Negotiating supplier quality
Q: How do I convince our supplier to accept and produce material with a tighter specification requirement from a quality standpoint? My organization strives to make our product with the materials sent to us. Our specifications help meet our customers’ high expectations. My sourcing team is unlikely to replace this supplier. Considering that I’m just the receiving inspector, how should I handle this issue?
A: Never understate your role in the organization. A receiving inspector plays a pivotal role in an organization’s supply chain.
Take a 30,000-foot view of your position, and look at your organization’s value stream and key activities that create customer value. Figure 1 illustrates a value stream for an order-to-cash process. From this perspective, you see how key parts are interconnected. Decisions made anywhere along the value stream can affect activities upstream or downstream, including supplier quality.
Supply chain thinking requires a strategic view of sourcing that focuses on the long-term success of all partners along the chain. Pricing, delivery timing and quality can be established cooperatively, taking into account the needs of a supplier and buyer.
You can address the specifics of supplier-quality specifications using a framework called the golden circle.1 The golden circle offers a nontraditional mindset for solving problems by focusing on the "why," "how" and "what" (see Figure 2).
As a representative of the organization that owns the product brand and image, you’re responsible for the activities of its supply chain. You must consider the total cost of owning a supplier’s products and how they affect your organization’s reputation.
Poor supplier quality results in costs in the form of customer complaints, product returns, rework, scrap, expediting, overtime, reshipping and credits. It also results in delivery reliability slips and delays.
The rule of thumb is that a customer who had a bad experience will tell eight to 10 others about it. Today, thanks to the internet, they tell everyone.
The cost of poor quality can be as much as 30 to 40% of an organization’s revenue.2 Many of these costs are not seen, and poorly understood and quantified. You can use this to frame the discussion with your sourcing team and supplier. This will show the "why," which explains why quality is so important. I generally frame this in terms of the cost of doing nothing.
At this point, you can shift to the "how" and discuss how you are going to address supplier quality. You can try using some traditional negotiating tactics.
Hard negotiators take a position because they view other parties as adversaries to be beaten down. They demand concessions and give none in return, and they threaten, mislead or pressure the other party. This can endanger your long-term success.
Soft negotiators value agreement to the point that they disclose their bottom line, alter their position or accept one-sided agreements that involve only concessions. Contracts could be won, but these negotiators are left feeling exploited.
These positions can be described as win-lose or lose-win. But there is a third option—a win-win negotiating technique based on principled negotiations. Principled negotiations start by insisting on several objective criteria for long-term gains that are beneficial to both parties. For example, total cost of ownership is an objective criterion.
Principled negotiations separate the people from the problem, and they take emotional issues out of the equation and focus on interests, not positions. Position-taking tactics lead to defensiveness. In principled negotiations, negotiators relate what they are interested in achieving and seek to understand the other party’s interests.
After you reach this point, the next logical step is to focus on the "what," which explains what we are going to do to raise supplier-quality specifications. Only you, the supplier, and your internal team can answer this. But now you have a solid framework to help you successfully begin the journey.
- Simon Sinek, "The Golden Circle," Gumroad.com, http://tinyurl.com/golden-circle-sinek.
- Juran Institute, "Cost of Poor Quality," Juran.com, http://tinyurl.com/juran-cost-of-poor-quality.
Q: How can an organization evaluate the effectiveness of a corrective and preventive action (CAPA) before it’s implemented? The U.S. Food and Drug Administration expects pharmaceutical and medical device manufacturers to include an effectiveness check in the report, but do organizations have enough guidance to make these checks meaningful?
A: Effectiveness checks are improved if they are specific, time-based and measureable. For example:
Three months after implementing a CAPA, check for repeat incidents. If there were no incidents, close the CAPA. If there were repeat incidents, reopen the investigation.
Ten batches after implementation, calculate the new average reject rate. The CAPA is successful if the reject rate is less than 1.5%. If the new reject rate is greater than 1.5%, reopen the investigation.
Many people wonder whether these requirements are sufficient and how they can evaluate a CAPA before implementation. Organizations lose valuable time if they have to wait three to six months for answers. Customers may continue experiencing poor quality, and the regulatory risk increases as long as the clock keeps ticking.
Using a CAPA hierarchy helps investigators select an appropriate CAPA that is most likely to deliver the desired outcome. It also can be used by reviewers and approvers, and it may give them additional leverage to push back for a better solution or simply to help articulate the weaknesses they saw in previous CAPAs.
There are five levels in a CAPA hierarchy, which can be listed in order of decreasing effectiveness:
Elimination: Eliminate the possibility of errors. This can be accomplished by eliminating the task. For example, you can eliminate mixing errors by purchasing premixed materials, or recording errors could be eliminated by linking the measurement device to a printer.
Elimination also can be accomplished with a poka-yoke (an error-proofing device). An example of this would be adding a special feature to a part so it can’t be installed incorrectly.
I helped investigate a product that was shipped to a customer without a thermal-print label. In the production process, any time an operator pushed the emergency-stop button, the printer and camera would lose their memory. The printer didn’t know what to print, and the camera didn’t know what to reject.
We eliminated the problem by revising the programmable logic controller (PLC) program to automatically reject the in-process bags following an emergency stop. We also added a verification step to the process-validation procedure to prevent repeating the issue on future product-line installations.
Replacement: Change the current process by replacing it with a more reliable one. For example, you could:
- Design a more robust screen for your milling machines so they don’t break as often.
- Add redundant sensors on machines. This way, if one sensor fails, the other will still work, and the process won’t be affected.
- Replace human inspection with automated, 100% inspection at the source of the process and install barcode scanners.
- Install mechanical limiting devices or PLC programs, which will make it so a process cannot exceed a specified range.
Facilitation: Make the process easier to perform, which makes mistakes less likely to occur. For example, you could:
- Use "visual factory" techniques such as 5S and color coding. This can make errors more obvious.
- Redesign forms to be easier to complete so omissions are easy to spot.
- Use dedicated storage areas to reduce the possibility of material mix-ups.
- Reduce material handling. Every movement is an opportunity to make a mistake.
- Add pictures to procedures.
Detection: It is ideal to catch the failure as soon as possible after it occurs. You can do this by:
- Adding audible alarms or lights if a process is out of tolerance. A better approach might be one that automatically shuts down or one that adds an interlock so the process cannot move to the next step.
- Using trending routines to alert you before a process goes out of tolerance.
A corrective action that improves detection is inherently weaker than one that eliminates the problem. This is because detection does not prevent defects; it only prevents defects from escaping to the customer. Defects are what cost organizations money.
Mitigation: This can minimize the effect of an error, and it typically is the weakest form of corrective action. For most organizations, their product designs are constrained, and it’s likely that the only way to mitigate errors’ effects is to sort or rework.
Sort and rework should be viewed as an interim step, not a permanent corrective action. This is true even if you design a perfect automated reinspection system. In other words, rework is a crutch.
Sometimes you can combine detection and mitigation, such as installing a metal detector with a link to the conveyor. If metal is detected, you can mitigate errors by stopping the conveyor before contaminating a bin. A reject mechanism is another way to combine detection and mitigation.
Review a sample of your past CAPAs through the lens of the CAPA hierarchy. You might be surprised by how many actions fall into detection and mitigation categories—the least-effective actions.
After you roll out the CAPA hierarchy in your organization, you have a better chance of implementing preventive actions that deliver significant improvements. It allows you to anticipate an effective outcome rather than wait several months for the CAPA implementation—only to be disappointed by the results of the effectiveness check.
Director of quality systems
NSF Health Sciences Pharma Biotech