Purchasing Partners

Treating suppliers with respect can mean a healthier bottom line and better quality.

When Eberhard Scheuing thinks of a vendor, he thinks of someone working at a hot dog cart in New York.

"You walk up to the vendor, ask for a hot dog, pay for it and walk away," says Scheuing, professor emeritus at St. John's University. "In business you do not want a vendor -- you want a supplier that can bring creative ideas to your business."

Scheuing and Peter O'Reilly, chair of ISM Services Group, presented a collaborative purchasing strategies session at this year's annual Institute for Supply Management (ISM) conference in Las Vegas. The session, Making Suppliers Greater Strategic Stakeholders Within Purchasing Organizations, highlighted several ways that manufacturers can foster supplier relationships.

The first step in the process is to understand spend patterns within your organization.

Surprisingly, only a handful of session attendees know how much total spend their organizations log each year. And only a few more know exactly which departments are responsible for the most spend.

"You need to know where the focus is, and you need to leverage that information," says O'Reilly.

Thirty suppliers or less get 80% of procurement dollars at a majority of organizations, according to Scheuing.

With so much money going in so few directions, it makes sense to improve the flow of information between suppliers and the purchasing department.

Another tactic is to host strategic supplier councils. Invite several key suppliers (even competitors) to offer feedback and share goals for the coming year. The objectives of the council are cost reductions and process improvements. End the session by recognizing and rewarding stellar suppliers.

"The best tool in council is giving a supplier a $50 plaque," says O'Reilly. Also, keep an ongoing honor roll plaque in your office to encourage healthy competition among suppliers.

To really show respect toward suppliers, Scheuing suggests naming an impartial supplier ombudsman to correct wrongdoing (e.g., favoritism, conflict of interest, improper bidding procedures).

"A company I spoke with received complaints [from suppliers] and they took the complaints seriously," said Scheuing. "They fired six buyers because the complaints were justified."

Another way to foster the relationship is to offer suppliers constructive feedback via supplier performance scorecards.

"It's easy to give a good score to suppliers," says O'Reilly. "But if a supplier scores under 80, how you deliver that news is important. Suppliers want to know how they screwed up. If you can't tell them what they did wrong, you won't fix the problem. You want them to improve so you need to give them specific examples."

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