8.2 Supplier Development & Escalation

Escalation is not about shouting louder or applying emotional pressure; it is a mechanical process designed to restore system stability. When a supplier fails—whether via a quality escape, a missed delivery, or a commercial breach—they have introduced instability into your supply chain. The goal of development and escalation is to force the supplier to engineer the risk out of their process permanently. An apology is irrelevant; we require a root cause analysis and a validated control plan.

The Intervention Lifecycle

Treat supplier failure as a technical defect. Follow a strict "Contain → Correct → Verify" loop.

Phase 1: Containment (The "Stop" Signal)

• Objective: Protect the production line immediately.
• Timeframe: < 24 Hours.
• Action:
  • If suspect stock is on the dock -> Then quarantine immediately.
  • If stock is in transit -> Then intercept and return (or divert to 3rd party test house).
  • Mandate: Supplier must confirm they have purged their inventory and Work-In-Progress (WIP) of the defect.

Phase 2: Corrective Action (The SCAR)

• Artifact: Issue a formal SCAR (Supplier Corrective Action Request) requiring an 8D Report.
• Logic: The 8D (Eight Disciplines) format forces the supplier to move beyond "Operator Error" (which is a symptom, not a cause) to the true technical root cause (e.g., "worn tooling," "ambiguous work instruction," "software bug").
• Deadlines:
  • D3 (Containment): 24 Hours.
  • D5 (Root Cause): 5 Business Days.
  • D8 (Closure): 10 Business Days.

Phase 3: Verification & Prevention

• Rule: A slide deck is not a fix.
• Requirement: Evidence of change. Photos of the new fixture, a copy of the updated control plan, or test data from the new batch.
• Validation: The SCAR remains "Open" until the next three shipments arrive defect-free.

The Escalation Matrix (Intervention Playbook)

Do not allow a crisis to stagnate at the buyer level. Define clear triggers that automatically elevate the issue to higher authority levels to unlock resources or force a decision.

Pro-Tip: When escalating to Level 3, do not just complain. Present the financial impact: "Your failure cost us $50,000 this week. We need a recovery plan by 5 PM or we divert spend." Money talks.

Commercial Recovery: Claims & Debit Notes

Performance failures have financial consequences. If a supplier causes a line shutdown or forces you to expedite freight, they must pay for it. This is not punishment; it is cost recovery.

The "Debit Note" Policy

Define a standard list of chargebacks in your supply agreement. When a failure occurs, issue a Debit Note (a negative invoice) against their account.

• Admin Fee: Flat fee (e.g., $250) for processing an RMA/SCAR.
• Line Down Charge: Hourly rate (e.g., $1,000/hr) for idle production caused by shortage/quality.
• Freight Recovery: If their delay forces air freight, they pay the difference between Sea and Air.
• Sorting/Rework: If your team has to screen their parts, charge per hour + overhead.

Logic: If the supplier disputes the debit note -> Then pause payment of their invoices until resolved. This grabs attention immediately.

Closure Rules: The "Verified Effectiveness" Gate

Never close a SCAR based on a promise.

1. The "Look Across" Test: Ask the supplier, "You fixed this on Line 1, but did you apply the fix to Line 2 and 3?" If no, reject the closure.
2. The 3-Lot Rule: The issue is considered "Monitoring" (not Closed) until three consecutive lots are received, inspected, and passed.
3. Audit: For severe failures, a site audit is mandatory to physically verify the corrective action is in place (e.g., seeing the new sensor installed).

Final Checklist