Managing High Technology Suppliers

Author(s):

Robert A. Silveri, C.P.M.
Robert A. Silveri, C.P.M., President, COMPASS Consulting Services, Hyde Park, NY 12538, 914/229-2179

81st Annual International Conference Proceedings - 1996 - Chicago, IL

Introduction. The process of purchasing items with significant technical content requires a balanced combination of business and technical resources. In recent years, however, corporate restructuring has dramatically reduced the available technical support. For buyers challenged by this situation, this paper describes techniques to assist in managing high technology suppliers.

High Technology Purchases. A high technology item generally has complex specifications which cover electrical, mechanical, quality and other requirements. Technical support is needed to develop specifications, qualify the item for its application and handle any problems that occur. Relevant cost, schedule and quantity considerations are also important, but are not the focus here.

In an environment of limited technical support, a buyer can gain sufficient technology purchase perspective to effectively manage a high technology supplier. This requires knowing what to ask for, why it's important and how best to use in-house and supplier technical resources. This is a natural extension of a buyer's responsibility.

The customer's needs for function, quality and reliability comprise the basic technology considerations. These are shown in the triangular diagram of Figure 1. How can a buyer develop sufficient feel for these considerations to be comfortable in discussing them as part of the purchase process? This is what is meant by acquiring technology purchase perspective. (Figure 1 is not available in this text-only version.)

Technology Perspective. Having technology perspective means having the capacity to view technologies in their true relationship to particular areas of consideration - in this case function, quality and reliability. One of the first ways to gain perspective is to learn how technologies are described and quantified. This is the role of specifications.

Part specifications for example, characterize a part and its function. They describe what it looks like, what it does and how well it does it. For quality specifications, the objective is to demonstrate that the part conforms to the functional or part specifications - the definition of quality. They include what is to be tested, how it's to be tested and criteria for acceptance. Reliability specifications are similarly described. They aim to insure that a part will function over a prescribed period of time.

Buyers use specifications all the time and are constantly learning what products are available and their ability to meet specs. The same thing occurs in high technology purchasing, except with specifications of greater diversity and complexity. Acquiring this knowledge and organizing it to make relationships clear, is an important measure of progress in developing perspective in this area.

Other areas of perspective can be generated by use of the familiar "reporter's six questions". The following example questions can generate a framework for developing perspective on testing requirements.

  • What are the specifications and what tests are required?
  • Who is doing the testing (supplier, buyer, independent lab)?
  • When does the testing get performed (in-process, pre-ship, post-ship, post-assembly)?
  • How is the testing performed (procedures, conditions, quantities)?
  • Where is it performed (locations, facilities, equipment)?
  • Why is it being performed (what's the cost-benefit rationale)?

This approach can be tailored to suit almost any area of interest.

Expanded Technology Considerations Diagram. When you apply the previous comments on specifications and testing to Figure 1, you obtain a simple model buyers can use. This is shown in Figure 2. (Figure 2 is not available in this text-only version.)

Note in the diagram the intersection of the function and quality considerations. This corresponds to the T = 0 timeframe; the point at which the product's function is tested. These tests verify conformance to requirements, thus satisfying the quality objective.

Intersection of the function and reliability considerations depicts the timeframe where T > 0. This is where reliable performance is desired. To measure it requires tests which stress the assembly and use conditions to "age" the product. This information supports projections of reliable product lifetime.

Finally, the intersection of the quality and reliability considerations is defined as the timeframe T < 0, when the product is "in-process." Both quality and reliability behavior have their roots in this timeframe. In-process controls and design assumptions are based on process parameters that have been correlated to quality and reliability performance. This is the most cost-effective way to insure product function in these regards.

Another application of this diagram is for communication with both suppliers and customers. Asking the supplier to address the requirements implied by the diagram can aid in understanding capability and interest. Similarly, the buyer can use it with customers. It can help identify the relative importance of the basic considerations as well as areas where requirements are missing, critical or non-critical.

Supplier Sourcing. The standard process steps for supplier sourcing and management are the basis for working with high technology suppliers as well. The following areas require expanded attention.

Evaluation - The goal is to understand the supplier's technical capability that supports customer needs. The buyer can use the expanded diagram to assist in organizing and outlining the evaluation plan and communicating its intent and requirements to the supplier. Appropriate technical assistance is needed to specify requirements and evaluate supplier capabilities. The buyer provides added-value by efficient use of this limited resource.

Qualification - This step focuses on the detailed testing and assessment of product and process to determine if they will meet requirements. The buyer should be aware of two types of qualification studies: product qualification, relating to tests on the specific product and technology qualification, for determining the technology limits. Suppliers who perform technology qualifications, in addition to product qualifications, have a demonstrated commitment to provide the very best technical products. The buyer can contribute significantly by managing the supplier's effort to provide engineering with the appropriate data on time.

Business Awards - It is critical to review the evaluation, qualification and capability assessment data before awarding business to a high technology supplier. Competent technical judgments, based on appropriate information, can save a company from many problems disguised by a low price. The buyer can facilitate this by becoming sensitive to the type of information these judgments require and insuring that it's available when needed.

