Let’s say your supplier has put together a project plan. It makes sense, and it aligns nicely with your expectations of supplier performance improvement. However, you want to be able to follow up on their project and see if there is any significant improvement.
To that aim, you need your supplier to report on objective indicators. Which ones should be selected? Here is our advice for such cases with a focus on quality. You need to pick a few ‘key performance indicators (KPIs) and track them in a dashboard.
Key KPIs To Track Supplier Quality Improvement
- First pass yield – The proportion of products that go through the different processes and come out “made right the first time”.
- Scrap – Poor quality directly impacts the value of scrapped material which is an important cost driver for the manufacturer. Therefore, it is highly likely that manufacturers will invest the time and effort to avoid high amounts of scrapped material.
- On-time delivery – Better on-time delivery is usually a sign of fewer quality issues, and avoiding delays is important to the businesses of both the manufacturer and the customer.
- OEE (Overall Equipment Efficiency) and especially its components (Availability x Performance x Quality), if it makes sense in the factory.
Some of these indicators are not directly related to quality. However, it usually helps the manufacturer’s management team gather the data they need for their regular meetings. The ‘new way of working’ needs to be woven into their management practices as much as possible.
Which of These KPIs Should You Follow?
The KPIs to follow closely in a particular factory are suggested after an initial assessment. A set of indicators that fits one factory very well may be a very poor fit for another factory.
In particular, process-specific indicators are very important. For example, if some critical processes are unstable and out of control, the Cpk index for some dimensions can be great KPIs. Here is an example of a very bad situation we found in an eyewear factory.
Some Information May Have to Come From the Customer (Your Company)
If you are putting pressure on a supplier to improve their quality, can you share your data about their product quality?
Many companies keep track of the number of PPM defectives from each key supplier which is extremely helpful. If this is tracked carefully, it can be used as the “main” KPI in a supplier improvement project. The supplier cannot game these numbers.
Here is an example from a factory that was struggling with very high levels of defectives – we worked with their customer to set “reasonable” improvement targets.
The factory persisted on a plan to get the proportion of defectives down, and they (barely) succeeded in meeting the target. It gave constant pressure to their teams (purchasing, manufacturing, quality) working on this project.
What if your objective is ‘shorter lead times’, ‘higher capacity’, or ‘lower costs’? One of the intermediary objectives will probably be quality-related, as rework & scrap have a negative impact on those dimensions of performance.
We have written more advice on the topic of picking the right KPIs.
Learn more about quality improvement activities that you can implement in your factory.