Single Source Supplier Issues
Hello,

I am looking for some advice on how to address an issue I am working through with one of our suppliers. This supplier is a single source supplier for one of our key product lines. The work that this supplier performs is very unique. Somewhat of an art, however our product tolerances are tight and we usually end up with non-conformances in received product. The supplier is a small 3 - 4 person shop and there are no other cost effective alternatives for us. The supplier has historically been issued corrective action requests by me when we find non-conformances, however it's getting to the point now that they are fed up with answering our requests. My company forms a very small part of their annual revenues, and it would not affect them in a significant way to turn our business away, so there is a very real threat of losing this supplier if I issue another CAR.

I would appreciate any advice on how to address this situation so that we can reduce the number of non-conformities from the supplier without losing them.
15 Replies
Hello Robert,
Escalate this issue internally. Work towards your executive team getting involved and communicating to the supplier. In parallel, start developing a new supplier. A 3-4 person business is risky to have in your critical supply chain.
My 2 cents!
Kind Regards,
Aaron Ellingson
Kelly Gau
10 Posts

Hi Robert,

What kind of contracts do you have in place? What do they say? Do you have a Quality Agreement? KPIs? Are you doing periodic reviews with the vendor so there is a conversation about needs and expectations? It is good to have all of these things in place to establish expectations prior to establishing the business relationship. If those steps were taken, it may just be a matter of re-engaging in the conversation with the vendor to help them understand your needs and expectations. If those steps have not been taken, I would agree with Aaron that the conversation should start internally. The vendor may have no interest in changing their business model or their error rate tolerances. It will then be an internal decision on how to proceed. It will be a risk to continue to ask for change if they are not willing to with no alternative.

Robert,

Please I suggest you visit your supplier and have business discussion with them. During the discussions commend them and let them know how important and helpful they are to your business or company. Also let them know the need for both companies to work hand in hand and assist each other to stay in business. Also use the opportunity to request for them to take you through their processes. Kindly use the opportunity to explain to them the need to be completing the CAR then complete the current CAR with them.

Kindly try this and let's see.

Thank you Aaron, Kelly and Patrick. Great suggestions.

So, our executive team is aware of the situation. We have explored other suppliers in the past, however, mostly due to costs, none of them have worked out. The executive team has accepted the risk of using this supplier and does not have the motivation to bring another on board. We would incur a lot of cost to do this. We would have to develop new tooling for use at another supplier and also allow them time to experiment with the process so that we could see how well they perform compared to the current supplier. Covid has hit us in the pocket book substantially and this is just not a reality for us at this point.

As far as contracts go, we are on a PO by PO basis with this supplier and there is nothing more in place other than standard PO T&C. The T&C do not spell out specific metrics or KPI's that the supplier needs to meet. I'm afraid that even if they did, there wouldn't be much we could do.

I have personally visited this supplier 2 - 3 times over the years and have witnessed them performing the process. I understand the difficulty of the process, and know that the only real way to improve it is to invest more financial resources into better equipment and facilities, which are not a reality for them given their business model and customers forming the majority of their revenue stream aren't demanding it. I have had in person, email and phone conversations with their President about our expectations, but still we have quality problems. I have tried almost every avenue at my disposal and am somewhat stumped as to how to move forward.

Thanks for any further replies.

Hi Robert,
We have a similar situation where we have tried other suppliers who would not even consider taking the work. These PCBs are very small and difficult to manufacture, many times I have issued a non-conformance and they have agreed to re-make the hundreds in the order. The last time the order was perfect and I sent them a thank you for the great efforts message. But this time the product had a minor non-conformance that I was able to do the rework myself. I chose to do the work although I really do not have the time because like your situation, if they continue to receive re-make non-conformances or requests for rework from me it is likely our supplier will just refuse the job. Then we will be faced with finding and qualifying a new supplier likely with the same issues we currently have.
Thomas
Hi Robert,

What happens with the rejected product, is it sent back to the supplier for rework/replacement, or does it get used?
Since the executive team has done a risk analysis and accepted the risk of using this supplier, I see their point (the supplier) also, why would they have to fill out a SCAR over and over, when everyone is aware nothing is changing?
You can still send them complaints, but not require a full report in response to that. Does this supplier agree to take the rejected parts back? Are they only frustrated with filling out the CAR?
You can also collect data over a year for example, to present the cost of doing business with this supplier to both their executives and your executive team. That would include time spent on inspection, resources needed for the inspection of these parts, downtime due to need for rework/replacement, possible late deliveries to your customer, etc.
At the end of the day this is a business decision; there was a risk analysis done by the executive team and there was an agreement to accept this risk; I am not sure asking the supplier to fill out CARs all the time would change anything, if everyone is aware that the supplier is not capable, or willing to improve.

Single Source Supplier Issues

Without details regarding this key product (line) I am flailing somewhat but maybe my experiences might help.

