1. Explain the supplier evaluation method used by APC. Why was it important for supply management to give feedback to suppliers?

2. What is causing Branco's performance to decline?

3. What are the issues with switching to a new supplier?

4. How does Branco's performance affect APC's production operations?

5. What do you recommend that Maggie does about the situation and why?

Case 13-1 APC Europe by pre On Thursday, October 5, Maggie Agnelli, the packag- ing purchasing manager for APC's European division in Utrecht, the Netherlands, wondered what she should say in the next day's meeting with the plant manager of Branco, a custom packaging supplier. In the last three quarters, Branco's quality performance rating had shown a steady decline. Maggie believed it was essential to get the plant manager's cooperation to avoid future problems. No to APC APC, a diversified international manufacturing organization headquartered in the United States, offered a wide range of products to both industrial and consumer markets. Its Utrecht plant employed approximately 400 people. European sales were 150 million a year and the company had a long- standing track record of successful business performance. Each division operated within a set of corporate guide- lines and was responsible for its own financial performance. QUALITY CONTROL Contributing to the success of APC was a commitment to strict quality standards in purchasing. Coordination between each supplier and APC's plant was crucial to avoid produc- tion slowdowns. Contact was maintained directly between plant personnel and sales representatives. When a problem in the manufacturing plant arose due to the supplier's product, the appropriate sales representative was immediately noti- fied by email via a standard form called "Nonconformance 386 Purchasing and Supply Management EXHIBIT 1 Supplier Performance Scoring Criteria (Continued) Continuous Improvement Item Grade Criteria Corrective CA response and implementation within 30 days. Action CA response and implementation within 31-60 days. CA response within 30 days. CA response within 31-60 days. No response within 60 days. Cost, Lead Time, Major reduction in unit cost, lead time, and lot size. Lot Size Reduction Minor reduction in unit cost, lead time, and lot size. No reduction in unit cost, lead time, and lot size. and totaled. A total performance rating for the quarter was derived by summing categories (see Exhibit 2 for Branco's scoring sheet). The supplier's maximum pos- sible score was 4. An overall rating of 3 was considered the minimum acceptable performance rating. BRANCO a result, Branco's performance rating had dropped further each quarter. Finally, in the most recent quarter, Branco's rating dropped below the minimum acceptable standard of 3 (see Exhibits 2 and 3). When Branco's sales repre- sentative, Hil Damsma, received the rating, she had called Maggie immediately, and she was just as concerned. They agreed that a meeting was necessary right away, and that APC's production manager, Eric Koendeeile, and Branco's plant manager, Ruael Mooij, should also attend. They agreed to meet at APC on Friday, October 6, at 2 pm. Branco, located near Amsterdam, was the supplier of packing cartons for APC's custom products. These packing Maggie had been watching Branco's performance ratings for the last three quarters with some concern. Although the problems incurred each quarter were rectified by Branco, the next quarter brought even more problems. As EXHIBIT 2 Branco Performance Rating July 1-September 30 Time Score Weight Category Score Weight Total Score Category Quality Item Description Rejected and nonconforming Process capability, data/samples 3 0.65 0.35 1.92 0.70 0.50 1.33 Delivery Quantity Timely deliveries Paperwork Shipment condition 0.30 0.30 0.20 0.20 2.65 1.20 1.20 0.80 0.80 4.00 0.30 1.20 Corrective action response Cost, lead time, lot size reduction 0.50 0.50 1.50 0.00 improvement 1.50 0.20 0.30 2.83 TOTAL Chapter 13 Supplier Evaluation and Supplier Relationships 385 EXHIBIT 1 Supplier Performance Scoring Criteria Quality Item Grade Criteria Rejected and Nonconforming No rejected or nonconforming shipments Up to 5% of shipments nonconforming >5-10% of shipments nonconforming >10-20% of shipments nonconforming > 20% of shipments nonconforming Process Capability, Data/Samples Less than 1% outside control limits and samples/data received for all shipments Up to 5% outside limits and 90-99% of shipments have samples/data. 5-10% outside limits and 80-90% of shipments have samples/data. 10-20% outside limits and 70-80% of shipments have samples/data. More than 20% outside limits and 5-10% shipments incorrect (within tolerance) >10-20% shipments incorrect (within tolerance). >20% shipments incorrect (within tolerance). Time All shipments on time (within tolerance). Up to 5% of shipments outside tolerance. >5-10% of shipments outside tolerance. >10-20% of shipments outside tolerance. > 20% of shipments outside tolerance. Paperwork No missing lot numbers, packing lists, invoice errors, or