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Randall D’Amico

Standards

Using ISO Management Systems Standards to Develop Effective Supplier Partnerships

Maximize the value of your interactions

Published: Thursday, November 5, 2015 - 10:13

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Relationships between an organization and its suppliers have traditionally been characterized by adversarial activities and posturing in which at least one, and often both, parties lose. Rather than working together to find ways to create a win-win outcome, buyers use their leverage to force suppliers to absorb costs to obtain lower prices, and suppliers look for ways to minimize their losses by barely meeting the buyer’s specifications. Unfortunately, in a highly competitive marketplace, dysfunctional relationships like this do nothing to support the long-term success of either party.

Ideally, the goal of a vendor/supplier relationship is to create and maintain a reliable and trusting partnership that allows both parties to win while also promoting their mutual objectives of continuously improving quality, productivity, and competitiveness. In this article, we’ll discuss how the quality management principles in ISO 9001:2015 can help organizations develop effective and profitable working partnerships with their suppliers.

What is a supplier partnership?

A supplier is any individual or company that provides an organization with the products or resources it needs to produce goods or provide services. Most organizations spend substantial portions of every revenue dollar on the purchase of raw materials, components, or services from external suppliers, typically equaling about 60 percent of total cost of goods sold. Therefore, supplier quality and reliability have a direct effect on the overall cost of a product or service and on the reputation of an organization with its customers.

Ultimately, organizations and their suppliers have the same goal, that is, to satisfy the end customer. Because both an organization and its suppliers have limited resources, they must work together to maximize the return on their investment. Suppliers can strengthen their overall position with organizations by ensuring that the goods and services they provide meet the quality expectations of the organization’s customer.

A supplier partnership is a commitment between an organization and its supplier that focuses on maximizing each other’s resources over time to achieve specific business goals and objectives. The specific goals and objectives of any given partnership are unique, but typically include improved quality of products or services, increased operational efficiencies, reduced inventory requirements or other costs, improved product or service quality, and further opportunities for innovation. However, regardless of the goals and objectives, building an effective, long-term supplier partnership involves the careful planning and managing of all interactions with a supplier to maximize the value of those interactions and to reduce potential risk. And like any relationship, an effective supplier partnership requires a mutual, ongoing commitment and continual nurturing to sustain a genuine collaborative relationship that’s beneficial to both parties.

How ISO 9001 supports supplier partnerships

Mutually beneficial supplier relationships has been one of the guiding principles of ISO 9001, the international standard for quality management systems, since the standard was first published more than 30 years ago. The central importance of relationship management has been retained in ISO 9001:2015 as the seventh of seven quality management principles embodied in the standard.

Initiating and managing supplier relationships under ISO 9001:2015 involves the following actions:
• Identify and select suppliers to manage costs, optimize resources, and create value
• Establish relationships considering both the short and long term
• Share expertise, resources, information, and plans with partners
• Collaborate on improvement and development activities
• Recognize supplier successes

As a starting point for these actions, ISO 9001:2015 now requires organizations to establish criteria for the acceptance of suppliers (section 8.4.1). The standard’s required risk assessment can be an effective tool for developing such criteria. However, not all relationships are created equal, and actual supplier criteria may vary depending on the relative importance of a given supplier to an organization’s objectives.

In most cases, a small number of an organization’s suppliers are essential to achieving its strategy and objectives. Key suppliers are typically those in the top five percent of all supplier expenditures and who contribute a vital component to an end product, often serving as a single source for that component. Critical suppliers provide other critical components or parts, but may be one of several sources for a given component. These two groups of suppliers, key suppliers and critical suppliers, are likely to be subject to more rigorous criteria than suppliers of commodity items.

It is for this reason that key suppliers and critical suppliers should serve as the primary focus of an organization’s effort to establish effective supplier partnerships. For this group of suppliers, the essential work required by both parties in building a partnership is likely to result in the greatest benefit for everyone involved. Once again, the risk assessment required by ISO 9001:2015 can help to establish an appropriate roadmap for the interactions between an organization and its key and critical suppliers. It can help to define quality requirements, the level and frequency of communications, methods of identifying and resolving problems, and the depth and detail of supplier performance reviews.

Outsourcing partnerships

Outsourcing is a special case of a supplier relationship that involves the use of an outside entity to prepare or complete a product or process. Typically, outsourcing is an effective means for organizations to deal with internal capacity limitations or to take advantage of specialized technology or processes that are not internally available. Outsourcing can also help to reduce overall costs for commodity products when an organization can obtain those products from a third-party supplier at a lower cost.

Here again, ISO 9001:2015 strengthens the quality control requirements that govern outsourcing relationships. Indeed, under the revised standard, organizations must apply the same quality management systems and controls to outsourced products or processes as those applied to internally produced products. A risk analysis can be used to determine the level of control and oversight that is required in specific outsourcing cases to ensure that an organization is still able to deliver products that achieve a level of quality consistent with its requirements.

Building effective supplier partnerships

Beyond the principles and practices detailed in ISO 9001:2015, the following steps will help you build and sustain effective supplier partnerships:
Timeliness. Both an organization and its supplier should execute their respective responsibilities in a timely manner. Suppliers should deliver the required inputs on time, and the organization should process timely payment.
Information. An organization must provide a supplier with the necessary information to provide the organization with exactly what it needs. Both the organization and the supplier should continually exchange information to improve product and service quality.
Product evaluation. An organization and its supplier should mutually agree on a method to evaluate the quality of products or services to the satisfaction of both parties.
Product testing. Many products are subject to mandatory regulations and standards to ensure that they are safe for use. A formal compliance program can help ensure conformity with these requirements.
Customer complaints. A formal system for handling customer complaints can help both an organization and its supplier quickly identify trends or adverse incidents related to the quality of a product.
Product recalls. An organization should have a formal product recall procedure in place to reduce risks associated with unsafe products and to help protect brand identity.

TÜV SÜD America, in cooperation with Quality Digest, will host a free webinar, “Shift from ‘Approved Vendor’ to Strong Supply Chain Partner,” live on Tues., Nov. 10, 2015. The webinar is intended for all quality management professionals interested in leveraging the structure of ISO management systems to strengthen and improve quality throughout their organizations’ supply chains. Click here for more information, including a link where you can register.

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About The Author

Randall D’Amico’s picture

Randall D’Amico

Randall D’Amico is a management system auditor for TÜV SÜD America, and is a certified lead auditor for ISO 9001, ISO 14001 and ISO 13485. He has more than 20 years of experience with ISO management system certifications. He can be reached at rdamico@tuvam.com.