10 tips for Mitigating Problems with Suppliers

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Depending on a robust supply chain is essential for any enterprise and problem suppliers are a very big determining factor for success or failure. All too often disasters are experienced due to poor performance (product below standard), delayed or failed deliveries, and even financial issues such as bankruptcy. Problems such as these can cause the buying organization to lose income and in some cases causes you’re the business to grind to a halt. It is therefore important to implement risk management and preventive measures as part of your supply chain optimization.

Supplier optimization includes tools and process that ensures the best possible operation of manufacturing and distribution within your supply chain. The process and tools identify potential problem sources within the supply chain and creates a window of opportunity where the customer and their supplier through collaboration can place mitigating practices to address key issues and concerns.

Ways of mitigating the problem can be formulated by both parties, by considering the most common causes of issues. For example:

Production Capacity
Miscalculating the supply chain capacity produces disastrous consequences, particularly for those suppliers that little experience of your product. The best way to handle this is to be fully aware of your suppliers capacity and to start small on new suppliers, gradually building on available capacity as they gain experience.

Miscommunication between customer and supplier

Failure to speak at the same level or language with your supplier is an open invitation to potential problems. For example when carrying out a forecasting exercise, use the language that your supplier understands like how many customers are using the supply chain and how many SKU’s/Shipsets are expected within the period rather that asking for their estimated increases in production. Develop processes that ensure communication is well understood and acted upon.

Your tools and systems

Tools and systems for planning should be flexible enough to include current and future requirements. Your existing tools are maybe good enough for current needs but you must consider how you will interface with your supply chain – sharing information about future orderbook (especially where the product is complex or susceptible to lengthy leadtimes) can be a key success factor.

Shared planning between supplier and buyer

Where there is a heavy reliance on an external supply chain – involving these ‘partners’ in your planning is vital – planning should be a shared activity.

Production risks and issues

Determine any risks or issues in your suppliers production processes – is there reliance on hard to get material – or reliance on key machinery – what will happen if there are issues? Does your supplier have a mitigation strategy?

Planning for reductions in requirement

Once again sharing information with your supplier about your orderbook can not only help the supplier when capacity requirements increase but also where there is a reduction in demand. Variation in demand can have wide reaching implications – forward planning can ensure that your supplier mitigates any financial issues and remains available.

Personnel turnover

Particularly for key personnel in the supply chain, measures should be in place to cover issues such as departures or lengthy absences – this is especially true where manufacturing knowledge may be held within a small team of people – your supplier may have the material and equipment but without the knowledge to manufacture the product they are in trouble!

Continuous improvement

The supply chains adherence to constant improvement is a good mitigating measure. Supply chains that have continuous improvement systems such as kaizen will more likely be able to handle production problems. How are your suppliers geared up for this?

Formal capacity planning program

Continuous improvement on the effectiveness of the capacity-planning process is a requirement in setting goal for expansion and improvement of at least one part creating new versions of the plan. These help mitigate supply problems on flexibility, ensure capacity is assessed regularly.

Learning from lessons when things go wrong

One of the most powerful tools for mitigating problems with suppliers when things go wrong is to learn from mistakes. However harsh, mistakes will happen – what sets apart a goods supplier from a poor one are those that learn from their mistakes – fix the problem and improve. Repeated issues or a failure to stop systematic issues are a sign that all is not well.

How to use supplier appraisals and evaluation techniques

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Managing suppliers in a robust way that delivers tangible and measurable benefits to an organization requires various supporting policies and processes. These include the process of supplier evaluation. But what is supplier evaluation? And why, if your not doing already, should your business look to implement it?

My business requires our suppliers to be certified – isn’t that supplier appraisal?

Many businesses use initial selection criteria when sourcing suppliers. This criteria can range from whether the supplier holds externally verified certificates (i.e. BS EN ISO) through to the size of volume of spend vs supplier turnover and increasingly in the world of corporate responsibility whether the supplier has appropriate social and environmental policies.

Using this form of selection criteria can offer companies a screening process which can ensure that appropriate suppliers are selected for RFP and product competitions. The selection criteria ensures that selected suppliers meet or comply with standards. However merely evaluating suppliers based on certificates held is not true supplier appraisal.

True appraisal can be defined as assessment of the proposed supplier and their capability of managing the supply requirement – this will typically include four factors

Quality
Price
Service
Delivery

The supplier appraisal will typically take the form of an assessment or “score carding”. Criteria or rating requirements are established that can be combined into an overall score which can then be analyzed objectively against other suppliers.

Why should you evaluate suppliers?

Supplier appraisal is a helpful tool in de-risking the supply chain. If the supply of product fails, the buying organization may face serious consequences. Selecting the right supplier is a critical step in the purchasing process. Carrying out pre-contract appraisals should be considered good practice that helps to mitigate against continuity failures within the supply network.

Supplier appraisals are not just for the pre-contract phase however and can be used as part of ongoing supplier management and development strategies.

Benefits of using Supplier appraisals post contract award

There are various benefits to utilizing appraisal post contract award – these include ensuring the supplier retains the capacity and capability for supply. Another prominent reason to use post-contract supplier appraisal is to continually monitor performance (cost, quality and delivery) identifying any performance issues that may exist. Supplier evaluation/appraisal should be considered an essential tool in performance and cost management.

What should be measured in a supplier evaluation?

As stated, typically most organizations will focus on four main critiera in pre contract assessments these are

Cost
Quality
Delivery
Service.

In light of recent developments regarding corporate responsibility this may be appended with sustainability/Green buyingrequirements.

For pre-contract appraisal this may be further appended through adding

Performance
Capability (in line with any expansion requirements).

The weighting of each element may vary from industry to industry and company to company and indeed product to product. In some organization e.g. Pharmaceuticals quality is likely to be of optimum importance. In FMCG where quality and delivery are considered a given – cost may become a priority.

Building a model on which to appraise suppliers?

Luckily supplier appraisals don’t have to be over complicated however they require some thought and communication. The first step is to define your assessment criteria. The criteria should be communicated to the supplier (which must clearly understand requirements and how measurements will be made) an audit carried out and assessments made. For post contract appraisal this may mean regular ongoing assessments.

Summary

Supplier appraisal and evaluation is a key tool, which can be utilized both in the pre-contract phase in selecting supplies to source from and also in the post-contract phase in assessing performance.
The model used in the assessment is just that a tool that can be adapted for each organization and one that pays particular attention to their key business drivers. By placing close attention to supplier selection you are far more likely to manage the total cost of the transaction (not just the initial purchase price!).
Finally – post contract supplier evaluation activities are fantastic for improving communication between suppliers and buyers and represent and ideal opportunity to seek out and deploy improvement initiatives.