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Quality knowledge base - article QA-0047
Updated on 05-01-2017

Supplier Quality Management (SQM)

Supplier Quality Management (SQM) is an extensive approach and strategy, using a broad array of activities, quality expertise and tool-set to ensure that the suppliers of a particular company deliver products and services fitting to the customer’s expectations. SQM is not industry specific, it is widely applied in many economic sectors, such as automotive, construction, healthcare, IT, financial services, and many others.
SQM is crucial, as every economic entity has suppliers, and without supplier management the long-term results can be painful. On top of that, the quality of purchased goods highly influence the quality of the finished product. The ISO 9001 quality standard briefly notes, that suppliers must be evaluated, selected and re-evaluated, while the automotive specific IATF 16949 quality management system standard - and its predecessor ISO/TS 16949 specification - even goes further with the requirement of supplier quality management system development and supplier monitoring.
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Key Features
Managing the quality performance of our suppliers is one of the most difficult sections of quality management, as influencing another companies can be more problematic, than taking effect on our own organization. SQM is a much diversified field with many obstacles, however it has a wide literature, containing best practices and focus points.
The first question is, what we need to do to select, deal with and cooperate with the best possible suppliers. The first step is to change our attitude and business strategy. Perhaps the answer is very evident, it is still true. Various companies do not invest into a centralized supplier quality management, and without that there is no chance for success. Conducting our own manufacturing environment on the highest level is vain without paying attention to our suppliers. The cooperation with our supplier must be long-term, focused on partnership and trust.
Juran pointed out a totally new approach in his quality handbook, visualizing the differences between traditional and strategic view:
Traditional vs strategic view of the purchasing process
(source: Joseph M. Juran: Juran's Quality Handbook)
Aspect in the purchasing process Traditional view Strategic view
Supplier / buyer relationship Adversarial, competitive, distrusting Cooperative, partnership, based on trust
Length of relationship Short term Long term, infinite
Criteria for quality Conformance to specifications Fitness for use
Quality assurance Inspection upon receipt No incoming inspection necessary
Communication with suppliers Infrequent, formal, focus on purchase orders, contracts, legal issues Frequent, focus on the exchange of plans, ideas and problem solving opportunities
Inventory valuation An asset A liability
Supplier base Many suppliers, managed in aggregate Few suppliers, carefully selected and managed
Interface between suppliers and end users Discouraged Required
Purchasing strategy Manage transactions, troubleshoot Manage processes and relationships
Purchasing business plans Independent of end-user organization business plans Integrated with end-user organization business plans
Geographic coverage of suppliers As required to facilitate leverage As required to facilitate problem solving and continuous improvement
Focus of purchasing decisions Price Total cost of ownership
Key for purchasing's success Ability to negotiate Ability to identify opportunities and collaborate on solutions
But how can we create such a partnership with our suppliers? The answer is not simply having an expert SQM team. Instead, all other influenced fields must be in the game, especially purchasing, engineering & development, manufacturing, finance and business planning. Good supplier performance starts with the selection and contracting phase, focusing on the requirements (what we expect from our supplier). Such as in manufacturing and development, quality must be built into the product, and this is relevant also in case of the purchased parts. The following chart contains major sequences of sourcing and supplier quality management.
Quality Management
Sourcing and supplier quality management (Source:
SQM must have a very active role from the supplier sourcing, and must be in the lead function during cooperation with the supplier. The following table contains the key points of supplier quality management:
Key points of SQM
Key Point / Task SQM Purchasing Project Management / Development Business Planning / Finance / Logistics / Manufacturing
(1) Definition of purchased product quality requirements (driven from internal and end customer’s needs) Active role Lead Active role
(2) Evaluation and assessment of possible suppliers (based on technology, experience of previous projects, historical quality results, risk management, etc.) Active role Lead Active role Involved
(3) Selection of the top supplier based on point 2 Active role Lead Active role Involved
(4) Contracting, building the quality design requirements and expectations into the contract (also quality and warranty terms and requirements) Active role Lead Active role Involved
(5) Involvement of supplier into the product realization process (NPI - New Product Introduction) / Joint quality planning, APQP, etc. Lead Involved Active role
(6) Certification of supplier, validation of conformance (both supplier, and purchased good) Lead Active Role Involved
(7) Cooperation in continuous quality improvement and supplier development Lead Involved
(8) Claim management and supplier monitoring / rating Lead Involved Involved
As we could see in the table, supplier quality management has to closely cooperate with purchasing (procurement), development, manufacturing and other departments of the company. In terms of quality related topics, SQM is the bridge or interface between the supplier and the stakeholders of the customer.
