Integrating Business and TOE Performance
We have found that when a supplier’s performance on our Terms of Engagement (TOE) has business consequences – as their performance on delivery, quality and other business requirements do – they have greater incentive to meet our guidelines. Integrating TOE performance into our business has become a key factor in the effectiveness of our program.
As part of the TOE program, suppliers are assigned a TOE performance rating.
The TOE performance rating is based on the following four criteria:
- Current TOE rating of the factory (Continuous Improvement, Immediate Action, or Zero Tolerance);
- Change in rating from previous year (better, same, or lower);
- Repeat violations, if any; and
- Time required to complete Corrective Action Plan (early, on-time or late).
TOE performance ratings are used by our manufacturing operations team in considering which suppliers to use and how much production to give to suppliers.
Poorly performing suppliers who are not completing their Corrective Action Plans on time will be given formal warning that they are in danger of having their production orders reduced unless they improve their TOE performance. In most cases, such notification motivates the supplier to quickly improve.
If performance does not improve, we will reduce production orders with the supplier. If TOE performance still does not improve after the order reduction, we will exit the supplier and end our business with them. Such a situation rarely occurs, as most suppliers are interested in retaining our business and will bring their performance to acceptable levels when future business is at stake.
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