I agree with the “business relationship” suggestions made by other posters - contemporary wisdom suggests that our suppliers should be considered an extension of our business. There are a couple of comments in your original post stand out to me; (1) this supplier supports a key product line and (2) there are no other cost effective alternatives to this supplier. So, first and foremost, when considering cost effectiveness as you suggested, hopefully management has considered the cost to the business - revenue, reputation, etc. - if you are no longer able to produce this key product line!

I am not sure what tolerances you are referencing - are these dimensional or performance (voltage output, operational life, operating temperature range, etc.) tolerances? A couple of examples from my experience may help.

W.R.T. dimensional tolerances, my employer at the time produced large scale pumps for specialty applications in hazardous environments. These large parts were manufactured (machined) to very demanding tolerances, especially considering the size of the components. A substantial portion of these components as received were deemed non-conforming to these specs and were either “cleaned up” in house or “used as is”. After considerable discussion involving management and the design team it was agreed that the specs for many of the components could be relaxed without negatively affecting the performance of the final product. Has your design team considered whether the tight specs are truly necessary, say through experimental evaluation? Has the team considered an alternative design that does not require this part?

Considering performance specifications, my employer at the time produced the memory media for hard disk drives. We had developed processes generating ~90% first pass yield (believe it or not, that was considered industry leading at the time!). One of our Customers, a fortune 100 electronics manufacturer, presented an extremely demanding suite of performance specifications such that, even after many development hours, we were only able to achieve ~10% yield. Our division president was going to pass on the business but, as we were the sole supplier even to consider producing this component, the Customer could not afford to lose us as a supplier. As the applications engineer for this business I was dispatched to the Customer's site to work with their engineering team and we were able to determine that with a couple of minor changes to their design we could relax the performance specifications such that all parties lived happily after. Once again, if your concern is with performance specifications, might your design team review the performance characteristic(s) in question and conduct evaluations to achieve a more robust product design allowing for looser tolerances?

One last thought - might you consider bringing the process in house to produce this element? Does equipment exist that could reduce or eliminate the “artistic” component of producing the part? Once again any action must consider the potential cost to your business if you are unable to product this key product line.

Hope this helps,

Wil

Thanks for the replies Thomas, Dominica and Willard.

To answer some questions, the parts in question are thermo-formed acrylic bubble windows. There are requirements for optical clarity, profile and other specific dimensional tolerances. When we have non-conformances, we have to do an engineering analysis to determine if the parts will meet applicable safety / regulatory requirements. Of course, this all takes us time and resources that we'd rather not have to spend. On occasion, we send the parts back to the supplier to be re-worked, but in the majority of the cases, rework is not possible. Once manufactured, very little can be done to correct errors.

The CAR's we've sent to the supplier demonstrate a lack of knowledge with effective root cause analysis and thus, implementation of effective corrective actions is also lacking. They have no quality assurance department and so the onus generally falls on me to do their QA for them. I'll admit that I could certainly have put more effort into walking them through this, however, I have my own QA department to run and with this difficult situation, have decided to mostly deal with this through inspection and engineering analysis. I did some review of previously reported figures today and found that since 2018, 32% of the orders with the supplier were non-conforming. Management is aware of this and are given the COPQ numbers annually, which they have accepted.

Willard, thank you for sharing your experiences. Your thoughts on re-assessing the dimensional tolerances are a great idea and I think the best option for us in the short term. After reviewing the drawing for the product, the tolerance for the most pressing issue at hand is +/- 0.250", which seems like a lot, however given how these windows are formed, it is very difficult to hit that target. Do you think that since our engineering analysis showed that parts outside of this range are acceptable for use, we could use that as substantiation to expand the dimensional requirements?

We have considered brining this process in house, however, it would take space which we don't have, equipment that is expensive and hard to find and expertise that would take us significant time to develop. Still pondering what the best long term solution is on this though…

I really appreciate everyone's feedback on this issue!

To your question: yes, if you have data that shows the deviated product allows your product to meet its requirements, that could be the basis for opening up your product tolerances.

Another thought: I read that your management has accepted the risk of this situation. Has this been presented as a total business case: for example, if the supplier walks away, and/or if their product shuts down your production, what is that cost? Has that been compared to the higher-cost alternate supply part?

Additional thought - could there be a partnership where an outside company goes to the supplier to do a root-cause analysis training, using this product as the sample case - thereby perhaps fixing the issue and giving the supplier some needed tools that would benefit their overall business? I'm suggesting your company might assist with this cost; this would take some of the burden off of you personally as you have your own department to run.

A company with 3-4 employees and no quality department, where your business is a small portion of their sales - they are likely not going to react to further corrective actions.

Good luck!

