Customer Scorecards and the Supplier Performance Initiative (SPI) to Enhance Customer Satisfaction
What is Customer Satisfaction and how is it effectively monitored?
One of the main reasons to adopt a quality management system (QMS) standard such as ISO 9001:2015 and IATF 16949:2016 is for an organization “to enhance customer satisfaction through the effective application of the system…” (from the scope of ISO 9001:2015). The term “customer satisfaction” is defined in ISO 9000:2015 as the “customer’s…perception of the degree to which the customer’s expectations have been fulfilled” and the applicable ISO 9001:2015 clause 9.1.2 – Customer satisfaction states that “The organization shall monitor customer perceptions of the degree to which their needs and expectations have been fulfilled.” How this is done gets tricky because perceptions are hard to quantify and measure. The note for this clause suggests methods such as customer satisfaction surveys. Of course, the automotive quality management standard, IATF 16949:2016, has more to say on this topic as we shall see.
IATF 16949® and the Supplier Performance Initiative
The International Automotive Task Force (IATF®) that publishes the IATF 16949:2016 QMS (which includes the requirements of ISO 9001:2015, and establishes and oversees the scheme rules that govern certification bodies (CB) and 3rd-party auditors) expects that the certification process will enhance customer satisfaction as well. The expectation is that the certification process should ensure that the organizations certified to the standard perform in a way that ensures the satisfaction of their customers (especially those customers who are IATF-subscribing OEMs). If a supplier is causing the customer problems to the extent that they are consistently not meeting the customer expectations for on-time delivery, delivered part quality, etc., a logical question is why are they still certified to IATF 16949®? This is a question posed by the IATF® to the certification bodies who certify these suppliers. On a more macro scale, the continued certification of consistently poor-performing organizations calls into question the overall effectiveness of the IATF® certification scheme. The IATF® Supplier Performance Initiative (SPI) is an attempt to enhance the effectiveness of the IATF® scheme in this regard, but before getting into the specifics of the SPI let’s examine what the IATF 16949:2016 standard contains.
What does IATF 16949® say about Customer Satisfaction?
The IATF 16949® standard is pretty straightforward when it comes to customer satisfaction. The relevant IATF 16949:2016 clause (188.8.131.52 – Customer satisfaction – supplemental) says that customer satisfaction must be monitored by performance indicators such as:
- part quality
- on-time delivery
- instances of customer disruption (e.g., stop shipments at the OEM assembly plant)
- special status notifications (e.g., Ford Q-1 revocation, GM BIQS level 1 or 2, etc.).
For the IATF® subscribing OEMs and many other customers, these measures are helpfully provided in the form of customer scorecards, with criteria for satisfactory performance being defined in their customer-specific requirements (CSR) documents. In simple terms, the customer scorecard criteria is telling you what it takes to satisfy them, and the scorecard rating is letting you know how well you are doing.
What happens if you aren’t meeting the customer’s expectations?
If you aren’t meeting the customer’s expectations, IATF 16949® has some clear expectations in that regard as well. The IATF 16949:2016 clause 184.108.40.206 (Management review outputs – supplemental) specifically requires that the leadership of the organization (aka “Top Management”) act when customer scorecard and other performance targets are not met. This applies to all customers, not just IATF® OEM subscribing members. In general, having documented actions when the organization fails to meet any goals or targets for objectives is required, especially when they affect customer satisfaction (see clause 220.127.116.11 Prioritization). Note that these actions not only need to be documented, but also implemented and, ultimately, effective. Also, be aware that the customer satisfaction supplemental clause 18.104.22.168 is one of the top 10 reasons for IATF 16949 major nonconformances in CB audits.
The IATF® scheme rules section 8.0 regarding the certificate decertification process require that the CB initiate this process, among other reasons, when:
- they receive a performance complaint about a client,
- or they are advised that the client has received a special status condition notification from an IATF® OEM (e.g., Ford Q-1 revocation, GM BIQS level 1 or 2, etc.),
- as well as, when there is a nonconformity identified from an audit.
The CB has twenty (20) days to conduct an analysis of the situation (taking into consideration IATF® OEM CSRs) and must decide whether or not to suspend the certificate at that point (automatic for major nonconformances). Within ninety (90) days of the start of the decertification process, the CB must verify the effective implementation of the corrective actions; for the case where the decertification process is initiated for customer performance complaints or special status conditions, as well as for major nonconformances, an on-site (or remote if due to Covid-19) special audit (section 7.2 of the IATF® Rules) is required. If the special audit does not find effective implementation, the audit team “shall recommend withdrawal of the certificate.” (IATF® Rules 8.4).
What is the Supplier Performance Initiative (SPI) and how is “Red” supplier status determined?
This all seems pretty straightforward, so how does the SPI fit into all of this? In an attempt to enhance scheme effectiveness and credibility, with both customers and clients, the IATF® began the SPI as a pilot in 2019 with GM and Ford, and launched it formally in March 2020 with participation from some of the IATF® OEMs. A key aspect of the SPI is the direct reporting of “Red” suppliers by participating IATF® OEMs into the IATF® KPI Hub database where the CBs go to see the status of their certified clients. The “Red” supplier status is determined by OEM-specific supplier scorecard criteria (more on that later) and indicates a supplier is not meeting customer performance expectations (conversely, if they have a “Green” rating, that means they are meeting performance expectations). When the CB downloads their KPI Hub data monthly and identifies any of their clients who are in “Red” status, this is considered an IATF® performance complaint (per IATF® Rules) and triggers the “analysis of the situation” to determine risk and next steps. The CB will contact the client to get the details of the scorecard performance and information about the actions being taken to address the situation. Often, this will result in the issuance of a major nonconformity (against clause 22.214.171.124) and trigger a special onsite audit. Make no mistake – your certificate is at risk in this situation.
