Herb Shields, President, HCS Consulting
Identify Supplier Selection Criteria
Selection of a supplier involves consideration of the following different categories of criteria:
- 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 of these categories is discussed next.
Technical expertise and capabilities. Is the supplier knowledgeable about the materials to be used in the sub-assembly or component? Does the supplier have experience with the materials and processes required to make the item under consideration? Does the supplier have the technical expertise to work out manufacturing problems?
From the materials engineering perspective, design teams should be concerned with a supplier’s experience with the materials used in the item being provided and with the manufacturing processes used to manipulate the materials into the item to be made. A supplier must also have the technical knowledge required to identify, assess, and mitigate risks to meeting the development schedule.
Manufacturing capabilities. This refers to the different manufacturing processes that are available, and the capabilities of the manufacturing equipment. Things such as the capability of fabricating very large or very small components, or the capability to perform different primary and secondary processes are a few of the considerations when assessing manufacturing capabilities.
Manufacturing capacity. This refers to the number of components or sub-assemblies that can be produced in a period of time. From the supply chain perspective, how much capacity is available for this product and is there an alternate plant or equipment that could be utilized if needed? Is the supplier prepared to commit the necessary capacity on a long term basis?
Manufacturing competence. Is a supplier capable of controlling its manufacturing processes in order to produce a component or sub-assembly that consistently meets its design requirements? Does the supplier have manufacturing experience that is directly applicable to the item under consideration?
It is important to understand the process variation, and compare it to the specifications for the item to be made. If the supplier’s standard deviation is more than what is required for your component or sub-assembly to work, then this must be discussed before going into production. Even if there appears to be no issue, it is important to understand how the process is controlled on an ongoing basis.
Ability to provide technical assistance. A design team may determine that it does not have all of the expertise to make certain decisions about the design of its product, and may want outside expertise. Many suppliers have a great deal of technical expertise. In fact, an experienced supplier will have in-depth knowledge in their area of expertise combined with experience working on a wide range of different products for different customers. Suppliers like this have the knowledge and perspective that enable them to offer design suggestions about the options of materials and manufacturing processes that can be considered.
Geographic location. Is it important for the supplier to be located nearby for ease of communication, ease to visit, and speed of delivery? Or is it acceptable for the supplier to be on the other side of the world. From the materials perspective this decision will affect the ability to assist with the supplier’s product and process development and to assist with product quality problems that arise during production. This is an important consideration from the supply chain perspective. Off shore suppliers will mean longer lead times for shipments of components or sub-assemblies. Inventory costs and transportation costs will be higher with a global supply chain.
Supply chain organization. The supply chain extends beyond the supplier to its suppliers as well. It is important to understand what commodities are used by your supplier, who the key sources are, and what type of relationship exists between your supplier and its sources.
Production planning process. Is the supplier able to schedule production in lot sizes and frequency that match well with your projected requirements? If you are going to produce your product in 1000 piece lots every week, then does the supplier have sufficient available capacity and can its supply chain support weekly production of raw materials and components? What is the lead time that the supplier needs to produce products on a regular basis? Does the lead time exceed the forecast or ordering information that is available from customers?
Shipping and logistics. You should agree on frequency and lead times associated with shipments of product from your suppliers. Does the supplier have a back up plan if weather or other issues affect the primary mode of transportation?
Company size and financial stability. All other things being equal, the size of a company and its financial stability are indicators of the resources that can be brought to bear to solve problems. Also, for long term projects the financial stability is an indicator of the likelihood that a company will be able to meet its obligations to its customers over the entire length of the project. If this is likely to be a long term relationship, meeting with the supplier’s management team is an important step. Establishing a good relationship from the start will make problem resolution easier to handle going forward.
Delivered cost. Delivered 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 may or may not be the supplier with the lowest piece price.
Evaluation of suppliers involves an audit of suppliers to assess their ability to satisfy the critical items from the list above. The assessment should include a questionnaire and evaluation of the suppliers’ product and be conducted by a cross functional team that includes representatives from purchasing, quality, engineering or R&D, manufacturing, and scheduling. With a rating scheme developed by the team it is possible to objectively rate suppliers based on all the information.
A questionnaire is useful for obtaining basic information about the general capabilities of a supplier and its systems for ensuring that its product is delivered on time and with the desired quality. The team should visit and administer the questionnaire to potential suppliers of high importance items. For lower importance and overseas suppliers it may not be practical to send the entire team, which is acceptable provided that the audit team has a well documented process for obtaining the desired information. The team can meet with the people who conduct the audit and make a decision.
Evaluation of a prospective supplier’s product is important for verifying its ability to provide an item that consistently meets its design requirements (i.e., performance and reliability). This is information that cannot be obtained through a questionnaire. From the materials engineering perspective the evaluation involves analysis of the materials in the suppliers’ products, which will help determine if a supplier is capable of controlling the materials and manufacturing processes used to make its product. The analyses to perform include those for the materials’ composition, various microscopic features, significant properties, and defects. This approach makes sense since the performance and reliability of any item is directly related to the properties of the materials that make up the item. The properties depend on the materials’ composition, various microscopic features, and defects.
For a custom-made item the analyses can be performed on a similar item that the prospective supplier already produces. For and off-the-shelf item the analyses can be on samples of the actual item. The audit team must identify the significant materials that should be analyzed and the significant materials properties, composition, microscopic features, and defects to evaluate. Any problems uncovered by the analysis will likely be present in the component or subassembly to be made for the design team.
As an example, consider a sub-assembly consisting of welded metal components. The evaluation team should have the weld joint analyzed for its strength, microstructure, presence of defects like voids and cracks, and weld shape. Samples can be taken from an item that is already in production at the supplier’s factory.
Money, time, and effort must be spent to properly evaluate suppliers. However, it is a relatively inexpensive way to mitigate the risks of selecting a supplier that is not capable of properly designing and manufacturing the component or subassembly. Furthermore, the analysis is much less expensive than missed deadlines or low process yields related to poor supplier quality.
Finally, the complete audit may indicate that a supplier has strengths in areas that offer a significant competitive advantage, but is weak in other areas. For example, a supplier may have special manufacturing capabilities or technical competence; however, the variation of the manufacturing processes is excessive. In this case, the design team can work with the supplier to help it reduce the variations.
The methodologies and considerations discussed in this article are critical for improving the likelihood of selecting suppliers that can contribute to the success of your product. None of what is discussed here is new. It just requires focus and discipline. However, there are many companies that struggle with problems that are a direct result of using incapable suppliers because their supplier selection processes are inadequate.