Jenny Forde, the purchasing manager for the ‘packaging’ category of spend for IPC,
wondered what she should say in tomorrow’s meeting with the plant manager of
Branco, one of IPC major suppliers. In the last three quarters of the year, Branco’s
quality performance rating had shown a steady decline. It was essential for Jenny to
get the plant manager’s cooperation to avoid future problems.
IPC (Industrial Products Corporation)
IPC are a diversified manufacturing organisation offering a wide range of products to
both industrial and consumer markets and employ approximately 1,100 people.
Sales are £100million a year, and the company has a long-standing track record of
successful business performance
Quality Control
Contributing to the success of IPC was a commitment to strict quality standards in
purchasing. Coordination between the supplier and IPC’s plant was crucial to avoid
production slowdowns. Contact was maintained directly between plant personnel
and sales representatives. When a problem in the manufacturing plant arose due to
the supplier’s product, the appropriate sales representative was immediately notified
by email, via a standard form called “Non Conformance Action Report” completed by
the plant operator closest to the problem. The sales representative was required to
return by email a standard ‘feedback form’ to acknowledge the problem and explain
how it was going to be solved.
Supplier deviations from standard, as reported on the Non Conformance Action
Report, were also forwarded to each purchasing manager. The purchasing assistant
compiled the forms together with information collected on a number of other supplier
performance criteria, such as accuracy of the quantity delivered, deliveries on time,
and accuracy of paperwork (see Exhibit 1). Every quarter, each purchasing manager
used the information collected to compute a “Supplier Performance Rating”. All of
IPC’s suppliers were all rated on the same scoring criteria.
The criteria and weighted scoring system implemented by IPC was developed
internally, and reflected the key aspects of supplier performance deemed to be
important by IPC management. Suppliers received a copy of the scoring criteria so
that they were fully aware of how they were evaluated. At the end of each quarter,
they were advised of their rating. IPC maintained detailed documentation of supplier
activity and variance from norms.
The rating criteria included three categories; quality, delivery and continuous
performance, with quality accounting for the largest portion – 50% weighting of the
total rating. Each item was scored according to the supplier’s provision of that item,
on a scale from 0-4. Scores were then weighted and totalled. A total performance
rating for the quarter was derived by summing categories (see Exhibit 2 for Branco’s
scoring sheet). The suppliers’ maximum possible score was 4. An overall rating of
3.2 was considered the minimum acceptable performance rating.
Branco
Jenny had been watching Branco’s performance ratings for the last three quarters of
the year with some concern. Although the problems incurred each quarter were
rectified by Branco, the next quarter brought even more problems. As a result,
Branco’s performance rating had dropped further each quarter. Finally, in the most
recent quarter, Branco’s rating dropped below the minimum acceptable standards of
3 (see Exhibits 2 and 3). When Branco’s sales representative Rosie Roberts
received the rating, she had called Jenny immediately as she was just as concerned.
They agreed that a meeting was necessary right away, and that IPC’s production
manager, Kathleen White and Branco’s plant manager, Joe Jones, must attend.
They agreed to meet at IPC.
Branco was the supplier of packing cartons for IPC’s abrasive products. The packing
cartons were an odd size, and required custom specifications. As a result, it had
been necessary for Branco to customise production operations to meet the unique
requirements of IPC. Branco, however, had become the only supplier of all custom
packing cartons to IPC. As a result, IPC could not source a custom product from a
different supplier easily or quickly. Branco delivered on a daily basis and its yearly
sales to IPC amounted to approximately £400,000. Custom work required a
substantial commitment from both parties. The relationship of trust and certainty
between IPC and Branco had taken a long time to solidify.
Quality problems were costly for IPC. A number of Branco’s orders had included
defective carton flaps and edges. Non-conformance problems such as this were
typically not identified until a production run had started, and equipment stalls (stops)
occurred. Production used a fully automated line process, and a stall at one end
resulted in a slow-down throughout. Because the defective cartons would not affect
the end product to the customer, IPC continued the run in order to meet customer
deadlines. However, the last Branco shipment of defective cartons resulted in a 30%
production loss for an entire day’s (two shifts) production. At full production, IPC ran
2000 cartons per hour, with three operators at £18/hour each.
The meeting with Branco
Over the last few years, Jenny felt things had changed drastically in the industry. At
one time, as a buyer, she might have demanded that the supplier make changes “or
else”. This was no longer the case. Jenny believed that in such a tight market you
just don’t drop supplier and that relationships are everything. In the meeting, Jenny
felt it was essential that she impress upon Rosie and Joe that something had to
change at Branco’s end, without confronting them.
EXHIBIT 1: Supplier Performance Scoring Criteria
QUALITY
Item Grade Criteria
Rejected and
non-conforming
4 No rejected or nonconforming shipments
3 Up to 5% of shipments nonconforming
2 >5-10% of shipments nonconforming
1 >10-20% of shipments nonconforming
0 >20% of shipments nonconforming
Process
capability,
data/samples
4 Less than 1% outside control limits and samples/data received for
all shipments
3 Up to 5% outside limits and 90-95% of shipments have
samples/data
2 5-10% outside limits and 80-90% of shipments have samples/data
1 10-20% outside limits and 70-80% of shipments have
samples/data
0 More than 20% outside limits and <70% of shipments have
samples/data
DELIVERY
Item Grade Criteria
Quantity 4 All correct quantities (within tolerance)
3 Up to 5% shipments incorrect (within tolerance)
2 >5-10% shipments incorrect (within tolerance)
1 >10-20% shipments incorrect (within tolerance)
0 >20% shipments incorrect (within tolerance)
Time 4 All shipments on time (within tolerance)
3 Up to 5% of shipments outside tolerance
2 >5-10% of shipments outside tolerance
1 >10-20% of shipments outside tolerance
0 >20% of shipments outside tolerance
Paperwork 4 No missing lot numbers, packing lists, invoice errors, or other
required documentation
3 Up to 5% of shipments have errors
2 >5-10% of shipments have errors
1 >10-20% of shipments have errors
0 >20% of shipments have errors
Shipment
condition
4 All shipments received in expected condition
3 Up to 5% of shipments have damaged pallets, inadequate
packaging or damaged cartons
2 >5-10% of shipments are damaged as above
1 >10-20% of shipments are damaged as above
0 >20% of shipments are damaged as above
CONTINUOUS IMPROVEMENT
Item Grade Criteria
Corrective
action
4 Non-conformance Action Report/Supplier’s response and
implementation within 30 days
3 Non-conformance Action Report/Supplier’s response and
implementation within 31-61 days
2 Non-conformance Action Report/Supplier’s response within 30
days
1 Non-conformance Action Report/Supplier’s response within 31-
61 days
0 No response within 60 days
Cost, lead time,
lot size
reduction
4 Major reduction in unit cost, lead time, and lot size
2 Minor reduction in unit cost, lead time, and lot size
0 No reduction in unit cost, lead time, and lot size
EXHIBIT 2: Scoring Sheet for Branco for the past 3 months
Item Category
Category Item
Description
Score Weight Score Weight Total
score
Quality Rejected
and nonconforming
3 0.65 1.95
Process
capability,
data/sample
s
2 0.35 0.70
2.65 0.50 1.33
Delivery Quantity 4 0.30 1.20
Timely
deliveries
4 0.30 1.20
Paperwork 4 0.20 0.80
Shipment
condition
4 0.20 0.80
4.00 0.30 1.20
Continuous
improvemen
t
Corrective
action
response
3 0.50 1.50
Cost, lead
time, lot size
reduction
0 0.50 0.00
1.50 0.20 0.30
TOTAL 2.83