Measuring supplier satisfaction
Recognizing suppliers sets a performance precedent and helps both sides define expectations

by Clair D. Urbain

If you think honoring suppliers with performance awards is just a slick way to buddy up to them, you’re missing out on the biggest benefit of a recognition program: setting performance standards that complement your company’s continuous improvement process.

"Inland Steel uses a process called Supplier Selection and Improvement Plan (SSIP) to manage its supply base. It has identified quality as a core value, and ultimately we measure quality by how well we satisfy customers, internal as well as external," says Frank George, Inland Steel Flat Products supply manager.

To achieve continuous improvement, teams and individuals need to use terms and tools as part of a well-structured process.

"When people use the same language, concepts and techniques, they communicate and work more efficiently toward quality improvement. The continuous improvement process is the standard and the foundation for SSIP," he says.

"The SSIP is key to measuring our suppliers and insuring we get maximum benefit from the relationships. This performance management tool insures there are no surprises since both parties know what their expectations are and how they will be measured."

With the SSIP, Inland Steel expects to:
• Reduce total procurement costs
• Rationalize the supply base
• Standardize procurement procedures across business units
• Clearly define procurement responsibilities
• Identify opportunities to leverage procurement dollars across business units
• Assign those who use and purchase products and services to matrix teams so Inland Steel can accurately define its quality requirements
• Purchase strategic and leveraged commodities from only those suppliers who have achieved model status
• Eliminate inspection of products purchased from preferred suppliers
• Enhance the ability of minority business enterprises to effectively compete as suppliers to Inland Steel Flat Products

"We are very upfront about the fact that we want a supplier to service us and not just sell us, that continuous improvement in service is required to continue and that SSIP will be the process we use," George says. "The SSIP is a measurement program for our strategic suppliers. We use it very selectively, and use it as a way to help our suppliers continuously improve their service levels.

"Cross-functional teams set up their expectations for quality, service, delivery and cost. We agree to specific targets and measuring tools to be used. When the supplier comes into the process, we discuss the plan to insure common understanding by all parties and everyone signs off on it. It becomes the benchmark for their performance evaluation," he says.

Winners make Inland Steel a winner
At Inland Steel, supplier recognition is not taken lightly.

"We are very proud when a customer of ours takes the time to salute our efforts in providing meaningful quality, service and delivery; that’s why we recognize our suppliers with awards. Our range of awards is intentionally limited and they are presented at our annual supplier conference," George says.

Each year, Inland Steel recognizes several award levels in its quality process:

Model supplier: This preferred supplier must have at least a 90 rating on at least two supplier performance evaluations in the last 24 to 36 months. It must be able to show substantial improvement in service and quality. There can be no unresolved issues on the table and the supplier must be deemed to have potential as a long-term supplier to Inland Steel. If the supplier has been through a quality audit, it must have received a satisfactory rating. If the supplier serves other commodity areas, it must also perform satisfactorily in those areas. A supplier may receive this prestigious award once and is expected to maintain model status.

General Service award: Any approved supplier to a business unit is eligible for this award. It must be nominated by an end-user customer in the plant, based on outstanding performance in the areas of quality, delivery and value-added services. A supplier can win this award only once per business unit.

Firefighter award: This award is given to any supplier who goes above and beyond the call of duty. Its outstanding support during a critical event or other emergency helped Inland Steel avert dire consequences. It’s awarded by the business unit; a supplier can win it more than once.

Pro award: For day-in, day-out professional service, a business unit may award this to a specific individual who works for a supplier. This person provides the highest value to the facility, is knowledgeable, communicates well and manages time effectively. Usually, it’s only awarded once, but could be awarded by more than one business unit.

To date, Columbia Pipe and Supply, Inland Steel’s preferred pipe and valve supplier, has achieved the Model Supplier award level. "I wish other suppliers would look at how Columbia Pipe and Supply services us," says Craig Orcutt, materials analyst. "They could learn a lot from them."

And that’s precisely the reason to cite outstanding suppliers. "The awards help us set standards for quality, service, delivery and cost," says George.

Hormel Foods awards Spirit of Excellence
Hormel Foods, a meat processor in Austin, Minn., also relies on performance awards as a way to better manage suppliers. Every year, the company awards the Hormel Spirit of Excellence to key suppliers, says Don Nelson, director of purchasing.

"The Spirit of Excellence award is presented to suppliers who achieve specific expectations including attaining ‘certified’ status, having a proven track record of meeting measurable requirements, having a ‘do it right the first time’ attitude and demonstrating a desire to join the company in quality improvement.

Quarterly ratings for key suppliers
"We rate key suppliers in five areas every quarter. We look at delivery, administration, quality, customer satisfaction and audits of their facilities," Nelson says. The results of the quarterly rankings are reviewed with the supplier. The customer satisfaction rating is probably the most subjective. It’s a measure of how progressive that distributor or supplier has been with presenting new ideas."

The program has yielded benefits to Hormel.

"We have seen service in all areas of the plants improve. The award is really a good way to recognize good suppliers and to tell other suppliers that they need to step to the plate and improve their service to us," Nelson says.

Like Inland Steel’s award program, few suppliers are eligible for the program. To date, 32 of 5,000 suppliers are actively involved in these programs, and Nelson estimates the company does 90 percent of its business with this select group.

Annually, Hormel personnel sit down with these key suppliers and formulate the standards.

"It’s important to ask the supplier what is important to measure. You get a much better performance standard that way," Nelson advises.

Although the Spirit of Excellence award is a top honor, Hormel has an exclusive honor for best-in-class suppliers: The Hormel Foods #1 Award.

"We recognized eight companies in 1996 from the total supplier base. This is awarded every five years, and to be eligible for this award, the supplier must have received at least three Spirit of Excellence awards in the last five years and been assigned a positive 'Supplier Rating Index,' based on the quarterly reviews, during these years."

This article appeared in the February/March 1998 issue of MRO Today magazine. Copyright 1998.

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