Feature Article : The Nuts & Bolts of Evaluating New Supplier Capabilities
By: Michael L. Hetzel, VP/Americas Pro QC International
There’s a lot of great information available about selecting China sources. In this article we’re going to assume that you’ve found good suppliers from the pricing, terms and relationship perspectives, so we’re only going to cover your assessment of their capability to manufacture your products.
We’ll also assume that you’re not a quality industry professional. You may employ QA professionals or you can contract a third party quality services provider (3PQ), but to try and emulate a complex profession will lead you to problems downstream. Instead, we’ll review what the supplier capability assessment process entails and your options in getting it done.
Select a Competent and Motivated Supplier
I’ll immodestly call this “Hetzel’s Law” – Good Supplier, Good Results; Bad Supplier, Bad Results. I’ve found this to be true throughout my career in manufacturing (20+ years) and my experience in global outsourcing (18+ years, including the last 6 years with Pro QC), and not only offshore but locally. Yes, it is as simple as it sounds, but it’s difficult in practice to find the “good” suppliers.
A good supplier is not just defined by the agreement you reach with the factory owner or manager. He or she may have the best of intentions but lack the processes, experience and machinery that are needed to reliably produce your product and/or lack enough control of their operations to ensure that their commitments are consistently delivered. Be sure to assess the entire operation in this context. Assume nothing about their control of the factory and assess their operations in detail, not just the commitment of your counterpart there. A factory audit is the only way to determine this. This context is often missed during the selection process.
Another area that’s often missed is to assess the supply chain that feeds inputs for your product to the factory that’s “your” supplier – the one who ships you the goods. Once again the factory manager at your source may have every good intention, but then one of the suppliers of inputs for your products cuts corners and your results will be failed product. I can’t count the cases where we’re booked to audit a supplier but when we recommend that we also audit their suppliers of key inputs, our client will balk at the expenditure (generally less than US$1,000.00) yet potentially face a multi-million dollar recall later on.
In other words, don’t get so caught up in saving that last possible dime in China that you lose your clients or even go out of business. Whether it’s your own qualified employee, Pro QC or another 3PQ, controlling your quality as early in the process as possible is where the “last dime” cost savings are really found.
The last point is that the supplier has to be motivated. China is booming, trade flows are shifting rapidly, inflation is very high in some areas of the country (particularly the south and along the coast). If you’re too small a fish in their pond you’ll get pushed aside in quality and/or delivery. If you’re too big a fish in their pond you’ll be asked to take up their entire inflationary overhead burden in your prices, or corners will be cut in the manufacture of your product. You’ll want to be in the middle of their client base – big enough to have clout but small enough to be sharing only a portion of their overhead. Examine your supplier’s relationship with their suppliers as well, the same issues will apply.
The “Make or Buy” Decision
If you have enough business to retain quality professionals on your own staff they will navigate these issues as you audit the factory and its suppliers. If not you should use a competent 3PQ and they’ll take care of all the details. Too many people fail after reading a few articles and trying to manage the supplier audit and inspection processes themselves (would you read a few articles about flying and then go try and fly an aircraft?). What’s truly important is that you know what processes are needed to bring you the information you need in order to make a qualified decision about using a supplier.
For vendor qualification audits the ISO9001-2000 standard (there are specialized variants of the standard for other fields, such as ISO13485 for medical devices and TS16949 for automotive) is an excellent benchmark for a supplier’s business practices regardless of whether they’re registered to ISO or not. A process audit should also be conducted that must be properly formatted to your product requirements and conducted by a quality engineer with the proper auditor credentials.
Note that many registered ISO 9001 factories (they often claim to be “certified” but this is a misnomer) are found to be substantially out of compliance with the standard upon audit. Whether they’re registered or not you’ll want to have them audited specifically for you and your expectations, by someone who represents your interests and not the factory’s or some other party’s such as a trading company.
For your social conscience there’s the SA8000 standard, which covers working conditions, treatment of employees, employment regulatory compliance and other ethical concerns, and for environmental concerns there’s the ISO14000 standard. SA8000 and ISO14000 audits are usually commissioned by public companies, who face scrutiny in these areas, or companies where downstream liabilities may exist related to social or environmental issues surrounding the production of their products.
Select the Right 3PQ
If you decide to use a 3PQ be sure to evaluate them carefully. Also remember that you’ll most likely want to use them for your sampling, first article and pre-shipment inspections (the subject of other articles) so it’s best to select a full service firm from the outset.
There are also 3PQs that are “real” companies with offices you can visit and employees you can meet, and there are “virtual” 3PQs using other 3PQs, franchisees and/or outside contractors as stringers. Note, however, that even the real 3PQs will use contractors in some locations and specialties, but this isn’t the same as the entire operation being outsourced. Take the time to visit the 3PQs and audit them to ensure that you select the right company.
Make sure they have resources, such as degreed engineers who are accredited auditors, in the correct locations and in your product category – critical for the process audits. Lastly, make sure you’re the right size “fish” in their pond as well.