Better Vendor Risk Management Using Automated Non-conformance Reporting

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Manually tracking vendor issues and performance can be difficult. Companies can struggle to keep an eye on dozens if not hundreds of vendors and service providers. If you’re trying to track issues after the fact using spreadsheets and emails, it’s unlikely you know whether the issue was solved, and if so, how. And more importantly, what was the overall impact? Are you storing the data in a way that it can be analyzed?

Automated software solutions can provide an easy and efficient way to measure and monitor progress for vendor-related issues. At Hitachi Solutions, we recently worked with a large global construction company to implement a low-code integrated solution for non-conformance tracking. The solution solves immediate issues in the short-term, and can also be used as part of an overall vendor management program to inform risk and make business decisions in the long term.

It’s a solution that could be used in a wide variety of industries from manufacturing to professional services. It’s all made possible starting with a simple, low-code mobile solution that’s integrated with your ERP platform for full data and vendor visibility from the back office to the field.

Let’s look at how this might work, but first, let’s clarify a few things.

Who is a vendor?

In this article, we’ll use ‘vendor’ to describe any vendor, supplier, or subcontractor who sells a tangible product or a service in the context of a business project. Vendors can provide a small, one-time need for a single project, or can be an ongoing business partner. Some examples of vendors are:

  • A seller in the supply chain of a specific piece of equipment. For example, an aircraft manufacturer might employ a company that makes ball bearings as a vendor.
  • A service organization that provides professional services to a company. For example, you might contract with a janitorial or cleaning service on an ongoing basis.
  • A subcontractor who provides services as part of an overall larger project. For example, an electrical company that provides services to a construction company as part of an overall building project.

What is a non-conformance issue?

Vendor non-conformance issues can be any abnormality or deviation that doesn’t fulfill requirements established by the company. The requirements might be internally defined as part of a contract or vendor or supplier agreement. Or the requirements could be regulations imposed by a state or federal agency for companies in a regulated industry.

Here are a few examples of non-conformance:

  • The parts or quantities you received from a supplier don’t match your order.
  • A process isn’t completed according to defined parameters.
  • A manufactured product doesn’t match your specifications.

In any of these forms, non-conformance increases risks and liabilities for the organization, because it can result in product errors, misconfigurations, malfunctions, or affect the end-user experience. If serious enough, non-conformance can have a far-reaching impact on the final product or project, or trigger unexpected costs to your company.

The non-conformance report

In our solution, the main artifact is the non-conformance report (NCR), which is used to document discrepancies between the actual condition of a product, service or process and the requirements expected by the company. The NCR also is used in determining the resolution with the vendor and for documenting any corrective changes made.

NCRs can be part of a larger vendor performance management system. If you’re working in a regulated industry or on a government contract, NCRs can be used to create a regulatory plan of action to prevent issues from recurring and to assist in future compliance and audits.

Software to streamline NCR use

An effective NCR solution is one that is one that provides the visibility and oversight necessary to identify the root cause of the issue and follow through with corrective/preventive actions.

A web form can capture all details of the non-conformance from any device making it a helpful solution for those working in receiving, on the production floor, or at a construction site. Employees don’t have to remember what happened after the fact or later in the day or week, and remediation can be kicked off immediately. The NCR should include product details, supplier details, action taken, and any relative photos.

Once the discrepancy is entered, a workflow process can kick off a formal communication for follow up which includes the various teams in the business: purchasing, finance, manufacturing, fulfillment, site management, and the vendors themselves. Let’s say you’re working on the construction floor and receive a shipment that doesn’t meet the order standards. The automated process could include ‘red-tagging,’ or printing a tag that flags items for non-use until the non-conformance is remedied. Reporting a non-conformance is crucial, but if someone on the construction floor installs the defective product, the situation becomes even more problematic. The key point is that with automated reporting, the employee simply submits the form and the solution knows what to do.

For subsequent contract planning and analysis, KPIs and dashboards can provide visual insight. For example, vendor risk could be defined by thresholds using ABC ranking, providing additional granularity in ranking, rather than simply using “pass/fail” criteria. Dashboards can also track the number of non-conformities over specified time frames, as well as trend information across multiple departments, sites, or locations.

It is clear how having a simple NCR entry system, supported by workflows to assist the process, can improve the efficiency and effectiveness of dealing with vendor issues and lead to better planning and execution in the future.

Scenarios for improved vendor management using NCRs

Let’s look at some examples and how an automated NCR system might help:

Accounts Payable ClerkPrior to paying a vendor, the AP clerk needs to check for issues with the order or vendor. The clerk can easily check for existing NCRs, or enter an NCR if there is an issue with the vendor’s profile.

Purchasing AgentFor those responsible for purchasing, NCRs can provide a straightforward way to track issues and potential disruptions. Upon PO receipt, agents can capture, follow, and evaluate any existing nonconformances with the vendor.

Site SuperintendentGoods are often received and services are completed on a job site or manufacturing floor. When substandard goods or services are received on site, an NCR can be entered in real-time via tablet or phone, capturing the issue and kicking off remediation.

Project ManagerWhen considering new vendors, suppliers or subcontractors, managers can review existing NCRs for vendors under consideration to gain a firm understanding of those being actively managed and the reasons why. A dashboard could also provide a quick visual rendering of the company’s high, medium, and low risk vendors.

Vendor Relationship ManagerFor those responsible for maintaining positive and productive relationships with vendors, NCRs provide a streamlined method to track existing issues, the remediation, and the current climate between the company and those providing goods and services.

Procurement ManagerWhen selecting vendors a company is going to use, procurement managers can use existing NCRs to gain valuable insight into which vendors have posed a problem in the past, what the problems were and if they were fixed in an acceptable timeframe. Further analysis could help procurement managers understand the actual cost incurred from working with problematic vendors.

Next steps

A formalized, automated NCR reporting process can be a substantial value add to your quality processes and can be used in a wide variety of industries during all project phases. As part of a larger, structured vendor performance management system, an automated NCR process allows you to manage more vendors simultaneously throughout the engagement lifecycle, identify performance gaps, set performance levels, and improve services and products. Additionally, you don’t need to replace existing relationships because you’re working closely with vetted and supervised vendors, saving time and money that may directly impact your bottom line.

For over a decade, Hitachi Solutions has been working with organizations around the world to understand their use cases and processes and develop the technologies needed to meet their needs. From connected, cloud-based management solutions to integrated mobile applications, our unique solutions, and Microsoft technology focus are helping companies run more profitably and take advantage of an ever-changing digital landscape.

Contact us today.