Strategic Purchasing

Rating suppliers gets harder

Evaluating suppliers used to be a lot easier for electronics buyers.

Traditionally, buyers would rate and rank suppliers on how well they reduced cost, improved quality, delivered parts on-time and developed new products that buyers’ companies needed. Suppliers that received the highest scores would keep an OEM’s business and be considered for new business.

Such supplier evaluation criteria is still crucial, but buyers today are also taking a close look at other issues, including a supplier’s ability to reduce supply chain risk and to comply with the electronic industry’s social responsibility code of conduct. The code addresses treatment of workers, employees’ working and on-site living conditions, wages, hours, compliance to environmental laws and ethics issues.

After all, no buyer wants to read a news story about how a key supplier has been accused of using child labor or having unsafe working conditions. Adherence to the code of conduct is being factored into supplier performance evaluations for many electronics OEMs.

For example, at IBM corporate social responsibility (CSR) is becoming embedded into supplier performance ratings “along with cost, quality, delivery, technology, relationship, etc.” said John Gabriel, manager, supply chain social responsibility at IBM. “It has become another facet of the total sourcing equation.”

Alcatel-Lucent recently revamped its supplier scorecard, and corporate social responsibility is now an “active part of our supplier scorecard," said DeAnn Hargis, managing director, global sustainability and quality–procurement at Alcatel-Lucent. Suppliers are evaluated and given a scorecard based on CSR requirements.

“It is as a standalone scorecard dedicated to corporate responsibility,” said Hargis. The score is part of the suppliers’ overall performance rating. She added that suppliers started to take CSR seriously “once we fully communicated our commitment to CSR to suppliers and suppliers’ assessment CSR scores were showing up in scorecards.”

At Texas Instruments, adherence to TI’s code of conduct requirements by suppliers is an important part of the “matrix of value” that TI expects from suppliers said David Reid, TI’s ethics director.

If a supplier does not meet TI’s expectations concerning CSR, the supplier could lose future business with TI, he said.

Besides social responsibility, risk management is a key issue for buyers evaluating supplier performance, especially after the devastating earthquake and tsunami in Japan and the flooding in Thailand in 2011 that disrupted the electronics supply chain.

As a result, more buyers are evaluating suppliers’ risk management efforts, including their ability to keep delivering product in the event of catastrophe. Suppliers get high marks if they have manufacturing in multiple regions of the world rather than just one centralized location. Buyers also are looking at whether key suppliers are in a floodplain or near an earthquake fault line.

Evaluating suppliers concerning CSR issues and their efforts to reduce risk has become more important because of the growth of outsourcing. While a company can outsource manufacturing of its products, it cannot pass the buck on its responsibility to manage risk or its responsibility to assure customers its products are built in a socially responsible manner.

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