An organization spends substantial portion of every dollar on the purchase of raw materials, components, and services. In fact, 60% of cost goods sold are consisted of purchased goods. Therefore, supplier quality can substantially affect the overall cost of a product or service. One of the keys to obtaining high-quality products and services is for the customer to work with suppliers in a partnering atmosphere to achieve the same quality level as attained within the organization.
Customers and suppliers have the same goal—to satisfy end user. The better the supplier quality, the better the supplier’s long-term position, because the customer will have better quality. Because both the customer and suppliers have limited resources, they must work together as partners to maximize their return on investment.
There have been number of forces that have changed supplier relations. Prior to the 1980s, procurement decisions were typically based on price, thereby awarding contracts to lowest bidder. As a result, quality and timely delivery were sacrificed. One force, Deming’s fourth point, addressed this problem. He stated that customers must stop awarding business based on the low bidder because price has no basis without quality. In addition, he advocated single suppliers for each items to help develop a long-term relationship of loyalty and trust. These actions will lead to improved products and services.
Another force changing supplier relations was the introduction of the just-in-time (JIT) concept. It calls for raw materials and components to reach the production operations in small quantities when they are needed and not before. The benefits of JIT is that inventory-related costs are kept to minimum. Procurement lots are small and delivery is frequent. As a result, the supplier have many more process setups, thus becoming a JIT organization itself. The supplier must drastically reduce setup time or its cost will increase. Before there is little or no inventory, the quality incoming material must be very good or the production line will be shut down. To be successful, JIT requires exceptional quality and reduced setup time.
The practice of continuous process improvement has also caused many suppliers develop partnership with their customers. A final force is ISO 9000, which is mandated by the major automotive assembly firms. Specifically, first tier and tiers subsequent to the OEMs must maintain supply chain development through three key factors: zero defects, 100% on-time delivery, and a process for continuous improvement.
These forces have changed adversarial customer-supplier relationship into mutually beneficial partnerships. Joint efforts improve quality, reduce costs, and increase market share for both parties.
Dr.Kaoru Ishikawa has suggested 10 principles to ensure quality products and services and eliminate unsatisfactory conditions between the customer and the supplier:
- Both customers and the suppliers are fully responsible for the control of quality.
- Both the customer and supplier should be independent of each other and respect each other’s independence.
- The customer is responsible for providing the supplier with clear sufficient requirements so that supplier can know precisely what to produce.
- Both the customer and the supplier should enter into a non adversarial contract with respect to quality, quantity, price, delivery method, and terms payments.
- The supplier is responsible for providing the quality that will satisfy the customer and submitting necessary data upon customer’s request.
- Both the customer and the supplier should decide the method to evaluate the quality of the product or service to the satisfaction of both parties.
- Both the customer and the supplier should establish in the contract the method by which they can reach an amicable settlement of any disputes that may arise.
- Both the customer and the supplier should continually exchange information, sometimes using multifunctional teams, in order to improve the product or service quality.
- Both the customer and the supplier should perform business activities such as procurement, production, and inventory planning, clerical work, and systems so that an amicable and satisfactory relationship is maintained.
- When dealing with business transactions, both the customer and supplier should always have the best interest of the end user in mind.
Although most of the principles are common sense, a close scrutiny shows that a true partnering relationship exists with long-term relationship, where each party preserves their identity and independence.
Source: Total Quality Management, Third Edition, Dale H. Besterfield.