15.5 Supplier Development

In the ideal world, suppliers can look at their own scorecards, assess their own performance, and determine what and how they may improve. Unfortunately, while some suppliers are especially proactive in continuous improvement, different situations may arise that would require you to develop more supplier options in order to uphold your quality standards.

Increase Supply Options

As technology advances, updated product designs sometimes require you to find new supplier options if your existing suppliers simply don’t have the capability to support your needs. There’s nothing more damaging to a firm than wasted capacity either standing idle or, worse yet, producing obsolete products.

• Develop a New Category. Ever since Tesla launched its Models S, X, 3, and Y, legacy automakers such as General Motors and Ford have been trying to catch up. At the heart of this battle over EV dominance is the battery technology. Sure, lithium-ion batteries are not new. They have been used in consumer electronic products for decades.

  However, Tesla worked with multiple Fortune 500 battery suppliers to make the first highway-legal lithium-ion electric car, the Tesla Roadster. Not only did Tesla select these supplier partners based on the amount of money and engineering resources the partners spend on minimizing manufacturing defects in their cells, their cells were further subjected to extensive internal and external testing that directly implicated the battery pack’s overall safety.

• Secure a Source of Supply. Your ability to sustain your business operations depends on having a steady stream of supply. When a desperate drought hit Brazil in 2013 and diminished its production of coffee beans, Starbucks went into overdrive to work with farmers around the world and develop new coffee suppliers. Similarly, Fresh Express developed new lettuce farms in Georgia and Florida to diversify its supply base away from Salinas, California, and Yuma, Arizona.

Improve Existing Suppliers

As you have learned in previous topics, a key element of Lean Six Sigma is continuous improvement. This extends to your supply base as well. After all, the best way to minimize defects and improve quality is to ensure that you have high-quality input components from your suppliers.

By proactively and frequently sharing scorecards with your suppliers, you may help them benchmark their own performance against (1) your targets, (2) your other suppliers, and (3) other industry peers.

• Ensure That You Have the Right Relationship. While your intentions are to improve your supplier performance, not every supplier is equally motivated to improve. After all, if a supplier is not culturally ready, then your initiative is destined to fail because improvement efforts would be met with resistance at every level.

  To assess the supplier’s cultural readiness, conduct an on-site visit with the supplier, during which managers from multiple levels are gathered to get to know the details of the program and indicate their willingness. If an agreement is reached, then the project begins to be implemented. The supplier must dedicate a project manager to oversee the process and allocate necessary resources to ensure its success.

  Of course, you will also need to reach an understanding regarding how to share the fruits (savings) of your labor.

• Determine Root Causes and Identify Corrective Actions. As the project begins, one of your first tasks is to thoroughly examine every aspect of the supplier’s parts in terms of both quality and how they are used. Any deficiencies are noted, as buyer and supplier representatives collaboratively trace these deficiencies backward along the production line, including the supplier’s production lines.

  The goal is to ultimately identify where, how, and why along the process defects are occurring. Remember the DMAIC process you learned previously? Hopefully, you do. You are basically going to follow the same process here to help your supplier improve:

  • Define: What is the opportunity for the supplier to improve?

  • Measure: How is the supplier currently performing relative to specification?

  • Analyze: What is responsible for the supplier’s unexpectedly low quality levels?

  • Improve: How can we improve the supplier’s production process to reduce defects?

  • Control: How can we sustain the supplier’s process improvement after the project ends?

• Keep Up the Continuous Improvement Journey. As the project comes to an end, one thing you probably would want to ensure is that the supplier maintains its dedication to quality improvement. After all, if the supplier falls back into complacency, you will have to come back to restart the continuous improvement journey sometime in the future.

  The results of continuous improvement speak volumes: Honda, for example, helps its suppliers improve quality by 30% and labor productivity by almost 50% on average. Why wouldn’t suppliers want to sustain their gains? Better yet, if a supplier’s culture is already predisposed to continuous improvement, then the supplier needs to be encouraged and rewarded for continuing the journey.

However, for suppliers that do not yet have any formal Lean Six Sigma processes in place or do not know how to begin their continuous improvement journey, this is where you come in! To successfully improve your existing suppliers, you will need to focus on the bullet points above.

One last word, supplier development itself is a part of your continuous improvement journey. Sometimes, it’s easy to forget that the industry and the market environment are changing even when we don’t immediately see it.

Supplier development needs to be strategic. In that sense, extending Lean Six Sigma to continuously improve quality and reduce waste requires you to maintain a firm understanding and clear view of your company’s strategic vision as you assess your supply base. If there’s a better way of doing things, then it is up to you to explore how to adopt it for self-improvement and potentially how to spread it to your suppliers.