Case 9-1 – AT&T: Setting High Standards for Suppliers & Rewarding Supplier Performance If you live in California or freq

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Case 9-1 – AT&T: Setting High Standards for Suppliers &Rewarding Supplier Performance If you live in California orfrequently call someone in the California area, you have invariablydone business with AT&T (formerly SBC). AT&T providestelephone service to the majority of California’s residents. Alongwith telephone service, the company provides a full array ofwireless communications products for individuals and businesses. Inan effort to increase quality and decrease costs, AT&T has beenworking hard to find new ways to manage its supply chain. Theresult has been the development of a comprehensive program thatsets high standards for suppliers and rewards exemplary supplierperformance. The program begins with training. All of AT&T'sprocurement managers are required to participate in an AppliedTotal Quality program. The program consists of six 30-hour coursesthat teach TQM and supplier management. Suppliers also areencouraged to participate in the program at no cost. Therequirements that AT&T places on its sup­ pliers are demandingbut are communicated clearly to the suppliers in advance. For itstop suppliers, a con­ tract is negotiated on a yearly basis thatdefines the objectives of the relationship between AT&T and thesupplier for the next year. Senior managers from AT&T and thesupplier meet twice a year to discuss the performance of therelationship and iron out any problems that have occurred.AT&T's minor suppliers receive a one-page Supplier QualityReport every month. AT&T and the supplier agree on criteria forperformance in advance (e.g., on-time delivery, invoicingaccuracy), and the supplier receives a score each month fromAT&T based on its record. Both the company and its supplierstake these reports very seriously. If a supplier receives a poorscore, it typically calls AT&T to provide an explanation or askfor suggestions for improvement. Although the company's approach tosupply management sounds rigid, the company works hard to developlasting positive relationships with its suppliers. The companymaintains a steady flow of communications with its suppliers towork through any problem that might arise. For example, the companyhas a toll-free 800 number that suppliers and potential supplierscan 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. Accordingto the former executive director of contracting and suppliermanagement at AT&T, "Suppliers are always leery of tellingcustomers about their problems."11 As a result of sup­ plierreluctance in this area, they are thinking about making thesupplier feedback reports a requirement for certification. ' To itscredit, AT&T goes to great lengths to reward supplierperformance. Goals are in place: 1. To communicate to suppliersthat their internal quality processes and performance results arecritical. 2. To demonstrate that quality pervades all aspects ofthe business relationship. 3. To share expectations and informationto build partnerships toward world-class performance. 4. Torecognize a supplier's overall level of quality. There are threelevels of recognition including the Gold Award, the Silver Award,and the Bronze Award. The Gold Award is awarded to the company'stop suppliers. To win this award, a supplier must "delight" thecompany by providing superior products/services and customerservice for more than a year. As the telecommunications industrycontinues to become more competitive, AT&T's efforts tomaximize the performance of its supply chain will undoubtedlyintensify. Setting high standards for suppliers and rewardingperformance are the essence of this philosophy of supply chainmanagement.
Discussion Questions:
1. Do you believe that AT&T's standards for its sup­ pliersare too rigid? a. Why or why not?
2. Is the "Supplier Quality Report" a good idea or are monthlyreports too frequent and intrusive? a. Explain your answer
3. Do you believe suppliers should receive awards anddesignations of merit from the companies that purchase theirproducts? a. Explain your answer.