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Feature Article:

Customer-Supplier Principles

Introduction

Are you an industrial purchaser? Many of your peers report that Murphy's Law works overtime with certain suppliers.

Perhaps your supplier began shipping defective product, then demanded extra money to correct the problem.

Or, after a program was underway, your supplier might have interpreted specifications differently (unfavorably to you, of course).

If you have experienced these kinds of problems, your experience is not unique.

First-tier suppliers to original equipment manufacturers ("OEMs") develop a certain perspective of doing business though direct and constant contact with those OEMs.

However, other parties in the supply chain operate one or more steps removed from the OEMs. Most of your suppliers fall into this category! Their distance from OEMs cause them to vary widely in their business mentality.

A number of barriers exist to efficiently communicating your world-class expectations to OEM-distant suppliers:

Even though you might include excellent "boilerplate" on the back of your purchase orders, some suppliers ignore or attempt to cancel out customer boilerplate with conflicting acknowledgement language. If this "battle of the forms" ever reaches a court of law, relations with your supplier have already broken down!

You might send out "purchasing program books," but many suppliers file these away or delegate reading them only to their specialists.

You might conduct surveys on your suppliers, still fail to hold frank two-way discussions, in which both of you predict and prevent the classic difficulties.

Your suppliers may have experienced a customer who sent them additional requirements AFTER their price agreements. These ex-post-facto requirements arrived as programs and surveys weeks or months following negotiations. Feeling that customers cannot be trusted, some suppliers get in the habit of willfully "misunderstanding" to recover from their perceived disadvantage.
You might assume that QS-9000 or ISO-9000 registration will eliminate misunderstandings. This is not a good thing to assume!

Misunderstandings fall into patterns and categories. The Customer-Supplier Principles series of articles is a list you can use for surfacing and preventing trouble.

Consider each principle in the series. You may find yourself recognizing your own "pet peeves" or chronic "hot buttons" on supplier relations.

Customer-Supplier Principle #1:

Supplier "conformance" means meeting all the requirements, not just picking and choosing a few.

The good supplier studies the requirements and bids based on actually meeting them. Purchase order requirements include all the items on the P.O., plus everything on all the documents referenced by the P.O., plus all documents that refer to other documents, and so on.

Example: Purchase order A references blueprint B, which references specification C. Everything on the purchase order, on blueprint B, and on specification C are purchase order requirements. At the time of quotation, supplier's representatives read and evaluate the entire set of requirements, which permits them to succeed when they win the job. Result: happy supplier, happy customer!

Situation to avoid: Supplier tells customer six months into the contract that nobody ever read, or even had a copy of, specification C. The supplier says, "You didn't send us a copy, so we figured you weren't that serious about it. Therefore, we just ignored it."

Question to ask: "How does your organization make sure it has, reads, quotes, and follows ALL the purchase order requirements?"

Customer-Supplier Principle #2.

The time to put forward exceptions is during the bidding process, not after the shipment.

The supplier shall base price and lead time on meeting ALL the purchase order requirements. Before and during quotation of price and lead time, the supplier shall spell out any requirements that cost extra, take extra time, don't make sense, or can't be done.

Example: Purchase order 123 requires a special paint and a special thread. The supplier states in writing that he has no idea how to make or check these items, and the price and lead time do not include these items. Because the exception is clear and timely, you work out this issue and no harm is done.

Situation to avoid: Parts arrive with bad paint and incorrect threads; the supplier then states that it will take six months and 75% extra money to provide these items. Supplier says, "Nobody here had any idea how to do these things, so we just disregarded them. We were already doing you a favor and losing money on this job, so you will have to pay extra, or forget the job and where do you want us the send the tooling?"

Question to ask: "Are you sure you have read and understood ALL the requirements, and there are no extra costs and lead times required to meet the requirements?"

Customer-Supplier Principle #3.

The customer bid requirements are real and they take precedence.

The good supplier shall have no requirements that take precedence over the bid requirements. The bid requirements override any and all conflicting information sources, including but not limited to supplier specifications, past practices, product samples, past waivers and deviations, industry practices, trade standards, handbooks, advertisements, and expert opinions.

Example: The customer blueprint (referenced by the purchase order) says the product must be flat within .001 inches. The supplier's standard blueprint says flat within .009 inches. The requirement remains, by definition, at .001 inches.

