With the recent recall fiascos (salmonella in our produce, lead in our toys, and diethylene glycol in our toothpaste), supplier management is more important than ever. However, even before we get to performance management, relationship management, and risk management, we first have to select a supplier. A good supplier selection can go a long way to minimizing the management that we need to do – as a good supplier will strive to perform, connect and collaborate with you on a regular basis, and give you the visibility you need to mitigate risks before they occur.
That’s why Avery Dennison, as discussed in this Industry Week article, has adapted it’s screening process to insure that any new suppliers it engages with can guarantee consistent, quality products. Considering that it has to source many of its materials from multiple global sources, quality and reliability of supply are key factors.
As part of its new process, it now includes a strict set of environmental and social compliance guidelines — including labor laws and health safety standards — that suppliers must demonstrate they adhere to before they can advance to face-to-face discussions. In these discussions, Avery makes an effort to discern the extent of the supplier’s business, what markets they are involved in, their profitability and long term business solvency, their historical quality and service metrics, and whether or not they have the potential to meet Avery’s supply requirements.
If the discussions go well, the next step will be a plant tour. During the plant tour, Avery attempts to discern if everything the supplier put forward in the initial screening and face-to-face discussions is true and if key factors, such as quality assurance, worker treatment, and appropriate equipment and processes, are readily visible. In addition, during the face-to-face discussions and plant tour, they also look at the supplier’s supply base to make sure that there is a consistent supply of quality raw materials and that the supply base conforms to their environmental and social compliance guidelines.
According to Avery, the process results in invaluable insights that go a long way to selecting the right supplier, which is not necessarily the supplier with the lowest unit cost, or even landed cost, because the right supplier is the one with the lowest total cost of ownership — which includes the costs to manage the supplier, the costs to process returns when quality isn’t acceptable, and the costs, and time, to recover from delays or disasters when risks become realities. A good supplier is easy to manage, ships you good quality product consistently, and insures that you have significant downstream visibility into any interruptions or delays that might trickle their way up to you — and a good supplier certainly doesn’t employ child labor in smoke-stack dirt-floor factories that will ruin your image if the media finds out!