Many companies rely on suppliers from China for their products, and the supplier development process can greatly impact their performance. This process involves improving the quality of products and reducing costs, which can benefit both the company and the supplier.
However, there is no one-size-fits-all approach to supplier development. The process must be adapted to the situation on both sides, considering factors such as the current situation, the company’s strength, and the method used to motivate suppliers. In this article, we will explore these factors and provide insights on how to implement an effective supplier development process.
Key Takeaways
- Prioritize the current situation and adapt the supplier development process accordingly.
- Consider the company’s strength and the method used to motivate suppliers.
- Provide constant feedback and iterate as needed to achieve cost reductions without creating conflict.
1. What is the Current Situation? What Needs to be Prioritized?
To improve vendor performance, it is essential to prioritize areas that require improvement. Quality, on-time delivery, cost, ability and speed to develop custom products, and universal service are the top areas that need attention. By collecting KPI dashboard data, one can pinpoint specific areas of vendor performance that need improvement. If data is not available, one can choose from the above candidates to prioritize for improvement. Closing the loop on past issues to prevent recurrence is also crucial for improving quality.
2. Do you have the strength?
In the world of business, companies often have to work with main suppliers on whom they are heavily dependent. This can become a problem when the buyer needs more capacity, but can’t risk losing their main supplier. In such cases, the buyer can’t be too strong on any key supplier, as they are aware that they are totally dependent on them.
The more a company relies on a manufacturer, the more they need to establish a positive partnership with them. They can’t force the manufacturer to do anything, but they can build a strong relationship with them. However, the smaller a company is in the eyes of the factory, the less they can push them to do anything. If a company buys only a small percentage of the factory’s products, they probably won’t have much leverage.
In contrast, companies like General Motors, who deal with a relatively interchangeable source of parts, are at an advantage. If one manufacturer rejects their request or doesn’t want to sign their contract, they can easily go to another manufacturer. Once a manufacturer accepts a project, they can’t abandon it midway through a model’s life cycle without facing a penalty that could put them out of business.
Therefore, when working with a main supplier, it’s important to establish a positive partnership and maintain a good relationship with them. This can help ensure that the supplier will continue to provide the necessary products and capacity, without causing any disruptions to the buyer’s operations.
3. How Far and How Fast Should the Supplier Go?
The required changes that a supplier needs to make will determine the time and effort required for the project. For instance, if the supplier has a bottleneck process, they may need to purchase three additional machines and hire three mechanics, which could take up to three months to complete. On the other hand, if the supplier lacks a planning system, which causes them to miss important deadlines, hiring a production and material control person could take up to nine months.
If the goal is to achieve “zero defect,” the supplier will need to change their entire mindset, which could take an indefinite amount of time. However, it is possible to hire an inspection team to help identify quality issues and provide a report for the supplier to fix in the future. The required speed and distance that the supplier needs to go will depend on the changes that need to be made and the resources available to the supplier.
4. Decide on a method to motivate suppliers
When it comes to motivating suppliers, there are several approaches that can be taken. The key is to find a method that works best for both parties involved. Here are some common approaches that can be considered:
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Offer expert assistance: Providing expert assistance to suppliers can be a welcome approach. However, it is important to proceed with caution, as some suppliers may view this as an offence. It is recommended to involve suppliers in the decision-making process to increase the likelihood of success.
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Hold regular formal meetings: Regular formal meetings can be an effective way to address areas of underperformance and provide guidance on how to improve. This approach can help apply pressure on suppliers and encourage them to take action.
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Compare with other suppliers: Comparing suppliers with others in the industry can help create a competitive spirit and encourage them to take threats seriously. This approach can be effective when done anonymously.
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Escalate issues using painful and expensive situations: Escalating specific issues into expensive and painful situations can motivate suppliers to avoid mistakes. However, this approach can add friction to the relationship and should be used with caution.
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Punish them financially: Financially punishing suppliers for poor performance can be an effective way to motivate them. This approach can make mistakes painful and encourage suppliers to improve their performance.
Ultimately, the best approach to motivating suppliers will depend on the specific situation and the relationship between the buyer and supplier. It is important to find a method that works best for both parties involved and to avoid overdoing it to maintain a long-term partnership.
5. Implement the Chosen Method and Iterate as Necessary
Once you have selected the most appropriate method to improve your business operations, you need to inform your suppliers about it. This announcement should be made clearly and confidently, explaining why this change is critical and inevitable. If your request is not honored, it is advisable to adopt a “wait and see” approach before sending someone to the plant to push your agenda.
After implementing the chosen method, it is important to monitor its effectiveness and make adjustments as needed. Regularly reviewing and analyzing the results can help identify areas that require further improvement. By iterating and refining the process, you can ensure that your business operations are optimized for success.
To facilitate the implementation and iteration process, consider using tables, bullet points, and bold text to convey information clearly and concisely. This will help ensure that all stakeholders are on the same page and can work together to achieve the desired outcomes.
6. How to anticipate cost reductions without damaging relationships
Many companies evaluate their buyers based on the savings they generate through price reductions. As a result, they may pressure suppliers to offer lower prices, which can damage cooperation and positive relationships. To avoid this, it is important to be transparent and communicate expectations when developing new products. It is essential to establish a specific timeline for cost reductions and to plan for them accordingly. The people in the factory should continue to look for ways to save money and reduce costs without sacrificing quality or efficiency. By doing so, they can anticipate cost reductions without damaging relationships with buyers or other stakeholders.
7. Provide Constant Feedback
To ensure that suppliers understand the company’s expectations and the cost of their problems, it is essential to provide regular feedback. Consistency in messaging is key to developing a vendor, and it is crucial to communicate directly with the operations team.
It is important to keep in mind that supplier development is a marathon, not a sprint. Some buyers may become impatient with small steps and move on to another source, but it is essential to remember that other sources may have their own issues. Dual sourcing a part or product, comparing the two sources, and giving the best manufacturer more business can be part of the supplier development approach.
In some cases, a close partnership can be built, and the benefits of single sourcing can be justified. However, this is a rare occurrence. Constant feedback is necessary to ensure that suppliers understand the company’s expectations and the cost of their problems.
Providing feedback can be done through various means, such as email, phone calls, or in-person meetings. It is essential to keep the feedback clear and concise, focusing on specific issues and providing actionable steps for improvement. By providing constant feedback, companies can create a productive and beneficial relationship with their suppliers.
The following table summarizes the key points to keep in mind when providing constant feedback:
| Key Points |
|---|
| Consistency in messaging is crucial |
| Dual sourcing can be part of the supplier development approach |
| Single sourcing is rare |
| Feedback should be clear and concise |
| Focus on specific issues |
| Provide actionable steps for improvement |