The world is getting smaller and manufacturing companies must look farther afield to find vendors that can provide the components they require to make their products. As inventories are reduced, the need for prompt delivery of components that are ready to be included in your production stream becomes more important. Having the lowest cost from a vendor does you no good if it doesn’t fit, or is delivered late. We are all aware of the cost of production delays caused by poor quality sub assemblies or parts delivered late. If your vendor can’t get the proper part to you on time and ready for use, why are you dealing with him? A little analysis will reveal the cost of poor quality or late delivery. In just about every case the production delays are more expensive than the savings in part costs.
Now that we have admitted that we have vendors who are causing problems, the question becomes: How do we find good vendors? If you insist that your vendors be able to deliver parts when you need them; and that the quality of the parts meet your standards, the part cost should be compatible with the savings from reducing your production losses.
Your vendor’s salesman will assure you that they can deliver parts on-time 98% of the time (he’s not stupid enough to think you would believe him if he said 100%). He will ease your mind with pronouncements of the high standards of quality and their great QC inspection procedures. And to finish the sales job he will quote the lowest price in the industry. But he’s the salesman. He is getting paid to say those things! What is the true story and how do you find it?
To learn the truth, you must have a “vendor assessment” or “vendor evaluation” program. Some companies refer to this exercise as a vendor audit. This vendor evaluation is an exercise in proving or disproving the claims of the vendor’s salesman regarding quality, cost and delivery performance. Let’s take each parameter in turn.
How do you measure the quality performance of the vendor? If he has an ISO certification that is a good start. That means he should be keeping records of his performance, and you can ask to see these records. A second measurement is to look for the rework queues or piles of defective parts. A very simple means to gather evidence of quality performance is to look for posted quality charts. If they are posted for employees they should be easy to find. Ask yourself if the vendor’s quality level is higher, or lower, than your production line. Another means is to ask the employees, both the quality technicians and the production workers about their production problems. What is it that is most troubling to them? The evidence will start to mount up and you can get a good picture of the true level of quality at the vendor plant.
On-time delivery is a more difficult parameter to measure, but it can be done. First, ask to see the production schedule or master schedule. Look at the current schedule and ask about specific orders (not necessarily your orders). Ask the scheduler to show you the order location on the plant floor. The ease in locating the order will give you a clue as to how well their scheduling system works. Get the scheduler to explain their procedure for notifying customers when an order is late. How are priorities set for customer orders; and how often are these priorities changed? Who has authority to change priorities? Ask about rush deliveries and then look at the shipping department logs for Fed Express shipments. The more rush shipments they have the better, the odds that they have a delivery problem. Finally, ask about the on-time delivery performance against the schedule; and how this is measured by the vendor.
Having determined the quality level and the on-time delivery performance, you can focus on the cost. If the cost is higher than competitors you have to ask if the extra cost is justified by the quality level or delivery performance. Is the cost related to raw material costs and how often is the cost adjusted for raw material changes?
With the information on costs, delivery and quality you have the means to make a fair assessment of this vendor; and have the data to compare him to other, alternative vendors. Once you have evaluated and selected a competent vendor, keep track of his delivery performance and quality levels. This data will be helpful in future negotiations and as a comparison to new vendors.
Too often vendor selection is a hit or miss process. You listen to the salesman and cross your fingers that he is not fibbing too much. It doesn’t have to be that way. Employ a vendor evaluation program to measure the performance criteria and let the data speak for itself. With competent vendors, many of your production problems are under control. Vendor evaluation is an exercise well worth the effort.
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