Original Date: 08/07/1995
Revision Date: 01/18/2007
Best Practice : Supplier Rating System
Based on the results of a study made by a team of Procurement and Supplier Surveillance Assurance personnel in July 1994, Lockheed Martin Tactical Aircraft Systems (LMTAS) incorporated changes to its existing supplier rating system. These changes were designed to simplify the system and make it easier for Lockheed’s customers and suppliers to understand the process.
The previous system for supplier rating was based on separate ratings for quality cost, and percent rejections. This data was used to construct a relative rating scale of 1 to 5. The suppliers were forced into a normal distribution such that the top 8% were rated 1, the next 17% rated 2, and so forth. This system did not provide adequate absolute performance information and consequently, caused confusion for the suppliers.
The new system is based on how well the supplier is performing compared with its own abilities. Two basic parameters are used to measure the supplier’s performance, purchase order delivery schedule and quality performance. Purchase order deliveries are tracked and status reports are generated monthly. To remain acceptable, the supplier must maintain a concurrence level of 96% or higher. Quality performance is measured against percent acceptance and cost of quality. Percent acceptance at source inspection must be 98% or higher while Lockheed’s quality cost must be $2500 or below. Suppliers are placed on a Deferred Status if they do not meet these criteria after being notified of deficiencies and fail to carry out satisfactory corrective action. During this time, corrective action is monitored and special approval must be obtained for all purchase order awards on existing or new part numbers. If the supplier fails again to implement satisfactory corrective action, it is placed on Approval Withdrawn Status. The supplier is not used for follow-on procurements, and special approval is required for purchase order awards on all part numbers. The supplier performance data used in determining these parameters is made available to procurement by Supplier Surveillance Assurance, International Surveillance Assurance, Software Quality Assurance, Engineering Data Quality Assurance, and Technical Publication Quality Assurance. The data is based on a moving six-month history and is automatically calculated and reported every quarter.
The Supplier Performance Metric (SPM) is used to incorporate the quality performance parameters into a single unit of measure. The SPM is calculated as the total cost divided by the percent acceptance. Suppliers with a value near 1.0 are rated as excellent and can be considered as candidates for the STAR Program. Values exceeding 1.1 are rated as unsatisfactory and are recommended for placement in the Supplier Performance Evaluation and Review (SPEAR) Program.
The improved system for supplier rating has accomplished LMTAS’ initial goals of simplifying the overall rating system. Additionally, customers and suppliers find it more informative and easier to understand than the previous system.
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