During both my corporate and consulting days, I worked extensively with supplier development functions for Original Equipment Manufacturers. In my experience, the term “supplier development” is often misapplied.
What do I mean by this? Over half of the supplier development departments I became familiar with didn’t really develop suppliers!
You may then ask, “If they didn’t develop suppliers, then what did they do?”
Well over half of the corporate supplier development functions I became familiar with over my career operated in the following manner:
1. They focused on identifying new suppliers that would satisfy federal government sourcing requirements that require 23% of contracting work to small business, and 5% of that to economically or socially disadvantaged owners, rather than on developing individual suppliers.
2. They did very little in the area of supplier evaluation. In other words, they didn’t really do due diligence on whether the suppliers they identified could actually support the minimum capability requirements of their OEM customer. As a result, a large percentage of these suppliers have start-up problems when they actually get to the point of supplying product.
3. Bully buyers to start sourcing with these suppliers. And I’m serious in using the term “bully.” When I was a technical buyer, I regularly received threats from supplier development that if I didn’t source with the suppliers they had identified, they would bring the issue up to the vice-president level. As part of this they would ask “what are the capabilities that you think this supplier is lacking?” This question, of course, couldn’t be answered since they hadn’t done due diligence on the supplier, and we hadn’t worked with them before, I had to be concerned about all of their capabilities.
I also found that supply development departments that did focus on developing suppliers had little focus other than in piece-price reduction. I, of course, understand the importance of lowering material costs (having served in corporate executive-level supply management positions) but this tends to put the supplier development function in a" box," relative to the impact it can have on maximizing the positive financial impact a supplier can have on their customers.
Specifically, if price reduction is the primary focus, developing suppliers will not be tied to having a positive impact on OEM executive-level performance metrics, but will only (maybe) have an impact on material variance.
Such supplier development departments seldom have a standard approach to developing their suppliers other than through a vague and general sense of lean. This leads to inconsistent results. Of course, that approach should be tied to the executive-level metrics referenced above.
The acid test for whether supplier development function is actually effective in developing suppliers (and a supply chain) is “Has anyone in the organization noticed the supply chain’s positive impact on the company’s financial results?” Unfortunately, the answer to this question is typically “No.”
In my upcoming book. Better Business: Breaking Down the Walls of the Purchasing Silo, I go into depth on the strategies and processes of an effective supplier development function.
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.