Daily Archives: April 10, 2009

Supplier Relationship Management Best Practices

An article in the spring edition of the CPO Agenda addressed the issue of SRM in turbulent times. Noting that now is not the time to put efforts to develop stronger supplier relationships on the back burner, in addition to addressing the important issues of trust and being a good customer, it outlined some specific measures that you can take to improve your relationship.

As these measures were some of the best recommendations I’ve ever read in a traditional publication, I’m going to address them, and dive into the best ones.

  1. Accurate, Timely, Information (Exchange)
    There’s a reason they kept telling The PrisonerWe Need Information“. Simply put, you can’t effectively operate without it. And if you can’t effectively operate without it, how can you expect your suppliers to? Implement a web-based system that allows them to access what they need, when they need it. Insure that they get accurate, adequate performance metrics frequently, that design specifications for new products are complete and unambiguous, and that you provide them with realistic volume estimates for pricing new business.
  2. Realistic Cost Reduction Targets
    It’s okay to have stretch goals, but 20% cost reduction when commodities, energy costs, and labor costs are rising across the board may not be realistic. Work with the supplier to understand the process, the savings opportunities, and then set realistic targets. Also implement a program that shares the savings between you and your supplier in an equitable manner.
  3. Cost Avoidance Proposals Are Just As Good As Cost Reduction
    If your supplier comes up with a new process to produce the product that takes out certain production costs, or a new design that allows for cheaper materials to be used (without affecting performance or quality), that qualifies as a cost reduction.
  4. Provide Them With Lean Experts
    This will help both of you find ways to take waste, and cost, out of the system and demonstrate that you are committed to their success as well as yours.
  5. Provide The Supplier with Free Training
    Once you identify where they need improvement, give them the training they need to improve.
  6. Make It Clear That The Best Suppliers Get the Business
    This will reinforce the message that improvement will result in more business, and more profit.
  7. Align Purchasing And Engineering Expectations
    Nothing risks a good relationship more than forcing a supplier to be a referee when there are internal conflicts in your company when it comes to requirements.
  8. Fairly Compensate Suppliers When You Don’t Meet Your End of the Agreement
    If you cancel a program, fail to meet expectations, or change the requirements, don’t try to weasel out of your end of the agreement and force the supplier to bear the brunt of sunk costs. Pay for your mistake, or award them the new contract with an increased profit margin to allow them to make up their losses.