1.2 Supplier selection & the approved vendor list (AVL)

The Approved Vendor List (AVL) functions as the primary firewall for your manufacturing ecosystem. Permitting unvetted entities to supply physical material introduces significant downstream risk, including the potential for counterfeit components, sudden supplier insolvency, and unmanaged lead time variability. A well-structured, data-driven AVL acts as a safeguard within the ERP system, preventing the generation of Purchase Orders (POs) to unauthorized sources.

Qualification criteria

Entry to the AVL requires objective evidence of systemic stability and supply chain security. Personal relationships do not mitigate engineering risk.

Authorization & physical traceability

• The Requirement: The Vendor must hold valid Franchise Agreements or Official Authorized Line Cards for the specific commodities being sourced.
• The Verification: Quality Assurance should validate this directly with the Original Component Manufacturer (OCM).
• The Goal: Direct authorization ensures an unbroken physical Chain of Custody (CoC), significantly reducing counterfeit risk.

Quality management system (QMS)

• The Requirement: Active ISO 9001 certification (minimum); AS9100 or IATF 16949 is preferred for aerospace or automotive applications.
• The Verification: Validate the certificate’s scope and expiration date via the issuing registrar.
• The Goal: A certified QMS demonstrates that the supplier has documented processes for handling non-conformances (RMA) and formal corrective actions (SCAR).

Financial & operational solvency

• The Requirement: Demonstrable financial stability, such as cleanly audited financials or a solid Dun & Bradstreet (D&B) rating.
• The Goal: This helps ensure the supplier remains viable during component shortages or warranty claims.

Commercial alignment

• The Requirement: Alignment with standard payment terms (e.g. Net 30/60) and clear Incoterms (e.g. FCA).
• The NCNR Concept: Non-Cancellable Non-Returnable (NCNR) terms should generally be restricted to Custom Fabrications (MG-04) or End-of-Life (EOL) last-time buys, rather than standard active or passive components.

AVL lifecycle workflow

Manage the vendor lifecycle through distinct states. The ERP system should systematically track and enforce these states.

Phase 1: request & evaluation

• The Input: A Sourcing Request Form submitted by the Commodity Manager.
• The Action: Quality Assurance performs a desk audit (reviewing QMS certs and financial health) and a physical site audit for critical vendors if necessary.
• The Decision:
  • Pass: The vendor moves to Provisional status.
  • Fail: The vendor is marked Disqualified.

Phase 2: provisional (the probation period)

• The Condition: Implement defined limits, such as a maximum number of active POs or a spend cap.
• The Action: Perform 100% incoming physical and documented inspection on initial receipts.
• The Transition: After a sequence of consecutive passing lots (e.g. 3 lots), the vendor moves to Approved status.

Phase 3: maintenance & performance

• The Routine: Periodic Business Reviews (often Quarterly) evaluating On-Time Delivery (OTD) and Quality Acceptance Rate (QAR).
• The Logic:
  • When OTD drops below the defined target (e.g. < 85%) for consecutive quarters, the system may downgrade the vendor to Conditional, prompting a review before new awards.
  • When a major counterfeit or fraud incident occurs, the vendor is moved to Disqualified status pending investigation.

The AVL entry record

Standardize the data structure for every AVL entry to maintain database integrity.

Required Field	Engineering Description	ERP Data Type	Functional Owner
Vendor ID	Unique, auto-generated ERP identifier (e.g. V-00432).	Alphanumeric	Finance
Vendor Name	The Legal Entity Name.	String	Sourcing
Classification	OCM / Franchised Disty / Broker / Sub-Tier Service.	Enum	Sourcing
System Status	Approved / Provisional / Conditional / Disqualified.	Enum	Quality Assurance
Commodity Scope	Allowed Purchase Groups (e.g. Authorized for MG-02 only).	Array	Sourcing
Risk Rating	Analytical score based on financials and capabilities.	Integer	Risk Management
QMS Expiry	Date of ISO certificate expiration (triggers alert).	Date	Quality Assurance

Exception logic: one-time & spot buys

Operational realities sometimes necessitate deviating from the standard AVL. Maintain clear protocols for these exceptions.

Scenario a: shortage waiver (the independent buy)

• The Trigger: Authorized channels cannot meet the required date, posing a significant risk to the production schedule.
• The Protocol:
  1. Authorization: Leadership signature (e.g. VP of Supply Chain) is required.
  2. Vendor Type: Create a temporary ERP vendor record defined as “One-Time Vendor”.
  3. Validation: A 3rd-party test report (e.g. AS6081) must be linked to the incoming lot to verify authenticity.
  4. Closure: The Vendor record is deactivated once the transaction is complete to prevent repeated use without re-evaluation.

Scenario b: NPI / engineering sample build

• The Trigger: A specific component is required for an early prototype and is not yet available via franchised distributors.
• The Protocol:
  1. The Limit: Establish a clear spend limit for engineering samples.
  2. The Restriction: These parts must not be consumed into mass production builds without full qualification.
  3. The System Flag: The Item Master is marked as “Eng-Only” until a volume supply chain is established.

Final Checkout: Supplier selection & the approved vendor list (AVL)

Control Point	Engineering Requirement	Status Check
ERP Lockout	Non-AVL PO Generation is restricted by the system.	Active
Data Ownership	Master Data Management access is controlled.	Supply Chain / Quality Only
Review Cycle	Formal Vendor Performance Review process in place.	Defined Cadence
Doc Retention	ISO/AS9100 Certs held on file.	Current (Non-Expired)
Broker Access	Independent Distributor usage is controlled and monitored.	Exception Process Followed
Traceability	Chain of Custody (CoC) Evidence uploaded to ERP.	Required for Critical Parts