Depending on the company, supplier quality expert are named differently, e.g. Supplier Quality Engineer (SQE), Supplier Quality Developer (SQD), Supplier Technical Assistant (STA), etc. Some companies combine these roles, while some divide it into separated ones. At bigger companies, even the supplier quality engineer and supplier quality developer are separated roles. In the latter case, the SQD is deliberately focusing on the development of the suppliers.
The key roles and responsibilities of supplier quality management:
  • Protecting the company from non-conforming supplied products, with the tools of quality planning, control and improvement.
  • Interface between the supplier and the stakeholders of the customer.
  • Active support of purchasing (supplier assessment, supplier selection, support in contracting).
  • Definition of quality requirements, specifications toward the supplier (together with the development department).
  • Active support of project management during the product- and process development phases.
  • Continuous cooperation with the supplier.
  • Decision about supplier initial sampling (release, conditional release or rejection of PPAP, EMPB, etc.).
  • Supplier related change management (ECN, ECR).
  • Risk management of suppliers.
  • Interface between supplier and manufacturing in case of production trial runs (that are performed at the customer).
  • Supplier development and quality improvement programs.
  • Supplier monitoring and audits during the series phase (process audits, system audits, incoming inspection, tracking quality metrics).
  • Process owner of claim handling and incident management in case of supplier related defects.
  • Reporting supplier quality information to the management and affected stakeholders.
A typical layout of quality departments in a business organization, including the position of SQM:
Quality Management
The place of supplier quality management (Source:;)
Supplier selection and integration is an extensive framework. The following points well define what the customer should be focusing on to evaluate the preconditions of quality at a given supplier:
  • Performing process and system audits at the supplier (based on industrial standards and specifications, such as VDA 6.3, IATF 16949:2016, AS 9100). Process audits must be frequent also during the cooperation.
  • Checking 3rd party (certification bodies) audit results, certificates.
  • Quality awareness and mindset.
  • Willingness for cooperation and maximum dedication to Zero-defect strategy.
  • Communication and flexibility.
  • High-tech resources (technology and machinery are available to fulfil quality expectations).
  • Manufacturing capability (high OEE, high process capability, outstanding measurement capability, even in case of "bottleneck" processes).
  • Well-trained staff (proven during audits, visits).
  • Reliability in keeping deadlines (first sampling, deliveries, etc.).
  • In-house improvements with real content (best practices, lessons learned, continuous improvement, 6 Sigma, etc.).
  • High knowledge of incident management (emergency plan, high problem solving competence, deep traceability).
  • Infrastructure, compliance with environmental management (e.g. ISO 14001), safety (e.g. OHSAS 18001) standards and governmental regulations.
Of course a higher cost manifests in these points, so top-notch suppliers apply a higher price, however it brings return during the long-term cooperation (see Cost of Quality).
Many of the above mentioned points are included in VDA 2 (Quality Assurance of Suppliers). This automotive standard defines a so called Quality Assurance Agreement (QAA), which is a contract between the supplier and its customer, related to details of quality management and expectations. QAA takes effect as soon as it is signed by both parties (after the supplier is selected, and the quality management points are agreed).
