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cost of quality caused by suppliers

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  • #29693

    ddl
    Participant

    Does any have experience identifying and tracking cost of quality caused by external suppliers?  How are you collecting the data?  What are you doing with it?

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    #76776

    Anonymous
    Participant

    We don’t do anything (yet) with the info but we charge vendors back for non-conforming product and track this info in our SAP system.  We could then analyze what vendor and what parts are causing us the greatest scrap.  Even if you can’t charge the vendor back, just documenting what vendor(s) and what product you are having problems with will provide you data that you can go back to your vendor with
    Good luck
    John A

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    #76795

    Steven Wix
    Member

    We track supplier scrap and rework charged to supplier nonconformity. The cost of scrap and rework is charged back to the supplier. We use the data to evaluate suppliers and currently rolling out a Production Part Approval Program to select suppliers. Root cause and corrective action is obtained from suppliers where repeat nonconformity exist. This is reviewed tracked and reviewed on a weekly basis. We also assist suppliers in process development where applicable.  Best regards.

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    #76804

    Swaggerty
    Participant

    In 1998 we developed a system to track supplier non-compliance occurrences.  We used activity-based-costing (ABC) to determine the standard cost to resolve the occurrence.  We then applied the costs to the occurrences to come up with a weighted occurrence, or cost of poor quality (COPQ).  We roll up all the different types of non-compliance (12 main categories) and their costs by supplier into a monthly summary.  Suppliers can access this information (for their company only;  password protected) via the Internet.  Our supplier website displays this information in various graphical formats and the suppliers have the ability to obtain reports down to the transaction-level.  Some detail reports are updated and viewable on a daily basis.  We have close to 1000 suppliers with this functionality through our supplier web portal.
    We collect our data a couple of different ways, although most is system-collected.  We do have one manual collection process, and one for which we rely on the suppliers provide data (we audit periodically for accuracy).
    The data is used in manging performance of our suppliers and for tracking progress toward COPQ reduction targets.  Although all COPQ figures are expressed in dollars, we do NOT charge back to suppliers.
    Although adoption of this system was not favored by many of our suppliers at first, four years later most have truly embraced the system and have seen large improvements and cost savings at their facilities.
    Regards,
    George

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    #76812

    Mike Carnell
    Participant

    DDL,
    There is a Mark Twain quote (and I will probably not get it exactly correct) “Data is like garbage, you had better know what you are going to do with it before you collect it.”
    Unless you have some way to do something effective with your supplier data then I wouldn’t waste my time. Frequently the Quality organization does surveys, audits and scorecards which have no impact on the allocation of new business or chargebacks. Like any other situation a metric with no consequence really doesn’t have much impact. In this situation it typically is only something that interests the suppliers Quality Manager which may or may not have an imact in change. It becomes a function of the Quality Managers interest and influence.
    The most effective system I have seen is one that calculated total cost (through something like an ABC system). The cost of inspection, screening, shutting down for late shipments, etc. The supplier scorecard didn’t run the typical metric of 90-100 was excellent, 80-90 was ok, etc like a high school report card. It used 100% as the perfect supplier. As a supplier got worse through poor delivery, responsiveness, quality, etc the percentage increased so a poor supplier may be 125%. The scorecard number became a multiplier for bids on future business. It leveled the playing field. The perfect supplier got his bid submitted at their bid price. As a supplier got worse their bid price increased to allow for a total cost estimate. It keeps a poor suppliers from buying more business. If this is what the number is used for it will get everyones attention at the suppliers facility. It will drive corrective action because the real motivator for a supplier is the opportunity for more business not a plaque to hang in the lobby.
    The down side to this system is it takes a lot more effort to impliment. It will take a cross functional approach and a lot of work to get the actual total cost estimates. Effective systems usually cost more. The up side to that is the ownership is spread across the organization.
    Just my opinion.
    Good luck.

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    #76905

    ddl
    Participant

    George,
    thanks for sharing the information with us.  I am curious to learn more about your application of ABC costing.  Can you give me an example of your cost breakdown for resolving  non-compliances?  Were your non-compliance categories applicable to all of your plant locations? 
    We are in the process of identifying web based tools to track supplier performance.  Was your system developed in-house or by consultants?  Does your system have the ability to interface with ERP and other systems in order to pool together a variety of raw data sources and types?
    Any information you can provide will be appreciated, as we are starting from ground zero.  thanks.
    DDL

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    #76907

    ddl
    Participant

    Mike,
    thanks for the feedback.  I agree with you that collecting data is useless unless we’re going to do something with it. 
    That system you described sounds interesting. How is the score determined?  Does it include results of quality system audits as well as reject levels, responsiveness, and delivery?
    Lastly, who developed the scorecard software? How was the data collected?
    thanks.
    DDL

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    #76908

    Mike Carnell
    Participant

    DDL,
    The score is a function of cost. It won’t be precise, like a regression study, to the penny.
    Imagine this you have a part that costs $1.00. The supplier isn’t great but he delivers on time. The purchasing guys love him. He does deliver some defects so the quality people have them on incoming inspection – which has a cost. Occasionally a lot gets rejected but they send someone in to screen it right away – separating it, containing it, space to screen it, etc. all has a cost. By the time the product hits the floor and is usable it actually has a cost of $1.25 per part. We assign that value of 125% as the suppliers score. When we send out an RFQ and he responds with a bid of $.90 trying to buy the business, we apply the 125%. The total cost of his bid price is actually $1.125 per part total cost. If the guy with perfect quality and perfect delivery bids $1.05, he looses on a head to head price but he wins with the scorecard factored in.
    This keeps everyone interested in the numbers on the scorecard because it impacts future business. The worse they score the lower they have to drop the bid price to stay in the game with poor systems and material. The guy that is a good supplier doesn’t have to get in a bidding war with someone who ships shit.
    If you are interested in the ABC thing it works well because poor material draws additional activity which draws additional cost. The score is the factor that you use to normalize the data. It was actually driven by accounting with a fair amount of help from accounting. In true accounting tradition it was all done in Excel.

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    #84970

    ddl
    Participant

    Mike,
    do you have a copy of this supplier cost spreadsheet that you could send to me?  Thanks.

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    #84984

    Mike Carnell
    Participant

    DDL,
    You really messed me up when I read this. I couldn’t remember the string – like I fell down some cosmic bunny hole. Then I looked at the date. How did you dig this one up.
    I am leaving the country Saturday. will see if I can find something. If not I am traveling with Scot Shank and we can probably make something work.
    Need an email address for you.
    Thanks.

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    #85083

    ddl
    Participant

    Thanks Mike,
    My email address is @att.net">d.lockett@att.net.

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    #85085

    O’Connell
    Participant

    Mike,
    I would also be interested in the spreadsheet if you are able to find it.  Here is my email –  @ma.rr.com">blauper@ma.rr.com
    Thanks,
    Brian

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    #85094

    jim galis
    Participant

    Mike’s Spreadsheet
    Brian,
    Could you please e-mail me a copy of Mike’s spreadsheet if he sends it to you? Sounds like something I could use here to rate vendors.
    Thanks
    Jim

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    #85095

    Al andaluz
    Participant

    Mike,
     
    I would appreciate if you could e-mail me a copy of the ABC Excel spreadsheet.
    My e-mail: @hotmail.com">andaluzal@hotmail.com
    Thank you
    Al
     

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    #85096

    jim galis
    Participant

    ABC Excel Spreadsheet
    Mike
    Please e-mail a copy of the ABC Excel spreadsheet that rates vendors you spoke of earlier. I could really use it.
    Thanks, Jim
    [email protected]
     
     

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