Reduce Risk with Continuous Vendor Evaluation

In last month’s blog post, we discussed the importance of vetting a vendor before entering into a long-term partnership. Unfortunately, your work does not conclude at the end of the evaluation process.  Equate it to a job interview. Your new vendor has gone through the hiring process and they’ve joined the organization.  Now, how do you stay on top of their performance? In the employer/employee relationship, there is a formal review process that takes place on a periodic basis. A similar procedure should be put in place with a vendor.

A good vendor management system employs the same sort of comprehensive due diligence review system used for employees across the majority of organizations. According to Vendorrisk.com due diligence reviews should be performed on an annual basis or 180 days prior to the contract renewal process.

In conducting evaluations product quality is often at the forefront since it’s so crucial to the performance of the end product. In industries such as military, aerospace, medical and biotechnology lives are at stake and product failure can have catastrophic results.  A recent article published in Medical Device and Diagnostic Industry: 5 Warning Signs Your Supplier’s Quality May Be Failing.  provided primary indicators that could forewarn you of potential problems with a supplier’s product quality.

These include

  1. Rising number of failing parts per lot
  2. Delayed responses to inquiries
  3. Progression of missing ship dates
  4. Aggressive leading during audits
  5. Management defections/organizational exits

Identifying these gauges before products fail in the field will not only save your reputation but give you ample time to locate a replacement and eliminate any potential production delays.

However, a supplier review needs to go much further than scrutinizing product quality. “The evaluation of a supplier is an ongoing activity and is not tied just to their quality performance,” said Chad Phipps Director, Strategic Sourcing for Sparton. “For key suppliers, we go through a quarterly business review. In addition to product quality, we examine delivery, service, and cost. We’re not just looking for issues or problems, we recognize performance both positive and negative. This is done by issuing scorecards on a regular basis, sometimes monthly for objective criteria,” he added.

In a situation where vendor performance is failing, depth of supply chain becomes an important factor. Sparton’s Whitepaper A Robust Supply Chain: The Important Role Your Contract Manufacturer Can Play states “by offering multiple supplier options for each component, you will be providing valuable safeguards for situations in which a supplier may need to be replaced.” It further advises that an organization should have the right supply base in place to enable them to react to changes quickly and efficiently. A company who has strong relationships with vendors will be able to negotiate with them in order to meet changing needs.

What criteria does your company use to identify potential problems with a supplier? Does your system measure more than just product quality? Do you frequently go on site to review your vendors manufacturing processes and test data? Get the discussion started by leaving a comment in the box below.

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