Both electronics original equipment manufacturers (OEMs) and their electronics manufacturing services (EMS) providers periodically rate the performance of suppliers to make sure quality, delivery, and technology requirements are met. However, rating suppliers is often more challenging for EMS providers, because they have many more suppliers than OEMs. EMS providers often use suppliers on the approved vendor lists (AVLs) of their OEM customers.

For instance, Jabil Circuit, an electronics design, production, and product management services company based in St. Petersburg, Florida, has about 14,000 suppliers overall, and about 7,000 “active” suppliers—suppliers that Jabil does business with regularly. Of those, there are about 300 strategic suppliers and of that about 150 that Jabil rates using score cards on a regular basis, usually quarterly.

Cost is not the highest weighted criteria in evaluating supplier performance for Jabil. The EMS industry is a low-margin business and EMS providers do an effective job leveraging their purchases with suppliers to get the lowest cost. But in Jabil’s case, while cost is important, product quality is the highest rated criteria, accounting for 75 percent of a supplier’s overall score.

“We use Six Sigma criteria and push our suppliers to have zero defects,” says Erich Hoch, chief supply chain officer for Jabil. Using Six Sigma, causes of product defects are identified and removed from a manufacturing process. The goal is to reduce variability in manufacturing and have a consistent process using statistical process control.

Hoch says Jabil analyzes the quality data of 72 commodities, including everything from bare printed circuit boards and resistors to high-end semiconductors. Using a Six Sigma approach, Jabil identifies the components and suppliers that are having quality problems and “dives into the details and identifies individual suppliers for quality improvement.”

Suppliers that achieve low quality scores consistently and fail to improve their processes will lose business. However, Jabil works with suppliers that have quality issues.

Jabil’s quality director reports to Hoch and “has a dedicated team across the globe that works with people at our plants and with suppliers on quality issues,” says Hoch.

Quality performance documented by score card is discussed at quarterly business reviews with key suppliers, he says. If a bare board supplier is having defective boards roll off the line, Jabil’s quality engineers will work with the suppliers at the local plant to identify and correct the problem. However, if it is a quality issue that affects multiple Jabil locations the issue is “escalated” to the quality director who makes sure there is no risk for any other Jabil plants, says Hoch.

A quality problem could be as simple as an employee error or a machine that is not calibrated properly or a poor quality raw materials used in production. “Whatever it is, we want to get to the root cause and correct it as soon as we can,” he says.

While suppliers’ quality scores will be reduced for defective parts, they will also receive a lower score if they don’t take corrective action quickly.

On-time delivery is important to most companies, but especially to EMS providers, which is why it is the second highest weighted criteria for Jabil. Jabil sometimes receive orders from OEM customers that have to be fulfilled quickly, so late delivery of production materials can affect Jabil’s bottom line as well as it prospects to win future business from the OEMs.

“In general, suppliers can be three days early and no more than two days late,” says Hoch. However, there are times, such as with configure-to-order products, that the delivery window is tighter. With configure-to-order you can’t wait three days because then you have production lines waiting.” Often suppliers will have vendor managed inventory (VMI) programs for Jabil or have hubs near Jabil’s facilities to satisfy delivery requirements.

Delivery performance on score cards will vary sometimes depending on market conditions. For instance, in recent months, the lead times for specific electronics components have taken longer, making it more difficult for some suppliers to meet delivery windows.

“Delivery is easier, of course, when we have oversupply in the market,” says Hoch. With cost, Jabil measures a supplier by comparing the supplier’s cost to the cost of its competitors, says Hoch. The supplier with the lowest cost gets the highest score on cost.

“With certain semiconductors, we show the supplier the cost of other suppliers but we don’t show the names of the suppliers," says Hoch. By sharing such information the supplier can understand why his score was higher or lower than another supplier.

This article first appeared in Purchasing.com.