Selecting Capable Suppliers – Part 1
Michael Pfeifer, President, Industrial Metallurgists, LLC
Herb Shields, President, HCS Consulting
Suppliers of components and sub-assemblies are critical to the success of most companies. Companies depend on their suppliers to provide an item that always satisfies its design requirements and is always delivered on time. However, companies do not always use a methodical approach for evaluating and selecting suppliers. Instead, they are lured by the promise of a low piece part price, only to find that the costs due to poor quality and delayed product launch quickly overshadow the planned savings. This article explains how to select suppliers that will enable production at the lowest total cost and highest quality.
Consider the company that used a low-cost supplier to fabricate a plastic sub-assembly for a brand new product. The sub-assembly, which consisted of two plastic components that were joined by ultrasonic welding, was a critical part of the product. Soon after the product was launched failed samples started coming back from customers. The weld joint was failing because the welds were poorly formed. To make matters worse, the supplier was not capable of fixing the problems with its manufacturing processes, so the problem dragged on and overwhelmed the original excitement with the new product. Ultimately, the problems with the weld joint caused the product to be unsuccessful.
Maximizing the likelihood of selecting optimum suppliers requires that design and purchasing teams have the resources, expertise, and discipline to do the following:
- Evaluate the technical importance of the components and sub-assemblies used within the product.
- Set supplier selection criteria.
- Evaluate suppliers to determine if they meet the selection criteria.
This article discusses the considerations required for improving the likelihood of properly performing these three tasks. These considerations are based on the materials engineering and supply chain perspectives.
Materials Engineering Perspective
The materials engineering perspective is based upon the following three considerations:
- The performance, reliability, and cost of a product are strongly dependent on the properties of the materials that comprise the product.
- Proper selection of the materials that make up a product is crucial in order to satisfy the desired performance, reliability, and cost requirements of the product.
- Control of the variation of the properties of the materials that make up a product is crucial for enabling the consistent performance, reliability, and cost of the product.
With respect to supplier selection, the first and third considerations are significant. Both considerations help design and sourcing teams focus on selecting suppliers that have the expertise and capabilities to provide a component or sub-assembly whose materials enable the component or sub-assembly to satisfy its design requirements.
Suppliers must be capable of developing manufacturing processes that result in the proper properties for the materials that make up their products. This means that suppliers must understand the materials and manufacturing processes being used in order to ensure that their products meet the performance and reliability requirements specified by their clients. This applies to the materials the make up individual components, components within a sub-assembly, and joints between components in a sub-assembly.
A supplier must be able to control the variation of the materials used to make its product and the variation of its manufacturing processes so that the materials in the process output have consistent properties from sample to sample. If the properties of the materials in the process output vary too much from sample to sample, then the performance and reliability will be inconsistent from sample to sample. Furthermore, inconsistent materials properties can hurt the manufacturability of the product made using the component or sub-assembly.
Supply Chain Perspective
The supply chain perspective is based upon the following three considerations:
- Suppliers must be selected based on their ability to provide components and sub-assemblies that minimize the total cost to build a product.
- Suppliers must be selected based on their ability to maximize assurance of production supply.
- Suppliers must be selected based on their ability to provide components and sub-assemblies that consistently meet their design requirements.
Total cost includes all costs, not just the purchase price. Transportation, inventory, quality, import duties, etc. all need to be included in the cost analysis. The best supplier should have the ideal balance between all three factors. This may or may not be the supplier with the lowest piece price. Focusing on only the unit price of the item being supplied will possibly result in increased costs due to poor quality or service. Purchasing and design teams should focus on reducing the overall risk to product success.
Assurance of production supply relates to delivering quality products on time and in the correct quantities. Also, there must be some assurance from the prospective supplier that they have sufficient capacity to meet your requirements if demand grows. This commitment probably cannot be open ended, but suppliers should have some contingency plans in place.
In today’s global economy, high quality must be a given with any prospective supplier, otherwise there is no reason that they should be considered. A supplier must be able to control its process within specified parameters in order to produce an item that consistently meets its design requirements.
Assessing the Technical Importance of Components and Sub-Assemblies
Technical importance refers to the impact of a particular component or sub-assembly on the performance and reliability of a product. Within any product the components and sub-assemblies cover a spectrum from low importance to high importance. A high importance item has significant contribution to the performance and reliability of one or more of a product’s
functions. A low importance item has little contribution to the performance and reliability of any of a product’s functions.
For example, consider a lightweight, high performance bicycle. Examples of high importance items are the frame sub-assembly and the sub-assemblies within the gear shift sub-assembly. Examples of low importance items are the seat and reflectors. This is not to say that the seat and reflectors are not necessary parts of a bicycle. However, they do not influence the bicycle’s performance in a way that provides substantial differentiation compared to other bicycles.
Identify Supplier Selection Criteria
Selection of a capable supplier involves consideration of many different criteria that can be placed in the following categories:
- Technical expertise and capabilities.
- Manufacturing capabilities
- Manufacturing capacity.
- Manufacturing competence.
- Ability to provide technical assistance.
- Supply chain organization.
- Production planning process.
- Shipping and logistics.
- Geographic location.
- Company size and financial stability.
- Delivered cost.
Each category and the supplier evaluation process will be discussed in next month’s newsletter.