Successful supplier relationships require two-way information, recommendations, metrics and incentives, says Pat Leemputte, director of consulting firm Bridge Strategy Group. He suggests manufacturers adopt the following strategies to manage suppliers throughout a contract's life:
- Understand the cost and value of the entire supply chain. Without a thorough understanding of all costs, from raw materials through the end product or service, and the value provided by each supplier in the process, a supplier cannot be evaluated.
- Realize that supplier strategies go two ways. Most companies focus on what suppliers can do for them rather than on what they can do with the supplier to lower costs. A true partnership leverages the total production cost to both parties' advantage.
- Accept accountability. Companies should plan sufficiently in order to request orders from suppliers with acceptable lead time and without multiple changes. If every order requires emergency handling, the relationship will never work.
- Incorporate appropriate service levels and metrics into agreements. A relationship based on a handshake is far more likely to encounter problems than one in which expectations are clearly established and agreed upon.
- Spend equal time aligning incentives and penalties. It is natural to worry about the worst case, such as if a shipment is not received and a plant grinds to a halt. Conversely, the extra value created when production and asset utilization is optimized should be the basis of improving the value proposition for both parties.
Share critical information as early as possible. Information is the grease that makes an integrated supply chain work. Waiting to share critical volume and timing information with suppliers can create lost business for the company or excess inventory and added costs for suppliers. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship.
Top 10 Supply Chains of 2009
3. Procter & Gamble
5. Cisco Systems
7. Wal-Mart Stores
8. Samsung Electronics
10. Toyota Motor
Source: AMR Research
- Plan for everyday exceptions. Sometimes emergencies will occur, especially in complex, multiparty supply chains. Agree ahead of time how emergencies will be handled and analyze why they occur so that the number of emergencies is minimized.
- Plan for major contingencies. Unavoidable events that stress the supply chain should be planned and practiced. Some industries, such as utilities, implement plans for natural disasters. Every supply chain strategy requires similar foresight and joint planning so that disruptive events can be managed smoothly.
- Expect and reward honesty. As in personal relationships, the best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur.
- Make relationship meetings meaningful. Companies often hold formal quarterly meetings without appropriate representation in which the vast majority of time is spent on information best provided through other communication forums. Instead, relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship.