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Online Edition — December 2002

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Customer-Supplier Communication Systems: 360° Communications Loops
Get Off the Island!
Bridging the Gap at Work
From Our Readers
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Customer-Supplier Communication Systems:
360° Communication Loops

During the past quarter, we’ve been discussing various aspects of customer-supplier teams in The Journal for Quality & Participation and News for a Change. In this issue, we conclude the series with an article on the importance of two-way communication between customers and suppliers.

“I know you believe you understand what you think I said, but I am not sure you realize that what you heard is not what I meant.”
—author unknown

Developing mutually beneficial relationships with your suppliers is critical to any organization. Today, we look at the entire supply chain as part of the process for delivering high-value products and services to our customers. The key to building excellent customer-supplier relationships is communication. Communication can’t be one-way; it must be a 360-degree exchange of information.

Most of us are familiar with a quality system that provides a framework or road map. “A quality system is the agreed on, companywide and plantwide operating work structure, documented in effective, integrated technical and managerial procedures, for guiding the coordinated actions of the people, the machines, and the information of the company and the plant in the best and most practical ways to assure customer quality satisfaction and economical costs of quality.” (Feigenbaum, 1983)

Communication systems, not unlike quality systems, provide a framework for achieving consistent results.

The model in Figure 1 illustrates the flow and sequence of two closed-loop circles of information, a system that must be present in a long-term customer-supplier relationship based on continuous improvement.

Figure 1

Information About Requirements

Suppliers often get blamed for nonconformities and customer dissatisfaction, yet at least 50% of the time the root cause of the problem is miscommunication between the customer and the supplier. This communication can be as simple as what day to ship the product and how to package it for shipment, or as complex as raw material formulations and processing parameters.

Requirements cover multiple aspects of the product or service. In defining the requirements, the customer attempts to describe the desired end result. The supplier has to determine the raw materials and the process that will be used to achieve the end result. There are numerous requirements that must be considered. Product specifications define performance requirements as expected by the customer. Process specifications define parameters of the manufacturing process that must be controlled to produce a product. Finally, service specifications define nonproduct parameters, such as methods of delivery, certificates of analysis, and engineering support.

Many customers write specifications assuming the supplier will know all the little details. When the product arrives at their sites and it is not what they expected, these customers get upset with the supplier.

It is the customer’s responsibility to thoroughly identify all of its requirements—both product and service! Once all requirements are defined, customers need to review them with suppliers, preferably during the request for quote period. Experience indicates that the supplier not only will have clarification questions but also will have a few additions. Because the supplier has the expertise in the process and the customer knows the product, it makes sense that the requirements be finalized collaboratively. This valuable communication step not only saves costs associated with rework, scrap, and downtime, but it also gets the end users their product or services faster.

The following is a list of some questions manufacturers might ask when identifying requirements:

  • What raw materials are acceptable for the manufacturing process?
  • Does the bill of material (BOM) call out all parts? Are their meanings understood?
  • What parameters are measured at incoming inspection?
  • What are the critical inspection features?
  • Should statistical process control data be
    collected? What attributes and variables? How often? Who retains the data and for how long?
  • Are there fixtures or any other special equipment required for testing and measuring? Are they called out on the drawing or BOM?
  • Are limit samples or color standards required? How are they controlled?
  • Are test methods identified in the specifications? Are the test limits clear and achievable? Is the test sequence critical?
  • Is the drawing clear and comprehensive?
  • How should product be identified, palletized, and loaded into a trailer?
  • Are any special shipping documents or conditions required?
  • How should the supplier respond to a nonconformance notification?

There are many types of questions that could be stated about the everyday business dealings with suppliers. Each and every one of them is crucial to the success of both the customer and the supplier. If the customer can think like a supplier and provide clear and complete specifications, the relationship between the companies will start with trust and will result in shorter lead times, reduced nonconformities, and increased profitability.

Information on Products and Services

Specifications help to communicate performance targets for suppliers, but how do customers know if their suppliers are meeting requirements consistently? To know the quality of the goods and services that are received requires a system to capture important data and turn it into usable information—for both the customer and the supplier. A measurement system is needed to monitor performance.

Performance information, such as conformance to specification, nonconforming material costs, and level of service can be used to compare suppliers, monitor improvement, and determine “best value” suppliers. Best value means those products/services that have the lowest overall cost through the entire system.

Best value looks at the total cost of doing business with a supplier, the purchase-order price along with the associated costs of poor quality that occur as the product is utilized. These costs of poor quality, or non-value-added costs, include incoming inspection, lab analyses, rejecting product, re-receiving product, manufacturing wastes (scrap, rework, downtime, reduced efficiencies), and customer complaints.

To identify and determine costs for these non-value-added activities, create flowcharts for each activity. The flowcharts follow both product and paperwork through the system and assign costs to the associated labor and waste.

This measurement system monitors the frequencies of non-value-added activities. The frequency of each type of activity during a specified time frame multiplied by its associated cost provides the non-value-added costs. These costs added to the original purchase price yield the total cost of the product purchased from a supplier.

Numerous supplier measurement systems are set up to report in pounds rejected, percentage of defectives, or defects per million. Although these are useful indicators to measure supplier performance, they fail to provide cost information that is necessary to make sound supplier-management decisions that impact the profitability of a customer. Quantifying the cost of poor quality helps focus both the customer and the supplier on improving those things that will generate the greatest return.

Performance Feedback: Supplier Performance

Open and honest communication builds a trusting customer-supplier relationship. Providing suppliers with factual performance information encourages continuous improvement. Performance information can be communicated using formal and informal methods.

Formal methods include meetings and reports that inform suppliers how well they are progressing. Formal methods should be in place to provide regular feedback to suppliers. As suppliers achieve targeted quality levels, customers and suppliers should celebrate the success and personally congratulate those involved for a job well done.

Informal performance feedback can take on many forms. Immediate feedback, such as a telephone call or a fax that focuses on improvements shows that customers value suppliers’ efforts and that customers care about progress. Customers should establish and frequently use these easy channels of communication to provide feedback.

Sending improvement teams to work with suppliers provides support and often clears up misunderstandings that, in turn, can lead to improved performance. Customer-supplier teams also emphasize a commitment to a long-term relationship.

Remember to exercise care with informal feedback. As a customer, conflicting performance feedback is sent whenever products or services are accepted that do not meet the established requirements. Informal feedback should always align with formal feedback.

Performance Feedback: Customer Performance

Feedback generally is understood to involve customers asking suppliers questions to determine the suppliers’ ability to meet the customers’ needs. Well, this understanding represents the old survey paradigm. As part of the supply chain, customers are also suppliers. Customers provide information that suppliers need to produce and deliver acceptable products and services.

A commonly used method to measure customer satisfaction is to send surveys to end users. Marketing usually does this, and the information is shared with numerous departments in hope of improving the product and services. Keep in mind that continuous improvement can be achieved throughout the entire supply chain, so why shouldn’t customers survey their suppliers to determine how effectively they provide necessary information?

Customer-performance survey questions should be designed to benchmark relationships with suppliers. For example, a four-point rating scale, where 1 is poor and 4 is above average, can allow customers to numerically monitor their progress at improving communications over time. Surveys also should include open-ended questions that encourage suppliers to share concerns. The questions should address effectiveness of communication in all pertinent areas, such as specifications, changes to specifications, quality requirements, performance feedback, etc.

Customers need to collect information from multiple sources at the supplier, not just the sales representative. If customers want valuable, actionable data, they need to get answers from a cross section of people who use their information—from order entry, production, quality, engineering, and even accounting!

When the results are tabulated, customers should share them with internal engineers, buyers, quality engineers, and management. Make sure to develop an action plan with responsibilities assigned and due dates identified. Customers also should communicate plans back to suppliers and thank suppliers for their feedback. When suppliers start seeing positive results, they will be more encouraged to stick with customers during hard times and rush jobs. The relationship will be solid enough to handle difficult situations.

Conclusion

The quality of products relies on effective communication between customers and suppliers. Where can News for a Change readers go for more information on developing strong customer-supplier relationships? The most important resources available to you are people—network with your colleagues. They can share experiences, both positive and negative—what worked for them and what didn’t. By listening to the experiences of others, process steps can be chosen that will work best for each organization. Listed are some books that may be helpful.

  • Strategic Supply Management—A Blueprint for Revitalizing the Manufacturer-Supplier Partnership by K.R. Bhote. A resource for both technical tools and human skills to create and maintain customer-supplier relationships.
  • Supplier Management Handbook by J.L. Bossert. This handbook provides a thorough examination of all facets of procurement quality activities. It is a definitive reference for purchasing and quality professionals, as well as management interested in understanding, developing, and participating in supplier improvement programs.
  • Quality Planning and Analysis, Third Edition by F.M. Gryna and J.M. Juran. With a focus on internal and external customers in both manufacturing and service industries, this book looks at a systems approach to quality from product development through use.
  • Supplier Certification—A Continuous Improvement Strategy by J.L. Bossert, J.O. Brown, and R.A. Maass. A step-by-step approach to bring suppliers through the certification process.
  • Measuring, Planning and Controlling Quality Costs by K.M. Poston, H.P. Roth, and W.J. Morse. An introduction to quality costs.
  • The Malcolm Baldrige Quality Award Criteria from United States Department of Commerce—National Institute of Standards and Technology. The criteria help an organization to achieve performance excellence and improve its competitiveness.

PAT LA LONDE is the director of supply chain management at ALARIS Medical Systems, Inc., in San Diego, CA. She is an ASQ Fellow and an ASQ-certified quality technician, quality auditor, quality engineer, and quality manager. She currently serves as chair of ASQ’s Customer-Supplier Division. Her experience includes building customer-supplier relationships, as well as designing and implementing lean supply chains.

JANET RADDATZ is director of quality systems at Sargento Foods Inc. in Plymouth, WI. Raddatz has been involved in the development, implementation, and auditing of quality systems for more than 20 years. She is an ASQ Fellow, as well as an ASQ-certified quality manager, quality engineer, quality auditor, and Six Sigma Black Belt. She recently completed her term as chair of ASQ’s Customer-Supplier Division.

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