Supplier quality management (SQM) is critical for any business that relies on suppliers to provide their goods or services. It involves managing, monitoring, and responding to changes in the supplier’s ability to fulfill customers’ needs on time and to the agreed quality specification.

Critical practices for managing supplier quality

You can use several strategies to monitor and improve quality throughout your supply chain. For example, you can:

• Measure the cost of quality – find out how much it costs to manufacture a quality product. Then look at how much poor quality costs – scrap, rework, sorting and processing, warranty, and recall costs.
• Introduce a cost recovery system – agreeing to a cost recovery process can boost accountability throughout the supply chain. It may allow you to recover the cost of poor quality from a supplier and encourage them to look at and address issues causing poor quality quickly and efficiently.
• Audit your supplier – agree on a procedure to quality check your supplier against non-conformances in manufacturing, quality, service provision, compliance, etc. Audits can identify areas for improvement and help you agree on corrective actions, responses, resolution processes, targets, etc.
• Introduce supplier scorecards – standardized scorecards may give you a way to rate suppliers’ performance and benchmark one supplier against another. Scorecards can measure suppliers’ key performance indicators (KPIs), non-conformance, or risks. They can help you track improvements or failures in quality over time, identify improvement areas, and agree on corrective actions to minimize quality risks in the future.
• Integrate IT processes – instead of separate financial, quality, and operational systems, an integrated enterprise solution can enable communication, collaboration, and quality control across the supply chain from procurement to delivery.

How to monitor supplier’s performance

Monitoring the performance of suppliers often helps to keep track of critical metrics and KPIs, such as the percentage of:

• returned products
• products delivered on time and complete
• products in compliance with regulations or quality standards
• new products introduced in the market that met time, volume, and quality targets

Other supplier performance metrics may include order fill rate, lead-time variance, received vs. ordered units, ordered price vs. invoiced price, the accuracy of advanced shipment notifications, etc.

Supplier quality assurance and certification

Some suppliers may have quality-related accreditation, such as the ISO certification. This is a globally recognized mark of quality excellence, which declares that the supplier:

• is operating to verifiable standards
• has a solid quality management system in place

Choosing quality-certified suppliers reassures you that they have the right processes to provide consistent, reliable, quality service.

Importance of supplier quality management

Managing your supplier quality can bring many benefits to your business. It can increase your product quality, boost your bottom line and enhance your business’ reputation. On the other hand, poor supplier quality can lead to lost sales, costly recalls, penalties for non-conformance, or legal action.