Supplier or external providers of products and supplier are an integral part of a business model. A supplier is a key stakeholder in a firm and shares significant responsibility for business operations and service delivery. A supplier is a business or an individual who provides other business with goods or services. It is crucial for a business to have a good relationship with their suppliers because of price, quality of product or service provided, lead time, trade credit and loyalty.
Over the last decade, there has been increasing trend in business outsourcing to external providers. Deloitte’s 2016 Global outsourcing survey showed that top three reasons why a company outsource are cost-cutting, enable focus on core business and solve capacity issue. Failure to manage and control your supplier can pose a serious risk to the business and its ability to deliver products and service.
If your business has an established and certified management system against ISO 9001:2015 Quality management system, then it is a requirement of the standard your business to have a system or process in place to manage and control suppliers. Refer Clause 8.4 Control of externally provided processes, products and service – ISO 9001:2015
A supplier can be either an external provider of:
|MaterialsProducts, Components, parts||Customer supportInspectionRepair and maintenance|
The standard requires the organisation to determine and apply criteria for evaluation, selection, monitoring of performance and re-evaluation of external providers. It also mandates that business have adequate documented information about these activities and any action that arises from the evaluation.
How to control and manage external service provider?
The following process provides a fundamental framework on how to manage your suppliers:
Selection of supplier
The first step is the selection of an appropriate supplier. Before you start for exploring and hunt for suppliers, it is essential to determine and understand your business context and your business requirements (requirements of the product, customer requirements, legal and other requirements). You should consider the following factors in selecting a supplier.
Your business requirement such as what (products, materials or services), how, when and where?
- Ability of the supplier to meet the requirements of products and services also the business requirements
- Supplier’s compliance with all applicable legal and statutory requirement
- Competence and creditability of the supplier
- Industry knowledge and expertise of the supplier
- Quality management systems
- Business continuity risks in engaging with the supplier
- Warranty claims and process of recall or defect products
- Price and location of the supplier
- Trade history and licenses of the supplier
Evaluation of supplier
In most cases, in the market, you will be able to find many external providers that can match your criteria and meet your demand. You need to evaluate your supplier based on the above-discussed criteria. The purchasing management should work closely with other functional departments in assessing the supplier. Ranking or rating can be provided as a result of evaluation of supplier so that it is easy to approve the supplier. It is recommended the senior management be involved in the evaluation of supplier, and adequate risk assessment is carried. Records of this evaluation should be maintained as required by the ISO 9001:2015 standard.
Approval of supplier
Based on the results of the evaluation, the senior management should provide a recommendation to the top management who should approve the supplier. In some cases, based on the dollar value involved in the transaction, even senior management can be authorised to approve supplier. Most organisation document this approval through a formal contract with expected deliverables and scope.
After you approve and start working with the external provider, it is vital that you have a process in place to regularly monitor their performance and manage any issues that arise. Analysing and evaluating the performance of external providers is a requirement of ISO 9001:2015 standard (refer – Clause 9.1.3 (f)). The business has to establish criteria to monitor performance, and the criteria are recommended to be aligned with the quality objectives of the firm. Some example of such criteria are delivery on time, response time, meeting the service level agreements, compliance with legal requirements, defect or recall items, rework and wrong delivery. The performance of external providers should be discussed in the management review meeting, and results of performance evaluation should be maintained.
In the event of non-conformance, the organisation should identify the root cause and take appropriate corrective action. Any supplier issues that are reported should also be discussed in the management review.
Re-evaluation of supplier
Based on the performance of the supplier you need to re-evaluate your supplier on a regular basis (usually recommended once in two years). Based on the result of re-evaluation the supplier should be approved to continue engagement. Re-evaluation of suppliers also provides you with an opportunity to identify areas of improvement and talk to the supplier on how you can support them (where possible). The fundamental concept of ISO standard is about mutual and beneficial relationship, and hence business should always encourage and support their supplier to establish a win-win situation.