In discussions about how to improve operational performance or product quality, a very important item is often neglected: Supplier Management. Buyers identify good suppliers in the market, taking into account cost, service and quality, and then sign supply contracts and their part is done. Now the challenge lies with the manufacturing/production area.
Supplier management should not be limited to just the purchase stage. The “purchasing” team can and should be more active throughout the production process. The active management of suppliers can produce surprising results. Here are some practical tips to help you achieve this.
1. Involve upper management in the process
The first step (and one of the most important) in the process is to involve upper management. This implies aligning supplier performance targets with corporate targets within your business plan. Regardless of the focus of your targets, whether reducing costs, developing new technologies, new markets or optimizing productivity, you first need to approach management and present a compelling initial plan. If upper management is involved, it is more likely to assist in resource allocation, thus ensuring that targets are met.
2. Develop a measurement system
The most advantageous opportunities arise from good communication between the expected and achieved results. Based on this premise, when suppliers realize that you are monitoring them daily, they will respond more quickly to you. Improving supplier performance over the long term occurs via a clear, easy-to-understand daily dashboard with only a few key performance indicators (KPIs). Instead of measuring twenty things daily, select a few basic areas, such as delivery or quality, and display them for all suppliers to see. Suppliers normally have a lot of customers to keep satisfied and the one that communicates their standards and monitors them daily will attract their full attention. With this system up and running, you are on the right track to improving long-term supplier performance.
3. Define what you expect from the supplier and report it
Permanent measurement systems with annual reviews are a good option. This scorecard of performance indicators should cover all important critical areas, such as supplier response capacity, service evaluation, product management and sales support. The point is to tell the supplier exactly what makes you happy and what you want. Developing a set of unique requirements for each vendor instead of generic scorecards can also be productive. It can involve a little more work, but in the long run, its effectiveness can be more than double. Suppliers have a harder time dodging you when targets are customized. This scorecard serves as the daily dashboard, complementing the previous item, providing the supplier and the customer with clearly defined standards and responsibilities.
4. Analyze your purchasing and supply chain management practices
A proper analysis will focus on known strengths and weaknesses, identifying the organizational changes required to remedy the identified gaps. To get the most out of an internal review, it must be thorough, sincere, honest and realistic. Compare your organization to other companies or similar operations and look for areas of complacency and opportunities for improvement. And if you really want an unbiased assessment, consider outside help.
5. Implement a team approach for supplier management
In using a team approach, all functional areas responsible for various aspects of supplier performance are brought together under a central work structure. In these teams, buyers are usually team leaders. Depending on how big and complex the supply chain is, quality, logistics, planning, engineering and other groups are brought into the team structure. To function well, these teams must be permanent. These should not be temporary assignments to work on and meet a set of short-term targets. On the contrary, team members should share supplier management targets and plans. In other words, members learn and work together to improve suppliers. The complexity of modern supply chains demands more resources than most purchasing organizations have, but the gains from using this team approach are enormous.
6. Provide ongoing training for your team
Most companies are negligent when it comes to basic training on internal systems, practices and long-term supplier improvement strategies, or even basic industry standards. This translates into a loss of efficiency of as much as 30% compared to the productivity of highly trained teams. Improving supplier performance means knowing how to approach suppliers, demonstrating an understanding of their operations, systems and practices, and helping them to attain new levels of achievement. Training should focus on what you need from a supplier and how to get it.
7. Know your key suppliers well
When I say know your key suppliers well, I do not mean just auditing the supplier every year or two and filing the report. Your teams should visit suppliers regularly. The more they know about the supplier and their role in the supply process, the greater the chances for identifying opportunities in terms of costs, quality, delivery, new product development and sustainable supply chain performance. Some purchasers do not leave their desks, except to go to the reception area to greet a supplier coming for a meeting. For greater efficiency, purchasers should be encouraged to travel and carry out a practical management of suppliers.
8. Develop best practice policies among suppliers
Look for good ideas and share them among the supplier base. This may not be very common, but it is a practice among some of the best companies in the world, and once they gather relevant information from a supplier, they use it to improve the rest of their supply base. Obviously, you should disregard proprietary practices, but the concepts are always valid. Priority should not always be the performance of your internal systems, but rather the performance of supplier systems.
9. Align the number of suppliers you manage with your resources
The amount of resources used for managing suppliers is an account that is hard to reconcile in most organizations. You can only effectively manage a finite number of suppliers with a well-defined and practical approach. To manage suppliers productively, you need to have sufficient staff using performance measurement tools and modern resources from other areas. If this is not possible, reduce the supply base to a manageable level, ensuring that it is compatible with your available resources.