The Expensive Supplier
When choosing a supplier there are many things to evaluate and consider. Developing a new supplier qualification plan to ensure components, materials and suppliers meet specified requirements is one of them. The importance of properly qualifying the supplier quality should not be underestimated.
More often than we want to admit we will see the reliability, quality or even the on time delivery of one supplier is less than desired, but the price is soooo good we just have to consider them as a viable option. We know it could be a slippery slope, but that price, mmmm... it's just so good. It could really make up for some of the other places where we are overspending on the project. So we begin to justify. It looks something like this.
We will sign a three year deal worth $5,000,000. If we choose the less expensive supplier vs. another, we can save 20%. That's a $1,000,000 savings. We know they might have some product they ship that is borderline to our spec, but calculations say that shouldn't be more than five percent. If we get Jerry our best supplier development engineer on this supplier we could be spending only $100,000 per year on them in supplier development costs. By the end of the 3 year deal we will still be up $700,000. So we choose the less expensive supplier. It makes sense, and we can make it work.
Here is a touch of what we are missing in this justification.
That new supplier is not your supplier. They are your new partner, and you aren't going to be treating them with the respect they deserve if you don't respect them from the beginning. It's hard for you to trust them and when they sense that distrust, it's hard for them to trust you back. Your relationship with your supplier is flawed before it has even started. Without trust between two partners expenses rise dramatically.
You are taking on the responsibility of a company which is outside your scope. You have made a common and often fatal error of mistaking influence for control.
Your estimate of the cost of poor quality is way, way, way off! Your company is not part of the 10% of US companies that actually measure the cost of poor quality. If it was then you would have never made this decision because you would have a better understanding between cost and value.
With this choice you have taken on the appraisal cost of supplier evaluation, ignored it and chosen the additional internal and external costs associate with poor quality. This choice purposefully moves your company away from the cost of good quality by ignoring appraisal and prevention costs. This is the opposite of what is literally mountains of data from long term studies of both successful and unsuccessful companies.
Your business makes decisions like this all the time, so Jerry is already really really busy trying to help other important business partners.
To improve the quality of a product or process there must be a mechanism and tools in place to enable that improvement. If you are doing an assessment and taking on the costs associated with it and then justifying it away, you are making a call for quality improvement but are not enabling your work force to make the right decisions. A call for quality improvement without the necessary mechanisms and tools in place ends in demotivation and short term decision making (simple example here). People naturally want to learn, improve and become better. If your company is filled with short term thinking like this example then you are probably facing a demotivated group. If you are really looking to improve the bottom line with quality, it might be time to shake things up culturally.
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