ISO 14000
Patient Safety



QS-9000 Drives Automotive
Supplier Development
It's crucial to develop strategic customer-supplier
partnerships in a global market.

by Frank E. Armstrong

It's not only the logical thing to do, it's also required that suppliers to the Big Three "encourage" their suppliers to meet QS-9000 requirements. The automotive supplier base is broken into "tiers" for definition of supplier status along the supply chain. Tier one suppliers are those that supply the original equipment manufacturers (OEMs), or major automotive assembly firms (primarily DaimlerChrysler, Ford Motor Co. and General Motors.) Tier two are those that supply to tier one, tier three supply to tier two, and so on down the line. Element of QS-9000 states that "The supplier shall perform subcontractor quality system development with the goal of subcontractor compliance to QS-9000 using Section I of QS-9000 as their fundamental quality system requirement." Section I consists of QS-9000's 20 elements, which are based on ISO 9001. The basic concept is to ensure that zero defects, 100-percent on-time delivery and continuous improvement are the key factors of the supply chain development.

 How is subcontractor development initiated? The customer determines the method of QS-9000 conformance verification by one of two methods:

  Second-party assessment (customer on-site audit at supplier premises)

  Third-party assessment and registration

 Compliance is verified by either obtaining a copy of the supplier's QS-9000 registration certificate or by performing an on-site audit to determine compliance to QS-9000's requirements. If the subcontractor isn't registered to either QS-9000 or one of the ISO 9000 standards (ISO 9001, ISO 9002 or ISO 9003), a complete quality-systems assessment will be performed. If, however, the subcontractor is ISO 9000-registered, a gap analysis, which assesses the discrepancies between the ISO 9000 requirements and the QS-9000 requirements by way of the on-site audit, is performed. The supplier is then expected to develop those nonconforming areas and supply objective evidence of conformance within a mutually agreed-upon timeframe. The customer should assist wherever possible to help the supplier develop and meet or exceed those requirements.

 The major OEMs and the Big Three have restricted their supply base to suppliers with either QS-9000 registration or proof of compliance.

The new automotive supply base direction

 The Big Three have begun to relieve themselves of internal component design and manufacturing by contracting with tier one suppliers to provide modular segments. The bulk of the responsibility for design concept and manufacturing of "modules" will lie with the tier one suppliers chosen by the Big Three. Modules include systems such as the interior lighting package, fuel system storage (fuel tank and related connections), the fuel delivery system (fuel feed, vapor and fuel-injection systems), and braking systems. The Big Three will provide the basic automobile design, engine and drivetrain, but all related accessories will be left to the tier one supplier for development.

Vertical integration or lateral association?

 A dilemma has arisen for most major tier one suppliers: Should they acquire other facilities to make the package complete or form alliances with related suppliers in customer-supplier partnerships? On one hand, it's logical to acquire facilities that provide the missing link in making a supplier the sole supplier of a system or module. Doing so gives the supplier the competitive edge, as it need not rely on any subcontractor. This further positions the supplier as a self-sufficient or complete "black box" supplier of a commodity. Theoretically, self-sufficiency would reduce costs, making the supplier even more competitive with suppliers that must rely on external subcontractors for key components. However, the disadvantage of this approach is that it requires contacts that understand and are able not only to design but also to integrate the entire system with experts in various fields. This means the sole supplier cannot rely on the assistance or expertise of another subcontractor that specializes in a certain component or commodity for technical assistance.

 Lateral association, on the other hand, requires a customer-supplier alliance in which a partnership is formed to jointly manufacture the product. The advantage to this is the ability to rely on the expertise of a company that specializes in manufacturing the component. This supplier can make recommendations or offer alternatives that apply more to the fit and function of the component, whereas the main supplier often lacks that technical expertise. This subcontractor has possibly been through the trial-and-error period and can lend advice on what will work and what won't. Involving this subcontractor in the advance product quality planning (APQP) stage of the prototype development can ensure that the proper part or commodity is made for the proper function and help take the burden off the primary supplier. In some cases, the subcontractor is already making a similar part that can be offered, which reduces the per-piece price that the vertically integrated sole supplier may not be able to make for the same price.

Supplier partnering

 The increased pressure for shorter lead times has led to shorter delivery cycles, lean manufacturing, slashed costs and exemplary quality, forcing many companies to take a nontraditional look at their supply chains. Increasingly, organizations are realizing a competitive advantage by integrating suppliers and customers to form cooperative alliances. In this way, both companies work together toward a common goal to increase both of their positions within the marketplace.

