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Signature Assignment: Managing a Crisis Simulation

We hear it all the time: the first step to solving a problem is acknowledging that a problem exists. When a vendor repeatedly fails to perform as outlined in the service level agreement, partner organizations all too often take a submissive approach to the issue as if the problem will somehow resolve itself. This reluctance to act however, can have detrimental effects on the buying organizations reputation. Perpetuity in situations of this magnitude can not only result in poor operational performance, it can also lead to increased overhead costs and harmed customer relationships. More pointedly stated, inaction against a supplier who consistently fails to meet performance expectations is a huge mistake. To address and correct the issue, buying partners will need to create a course of action in the form of a process improvement plan to address the areas of concern without impacting customer satisfaction. The performance improvement plan should outline specific areas of opportunity for the supplier as well as root causes and proposed steps to remedy the situation.

Issues of Concern (Overview)

As a supply chain manager of a building company, I am responsible for overseeing sales and other business areas for company that sells building materials to contractors, construction companies, and project homeowners. Over the last several months however, I have been struggling with one of the company suppliers. The vendor, who supplies roofing nails, has had several complaints from customers ranging from late deliveries to damaged deliveries. I have even received complaints from customers regarding inaccurate quantities (or partial deliveries) that involve boxes of nails that include only a portion of the 1000 nail quantity listed on the box label. Since we are fast approaching peak season and are already at risk of losing some major customers as a result of this, a supplier performance improvement plan will be implemented to get the situation under control.

Steps to Identify Root Cause, Potential Containment, and Corrective Action

The first step is to identify the problem. The key to recognizing the issue and pinpointing the origin is to be objective in the approach. Therefore, when researching and investigating poor supplier performance, it is imperative for the company to look inwardly as well just to ensure the causes of such inadequate execution don’t rest within their own operations. If operational failures are ultimately the fault of the buying organization, it’s best to follow the below guideline and find out prior to addressing the supplier.

In terms of late deliveries, it will be equally important to assess:

· How many shipments were expected in during this time period?

· How many shipments were delivered during this time period?

· What percentage of shipments delivered late during this time period?

· What impact did this delivery failure have on the buying organization?

Rationale: Both asking and answering these questions will give the buying organization a more holistic view of their operational performance. If after review, it is determined that a significant (say 40+%) of their deliveries arrived late, it is likely that some of the blame lies outside of the supplier organization. Rather than calling out the supplier, it may then be a good idea to assess whether contractors are buying within their lead times or if there is a delay on the receiving end of the distribution center between the time product arrives and the time it gets logged into inventory.

In terms of damages, the following would items would need to be assessed:

· Packaging

· Stack ability

· Unit load design

· Pallet condition

· Shrink wrap effectiveness

· Trailer load design

· Number of touch points

· Transportation

· Climate and geography

Rationale: All components of the supply chain can be a source of damage including package design, manufacturing, transportation, warehousing, distribution, as well as mother nature herself. An effective corrective action plan will require a better understanding of how the damage occurred. For example, the material and strength of packaging, even package design can factor into damage. Consider that some types of cardboard are more puncture resistant and are best for shipping heavy items while other cardboard is better for printing and display pieces.

In the case of roofing nails, is the supplier shipping loose nails in a box or, are the nails secure in a plastic zip tie bag that is then placed inside of a box for transport?

And lastly, when reviewing delivery shortages, the following will need to be assessed:

· When did shortage complaints start to come in? Can it be narrowed down to a specific time window?

· How many deliveries were made in this same time frame?

· Are complaints coming from one customer repeatedly or several customers?

· What percentage of customers during this time frame have complained about partial deliveries?

Rationale: If complaints can be narrowed down to a specific time frame, identifying root cause of the issue becomes vastly easier for the vendor. For example, maybe the vendor implemented automation for counting as opposed to a workforce that did it manually. Or, perhaps the supplier is suddenly understaffed. Whatever the case, they’re much more likely to identify the cause if the option can be narrowed down. Likewise, if the building supply company performs this analysis and realizes that most (or all) their complaints are from one contractor, they may have identified a dishonest partner whom they may or may not want to continue doing business with.

Once the buying company has determined the problem, what is driving it, and what fixes need to be put in place to prevent repeat occurrence, it is time to move forward with “develop, sustain, or exit” initiative.

Improvement Plan with Lean Six Sigma Methodology

As with any degrading business relationship there lies the decision not to use the vendor anymore; and, performance is one of those contributing factors in the supplier management program that leads to one of three routes for suppliers.

· Develop – Work to develop a strategic partnership that is mutually beneficial and that possibly leads to increased orders.

· Sustain – Retain vendor as a tier 2 supplier but do not work award new product orders.

· Exit – Exit supplier relationship. Do not use.

The purpose of this supplier improvement plan is to create a formal plan to develop and manage supplier relationships while eliminating service failures. The initiative will go through the following steps in the improvement cycle:

· What is the vision as outlined in the service level agreement?

· Where are we now?

· Where do we want to be in the short term (30 days)?

· How do we get there?

· What will be the outcome if activity is not met?

· If met, how do we keep the momentum going?

How Supplier Compliance Will Be Monitored and Is Corrective Action Plan Effective

The key to superior supplier performance is the implementation of action plans and regular reviews. Once the objective facts have been documented from the root cause phase, historical performance measures have been captured, future goals have been established, and suppliers are onboard with the performance improvement plan, the buyers role is to monitor data to see whether the supplier is indeed improving their performance.

As to keep the supplier performance from negatively impacting customer satisfaction, it may be best practice to review vendor performance weekly to understand whether service failures are moving in the right direction.

After several cycles of successful or failed performance, the buyer can either continue to nurture and grow that relationship or choose to switch to another supplier who can more readily meet their expectations.

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