Why do we need supplier development? | by Elaine Porteous

Continuity of supply is vital to the smooth operation of our supply chain, any disruption resulting from poor quality, late delivery issues or equipment failure can have dire consequences. It is not only an economic necessity to ensure that our key suppliers are able to fulfil our in-bound requirements; we must work in collaboration to identify how we can improve or expand their capabilities for mutual benefit.

Supplier development means working actively with those identified suppliers that can add value to our business. The main aim is to improve the suppliers’ capabilities around technical quality, delivery and cost containment. The developing trend is towards buyers helping suppliers to find ways to add value and innovate rather than try to trim cents from their cost base. Buyers need to encourage their main suppliers to find better supply routes, ways to improve their service offering, and by creating new products.

In South Africa, in addition, there is the statutory requirement to satisfy the business’s BBBEE scorecard but that should not be the prompt to drive supplier improvements.

Approaches to supplier development

There is no single method of implementing a supplier development program. What is required, though, is that the program should be in line with and support the procurement and contracting strategy in the buying organization. Success is dependent upon both parties working together on a joint agenda towards a common goal.

The Chartered Institute of Purchasing and Supply (CIPS) provides guidelines on how to make a start. CIPS suggests that “a reasonable way to begin would be to identify those products, goods and services which are procured from critical and strategic suppliers and to decide how these should be improved. The supplier's performance against agreed criteria must be measured in order to identify the scope for development at the outset and, once the development process has started, to monitor and manage the improvement”.

Being pro-active in this way provides scope for economic benefit and it also pre-empts operational problems in the supply chain. If an organization only deals reactively with supplier problems as they occur, the potential for developing a sustainable partnership and making mutual gains is severely lessened and may lead to an unhealthy combative relationship.

The growth of small, medium and micro enterprises (SMMEs) is a defined strategy of the South African Government to develop the local economy and create jobs. Corporates are required to embrace this initiative which benefits the nation and in turn provides options and diverse new sources of supply.

Benefits of supplier development initiatives

Recent reports of supplier failures and quality issues have brought this issue into clear view. Textile suppliers with health and safety transgressions, motor vehicle recalls and meat labelling have highlighted reputational risk as well as financial loss. Being aware of the potential damaging issues within key suppliers and monitoring them on a continuous basis is now more than a nice-to-have.

The consulting firm, AT Kearney, identifies the key elements of an effective supplier development program:

       Establish, define, and govern the relationship.

       Observe, monitor, improve, and sustain operations.

       Transfer technology and lend financial support.

       Train management and their workforce.

       Enforce environmental and social compliance.

       Identify and mitigate all sources of risk.

To achieve success, however, requires:

 • Mutual trust and understanding

• Good open channels of communication

• A joint approach to managing service delivery

Understanding the business culture at the supplier helps to reduce tension and promotes harmony.

Measuring supplier performance

Reliable and accurate data can inform decisions on both sides and lead to better use of assets and resources. Set up a method of exchanging good quality information on a pre-defined calendar that both parties agree to. Measuring performance against pre-agreed criteria identifies the scope for monitoring and managing improvements. Poor, limited or erroneous information can cause delays, issues and disputes.

Ten tips to follow in supplier development:

1.  Develop a plan - Make a decision about how much capacity and time you realistically have to focus on supplier development.

2.  Gain agreement from the supplier to work together - Approach the identified supplier and discuss how you work together in a collaborative way that will benefit you both.

3.  Share information - Measure performance against agreed criteria as this identifies the scope for monitoring and managing improvements.

4.  Work together to develop new products or services - Explore this area to see how you can harness the technology and services that they supply to others and to your competitors.

5.  Develop capacity by training suppliers -Your suppliers will perform better if they understand how your business operates. You may have to assist in expanding their technical knowledge.

6.  Explore better use of their resources - It is in your interests to ensure that the supplier is sustainable and continues in business.

7.  Encourage supplier quality certification - Developing a supplier also includes encouraging them to attain the highest level of certification.  This could include technical, quality, environmental and safety accreditations.

8.  Deal with issues promptly - Problems ignored can fester and grow. Aim to prevent problems as well as resolve them.

9.  Manage the contract - Clear administrative procedures ensure that all parties to the contract understand who does what, when and how.

10.  Document everything

Elaine Porteous is a Senior Associate of Bespoke - www.bespokesourcing.co.za
Posted on June 20, 2013

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