If your company manufactures a product and has a supply base, then implementing and executing a supplier development program is vital to setting your company up for long-term success. Not only will a supplier development program produce better overall costs in the long run, but it’ll also give you a trusted partner to do business with.
Creating a plan and process on day one with your team, along with new team members in the future, will be the key to sustaining a successful supplier development program. And because this trusted partner, a true supply partner, will understand every facet of your business – pricing and commercial requirements, quality requirements, shipping requirements, etc. – incentivizing your procurement team to properly develop suppliers should be the number one priority.
This can be achieved by replacing your team’s “supplier” mindset with a “supply partner” mentality, emphasizing the importance of total cost of ownership, supplier performance, and growing and nurturing supplier relationships. Reward your team for how many suppliers they develop, not just for finding the most inexpensive sourcing option.
8 Advantages of Supplier Development
As defined by the Chartered Institute of Procurement & Supply:
Supplier development is closely related to supplier relationship management and is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organization.
There are many different approaches to successful supplier development, whether they be through a structured program or informal company initiates or processes so it’s important to note that each organization is different and supplier development methods should be tailored accordingly.
Supplier development may be carried out through the purchasing department or through the quality department depending on organizational structure, but as long as there’s a development program of some sort in place and buy-in from the appropriate team members and managers, then your company should be in a good position to succeed.
Below are eight advantages to implementing and executing a well-designed supplier development program, ultimately leading to better overall supplier relationships:
1) Full transparency between organization and supplier
2) Improved collaboration between organization and supplier
3) Streamlined and reduced sourcing activities and lead times
4) Improved quality, manufacturability, and reliability for new designs
5) Increased supplier responsiveness
6) Increased customer satisfaction
7) Increased awareness of supplier diversity
8) Increased visibility of full supply base to procurement, quality, and even management departments
Emphasize the Long Term
Since modern procurement practices began, it has been customary to teach, incentivize, and reward professionals based on their annual savings or cost avoidances, rewarding the lowest costs attained. While cost will always be a leading factor in today’s age, we need to be more conscious of the bigger picture when evaluating suppliers and move away from the “lowest cost, best option” mindset.
While the lowest cost sourcing option may offer up the most savings in the short term, it won’t necessarily be the lowest cost option for the long term. Consequently, it’s essential to analyze the total cost of an opportunity; quality suppliers commonly get passed up early on in a sourcing decision because most procurement professionals only focus on cost.
This makes it crucial for procurement executives to advise their teams to think long term and look at the bigger picture of an opportunity. For example, while a low piece cost does give one a mighty shot of adrenaline, it should also raise questions to the “other” costs that’ll come up as a “surprise” later on in the relationship.
I understand that it may be difficult to fight your “lowest cost” instinct, but I urge procurement executives and management to incentivize their teams based on a group of factors, including the number of suppliers they develop, and not just by attaining the lowest cost.
Supplier development programs need to be a major focus of organizations who manufacture products and have a supply base because they lead to better overall relationships with suppliers and will improve communication, quality, and timing as a result.
Teaching, incentivizing, and rewarding your procurement team to develop suppliers is of the utmost importance to your organization, and keep in mind that cost should only be a small factor in the entire sourcing equation. Direct your team to develop suppliers by analyzing the total cost of ownership, identifying and maintaining supplier performance metrics, and growing strategic partnerships through transparent communication. Your organization needs strategic partners, or allies, not suppliers, and certainly not just the suppliers with the lowest up-front costs.