Supplier Development

Supplier development
• Supplier development is broadly defined as any activity that a buying firm undertakes to improve a supplier’s performance and capabilities to meet the buying firm’s supply needs • Buying firms use a variety of activities to improve supplier performance including:
– – – –

Assessing suppliers’ operations Providing incentives to improve performance Instigating competition among suppliers Working directly with suppliers

Strategic Importance of Supplier Development
 When a supplier is incapable of meeting the buying firm’s needs, the buying firm has three alternatives:
1.Bring the outsourced item inhouse and produce it internally 2.Re-source with a more capable supplier 3.Help improve the existing supplier’s capabilities

Results of Supplier Development
 When suppliers become proficient at new technologies, improve their quality or delivery performance, or improve their own supply management systems, they create cost savings that benefit both themselves and the end customer  The improvements also create an example for other members in the supply chain that can

Best Practices in Supplier Development
 Create dedicated supply development teams  Teach a supplier how to develop itself after initial guidance from the supplier development team  Focus on underlying causes of long cycle times  Focus on wasteful activities in all supplier efforts  Involve suppliers in new product and process development at the

 Provide training programs and training time to suppliers  Provide education programs offline that go beyond training  Provide improvement focused seminars for suppliers  Provide tooling and technical assistance to suppliers  Provide supplier support centers  Loan executives, such as process engineers and quality managers

• Drive fear out that a supplier’s workforce may have towards supplier development programs • Set “stretch goals” to encourage radical change as well as continuous improvement • Improve accounting systems to enable measurement of improvements •

• Share the savings from the development improvements • Encourage suppliers to contribute to improving processes at the buyer’s facilities • Provide a feedback loop for suppliers to help encourage supplier development efforts • Improve the supplier’s supply

Supplier Development Process
• • • • • • • Initiating the Project Mapping and Measuring Developing the Process Achieving Results Controlling the Process Recognizing the Team

Initiating the Project
• In the first phase, the main activities are to:
– Develop and confirm a preliminary supplier development charter – Define the supplier’s processes – Assess the customer’s needs – Assess the business environment

Mapping and Measuring
• • • • • • • Map / Analyze Supplier Processes Identify Process Metrics Collect Baseline Data Analyze Baseline Data Document the Baseline

Developing the Process
 Developing the process requires a project implementation plan that includes:
– activities required to complete the project – expected completion time of the activities – project milestones – resources assigned to activities – Expected completion time of the project

 The plan is used to track and

• The following critical activities occur during this phase:
– Create Solutions – Select Solutions – Develop New Process – Plan Implementation

Achieving Results
 The project team executes the implementation plan  A new, lean process is implemented  Relevant personnel are made available to assist  Direction and resources are provided by champions  Project progress is communicated  Documentation is created for clarity and consistency

Controlling the Process
• Ongoing metrics are defined • A closed-loop corrective action procedure system is installed to review the process • Gaps in performance are addresses • Performance is continuously improved • The control plan ensures that activities in the process are

Recognizing the Team
• Activities should be organized to promote the success of the project • The team shares the lessons learned and best practices with the supplier’s organization • Project results may be published internally to share with the rest of the supply chain • Formal events may be organized

Barriers to Supplier Development
 Poor communication and feedback  Complacency  Misguided improvement objectives  Credibility of customers  Misconceptions regarding purchasing power  Lack of clarity and commitment  Lack of a unified approach

Barriers to Supplier Development
         Concealment of problems Initiative fatigue Resource limitations “Blame the supplier” culture Lack of trust Confidentiality issues Legal issues Imbalance of power in the relationship

What is Supplier Quality Management?
• Supplier Quality Management is the process of measuring, analyzing and managing supplier performance for the purpose of mitigating risks, reducing costs, improving quality and driving continuous improvement, as to have adequate quality supplier to produce quality product and service and avoid unnecessary

World-class suppliers

Three traits of world-class suppliers
• Competitive price, quality, and lead times are just the opening antes in the supply game. To be considered world-class, suppliers must excel in these key areas:  1 Continuous improvement: World-class suppliers have a formal and proven

•2 Technology and innovation: Worldclass suppliers are technology leaders in their respective industries, providing customers with nextgeneration

• 3 Adaptability: World-class suppliers are willing to invest in new equipment, develop new technologies, and rework their business to better support the strategies of their customers.

How to raise top-notch suppliers
 World-class suppliers have certain attributes and a mindset that sets them apart from the rest of the pack. While much of this is a reflection of the supplier's business management and strategies, purchasing has a hand in developing world-class suppliers. Here's how:  Be a tough scout: Research and audit suppliers' performance and

• Establish expectations: Lay out performance goals and other expectations for suppliers early in the relationship. • Watch closely: Continually measure supplier performance to established goals. Communicate measurement results with suppliers on a regular basis.

 Offer assistance when needed: Sometimes even world-class suppliers get off track. When they do, buyers need to provide training or guidance.

 Reward good deeds: Provide suppliers with incentives to do their best. These include: v long-term contracts, v new business top-performers, and v gain-sharing for those suppliers that beat performance targets.  

World wide sourcing process
• International sourcing approach differs from company to company. The step-by-step procedure to be followed in global sourcing is discussed below:

Identify items that qualify for worldwide sourcing:
 Companies should select items for foreign purchase considering the cost benefit, quality excellence, superior technology, customer responsiveness and product features.  Items available from multiple sources are good candidates for selection. The volume should justify to go for global sourcing. Items with high product life cycle are also considered for

Gather information about global sourcing:
 After identifying items to source world wide, a company must gather and evaluate information about potential suppliers.  Internet plays a very important role for gathering information about the potential suppliers. Trade centres conduct exhibitions. These become important source for identifying potential source. Trading companies can be approached for assistance. Most of these companies have a long history of trade and have the expertise to

Ø International trade experts also can be utilized for getting information about the potential suppliers. Other potential sources include Ø trade journals and Ø sale catalogs Ø yellow pages for a country,

Supplier source Evaluation:
 Evaluation is key in locating correct supplier globally. Enough care should be taken in evaluating the identified potential suppliers for awarding contract.  The foreign suppliers should be subjected to the same standard of evaluation as applicable to domestic suppliers. The aspects like vstability of price, vinventory holdings,

vability to assist in new designs, vquality system established in the company, vlead time requirements, vextend of relationship that could be established with the company, vtrust worthiness of the supplier and vimpact of foreign relation with the domestic suppliers have to be examined and evaluated for selecting the supplier.

Awarding the contract
v After identifying the qualified supplier globally, the purchaser can obtain the details from the supplier. In case if the foreign source is not competitive, the domestic supplier can be selected alternatively. If foreign supplier is proved to be competitive, then the buyer can establish contact with the foreign supplier and obtain details regarding terms and conditions. After negotiating with the supplier, a formal purchase order detailing the contract can be issued to the supplier. Once order is issued, the supplier can be subjected to performance for continuous improvement.