When it comes to managing supplier quality, many people immediately think of controlling the quality of incoming raw materials as they enter a process. However, as companies look to shed their non-core business processes by relying on other specialized firms to perform the work, suppler quality takes on a much broader meaning. Supplier quality incorporates all the activities, materials, products and services provided to the business to ensure that quality is built into the product or service and that customer requirements are ultimately met.
Vendor management, the management of the relationship between the company and a third-party provider, is a challenge for most companies and is an important aspect of maintaining supplier quality.
Consequences of a Weak Process
A company that recently decided to outsource one of its functions, a backroom process that was not considered a core competency, makes an excellent example. After an extensive vendor selection process, the company chose a third-party provider, contracts were signed and the work was transferred. The entire process took months and management breathed a collective sigh when the new vendor was handling the task.
Then, things started to go wrong. The outsource provider was not living up to the requirements of the business. In its defense, the vendor claimed the company had expectations that were never covered in the service level agreement. The relationship between both parties quickly soured. The vendor became unwilling to handle ad hoc requests and was unresponsive to process improvement suggestions. Instead, the vendor followed the minimum contractual obligations.
When the company’s legal team became involved it found that there was no cost effective solution to terminating the relationship. One of the senior managers in the company asked in frustration, “Where was the quality rigor in this process? Wasn’t there a Black Belt assigned to this project? What could we have done to prevent this?”
Vendor management is a challenging task for most companies. At best, it is mutually beneficial and may offer process improvement opportunities for both parties through performance monitoring and mutual problem identification. At worst, the relationship can damage profits, reputations or customer relationships. To increase the likelihood of a positive outcome, it is crucial that the company select the right vendor – a provider that has the capabilities to meet the customers’ critical-to-customer elements (CTQs) and satisfy internal company requirements.
Sample Table of Contents for the Vendor Selection Process
- Invitation to submit proposal
- High-level requirements and definitions
- Supplier instructions
- Company overview
- Requirements and specifications
- Functional requirements
- Measurable requirements
- Technical specifications
- Key questions
- Terms and conditions
- Request for financial information
- Non-disclosure agreement
- Request for key management resumes
- Process maps
- Pricing model
- Overview of company’s quality initiative
- Service performance measurement matrix
- Copy of master service agreement
Many companies follow the request for information (RFI) and request for proposal (RFP) process to select a vendor. Initially, a pool of potential vendor candidates is identified. The company sourcing departments may use market analysis, benchmarking or use other techniques to help identify possible vendors. After the pool is identified, an RFI is sent to solicit high-level information from potential vendors in order to further narrow the field. High-level process maps along with general specifications are included in the RFI to determine if the potential vendor is able or interested in performing the work required.
Following the RFI, an RFP is sent to the final candidates. The RFP is much more detailed than the RFI and explicitly describes the performance expectations. Suppliers return their response and, when a vendor is selected, both parties sign a master services agreement (MSA). The MSA contains the legally binding service level agreement and statement of work, among other documents.
The RFP is the vital document in the vendor selection process, therefore a properly written and inclusive document is critical to the success of the future implementation. To the left is a generic table of contents for potential topics included in a typical RFP.
The House of Quality
An effective way to help ensure success in the RFP process is to employ quality functional deployment (QFD) during the early phases of the project, specifically during the vendor selection process. QFD was first developed in the 1960s by Japanese engineer Yoji Akao to improve manufacturing processes. Like most Six Sigma tools, QFD is applicable in many processes and environments.
QFD offers a structured approach for translating customer needs into specific product or process attributes and allows the project team to systematically evaluate or prioritize each attribute in relation to meeting customer needs. Typically, the project team will fill out several iterative matrices, known as a “house of quality,” to drill down from the customer needs to specific attributes. The first house or matrix in the QFD translates high-level voice of the customer elements into CTQs. The second matrix translates the CTQs into functional requirements, while the third transforms functional requirements into design requirements. The last house converts design requirements into critical-to-process variables.
After establishing the initial house of quality the project team can weight each customer need. Within each matrix, the team determines the strength of the relationship between each element. Usually, a scale of high-medium-low is used to measure the correlation, which is later converted to a numerical value. A quick summation of customer needs multiplied by the correlation value will create the priority values at the bottom of the matrix. These weighted priority values become the relative weights used in subsequent matrices. The figure below demonstrates the relationship between successive matrices.
There are many software programs available that can assist in creating a house of quality. A simplified version of a worksheet in MS Excel is attached.
Each successive matrix in the QFD is used to help create the RFP and is completed during each phase of the DMADV (Define, Measure, Analyze, Design, Validate) Design for Six Sigma (DFSS) roadmap. This list highlights how the QFD is used in each phase and translated to create the RFP and evaluate the resulting vendor responses:
- A cross-functional project team is formed.
- Customers (internal or external) and stakeholders are identified.
- Team gathers the needs/requirements of the customers.
- High-level “as-is” process maps (used later in the RFI) are created.
- The first house of quality is used to convert the generic needs into specific, tangible CTQs.
- Identified needs, with their definitions, are listed in Section 1.0 of the RFP and help create the framework of the proposal.
- The CTQs are inserted into Section 4.2, “Measurable Requirements” (Refer to Table 1).
- The project team, or the sourcing department, identifies potential vendors and sends out RFIs as necessary to gather more information.
- Second matrix of the QFD is completed.
- Process functional requirements are identified and prioritized.
- The description of these functional requirements is laid out in Section 4.1 of the RFP.
- Detailed “as-is” and high-level functional mapping are completed. These are added to the appendix to assist the recipients of the RFP in understanding how the business specifically handles the process.
- Benchmarking studies are performed to understand potential vendor capabilities.
- Third matrix of the QFD is completed.
- Potential design or technical requirements are identified.
- These elements are added to Section 4.3, “Technical Specifications,” of the RFP.
- Service performance matrix (SPMX) is completed. An SPMX contains detailed information regarding process performance and sets expectations for the vendor. Typically, the SPMX is broken down by critical Y, or high-level CTQs, and contains the description, unit of measure, target performance, specification limit, and how the data is collected.
- The project team should have enough information to complete the RFP and submit it to potential vendors. Vendor responses can take days to weeks depending on the complexity of the process.
- Fourth matrix of the QFD is completed.
- Technical or design requirements are translated into critical-to-process variables.
- These variables will help the project team evaluate the responses received from the vendors. The results of this last house of the QFD can serve as a prioritized checklist and will help explain to stakeholders why a vendor was chosen.
- Validate the vendor prior to signing any service level agreements or contracts. The project can establish a proof of concept, or pilot, in order to ensure the vendor can meet the CTQs identified in the first house of quality.
Conclusion: Increasing Probability of Success
After the vendor is identified, evaluated, selected and validated, implementation and work transition is initiated. Additional tools are utilized during project implementation, process transition or execution. The Six Sigma methodology, employed through the use of QFD will increase the probability of success.