Situation to avoid: Six months down the road, you reject a huge shipment and it goes into dispute. The supplier says, "Dr. Zolnik, our staff expert, says that standard practice dictates a tolerance of .009 inches, per his award-winning paper presented at the Kromblatz Academy and reflected on page 3,146 of the industry yearbook. This is common knowledge!"

Question to ask: "How do you make sure that you will follow the bid requirements, and not something else?"

Customer-Supplier Principle #4.

Oral conversations become real when they're confirmed in writing.

The good supplier shall change the job requirements only with written authority from the customer. To become enforceable, oral instructions must be promptly confirmed in writing by both parties.

Example: The customer orally agrees to plate bolts with zinc instead of nickel. Written confirmation must immediately follow with a two-way trail of e-mail, FAX, or a letter. Any person who wants to trace the requirement later can do so.

Situation to avoid: The supplier sends zinc-plated parts, and the zinc-plated bolts start failing in service. The supplier swears that you (the customer) authorized the change, but no one at your company remembers it. The supplier says "Someone from your company told us to do it -- we think it was what's-his-name who left your company a few months ago."

Question to ask: "How do you ensure that you avoid oral instructions, get written confirmations, and can prove the source of any changes to the customer requirements?

Customer-Supplier Principle #5.

The supplier owns supplier conformance.

The good supplier shall have the supplier know-how, personnel, and hardware in place to self-enforce the customer's purchase order requirements.

Example: The customer blueprint calls for a difficult-to-measure feature. The supplier cost and lead-time includes time, people, tooling, and hardware to figure out what this is, and to check the odd or peculiar requirement.

Situation to avoid: The parts arrive wrong. Then the supplier says, "What do you expect? We have no way to check that oddball measurement. You should have known that. How the heck do you check them, anyway? Would you hurry up and send us some gauges? This is going to cost you extra money, because this is really unusual."

Question to ask: "How do you make sure you have the know-how and hardware to produce and measure all the requirements, including and especially the unusual ones?"

Customer-Supplier Principle #6.

There is no "percent bad allowance."

The good supplier shall not knowingly provide defective product, or expect that a certain percent bad is okay. The philosophy of "AQL defect entitlement" may not be used. ("Acceptable Quality Level" is a term from the old days of sampling plans, describing a percentage of defects to be ACCEPTED by that plan. "AQL" plans caused confusion, morale problems, and were a legal nightmare, because they called for accepting known percentages of defects.)

Example: The supplier instructs all operators to set aside any believed-to-be-nonconforming units for proper disposition; the supplier uses "accept on zero" sampling plans (technically called "c = 0"). The result is that no one is making "ship as is" decisions on known defects.

Situation to avoid: Your supplier disagrees with one of your customer rejections, and decides to get even by "blending" the defective units, a few at a time, into future shipments. The supplier says, "Everybody knows there is going to be that 1or 2% defective, it's a law of nature! It's standard in our industry that you get a 1 or 2% entitlement to ship defects. Everybody knows you can't be perfect forever, so why try? Everybody knows it costs way too much to go after that last 1%, so we're entitled to ship it to you. If you make us sort the product we're going to charge you big extra money, buddy -- and of course, our sorting won't be effective anyway, so you'll still get the defects!"

Question to ask: "What policies and instructions do you have in place to avoid accepting known defects or accidentally or deliberately mixing any nonconforming units in with the good units?"

Customer-Supplier Principle #7.

The supplier shall avoid surprise charges for maintenance or replacement of tools.

The good supplier shall maintain all the tools and equipment to keep meeting the bid requirements for the life of the product, at the supplier's expense, unless a "tool life, maintenance, and cost agreement" has been signed in advance.

Example: The supplier quoted part X with a tool repair-or-replacement cost of $20,000 for every 400,000 units. The supplier and customer honor the agreement and plan ahead for repairs and replacement. There is no problem, because the tool-life and tool-maintenance issue has been cost-negotiated in advance.

Situation to avoid: Supplier says, "You're right, that recent shipment we sent to you was pure junk. Too bad your tool is worn out! It's your fault and expense. Everybody knows that in this industry, the tooling is the responsibility of the customer. It's going to cost you $90,000 and take three months to make you new tooling. I guess you'll have to sort and rework the parts at your own expense until then, unless you want to just shut down. Hurry up and send your check, we're pretty busy around here!"

