Ongoing Supplier Evaluation Guide

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Ongoing Supplier Evaluation Guide Powered By Docstoc
					Having this supplier evaluation guide helps a business create and structure a supplier
base that blends company values and helps with strategic marketing. This report
covers rejection rates, top ten reasons for rejection, on-time delivery, cost of quality, and
corrective action responsiveness. This document in its draft form contains numerous of
the standard clauses commonly used in this type of guide; however, additional language
may be added to allow for customization to ensure the specific language of the
company is addressed. Use this form to help a business create and structure a supplier
base that blends company values and helps with strategic marketing.
                    ON-GOING SUPPLIER EVALUATION GUIDE
            “SETTING SUPPLIER GOALS AND MANAGING EXPECTATIONS”


[Company A] uses information referenced in this document to measure the performance of
suppliers in the areas of quality, delivery, cost, and service. [Company A]’s Quality and Global
Supply Operations departments will provide periodic feedback on how well suppliers are
performing. The rating system is a method for gauging a supplier’s progress toward zero defects
and 100% on-time delivery, and for identifying world class suppliers that [Company A] will
consider for future business and long-term partnerships.

On-going Supplier Evaluation, Analysis, and Feedback
At the end of each month, selected approved suppliers will receive a supplier performance report.
The report will cover rejection rates, top ten reasons for rejection, on-time delivery, cost of
quality, and corrective action responsiveness.

Through this feedback of performance information, the supplier can focus their continuous
improvement efforts on the significant problems identified. As the supplier corrects problems
their processes become more controlled and their operating costs go down because the costs
associated with process variation are eliminated. When processes are in control schedules require
less revision, and delivery dates are met.

Results expected from the Supplier Evaluation Program are:
    Dock-to-stock receiving
    Reduction in non-value added operations (e.g. inspection, rework, etc.)
    Cost reduction through continuous improvements
    Mutually good supplier partnerships
    Increased customer satisfaction

On-site Audit
An on-site quality management system audit of the Supplier’s facilities by [Company A] may be
required as a part of on-going supplier evaluation. The purpose of the on-site audit is to ascertain
whether the supplier has adequate manufacturing capabilities, quality systems, IT systems,
security, safety, etc.

The audit team is comprised of members from various departments within [Company A] based on
the recommendations of the Supplier Evaluation Team. Upon arriving at the supplier the audit
team will conduct an opening conference with the supplier in order to explain why they are there
and the objectives of the visit. After completing a plant tour to acquaint the audit team with the
supplier’s overall operations, team members will proceed to evaluate their respective areas. Upon
completion the audit team will conduct a closing meeting with the supplier. During the closing
meeting the team leader will review the observed strengths and weaknesses of each category. It
may be possible at this time to estimate corrective actions required to correct deficiencies found.

The final report of the audit team will include a:
    List of all individuals, and their title, present
    List of the areas evaluated
    List of any major deficiencies requiring written corrective action
    List of any minor deficiencies
    Summary of findings and final conclusion


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The [Company A] Supplier Evaluation Team will determine if the findings of the on-site audit
team necessitate a follow-up audit to assure that satisfactory corrective action has been taken to
correct the deficiencies.

Monthly Supplier Performance Report

Zero Defects Measurement
The zero defects measurement is based on the adherence of the product to [Company A]’s
specifications. The zero defects measurement has the highest weight of all the performance
criteria; it comprises 50% of the total rating score. [Company A] has selected a performance
level of <1,000 defective parts per million (PPM) as the acceptable target level for quality.
Cleveland will provide each supplier with rejection rates and the top ten reasons for rejections in
addition to PPM performance information. The PPM calculation is based on the total number of
defective pieces received divided by the total number of received pieces multiplied by one million
(1,000,000).

The total maximum number of points possible for Zero Defects is 50; the point scale is broken
down in the table below:
                Rating Pts          PPM Measurement
                     50      < 1,000 PPM
                     45      1,001 – 6,200 PPM
                     40      6,201 – 8,800 PPM
                     30      8,801 – 12,200 PPM
                     20      12,201 – 22,700 PPM
                     15      22,701 – 66,800 PPM
                      0      > 66,801 PPM

On-time Delivery Measurement
The On-time Delivery Measurement is based on the date of receipt, either at the freight forwarder
for foreign suppliers or at the [Company A] facility for domestic suppliers, compared to the
agreed upon delivery date. This measurement also takes into consideration the quantity received
compared to the purchase order quantity.

