Achieving Zero Rework through Effective Supplier Quality Practices

RT-308 Topic Summary
RT 308

Overview

The quality of materials and equipment supplied to a capital project directly affects the ability of the project team to complete it on time and on budget. The fact that so many items are custom, one-of-a-kind, or made of rare materials makes supplier quality particularly important in the construction of capital projects. RT-308, Achieving Zero Rework through Effective Supplier Quality Practices, worked to find the most effective processes and practices for ensuring that project materials and equipment are produced, manufactured, or fabricated in strict accordance with all applicable specifications and that, once delivered to the project site, they do not require any rework.

Based on its Phase I findings, RT-308 recommends that companies consistently use the practices presented in IR308-2, Achieving Zero Rework through Effective Supplier Quality Practices, to manage supplier quality. The team further encourages readers to utilize the decision-support tool also presented in that resource, to project the cost of non-quality and to support supplier selection.

Supplier selection and evaluation is an important component of the procurement phase of a project. Previous research has indicated that suppliers who are constantly evaluated and receive feedback about their performance tend to perform better and contribute to the financial success of organizations. During its Phase II research RT-308, identified a set of nine criteria to evaluate suppliers and serve as a proxy to define suppliers’ fabrication capability (Pfab). The team discovered that characteristics of prior performance were not commonly used to evaluate suppliers before new purchase orders (POs) were awarded, and this practice should be revisited by the industry. The team found that suppliers with low evaluations tend to display lower levels of quality as measured based on the number of non-conformances found during fabrication.

Furthermore, companies are not collecting and/or not properly keeping important data about supplier evaluation that can be used over the long run for predictive analyses about supplier performance. Therefore in order to more systematically collect and evaluate supplier performance data, the team built a beta version of the Supply Chain Risk Profiler (SCRP) tool incorporating the nine criteria used for supplier evaluations to estimate values for Pfab and Pinsp for a particular supplier.

The analysis of the PO instrument revealed that a number of practices are correlated with an increase in the budgeted inspection hours for a particular PO. It also became apparent that the industry “under-plans” (or is conservative on) the inspection levels assigned to POs, and that might be related to a lack of understanding of the factors to define suppliers’ Pfab and Pinsp capabilities investigated in this project. Moreover, data suggest that additional non-conformances (NCs) are found when a supplier’s facility is located in a developing country, inspection hours budgeted were higher when suppliers had low ratings in evaluations or were not evaluated, and more NCs are found in the shop when supplier ratings are low.

Key Findings and Implementation Tools

1 : Impacts on Product Quality and Inspection Hours

During its Phase II research, RT-308 discovered the following impacts of supplier quality on product quality and inspection hours:

  • More NCs are found when the supplier’s facility is located in a developing country.
  • More inspection hours are budgeted and more NCs are found at the shop when supplier evaluation ratings are low. Additional money is spent to assure quality when these suppliers are selected.
  • Subcontracting, even for portions of a commodity like shop-fabricated piping, results in budgeted more hours of inspection.
  • More budgeted inspection hours are used when the supplier is NOT evaluated prior to award.
Reference: (RR308-12)

2 : A Method to Calculate the Total Landed Cost, Including the Cost of Non-quality Associated with Different Suppliers

RT-308’s Phase II research defined a method for calculating the Total Landed Cost including the cost of non-quality (TLC+NQ) associated with different suppliers:

  • Companies need to keep track of the number of NCs for materials in different purchase orders provided by suppliers. The number of NCs can be used as a proxy for quality
  • Supplier ratings are a proxy for suppliers’ fabrication capabilities. The need to evaluate suppliers is highlighted in the literature, and RT-308’s research reinforces the importance to evaluate suppliers, store this information, and use it to support predictive analytics.
  • A user needs the following additional information to calculate the Total Landed Cost including the cost of non-quality (TLC+NQ):
    • cost of quality
    • PO cost
    • criticality level of the PO
    • existence of sub-suppliers
    • corrective and preventive action requests
Reference: (IR308-3)

3 : Supply Chain Risk Profiler Tool

RT-308’s Phase II researchers developed a method of applying indicators and reports commonly used in the industry to develop calculations (e.g., corrective action reports, preventive action reports, and non-conformance reports), as well as repurposing the nine criteria used for supplier evaluations to estimate values for Pfab and Pinsp for a particular supplier. The team tested its resulting Supply Chain Risk Profiler tool mostly by using data collected from the PO instrument and conferring with subject matter experts within the CII community.

The team also developed a glossary of terms and definitions related to the Supply Chain Risk Profiler tool to expand efforts to define a common language that could be used in the process of selecting and evaluating suppliers, and during the supplier quality surveillance (SQS) function:

  • Cost of Non-quality (CostNQ)
  • Total Landed Cost including the Cost of Non-quality (TLC+NQ)
  • Number of non-conformances – used as a proxy for quality
  • Pfab – fabrication capability, calculated using supplier ratings
  • Pinsp – inspection capability, calculated using quality-related data (number of non-conformances, corrective action reports, and preventive action reports)
Reference: (RS308-1)
rt-308

Key Performance Indicators

Improved quality

Research Publications

Achieving Zero Rework through Effective Supplier Evaluation and Selection - IR308-3

Publication Date: 01/2019 Type: Implementation Resource Pages: 54 Status: Tool

Achieving Zero Rework through Effective Supplier Quality Practices, Phase II - RR308-12

Publication Date: 08/2017 Type: Research Report Pages: 44 Status: Reference

Achieving Zero Rework through Effective Supplier Quality Practices - RR308-11

Publication Date: 09/2015 Type: Research Report Pages: 266 Status: Reference

Achieving Zero Rework through Effective Supplier Quality Practices - IR308-2

Publication Date: 10/2014 Type: Implementation Resource Pages: 37 Status: Tool

Achieving Zero Rework through Effective Supplier Quality Practices - RS308-1

Publication Date: 09/2014 Type: Research Summary Pages: 21 Status: Supporting Product


Presentations from CII Events

Plenary Session - Don’t Let Your Project Sink: Achieving Zero Rework through Effective Supplier Quality Practices

Publication Date: 07/2014 Presenter: Tricia Thibodeaux Number of Slides: 12 Event Code: AC14

Implementation Session - Don’t Let Your Project Sink: Achieving Zero Rework through Effective Supplier Quality Practices

Publication Date: 07/2014 Presenter: Buck Blum Number of Slides: 47 Event Code: AC14

Session - Don't Let Your Project Sink: Achieving Zero Rework through Effective Supplier Quality Practices

Publication Date: Presenter: Number of Slides: 61 Event Code: PIW315


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