SUPPLIER DEVELOPMENT

NAZMUN NAHAR
RATIONALIZATION AND OPTIMIZATION:
SUPPLY BASE
Effective supplier management and development begins by
determining an optimal number of suppliers that an organization
should maintain. Supply base rationalization is the process of
identifying how many and which suppliers a buyer will maintain. Supply
base optimization involves an analysis of the supply base to ensure that
only the most capable suppliers are kept in the supply base as it is
rationalized. It often involves eliminating those suppliers that are
unwilling or incapable of achieving supply management performance
objectives, either currently or expected in the near future.
ADVANTAGES
• Buying from World-Class Suppliers
• Use of Full-Service Suppliers
• Reduction of Supply Base Risk
• Lower Supply Base Administrative Costs
• Lower Total Product Cost
• Ability to Pursue Complex Supply Management Strategies
DISADVANTAGES
• Supplier Dependency
• Absence of Competition
• Supply Disruption
• Overaggressive Supply Reduction
Approaches to Supply Base Rationalization
• Twenty/Eighty Rule
• “Improve or Else” Approach
• Triage Approach
• Competency Staircase Approach
Process Map for Supplier Development
• Identify Critical Commodities for Development
• Identify Critical Suppliers for Development
• Form Cross-Functional Development Team
• Meet with Supplier’s Top Management Team
• Identify Opportunities and Probability for Improvement
• Define Key Metrics and Cost-Sharing Mechanisms
• Reach Agreement on Key Projects and Joint Resource Requirements
• Monitor Status of Projects and Modify Strategies as Appropriate
BARRIERS TO SUPPLIER DEVELOPMENT
• Buyer-Specific Barriers
• Low volume
• Low importance of purchased items
• Lack of support of employees
• No immediate benefit
• Buyer-Supplier Interface Barriers
• Reluctant to share info
• Confidential info
BARRIERS TO SUPPLIER DEVELOPMENT
• Lack of trust
• Organizational cultural differences
• Supplier-Specific Barriers
• Lack of commitment
• Fail to implement suggestions
• Lack engineering resources
• Lack of employee skills
• Unconvinced of benefits from development
• Read Chapter 9
• Case study 4: Book page 106-107
Best practices in diverse supplier development