Supplier Selection and Maintenance

The extent you go to depends on the associated cost, production and risk

by Dennis R. Arter

This article was featured in January 2016’s Best Of Back to Basics edition.

Companies in the United States use government laws and contract requirements to select suppliers and monitor their suppliers’ performance. To control the goods and services companies buy, they must thoroughly define their requirements for the items or tasks, select a supplier that can meet their requirements and make sure their supplier continues to perform well. All suppliers are not equally important to your company’s success. “Awesome” suppliers are the ones you need for survival. They may be the only ones who make the components you need or have tools and technologies you don’t. Your “important” suppliers are replaceable, but only with great cost and effort. You could do without them, but you would rather not have to find new suppliers. Your “commercial” suppliers provide proven products and services to you and others. These commodities are readily available, and competition will keep the quality high.

Supplier requirements

According to contract law, companies must define requirements in a formal way. It’s common to use a purchase order (PO) to define requirements. A PO contains technical requirements, acceptance criteria and quality system requirements. It also specifies the price a company is willing to pay, quantities it wants, and delivery times and locations. If the seller agrees, it’s a legal contract. Technical requirements and acceptance criteria tell the supplier what a company wants and how good it must be. These are often contained in designers’ drawings and specifications. If you use standard designs for components, you can use national or international standards for the requirements. It saves time and money and results in fewer mistakes.

Quality system requirements tell the supplier what controls to maintain as the parts are being made. Again, we may specify the use of international standards, national standards or industry standards.

Often, the supplier is small, and the risk of failure is low. Then these international, national and industry standards can be too complicated and specify more controls than necessary. In this case, identify those quality system requirements critical to success, put them on a page and include the page as part of the PO package.

There are times when you don’t need to specify a quality management system. When you order catalog items, the supplier’s normal business practices may be just fine.

Supplier selection

The difficulty or ease of supplier selection depends on the cost and risk associated with the goods and services you are buying. It also depends on how the goods and services are produced. At the easy end, look at a product in a sales catalog and examine the description. If it meets your needs, purchase it using a PO.

On the more difficult end, you can use the bid process if there are several suppliers to choose from. Send out a “request for proposal” to potential suppliers. The suppliers will look at your needs and send an offer showing what they can do and what it will cost. Compare the bids from several suppliers and choose the best one.

Going even further, you can ask your potential suppliers to answer a list of questions. The questions should ask about the organization, processes used and management controls in place. These questionnaires can be useful to both parties if they are kept to a reasonable length (10 pages at the most).

The most complex and costly form of supplier selection is an on-site survey. Several people from your company can visit the supplier and examine its technical processes and machines. Look at the design and check the quality management system it uses. These site surveys are costly but will make you confident the supplier can meet your needs.

Supplier maintenance

Companies used to require a certificate of conformance for all parts received. This said the part met all requirements of form, fit and function. Unfortunately, these certificates were often signed without the parts having been checked. Today, you only need to require a certificate of conformance for the most important parts.

A variation of the conformance certificate is the certificate of compliance. This paper says the part meets all physical requirements and was made according to the rules. This certificate is needed for parts used in spaceships and nuclear power plants, but it is too much for parts used in a swimming pool.

Many companies ask their suppliers to send statistical control charts with the parts. These charts show process variation and can be useful to the customer because they show if there’s any variation in material processes or quality.

Site visits are another way to monitor the supplier. Once or twice a year, your own technical experts can visit the supplier to discuss problems and technical matters. These are friendly visits designed to help both parties.

You can also conduct routine quality system audits of your suppliers. The important suppliers may need audits once a year. The less important may need audits only every two or three years. Again, use cost, production and risk to choose which suppliers to audit.

For more information

The ISO 9001:2000 standard contains basic requirements for purchasing controls, and ISO 9004:2000 provides more advanced guidance. Also, becoming involved with ASQ’s Customer Supplier Division is a great way to meet with others and learn about supply chain management.

Dennis R. Arter is a consultant and trainer in quality auditing in Kennewick, WA. He earned a bachelor’s degree in chemistry from the University of Illinois—Champaign-Urbana. Arter wrote Quality Audits for Improved Performance published by ASQ Quality Press. He is an ASQ Fellow and a certified quality auditor.

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