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How to implement or improve a supplier approval and assessment program using a six sigma project management approach.
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The Role of Supplier Approval and Assessment in the Creation of
Competitive Supply Chains
David Warren, CPIM, CSCP May 26, 2010
Competitive Supply Chains
Strategically leverage CRM and SRM
—Demand enhancement
—Reduced cost
Integrated Networks
CREATE
Steps for Creating a Customer-focused Business
Align busines
s to customer focus
Identify customer needs
Create customer
segment map
Implement CRM program
Monitor, measure, and reportSource: APICS,APICS Certified Supply Chain Professional™
Learning System, Chicago, Illinois: APICS, 2009
Steps in Implementing SRM Strategy
Define SRM
strategy
Prepare partners
Conduct pilot
Implement full
program
Monito
r and improve
Source: APICS,APICS Certified Supply Chain Professional™ Learning System, Chicago, Illinois: APICS, 2009
Develop
criteria and enroll
partners
Approval and
Performance Assessment
Tools &Criteria
Approval—RFI/Questionnaire
• Management and key contact information
• Prerequisites
• Operational standards and performance
• Financial/Insurance/Legal
• Ethical sourcing standards
SUPPLIER SELF ASSESSMENT
(Page 1 of 2)Self-assess-ment example(page 1 of 2)
or Stored There
Source: Amway, 2005(copy included in handouts
Self-assess-ment example(page 2 of 2)
Source: Amway, 2005(copy included in handouts
Approval – cont.
—On-Site Evaluation/Qualification Checklist
• Corrective Actions
Examine evidence for customer-focused strategy
• Required Certification• Training• Control Plans• Lot Traceability
Look at tab titled “Phase 3 Site Audit Verify” at http://www.wtg.ca/QS-9000%20Quality%20System%20Assessment.xls for a good example of a checklist
Assessment
—Periodic review of core information• Management and key contact
information
• Quality systems certification maintenance
• Legal
• Insurance
• Financial Health
Altman’s Z-score
—Uses five common business ratios
• Original – Public Manufacturer
• Alternate 2 – Private General Firm
• Alternate 1 – Private Manufacturer
—Greater than 70% accurate
—Three models
Assessment – cont.—Performance measures
• Perfect order
• Quality• Customer Service• Responsiveness
On time Complete Undamaged Invoiced correctly EDI-supported
Performance Metrics Examples
Source: Amway, 2010 (copy included in handouts)
On-Time Shipping
Fill Rate
Performance Metrics Examples – (cont.)
Invoice Accuracy
Source: Amway, 2010 (copy included in handouts)
—Deficient performers• They know who they are• Your actions: based on risk
Containment – change supplier status Contingency Plan Improvement Plan
Two-front War
Restore
Replace
Implementing a Supplier Approval and Assessment
Program(or revised program)
A Six Sigma approach to building continuous
improvement into the process
Why a Six Sigma Approach?
Comprehensive
Fits strategy for managing change
Stakeholder involvement
nalyze
A Six Sigma Project has Five Stages
efine
D
easure
M A
mprove
I
ontrol
C
Define Strategy alignment
o TQM
“Musts”
Segregate requirements
SMART goals.
−Continuous Improvement (CI)o Quality Standard Certification
– Lean
“Wants”
– Six Sigma
– HSE
Measure−Operations Performance Metrics
−Enabling behaviors or cultural factors
Measure−Operations Performance Metrics
On time delivery Complete delivery Quality of delivery Responsiveness Customer service call response time
−Enabling behaviors or cultural factors EDI/Automation CI philosophy 3rd party certification Employee training Financial health
MeasureChallenges—Relevant to business
—Incorporate into routine
—Subject matter experts
—Best practices
Analyze
—Pareto Charts
—5 Whys
—Brainstorming
—Cause and Effect Diagram
—Affinity Diagram
—Flow Diagrams
Improve
—Failure Mode Effects Analysis (FMEA)
—Change management
—Pilot the new program
—Key deliverables Action plan with timeline RACI responsibility matrix
Control
—Process owners take responsibility
—Control Plan / SOP Process Maps Monitoring requirements Defines business goals Dashboards Response / Contingency Plans Defines the update process
Six Sigma may not be the right approach for you if
Little/no stakeholder participation or support
Your company has not undertaken a type of CI initiative
No top-level support
Competitive supply chains are integrated networks
−CRM and SRM leveraged
Enhance demand
Reduce cost
Supplier approval and assessment is integral to SRM
−Examples of criteria and tools
Approval
Assessment
Thorough
Six sigma project management
Well-suited for Continuous Improvement environment
Stakeholders participate
Resources Vendor Audits Slideshow (by Anand Subramaniam)
http://tinyurl.com/kodk8t
Vendor Management Slideshow (by Anand Subramaniam)http://tinyurl.com/l7z3r6
Here are a few examples of Supplier Rating Systems
Flextronics - Powerpoint http://www.flextronics.com/partners/supplierinfo/Files/SRS2_0SupplierInformation12-28-09.ppt#256,1,SRS
Kohler http://kohler.com/corp/supplier/SQM_GPI_3009_Rev1_1_2008.pdf
Northrup Grumman https://oasis.northgrum.com/misc/SupplierScorecardGuidelines.pdf
Johnson & Johnson procurement policies
http://www.jnj.com/wps/wcm/connect/2078cc804f55640c9e6dbe1bb31559c7/procurement-policies-and-guidelines.pdf?MOD=AJPERES
Amway Supplier Scorecard Handout
http://supplier.amway.com/_layouts/files/north%20america/supply%20management/performance%20evaluation/2009%20Supplier%20Scorecard%20Handbook.pdf