Evaluating supplier performance can be a difficult task for electronics manufacturing services (EMS) providers because of the sheer number of suppliers they need to use.
EMS providers are often required to use the suppliers on OEM customers’ approved vendor lists (AVLs). Many small to medium-size EMS providers may have several dozen customers, while a large EMS provider may have several hundred -- and each customer often has its own unique suppliers.
As a result, most EMS providers have several thousand suppliers, and it is impossible for them to evaluate every supplier. “We have thousands of suppliers, so what we do is take our top 20 suppliers and scorecard them annually on product quality, on-time delivery, service and support, and pricing competitiveness,” says Steve Brown, vice president, quality and engineering for EMS provider SMTC Corporation, Markham, Ontario.
SMTC had $296 million in annual sales in 2012. It builds printed-circuit boards and systems for industrial, computer, communications, consumer and medical OEMs.
“We are a continuously improving company, and we expect the same from our supply base,” says Steve Brown, vice president, quality and engineering, SMTC Corporation.Each evaluation criteria is weighted equally, and the highest total score a supplier can get is 100, he explains. SMTC’s best suppliers will achieve scores in the high 80s to low 90s range, says Brown. Suppliers that get scores of 65 or below are often put on probation and will lose SMTC business if they don't improve.
Quality targets reset
For product quality SMTC resets parts per million defect levels for the commodities it purchases each year. The defect level for power supplies might be something like 3,000 parts per million (ppm), but a chip capacitor would be about 3-5 ppm," says Brown.
He says a supplier that is making a sheet metal or plastics or printed-wiring boards would not have the same ppm target as a chip capacitor supplier.
Quality targets are reset each year by commodity. “We are a continuously improving company, and we expect the same from our supply base. Just performing the same way year after year is not good enough," says Brown.
With delivery, SMTC allows suppliers to be a day or two early or late with shipments, depending on the commodity. “Our customers hold us to a delivery window, and we hold our suppliers to a delivery window, too,” says Brown.
Suppliers are also rated on services and support. “Flexibility would fall under service and support," he says. Flexibility is important because “when you're in the EMS business, you get upsides and downsides” in demand, and SMTC need suppliers that can support those changes in demand.
Price competitiveness is also important, but providing the lowest priced part does not guarantee a high score. SMTC wants quality components and materials from suppliers and a low-cost. “It's hard to get high quality from the lowest cost supplier, but it's not as hard to get high quality from a low-cost supplier,” he says.
Understand the problem
The results of the annual evaluation are shared with the supplier “so they understand where they are from an operational performance perspective. If they have a quality issue, we want to make sure that they understand the issue and that it needs to be resolved," says Brown.
SMTC will also issue scorecards to 5-15 other suppliers each year that “are not performing up to expectations,” he says. "We go through the scorecard process with them. The idea here is to improve the performance of those suppliers that are doing well.”
Suppliers are given a chance to improve their performance and scores. If they don't, they will lose business. “If someone is not performing, then down the road they just are not going to get business anymore. It’s that simple," says Brown.
Brown continues, “As long as a supplier recognizes its errors and is willing to correct them, then we will work with them.”
Suppliers that receive high scores on their annual evaluations are not necessarily guaranteed more business from SMTC, "but have the best chance of winning more business," he says. “Those that do well in quality and other areas have a lot more opportunity to get more of the pie,” he concludes.