Feb
15
Can You Be Too Tough on Suppliers?
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The mantra “customer is king” is a well known rule in customer relations. As they say the customer is always right, but in reality, as the supply chain is such an integral part of your system, can being too tough on suppliers be something that one should avoid?
Supplier management is an integral part of the methods and processes of modern enterprise. Current financial conditions and increasing compliancy requirements have placed many suppliers in difficult situations with unavailability of loans, strict environmental laws and so often impacting on performance. How the buying organization acts when faced with these problems can depend on a variety of factors.
Supplier relationship management (SRM) is a management strategy that works in collaboration between suppliers and customers to affect the maximum potential of the relationship. It addresses the need for a balanced control in a collaboration ensuring the achievement of agreed objectives (delivery/quality). A good Supplier relationship management practice reduces the supplier’s risk and ensures that your contract with the supplier is well maintained, resulting in consistent supply.
Supplier risk management, normally conducted by a separate entity, has been implemented by many successful organizations looking to better mitigate supply issues. Supplier risk management is achieved by assessing key variables and is an evolving discipline in operations management for manufacturers, retailers, financial services companies and government agencies where the organization is highly dependent on suppliers to achieve business objectives. This is true for firms that outsource many of their materials (e.g. buy them in). Risk comes from the fact that you do not directly control the outside firm. To compensate, you will need to have control and a certain degree of regulation for the supplying firm.
Supplier performance management is basically the gauge on how the supplier serves your interest. It denotes the efficiency and actual effectiveness of the supplier. These work by using scorecards to evaluate each supplier. These scorecards are then utilized as a feedback mechanism, allowing the suppliers and the buyers to adjust accordingly. They also are a tell-tale sign if you have to change suppliers or if you need to impose stricter quality control measures. This also tells the supplier exactly what you want, allowing them to make adjustments or hire extra personnel, if necessary.
Typical SCM will have three basic routes for suppliers at any one time – typically these are
1/ Develop
2/ Maintain
3/ Exit
These strategies can help determine the action you take with your suppliers based on their performance. Your situation may vary depending on the reliance of a particular supplier and your overall leverage. For example you may find yourself with a supplier that is a large supplier – perhaps an OEM/or sole source giving you little option to change – where your leverage is low you may struggle to get your voice heard where there are problems. Where you have greater leverage (your spend is more valuable to the supplier) you may find yourself in a more advantageous position for problem resolution. Whatever the case – its vital that you include performance requirements in your contracts providing you opportunity to hold suppliers accountable should the need arise.
It may be true, that for the supplier, you are the customer, and thus “king”. However, you must remember that there are other “kings” out there which they can serve. Demand and supply should be a mutually reciprocal activity (you both gain. Where problems occur your faced with a range of choices on how to manage the situation. Being either too lenient or too severe in times of challenge can result in an impact to the material supply adversely affecting your own business the key is to get the relationship right for both parties – sometimes easier said than done!
Feb
15
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.