Sandra Low
3 Posts
If one supplier can do this so can others with engineering support.
To all:
An interesting discussion, but you are skirting around the "elephant in the room!" You management has no idea what is the risk involved and is not managing risk in a responsible manner. If they say a part would cost too much if it is produced in other ways or by other suppliers and are experiencing a 32% rate of problems, then they don't know the true costs - which cannot be limited to the part costs. Costs need to include your overhead investments in correcting problems, your travel and QA time that is invested in the suppler, the management team's deliberations and time required for retesting, re-planning production, and testing/reworking the parts. Since the company is so small and your leverage against them is so poor, that means you are in a situation where the supplier has all of the bargaining or negotiation power and you are powerless. They ignore you and don't reply in a responsive way to your requests which indicates a lack of respect for their customer. Have you ever done a Z-factor analysis of their financial soundness? With this type of behavior, I wonder if they don't treat every customer in a similar way. If I was in you shoes, I would be telling management that it is their obligation to eliminate the risk and reprioritize costs to get this issue eliminated. Don't be a victim to a poor supplier - you can't fix something that they don't really want to fix - so you only have one real alternative and that is to convince your management team to pursue another avenue of action. That's my opinion, anyhow!
Best wishes for a solution!
Greg

Thanks for the reply Gregory.

We have not done a Z factor analysis on their financial soundness. Not sure I would know how to do that, so I'll look into that. I had mentioned above that management is informed about the COPQ numbers annually, which they have accepted. When we review that, we look at which vendor has had the highest number of non-conformances and how much each NC cost the company (including overhead and other costs) yet they don't seem to have the will to try to make a change. I've learned the hard way that trying to make a change that management isn't committed to is a waste of my time. This being said, I am in the process of trying to convince our production team and management to look at other possible sources for this work, but it's like trying to move that “Elephant in the room”. Not an easy task…

I've presented the numbers on how much this vendor has cost us, but the management team thinks that the cost of continuing to do business with the current vendor is cheaper than sourcing a new vendor, bringing them online, developing new tooling where required and waiting until they go through the learning curve to make our product. In the short term, they would be correct, however I think we need to do this for longer term benefit. Any ideas on how to get the management team to focus on longer term requirements rather than shorter?

Hi Robert,
In reading this last response I picked up on the phrase "management thinks" have you thought about putting together a plan and ROI to take on the sourcing of a new supplier? Trying to take as much emotion out of the decision-making, in this case, maybe a good step in convincing the management team to move away. If they can see a plan to get there it will take away the uncertainty of the next steps and how to get started. Thanks,
Mary

Thanks Mary for that idea. It will take a bit of time to put that together, but may be worth it if it prompts a change in direction. We have our annual management review coming up in December, so that may be the time for it. Thanks!

Hi Robert that posted the question, and Greg,

Thank you for the question and Greg's response. This was sent to my email from ASQ.

First of all, Robert you’ve identified an issue (Constraint) for the supplying company, and a (major) risk for your company? This is a risk, and it needs to be dealt with for your company to grow.

What is the Vision of your company ??

As Greg points out, your management is not assessing risk properly. (My assumption as well and I agree.)

True costs of options ? He makes a good point again. What are the options ? Are your authorized to look at options ? Have you looked at the potential options and their associated costs ? Short term and long term 3-5 years out?

Where does your company want to be within the market they are in in 3 and 5 years ?

The first thing I would do is:

Talk to you immediate manager about the concern.

If you are in an organization in which you are “empowered”, a SWOT analysis for this domain (Procurement/Logistics for this supplier and others) is appropriate and then align the outcome of the teams efforts with the company’s Vision and Strategy…..This is what is needed to make your case for the company leaders to comprehend and make decisions.

Since the company is so “small” and your leverage against them “small company" is low, that means you are in a situation where the supplier has all of the bargaining or negotiation power and you are powerless. They ignore you and don't reply in a responsive way to your requests which indicates a lack of respect for their customer.

This situation needs to be turned around for your company to excel and deliver customer wants/needs/expectations and gain a competitive edge. Ok, they don’t respond because your company is not huge and neither is theirs. Okay, Paint another picture and one of alliance for future growth as a strategy ? Meanwhile look for other suppliers…

A meeting with the supplier stakeholders, and your internal stakeholders (Procurement and leadership Management) may benefit if the meeting is also structure correctly. (This is important. How do we both benefit? If the supplier is indifferent, then absolutely look for a new supplier as soon as possible.)

You are looking for a win-win for both companies. Define your company’s needs (procurement/sales forecast), and understand the supplier’s constraints. Until you understand this, you cannot move forward.

It’s a challenge when you are in the middle of it, so if you do a meeting again, you need to have a specific meeting agenda with the supplier, and your procurement team. This is important. What do we both need and how can we make us both grow for the market needs?

A poor supplier is not a good thing. (and how is this rated where you work? A sole supplier is a major risk for most companies.)

Questions:

What can your company do to help this supplier improve, to decrease your companies risk ?

What can you do to identify options, as a risk mitigation improvement initiative ?

Summary:

Let management know this is an issue.

Follow your protocols (organizational assets/communication lines of authority/management).

Provide the information (SWOT) , make your case, and also lock in the time frame for feedback on the issue. (Leadership)

Don’t make your manger mad. : )

If it goes nowhere. Then at least you know, you have a better understanding of the people you are working with, and leadership/management approaches for the future. Also keep in mind, the types of stakeholders, their personalities, the organizational structure, and how they accept information and provide information. Build your team.

Regards,

-Bill Follansbee