other required documentation Up to 5% of shipments have errors. >5-10% of shipments have errors. > 10-20% of shipments have errors. > 20% of shipments have errors. Shipment Condition All shipments received in expected condition Up to 5% of shipments have damaged pallets, inadequate packaging. or damaged cartons >5-10% of shipments are damaged as above. >10-20% of shipments are damaged as above. >20% of shipments are damaged as above. (Continue 386 Purchasing and Supply Management EXHIBIT 1 Supplier Performance Scoring Criteria (Continued) Continuous Improvement Item Grade Criteria Corrective CA response and implementation within 30 days. Action CA response and implementation within 31-60 days. CA response within 30 days. CA response within 31-60 days. No response within 60 days. Cost, Lead Time, Major reduction in unit cost, lead time, and lot size. Lot Size Reduction Minor reduction in unit cost, lead time, and lot size. No reduction in unit cost, lead time, and lot size. and totaled. A total performance rating for the quarter was derived by summing categories (see Exhibit 2 for Branco's scoring sheet). The supplier's maximum pos- sible score was 4. An overall rating of 3 was considered the minimum acceptable performance rating. BRANCO a result, Branco's performance rating had dropped further each quarter. Finally, in the most recent quarter, Branco's rating dropped below the minimum acceptable standard of 3 (see Exhibits 2 and 3). When Branco's sales repre- sentative, Hil Damsma, received the rating, she had called Maggie immediately, and she was just as concerned. They agreed that a meeting was necessary right away, and that APC's production manager, Eric Koendeeile, and Branco's plant manager, Ruael Mooij, should also attend. They agreed to meet at APC on Friday, October 6, at 2 pm. Branco, located near Amsterdam, was the supplier of packing cartons for APC's custom products. These packing Maggie had been watching Branco's performance ratings for the last three quarters with some concern. Although the problems incurred each quarter were rectified by Branco, the next quarter brought even more problems. As EXHIBIT 2 Branco Performance Rating July 1-September 30 Time Score Weight Category Score Weight Total Score Category Quality Item Description Rejected and nonconforming Process capability, data/samples 3 0.65 0.35 1.92 0.70 0.50 1.33 Delivery Quantity Timely deliveries Paperwork Shipment condition 0.30 0.30 0.20 0.20 2.65 1.20 1.20 0.80 0.80 4.00 0.30 1.20 Corrective action response Cost, lead time, lot size reduction 0.50 0.50 1.50 0.00 improvement 1.50 0.20 0.30 2.83 TOTAL Chapter 13 Supplier Evaluation and Supplier Relationships 387 EXHIBIT 3 Branco's Performance Rating July 1- September 30) Supplier Rating + - Thrget (min) Branco's rating 2 + Q1 Q3 Quarter the customer, the plant continued the run in order to meet customer deadlines. However, the last Branco shipment of defective packing cartons resulted in a 30 percent pro- duction loss for an entire day's (two shifts) production. At full production, the plant ran 2.000 cartons per hour, with three operators at 28 per hour each. cartons were odd sizes and required custom specifications Custom packaging was required for special orders, pro- motion, and unique customer requirements. Many orders involved small lots and specifications changed frequently. As a result, it had been necessary for Branco to custom ize production operations to meet the unique requirements of APC. Branco had become the only supplier of all cus- tom packing cartons to APC (Europe). Therefore, Maggie could not source a custom product from a different supplier easily or quickly. Branco delivered on a daily basis and its yearly sales to APC (Europe) amounted to about 500,000. Custom work required a substantial commitment from both parties. The relationship of trust between APC (Europe) and Branco had taken eight years to solidify. Quality problems were costly for APC (Europe). A number of Branco's orders had included defective car- tons due to overlapping flaps. Nonconformance problems such as this were typically not identified until a produc- tion run had started, and equipment stalls occurred. Pro- duction used a fully automated line process, and a stall at one end resulted in a slow down throughout. Because the defective cartons would not affect the end product to THE MEETING WITH BRANCO THE MEETING MITU BRANCO Over the last few years, Maggie felt things had changed drastically in the industry. At one time, as a purchaser, she might have demanded that the supplier make changes or else." This was no longer the case. Maggie reflected, "In such a tight market, you just don't drop suppliers. Rela- tionships are everything." In the meeting scheduled for the next day. Maggie felt it was essential that she impress upon Hil and Ruacl her desire to continue a strong relationship. Yet she would somehow have to convince Runel that something had to change at his end, without confronting him. Maggie wondered, "What should my agenda be for this meeting? What should I say