CASES Case 9-1 AT&T: Setting High Standards for Suppliers and Rewarding Supplier

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CASES Case 9-1 AT&T: Setting High Standards for Suppliers and Rewarding Supplier Performance AT&T www.att.comýwireless If you live in California or frequently call someone in t elephone service, the company provides a full the California area, you have invariably done business array of wireless communications products for individ- with AT&T (formerly SBC). AT&T provides telephone uals and businesses service to the majority of California's residents. Along 234 Part 2 Designing and Assuring Quality In an effort to increase quality and decrease costs has a toll-free 800 number that suppliers and potential AT&T has been working hard to find new ways to man suppliers can use to familiarize themselves with com- age its supply chain. The result has been the develop- pany requirements. AT&T also asks ts suppliers to ment of a comprehensive program that sets high e it how it is doing, although this program has been standards for suppliers and rewards exemplary supplier only partially successful. According to the former performance. The program begins with training. All of executive director of contracting and supplier manage- AT&T's procurement managers are required to parti ment at AT&T, "Suppliers are always leery of telling pate in an Applied Total Quality program. The program customers about their problems. As a result of sup- consists of six 30-hour courses that teach TQM and plier reluctance in this area, they are thinking about supplier management. Suppliers also are encouraged to making the supplier feedback reports a requirement participate in the program at no cost. for certification. The requirements that AT&T places on its sup- To its credit, AT&T goes to great lengths to pliers are demanding but are communicated clearly to the suppliers in advance. For its top suppliers, a con- tract is negotiated on a yearly basis that defines the objectives of the relationship between AT&T and the supplier for the next year. Senior managers from AT&T and the supplier meet twice a year to discuss reward supplier performance. Goals are in place: e to suppliers that their internal quality processes and performance results are 2. To demonstrate that quality pervades all aspects of the business relationship. partnerships toward world-class performance. There are three levels of recognition in e of the relationship and iron out any 3. To share expectations and information to build problems that have occurred. AT&T's minor suppliers receive a one-pag month. AT&T and the supplier agree on criteria for performance in advance (e.g.. on-time delivery, invoic ing accuracy), and the supplier receives a score each month from AT&T based on its record. Both the com- pany and its s If a supplier receives a poor score, it typically calls AT&T to provide an explanation or ask for suggestions for improvement. e Supplier Quality Report every 4. To recognize a supplier's overall level of quality cluding the Gold Award, the Silver Award, and the Bronze Award, The Gold Award is awarded to the com- pany's top suppliers. To win this award, a supplier t "delight" the company by providing supe- rior products/services and customer service for rs take these reports very seriously must more than a year. Although the company's approach to supply As the telecommunications industry continues to management sounds rigid, the company works hard to become more competitive, AT&T's efforts to maximize develop lasting positive relationships with its suppli the performance of its supply chain will undoubtedly ers. The company maintains a steady flow of commu intensify. Setting high standards for suppliers and reward- nications with ts suppliers to work through any ing performance are the essence of this philosophy of problem that might arise. For example, the company supply chain management. Discussion Questions I. Do you believe that AT&T's standards for its sup- pliers are too rigid? Why or why not? 3. Do you believe suppliers should receive awards and designations of merit from the that purchase their products? Explain your answer 2. Is the "Supplier Quality Report" a good idea or are monthly reports too frequent and intrusive? Explain your answer Case 9-2 Managing the Supply Chain at Honeywell Honeywew: www.honeywell.com If you own a home, work in an office building, or well product has affected your life. The Honeywell travel by air, the chances are excellent that a Hny Corporation is the world's leading maker of control George, S, and Weimerskirch, A Total Qualiry Managemenr (New York: Wiley. 1994), p. 190

Explanation / Answer

(1) According to me, the standards set by AT&T for its suppliers are not too rigid in nature. It is very important for companies to set rigid, strong and achievable standards for the suppliers they are dealing with, so that the suppliers also deliver best quality products. Moreover, if standards are lenient then the suppliers will not put their hundred percent in delivering their best services to the company. Due to which the company will not be able to serve its customers with best quality products. The standards set by the company and the follow up process of the suppliers is of great importance which adds up to the motivation level of the suppliers and make them work effectively out of the fear of being penalized.

(2) According to me, the "supply quality report" is a good idea initiated by the company. The report provides certain criteria for the suppliers which they will have to follow and abide by. Moreover, it provides scores to the suppliers on monthly basis reflecting their performance, hence helping them to improve on any of their drawbacks. The report issued on monthly basis helps as a guide map for the suppliers to work as per the standards and meet the criteria, so that they become a part of the company for longer period. The results of the report will help suppliers follow up with their own performance on monthly basis and thus improve quickly on their drawbacks.

(3) According to me, the suppliers from whom the company buys products, must not be awarded. Rather a fair level of open communication, fair contractual terms and conditions, timely exchange of information and healthy relations with the suppliers will be enough to maintain good relations for long run, motivate suppliers to work effectively by delivering high quality products and deal with the suppliers effectively. Giving out extra rewards or designations of merit will not add up to some extra efforts on the part of the suppliers and will not induce the suppliers to deliver best quality products.

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