IATF 16949:2016 Clause 8.4.2.5 Supplier development

Supplier development is the process you put in place to routinely assess and support your key suppliers as they deliver the products and services your business relies on to function.  Regular supplier assessment is key to keeping control over the quality levers that can help you gain standards ,ensure regulatory compliance, drive commercial success and protect profitability

Segment your suppliers
The first thing you should do is to segment your suppliers. This will show you where you should be concentrating your time and effort. Not all suppliers will have equal importance to the quality of your end product and the future of your business, so they won’t all need the same treatment. Break them down according to the levels of risk, cost and importance they represent for your business. According to Tom, there are typically 4 types of supplier relationship which a business needs to manage:

• Key suppliers
• Non-critical suppliers
• Trusted Suppliers
• Everyone else

1. Key suppliers
   These supplier relationships are the lifeblood of your operations. Without these suppliers’ products and services, you don’t really have a business. If, for some reason, they are unable to continue supplying you, if their terms and conditions change drastically, or the quality of their output nose-dives – then you may be in serious trouble.
2. Non-critical suppliers
   These suppliers are important to you but they are not key suppliers. It will be an annoyance and inconvenience if they can no longer supply you, but it will not be an active threat to your business if the worst happens.
3. Trusted suppliers
   These are the long-standing suppliers that you rely on and trust implicitly. You are likely to have worked with them for years and developed a deep understanding of the way each other work. You might not want or need formal management processes and tools to oversee these relationships.
4. Everyone else
   These provider relationships tend to be more commodified. They even go down to hand wash, coffee, or toilet roll suppliers. These specific companies are not integral to the way you do things; it would be easy to switch providers if you need to.

Most businesses will have 3 or 4 key suppliers and usually no more than 10. But these are the key suppliers without whom you’d really struggle to run your business. And so they need to be treated with extra care.That’s not to say there can’t be movement between the four categories, non-critical suppliers can become key suppliers. Key suppliers can become trusted suppliers over time. The list is dynamic and should be regularly reviewed. But the key suppliers are those for whom you need a structured quality management system to ensure you’re getting the most out of the relationship, maximising the quality of their output and controlling the risk of failures in supply.

Appoint key supplier managers
The organization can allocates a named manager for each of these key suppliers accounts to ensure they get the information, attention, and support they need—and you get the quality products and services you require. These key supplier managers should be senior managers within your organisation. They should host regular calls, meetings, and performance reviews so the client knows if they’re meeting expectations and, if not, what they need to improve. Supplier relationships need to be nurtured on both sides to be successful. Suppliers need to be looking after you, but you also need to be looking after them. The account manager should use meetings with the supplier to share plans and let suppliers know your likely future needs. This will help them plan their resources and work out what you’re going to need from them in the next few months and in the years to come.

Create a digital scorecard
As well as these regular meetings, you’ll need to find the right tools to track and measure supplier performance. You can maintain a scoresheet for every one of your key suppliers. This scoresheet should be completed by the people in the business who regularly deal with the supplier and can bring their individual perspectives to bear on their performance. And the results may well surprise you. You may really like a specific supplier, but their performance scores may be indicating cause for concern, and rival suppliers may be beating them based on the same metrics. The scorecard is a tool for you to put aside your prejudices and biases. It’s a way for you to consider the real value the supplier is bringing to your business: The scorecard presents your view of the supplier in a way that’s unfamiliar and comparative. Looking at these results can make you rethink your scoring or rethink your initial evaluation of them in a very useful way. But the scorecard is not intended to be used as a definitive, decision-making tool. Instead, it’s supposed to be a way of provoking thought and internal debate around the supplier and what they offer, encouraging you to justify your view of them against an aggregate quality score. The scorecard, then, becomes a tool for supplier managers to inform their decision-making, to alert both sides to potential issues; to spark important conversations with supplier partners, and to report upward to their managers about the performance of these critical partnerships.

Clause 8.4.2.5 Supplier development

The organization must determine the priority, type, extent, and timing of required supplier development actions for its active suppliers. Determination inputs shall include performance issues identified through supplier monitoring , second-party audit findings , third-party quality management system certification status and risk analysis.