 In the past, suppliers and customers exploited one another as much as possible to either increase revenue or reduce costs. However, as competition increased, customers and suppliers begin to realize that they were actually losing their competitive edge as a result. This led to a wave of downsizing. Those firms that blatantly downsized did so to reduce labor costs. However, they also burdened their employees with more work than they could effectively handle, leading to poor quality and production and delivery problems. This, in turn, led to another problem: increased inventories and improper use of capacity. Useful management techniques, such as Eliyahu M. Goldratt's theory of constraints (which has many advantages over conventional practices because it eliminates bottlenecks and restraints from running machines that were going to produce excessive inventory), now began to fail. Employees began to falsify quality measures such as SPC and quality checklists because there was no time to render the proper care and attention. In short, people began to take shortcuts and refrain from following cumbersome procedures in an effort to meet production demands with fewer workers. Communication suffered and the feedback link broke down. Morale went under as the "more work for less pay" syndrome crept in and defects, or production errors, increased.

 A far better option than downsizing, rightsizing takes into consideration all of these errors and analyzes the processes to determine if there are nonvalue-added steps that can be eliminated. As the late, great Henry Ford said, "If what you do does not increase the value of the final product, you are waste."

 Another big mistake in the cost reduction area is simply to go with the cheapest supplier. This can often result in having to sort product for quality or shut down production lines for lack of timely delivery of quality product. As a result, customers have often "beat up" their suppliers on price, making suppliers quite leery of any alliance, and suppliers have often tried to squeeze as much money from their customers as possible to increase their revenues, making customers equally leery of alliances.

 The real goal of APQP is to have companies work together in joint cost-savings programs, cross-company brainstorming of problems, just-in-time inventory systems, concurrent engineering and other related concepts. Eventually, more responsibility is passed on to the supplier. Partnering with the supplier creates an alliance in which all key suppliers and the customer are interdependently working for the best total cost instead of just the price for the supplier and customer separately. Customers should send teams to their suppliers to help them improve their costs and efficiencies. Suppliers should do the same for their customers. Customers and suppliers that work together to reduce rejects, downtime, cycle time, lead time, warehousing and obsolescence will increase their bottom line and ensure their place in the market. Being partners from separate locations won't work; suppliers must have employees working with their customer and vice versa if there is to be increased profitability for both. This requires a strong degree of trust and commitment on both sides. Responsiveness is critical. If there is a defect or disconnect, you must respond immediately and exceed the customer's expectations in resolving the problem, and the customer will be more satisfied than if the problem had never existed. Every process has a breakdown at one point or another; how it's handled says much more than does the nature of the problem.

 According to Joseph M. Juran, customers have several quality needs. Among them are those that are stated, implied, perceived and traceable to unintended use. Having a strong alliance with the customer allows communication with all personnel involved in these perceptions so that the supplier can tailor processes and products to meet all of the customer's needs. Quality function deployment is an excellent tool to help make these determinations. Problems can be prevented through joint materials review board meetings, concurrent engineering and problem solving, all of which can help reveal the root causes rather than just the symptoms.

 A cooperative alliance can foster better delivery times, lower obsolescence, reduced inventories, better service and support, and a competitive edge in the marketplace. By having product commonality, suppliers reduce cycle times and product line changeovers. By improving delivery time, the supplier reduces the risk of obsolescence while offering increased production flexibility and better handling of emergency situations. Lead times can be reduced because the purchaser understands the supplier's capabilities and requirements. The alliance renders stronger supplier commitment, which gives the ability to single-source the business without many of the typical disadvantages of single-sourcing. In the right alliance environment, the salespeople become part of the solution, heading off problems before they occur instead of carrying the problems back to their facility.

Disadvantages of cooperative alliances

 A cooperative alliance can be misused; it's much easier to be taken advantage of in a cooperative alliance. If a problem occurs, it's easy to hang it over the supplier's head, whereas the accountability would be different if it were a customer employee. The best approach is to have a supplier project manager coordinate all efforts. This person acts as the single contact between both parties to ensure that all product launches are coordinated and that all details are clear on both sides; more often than not, problems occur because one side or the other lacked the important details to obtain the desired results.

Is every supplier an ally?

 It's obviously not possible to have an alliance with every supplier, particularly in the case where the supplier could potentially become a competitor as well. This program should be targeted at suppliers of high-priced or high-volume parts and is more effective with suppliers of bulk products than with those of individual products. The choice of supplier must be a strategic consideration; both supplier and customer must be very important to each other for the situation to work properly. Both firms must be open-minded and trusting, but the alliance can't be forced on either party. Visions, missions, goals and tactics need to be shared between both parties. Responsibilities and expectations need to be clearly defined and written, with both parties entering a contractual relationship. Obviously, all risks and liabilities must be defined, and controls of certain information and access must be common yet protected. A means of measuring progress and success should be agreed upon and established in the beginning. Any conflict of interest should be brought forward at the beginning of meetings and any differences ironed out with no unclear areas undefined. There are always going to be some ups and downs in working together, and there must be a strong commitment to work cohesively together to resolve any problems encountered on either side. Without that strong commitment, the partnership will dissolve at the first conflict. Imperative to the program's success is that there be top-down support and commitment from both companies at the onset. This should be treated as a marriage, with long-term goals established.