There are many key quality (or quality related) metrics that are often used by SQM, especially in the automotive or aerospace industry. Usually these metrics are combined into one or a few scores, giving a higher understandability:
  • 0km and field claims originated from supplier defects in Part per million (PPM).
  • Number of supplier incidents (systematic defects).
  • Number and weight of service campaigns or safety recalls due to supplier failures.
  • Cost of failures, incidents.
  • Process / System audit ratings.
  • Supplier PDCA executions and delays.
  • On-time delivery scores are usually tracked by logistics.
Example: the company tracks various supplier quality metrics, and combines them into one major KPI that represents the monthly performance of the given supplier.
Key points of SQM
KPI Features KPI 1 KPI 2 KPI 3 KPI 4
Metric Number of 0km defects (ppm) Number of line incidents (piece) Number of service campaigns over 50 000 USD (piece) Supplier process audit result
Requirements 0 pmm (score 10)
0-30 ppm (score 8)
30-100 ppm (score 6)
over 100 ppm (score 0)
0 pc (score 10)
1 pc (score 5)
over 1 pc (score 0)
0 pc (score 10)
1 pc (score 2)
over 1 pc (score 0)
over 90% (score 10)
80% – 90% (score 6)
under 80% (score 0)
Actual level 32 ppm 0 0 88%
Metric score based on actual level 8 10 10 6
Weight 20% 20% 40% 20%
Overall score (8 * 0.2) + (10 * 0.2) + (10 * 0.4) + (6 * 0.2) = 8.8
Based on general roles of supplier quality management, it has a systematic frame of tools and methods, many of them are overlapping other quality fields.
As a concrete example, the knowledge of the following tools and methods is essential for a supplier engineer or supplier quality developer, to be successful in the automotive industry:
Sourcing of supplier
  • Supplier Selection process or the given company the engineer is working for.
  • Quality metrics.
  • Risk management (first estimations about supplier).
  • Industrial standards and specifications (e.g. ISO 9001, ISO/TS 16949).
Integration of supplier
Maintenance of supplier performance
  • Claim management (8D report with knowledge of root cause analysis, action implementation and verification, etc.).
  • Incident Management.
  • Layered Process Audits.
  • Lessons Learned.
  • Controlled Shipping Level (CSL).
  • Quality Awards and Prizes.
Source:; Joseph M. Juran: Juran's Quality Handbook
Create your company’s supplier manual, than contains quality requirements. Supplier specific details about quality expectations will be contained in the contract. Nowadays not only multinational companies, but more and more SMEs (Small and Medium Enterprises) create their own supplier manual.
Integrating quality expectations and metrics into the contract is as crucial as the financials or operational requirements. On top of that quality affects financials and operations on the long-term!
Establish your supplier scoring system (metrics, scorecard, and summarizing dashboard) that is not only transparent, but also reflects the performance of the supplier, based on your needs. Your (and your customer’s) main requirements must be reflected in the scoring, e.g. if you are focusing on the number of incidents, overweight the related metric, which may honour or punish the supplier, depending on its performance. Of course these conditions must be included in the contracting, and the supplier must agree to these special terms.
Honour the high performance of your best suppliers. Make awards for them which expresses your satisfaction, and also can be motivating for them (and even for those ones that were not performing on the highest level).
  • Supplier Quality Management (SQM) is an extensive approach and strategy, using a broad array of activities, quality expertise and tool-set to ensure that the suppliers of a particular company deliver products and services fitting to the customer’s expectations.
  • SQM is crucial, as the quality of supplied parts highly affect the quality of your finished goods.
  • Proper and successful supplier management requires strategic view and long-term partnership with the suppliers.
  • SQM is the interface between the supplier and the stakeholders of the customer, protecting the company from non-conform supplied products, with the tools of quality planning, control and improvement.
  • The most frequent roles in supplier quality are Supplier Quality Engineer (SQE) and Supplier Quality Developer (SQD).
  • SQM starts already at the evaluation of possible supplier, supplier selection, and contracting. The contract has to contain the quality expectations of the company.
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