Determining the priority, type, extent, and timing of required supplier development actions is crucial for enhancing the capabilities of active suppliers and improving overall supply chain performance. Here’s how the organization can effectively approach supplier development:

1. Supplier Evaluation and Prioritization: Conduct a comprehensive evaluation of all active suppliers to assess their performance, quality, delivery, and overall risk to your organization. Based on this evaluation, prioritize suppliers based on criticality, business impact, and potential for improvement.
2. Identify Development Areas: Collaborate with suppliers to identify areas where they need improvement. This can be done through discussions, performance reviews, and open communication channels. Understand their specific challenges and limitations.
3. Development Action Types: Based on the evaluation and identified improvement areas, determine the types of supplier development actions required. These actions could include training and capability-building programs, process optimization support, quality management system implementation, technology upgrades, or lean manufacturing initiatives.
4. Customize Development Plans: Tailor the development plans for each supplier based on their unique needs and circumstances. A one-size-fits-all approach may not be effective, so take into account individual supplier capabilities and resources.
5. Set Development Objectives and Targets: Clearly define measurable objectives and performance targets for each supplier development initiative. These objectives should align with the organization’s overall strategic goals and supplier performance improvement targets.
6. Collaborative Development Approach: Work closely with suppliers to develop a collaborative approach to address improvement areas. Involve their key stakeholders, such as management, engineers, and quality personnel, in the development process.
7. Timely Execution: Implement the development actions in a timely manner to drive positive change and performance improvement. Monitor progress regularly and address any roadblocks or challenges that arise during the execution phase.
8. Support and Resources: Provide necessary support and resources to suppliers during the development process. This may include training resources, access to best practices, technology transfer, or financial support, depending on the specific needs of each supplier.
9. Monitor and Review: Continuously monitor the progress of supplier development efforts and review their performance against set targets. Regularly assess the effectiveness of the actions taken and make adjustments as needed.
10. Recognize and Reward Improvement: Acknowledge and reward suppliers who demonstrate significant improvements and meet their development targets. This positive reinforcement encourages a culture of continuous improvement within the supplier base.

Supplier development is an ongoing process, and the organization should be proactive in identifying and addressing improvement areas to enhance the capabilities and performance of its suppliers continuously. By working collaboratively with suppliers, setting clear objectives, and providing necessary support, the organization can foster a strong and reliable supply chain that aligns with its strategic goals.

Performance issues identified through supplier monitoring

Considering performance issues identified through supplier monitoring is a critical aspect of effective supplier development. Supplier monitoring is the process of regularly evaluating suppliers’ performance in various areas, such as quality, delivery, cost, and responsiveness. It helps identify potential risks, areas of improvement, and opportunities for collaboration to strengthen the supplier relationship. Here’s how supplier development can be integrated with supplier monitoring:

1. Monitor Supplier Performance: Implement a robust supplier monitoring system to assess key performance indicators (KPIs) relevant to your organization’s needs. This could involve tracking metrics such as on-time delivery, product defects, customer complaints, lead times, and overall responsiveness.
2. Identify Performance Issues: Use the data collected during supplier monitoring to identify any performance issues or trends that might be affecting the supplier’s ability to meet your organization’s requirements and standards.
3. Root Cause Analysis: Conduct thorough root cause analysis to understand the reasons behind the identified performance issues. This analysis helps identify the underlying problems that need to be addressed during the supplier development process.
4. Collaborate with Suppliers: Engage in open and constructive communication with the suppliers about the performance issues. Work together to understand their challenges and limitations and seek their commitment to making necessary improvements.
5. Set Improvement Objectives: Based on the analysis of performance issues, set clear improvement objectives for the suppliers. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART).
6. Implement Development Actions: Design and implement targeted development actions to help suppliers address their performance issues. These actions could involve providing training, process improvement support, sharing best practices, or facilitating technology upgrades.
7. Continuous Monitoring and Support: Continuously monitor the progress of the development actions and provide ongoing support to suppliers throughout the improvement process. Regularly review their performance against the set improvement objectives.
8. Recognition and Incentives: Acknowledge and reward suppliers who demonstrate significant improvement in their performance. Recognition and incentives can motivate suppliers to remain committed to continuous improvement.
9. Collaborative Improvement Projects: Engage in collaborative improvement projects with suppliers to address shared challenges and enhance the overall efficiency and quality of the supply chain.
10. Feedback and Performance Review Meetings: Conduct periodic feedback and performance review meetings with suppliers to discuss their progress, challenges, and future improvement plans. These meetings strengthen the supplier-customer relationship and foster a culture of continuous improvement.

By integrating supplier development with supplier monitoring, organizations can proactively address performance issues, build stronger supplier relationships, and ensure a more reliable and efficient supply chain. The approach emphasizes collaboration and mutual growth, benefiting both the organization and its suppliers.