 Some other possibilities include a customer-supplier shared warehouse in which expenses and shipping are shared. This could eliminate incoming inspections by building end-customer-focused quality assurance requirements. For continuous improvement functions, complaints should be encouraged with joint solutions and corrective and preventive actions. This way each learns from the other, and the marriage can go forward even more. The big consideration should be that, with growing global competition and the never-ending shrinking profit margins resulting from cost reductions required by the automotive customer, both become as efficient as possible. In an alliance, with both companies working toward the same goal, the concept is easier to accomplish and to realize. A cooperative alliance with the right synergy can create a more successful and profitable path for both the customer and the supplier.

Building effective supplier relationships without partnering

 All right, so a cooperative alliance can't exist between every supplier, and not every supplier within a system is a high-volume or high-dollar supplier. Does this mean that it's wise to ignore the small or nonstrategic suppliers? Not at all; they're still just as vital to meeting the end goal of satisfying the customer. Companies should look beyond the "best" price to the total cost of doing business with the supplier and how these costs can be reduced. Generally, quality costs are hidden or not considered significant; however, a customer can take some actions to decrease a supplier's costs:

  Instituting order patterns that require suppliers to increase inventory to meet demands. Good forecasts can be beneficial to both parties. Do suppliers have to expedite supplies in order to expedite to the next company in the chain?

  Not requiring suppliers to make reserve inventory to guarantee that all orders are met on time. This leaves suppliers with the risk of sustained obsolescence. Making better projections in conjunction with suppliers' production capability can help reduce cost and risk.

  Not ordering small quantities of material to hold inventory down. Multiple machine setups for small quantities can increase costs, and frequent small shipments can result in increased shipping costs.

  Avoiding multiple handling of products. Producing goods, storing material and then shipping on demand can be costly and increases the chance of mishandling by suppliers.

  Avoiding scheduling changes and using better historical data and trending with some reasonable consistency that aids in minimizing supplier interruptions.

 Some other methods of developing suppliers include sharing technical information through seminars, rotating employee visits and face-to-face meetings of technical people from both sides. When difficult situations arise, a "friend" in the supplier's laboratory can be an asset to solving a problem quickly. Another seldom-used tactic is sharing the end users with the supplier so they gain a better understanding of where the material is being utilized. Training each other by using both parties' resources helps both parties grow. Having team members from both sides meet on a regular basis (perhaps quarterly) to discuss new initiatives, common problems, what's going well and what could be done better improves both relationships and joint problem-solving ability. Another strong possibility--the sharing of analytical equipment, technicians or methodologies--can often be a savior when needed.

 The real key is looking at the supplier's assets and liabilities as a whole and asking, "What can this supplier do for me?" Some possible considerations are as follows:

  Supplier's byproducts. Is there a potential use of a byproduct? What would it take to make that byproduct usable in a potential situation or future product?

  Common raw material sourcing. Could one or the other assist in jointly sourcing a raw material in volume purchase savings?

  Equipment sharing. Idle equipment is a significant hidden cost. Can either benefit by utilizing that idle equipment in its production?

  Creative inventory management. Consider having supplier-managed inventory or receiving quantities on a consignment basis for warehousing.

  Creative logistics. Can the supplier and the customer utilize the same carrier to nearby or joint destinations?

 The bottom line is simply this: QS-9000 is requiring automotive suppliers to push quality further down the supply chain and to forge new alliances. Companies operating within the automotive market need to realize cost reductions to remain competitive. There are ways to reduce costs both internally and externally. Companies can go it alone and hope to survive, or they can get creative and look for ways to improve costs both internally and externally by using their suppliers to their advantage. They must tap each supplier's knowledge and expertise and make it work for them. There are multitudes of ways to be creative in working with suppliers to partner, form an alliance or build a better relationship. The end result should be to help both parties successfully reach their end goals and, in turn, the customer's end goal. Survival these days is heavily reliant upon how companies deal with their supply bases. The old Frederick Taylor approach is dying off; those who work with their suppliers are getting the best results from their investments and gaining a competitive edge. The choice is quite simple: Ignore the suppliers and make unrealistic demands, or work with the supply base to develop, partner or ally.

About the author

 Frank E. Armstrong is product development engineer for Mark IV Automotive. He has bachelor's degrees in industrial management and education. E-mail him at .

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