To certify suppliers for just-in-time quality—and then negotiate the price of parts—buyers need sensitive

financial information that suppliers are reluctant to reveal: complete cost breakdowns on labor rates, burden
levels, materials, selling and administrative costs, and profit levels. So buyers have to work to gain their
suppliers’ trust, especially by helping to improve the latter’s in house systems, lower their costs, and
improve the quality of their products. Buyers must deal with suppliers fairly and consistently. This is much
harder work than simply looking for another supplier.

General Motors’ evaluation procedure begins with a supplier filling out a self-assessment form that asks
about operating philosophies, business systems, research and development, and overhead costs, among
other things. Then a team of three or four GM people visit the supplier’s facilities for several days, focusing
on five critical areas: (1) organizational effectiveness and commitment; (2) planning systems and
documentation; (3) cost awareness, monitoring, and reduction; (4) scheduling and delivery compliance; (5)
technology capabilities and R&D.

The purpose of the review is to improve communication and performance; there is no point in making the
supplier wait and worry about whether it passed muster. So GM’s team shares its findings with the supplier
immediately— reviewing the company’s strengths and weaknesses. If changes are called for, the same GM
team will oversee them.

This assessment process is invaluable to GM’s development plans. By examining a supplier’s technological
capabilities, long-range R&D, and financial status, we can help it focus its research. If need be, we will pool
resources: joint projects reassure suppliers that GM is committed to their success.

The assessment procedure isn’t a one-way street. We do not expect to build trust without listening to our
suppliers. We have a formal system through which suppliers can provide us with feedback. For example,
most divisions have established supplier councils that meet regularly to discuss relevant issues. The council
is made up of representatives of both GM’s and the supplier’s management. And if the supplier needs
information from GM, we do our best to provide it. We now share information about developmental design
concepts, projected manufacturing volume, and forecast sales plans.

Buyers need management’s support, say, to fight internal pressure from other departments. When a quality
problem arises, manufacturing often pressures a buyer to get a new supplier or at least lean on the current
one. Buyers therefore carry a great deal of the responsibility for managing relations to the end of the
project. At GM, a buyer’s ability to earn suppliers’ trust is included in his or her performance appraisals.

Reference: Managing suppliers up to speed (HBR Article)