Question to ask: "How do you plan ahead for replacement of limited-life tooling, and who will pay what cost when it comes time for repair or replacement?"

Customer-Supplier Principle #8.

Supplier measurement and record-keeping should not be an extra-cost luxury.

The good supplier shall provide copies of measurement records on request; the supplier shall measure everything that is new or changed, plus whatever is necessary to know that all bid requirements continue to be met.

Example: Part number 5432 is new. The supplier measures and records every feature and tolerance on part number 5432, then follows with a variety of sample sizes and frequencies as needed afterwards. The supplier puts this information on whatever form you the customer have communicated at the time of the bid.

Situation to avoid: Supplier says, "That's right, those revised parts we sent you were no good, they were scrap. You're kidding -- you thought we were checking those parts as we made them? There's no way we could afford to sell at this price if we spent the labor or equipment to check this stuff! My gosh, it costs a lot of money to check product! You should have given us one or two key characteristics -- that's the only thing we ever check; everything else we run out of tolerance. A dimensional check is going to cost you thousands of bucks extra money! When can you (the customer) tell us if our next batch is good or bad? Those parts are on their way, and no matter what size they measure, they're yours!"

Question to ask: "How do you make sure that you measure and record everything that is new or changed, in addition to whatever ongoing surveillance is necessary to assure conformance to ALL purchase order requirements, not just 'key characteristics" or some other incomplete subset? And, how do your operating people know how to record this per the bid requirements?"

Customer-Supplier Principle #9.

The supplier prevents nonconforming product so the customer doesn't have to play hide-and-seek with the defects.

The good supplier shall have a ship-to-stock mentality. The supplier shall not expect the customer to search the shipments for defects, or to sort for defects.

Example: The supplier accepts responsibility to conform, and offers to share records to give the customer confidence. If the customer does any checking, the supplier understands that it is a spot-check for management information, not a prime line of defense.

Situation to avoid: The supplier says, "You accepted the last bunch, and that's why we made more like them, so it's your fault. You know, if you don't find the bad stuff within 30 days, they're yours! And if you accept them on receiving inspection, they're yours immediately! It's the customer's job to tell us if our parts are bad or good. What's the matter with your receiving inspection? After all, the reason we make you customers sign off on prints and samples, is so we're not responsible for our errors!"

Question to ask: "Since we can't afford to continue customer receiving inspection, how are you the supplier going to convince both of us that the product conforms, and send records to give us confidence?"

Customer-Supplier Principle #10.

Direct specialist-to-specialist communication shall be allowed.

The good supplier shall permit and encourage people who are natural counterparts to communicate with each other. These supplier-customer counterparts may speak directly over methods, findings, and prevention for problems. This includes scheduler-to-scheduler, planner-to-planner, engineer-to-engineer, quality-specialist-to-quality-specialist, etc.

Example: The supplier freely allows specialists from the customer to talk with their supplier-counterparts to resolve scheduling, measurements, or root causes of problems. All the people involved know they must avoid interfering with the sales/purchasing terms, conditions, and price. These persons promptly inform the buyer and salesperson of any significant communications.

Situation to avoid: Supplier says, "We don't want too many people talking to each other, so if you have any problem, you have your specialist tell her supervisor, who can tell your buyer to call our salesman, who will call our plant and tell our service representative to get the answer from our foreman through our liaison. That's the best way for two large organizations to communicate -- through one set of links, funneled to one gatekeeper, so there are no misunderstandings."

Question to ask: "Please explain how our specialists can get promptly through directly to your specialists, to resolve any correlation or corrective action questions."

Customer-Supplier Principles Series Conclusion

If you have never experienced the types of problems and misunderstandings described in our customer-supplier article series, congratulations! You possibly need no improvement in your preventive understanding with your suppliers!

On the other hand, some people recognize events with their own suppliers in the situations we describe.

Even after implementation of QS-9000 and ISO-9000, some people have found, "We added a layer of red tape on top of the old attitudes!"

If some of this material reminds you of your own experiences, you might choose to:

hold a thorough discussion among your internal staff
make a customized plan to clear up these topics with suppliers
modify your boilerplate to incorporate these items
print a special notice on all purchase orders
communicate the information in a special mailing.
use these principles in "supplier day" sessions

Good luck in thoroughly addressing each principle with your suppliers, and in preventing time-consuming, aggravating, expensive business problems!