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How to Effectively Evaluate Supplier Quality Assurance

Nov. 11, 2022
SQA evaluations ensure external partners help uphold a client’s brand values. Here are some practical ways to conduct them.

Supplier quality assurance (SQA) verifies that the parties in a company’s supply chain can meet mandatory standards set by that business. Today’s brands use numerous strategies to see how an individual supplier’s performance stacks up.

Establish Basic Expectations to Eliminate Ill-Suited Candidates

A good starting point is for companies to publish guidelines for consideration that must be adhered to by potential suppliers. Doing so helps ensure companies don’t begin to work with supply chain partners that go directly against brand principles.

For example, Trader Joe’s, a specialty grocery chain, prioritizes all-natural ingredients and products without unnecessary additives. It’s not surprising, then, that the company has fundamental vendor requirements for candidates to fill.

What Does Trader Joe’s Require of Suppliers?

  • No dairy products containing recombinant bovine somatotropin (rBST) growth hormone
  • No genetically modified ingredients
  • No MSG or artificial flavors, colors, or preservatives
  • No added trans fats
  • No business arrangements between Trader Joe’s and intermediaries
  • No vendors without product liability coverage
  • No foods produced in commercial facilities not approved by United States regulators

Stating those things upfront is a practical way to weed out suppliers that have no chance of passing the minimum requirements. Moreover, it gives Trader Joe’s leverage if the company initially meets requirements but later changes production processes that no longer abide by those standards. No vendor could successfully claim not to know the rules.

The company also stipulates vendor candidates won’t succeed by dropping materials off at company headquarters or engaging in other unsolicited requests for consideration. Instead, all parties must fill out a publicly accessible vendor application at the bottom of the list of minimum requirements. It’s another way for Trader Joe’s to ensure transparency about what vendors must do.

Being so clear about vendor requirements also is a great way of driving home how a brand’s suppliers are an integral part of helping the company carry out its values. People who shop at Trader Joe’s expect to find products with characteristics that aren’t always available at mainstream grocery stores.

Supplier requirements are a large part of ensuring that’s always the case. When consumers know they can find products without artificial flavors or preservatives, for example, they often find it easier to trust the brand and shop according to personal values.

Choose Key Performance Indicators

Supplier evaluations should happen before and after starting up a supply chain partnership. They help clients verify that an external company has the capacity, experience, and other necessities to consistently meet expectations. One popular way to track suppliers is by selecting key performance indicators (KPIs).

They show how supply chain partners perform and provide the knowledge necessary for improvement-oriented changes. A client also can include the KPIs in a supply chain partner’s contract. That’s an excellent way to enforce SQA from the start and let the respective parties know they must meet identified standards. Furthermore, KPIs can give clients evidence they’re getting what they paid for from the supplier relationship.

Possible KPIs to track include:

  • Return on investment (ROI)
  • Defect rates
  • Lead times
  • On-time deliveries
  • Order accuracy

Experts also clarify that KPIs can help encourage behavior changes throughout an organization. Moreover, it’s ideal to apply them across the entire organization rather than having individual teams working to meet them. Then, the KPIs are more likely to become embedded in cultural norms.

On top of that, KPIs are helpful for maintaining SQA because they can provide focal points for vendors. A client could take an arguably vague action by putting a supplier on probation and not telling them what to improve. The convenient thing about KPIs is they allow clients to rely on data-driven evidence that suppliers fall short in some way.

It’s meaningful to say a supplier’s lead times are too high and it must shorten them by a certain percentage or number of days to come off probation. The alternative is to penalize a supplier without being sufficiently specific as to why. That approach can cause confusion and frustration for everyone involved.

Consider Using Artificial Intelligence to Monitor SQA

The reality is that even the most conscientious brand representatives cannot know everything that’s happening with supply chain partners at any given time. However, artificial intelligence (AI) could help achieve better monitoring.

In one example, Audi deployed a platform that assists decision-makers in choosing the supply chain partners that are most likely to be sustainable. The platform’s warning system analyzes publicly available sources in dozens of languages, then flags potential risks. The AI solution also can recognize a message’s context, making it more accurate.

Although AI can be a worthwhile tool for maintaining SQA, it takes time and effort to deploy. One survey of compliance, legal, and audit specialists found 42% encountered time constraints when trying to use AI to help with their jobs. Moreover, 39% had trouble gathering data from remote sources or those outside the company’s network.

Those takeaways emphasize that AI is not necessarily a quickly implemented solution. However, when decision-makers are willing to invest in the required resources to make it work well, the technology can be an important part of checking for supplier compliance. After all, AI is able to handle large amounts of data and process it much more efficiently than humans could without help. It doesn’t replace people’s expertise but can support it.

Use Time-Based Goals and Checks

SQA also involves encouraging external partners to pursue continual improvement. One best practice on this front is to set mid- to long-term goals that all suppliers are aware of and urged to meet.

Beverage brand Coca-Cola creates goals related to the percentage of partners that meet supplier guiding principles (SGP). The company then hires third-party auditors to verify that suppliers and bottling partners align with those expectations. More than 2,500 audits occur every year.

Additionally, the initiative has included the completion of more than 30,000 assessments of human and workplace rights. Coca-Cola achieved a 91% success rate for SGP among its suppliers and bottling partners in 2019, up from 63% in 2010.

Setting goals for companies to become compliant within certain timeframes causes progress. It’s also useful if businesses specify which aspects get measured within supplier compliance and when such evaluations will happen. For example, Amazon assesses suppliers in four main categories: environment, labor, ethics, and health and safety.

The company carried out 5,952 assessments of potential and current supply chain partners in 2021. More specifically, 28% were for pre-production checks of Amazon-branded products and 51% represented ongoing evaluations for companies already producing such items. Finally, 21% of the assessments were at companies with previously identified issues. The goal of such checks was to verify the companies had done the right things to fix problems and prevent them from happening again.

SQA is easiest to oversee when the responsible parties take a methodical approach. Then, supply chain partners know what they must do to retain relationships and that they have targets to aim for when prioritizing ongoing improvements.

Supplier Quality Assurance Reduces Business Risks

People at today’s companies cannot afford to overlook SQA. Fortunately, these actionable strategies can help them pay more attention to it while attracting high-quality supply chain partners.

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About the Author

Emily Newton

Emily Newton has eight years of creating logistics and supply chain articles under her belt. She loves helping people stay informed about industry trends. Her work in Supply Chain Connect, Global Trade Magazine and Parcel, showcases her ability to identify newsworthy stories. When Emily isn't writing, she enjoys building lego sets with her husband.