The Fundamentals of Supplier Quality Management

Digital Transformation
Sep 20, 2021
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20 Min Read

When you boil it all down, companies exist to provide solutions to problems. Supplier quality measures a supplier’s ability to deliver high-quality products that meet customer expectations. If your company’s solutions aren’t meeting customer expectations, they’re not solving the problem. 

With good supplier quality management (SQM) processes, you can ensure you’re continuously adding value to your customers’ lives and exceeding their expectations. 

Monitoring a supplier’s performance requires the near-constant assessment of product quality, cost, compliance, etc. To do this the right way, companies need a good system. In this post, we cover the benefits of SQM and exactly how to develop a supplier management process that saves businesses time, money, and headaches.

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What is Supplier Quality Management (SQM)?

Supplier quality management (SQM) is the process of monitoring a supplier’s ability to meet the customer’s needs. SQM measures supply chain performance using a proactive and collaborative approach.

To master supplier quality management, companies have to hit a few targets. First, you need to foster positive relationships with suppliers throughout your whole supply chain. Next, you need to develop an organized supplier quality management procedure with easy-to-track metrics for success regarding quality and compliance. Once you’ve nailed your metrics and procedure, it’s time to start tracking the data to dig up supplier insights. The trends you find in these insights will help you understand how well suppliers are meeting the needs of your customers across your whole supply chain. 

Relationships with suppliers play a bigger role in supplier quality management than you might think. To establish an effective supplier management process, you need strong trust, as well as the ability to exchange expertise and resources across expansive supply chains. Working together also requires both parties understand their role in the process.

What are the Benefits of Supplier Quality Management?

It’s easy to assume supplier quality management only affects the quality of the final product. That’s not the case. Yes, how you perform supplier quality management can make or break the quality of your product, but this ultimately affects your brand’s perception, value, profitability, and overall success. Here are some of the biggest benefits of implementing a supplier quality management strategy:

Minimize risk

Extending your supply chains is not a risk-free endeavor. It’s always possible that you’ll encounter issues with quality, safety, compliance, etc. Effective supplier quality management mitigates some of the risks by giving you complete visibility over your supply chain. This allows you to spot each risk before a costly problem arises. 

Strengthen supplier relationships

To get a business off the ground, you have to put your nose to the grindstone. Supplier quality management can help you through all the hurdles standing in the way of long-term profitability, whether you’re trying to reduce costs, streamline contract management, or safeguard your brand’s reputation.

This is because supplier quality management simplifies pesky tasks like supplier prequalification, audits, vendor management, insurance monitoring, and analytics.

Make better procurement decisions

Supplier quality management takes the pressure off your chief procurement officers and expedites procurement decisions through effective communication, evaluation, selection, and monitoring. More data = better quality procurement decisions and less lead time.

Stay compliant

Working with many suppliers complicates compliance. The more proactive you are when it comes to monitoring potential upsets, the easier it is to remain compliant.

Maintain safe supply chain

The health and safety of your organization are probably on your radar, but have you considered the health and safety of your suppliers? Supplier quality management measures health and safety standards throughout every step of the supply chain, from contractor prequalification, document management, and employee qualification and training all the way to insurance verification.

Uphold a brand reputation of quality

The last thing your brand needs is to have recalls and lawsuits plastering news headlines. With good supplier quality management, you can build a reputation of quality across your supply chains and a brand customers will trust. This can ultimately improve shareholder value and overall profitability. In fact, a 5% improvement in reputation strength has been shown to yield a market capitalization growth of 2.5% of the average S&P 500 company and measures 2.2% in the FTSE100.

Cultivate a loyal, satisfied customer base

SQM helps companies deliver better quality goods or services to customers. It can even get goods and services to customers faster. When customers experience quality, they’ll come back for more. 55.3% of consumers stay loyal to a brand because they love the product. By improving quality with supplier quality management processes, you can ultimately increase customer loyalty and customer lifetime value. 

