BUILDING RAPPORT WITH SUPPLIERS
1. SUPPLIER PARTNERING RELATIONSHIPS
Surveys indicate that suppliers are judged to be more important today than just a decade ago. In a recent survey, 90% of purchasing managers agree with this statement and 70% of design engineers also agree. Also 60%
of engineers view purchasing’s role on their design team as more important.
While in times of extreme cost competitiveness, there may be a temptation for some buyers to force suppliers into unreasonable concessions, genuine long-range concern about materials availability should balance any such tendency. Improvement is needed, not simply in good supplier relationships, but also in the broader “supplier partnering” concept—a shared responsibility of the buying and selling companies to meet the final customer’s needs.
“Supplier partnering” is the term being used today to indicate closer cooperation between buying and selling companies to achieve joint benefits.
In this context, the suppliers are viewed as an integral part of the product or service delivery process. Partnering is not just meeting a buyer’s stated immediate requirement. It is also providing new products, new methods, and new materials to improve quality and keep costs low. The competent buyer will use the suppliers’ manufacturing processes, product development and research to improve supplier productivity. One proven approach is to invite key suppliers to scrutinize competitive parts or items, where the aim will be to mutually identify cost reductions or quality improvements.
A type of partnering agreement used primarily for maintenance, repair and operating (MRO) items is the systems contract explained in Chapter 16.
This is an agreement to supply all of a family of goods, at a specific level of price or discount. The goal is to save purchasing time and paperwork, reduce inventory throughout the system, improve the flow of goods, and still achieve best pricing. The relationship should include performance measurements, improvement targets and regular progress reviews.
Many in the field have asserted the advantages of partnering. Several companies with successful experience have indicated the following benefits to the trading partners from such arrangements20:
Ongoing cost reductions Quality improvements
Shorter design cycle times of 50-75%
Increased operating flexibility
Greater value for the end customer – including faster response to changing needs
Jordan D. Lewis, The Connected Corporation The Free Press, 1995, page 3
20
Greater leverage of new technologies
Increased competitiveness by combining strategies of supplier and customer
Strategic supplier partnering provides a competitive edge to improve not simply supplier relationships, but also the broader shared responsibility to meet your company’s needs. As expected, there are some problem areas that both partners report. One is the failure to treat partnering type agreements any different from other deals. Another is failure to study the needs of the other party, and how each will change to help the partner.
As previously stated, partnering is not just meeting a buyer’s requirements. There should be projects to improve quality, reduce cycle time (and therefore lead time) and reduce cost. There should also be joint design efforts between the engineers of both buyer and seller, looking for cost reduction or quality improvements. What’s in it for suppliers? Benefits sought by suppliers are higher production volume, long-term contracts, and access to better information on changes to production plans.
About half those who practice partnering bring suppliers into their product planning process early on. This practice is consistent with concurrent engineering emphases, and often focuses on projects aimed at value analysis (VA) improvements.
A “certified supplier” is a supplier that meets or exceeds your company’s accreditation standards. This may be based on the company’s rating system defined earlier. Reward consistent outstanding performance with certified supplier status along with increased business volume if suppliers continue to perform well! Certified suppliers should feel confident to invest to keep up with the “state-of-the-art” as they have assurance they have a partnership that will not lead to being dropped without good grounds.
These services could be provided as rewards by the buying company to its suppliers who achieve certified status:
Long-term contracts
Manufacturing engineering support Quality control assistance
Productivity gains in support of other sales Forecasts to aid in capacity and staff planning Investment in facilities and equipment
Access to favorable terms with raw material suppliers
Many astute supply management organizations have taken certification to the next level and have attempted to identify the attributes of a preferred supplier, that is a supplier that has earned the right to be considered first
when new business opportunities arise. A summary of the most commonly mentioned of these attributes follows:
Offers the products and services needed Meets quality and delivery requirements
Acknowledges the need for continual improvement (CI) Demonstrates an ability to make improvements
Is willing to share gains with customers
Similarly, sellers have discussed the merits of selling to customers who are interested in building a production long-term relationship. They have identified certain attributes of the preferred customer:
Has significant requirements for the products or services supplier offers Is demanding, but realistic in quality and delivery expectations
Expects continual improvement and is willing to participate in CI project work
Provides resources and support for CI efforts
Provides benefits to the supplier from the relationship
By working with suppliers to correct deficiencies all the way back to their operation and production processes, the buyer can assist in improving production yield. In turn, this should provide cost savings to the buyer.
1.1 Implications to the supply organization
Good supplier relationships are of paramount importance to every purchasing manager. Those suppliers are also potential buyers of the buying company’s products, so it makes good sense to keep relationships with any supplier as cordial as possible even if the company has never made any purchase whatsoever. People who are friendly toward a buyer will often go to bat for her, perhaps by taking steps to help meet a tough but necessary delivery date or by locating a source for hard-to-get material. As a contact point and showcase for a company, purchasing definitely affects the corporate image; that corporate image will depend on the image created by the buyers, and no amount of public relations will overcome any bad impression they may make.
There are certain areas of the purchasing function that should be given special attention—those friction areas where no hard-and-fast rules can be applied. Tact and goodwill often are the only tools available to management in its constant efforts to promote cordial and effective supplier and trade relationships, especially in cases where public criticism and controversy hit hard at purchasing policies.
There is a natural friction and stress in the buyer/seller relationship based on the inherent nature of the acquisition process. Consider these very real opposing forces that lead to such friction.
Achieving good relationships isn’t simply a matter of avoiding conflicts.
While it is mandatory that buyers follow the law, we cannot dictate the world’s moral or ethical posture. (We can, however, set a good example.) The idea is to use the inherent power in the buying job tactfully and ethically.
Some lost sales may be traced to something that happened to upset the buyer/seller relationship. Some salesmen claim they are shut out of a certain company because the buyer is a friend of a competitor. A friendly, intelligent salesman is of great value to any company, but a buyer cannot afford to buy on friendship alone. In exchange for the money spent on behalf of the company, buyers should expect to receive products or services with a commensurate value. Both parties must profit.
Behavioral scientists have shown that strength and weakness are mirror images. As such, the qualities that make buyers valuable in some situations are often their greatest obstacle in others. A buyer doggedly persists in a cost reduction, and may be successful, but if not, may stubbornly persist and antagonize valuable suppliers. Another senior buyer’s quiet confidence in troubled times may make him the choice to run the department. Then he turns out to be a poor manager because of failure to communicate effectively.
Many buyers allow salespeople to call repeatedly without the slightest possibility that they will be interested in their products based on the company’s needs. It is only fair to advise the salesperson at the earliest moment. Honesty pays off in the long run! Give the reasons why, rather than let them believe that without a change in circumstances they can one day be of service.
An opportunity to explain your company’s needs, product requirements, and specific applications arises when a new salesperson visits. This will open a door through purchasing, and the salesperson will soon sense what channels of communication are likely to be most profitable. This is the time to advise what is expected and how the company buys. It is also an excellent occasion to begin cultivating good supplier relationships.