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!