How to Determine Critical Suppliers (vs. Non-critical Suppliers) Based on API Specification Q1 9th Edition or API Specification Q2

The topic of supply chain and critical suppliers is one of my favorites, and Mireaux Management Solutions has always preached the concept of grading suppliers prior to reevaluation. Even when ISO 9001 never called for differentiation of suppliers, we always advised our Clients to distinguish the critical few versus the trivial many when evaluating or reevaluating suppliers, with the main goal of making this exercise meaningful and value added. But how can one differentiate them?

It’s all in the main process map

We all know that adopting the process approach is key to a good management system. In fact, if you read my article Do You Feel Like Your Company is Acting Like a Chicken Without a Head? Find Out What Good Process Mapping Can Do for You!, you will learn that I compare a company’s main process map to the blueprint for a building’s foundation: Without a good plan, no matter how fancy the house is, it will either not stand or it will eventually crumble. So we’ll assume you have done your homework and have a good process map. If that is the case, you should have what you need in order to separate your critical suppliers from those that are non-critical. But wait, what is a “good” process map? You’ll know if your company has a good process map if it exhibits the following traits:

1. It’s readable – You read that right. If your process map has arrows going in every direction or looks like a hieroglyph, then you certainly still have some work to do.
2. Easily recognize inputs and desired outputs – This will help to know what the right direction of the activities are.
3. Distinguish Core versus Support processes: This is critical because we understand that the core is what makes the company money.

Here is a very simple representation of a Main Process Map for a company’s core processes. Let’s pretend this company does machining and welding:

So now that we have a good representation of a core main Process Map, then we can begin to distinguish critical versus non-critical suppliers.

Review the process map and identify critical processes

Stand in front of your Process Map, review it and with the help of your management team if necessary. Circle all the processes that you considered absolutely critical to delivering top-notch quality products or services.

Do not fall into the trap of thinking everything is important, ask yourself these questions:

1. If I had to do without this process, could I still deliver a good product or service?
2. If this process became deteriorated or degraded, could I still deliver a good product or service?

Using the same simple Process Map from above, look at it, and ask yourself: what could I absolutely not live without?

In this sample case, we came up with 3 critical processes:

1. Inspection
2. Materials Planning
3. Warehouse and Shipping

Review each critical process and identify critical suppliers:

Now that we have identified our critical processes, we can review each one to see if there is a vendor involved in those processes that we deem critical to our goal. Once again, not every vendor will be critical, even if the process we’re reviewing is. We evaluate vendors by going through the same two questions, but with a twist:

1. If I had to do without this vendor, could I still deliver a good product or output from this process?
2. If this vendor disappeared or degraded, could I still deliver a good product or output from this process?

In our case, let’s review one by one:

1. Inspection
   Say we use NDE Labs and X-ray labs. We would agree that without those vendors, we could pretty much not function in this department, therefore they are critical. And as a bonus, for any inspection that we do internally, we use instruments calibrated by a lab. In this case, we also believe this lab is critical because if our instruments are reading inaccurately, we could make serious mistakes, so the verdict is:

1. Critical Vendor 1: NDE Labs
2. Critical Vendor 2: X-Ray Labs
3. Critical Vendor 3: Calibration Lab

• Materials Planning
  In our sample company, we do not use any vendor to assist us with materials planning, except our good old Buyer Planner Jimmy. However, what Jimmy buys is critical: our raw materials! Our metal pipes and welding materials are indispensable to our operations. Therefore we will make these two products critical and thus the vendors who supply them:
  1. Critical Vendor 4: Metal Supplier
  2. Critical Vendor 5: Welding supplier
• Warehouse and Shipping
  In this case we use a vendor for packaging material, but we do not consider that critical because we can always improvise packaging material. However, the trucking companies are definitely key in ensuring the product reaches the customer. Local couriers are not critical because there are so many and we have our own truck.
  1. Critical Vendor 6: Trucking companies

Could there be more critical suppliers?

So based on our simple exercise, we were able to identify 6 Critical Vendors. We have grouped them so that is easy to design our entire evaluation and reevaluation program later on. These are the final four groups, keep in mind also we are talking about vendors in plural, so anyone that fits in the category is considered critical, not just one vendor out of the pack:

1. NDE, X-Ray and Calibration Labs
2. Metal Suppliers
3. Welding Suppliers
4. Trucking Companies

And remember that there is no real difference between Vendor and Supplier. To find out more about that, read our blog Effective Evaluation and Reevaluation of Suppliers part 1.

So could there be more critical suppliers? Of course, you can always dig a bit deeper, review your support processes (not just the core processes as we did) and perhaps find out if there are other areas that could make or break your products or services. If that’s the case, now you know what to ask in order to truly find out if the Vendor is critical. Once you have decided who is critical and who is not, you can continue to design your supply chain program as per the API requirements.