Performance Measurement - A report card process showing the supplier's performance against the major technical considerations is the surest way to gain attention to problems. If conducted with fairness and objectivity, it's of great value to both parties. Used periodically, with easily determined measurements, a report card can leverage the buyer's efforts in managing the supplier. Most suppliers welcome frequent and constructive evaluation of their performance.

Special Focus Capabilities. The following capabilities are important in choosing a supplier for your high technology purchases.

Problem Management - The time to find out how a supplier will respond to a serious problem is before the problem occurs. The process ought to contain the following elements:

  • Awareness - How is awareness of technical problems obtained and disseminated to concerned parties?
  • Containment - How does the supplier analyze and isolate the problem? How does the supplier identify and resolve suspect product?
  • Corrective Action and Verification - How does the supplier develop, qualify and verify a potential fix?
  • Prevention - How does the supplier insure the problem is not repeated?
  • Coordination - How does the supplier maintain focus on problem resolution efforts, communicate status and develop recovery plans?

Continuous Improvement - A comprehensive, well-developed program of continuous improvement is a sure mark of a supplier who intends to be competitive. This bears significantly on cost, schedule and quantity in addition to the continued viability of the technology. These programs apply in any area, are easy to monitor and benefit buyer and supplier.

Product/Process Changes - The supplier may change the process for any number of valid technical and cost reasons. Good suppliers go to great lengths to introduce changes in a controlled manner. Even the best of them, however, occasionally fail to do so. The buyer needs to insist on a formal policy of change introduction, including qualification, documentation and verification. Sharing in the change benefits, especially cost reductions, is a reasonable additional requirement.

Defect Analysis - The supplier should be required to analyze every new defect that occurs to determine root cause and corrective action. Top suppliers do this regularly. The buyer must be vigilant to insure the work is completed promptly and actions are taken to fix the problem.

Technical Assistance - What can you count on from your supplier beyond direct product support? Are the supplier's R&D personnel available for expert advice? Does the supplier assist the buyer's team in planning for future developments? How about joint teams on improvement efforts? Any opportunities for business collaboration?

Customer Requirements Rationale. Buyers sometimes have difficulty with customers who state requirements that are very demanding. Since a buyer normally is in the best position to know what the industry is supplying, a constructive challenge to the requirement can provide a valuable service to the company. Left unquestioned, a demanding requirement can cost a great deal and set up conditions for both technical and delivery problems. If the rationale is sound the buyer will be much better prepared in motivating the supplier, anticipating problems and preparing a thorough cost analysis.

Risk Management. As technology complexity increases while technical support decreases, there is likely to be more risk in the technology purchasing process. As such, it's useful to treat the problem as one of managing risk effectively and developing strategies to do so.

The type of risks which occur in technology purchasing are generally uninsurable because of lack of data and predictability. Companies have the alternatives of accepting the risk or self-insuring. In either case, they invariably consider how to protect against such an event occurring in the first place. This is the job of a risk manager.

Risk Management Strategy - The key questions to ask in developing such a strategy are:

  • Where is the item used?
  • What are the major things that can go wrong?
  • How often will they occur?
  • What's the potential impact of each occurrence?
  • What's the minimum protection I need?
  • What's the best way to obtain it?

The objective in answering these questions is, to determine if the company's resources are adequate and properly aligned, to contain risks to an affordable level.

Buyer as Risk Manager - In the case of a technology purchase, the buyer is in a position to make a real contribution to a company's risk management strategy. Given knowledge of the company's requirements, the supplier's capabilities, the intended usage and the potential problems, the buyer can take a leading role in helping to answer the above questions. This information can be used to determine if the risks are manageable or require additional resources.

One possible approach to take is to compile an ABC Analysis of the potential things that can go wrong in using an item and assigning a relative measure of the associated impact. Look critically at the vital few failure modes that have the major loss potential. Then with engineering, examine carefully how your current specifications, qualification techniques, technical support, inspections, supplier process monitors etc. are able to protect against these occurrences. Prepare the familiar Pareto charts to highlight the exposures and recommend the appropriate level of resources to eliminate or reduce them.

Summary. Managing high technology suppliers is a difficult undertaking for buyers with limited technical support. This paper outlined several initiatives to assist the buyer:

  1. increase technology perspective to enable more effective and efficient utilization of the available technical support
  2. enhance supplier sourcing in critical areas to improve selection of the most capable suppliers
  3. require suppliers to demonstrate special competence in technology management processes
  4. challenge technical requirements to insure competitive advantage at competitive cost
  5. use risk management concepts to articulate and quantify risk/resource tradeoffs

Proper use of all these techniques will increase the buyer's leverage in an environment of limited technical support and lead to a successful technology purchasing program.

REFERENCES

Dobler, Donald W., David N. Burt, and Lamar Lee, Jr. Purchasing and Materials Management, 5th ed. New York: McGraw Hill, 1990

DeMott, J. S., "Think Like a Risk Manager," Nation's Business, June 1995, 30 - 33

Zweig, Phillip L., et al. "Managing Risk," Business Week, October 31, 1994, 86 - 96


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