Dealing with poor performing suppliers
Filed Under Blog
In most organizations there is a heavily reliance on bought in goods and materials – typically these are transformed through various processes into the finished product for the customer. Poor performing suppliers can have a significant impact. But how should you manage suppliers that don’t perform as expected.
What constitutes a poorly performing supplier?
The expectation that the buyer has with the supplier is that
a) Communication is straight forward and effective
b) Commitments in terms of delivery promises and product quality are met
c) Problems and issues are dealt with swiftly
Poor performing suppliers can wreak havoc in a business from halting assembly lines through to impacting customer satisfaction with common challenges such as poor delivery schedule adherence, poor quality.
Putting things right
The first step is to understand what the problem is – don’t be subjective and with robust analysis of the data determine the extent of the problem
For example where the supplier is deemed to be delivering late – it’s important that this can be proved beyond reasonable doubt – how many shipments were due in – how many arrived – what percentage failed and what was the impact of the failure on the buying business?
Route cause Analysis
The central theme of any improvement activity must be to understand the cause of the problem. In the case of a poorly performing supplier don’t be surprised if some of the blame doesn’t rest with the buying organization.
For example with regard to poor delivery performance
• are you buying within leadtime (i.e. leadtime is 6 weeks and you want it in 2)
• What is the demand signal from the buyer to the selling company
• Is there any ambiguity over the due date for the products
• Has there been any waiting time for the product to be booked into the system
Its not surprising that DSA (Delivery Shcedule Adherance) is often a cause for much debate between companies, you’ll often find that when the two bring their statistics to be compared that they’ll give different results.
Whatever the problem find out what’s driving it – and then understand what fixes need to be put in place to prevent a repeat occurance
Develop, Sustain or Exit?
With any supplier there is a choice not to use them anymore. Performance should be one of the contributory inputs into the supplier management program which will typically have three routes for suppliers
• Develop – develop the relationship between the business and possibly increase levels of orders
• Sustain – sustain current business level but do not award new products
• Exit – Exit the supplier and do not use
Clearly for poor performing suppliers where there is competition in the marketplace – exiting a supplier is a very powerful tool
During your improvement activity you should be clear with the supplier what the potential outcomes of the activity will be – this may facilitate the appropriate behaviour from the supplier!
Regular Supplier appraisal
The key to supplier performance is regular reviews, and the introduction of action plans where appropriate. However most organizations will have several hundred (if not more) suppliers so formal reviews with each supplier may not be practical so consideration of criticality and spend will usually determine which suppliers will be engaged.
This list can be reviewed based upon feedback from appropriate performance measures with suppliers being added or removed accordingly.
Introduction to make buy decision
Filed Under Blog
Companies are typically faced with the choice of whether to buy in parts required for the products they sell (either complete or part assembled) or manufacture the items internally (in house) – this ‘choice’ is referred to as a make buy decision. Where the decision has been made to buy in the item, its more commonly called outsourcing,
When are make buy decisions made
Make buy decisions are prompted for a variety of reasons – these commonly include:
• Design changes resulting in increased capability needs
• Cost of manufacture
• Business core competencies / competitive advantage
• Value add activity by 3rd parties
• Problems with the supply chain
• Market trends
• Criticality of the part
• Complexity of the part
• Quality issues
• Capacity issues
• Commodity strategies
Make buy decisions take in a variety of inputs as part of the decision making process – robust data/information and a strategic view should be seen as imperative. Various stakeholders will usually be involved in the decision making process although it is usually a combination of operational and strategic executives that will have the final say (the mix will change on the value and importance of the parts in question).
Where organizations have focused on maximizing their value add to their customer – an increasing number have looked to procure further up the value chain (allowing them to focus on their own core competency) moving from buying individual parts to completed sub-assemblies, these have the advantage of being delivered to the production line for use and streamlining the overall process.
Make buy decisions can become very emotive and undoubtedly there are always pro’s and con’s on both sides in defining and agreeing what an organizations core competence are – this is especially true where labor relations might be included in the variables.
While one of the major decision factors in make buy is cost, it should not be looked at in isolation. In developing a make buy decision the team behind it are commonly producing a business case and as such the long term total acquisition costs should be considered – for example when outsourcing – considering the logistics costs as well as non cost related variables such as the impact on lead time, impact to internal labor rates, competitive advantage, strategic positions are equally important.
More and more firms have become to realize the strategic value of make buy decisions and the impact it can have on the overall business and its key drivers (labour, core competency etc). Formal procedures are essential in delivering accurate decisions and these should be supported by appropriate authority levels (i.e. who can make decisions about what parts). Formal procedures should also include relevant guidance on the periodicity of review.