Suppliers that don’t deliver on time are part of the everyday business landscape – while we all strive for 100% OTIF (“On time in Full”) – it doesn’t always happen which means we are often left with some suppliers that don’t make the grade. Faced with this situation how should we deal with such suppliers? It’s easy to say we wont deal with them again but that’s not always possible so you need an action plan.
Here’s 6 techniques to help you deal with poorly performing suppliers
1/ Set clear expectations and consequences
Firstly ensure that you have established your expectation e.g.
• Did your supplier know when you expected delivery and had they agreed to that date?
• Did all parties understand the shipping terms/delivery requirements/ship to location?
• Did the supplier understand what (if anything) would happen if deliveries were late? (e.g. financial penalties etc)
2/ Be prepared to interrogate
Talk to your supplier – find out what went wrong – communication is key to understand the issues and to ensure you don’t suffer from them again – simply leaving it and hoping for the best next time could spell disaster
3/ Understand the route cause
Why did the supplier fail to deliver on time – was it manufacturing processes, failure to procure parts on time? Find out the key contributory factor. If your going to be using the supplier on a regular basis – understanding what went wrong and ensuring a fix is put in place is imperative.
4 / Provide feedback on performance
Regularly communicate out to your suppliers and tell them what you believe their delivery performance is (be prepared for some difference of opinion!) – ensure that as part of this communication you state what your expectation is.
5/ Be prepared to take criticism if your part of the problem
If you have process issues be prepared for your supplier to place some of the blame on you – try to put things into perspective – understanding the issues on ALL sides is crucial if your going to improve things – don’t expect the supplier take all the criticism if they are not entirely to blame – ensure that if you do have issues you have appropriate plans to fix them.
6/ Follow up
Have regular reviews – if you have a poorly performing supplier – and you have identified the issues – follow up regularly to ascertain what improvements are being made and how they are impacting results. Consider having periodic business reviews where you can assess the trends and tailor improvement activity accordingly.
3 tips on using Pareto for Supply Chain
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The Pareto Principle is a tried and tested management technique that aids you in decision making by using the 80/20 principle. What’s the 80/20 principle? It is an idea that a limited number of activities/causes can generate 80% of the value/issues
Some examples –
- 20% of your customers generate 80% of the revenue
- 20% of your products cause 80% of the customer complaints
- 20% of your sales force generate 80% of the sales
- 20% of a bill of materials will account for 80% of the total part cost
Used correctly this technique helps you focus – with laser like precision on the facts that matter – Pareto can be used almost everywhere and anywhere and Supply Chain professionals can really benefit from its application.
The principle behind how you use Pareto is fairly simple – in our example we’re investigating late deliveries by our suppliers – we have 600 suppliers and we have their annual deliveries, their late deliveries and we’ve calculated a percentage late figure – we’ve created a table of the results formatted as below .
| Supplier Name | Total Deliveries | Late Deliveries | % late | Cumulative % late |
| ABC Inc | 1000 | 200 | 20% | 3.6% |
Carrying out Pareto Analysis
First gather you data and summarise (as in the above example)
- Sort your table in descending order of the issue your investigating (in our example by number of Late Deliveries)
- Add a Cumulative % column for your issue
- On your table/list draw a line at 80%
- The Items in your list which add up to the 80% are typically the primary causes the ones between the 80-100% are the less important causes.
3 Key uses of Pareto Principle in Supply Chain
Here’s our three top three tips where to use Pareto
1/ Improving your supplier delivery schedule adherence
As in our example above – Pareto is an excellent tool when analysing supplier performance and deciding on your management strategy – which suppliers to focus on and what route causes to eradicate.
2/ Applying appropriate inventory management controls through ABC Analysis
Applying Pareto principles and methods to your parts when conducting ABC analysis. All parts are not equal – you don’t manage 5 cent screws the same way as a $50,000 part different ordering and inventory management techniques. ABC is used as a method to segment your parts/inventory allowing you to manage each appropriately. Click here for more on ABC analysis
3/ Cost Savings initiatives
Using Pareto techniques to analyse cost drivers within your organization can help you focus on the key contributory factors such as Suppliers, Parts or Bill of material elements allowing you to focus your improvement activities on the parts that matter.
These are just 3 examples of how you can use Pareto in the supply chain – if you have your own thoughts please contribute in the comments section below.