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!
Jul
20
Delivering benefits from closer collaboration between suppliers and customers can not only strengthen the links between them so that the relationship between the supplier and the customer is one of mutual trust, but it can also deliver tangible benefits of efficiency. Here’s our top 10 benefits for closer supplier collaboration.
Best Practice Shared: Collaboration results in best practice being shared throughout the supply chain. All those within the supply chain are aware of what is required. There is a real understanding of what the goods supplied will be used for and what causes problems within the supply chain.
Fewer defects: The sharing of best practice also results in improvements being made on a continuous basis, thereby reducing the instances of waste or poor value. Goods that are defective or substandard are simply not supplied, which in turn drives down any ‘glitches’ within the supply chain.
Improved communication: Communication is a direct result of closer collaboration with suppliers. For them to be aware of the requirements that the customer has, there has to be communication.
Suppliers get to have a voice: The collaborative approach requires communication to be two way, with suppliers being able to report any problems to the customer and hopefully they can then work together to ensure that these are eliminated.
Continuity of supply: The process of managing supply chain risk improved because the supplier is able to plan effectively for the future. Due to operating within an exceptionally competitive market, there is always a risk that the supplier will not survive, especially if they have cash flow problems. However the collaborative approach means that the supplier will be able to plan for the future, knowing what share of the market they will be able to retain or even expand into, with reasonable accuracy.
Improved stability: Stability within the supply chain cannot be overestimated. Any supply chain that is unstable will have stock outs, will have an inability to meet sudden peaks in demand and ultimately will not provide a good service to the customer. So collaboration helps to stabilise the supply chain in a way that was almost unimaginable only a few years ago within the Western World, although such stability had long been achieved in the Japanese car industry.
Flexibility: The closer the collaboration between suppliers and customers ensures that the supply chain can meet any peaks or troughs in demand. The flexibility of approach can actually make a huge difference to the customer. They will be able to take on new contracts with little notice or they will be able to withstand periods of low demand, simply by working in a close relationship with their suppliers.
Reduction in costs: The reduction of defects and the time saved within the supply chain means that the supplier is able to lower the costs of goods supplied, which is a benefit to the customer but also helps the supplier to keep afloat and stay competitive. Collaboration can be an good driver for cost reduction
A mutually beneficial relationship: Whereas in the past, the relationship was between supplier and customer was adversarial and the supplier was often seen as being wholly dispensable. The supplier knew that this was how they were viewed, so they had no interest in responding flexibly, they knew they could be replaced within a matter of days. Now they could be replaced, but both parties recognise that there is a vested interest in them both working together.
An optimistic future: The final benefit of closer collaboration with suppliers has to be the potential for expansion and new opportunities that are presented when the supplier and the customer find that working collaboratively makes them a very strong team!