Supplier classification and lifecycle

Why classify suppliers

A classification system turns scattered performance data into decisions: who gets new business, who ships straight to stock, who needs a development plan, and who should be replaced. Writing the rules down makes the classification consistent and defensible, and tells suppliers exactly what they must do to move up.

The classes

• Non-approved: not yet assessed. No production orders.
• Conditionally approved: may supply under limits (a trial order, tightened inspection) while specific gaps are closed by a date. Conditional status should always have an end date.
• Approved: meets the requirements: assessment passed, certificate valid, performance at or above the approved threshold.
• Preferred: sustained high performance over several periods and no open corrective actions. First call for new business.
• Certified: preferred performance held long enough, a recent process audit and low PPM, so incoming inspection is reduced or skipped (ship-to-stock). Certification is earned and can be lost.
• Partnership: a certified supplier with a long-term agreement: shared planning, early design involvement, joint improvement. This is a business decision as much as a quality one.
• Disqualified: no new orders; an exit plan is under way. A disqualified supplier comes back only through the full approval process.

How the rules are applied

Each rule caps the class a supplier can hold. A failed audit or a score below the conditional threshold disqualifies. Open major audit findings, an expired certificate, or a score below the approved threshold cap a supplier at conditional. Open SCARs, too few periods at the preferred score, or a score below the preferred threshold cap it at approved. Certified also needs enough periods in a row, PPM at or below the limit, a valid certificate and an audit within the time allowed. Partnership needs an agreement. The supplier's class is the lowest of its caps, and the tool lists the cap that binds, which is what the supplier must fix to move up.

The flow picture shows how many suppliers are in each class now, how many the rules allow, and the promotions and demotions between them. A supply base with many conditional suppliers that never move is a sign the conditional class is being used as a parking place.

Using it well

• Base scores on the supplier scorecard, using the same period for everyone.
• When a certified supplier is demoted, restore normal incoming inspection at once.
• Rules are consistent but not wise. A sole-source strategic supplier that slips to conditional usually needs development, not exit; check its position on the Kraljic matrix.

On the exam

The CSQP asks you to define and develop a supplier classification system with exactly these classes: non-approved, conditionally approved, approved, preferred, certified, partnership and disqualified (I.B.3). It also covers performance monitoring with expected levels, improvement plans and exit strategies (I.B.2), and categorizing suppliers on risk and performance (V.C). The CQPA covers criteria for approving and classifying suppliers and performance measures (IV.D.1, IV.D.2), the CQE supplier qualification, certification and ratings (I.H.1, I.H.2), and the CMDA risk-based classification of suppliers (III.D.4). Expect a scenario where you choose the right class, or the right action when a certified supplier's performance drops.

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