier's quality processes are reactive instead of preventive, it is likely that quality problems will recur. That is why assessing and understanding supplier business processes can be so valuable in avoiding supplier risks as they can yield actionable information about the root causes of problems.
In response to: Supplier Risk Management - IV
Robert Rudzki commented:
I couldn't agree with you more. Part V of this series, written last weekend and scheduled for posting this Friday, will address that very point. Root cause analyses on underlying business processes have a big role to play in doing supplier risk management well.