What to do to get off of “Red” supplier status
What do you need to do in this situation? Determine and implement effective actions to address the root cause(s) of the situation and get off of the “Red” supplier status ASAP. This may not be that easy and it will take focused effort and the application of appropriate resources. This situation is clearly in the wheelhouse of the organization’s top management at this point, if it wasn’t already (this is also a requirement of the ISO 9001 standard (see clause 5.1.2 – Customer focus) since this is clearly a risk to customer satisfaction. This calls for top-notch problem-solving efforts and the organization should be supplying the CB with a credible, detailed action plan (and/or implemented actions) that address the root cause(s) identified in your systemic investigation and root cause analysis. A knowledgeable IATF 16949® consultant could also be brought in to provide additional guidance and tools.
The CB auditor assigned to conduct the special audit will be verifying the adequacy and effectiveness of these actions, as well as pursuing audit trails to see where QMS weaknesses might have contributed to the situation. For example:
- The organization’s woes may have resulted from their supplier’s poor quality or delivery performance – that leads to clause 8.4 and the control of external providers.
- What if there was a bad launch? Clause 8.3 – product/process development and the APQP process will need to be examined.
- What about a contractual disagreement? The CB auditor doesn’t look at cost issues, but at how well the contract review and organizational feasibility analysis (clause 8.2.3 and the review of requirements) were performed.
Each situation is unique, but poor performance is likely related to one or more system weaknesses. The CB auditor can’t close out the issue until the effectiveness can be verified, and if the performance measure isn’t meeting customer requirements, or can’t credibly be on track to get to “Green” status in the next few months, the major nonconformity for the “Red” status may be deemed “open, but 100% resolved (Rules 5.11.3 c). This means you implemented appropriate containment actions, have an acceptable, documented action plan to eliminate the problem, but it just needs a little more time to fully take effect. This 100% resolved status means there will be another special audit within 90 days and prior to the next scheduled audit to verify effectiveness. If the performance measure is not Green or nearly so at that point, a recommendation to withdraw your certificate is likely. And these special audits likely will be witnessed audits with a representative of the CB’s oversight body (e.g., IAOB) observing the CB auditor. It is likely that much of this SPI will be incorporated into the next version of the IATF Rules later in 4th quarter of 2022.
Customer scorecards should be closely monitored
Avoiding a “Red” supplier status is obviously the best approach and having a robust quality management system is the key. However, organizations sometimes are not aware of their peril and are not closely monitoring their customer scorecards, or don’t understand them. Customer scorecards are a required input into the management review, and the ISO 9001 and IATF 16949® clauses that were discussed earlier require that they be monitored, and action taken when performance standards are not met. The customer specific requirements documents usually contain some information, and that is certainly the case for the two IATF® OEMs that are the most enthusiastic participants in the SPI to this point – Ford and GM. The CSRs (available on the IATFglobaloversight.org website) for clause 126.96.36.199 detail the special status conditions and the required CB responses.
Both GM and Ford also have quick reference guides and screenshots on how to navigate to the pertinent sections of their scorecards. For Ford, “Red” status can result from a Q1 score < 80, or a score of 0 in any one detail category (including service parts) – download both the Q1 Scoring Detail SIM and the Performance Metrics summary (look as the 6MWA for delivery, too). GM criteria for “Red” status include any Field Action, more than 1 disruption, or 6 or more SPPS or SPPS severity > 6.75 (BIQS Level 1 or 2). The Sourceability Report and Impact Detail Report are what should be downloaded. In the GM CSR 188.8.131.52 GM 1927 17 SQ Processes and Measurement Procedure is referenced for more details. Your CB will require you to submit customer scorecards prior to each visit and will also review them on-line at the mandatory 1-hour pre-audit planning meeting. If you are not meeting quality and/or delivery targets for IATF® OEMs, they will add at least 4 hours to your audit duration to investigate (see IATF Rules SI #26). Top management needs to understand all their customer scorecards and monitor them every month – if not meeting the customer performance criteria, investigate, then document and take effective action right away.
In conclusion, one of the main reasons for the implementation of an ISO 9001 and IATF 16949® QMS is to enhance customer satisfaction. Monitoring customer satisfaction is a requirement, as is taking effective action if the customer’s targets for performance are not met. The SPI is designed to further strengthen the credibility and effectiveness of the IATF® scheme by identifying poorly performing suppliers to select IATF® OEMs between audits, but meeting customer performance targets is always a requirement. Top management is required to lead by example with regards to customer focus; understanding and timely monitoring of customer scorecards is a key aspect of this customer focus – and it might just help the organization avoid the pain and expense of being designated a “Red” supplier.
This article was written by Paul Gambino, a simpleQuE consultant and auditor with more than 20 years’ experience implementing, maintaining and improving quality management systems and business processes. He is also currently an ISO 9001 and IATF 16949® lead auditor for several Certification Bodies.
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