The Supplier Quality Management System

The supplier management process isn’t a one-step deal. It’s a multistep system that requires collaboration, communication, and software tools to get the job done right. We’re providing a basic framework you can follow, but you can tweak this process based on your company’s workflows. The process follows 5 steps. 

  1. Approval – The first step of a solid supplier quality management system is to establish steps for achieving supplier approval. These steps will vary in intensity depending on potential risk. Make a master list detailing all the steps necessary for supplier approval.The list should include information about all the roles and responsibilities involved– this will make the processes simpler in cases where multiple departments are involved. You’ll also need a checklist that assesses the safety and quality systems of each vendor.
  2. Audits – Performing regular audits helps you stay on top of supplier quality control. Auditing suppliers regularly ensures that your supplier’s practices continue to align with the requirements of the purchasing company. While enterprise-level companies can perform second-party audits, smaller companies usually opt for third-party audits.The difference? A second-party audit is when a customer or contracted organization performs an external audit on a supplier. Third-party audits are performed by audit organizations, and thereby avoid any conflict of interest.With the right supplier management software, both enterprise-level and small businesses can perform remote audits. These tools allow suppliers to share documents, communicate, and perform sign-offs electronically.
  3. Incoming inspections The next step in the supplier quality management process is to perform incoming inspections. Inspections are another method for evaluating supplier quality. In this step, the supply chain’s raw materials, ingredients, and products are assessed for compliance using a set of specifications. 
  4. Ongoing communication Communication is a huge part of maintaining positive supplier relationships. Prioritize checking in with your supply chain. By keeping the lines of communication open, you’ll probably end up heading off a significant portion of potential issues at the pass. Make sure you’re clearly communicating your expectations, keeping suppliers up-to-date on requirements, and staying abreast of any potential road bumps.
  5. Non-conformance & CAPAsThis is the final step, and hopefully one you won’t encounter that often. When you find raw materials that don’t meet product quality standards, you’ll need to file the appropriate non-conforming materials reports and complete corrective and preventative actions to ensure the issue doesn’t reoccur.  

How is Supplier Quality Management Measured?

To measure supplier quality management, organizations need a standardized set of metrics to evaluate their supplier performance. Businesses can use these metrics to record data on a supplier scorecard. The company will then use that scorecard to evaluate a supplier’s reliability.

The best scorecards utilize software so that they’re readily available to both the company and the supplier at all times. Remaining transparent while measuring supplier performance is an important part of maintaining a healthy relationship. Using software to store a dynamic scorecard on the cloud keeps the scorecard available and updated at all times.

There are a number of metrics you might use on your supplier scorecard, but common ones include:

  • Quality
  • On-time delivery rate
  • Acknowledgment rate
  • Responsiveness

How to Choose Suppliers

If you choose the right suppliers from the get-go, supplier quality management will be a breeze. Set yourself and your company up for success by taking these 6 factors into consideration next time you choose suppliers.

  1. Cost of quality – Cost is obviously one of the first factors you’ll consider in your search, but the cost of quality digs a bit deeper.Cost of quality basically measures how much it costs to produce a good. Within this section, you have the cost of poor quality and the cost of good quality. The cost of poor quality includes resources leftover from production, while the cost of good quality refers to preventative measures (like supplier quality management software, for example).
  2. Overall equipment effectiveness – A supplier’s overall equipment effectiveness gauges their overall performance by measuring their availability, efficiency, and quality. This metric shows you when the assets you need will be available, how often they’ll be available, and how often they’ll meet your quality expectations.
  3. Products in compliance percentage – Your potential supplier’s compliance percentage shows their ability to make products that adhere to applicable laws and regulations. The better this number, the lower risk the supplier will attract.
  4. On-time shipments – Quality isn’t limited to the physical product– when customer’s judge quality, they’re looking at the whole buying experience. If your goods and services are always out of stock, your customers may get frustrated and look for alternatives. The results of this Walden University study show that repeated stockout experiences decreased customers’ loyalty to brands and retailers, even causing customers to abandon brands altogether.Consistent, on-time shipments foster customer satisfaction and loyalty, so this should definitely be a requirement for your next supplier. 
  5. New product introduction –  New product introduction is the percentage of new products that successfully meet volume, quality, and timeline requirements. Time is money. If you want to make sales, you have to stay relevant. To do so with effectiveness, you need a supplier who can adapt to your individual new product introduction and materials needs. 
  6.  Supplier diversity – A focus on diversity and responsibility among your supply base is an effective risk mitigation practice and is a great indicator of satisfaction with suppliers. Tracking supplier diversity and responsible sourcing factors like human rights, environmental issues, and health and safety practices protects against supply base risks associated with them and broadens the pool of suppliers in your base.