The total maximum number of             points possible for On-time Delivery is 30; the point scale is
broken down in the table below:
               Rating Pts                     % Rec’d On-time
                    30                  100%
                   22.5                 99% - 97%
                    15                  96% - 94%
                    7.5                 93% - 91%
                     0                  < 90%




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Corrective Action / Preventative Action (CA/PA) Responsiveness
The Corrective Action/ Preventative Action (CA/PA) responsiveness measurement is a rating of
the suppliers timely response with an acceptable corrective and/or preventative action in the event
that a process or product fails to meet [Company A] specifications.

                   Rating Points        Days
                       10        No CA/PA’s issues or 100% of
                                 CA/PA’s on-time
                        5        90% or more of CA/PA’s on –
                                 time
                        0        89% or less of CA/PA’s on-
                                 time

Cost of Poor Quality
The Cost of Poor Quality Measurement is the cost incurred by [Company A] due to a supplier’s
failure to meet the requirements of the purchase order. Costs of non-conformance include, but
are not limited to, the following:

        Rework, handling, and production loss factors.                The entire cost of the
         subassembly/assembly scrapped if the root cause of the failure is a non-conforming
         component.
        Line shutdown charges. The cost of a line shutdown caused by a late delivery or non-
         conformance by the supplier is calculated using the equation below.

                 (Selling Price of End Product) x (Average piece per hour) x (total time line is
                                                    down)

        Costs incurred for failures at [Company A]’s customer caused by non-conforming
         components. This includes engineering time, travel expense, warranty and recall costs,
         and customer penalty charges
        Travel expense (including airfare, hotel, and food) in response to chronic quality
         problems. All costs related to a supplier visit that is necessitated by chronic quality
         problems experienced by that supplier.

The total maximum number of points possible for Cost of Poor Quality is 10; the point scale is
broken down in the table below:
               Rating Points          Cost
                    10          < $1
                    7.5         $1– $999
                     5          $1,000 – $4,999
                    2.5         $5,000 – $9,999
                     0          > $10,000

[Company A] will determine the root cause of any non-conforming product and the supplier may
be charged back all costs incurred by [Company A] as a result of non-conformance. [Company
A] will promptly notify a supplier in writing of the amount of all charge backs for non-
conforming product. The supplier will have the opportunity to review the charges and all
appropriate documentation supporting the amounts. If the supplier is not in agreement with the
chargeback amounts, the supplier will notify [Company A] in writing of its objections (specifying



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which items it is objecting to) within fifteen (15) days of receipt of the notice. The supplier will
be deemed to have accepted any charge backs not specifically objected to in its notice.

Rating Categories
[Company A] classifies suppliers into one of the following categories based on the total score
earned in the reporting period:

    1. Excellent: Exceeds Expectations Performance Rating of 95 – 100
               Suppliers that consistently achieve the Excellent rating are strong candidates for
               long-term partnership relationships.
    2. Good: Meets Expectations Performance Rating of 80 – 94
               Suppliers that achieve the Good rating are in good standing with [Company A]
               and may receive on-going purchase orders and are encouraged to participate in
               the New Product Development process for developing further business.
    3. Average: Marginally Satisfactory Performance Rating of 70 – 79
               Suppliers that achieve the Average rating perform in the acceptable range of the
               market and will receive on-going purchase orders at the discretion of [Company
               A].
    4. Below Average: Needs Improvement Performance Rating of 0 – 69
               Suppliers that are ranked as Below Average may have an improvement plan
               implemented and must show a trend of improvement in order to continue to
               receive orders or participate in [Company A]’s New Product Development
               process.

Summary

[Company A]’s monthly tracking of critical supplier performance culminates with a regularly-
scheduled on-site Supplier Performance Review conducted by [Company A]’s Quality Assurance
and Global Supply Operations departments. During this meeting, suppliers and [Company A]
have the opportunity to discuss areas of improvement and review strengths, weaknesses, and
corrective                                 actions                                 required.




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DOCUMENT INFO
Description: Having this supplier evaluation guide helps a business create and structure a supplier base that blends company values and helps with strategic marketing. This report covers rejection rates, top ten reasons for rejection, on-time delivery, cost of quality, and corrective action responsiveness. This document in its draft form contains numerous of the standard clauses commonly used in this type of guide; however, additional language may be added to allow for customization to ensure the specific language of the company is addressed. Use this form to help a business create and structure a supplier base that blends company values and helps with strategic marketing.