Euroquartz’ MD, Andy Treble, offers buyers a six step guide to follow when considering when selecting a new supplier or re-qualifying an existing supplier
Cost: A product’s cost is only one part of a ‘cost value analysis’. For instance, buying direct from an overseas factory may provide a low unit cost, but the shipping charges, duty etc will inflate this figure considerably.
Another factor to consider is the cost of failures and damage this may cause the end product and company reputation. This analysis depends on the buyer’s criteria set out in their supplier selection protocols.
Product quality: Most buyers rely on the supplier’s quality systems such as ISO9001 or AS9120. However, there is more to product quality such as testing regimes at the manufacturer. Does the manufacturer or supplier have a continuous reliability testing program which routinely monitors and requalifies the frequency product parts? This is essential for parts used in ‘commercial off the shelf’ product for military applications.
Traceability: What level of traceability is offered? Most suppliers will offer full traceability, but do they provide information about the factory location/production line the product comes from or a manufacturer’s Certificate of Conformance or product test data.
Many companies insist on buying from authorised distribution to reduce the risk of counterfeit parts entering the supply chain.
Technical knowledge: This refers to the supplier’s technical competence. For instance, how well do they know the products they supply? Can they test parts themselves at their own premises? The latter can be vital in the event of a problem for quick resolution of non-conformances.
Technical support for frequency control products is a factor that needs considering. Even in an age of digital hardware, it is sometimes necessary to support analogue circuits.
History: Does the supplier have a history of supplying the product in question? Have they supplied the parts for a long time? This will lend credence to the provenance of the product. A supplier may not be an authorised distributor but has a long history supplying the part required.
Service quality: This is a difficult criteria to assess if the buyer has had no dealings with the particular supplier. Information may be acquired from other companies they supply or, in the case of an AS9100 registered company, audit analysis may be requested and viewed on the IAQG-OASIS database.
A detailed risk assessment of potential suppliers is essential and all these six factors should be accounted for. The risk assessment should consider the following:
Strategic risk: These can come in the form of mergers, new product development or management changes. All could lead to the supplier no longer being able to provide the same products or services they currently do.
Operational risk: A prime example of operational risk is when the supplier fails to solve internal and external issues quickly. This can disrupt an OEM’s production or service levels and cause customer satisfaction to decline.
Business continuity: There are business continuity risks to consider such as natural disasters and accidents, fires or power outages.
Information security: Cyber-attacks and data breaches are the most common information security risks from suppliers. Other risks such as malicious insiders working for the supplier, poorly protected data storage systems and previously hacked systems should all be considered.
Regulatory risk: Supplier non-compliance can lead to regulatory action against that supplier, including fines, suspension of operations or even revocation of licenses. This can also affect the buyer’s status if they are maintaining ISO14001 or other regulatory compliance.
Financial risk: This normally means assessing the supplier’s financial and credit risk which could at worst result in supplier bankruptcy. This may involve looking at the supplier’s financial statements, which provide an idea of overall financial health. Another financial risk may be the supplier’s insurance status, do they carry sufficient cover for the business being undertaken?
Reputation of the buyer’s company: Companies may also suffer a damage to reputation due to the supplier’s actions or products. This is a critical consideration to ensure the company’s reputation.
The selection of a supplier depends on the fundamentals of the buyer’s business which are usually set out in the purchasing procedures documentation within the quality system.
This clearly illustrates that while cost is important, it is not always the main consideration.