Supplier Quality Management Best Practices

There are several behaviors to adopt in order to ultimately craft and maintain a best-in-class SQM program. These few actions guarantee you will improve your sourcing processes and get the most out of your suppliers.

Measure the cost of poor supplier quality

When it comes down to it, you’re responsible for the quality control of your goods and services. That’s why it’s so important that you monitor the quality of your suppliers and materials regularly. If you can catch and correct issues before they’re repeated on a larger scale, you can prevent accidents from becoming expensive mistakes.

Measuring the cost of poor supplier quality is the process of counting up expenses related to errors, delays, and the like. Taking a good look at your cost of poor quality allows you to adjust supplier relationships to control future risk.

Cross-examine supplier risk management with quality audits

If you’re juggling a big number of vendors, it can be difficult to audit them all regularly. Combat this hurdle by cross-examining your supplier risk management with quality audits to identify your most high-risk suppliers. Prioritize auditing these more frequently. 

Bump up your quality standards

The best way to optimize product quality control is by checking in with your suppliers frequently. The more data you have, the better equipped you are when it comes time to eliminate risky (or just unnecessary) suppliers.

Standardize your metrics

A set of key performance indicators will help you accurately and consistently measure supplier performance. Keeping track of performance using the same key performance indicators is vital to measure the improvement or decline of supplier performance, and the metrics can even help suppliers course correct.

Use the SCAR procedure

When it comes to correcting compliance issues, actions must be taken quickly and efficiently. The best way to effectively correct compliance issues is to make a supplier corrective action request (SCAR) procedure. When you have a corrective procedure in place, you can take swift action and provide suppliers with the guidance they need to correct the issue as quickly as possible. The less time you spend scrambling to make an action plan, the better the outcome.

Conclusion

When you’re responsible for an organization’s entire supply chain, managing the quality of production can be tough. A system like supplier quality management helps you maintain visibility of the whole supply chain. The structure of SQM provides the collaborative opportunities and support necessary for businesses to minimize risk and create high-quality products. 

With support from the right software, businesses can even exaggerate the benefits of SQM. Our software streamlines production by automating workflows, uniting data, and giving you end-to-end visibility into your supplier management.

FAQs

What is supplier quality management?

Supplier quality management (SQM) is the process of monitoring a supplier’s ability to produce quality goods and services that meet the expectations of both companies and customers. 

How important is supplier quality management?

It’s extremely important for brands to practice supplier quality management to ensure the success of their businesses. Supplier quality directly impacts customer loyalty, brand reputation, sales, and market value. Quantifying supplier quality with key performance indicators and relevant metrics helps ensure your companies continue satisfying their customers’ wants and needs. 

How do you ensure the quality of suppliers?

The best way to ensure the quality of your suppliers is through quality management. Suppliers appreciate open communication and collaboration throughout the SQM process. Checking in with your suppliers and performing regular audits with a standardized set of metrics is key. Higher-risk suppliers should have their own set of metrics and should be audited more often.

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