Problem: AT&T: Setting High Standards for Suppliers and Rewarding Supplier Performance

If you live in California or frequently call someone in the California area, you have invariably done business with AT&T (formerly SBC). AT&T provides telephone service to the majority of California's residents. Along with telephone service, the company provides a full array of wireless communications products for individuals and businesses. In an effort to increase quality and decrease costs, AT&T has been working hard to find new ways to manage its supply chain. The result has been the development of a comprehensive program that sets high standards for suppliers and rewards exemplary supplier performance. The program begins with training. All of AT&T's procurement managers are required to participate in an Applied Total Quality program. The program consists of six 30-hour courses that teach TQM and supplier management. Suppliers also are encouraged to participate in the program at no cost.

The requirements that AT&T places on its suppliers are demanding but are communicated clearly to the suppliers in advance. For its top suppliers, a contract 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 the performance of the relationship and iron out any problems that have occurred. AT&T's minor suppliers receive a one-page Supplier Quality Report every month. AT&T and the supplier agree on criteria for performance in advance (e.g., on-time delivery, invoicing accuracy), and the supplier receives a score each month from AT&T based on its record. Both the company and its suppliers take these reports very seriously. If a supplier receives a poor score, it typically calls AT&T to provide an explanation or ask for suggestions for improvement.

Although the company's approach to supply management sounds rigid, the company works hard to develop lasting positive relationships with its suppliers. The company maintains a steady flow of communications with its suppliers to work through any problem that might arise. For example, the company has a toll-free 800 number that suppliers and potential suppliers can use to familiarize themselves with company requirements. AT&T also asks its suppliers to tell it how it is doing, although this program has been only partially successful. According to the former executive director of contracting and supplier management at AT&T, "Suppliers are always leery of telling customers about their problems." 11 As a result of supplier reluctance in this area, they are thinking about making the supplier feedback reports a requirement for certification. To its credit, AT&T goes to great lengths to reward supplier performance. Goals are in place:

1. To communicate to suppliers that their internal quality processes and performance results are critical. 2. To demonstrate that quality pervades all aspects of the business relationship.

3. To share expectations and information to build partnerships toward world-class performance.

4. To recognize a supplier's overall level of quality. There are three levels of recognition including the Gold Award, the Silver Award, and the Bronze Award. The Gold Award is awarded to the company's top suppliers. To win this award, a supplier must "delight" the company by providing superior products/services and customer service for more than a year.

As the telecommunications industry continues to become more competitive, AT&T's efforts to maximize the performance of its supply chain will undoubtedly intensify. Setting high standards for suppliers and rewarding performance are the essence of this philosophy of supply chain management.

Questions

1. Do you believe that AT&T's standards for its suppliers are too rigid? Why or why not?

2. Is the "Supplier Quality Report" a good idea or are monthly reports too frequent and intrusive? Explain your answer.

3. Do you believe suppliers should receive awards and designations of merit from the companies that purchase their products? Explain your answer.