Jul
20
Can a supplier rely on your business too much?
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This may seem an odd question after all if your supplier is heavily dependent on your business, then surely they will move heaven and earth to ensure that they meet your needs. From a superficial point of view this seems a very fortuitous position to be in. After all, when things go wrong, then won’t they be able to put things right, simply because they do not want to lose your business?
Well that is one way of looking at it, but there are some issues that need to be considered before a proper answer can be put to this question.
One key issue that needs to be looked at is flexibility within the supply chain. For the supply chain to be efficient and effective it has to be flexible. Now undoubtedly your business will experience peaks and troughs in terms of demand. This will have a knock on effect in terms of your suppliers.
So sometimes you will want a whole heap of supplies, at other times you will want the bare minimum. Can a supplier who is dependent on your business cope with these fluctuations?
Although it is easy to say ‘Yes, because they will want the business’, it may not be as easy as this. For example, if the demand forecast has been that over the next three months your business will want 10,000 items, but in fact you only want 3,000, how will the supplier store the extra 7,000 items? They will have to keep them stored at the correct temperature, free from dampness, make sure that they are not stolen and so on and this will use up resources, which will eat into their profit margins. If they are dependent on your business then they will only be earning a fraction of what they should have been earning and are having to use up resources to store the extra items. This makes them extremely vulnerable in terms of being able to withstand long periods of low demand.
Conversely, can they cope with huge demand. If they are really dependent on your business and the projected forecast for demand was 10,000 items but suddenly you need 100,000 items, then can they suddenly produce these out of the air? If they had a large number of customers they may be able to ‘borrow’ from other orders and make up the deficit pretty soon, but if they are wholly or almost wholly, dependent on your business, then it can make them pretty inflexible.
From a clinically business point of view this inflexibility is not good in terms of the supply chain. The supply chain should be flexible and able to cope with fluctuations, since these changes in demand are actually inherent to any supply chain and as such need to be allowed for. Having suppliers who are dependent does not augur well in terms of flexibility.
Moreover the dynamics of the relationship need to be looked at. Within any good supply chain the dynamics need to be that of a mutually beneficial relationship, where each party is independent but working together on the basis of trust and respect. If the supplier is dependent on your business then they will be dependent on you; there is no getting away from this. This does not sit well with the concept of being mutually beneficial and the dynamics of the relationship are skewed somewhat.
It is almost like the saying ‘Don’t put too many eggs in one basket’. If a supplier has few customers and you provide much of their income, there has to be an issue about whether or not they can be flexible and accommodate your needs. So although there may be benefits in terms of the supplier being keen to help you, there are certainly some disadvantages as well.
Jul
20
For any supply chain to be effective it should be optimised, since if the supply chain is simply left to its own devices, it will quickly become inefficient and lose the ability to cope with sudden changes or problems that may surface.
Fundamental to any optimisation is ensuring that the supply chain is stable. This means that it should be able to provide goods in the format required, when they are required and in a condition that is satisfactory. That may sound very easy, but the reality is that it is actually quite difficult to do!
Optimising the networks involved are also important to the supply chain. This can involve looking at the different suppliers who are involved within the supply chain and then establishing a network of suppliers. This network is a means of communicating with suppliers and working through any problems with supplies. This communication is very much a 2 way communication, since it provides the suppliers with a platform to air any problems that they have and it provides you with the ability to address any problems with regard to supplier performance issues
Optimisation on a strategic level may involve looking at the different locations of suppliers (perhaps a global supply chain), their capacity for storage and how they can provide goods. One of the integral concepts of Lean thinking is that waste should be eliminated and if the goods have to be transported then there is waste, so this should be kept to an absolute minimum in order to save resources. So if suppliers are thousands of miles away, then is there any room for bringing them closer or appointing suppliers based within the locality?
From a practical point of view there may be opportunities to look at the design, so that the design can be altered to make it easier for the supply chain to supply parts needed for the finished articles. This may sound as if the supply chain is dictating design, but in fact it is adopting a holistic approach to design, so that the finished product is designed so that it will use the most appropriate items and will be durable and meet all quality control requirements.
Optimisation of the supply chain function should also involve some Supply chain management software or business to business applications being used. This could be using some sort of methodology including demand planning, vendor managed inventory systems etc. In a sense it does not matter which type of B2B applications are used, what matters is that the information between the supplier and the customer is maximised, so that both parties are aware of need and what demand is likely to be. This is more than simply networking with suppliers, this is about sharing sensitive information on a formal basis, with electronic data sharing being fundamental to a good working relationship.
Optimising the supply chain also requires good, mutually trusting relationships to be established with suppliers. There is no point in beating the supplier with a stick to get the goods delivered on time; rather you should simply aim to have a good relationship that will work well and bring benefits to both sides.
Establishing these types of relationships requires there to be a philosophic approach. All the barriers and obstacles to collaborative working need to be swept aside and there has to be a real drive to ensure that the supply chain is stabilised and optimised. This requires a shift in culture that can be quite difficult to achieve, but when the supply chain is optimised, the rewards are great, since the finished product will be produced and will meet quality control requirements with ease; no small feat….