Second-party audit findings and third-party quality management system certification status

considering second-party audit findings and third-party quality management system certification status are essential components of an effective supplier development program. These factors provide valuable insights into the suppliers’ quality performance and adherence to recognized standards. Here’s how to integrate these aspects into the supplier development process:

1. Review Second-Party Audit Findings: Utilize the results of second-party audits conducted by your organization or appointed representatives. These audits assess the suppliers’ processes, practices, and compliance with your organization’s specific requirements. Analyze the audit findings to identify areas for improvement and development opportunities.
2. Assess Third-Party Certification Status: Review the third-party quality management system certifications held by suppliers, particularly certifications like ISO 9001 or industry-specific standards like IATF 16949. Verify the validity and authenticity of these certifications, ensuring they are issued by accredited certification bodies.
3. Prioritize Supplier Development: Based on the findings from second-party audits and third-party certifications, prioritize supplier development efforts. Focus on suppliers with identified non-conformities, performance gaps, or those lacking the necessary certifications.
4. Customize Development Plans: Tailor supplier development plans to address specific areas of improvement identified in second-party audits or related to the requirements of third-party certifications. Align the plans with the suppliers’ needs, capabilities, and available resources.
5. Collaborate with Suppliers: Engage in collaborative discussions with suppliers to share the results of the audits and certifications. Work together to identify root causes and develop action plans to rectify non-conformities and enhance their quality management systems.
6. Provide Guidance and Support: Offer guidance and support to suppliers as they implement the necessary improvements. This support may include sharing best practices, providing training, offering process optimization assistance, or sharing industry-specific knowledge.
7. Continuous Monitoring and Progress Review: Continuously monitor the progress of supplier development initiatives and regularly review their performance against the action plans. Offer feedback and assistance as needed to ensure successful implementation.
8. Recognize Improvement Efforts: Acknowledge and recognize suppliers’ efforts in addressing non-conformities, improving their quality management systems, and achieving or maintaining relevant certifications. Positive reinforcement encourages ongoing commitment to improvement.
9. Supplier Development Collaboration: Collaborate with suppliers in joint development projects or initiatives that address shared challenges and contribute to mutual growth and efficiency.
10. Continuous Improvement Culture: Foster a culture of continuous improvement within the supplier base, emphasizing the importance of ongoing development and maintaining quality management system certifications.

By considering second-party audit findings and third-party quality management system certification status, the supplier development program can target specific areas of improvement and promote a more robust and reliable supply chain. This approach ensures that suppliers meet the necessary quality standards and align with the organization’s expectations for high-quality products and services.

Risk analysis

Considering risk analysis is a crucial component of an effective supplier development program. Supplier development efforts should take into account the risks associated with each supplier and prioritize actions accordingly. Here’s how to integrate risk analysis into the supplier development process:

1. Supplier Risk Assessment: Conduct a comprehensive risk assessment of all active suppliers. Consider factors such as financial stability, past performance, geographic location, regulatory compliance, and the criticality of the supplied products or services.
2. Risk Categorization: Categorize suppliers based on their risk levels. High-risk suppliers may require immediate attention and more intensive development efforts, while low-risk suppliers may need less focus.
3. Focus on High-Risk Suppliers: Prioritize development efforts on high-risk suppliers who have a significant impact on your organization’s operations or face potential challenges in meeting quality or delivery requirements.
4. Risk Mitigation Strategies: Develop specific risk mitigation strategies for high-risk suppliers. These strategies may include closer monitoring, increased collaboration, joint improvement projects, and contingency plans for supply disruptions.
5. Collaborative Risk Assessment: Engage suppliers in collaborative risk assessments. Understand their risk factors and work together to identify and address potential risks that may affect your organization’s supply chain.
6. Performance Improvement Plans: Develop customized performance improvement plans for suppliers with high risks. These plans should focus on addressing the identified risks and enhancing their capabilities to mitigate potential issues.
7. Continuous Monitoring: Continuously monitor high-risk suppliers’ performance and risk factors. Regularly review the effectiveness of the implemented risk mitigation strategies and adjust the development plans as needed.
8. Resilience and Redundancy: Consider developing resilience and redundancy strategies to manage risks associated with critical suppliers. Explore alternative sources of supply to reduce dependence on high-risk suppliers.
9. Collaboration for Risk Mitigation: Foster collaboration between your organization and suppliers in implementing risk mitigation strategies. Share best practices and industry insights to collectively enhance risk management capabilities.
10. Periodic Reevaluation: Reevaluate supplier risks periodically, as risks can evolve over time. Adjust supplier development priorities and strategies based on the updated risk analysis.

By integrating risk analysis into the supplier development process, your organization can proactively address potential challenges and build a more robust and resilient supply chain. Identifying and mitigating supplier risks ensures that your organization maintains a reliable and stable supply base, even in the face of unforeseen disruptions.